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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

(Mark One)

☒

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

For the fiscal year ended December 31, 2020

or

☐

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

Commission File Number 0-26850

 

PREMIER FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

 

 

OHIO

 

34-1803915

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

601 Clinton Street, Defiance, Ohio

 

43512

(Address of principal executive offices)

 

(Zip code)

 

Registrant’s telephone number, including area code: (419) 782-5015

 

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

 

Common Stock, Par Value $0.01 Per Share

PFC

The NASDAQ Stock Market

(Title of Class)

(Trading Symbol)

(Name of each exchange on which registered)

 

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

None

(Title of Class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes ☐ No ☒

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

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

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

 

Large accelerated filer

☐

 

Accelerated filer

☒

 

Non accelerated filer

☐

 

Smaller reporting company

☐

 

Emerging growth company

☐

 

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

The aggregate market value of the voting stock held by non-affiliates of the registrant computed by reference to the closing price of such stock as of June 30, 2020, was approximately $648.8 million.

As of March 4, 2021, there were issued and outstanding 37,273,303 shares of the registrant’s common stock.

Documents Incorporated by Reference

Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for the 2021 Annual Meeting of the registrant’s shareholders.

 

 

 

 

 

Premier Financial Corp.

Annual Report on Form 10-K

Table of Contents

 

 

 

Page

PART I

 

3

Item 1.

Business

3

Item 1A.

Risk Factors

19

Item 1B.

Unresolved Staff Comments

26

Item 2.

Properties

26

Item 3.

Legal Proceedings

27

Item 4.

Mine Safety Disclosures

27

 

 

 

PART II

 

28

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

28

Item 6.

Selected Financial Data

30

Item 7.

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

31

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

45

Item 8.

Financial Statements and Supplementary Data

47

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

108

Item 9A.

Controls and Procedures

108

Item 9B.

Other Information

108

 

 

 

PART III

 

109

Item 10.

Directors, Executive Officers and Corporate Governance

109

Item 11.

Executive Compensation

109

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

109

Item 13.  

Certain Relationships and Related Transactions, and Director Independence

109

Item 14.

Principal Accounting Fees and Services

109

 

 

 

PART IV

 

110

Item 15.

Exhibits, Financial Statement Schedules

110

Item 16.

Form 10-K Summary

110

 

 

 

SIGNATURES

 

111

 

2

 

PART I

Item 1. Business

Premier Financial Corp. (“Premier” or the “Company”) is a financial holding company that, through its subsidiaries, Premier Bank (the “Bank”), First Insurance Group of the Midwest, Inc. (“First Insurance”),  First Defiance Risk Management Inc. (“First Defiance Risk Management”) and HSB Capital, LLC (HSB Capital”) (collectively, “the Subsidiaries”), focuses on traditional banking and property, casualty, life and group health insurance products. Another subsidiary, HSB Insurance, Inc. (“HSB Insurance”), was dissolved during the quarter ended September 30, 2020.  

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

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

The Company’s operating objectives include expansion, diversification within its markets, growth of its fee-based income, and growth organically and through acquisitions of financial institutions, branches and financial services businesses. The Company seeks merger or acquisition partners that are culturally similar, have experienced management and possess either significant market area presence or have the potential for improved profitability through financial management, economies of scale and/or expanded services. The Company regularly evaluates merger and acquisition opportunities and conducts due diligence activities related to possible transactions with other financial institutions. As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving cash, debt or equity securities may occur. Acquisitions typically involve the payment of premiums over book and market values and, therefore, some dilution of the Company’s tangible book value and net income per common share may occur in any future transaction.

On June 22, 2018, the Company announced a stock split in the form of a share distribution of two common shares for each outstanding common share.  The stock split was distributed on July 12, 2018, to shareholders of record as of July 2, 2018.  All share and per share data in this Form 10-K have been adjusted and are reflective of the stock split.

Premier’s website, www.yourpremierfincorp.com, contains a hyperlink under the Investor Relations section to EDGAR, where the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge as soon as reasonably practicable after Premier has filed the report with the U. S. Securities and Exchange Commission (“SEC”).

The Company’s principal executive offices are located at 601 Clinton Street, Defiance, Ohio 43512, and its telephone number is (419) 782-5015.

The Subsidiaries

The Company’s core business operations are conducted through its subsidiaries:

Premier Bank:  The Bank was a federally chartered stock savings bank headquartered in Defiance, Ohio until the effective time of the Merger. At the effective time of the Merger, the Bank converted to an Ohio state-chartered bank headquartered in Youngstown, Ohio.  The Bank conductes operations through 78 full-service banking center offices, 12 loan offices and two wealth offices in Ashland, Belmont, Colmbiana, Cuyahoga, Defiance, Erie, Franklin, Fulton, Geauga, Hancock, Henry, Huron, Lake, Lucas, Mahoning, Marion, Ottawa, Paulding, Portage, Putnam, Richland, Seneca, Stark, Summit, Trumbull, Warren, Williams, Wood, and Wyandot counties in Ohio, Allegheny and Beaver Counties in Pennsylvania, Allen County in northeast Indiana, Mongolia County in West Virginia, Lenawee County in southeast Michigan and Ann Arbor, Michigan.

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 the State of Ohio and its political subdivisions, mortgage-backed securities that are issued by federal agencies, including real estate mortgage investment conduits (“REMICs”) and residential 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.

First Insurance Group of the Midwest:  First Insurance is a wholly-owned subsidiary of Premier that conducts business throughout Premiers’s markets. First Insurance offers property and casualty insurance, life insurance and group health insurance.

3

 

First Defiance Risk Management: First Defiance Risk Management is a wholly-owned insurance company subsidiary of the Company that was formed to insure the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace.  First Defiance Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions to help minimize the risk allocable to each participating insurer.

HSB Capital: HSB Capital provides mezzanine funding for customers of the Bank. Mezzanine loans are offered by HSB Capital to customers in the Company’s market area and are expected to be repaid from the cash flow from operations of the borrowing businesses.

HSB Insurance: HSB Insurance was a captive insurance company that insured against certain risks that were unique to the operations of UCFC and its subsidiaries.  The Merger and the existence of Premier Risk Management obviated the need for this subsidiary and the subsidiary was dissolved during the quarter ended September 30, 2020, with the remaining funds being returned to Premier, its sole shareholder.

Business Strategy

Premier’s primary objective is to be a high-performing, community-focused financial institution, well regarded in its market areas. Premier accomplishes this through emphasis on local decision making and empowering its employees with tools and knowledge to serve its customers’ needs. Premier believes in a “Customer First” philosophy that is strengthened by its Mission & Vision and Core Values initiatives. Premier also has a tagline of “Powered by People” as an indication of its commitment to local, responsive, personalized service. Premier believes this strategy results in greater customer loyalty and profitability through core relationships. Premier is focused on diversification of revenue sources and increased market penetration in areas where the growth potential exists for a balance between acquisition and organic growth. The primary elements of Premier’s business strategy are commercial banking, consumer banking, the origination and sale of single-family residential loans, enhancement of fee income, wealth management and insurance sales, each united by a strong customer service culture throughout the organization.  The Company previously recognized the need to adapt its organization structure to meet certain future strategic objectives and to continue its past success.  The Company believes that fully utilizing the strengths of its leadership team and a structure that supports strategic initiatives will enhance its ability to achieve even more objectives in the future.  As such, the Company previously redefined its market areas designed to support strategies to enhance processes and efficiencies to support overall growth.  That structure included three metro markets in Toledo, Ohio, Fort Wayne, Indiana, and Columbus, Ohio in addition to its two legacy markets (Southern Market Area and Northern Market Area).  As a result of the Merger, the Company has added three new metro markets: the Mahoning Valley, Akron/Canton and Cleveland markets.

Commercial and Commercial Real Estate Lending - Commercial and commercial real estate lending have been an ongoing focus and a major component of the Bank’s success. The Bank primarily provides commercial real estate and commercial business loans with an emphasis on owner-occupied commercial real estate and commercial business lending, including a focus on the deposit balances that accompany these relationships. The Bank’s client base tends to be small to middle market customers with annual gross revenues generally between $1 million and $50 million. The Bank’s focus is also on securing multiple guarantors in addition to collateral where possible.  These customers require the Bank to have a high degree of knowledge and understanding of their business in order to provide them with solutions for their financial needs. The Bank’s “Customer First” philosophy and culture complement the needs of its clients. The Bank believes this personal service model differentiates the Bank from its competitors, particularly the larger regional institutions. The Bank offers a wide variety of products to support commercial clients including remote deposit capture and other cash management services. The Bank also believes that the small business customer is a strong market for the Bank. The Bank participates in many of the Small Business Administration lending programs. Maintaining a diversified portfolio with an emphasis on monitoring industry concentrations and reacting to changes in the credit characteristics of industries is an ongoing focus.

Consumer Banking - The Bank offers customers a full range of deposit and investment products including demand, checking, money market, certificates of deposits, Certificate of Deposit Account Registry Service (“CDARS”) and savings accounts. The Bank offers a full range of investment products through the wealth management department and a wide variety of consumer loan products, including residential mortgage loans, home equity loans, and installment loans. The Bank also offers online banking services, which include mobile banking, People Pay (“P2P”), online bill pay, and online account opening as well as the MoneyPass ATM Network offering access to our customers to over 32,000 ATMs nationwide without a surcharge fee.

Fee Income Development - Generation of fee income and the diversification of revenue sources are accomplished primarily through the mortgage banking operation, First Insurance and the wealth management department as Premier seeks to reduce reliance on retail transaction fee income.

Deposit Growth - The Bank’s focus has been to grow core deposits with an emphasis on total relationship banking for both our retail and commercial customers. The Bank’s pricing strategy considers the whole relationship of the customer. The Bank continues to focus on increasing its market share in the communities it serves by providing quality products with extraordinary customer service, business development strategies and branch expansion. The Bank will look to grow its footprint in areas believed to further complement its overall market share and complement its strategy of being a high-performing community bank.

4

 

Asset Quality - Maintaining a strong credit culture is of the utmost importance to the Bank. The Bank has maintained a strong credit approval and review process that has allowed the Company to maintain a credit quality standard that balances the return with the risks of industry concentrations and loan types. The Bank is primarily a collateral lender with an emphasis on cash flow performance, while obtaining additional support from personal guarantees and secondary sources of repayment. The Bank has directed its attention to loan types and markets that it knows well and in which it has historically been successful. The Bank strives to have loan relationships that are well diversified in both size and industry, and monitors the overall trends in the portfolio to maintain its industry and loan type concentration targets. The Bank maintains a problem loan remediation process that focuses on detection and resolution. The Bank maintains a strong process of internal control that subjects the loan portfolio to periodic internal reviews as well as independent third-party loan review.    

Expansion Opportunities - Premier believes it is well positioned to take advantage of acquisitions or other business expansion opportunities in its market areas, as evidenced by the Merger. Premier believes it has a track record of successfully accomplishing both acquisitions and de novo branching in its market area. This track record puts the Company in a solid position to enter or expand its business. Premier will continue to be disciplined as well as opportunistic in its approach to future acquisitions and de novo branching with a focus on its primary geographic market area, which it knows well, and has been competing in for a long period of time, as well as surrounding market areas.

Securities

During 2020, Premier’s securities portfolio was managed in accordance with a written policy adopted by the Board of Directors and administered by the Investment Committee. The Chief Financial Officer, Treasurer, President and the Chief Executive Officer can each approve transactions up to $3.0 million. Two of the three officers are required to approve transactions between $3.0 million and $25.0 million. All transactions in excess of $25.0 million must be approved by the Bank’s Asset Liability Committee (“ALCO”).

Premier’s securities portfolio is classified as either “available-for-sale” or “held-to-maturity.”  In addition, Premier did hold equity securities totaling $1.0 million at December 31, 2020 which must be marked to market through the income statement.  Securities classified as “available-for-sale” may be sold prior to maturity due to changes in interest rates, prepayment risks, and availability of alternative investments, or to meet the Company’s liquidity needs.

The carrying value of securities at December 31, 2020, by contractual maturity is shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

Contractually Maturing

 

 

Total

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Under 1

 

 

Average

 

 

1 - 5

 

 

Average

 

 

6-10

 

 

Average

 

 

Over 10

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

Year

 

 

Yield %

 

 

Years

 

 

Yield %

 

 

Years

 

 

Yield %

 

 

Years

 

 

Yield %

 

 

Amount

 

 

Yield

 

 

 

(Dollars in Thousands)

 

Mortgage-backed securities

 

$

—

 

 

 

—

 

 

$

—

 

 

 

—

 

 

$

5,137

 

 

 

2.81

%

 

$

265,546

 

 

 

1.47

%

 

$

270,683

 

 

 

1.50

%

CMOs - residential

 

 

—

 

 

 

—

 

 

 

1,098

 

 

 

1.88

%

 

 

19,298

 

 

 

2.26

%

 

 

83,136

 

 

 

2.23

%

 

 

103,532

 

 

 

2.23

%

U.S. government and federal

   agency obligations

 

 

250

 

 

 

0.10

%

 

 

5,753

 

 

 

1.53

%

 

 

22,842

 

 

 

1.55

%

 

 

10,388

 

 

 

2.09

%

 

 

39,233

 

 

 

1.68

%

Asset-backed securities

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,901

 

 

 

0.72

%

 

 

25,742

 

 

 

0.79

%

 

 

30,643

 

 

 

0.78

%

Obligations of states and

   political subdivisions

 

 

853

 

 

 

4.04

%

 

 

8,992

 

 

 

3.50

%

 

 

33,713

 

 

 

3.01

%

 

 

186,087

 

 

 

2.27

%

 

 

229,645

 

 

 

2.43

%

Corporate bonds

 

 

8,553

 

 

 

1.85

%

 

 

2,001

 

 

 

1.41

%

 

 

33,272

 

 

 

4.31

%

 

 

—

 

 

 

—

 

 

 

43,826

 

 

 

3.70

%

Total

 

$

9,656

 

 

 

 

 

 

$

17,844

 

 

 

 

 

 

$

119,163

 

 

 

 

 

 

$

570,899

 

 

 

 

 

 

$

717,562

 

 

 

 

 

Unrealized gain on securities

   available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,092

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

736,654

 

 

 

 

 

 

5

 

The carrying value of investment securities is as follows:

 

 

 

December 31

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

40,940

 

 

$

2,524

 

 

$

2,503

 

Obligations of state and political subdivisions

 

 

237,518

 

 

 

95,439

 

 

 

99,887

 

CMOs and mortgage-backed securities

 

 

383,481

 

 

 

173,384

 

 

 

178,880

 

Asset-backed securities

 

 

30,546

 

 

 

—

 

 

 

—

 

Corporate bonds

 

 

44,169

 

 

 

12,101

 

 

 

12,806

 

Total

 

$

736,654

 

 

$

283,448

 

 

$

294,076

 

Held-to-maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

—

 

 

$

—

 

 

$

51

 

Obligations of state and political subdivisions

 

 

—

 

 

 

—

 

 

 

475

 

Total

 

$

—

 

 

$

—

 

 

$

526

 

 

For additional information regarding Premier’s investment portfolio, refer to Note 5 – Investment Securities in the Consolidated Financial Statements.

Residential Loan Servicing Activities

Servicing mortgage loans for investors involves a contractual right to receive a fee for processing and administering loan payments on mortgage loans that are not owned by the Company and are not included on the Company’s balance sheet. This processing involves collecting monthly mortgage payments on behalf of investors, reporting information to those investors on a monthly basis and maintaining custodial escrow accounts for the payment of principal and interest to investors and property taxes and insurance premiums on behalf of borrowers. At December 31, 2020, the Company serviced loans totaling $2.9 billion in principal. The vast majority of the loans serviced for others are fixed rate conventional mortgage loans. The Company primarily sells its loans to, and then services for, Freddie Mac, Fannie Mae and the FHLB.  

As compensation for its mortgage servicing activities, the Company receives servicing fees, usually approximating 0.25% per annum of the loan balances serviced, plus any late charges collected from delinquent borrowers and other fees incidental to the services provided. In the event of a default by the borrower, the Company receives no servicing fees until the default is cured.  Loan servicing fees decrease as the principal balance on the outstanding loan decreases and as the remaining time to maturity of the loan shortens.

Lending Activities

General – Financial institutions are limited in the amount of loans they may make to one borrower.  At December 31, 2020, the Bank’s limit on loans-to-one borrower was $106.9 million.

Loan Portfolio Composition – The net increase in net loans receivable over the prior year was $2.7 billion for 2020, mainly due to the Merger, $234.6 million for 2019 and $189.7 million for 2018. The loan portfolio contains no foreign loans. The Company’s loan portfolio is concentrated geographically in the northwest, northeast and central Ohio, northeast Indiana, northeast West Virginia, western Pennsylvania and southeast Michigan market areas. Management has identified lending for income-generating rental properties within commercial real estate as an industry concentration. Total loans for income-generating rental property totaled $1.9 billion at December 31, 2020, which represents 33.1% of the Company’s loan portfolio.

6

 

The following table sets forth the composition of the Company’s loan portfolio by type of loan at the dates indicated.

 

 

 

December 31

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

 

(Dollars in Thousands)

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

$

1,201,051

 

 

 

20.5

%

 

$

324,773

 

 

 

11.3

%

 

$

322,686

 

 

 

12.1

%

 

$

274,862

 

 

 

11.1

%

 

$

207,550

 

 

 

10.2

%

Commercial real

   estate

 

 

2,383,001

 

 

 

40.8

%

 

 

1,506,026

 

 

 

52.4

%

 

 

1,404,810

 

 

 

52.7

%

 

 

1,235,221

 

 

 

50.1

%

 

 

1,040,562

 

 

 

51.1

%

Construction

 

 

667,649

 

 

 

11.4

%

 

 

305,305

 

 

 

10.6

%

 

 

265,772

 

 

 

10.0

%

 

 

265,476

 

 

 

10.8

%

 

 

182,886

 

 

 

9.0

%

Total real estate loans

 

 

4,251,701

 

 

 

72.7

%

 

 

2,136,104

 

 

 

74.3

%

 

 

1,993,268

 

 

 

74.8

%

 

 

1,775,559

 

 

 

72.0

%

 

 

1,430,998

 

 

 

70.3

%

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,202,353

 

 

 

20.6

%

 

 

578,071

 

 

 

20.1

%

 

 

509,577

 

 

 

19.1

%

 

 

526,142

 

 

 

21.3

%

 

 

469,055

 

 

 

23.0

%

Home equity and

   improvement

 

 

272,701

 

 

 

4.7

%

 

 

122,864

 

 

 

4.3

%

 

 

128,152

 

 

 

4.8

%

 

 

135,457

 

 

 

5.5

%

 

 

118,429

 

 

 

5.8

%

Consumer finance

 

 

120,729

 

 

 

2.1

%

 

 

37,649

 

 

 

1.3

%

 

 

34,405

 

 

 

1.3

%

 

 

29,109

 

 

 

1.2

%

 

 

16,680

 

 

 

0.8

%

 

 

 

1,595,783

 

 

 

27.3

%

 

 

738,584

 

 

 

25.7

%

 

 

672,134

 

 

 

25.2

%

 

 

690,708

 

 

 

28.0

%

 

 

604,164

 

 

 

29.7

%

Total loans

 

 

5,847,484

 

 

 

100.0

%

 

 

2,874,688

 

 

 

100.0

%

 

 

2,665,402

 

 

 

100.0

%

 

 

2,466,267

 

 

 

100.0

%

 

 

2,035,162

 

 

 

100.0

%

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undisbursed loan

   funds

 

 

355,065

 

 

 

 

 

 

 

94,865

 

 

 

 

 

 

 

123,293

 

 

 

 

 

 

 

115,972

 

 

 

 

 

 

 

93,355

 

 

 

 

 

Net deferred loan

   origination fees

 

 

1,179

 

 

 

 

 

 

 

2,259

 

 

 

 

 

 

 

2,070

 

 

 

 

 

 

 

1,582

 

 

 

 

 

 

 

1,320

 

 

 

 

 

Allowance for credit losses

 

 

82,079

 

 

 

 

 

 

 

31,243

 

 

 

 

 

 

 

28,331

 

 

 

 

 

 

 

26,683

 

 

 

 

 

 

 

25,884

 

 

 

 

 

Net loans

 

$

5,409,161

 

 

 

 

 

 

$

2,746,321

 

 

 

 

 

 

$

2,511,708

 

 

 

 

 

 

$

2,322,030

 

 

 

 

 

 

$

1,914,603

 

 

 

 

 

 

In addition to the loans reported above, Premier had $221.6 million, $18.0 million, $6.6 million, $10.4 million, and $9.6 million in loans classified as held for sale at December 31, 2020, 2019, 2018, 2017 and 2016, respectively. The fair value of such loans, which are all single-family residential mortgage loans, approximated their carrying value for all years presented.

Contractual Principal, Repayments and Interest Rates – The following table sets forth the dollar amount of gross loans due more than one year from December 31, 2020, which have fixed interest rates or which have floating or adjustable interest rates.

 

 

 

 

 

 

 

Floating or

 

 

 

 

 

 

 

Fixed

 

 

Adjustable

 

 

 

 

 

 

 

Rates

 

 

Rates

 

 

Total

 

 

 

(In Thousands)

 

Real estate

 

$

1,622,624

 

 

$

1,576,784

 

 

$

3,199,408

 

Commercial

 

 

678,868

 

 

 

146,587

 

 

 

825,455

 

Other

 

 

111,646

 

 

 

4,304

 

 

 

115,950

 

 

 

$

2,413,138

 

 

$

1,727,675

 

 

$

4,140,813

 

 

Originations, Purchases and Sales of Loans – The lending activities of Premier are subject to the written, non-discriminatory underwriting standards and loan origination procedures established by the Board of Directors and management. Loan originations are obtained from a variety of sources, including referrals from existing customers, real estate brokers, developers and builders, newspaper, internet and radio advertising and walk-in customers.

The Bank’s loan approval process for all types of loans is intended to assess the borrower’s ability to repay the loan, the viability of the loan and the adequacy of the value of the collateral that will secure the loan.

A commercial loan application is first reviewed by a commercial lender and underwritten by a commercial credit analyst.   All loan requests must be presented for review or approval to a Credit Officer.  Credit Officers have loan authority that ranges from $3,000,000 to $10,000,000 depending on experience and relevant skill sets.  Requests in excess of $10,000,000 are adjudicated by Executive Loan Committee.  Market Area Presidents have lending authority of up to $1,000,000 but those loans are not permitted to be approved with exceptions.  

7

 

Residential mortgage applications are accepted by Mortgage Loan Officers or Sales Managers, who utilize an automated underwriting system to review the loan request. The Bank also receives mortgage applications via an online residential mortgage origination system. A final approval of all residential mortgage applications is made by a member of a centralized underwriting staff within their designated lending limits. Loan requests in excess or outside an individual underwriter’s limit are approved by a Regional or Chief Credit Officer and, if necessary, by the Executive Loan Committee.

Retail loan applications are accepted by sales managers, branch managers, retail bankers, and a select group of indirect auto dealers, who utilize an automated underwriting system to submit and review the loan request.  A final approval of all retail loan applications is made by a member of a centralized underwriting staff within their designated lending limits. Loan requests in excess or outside an individual underwriter’s limit are approved by the Director of Consumer Lending or Chief Credit Officer and, if necessary, by the Executive Loan Committee.

The Bank offers adjustable-rate loans in order to decrease the vulnerability of its operations to changes in interest rates. The demand for adjustable-rate loans in the Bank’s primary market area has been a function of several factors, including customer preference, the level of interest rates, the expectations of future changes in the level of interest rates and the difference between the interest rates offered for fixed-rate loans and adjustable-rate loans. The relative amount of fixed-rate and adjustable-rate residential loans that can be originated at any time is largely determined by the demand for each in a competitive environment.

Adjustable-rate loans decrease the risks associated with changes in interest rates, but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates.

The following table shows total loans originated, loan reductions, and the net increase in the Company’s total loans and loans held for sale during the periods indicated:

 

 

 

Years Ended December 31

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Loan originations:

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

$

1,129,751

 

 

$

358,970

 

 

$

282,109

 

Commercial real estate

 

 

491,060

 

 

 

341,207

 

 

 

349,916

 

Construction

 

 

306,021

 

 

 

112,344

 

 

 

184,631

 

Commercial

 

 

581,858

 

 

 

251,951

 

 

 

186,943

 

Home equity and improvement

 

 

86,740

 

 

 

60,268

 

 

 

58,918

 

Consumer finance

 

 

183,299

 

 

 

18,505

 

 

 

22,260

 

Total loans originated

 

 

2,778,729

 

 

 

1,143,245

 

 

 

1,084,777

 

Loans acquired in acquisitions

 

 

2,340,701

 

 

 

—

 

 

 

—

 

Loans purchased

 

 

—

 

 

 

—

 

 

 

—

 

Loan payoffs, sales and repayments

 

 

(1,943,026

)

 

 

(922,564

)

 

 

(889,464

)

Net increase in total loans and loans held for sale

 

$

3,176,404

 

 

$

220,681

 

 

$

195,313

 

 

Asset Quality

Premier’s credit policy establishes guidelines to manage credit risk and asset quality. These guidelines include loan review and early identification of problem loans to ensure sound credit decisions. Premier’s credit policies and review procedures are meant to minimize the risks and uncertainties inherent in lending. In following the policies and procedures, management must rely on estimates, appraisals and evaluations of loans and the possibility that changes in these could occur because of changing economic conditions.

8

 

Delinquent Loans — The following table sets forth information concerning delinquent loans at December 31, 2020, in dollar amount and as a percentage of Premier’s total loan portfolio. The amounts presented represent the total outstanding principal balances of the related loans, rather than the actual payment amounts that are past due.

 

  

 

30 to 59 Days

 

 

60 to 89 Days

 

 

90 Days and Over

 

 

Total

 

 

 

Amount

 

 

Percentage

 

 

Amount

 

 

Percentage

 

 

Amount

 

 

Percentage

 

 

Amount

 

 

Percentage

 

 

 

(Dollars in Thousands)

 

Residential real

   estate

 

$

433

 

 

 

0.01

%

 

$

7,669

 

 

 

0.14

%

 

$

9,000

 

 

 

0.17

%

 

$

17,102

 

 

 

0.32

%

Commercial real estate

 

 

1,033

 

 

 

0.02

%

 

 

369

 

 

 

0.01

%

 

 

844

 

 

 

0.02

%

 

 

2,246

 

 

 

0.04

%

Construction

 

 

—

 

 

 

0.00

%

 

 

1,626

 

 

 

0.03

%

 

 

806

 

 

 

0.01

%

 

 

2,432

 

 

 

0.04

%

Commercial

 

 

9

 

 

 

0.00

%

 

 

4

 

 

 

0.00

%

 

 

394

 

 

 

0.01

%

 

 

407

 

 

 

0.01

%

Home equity and

   improvement

 

 

3,440

 

 

 

0.06

%

 

 

839

 

 

 

0.02

%

 

 

1,137

 

 

 

0.02

%

 

 

5,416

 

 

 

0.10

%

Consumer finance

 

 

1,687

 

 

 

0.03

%

 

 

491

 

 

 

0.01

%

 

 

1,521

 

 

 

0.03

%

 

 

3,699

 

 

 

0.07

%

Purchase credit deteriorated

  ("PCD")

 

 

402

 

 

 

0.01

%

 

 

1,882

 

 

 

0.03

%

 

 

13,299

 

 

 

0.25

%

 

 

15,583

 

 

 

0.29

%

Total Loans

 

$

7,004

 

 

 

0.13

%

 

$

12,880

 

 

 

0.24

%

 

$

27,001

 

 

 

0.50

%

 

$

46,885

 

 

 

0.87

%

 

Overall, the level of delinquencies at December 31, 2020, increased from the levels at December 31, 2019, when Premier reported that 0.37% of its outstanding loans were at least 30 days delinquent. The level of total loans 90 or more days delinquent has increased to 0.50% at December 31, 2020, up from 0.21% at December 31, 2019. The level of total loans 60-89 days delinquent increased to 0.24% at December 31, 2020, up from 0.05% at December 31, 2019.  The level of loans that were 30 to 59 days past due increased to 0.13% at December 31, 2020, up from 0.11% at December 31, 2019.  Management has assessed the collectability of all loans that are 90 days or more delinquent as part of its procedures in establishing the allowance for credit losses.  Management believes the global pandemic plays a role in the increase seen in 2020.  

Non-performing Assets – All loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, the collectability of additional interest is not expected. Generally, Premier places all loans more than 90 days past due on non-accrual status. Premier also places loans on non-accrual status when the loan is paying as agreed but the Company believes the financial condition of the borrower is such that this classification is warranted. When a loan is placed on non-accrual status, total unpaid interest accrued to date is reversed. Subsequent payments are generally applied to the outstanding principal balance but may be recorded as interest income, depending on the assessment of the ultimate collectability of the loan. Premier considers a loan is individually evaluated when, based on current information and events, it is probable that it will be unable to collect all amounts due (both principal and interest) according to the contractual terms of the loan agreement. Premier measures impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral, if collateral dependent. If the estimated recoverability of the individually evaluated loan is less than the recorded investment, Premier will recognize impairment by allocating a portion of the allowance for credit losses on cash flow dependent loans and by charging off the deficiency on collateral dependent loans.  See Note 7 of the Notes to the Consolidated Financial Statements for additional information.

Real estate acquired by foreclosure is classified as real estate owned until such time as it is sold. Premier also repossesses other assets securing loans, consisting primarily of automobiles. When such property is acquired it is recorded at fair value less cost to sell. Costs relating to development and improvement of property are capitalized, whereas costs relating to holding the property are expensed. Valuations are periodically performed by management and a write-down of the value is recorded with a corresponding charge to operations if it is determined that the carrying value of property exceeds its estimated net realizable value. During 2020, Premier did not recognize any expense related to write-downs in value of real estate acquired by foreclosure or acquisition. The balance of real estate owned at December 31, 2020, was $343,000.  During 2019, there was $264,000 of expense related to write-downs in fair value of real estate acquired by foreclosure or acquisition.  The balance of real estate owned at December 31, 2019 was $100,000.  The increase in real estate owned is a result of the Merger.  

As of December 31, 2020, Premier’s total non-performing loans amounted to $51.7 million or 0.96% of total loans (net of undisbursed loan funds and deferred fees and costs), compared to $13.4 million or 0.49% of total loans, at December 31, 2019.  Non-performing loans are loans which are more than 90 days past due or on non-accrual.

9

 

The following table sets forth the amounts and categories of Premier’s non-performing assets (excluding individually evaluated loans not considered non-performing) and troubled debt restructurings at the dates indicated.

 

  

 

December 31

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in Thousands)

 

Non-performing loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

$

10,178

 

 

$

2,411

 

 

$

3,640

 

 

$

3,037

 

 

$

2,928

 

Commercial real estate

 

 

11,980

 

 

 

7,609

 

 

 

10,357

 

 

 

18,219

 

 

 

9,592

 

Construction

 

 

806

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial

 

 

1,365

 

 

 

2,961

 

 

 

4,500

 

 

 

8,841

 

 

 

1,007

 

Home equity and improvement

 

 

1,537

 

 

 

449

 

 

 

393

 

 

 

590

 

 

 

730

 

Consumer finance

 

 

1,624

 

 

 

7

 

 

 

126

 

 

 

28

 

 

 

91

 

Purchase Credit Deteriorated ("PCD")

 

 

24,192

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total non-performing loans

 

 

51,682

 

 

 

13,437

 

 

 

19,016

 

 

 

30,715

 

 

 

14,348

 

Real estate owned

 

 

343

 

 

 

100

 

 

 

1,205

 

 

 

1,532

 

 

 

455

 

Total repossessed assets

 

 

343

 

 

 

100

 

 

 

1,205

 

 

 

1,532

 

 

 

455

 

Total non-performing assets

 

$

52,025

 

 

$

13,537

 

 

$

20,221

 

 

$

32,247

 

 

$

14,803

 

Restructured loans, accruing

 

 

 

 

 

$

8,486

 

 

$

11,573

 

 

$

13,770

 

 

$

10,544

 

Total non-performing assets as a percentage of

   total assets

 

 

0.72

%

 

 

0.39

%

 

 

0.64

%

 

 

1.08

%

 

 

0.60

%

Total non-performing loans as a percentage of

   total loans*

 

 

0.96

%

 

 

0.49

%

 

 

0.75

%

 

 

1.31

%

 

 

0.74

%

Total non-performing assets as a percentage of

   total loans plus other real estate owned*

 

 

0.96

%

 

 

0.49

%

 

 

0.80

%

 

 

1.37

%

 

 

0.76

%

Allowance for credit losses as a percent

   of total non-performing assets

 

 

157.77

%

 

 

230.80

%

 

 

140.11

%

 

 

82.75

%

 

 

174.86

%

 

*

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

Allowance for credit losses – Premier maintains an allowance for credit losses to absorb probable current expected losses in the loan portfolio. The allowance for credit loss is made up of two components.  The first is a general reserve, which is used to record credit loss reserves for groups of homogenous loans in which the Company estimates the current expected credit losses in the portfolio based on quantitative and qualitative factors.  Premier adopted the current expected credit losses (“CECL”) accounting standard in 2020.  As a result current year credit loss and provision is not comparable to prior year allowance for loan loss data.  

The second component of the allowance for credit losses is the specific reserve in which the Company sets aside reserves based on the analysis of individual credits.  In evaluating the adequacy of its allowance each quarter, management grades all loans in the commercial portfolio.  See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations – Allowance for credit losses” for further discussion on management’s evaluation of the allowance for credit losses.

Loans are charged against the allowance when such loans meet the Company’s established policy on loan charge-offs and the allowance itself is adjusted quarterly by recording a provision for credit losses. As such, actual losses and losses provided for should be approximately the same if the overall quality, composition and size of the portfolio remained static along with a static economic environment. To the extent that the portfolio grows at a rapid rate or overall quality or the economic environment deteriorates, the provision generally will exceed charge-offs. However, in certain circumstances, net charge-offs may exceed the provision for credit losses when management determines that loans previously provided for in the allowance for credit losses are uncollectible and should be charged-off or as overall credit or the economic environment improves. Although management believes that it uses the best information available to make such determinations, future adjustments to the allowance may be necessary, and net earnings could be significantly affected, if circumstances differ substantially from the assumptions used in making the initial determinations.

10

 

At December 31, 2020, Premier’s allowance for credit losses totaled $82.0 million compared to $31.2 million at December 31, 2019. The following table sets forth the activity in Premier’s allowance for credit losses during the periods indicated.

 

 

 

Years Ended December 31

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

 

(Dollars in Thousands)

 

Allowance at beginning of year

 

$

31,243

 

 

$

28,331

 

 

$

26,683

 

 

$

25,884

 

 

$

25,382

 

Impact of ASC 326 Adoption

 

 

2,354

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Acquisition related allowance for credit loss (PCD)

 

 

7,698

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Provision for credit losses

 

 

43,154

 

 

 

2,905

 

 

 

1,176

 

 

 

2,949

 

 

 

283

 

Charge-offs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

 

(302

)

 

 

(515

)

 

 

(261

)

 

 

(279

)

 

 

(350

)

Commercial real estate

 

 

(65

)

 

 

(148

)

 

 

(1,387

)

 

 

(429

)

 

 

(92

)

Construction

 

 

(1

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial

 

 

(687

)

 

 

(528

)

 

 

(724

)

 

 

(2,301

)

 

 

(615

)

Home equity and improvement

 

 

(164

)

 

 

(245

)

 

 

(269

)

 

 

(301

)

 

 

(268

)

Consumer finance

 

 

(279

)

 

 

(289

)

 

 

(233

)

 

 

(139

)

 

 

(94

)

PCD

 

 

(4,854

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total charge-offs

 

 

(6,352

)

 

 

(1,725

)

 

 

(2,874

)

 

 

(3,449

)

 

 

(1,419

)

Recoveries

 

 

3,982

 

 

 

1,732

 

 

 

3,346

 

 

 

1,299

 

 

 

1,638

 

Net (charge-offs) recoveries

 

 

(2,370

)

 

 

7

 

 

 

472

 

 

 

(2,150

)

 

 

219

 

Ending allowance

 

$

82,079

 

 

$

31,243

 

 

$

28,331

 

 

$

26,683

 

 

$

25,884

 

Allowance for credit losses to total non-performing loans at

   end of year

 

 

158.82

%

 

 

232.51

%

 

 

148.99

%

 

 

86.87

%

 

 

180.40

%

Allowance for credit losses to total loans at end of year*

 

 

1.40

%

 

 

1.12

%

 

 

1.12

%

 

 

1.14

%

 

 

1.33

%

Net charge-offs (recoveries) for the year to average loans

 

 

0.05

%

 

 

0.00

%

 

 

-0.02

%

 

 

0.10

%

 

 

-0.01

%

 

*

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

The provision for credit losses increased in 2020 due to the Merger and the adoption of ASU 2016-13 (Topic 326 – Credit Losses).  Refer to Notes 2 and 7 to the Consolidated Financial Statements for additional information.  Management feels that the level of the allowance for credit losses at December 31, 2020, is sufficient to cover losses that may be incurred over the lifetime of the loan.

The following table sets forth information concerning the allocation of Premier’s allowance for credit losses by loan categories at the dates indicated. For information about the percent of total loans in each category to total loans, see “Lending Activities-Loan Portfolio Composition” above.

 

 

 

December 31

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

 

 

 

 

 

Percent of

 

 

 

 

 

 

Percent of

 

 

 

 

 

 

Percent of

 

 

 

 

 

 

Percent of

 

 

 

 

 

 

Percent of

 

 

 

 

 

 

 

total loans

 

 

 

 

 

 

total loans

 

 

 

 

 

 

total loans

 

 

 

 

 

 

total loans

 

 

 

 

 

 

total loans

 

 

 

Amount

 

 

by category

 

 

Amount

 

 

by category

 

 

Amount

 

 

by category

 

 

Amount

 

 

by category

 

 

Amount

 

 

by category

 

 

 

 

 

Residential real estate

 

$

17,534

 

 

 

20.5

%

 

$

2,867

 

 

 

11.3

%

 

$

2,881

 

 

 

12.1

%

 

$

2,532

 

 

 

11.1

%

 

$

2,627

 

 

 

10.2

%

Commercial real estate

 

 

43,417

 

 

 

40.8

%

 

 

16,302

 

 

 

52.4

%

 

 

15,142

 

 

 

52.7

%

 

 

13,056

 

 

 

50.1

%

 

 

12,853

 

 

 

51.2

%

Construction

 

 

2,741

 

 

 

11.4

%

 

 

996

 

 

 

10.6

%

 

 

682

 

 

 

10.0

%

 

 

647

 

 

 

10.8

%

 

 

450

 

 

 

9.0

%

Commercial loans

 

 

11,665

 

 

 

20.6

%

 

 

9,003

 

 

 

20.1

%

 

 

7,281

 

 

 

19.1

%

 

 

7,965

 

 

 

21.3

%

 

 

7,361

 

 

 

23.0

%

Home equity and

   improvement loans

 

 

4,739

 

 

 

4.7

%

 

 

1,700

 

 

 

4.3

%

 

 

2,026

 

 

 

4.8

%

 

 

2,255

 

 

 

5.5

%

 

 

2,386

 

 

 

5.8

%

Consumer loans

 

 

1,983

 

 

 

2.1

%

 

 

375

 

 

 

1.3

%

 

 

319

 

 

 

1.3

%

 

 

228

 

 

 

1.2

%

 

 

207

 

 

 

0.8

%

 

 

$

82,079

 

 

 

100.0

%

 

$

31,243

 

 

 

100.0

%

 

$

28,331

 

 

 

100.0

%

 

$

26,683

 

 

 

100.0

%

 

$

25,884

 

 

 

100.0

%

 

Sources of Funds

General – Deposits are the primary source of Premier’s funds for lending and other investment purposes. In addition to deposits, Premier derives funds from loan principal repayments. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by general interest rates and money market conditions. Borrowings from the FHLB may be used on a short-term basis to compensate for reductions in the availability of funds from other sources. They may also be used on a longer-term basis for general business purposes.

11

 

Deposits – Premier’s deposits are attracted principally from within Premier’s primary market area through the offering of a broad selection of deposit instruments, including checking accounts, money market accounts, savings accounts, and term certificate accounts. Deposit account terms vary, with the principal differences being the minimum balance required, the time periods the funds must remain on deposit, and the interest rate.

To supplement its funding needs, Premier also has the ability to utilize the national market for certificates of deposit. Premier has used these deposits in the past and could in the future if necessary.  Premier had no national market certificates of deposit as of December 31, 2020 or 2019.

Average balances and average rates paid on deposits are as follows:

 

 

 

Years Ended December 31

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

Amount

 

 

Rate

 

 

Amount

 

 

Rate

 

 

Amount

 

 

Rate

 

 

 

(Dollars in Thousands)

 

Noninterest-bearing demand deposits

 

$

1,597,262

 

 

 

—

 

 

$

594,785

 

 

 

—

 

 

$

562,439

 

 

 

—

 

Interest-bearing demand deposits

 

 

2,627,669

 

 

 

0.21

%

 

 

1,111,532

 

 

 

0.69

%

 

 

1,026,383

 

 

 

0.27

%

Savings deposits

 

 

700,480

 

 

 

0.03

%

 

 

299,040

 

 

 

0.05

%

 

 

297,492

 

 

 

0.04

%

Time deposits

 

 

1,122,430

 

 

 

1.06

%

 

 

711,867

 

 

 

2.08

%

 

 

621,239

 

 

 

1.78

%

Totals

 

$

6,047,841

 

 

 

0.29

%

 

$

2,717,224

 

 

 

0.83

%

 

$

2,507,553

 

 

 

0.56

%

 

The following table sets forth the maturities of Premier’s retail certificates of deposit having principal amounts $250,000 or greater at December 31, 2020 (in thousands):

 

Retail certificates of deposit maturing in quarter ending:

 

 

 

 

March 31, 2021

 

$

37,502

 

June 30, 2021

 

 

38,337

 

September 30, 2021

 

 

38,264

 

December 31, 2021

 

 

36,207

 

After December 31, 2021

 

 

60,113

 

Total retail certificates of deposit with balances $250,000 or greater

 

$

210,423

 

 

For additional information regarding Premier’s deposits see Note 11 to the Consolidated Financial Statements.

Borrowings – The FHLB system functions as a central reserve bank providing credit for its member institutions and certain other financial institutions.  As a member in good standing of the FHLB, Premier is authorized to apply for advances, provided certain standards of creditworthiness have been met.  At December 31, 2020, Premier could borrow up to $1.4 billion.  The Bank had no advances outstanding at December 31, 2020.

For additional information regarding Premier’s FHLB advances and other debt, see Notes 12 and 14 to the Consolidated Financial Statements.

Subordinated Debentures – For additional information regarding the Company’s subordinated debentures see Note 13 to the Consolidated Financial Statements.

Effect of Environmental Regulation - Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect upon the capital expenditures, earnings or competitive position of Premier or its subsidiaries. Premier believes the nature of the operations of its subsidiaries has little, if any, environmental impact. As a result, Premier anticipates no material capital expenditures for environmental control facilities for Premier’s current fiscal year or for the foreseeable future.

Premier believes its primary exposure to environmental risk is through the lending activities of the Bank. In cases where management believes environmental risk potentially exists, the Bank mitigates environmental risk exposures by requiring environmental site assessments at the time of loan origination to confirm collateral quality as to commercial real estate parcels posing higher than normal potential for environmental impact, as determined by reference to present and past uses of the subject property and adjacent sites. In addition, environmental assessments are typically required prior to any foreclosure activity involving non-residential real estate collateral.

12

 

Human Capital

Premier is focused on engagement and retention of its team.  The annual retention rate for 2020 was approximately 75.8%. Turnover is managed closely with accountability and awareness at all levels. For 2020, turnover was 18.57%, with an annual voluntary turnover rate of 17.2%. Salary expense continues to be one of the largest company expenses with an annual salary expense of approximately $66.2 million. Premier is focused on being a high performance institution and drives performance through incentive plans, which paid out at approximately $8.2 million for the organization in 2020.  Our workforce is comprised of 90.5% full-time employees and 9.5% part-time employees. Premier had 1,195 employees at December 31, 2020. None of these employees are represented by a collective bargaining agent, and Premier believes that it maintains good relationships with its personnel.  Ensuring our employees are prepared for retirement is important as evidenced by the Company funding the 401k retirement plan approximately $2.4 million for 2020. Diversity and inclusiveness as an organization is important too, with 7% of minorities in leadership positions and 64% of leadership female.  Of the senior/executive leadership teams, there are 8.3% minorities. Employee growth and development is a key to our success with a 14.8% internal promotion rate.  Having access to internal and external training is also important for our employees’ forward progression.  In 2020, each employee spent an average of 34.7 hours in training.

Competition

Competition in originating commercial real estate and commercial loans comes mainly from commercial banks with banking center offices in the Company’s market area. Competition for the origination of mortgage loans arises mainly from savings associations, commercial banks, and mortgage companies. The distinction among market participants is based on a combination of price, the quality of customer service and name recognition. The Company competes for loans by offering competitive interest rates and product types and by seeking to provide a higher level of personal service to borrowers than is furnished by competitors.

Management believes that the Bank’s most direct competition for deposits comes from local financial institutions. The distinction among market participants is based on price and the quality of customer service and name recognition. The Bank’s cost of funds fluctuates with general market interest rates. During certain interest rate environments, additional significant competition for deposits may be expected from corporate and governmental debt securities, as well as from money market mutual funds. The Bank competes for conventional deposits by emphasizing quality of service, extensive product lines and competitive pricing.

Regulation

General – Premier is subject to regulation examination and oversight by the Federal Reserve Board (“Federal Reserve”).  At December 31, 2019, the Bank was subject to regulation, examination and oversight by the Office of the Comptroller of the Currency (“OCC”). As a result of the Merger, the Bank converted to an Ohio state-chartered bank and became subject to regulation, examination and oversight by the Ohio Division of Financial Institutions (“ODFI”) instead of the OCC.  Its primary federal regulator is the FDIC.  In addition, the Bank is subject to regulations of the Consumer Financial Protection Bureau (the “CFPB”) which was established by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended (“Dodd-Frank Act”) and has broad powers to adopt and enforce consumer protection regulations.  Prior to the Merger, Premier and the Bank were required to file periodic reports with the Federal Reserve and the OCC (OCC filings ceased at the time of the Merger) and examinations were conducted periodically by the Federal Reserve, the OCC and the FDIC to determine whether Premier and the Bank were in compliance with various regulatory requirements and were operating in a safe and sound manner. As a result of the Merger, the Bank will be subject to examination by the ODFI in lieu of the OCC.

Holding Company Regulation – At December 31, 2019, Premier was a unitary thrift holding company.  In connection with the Merger, Premier converted to a bank holding company and elected to become a financial holding company. Premier is subject to the requirements of the Bank Holding Company Act of 1956, as amended (“BHC Act”), and examination and regulation by the Federal Reserve. The Federal Reserve has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, issue cease and desist or removal orders, and require that a bank holding company divest subsidiaries (including its banking subsidiaries). In general, the Federal Reserve may initiate enforcement action for violations of laws and regulations and unsafe or unsound practices.

A bank holding company is required by law and Federal Reserve policy to serve as a source of financial strength to each subsidiary bank and to commit resources to support those subsidiary banks.  The Federal Reserve may require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the payment of dividends to the shareholders of the bank holding company if the Federal Reserve believes the payment would be an unsafe or unsound practice. The Federal Reserve also requires bank holding companies to provide advance notification of planned dividends under certain circumstances.

The BHC Act requires the prior approval of the Federal Reserve in any case where a bank holding company proposes to: acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank that is not already majority-owned by the bank holding company; acquire all or substantially all of the assets of another bank or bank holding company; or merge or consolidate with any other bank holding company.

13

 

In order to become a financial holding company, all of a bank holding company’s subsidiary depository institutions must be well capitalized and well managed under federal banking regulations, and such depository institutions must have received a rating of at least satisfactory under the Community Reinvestment Act (“CRA”).  In addition, the holding company must be well managed and must be well capitalized.    

Financial holding companies may engage in a wide variety of financial activities, including any activity that the Federal Reserve and the Treasury Department consider financial in nature or incidental to financial activities, and any activity that the Federal Reserve determines to be complementary to a financial activity and which does not pose a substantial safety and soundness risk.  These activities include securities underwriting and dealing activities, insurance and underwriting activities and merchant banking/equity investment activities.  Because it has authority to engage in a broad array of financial activities, a financial holding company may have several affiliates that are functionally regulated by financial regulators other than the Federal Reserve, such as the SEC and state insurance regulators.  

If a financial holding company or a subsidiary bank fails to meet the requirements for the holding company to remain a financial holding company, the financial holding company must enter into a written agreement with the Federal Reserve within 45 days to comply with all applicable capital and management requirements. Until the Federal Reserve determines that the holding company and its subsidiary banks meet the requirements, the Federal Reserve may impose additional limitations or conditions on the conduct or activities of the financial holding company or any affiliate that the Federal Reserve finds to be appropriate or consistent with federal banking laws. If the deficiencies are not corrected within 180 days, the financial holding company may be required to divest ownership or control of all subsidiary banks. If restrictions are imposed on the activities of the holding company, such restrictions may not be made publicly available pursuant to confidentiality regulations of the banking regulators.

In April 2020, the Federal Reserve adopted a final rule to revise its regulations related to determinations of whether a company has the ability to exercise a controlling influence over another company for purposes of the BHC Act. The final rule expands and codifies the presumptions for use in such determinations. By codifying the presumptions, the final rule provides greater transparency on the types of relationships that the Federal Reserve generally views as supporting a facts-and-circumstances determination that one company controls another company. The Federal Reserve’s final rule applies to questions of control under the BHC Act, but does not extend to the Change in Bank Control Act.

Regulation of Ohio State-Chartered Banks – As an Ohio state-chartered bank, the Bank is supervised and regulated primarily by the ODFI and the FDIC.  In addition, the Bank’s deposits are insured up to applicable limits by the FDIC, and the Bank will be subject to the applicable provisions of the Federal Deposit Insurance Act, as amended, and certain other regulations of the FDIC.  

Various requirements and restrictions under the laws of the United States and the State of Ohio will affect the operations of the Bank, including requirements to maintain reserves against deposits, restrictions on the nature and amount of loans that may be made and the interest that may be charged thereon, restrictions relating to investments and other activities, limitations on credit exposure to correspondent banks, limitations on activities based on capital and surplus, limitations on payment of dividends, limitations on branching and increasingly extensive consumer protection laws and regulations.  

Economic Growth, Regulatory Relief and Consumer Protection Act - On May 25, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Regulatory Relief Act”) was enacted, which repealed or modified certain provisions of the Dodd-Frank Act and eased regulations on all but the largest banks (those with consolidated assets in excess of $250 billion). Bank holding companies with consolidated assets of less than $100 billion, including Premier, are no longer subject to enhanced prudential standards. The Regulatory Relief Act also relieves bank holding companies and banks with consolidated assets of less than $100 billion, including Premier, from certain record-keeping, reporting and disclosure requirements. Certain other regulatory requirements applied only to banks with consolidated assets in excess of $50 billion and so did not apply to the Company even before the enactment of the Regulatory Relief Act.

Regulatory Capital Requirements and Prompt Corrective Action – The federal banking regulators have adopted risk-based capital guidelines for financial institutions and their holding companies, as well as state member banks. The guidelines provide a systematic analytical framework, which makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures expressly into account in evaluating capital adequacy and incentivizes holding liquid, low-risk assets. Capital levels as measured by these standards are also used to categorize financial institutions for purposes of certain prompt corrective action regulatory provisions.

The risk-based capital guidelines adopted by the federal banking agencies are based on the “International Convergence of Capital Measurement and Capital Standard,” published by the Basel Committee on Banking Supervision.  New capital rules applicable to smaller banking organizations (the “Basel III Capital Rules”) which also implement certain of the provisions of the Dodd-Frank Act became effective commencing on January 1, 2015.  Compliance with the new minimum capital requirements was required effective January 1, 2015, whereas a new capital conservation buffer and deductions from common equity capital phased in from January 1, 2016, through January 1, 2019, and most deductions from common equity tier 1 capital phased in from January 1, 2015 through January 1, 2019.  

14

 

The Basel III Capital Rules include (i) a minimum common equity tier 1 (“CET1”) capital ratio of 4.5%, (ii) a minimum tier 1 capital ratio of 6.0%, (iii) a minimum total capital ratio of 8.0%, and (iv) a minimum leverage ratio of 4%.

Common equity for the CET1 capital ratio includes common stock (plus related surplus) and retained earnings, plus limited amounts of minority interests in the form of common stock, less the majority of certain regulatory deductions.        

Tier 1 capital includes common equity as defined for the CET1 capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus, trust preferred securities that have been grandfathered (but which are not otherwise permitted), and limited amounts of minority interests in the form of additional tier 1 capital instruments, less certain deductions.

Tier 2 capital, which can be included in the total capital ratio, includes certain capital instruments (such as subordinated debentures) and limited amounts of the allowance for credit losses, subject to specified eligibility criteria, less applicable deductions.

The deductions from CET1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments in a banking organization’s own capital instruments and investments in the capital of unconsolidated financial institutions (above certain levels).  

Under the guidelines, capital is compared to the relative risk included in the balance sheet.  To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty.  The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.  

The Basel III Capital Rules also place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers if the company does not hold a capital conservation buffer of greater than 2.5% composed of CET1 capital above its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter.  

The federal banking agencies have established a system of “prompt corrective action” to resolve certain problems of undercapitalized banks. This system is based on five capital level categories for insured depository institutions: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.”  The federal banking agencies may (or in some cases must) take certain supervisory actions depending upon a bank's capital level. For example, the banking agencies must appoint a receiver or conservator for a bank within 90 days after it becomes "critically undercapitalized" unless the bank's primary regulator determines, with the concurrence of the FDIC, that other action would better achieve regulatory purposes.  Banking operations otherwise may be significantly affected depending on a bank's capital category.  For example, a bank that is not "well capitalized" generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market, and the holding company of any undercapitalized depository institution must guarantee, in part, specific aspects of the bank's capital plan for the plan to be acceptable.

In accordance with the Basel III Capital Rules, in order to be “well-capitalized” under the prompt corrective action guidelines, a financial institution must have a CET1 capital ratio of 6.5%, a total risk-based capital ratio of at least 10.0%, a tier 1 risk-based capital of at least 8.0% and a leverage ratio of at least 5.0%, and the institution must not be subject to any written agreement, order, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure.  As of December 31, 2020, the Bank met the capital ratio requirements to be deemed "well-capitalized" according to the guidelines described above. See Note 17 of the Notes to the Consolidated Financial Statements for additional information.

In December 2019, the federal banking agencies issued a final rule to address regulatory treatment of credit loss allowances under the CECL accounting standard.  The rule revised the federal banking agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model are eligible for inclusion in regulatory capital and to provide banking organizations the option to phase in over three years the day‑one adverse effects on regulatory capital that may result from the adoption of the CECL model.  Concurrent with the enactment of the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the “CARES Act”), discussed below, federal banking agencies issued an interim final rule that delayed the estimated impact on regulatory capital resulting from the adoption of CECL. The interim final rule provided banking organizations that implemented CECL prior to the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. On August 26, 2020, the federal banking agencies issued a final rule that made certain technical changes to the interim final rule, including expanding the pool of eligible institutions. The changes in the final rule applied only to those banking organizations that elected the CECL transition relief provided for under the rule. Premier adopted CECL on January 1, 2020.

15

 

In September 2019, consistent with Section 201 of the Regulatory Relief Act, the Federal Reserve, along with the other federal bank regulatory agencies, issued a final rule, effective January 1, 2020, that gave community banks, including the Bank, the option to calculate a simple leverage ratio to measure capital adequacy if the community banks met certain requirements.  Under the rule, a community bank was eligible to elect the Community Bank Leverage Ratio (“CBLR”) framework if it had less than $10 billion in total consolidated assets, limited amounts of certain trading assets and liabilities, limited amounts of off-balance sheet exposures and a leverage ratio greater than 9.0%. The final rule adopted tier 1 capital and the existing leverage ratio into the CBLR framework.  The tier 1 numerator took into account the modifications made in relation to the capital simplifications and CECL methodology transition rules as of the compliance dates of those rules.  Qualifying institutions that elected to use the CBLR framework (each, a “CBLR Bank”) and that maintained a leverage ratio of greater than 9.0% were considered to have satisfied the risk‑based and leverage capital requirements in the regulatory agencies’ generally applicable capital rules and to have met the well‑capitalized ratio requirements.  A CBLR Bank was required to calculate or report risk‑based capital and each CBLR Bank could opt out of the framework at any time, without restriction, by reverting to the generally applicable risk‑based capital rule.  Pursuant to the CARES Act, on August 26, 2020, the federal banking agencies adopted a final rule that temporarily lowered the CBLR threshold and provides a gradual transition back to the prior level. Specifically, the CBLR threshold was reduced to 8.0% for the remainder of 2020, increased to 8.5% for 2021, and will return to 9.0% beginning January 1, 2022. This final rule became effective on October 1, 2020.  Premier does not intend to elect utilization of the CBLR in assessing capital adequacy.

Dividends – There are various legal limitations on the extent to which a subsidiary bank may finance or otherwise supply funds to its parent holding company. Under applicable federal and state laws, a subsidiary bank may not, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, its parent holding company. A subsidiary bank is also subject to collateral security requirements for any loan or extension of credit permitted by such exceptions. The Bank paid $24.0 million in dividends to Premier in 2020 and $36.0 million in 2019.  First Insurance paid $400,000 in dividends to Premier in 2020 and $1.2 million in dividends in 2019.  Premier Risk Management paid $1.5 million in dividends to Premier in 2020 and $1.4 million in dividends in 2019.

Premier’s ability to pay dividends to its shareholders is primarily dependent on its receipt of dividends from the Subsidiaries.  The Federal Reserve expects Premier to serve as a source of strength for the Bank and may require Premier to retain capital for further investment in the Bank, rather than pay dividends to Premier shareholders. Payment of dividends by Premier or the Bank may be restricted at any time at the discretion of its applicable regulatory authorities if they deem such dividends to constitute an unsafe or unsound practice.  These provisions could have the effect of limiting Premier's ability to pay dividends on its common shares.

Deposit Insurance – The FDIC maintains the Deposit Insurance Fund (“DIF’), which insures the deposit accounts of the Bank to the maximum amount provided by law.  The general insurance limit is $250,000 per separately insured depositor.  This insurance is backed by the full faith and credit of the U. S. government.

As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, federally-insured institutions.  It also may prohibit any federally-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the DIF and it has the authority to take enforcement actions against insured institutions.  Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or written agreement entered into with the FDIC.

The FDIC assesses a quarterly deposit insurance premium on each insured institution quarterly based on risk characteristics of the institution.  The FDIC may also impose a special assessment in an emergency situation.  Pursuant to the Dodd-Frank Act, the FDIC has established 2.0% as the designated reserve ratio (“DRR”), which is the amount in the DIF as a percentage of all DIF insured deposits. In March 2016, the FDIC adopted final rules designed to meet the statutory minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act.  The Dodd-Frank Act requires the FDIC to offset the effect on insured institutions with assets of less than $10 billion of the increase in the statutory minimum DRR to 1.35% from the former statutory minimum of 1.15%.  Although the FDIC's rules reduced assessment rates on all banks, they imposed a surcharge on banks with assets of $10 billion or more to be paid until the DRR reached 1.35%. The DRR reached 1.35% on September 30, 2018. As a result, the previous surcharge imposed on banks with assets of $10 billion or more was lifted. In addition, preliminary assessment credits were determined by the FDIC for banks with assets of less than $10 billion for the portion of their assessments that contributed to the increase of the DRR to 1.35%. On June 30, 2019, the DRR reached 1.40%, and the FDIC applied credits for banks with assets of less than $10 billion ("small bank credits") beginning September 30, 2019. The FDIC will continue to apply small bank credits so long as the DRR is at least 1.35%. The FDIC rules further changed the method of determining risk-based assessment rates for established banks with less than $10 billion in assets to better ensure that banks taking on greater risks pay more for deposit insurance than banks that take on less risk.

16

 

Consumer Protection Laws and Regulations – Banks are subject to regular examination to ensure compliance with federal statutes and regulations applicable to their business, including consumer protection statutes and implementing regulations.  The Dodd-Frank Act established the CFPB, which has extensive regulatory and enforcement powers over consumer financial products and services.  The CFPB has adopted numerous rules with respect to consumer protection laws and has commenced related enforcement actions.  The following are just a few of the consumer protection laws applicable to the Bank:

 

•

Community Reinvestment Act of 1977:  imposes a continuing and affirmative obligation to fulfill the credit needs of its entire community, including low- and moderate-income neighborhoods.

 

•

Equal Credit Opportunity Act:  prohibits discrimination in any credit transaction on the basis of any of various criteria.

 

•

Truth in Lending Act:  requires that credit terms are disclosed in a manner that permits a consumer to understand and compare credit terms more readily and knowledgeably.

 

•

Fair Housing Act: makes it unlawful for a lender to discriminate in its housing-related lending activities against any person on the basis of any of certain criteria.

 

•

Home Mortgage Disclosure Act:  requires financial institutions to collect data that enables regulatory agencies to determine whether the financial institutions are serving the housing credit needs of the communities in which they are located.

 

•

Real Estate Settlement Procedures Act: requires that lenders provide borrowers with disclosures regarding the nature and cost of real estate settlements and prohibits abusive practices that increase borrowers’ costs.

 

•

Privacy provisions of the Gramm-Leach-Bliley Act: requires financial institutions to establish policies and procedures to restrict the sharing of non-public customer data with non-affiliated parties and to protect customer information from unauthorized access.        

The banking regulators also use their authority under the Federal Trade Commission Act to take supervisory or enforcement action with respect to unfair or deceptive acts or practices by banks that may not necessarily fall within the scope of specific banking or consumer finance law.  

On July 22, 2020, the CFPB issued a final small dollar loan rule related to payday, vehicle title and certain high cost installment loans (the “Small Dollar Rule”) that modified a former rule that was issued in November 2013. Specifically, the Small Dollar Rule revokes provisions contained in the 2013 rule that: (i) provide that it is an unfair and abusive practice for a lender to make a covered short-term or longer-term balloon-payment loan, including payday and vehicle title loans, without reasonably determining that consumers have the ability to repay those loans according to their terms; (ii) prescribe mandatory underwriting requirements for making the ability-to-repay determination; (iii) exempt certain loans from mandatory underwriting requirements; and (iv) establish related definitions, reporting, and recordkeeping requirements.

Further, the federal bank regulatory agencies issued interagency guidance on May 20, 2020, to encourage banks, savings associations, and credit unions to offer responsible small-dollar loans to customers for consumer and small business purposes. The Small Dollar Rule did not have a material effect on Premier’s financial condition or results of operations on a consolidated basis in 2020.

CRA - Under the CRA, every FDIC-insured institution is obligated, consistent with safe and sound banking practices, to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods.  The CRA requires the appropriate federal banking regulator, in connection with the examination of an insured institution, to assess the institution’s record of meeting the credit needs of its community and to consider this record in its evaluation of certain applications to banking regulators, such as an application for approval of a merger or the establishment of a branch.  An unsatisfactory rating may be used as the basis for the denial of an application to acquire another financial institution or open a new branch.  As of its last examination, the Bank received a CRA rating of “satisfactory.”

Patriot Act – In response to the terrorist events of September 11, 2001, the Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as amended (the “Patriot Act”) was signed into law in October 2001.  The Patriot Act gives the U. S. government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements.  Title III of the Patriot Act and related regulations require regulated financial institutions to establish a program specifying procedures for obtaining identifying information from customers seeking to open new accounts and establish enhanced due diligence policies, procedures and controls designed to detect and report suspicious activity.  The Bank has established policies and procedures that it considers to be in compliance with the requirements of the Patriot Act.

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Volcker Rule – The Volcker Rule, which became effective under the Dodd-Frank Act in 2015, prohibits banks and their affiliates from engaging in proprietary trading and investing in and sponsoring hedge funds, otherwise known as “covered funds.”  On July 9, 2019, the five federal agencies that adopted the Volcker Rule issued a final rule to exempt certain community banks, including the Bank, from such rule, consistent with the Regulatory Relief Act. Under the final rule, community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of 5.0% or less of total consolidated assets were excluded from the restrictions of the Volcker Rule. On June 25, 2020, the federal bank regulatory agencies also finalized a rule modifying the Volcker Rule’s prohibition on banking entities investing in or sponsoring covered funds. Such rule permits certain banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was originally intended to address. To the extent that the Bank engages in any of the trading activities or has any ownership interest in or relationship with any of the types of funds regulated by the Volcker Rule, Premier believes that its activities and relationships comply with such rule, as amended.

Office of Foreign Assets Control Regulation – The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. Premier is responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious financial, legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.  The Bank has established policies and procedures that it considers to be in compliance with OFAC requirements.  

Cybersecurity – In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish several lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing Internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the financial institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the financial institution or its critical service providers fall victim to this type of cyber-attack. If Premier fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties.

In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements. Premier expects this trend of state-level activity in those areas to continue and is continually monitoring developments in the states in which its customers are located.

In the ordinary course of business, Premier relies on electronic communications and information systems to conduct its operations and to store sensitive data. Premier employs an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. Premier employs a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of Premier’s defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date, Premier has not detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, Premier’s systems and those of its customers and third-party service providers are under constant threat and it is possible that Premier could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.  

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The Coronavirus Aid, Relief, and Economic Security Act of 2020 – In response to the novel COVID-19 pandemic (“COVID-19”), the CARES Act was signed into law on March 27, 2020, to provide national emergency economic relief measures. Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions, such as Premier and the Bank, and have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve and other federal banking agencies, including those with direct supervisory jurisdiction over Premier and the Bank. Furthermore, as COVID-19 evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. In addition, it is possible that Congress will enact supplementary COVID-19 response legislation, including amendments to the CARES Act or new bills comparable in scope to the CARES Act. For example, on December 27, 2020, the Consolidated Appropriations Act, 2021 (the “CAA”), was signed into law, which, among other things, allowed certain banks to temporarily postpone implementation of CECL. Premier is continuing to assess the impact of the CARES Act and other statutes, regulations and supervisory guidance related to COVID-19.

The CARES Act amended the loan program of the Small Business Administration (the “SBA”), in which the Bank participates, to create a guaranteed, unsecured loan program known as the Paycheck Protection Program (the “PPP”) to fund operational costs of eligible businesses, organizations and self-employed persons during COVID-19. In June 2020, the Paycheck Protection Program Flexibility Act was enacted, which, among other things, gave borrowers additional time and flexibility to use PPP loan proceeds. Shortly thereafter, and due to the evolving impact of COVID-19, additional legislation was enacted authorizing the SBA to resume accepting PPP applications on July 6, 2020, and extending the PPP application deadline to August 8, 2020. As a participating lender in the PPP, the Bank continues to monitor legislative, regulatory, and supervisory developments related thereto. On September 29, 2020, the federal bank regulatory agencies issued a final rule that neutralizes the regulatory capital and liquidity coverage ratio effects of participating in certain COVID-19 liquidity facilities due to the fact there is no credit or market risk in association with exposures pledged to such facilities. As a result, the final rule supports the flow of credit to households and businesses affected by COVID-19.

Item 1A. Risk Factors

The risks listed below present risks that could have a material impact on the Company’s financial condition, results of operations, or business. The risks and uncertainties described below are not the only ones facing the Company. Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also impair the Company’s business operations.  

Economic and Market Risks

The economic impact of COVID-19 or any other pandemic could adversely affect the Company’s business, financial condition, liquidity, cash flows, and results of operations.

In March 2020, the World Health Organization declared COVID-19 a pandemic and the President of the United States declared COVID-19 a national emergency. COVID-19 has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal bank regulatory agencies have encouraged financial institutions to prudently work with affected borrowers, and new legislation has provided relief from reporting loan classifications due to modifications related to COVID-19.

Given the ongoing and dynamic nature of COVID-19, it is difficult to predict the full impact of the outbreak on Premier’s business. The extent of such impact will depend on future developments, which are highly uncertain, including when COVID-19 can be controlled and abated and when and how the economy may be reopened. As of December 31, 2020, Premier holds and services PPP loans. These PPP loans are subject to the provisions of the CARES Act and to complex and evolving rules and guidance issued by the SBA and other government agencies. We expect that the great majority of our PPP borrowers will seek full or partial forgiveness of their loan obligations. Premier has credit risk on the PPP loans if the SBA determines that there is a deficiency in the manner in which the Bank originates, funds or services loans, including any issue with the eligibility of a borrower to receive a PPP loan. We could face additional risks in our administrative capabilities to service our PPP loans and risk with respect to the determination of loan forgiveness. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which we originated, funded or serviced the PPP loan, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if the SBA has already paid under the guaranty, seek recovery of any loss related to the deficiency.

The spread of COVID-19 has also caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. Further, technology in employees’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to such employees to be more limited or less reliable. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risk from phishing, malware, and other cybersecurity attacks, all of which could expose us to risks of data or financial loss and could seriously disrupt our operations and the operations of any impacted customers.

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COVID-19 or a new pandemic could subject us to any of the following risks, any of which could, individually or in the aggregate, have a material adverse effect on our business, financial condition, liquidity, and results of operations:

 

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demand for our products and services may decline, making it difficult to grow assets and income;

 

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if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

 

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collateral for loans, especially real estate, may decline in value, which could cause credit losses to increase;

 

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our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

 

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the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

 

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as the result of the decline in the Federal Reserve’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

 

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we rely on third party vendors for certain services and the unavailability of a critical service due to COVID-19 could have an adverse effect on us; and

 

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continued adverse economic conditions could result in protracted volatility in the price of our common shares.

Moreover, our future success and profitability substantially depend on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to COVID-19 or any similar pandemic could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Even after the COVID-19 pandemic subsides, the U.S. economy will likely require time to recover, the length of which is unknown and during which the United States may experience a recession. Our business could be materially and adversely affected by such recession.

To the extent the effects of COVID-19 adversely impact our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in this section.

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.

At December 31, 2020, the Bank’s portfolio of commercial real estate loans totaled $2.4 billion, or approximately 40.8% of total loans.  The Bank’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 Premier 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 COVID-19, could negatively impact the future cash flows and market values of the affected properties.

At December 31, 2020, the Bank’s portfolio of commercial loans totaled $1.2 billion, or approximately 20.6% of total loans.  Commercial loans generally expose Premier 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 Bank’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.

Premier 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, Premier’s results of operations and financial condition may be adversely affected.

If Premier's actual loan losses exceed its allowance for credit losses, Premier's net income will decrease.

In accordance with U.S. generally accepted accounting principles (“GAAP”), Premier must maintain an allowance for credit losses to provide for loan defaults and non-performance, which when combined, are referred to as the allowance for credit losses.  Premier's allowance for credit losses is based upon a number of relevant factors, including, but not limited to, trends in the level of nonperforming assets and classified loans, current and projected economic conditions in the primary lending area, prior experience, possible losses arising from specific problem loans, and management's evaluation of the risks in the current portfolio.  However, there are many factors that can result in actual loan losses exceeding the allowance.

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For instance, in deciding whether to extend credit or enter into other transactions with customers and counterparties, Premier may rely on information provided to it by customers and counterparties, including financial statements and other financial information. Premier may also rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors.  Such information may not turn out to be accurate.  Further, Premier's loan customers may not repay their loans according to their terms, and the collateral securing the payment of these loans may be insufficient to pay any remaining loan balance.  As a result, Premier may experience significant loan losses, which could have a material adverse effect on its operating results.  

The amount of future losses also is susceptible to changes in economic, operating and other conditions, including changes in unemployment and interest rates that may be beyond management's control, and these losses may exceed current estimates.  Further, federal regulatory agencies, as an integral part of their examination process, review Premier's loans and allowance for credit losses and may require that Premier increase its allowance. Moreover, the Financial Accounting Standards Board (“FASB”) has changed its requirements for establishing the allowance, which became effective for Premier in the first quarter of 2020.  That accounting change exposes Premier to increased risk of failure to establish a sufficient allowance and the possibility that Premier will need to increase its allowance substantially through an increase to the provision for credit losses, which will adversely affect Premier's net income.

As a result of any of the above factors, Premier's allowance for credit losses may not be adequate to cover actual credit losses, and future provisions for credit losses could have a material adverse effect on Premier's operating results.  There is no assurance that Premier will not further increase the allowance for credit losses.  Either of these occurrences could have a material adverse effect on Premier's financial condition and results of operations.

Changes in interest rates can adversely affect Premier’s profitability.

Premier’s earnings and cash flows are largely dependent upon its net interest income, which is the difference between interest income earned on interest-earning assets such as loans and securities, and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond Premier’s control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Open Market Committee. Changes in monetary policy, including changes in interest rates, could influence not only the interest Premier receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect Premier’s ability to originate loans and obtain deposits, the fair value of Premier’s financial assets and liabilities, and the average duration of certain assets and liabilities. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, Premier’s net interest income, and therefore earnings, could be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. While we generally invest in securities with limited credit risk, certain investment securities we hold possess higher credit risk, especially in light of the continued economic effects of COVID-19, since they represent beneficial interests in structured investments collateralized by residential mortgages.  All investment securities are subject to changes in market value due to changing interest rates and implied credit spreads. Any substantial, unexpected, or prolonged change in market interest rates could have a material adverse effect on Premier’s results of operations and financial condition.

The Bank originates a significant amount of residential mortgage loans that it sells in the secondary market.  The origination of residential mortgage loans is highly dependent on the local real estate market and the current interest rates.  Increasing interest rates tend to reduce the origination of loans for sale and consequently fee income, which Premier reports as mortgage banking income. Conversely, decreasing interest rates have the effect of causing clients to refinance mortgage loans faster than anticipated.  This causes the value of mortgage servicing rights on the loans sold to be lower than originally anticipated.  If this happens, Premier may be required to write down the value of its mortgage servicing rights faster than anticipated, which will increase expense and lower earnings.  Accelerated repayments on loans and mortgage backed securities could result in the reinvestment of funds at lower rates than the loans or securities were paying.  

Legal and Regulatory Risks

Laws, regulations and periodic regulatory reviews may affect Premier’s results of operations.

The financial services industry is extensively regulated.  Premier is subject to extensive state and federal regulation, supervision and legislation that govern almost all aspects of its operations.  Laws and regulations may change from time to time and are primarily intended for the protection of consumers, depositors, borrowers, the DIF and the banking system as a whole, and not to benefit Premier’s shareholders. Regulations affecting banks and financial services businesses are undergoing continuous changes, and management cannot predict the effect of these changes, especially in light of COVID-19 and the stimulus programs issued in connection therewith.  The impact of any changes to laws and regulations or other actions by regulatory agencies may negatively impact Premier and its ability to increase the value of its business, possibly limiting the services it provides, increasing the potential for competition from non-banks, or requiring it to change the way it operates.

Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets held by an institution, the adequacy of an institution’s allowance for credit losses and the ability to complete acquisitions. Additionally, actions by regulatory agencies against

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Premier could cause it to devote significant time and resources to defending its business and may lead to penalties that materially affect Premier and its shareholders. Even the reduction of regulatory restrictions could have an adverse effect on Premier and its shareholders if such lessening of restrictions increases competition within Premier’s industry or market area.

In addition to laws, regulations and actions directed at the operations of banks, proposals to reform the housing finance market could negatively affect Premier’s ability to sell loans.

The laws and regulations applicable to the banking industry could change at any time.  The potential exists for new laws and regulations, and bank regulatory agencies are expected to be active in responding to concerns and trends identified in examinations.  Increased regulation could increase Premier’s cost of compliance and reduce its income to the extent that they limit the manner in which Premier may conduct business, including its ability to offer new products, charge fees for specific products and services, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads.  

Although it is impossible for Premier to predict at this time what changes in laws and regulations will be implemented and the effect they will have on Premier and the rest of its industry, it is possible that Premier’s revenue could decrease, our interest expense could increase and deposit insurance premiums could change, and steps may need to be taken to increase qualifying capital.  Premier’s operating and compliance costs could also increase and could adversely affect its financial condition and results of operations.  

Premier may be the subject of litigation, which would result in legal liability and damage to its business and reputation.

From time to time, Premier and its subsidiaries may be subject to claims or legal action from customers, employees or others. Financial institutions like Premier are facing a growing number of significant class actions, including those based on the manner of calculation of interest on loans and the assessment of overdraft fees. Future litigation could include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Premier is also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental and other agencies regarding its businesses. These matters also could result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Like other financial institutions, Premier is also subject to risk from potential employee misconduct, including non-compliance with policies and improper use or disclosure of confidential information. Substantial legal liability or significant regulatory action against Premier could materially adversely affect its business, financial condition or results of operations and/or cause significant reputational harm to its business.

Business and Operational Risks

Premier’s ability to meet cash flow needs on a timely basis at a reasonable cost may adversely affect net income.

Premier’s principal sources of liquidity are local deposits and wholesale funding sources such as FHLB advances, Federal Funds purchased, securities sold under repurchase agreements, and brokered or other out-of-market certificate of deposit purchases.  Premier also maintains a portfolio of securities that can be used as a secondary source of liquidity.  Premier’s access to funding sources in amounts adequate to finance or capitalize its activities or on terms that are acceptable could be impaired by factors that affect Premier directly or the financial services industry or economy in general, such as further disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.  

Other possible sources of liquidity include the sale or securitization of loans, the issuance of additional collateralized borrowings beyond those currently utilized with the FHLB, the issuance of debt securities and the issuance of preferred or common securities in public or private transactions, or borrowings from a commercial bank.  While Premier and the Bank have lines of credit available from commercial banks and have used these in the past, there are no current borrowings from a commercial bank.

Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, pay dividends to Premier’s shareholders, or fulfill obligations such as repaying Premier’s borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, results of operations and financial condition.  

In addition, prior debt offerings could potentially have important consequences to Premier and its debt and equity investors, including:

 

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requiring a substantial portion of its cash flow from operations to make interest payments;

 

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making it more difficult to satisfy debt service and other obligations;

 

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increasing the risk of a future credit ratings downgrade of its debt, which could increase future debt costs and limit the future availability of debt financing;

 

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increasing its vulnerability to general adverse economic and industry conditions;

 

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reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow its business;

 

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limiting its flexibility in planning for, or reacting to, changes in its business and the industry;

 

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placing it at a competitive disadvantage relative to its competitors that may not be as highly leveraged with debt; and

 

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limiting its ability to borrow additional funds as needed or to take advantage of business opportunities as they arise, pay cash dividends or repurchase securities.

We are continuing to evaluate these risks on an ongoing basis.

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Integrating Premier and UCFC after the Merger may be more difficult, costly, or time consuming than expected and the anticipated benefits and cost savings of the Merger may not be realized.

Although the Merger closed on January 31, 2020, the integration of Premier and UCFC is an ongoing process.  Premier’s ability to successfully combine and integrate the businesses of Premier and UCFC in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers poses a risk to the business. It is possible that the integration process could result in inconsistencies in standards, controls, procedures and policies that adversely affect Premier’s ability to maintain relationships with clients, customers, depositors and employees, or to achieve the anticipated benefits and cost savings of the Merger. Further, Premier is dependent upon several outside vendors to make the integration successful.  If such vendors are unable to meet their obligations to Premier, including because of any issues related to COVID-19, such failure could impede a successful integration.  

Competition affects Premier’s earnings.

Premier’s continued profitability depends on its ability to continue to effectively compete to originate loans and attract and retain deposits.  Competition for both loans and deposits is intense in the financial services industry.  The Company competes in its market area by offering superior service and competitive rates and products.  The types of institutions Premier competes with include large regional commercial banks, smaller community banks, savings institutions, mortgage banking firms, credit unions, finance companies, brokerage firms, insurance agencies and mutual funds.  As a result of their size and ability to achieve economies of scale, certain of Premier’s competitors can offer a broader range of products and services than the Company can offer. In addition, the OCC now accepts applications for bank charters from nondepository financial technology companies engaged in banking activities, which has added to the number of parties with whom the Company competes.  Further, technological advances allow consumers to pay bills and transfer funds electronically without banks.  Consumers can also shop for higher deposit interest rates at banks across the country, which may offer higher rates because they have few or no physical branches.  To stay competitive in its market area, Premier may need to adjust the interest rates on its products to match rates of its competition, which could have a negative impact on net interest margin and results of operations.  

The increasing complexity of Premier’s operations presents varied risks that could affect its earnings and financial condition.

Premier processes a large volume of transactions on a daily basis and is exposed to numerous types of risks related to internal processes, people and systems.  These risks include, but are not limited to, the risk of fraud by persons inside or outside the Company, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems, breaches of data security and our internal control system and compliance with a complex array of consumer and safety and soundness regulations. Premier could also experience additional loss as a result of potential legal actions that could arise as a result of operational deficiencies or as a result of noncompliance with applicable laws and regulations.

Premier has established and maintains a system of internal controls that provides management with information on a timely basis and allows for the monitoring of compliance with operational standards.  These systems have been designed to manage operational risks at an appropriate, cost effective level.  Procedures exist that are designed to ensure that policies relating to conduct, ethics, and business practices are followed.  Losses from operational risks may still occur, however, including losses from the effects of operational errors.  

Unauthorized disclosure of sensitive or confidential client or customer information or confidential trade secrets, whether through a breach of the Company’s computer systems or otherwise, could severely harm its business.

Potential misuse of funds or information by Premier’s employees or by third parties could result in damage to Premier’s customers for which Premier could be held liable, subject Premier to regulatory sanctions and otherwise adversely affect Premier’s financial condition and results of operations.  

Premier’s employees handle a significant amount of funds, as well as financial and personal information.  Premier also depends upon third-party vendors who have access to funds and personal information about customers.  Cybersecurity breaches of other companies, such as the breach of the systems of a credit bureau, may result in criminals using personal information obtained from such other source to impersonate a customer of Premier and obtain funds from customer accounts.  Further, Premier may be affected by data breaches at retailers and other third parties who participate in data interchanges with Premier’s customers that involve the theft of customer credit and debit card data, which may include the theft of debit card personal identification numbers and commercial card information used to make purchases at such retailers and other third parties.  Such data breaches could result in Premier incurring significant expenses to reissue debit cards and cover losses, which could result in a material adverse effect on Premier’s results of operations.

Although Premier has implemented systems to minimize the risk of fraudulent taking or misuse of funds or information, there can be no assurance that such systems will be adequate or that a taking or misuse of funds or information by employees, by third parties who have authorized access to funds or information, or by third parties who are able to access funds or information without authorization will never occur.  Premier could be held liable for such an event and could also be subject to regulatory sanctions.  Premier could also incur the expense of developing additional controls and investing in additional equipment or contracts to prevent future such occurrences.  Although Premier has insurance to cover such potential losses, Premier cannot provide assurance that such insurance will be adequate to meet any liability, and insurance premiums may rise substantially if Premier suffers such an event.   In

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addition, any loss of trust or confidence placed in Premier by our customers could result in a loss of business, which could adversely affect our financial condition and results of operations, or result in a loss of investor confidence, adversely affecting Premier’s stock price and ability to acquire capital in the future.  Premier could also lose revenue by the wrongful appropriation of confidential information about its business operations by competitors who use the information to compete with Premier.

Premier could suffer a material adverse impact from interruptions in the effective operation of, or security breaches affecting, Premier’s computer systems.

Premier relies heavily on its own information systems and those of vendors to conduct business and to process, record, and monitor transactions.  Risks to the system could result from a variety of factors, including the potential for bad acts on the part of hackers, criminals, employees and others.  As one example, some banks have experienced denial of service attacks in which individuals or organizations flood the bank’s website with extraordinarily high volumes of traffic, with the goal and effect of disrupting the ability of the bank to process transactions.  Other businesses have been victims of a ransomware attack in which a business becomes unable to access its own information and is presented with a demand to pay a ransom in order to once again have access to its information.  Premier is also at risk for the impact of natural disasters, terrorism and international hostilities on its systems or for the effects of outages or other failures involving power or communications systems operated by others.  These risks also arise from the same types of threats to businesses with which Premier deals.  

Potential adverse consequences of attacks on Premier’s computer systems or other threats include damage to Premier’s reputation, loss of customer business, costs of incentives to customers or business partners in order to maintain their relationships, loss of investor confidence and a reduction in Premier’s stock price, litigation, increased regulatory scrutiny and potential enforcement actions, repairs of system damage, increased investments in cybersecurity (such as obtaining additional technology, making organizational changes, deploying additional personnel, training personnel and engaging consultants), and increased insurance premiums, all of which could result in financial loss and material adverse effects on Premier’s results of operations and financial condition.

If Premier forecloses on collateral property resulting in Premier’s ownership of the underlying real estate, Premier may be subject to the increased costs associated with the ownership of real property, resulting in reduced income.

A significant portion of Premier’s loan portfolio is secured by real property.  During the ordinary course of business, Premier may foreclose on and take title to properties securing certain loans.  In doing so, there is a risk that hazardous or toxic substances could be found on these properties.  If hazardous or toxic substances are found, Premier may be liable for remediation costs, as well as for personal injury and property damage.

In addition, when Premier forecloses on real property, the amount Premier realizes after a default is dependent upon factors outside of Premier’s control, including, but not limited to, economic conditions, neighborhood real estate values, interest rates, real estate taxes, operating expenses of the mortgaged properties, zoning laws, governmental rules, regulations and fiscal policies, and acts of God.  Certain expenditures associated with the ownership of real estate, principally real estate taxes and maintenance costs, may adversely affect the income from the real estate.  Therefore, the cost of operating real property may exceed the rental income earned from such property, and Premier may have to sell the property at a loss.  The foregoing expenditures could adversely affect Premier’s financial condition and results of operations.

Premier’s business strategy focuses on planned growth, including strategic acquisitions, and its financial condition and results of operations could be negatively affected if Premier fails to grow or fails to manage its growth effectively.

Premier’s ability to grow successfully will depend on a variety of factors, including the continued availability of desirable business opportunities, its ability to integrate mergers and other acquisitions and manage growth and Premier’s ability to raise capital.  There can be no assurance that growth opportunities will be available.

Premier may acquire other financial institutions or parts of institutions in the future, open new branches, and consider new lines of business and new products or services.  Expansions of its business would involve a number of expenses and risks, including:

 

•

the time and costs associated with identifying and evaluating potential acquisitions or expansions into new markets;

 

•

the potential inaccuracy of estimates and judgments used to evaluate the business and risks with respect to target institutions;

 

•

the time and costs of hiring local management and opening new offices;

 

•

the delay between commencing making acquisitions or engaging in new activities and the generation of profits from the expansion;

 

•

Premier’s ability to finance an expansion and the possible dilution to existing shareholders;  

 

•

the diversion of management’s attention to the expansion;

 

•

management’s lack of familiarity with new market areas;

24

 

 

•

the integration of new products and services and new personnel into Premier’s existing business;

 

•

the incurrence and possible impairment of goodwill associated with an acquisition and effects on Premier’s results of operations; and

 

•

the risk of loss of key employees and customers.

If Premier’s growth involves the acquisition of companies through mergers or other acquisitions, the success of such acquisitions will depend on, among other things, Premier’s ability to combine the businesses in a manner that permits growth opportunities and cost efficiencies, and does not cause inconsistencies in standards, controls, procedures and policies that adversely affect the ability of Premier to maintain relationships with customers and employees or to achieve the anticipated benefits of the acquisitions.

Failure to manage Premier’s growth effectively could have a material adverse effect on its business, future prospects, financial condition or results of operations and could adversely affect Premier’s ability to successfully implement its business strategy.  

The Bank’s ability to pay dividends is subject to regulatory limitations which, to the extent Premier requires such dividends in the future, may affect its ability to pay dividends or repurchase its stock.

Premier is a separate legal entity from the Bank and does not have significant operations of its own.  Dividends from the Bank provide a significant source of capital for Premier.  The availability of dividends from the Bank is limited by various statutes and regulations. The federal and state banking regulators require that insured financial institutions and their holding companies should generally only pay dividends out of current operating earnings.  It is possible, depending upon the financial condition of the Bank and other factors, that the Bank’s primary regulator could assert that the payment of dividends or other payments by the Bank are an unsafe or unsound practice.  In the event the Bank is unable to pay dividends to Premier, Premier may not be able to pay its obligations as they become due, repurchase its stock, or pay dividends on its common stock.  Consequently, the potential inability to receive dividends from the Bank could adversely affect Premier’s business, financial condition, results of operations or prospects.

Failure to integrate or adopt new technology may undermine Premier’s ability to meet customer demands, leading to adverse effects on Premier’s financial condition and results of operations.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services.  The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.  Premier’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in operations.  Premier may not be able to effectively implement or have the resources to implement new technology-driven products and services or be successful in marketing these products and services to its customers.  Failure to successfully keep pace with technological change affecting the financial services industry could adversely affect Premier’s business, financial condition, or results of operations.

A transition away from LIBOR as a reference rate for financial contracts could negatively affect Premier’s income and expenses and the value of various financial contracts.

LIBOR is used extensively in the U.S. and globally as a benchmark for various commercial and financial contracts, including adjustable rate mortgages, corporate debt, interest rate swaps and other derivatives.  LIBOR is set based on interest rate information reported by certain banks, which may stop reporting such information after 2021. In November 2020, the Federal Reserve issued a statement supporting the release of a proposal and supervisory statements designed to provide a clear end date for U.S. Dollar LIBOR (“USD LIBOR”), and the federal banking agencies issued a release encouraging banks to stop entering into USD LIBOR contracts by the end of 2021, noting that most legacy contracts will mature prior to the date LIBOR ceases to be issued. It is uncertain at this time the extent to which those entering into financial contracts will transition to any other particular benchmark.  Other benchmarks may perform differently than LIBOR or other alternative benchmarks or have other consequences that cannot currently be anticipated.  It is also uncertain what will happen with instruments that rely on LIBOR for future interest rate adjustments and which remain outstanding if LIBOR ceases to exist.  

The Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing USD LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S. Treasury securities, otherwise known as the Secured Overnight Financing Rate ("SOFR"). SOFR is observed and backward looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR). SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions. Whether or not SOFR attains traction as a LIBOR replacement tool remains in question, although transactions using SOFR have been completed, including by Fannie Mae. Both Fannie Mae and Freddie Mac ceased accepting adjustable rate mortgages tied to LIBOR and began accepting mortgages based on SOFR in 2020.

25

 

The Bank has a significant number of loans, derivative contracts, borrowings and other financial instruments, and continues to enter into loans, derivatives contracts, borrowings and other financial instruments, with attributes that are directly or indirectly dependent on LIBOR.  The transition from LIBOR could create considerable costs and additional risk for Premier.  The transition will change Premier’s market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies.  Further, Premier’s failure to adequately manage this transition process with its customers could adversely impact its reputation. Although Premier is currently unable to assess what the ultimate impact of the transition from LIBOR will be, any market-wide transition away from LIBOR could have an adverse effect on its business, financial condition and results of operations.

 

General Risk Factors

Economic, political and financial market conditions may adversely affect Premier’s operations and financial condition.

Premier’s financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services Premier offers, is highly dependent upon the business environment in the markets where the Company operates, mainly in the State of Ohio, Northeast Indiana and Southeast Michigan. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability of or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment, natural disasters; or a combination of these or other factors.  Conditions such as inflation, recession, unemployment, changes in interest rates, fiscal and monetary policy, tariffs, a U.S. withdrawal from a significant renegotiation of trade agreements, trade wars, and other factors beyond Premier’s control may adversely affect its deposit levels and composition, the quality of its assets including investment securities available for purchase, demand for loans, the ability of its borrowers to repay their loans and the value of the collateral securing the loans it makes.  Because Premier has a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral and Premier’s ability to sell the collateral upon foreclosure.

Recent political developments have resulted in substantial changes in economic and political conditions for the U.S. and the remainder of the world.  Economic turmoil in Europe and Asia and changes in oil production in the Middle East affect the economy and stock prices in the U.S.  While these changes do not have a direct, immediate impact on Premier’s financial performance, we cannot predict how the change in the political climate will affect the economy and Premier’s performance in the future.

Changes in tax laws could adversely affect Premier's financial condition and results of operations.

Premier is subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise, withholding and ad valorem taxes.  Changes to the tax laws could have a material adverse effect on Premier's results of operations.  In addition, Premier's customers are subject to a wide variety of federal, state and local taxes.  Changes in taxes paid by customers, including changes in the deductibility of mortgage loan related expenses, may adversely affect their ability to finance activities or purchase properties or consumer products, which could adversely affect their demand for Premier's loans and deposit products.  In addition, such negative effects on Premier's customers could result in defaults on the loans already made and decrease the value of mortgage-backed securities in which Premier has invested.

Premier is at risk of increased losses from fraud.

Criminals are committing fraud at an increasing rate and are using more sophisticated techniques.  In some cases, these individuals are part of larger criminal rings, which allow them to be more effective.  Such fraudulent activity has taken many forms, ranging from debit card fraud, check fraud, mechanical devices attached to ATM machines, social engineering and phishing attacks to obtain personal information, or impersonation of clients through the use of falsified or stolen credentials.  Additionally, an individual or business entity may properly identify itself, yet seek to establish a business relationship for the purpose of perpetrating fraud.  An emerging type of fraud even involves the creation of synthetic identification in which fraudsters "create" individuals for the purpose of perpetrating fraud.  Further, in addition to fraud committed directly against it, Premier may suffer losses as a result of fraudulent activity committed against third parties. Increased deployment of technologies, such as chip card technology, defray and reduce certain aspects of fraud; however, criminals are turning to other sources to steal personally identifiable information, such as unaffiliated healthcare providers and government entities, in order to impersonate the consumer and thereby commit fraud.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

At December 31, 2020, the Bank conducted its business from its main office at 275 West Federal St., Youngstown, Ohio, and 77 other full-service banking centers and 12 loan offices in northwest and Ohio, Indiana, Michigan, Pennsylvania and West Virginia.  First Insurance conducted its business from ten offices in Ohio.  Premier maintained its headquarters at 601 Clinton St., Defiance, Ohio. Back-office operation departments, including information technology, loan processing and underwriting, deposit processing, accounting and risk management were headquartered in an operations center located at 25600 Elliott Rd., Defiance, Ohio.  See Note 9 to the Consolidated Financial Statements for additional information.

26

 

 

We are not presently party to, and none of our property is the subject of, any legal proceedings, the resolution of which we believe would, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations, cash flows, growth prospects or capital levels, nor were any such proceedings terminated during the fourth quarter of 2020.

Item 4. Mine Safety Disclosures

Not applicable.

27

 

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s common shares trade on The NASDAQ Global Select Market under the symbol “PFC.” As of January 31, 2021, the Company had approximately 6,510 shareholders of record.

The line graph below compares the yearly percentage change in cumulative total shareholder return on Premier common shares and the cumulative total return of the NASDAQ Composite Index, the SNL NASDAQ Bank Index and the SNL Midwest Bank Index. An investment of $100 on December 31, 2015, and the reinvestment of all dividends are assumed. The performance graph represents past performance and should not be considered to be an indication of future performance.

The payment of future cash dividends is at the discretion of our Board of Directors and subject to a number of factors, including results of operations, general business conditions, growth, financial condition, regulatory limitation and other factors deemed relevant by the Board. Further, our ability to pay future cash dividends is subject to certain regulatory requirements and restrictions discussed in the Regulation section in Item 1 above. For further information, see Note 17 of the Notes to the Consolidated Financial Statements which is incorporated herein by reference.

 

 

 

Period Ending

 

Index

 

12/31/15

 

 

12/31/16

 

 

12/31/17

 

 

12/31/18

 

 

12/31/19

 

 

12/31/20

 

Premier Financial Corp.

 

 

100.00

 

 

 

137.28

 

 

 

143.39

 

 

 

138.27

 

 

 

182.55

 

 

 

139.45

 

NASDAQ Composite

 

 

100.00

 

 

 

108.87

 

 

 

141.13

 

 

 

137.12

 

 

 

187.44

 

 

 

271.64

 

SNL Bank NASDAQ

 

 

100.00

 

 

 

138.65

 

 

 

145.97

 

 

 

123.04

 

 

 

154.47

 

 

 

132.56

 

SNL Midwest Bank

 

 

100.00

 

 

 

133.61

 

 

 

143.58

 

 

 

122.61

 

 

 

159.51

 

 

 

136.96

 

 

 

28

 

The following table provides information regarding Premier’s purchases of its common shares during the fourth quarter period ended December 31, 2020:

 

Period

 

Total Number of

Shares Purchased

 

 

Average Price Paid

Per Share

 

 

Total Number of

Shares Purchased

as Part of Publicly

Announced Plans

or Programs

 

 

Maximum Number

of Shares that May

Yet Be Purchased

Under the Plans

or Programs (1)

 

October 1 – October 31, 2020

 

 

4,222

 

 

$

21.00

 

 

 

—

 

 

 

570,000

 

November 1 – November 30, 2020

 

 

—

 

 

 

—

 

 

 

—

 

 

 

570,000

 

December 1 – December 31, 2020

 

 

—

 

 

 

—

 

 

 

—

 

 

 

570,000

 

Total

 

 

4,222

 

 

$

21.00

 

 

 

—

 

 

 

570,000

 

 

(1)

On May 23, 2019, the Company announced that its Board of Directors authorized a program for the repurchase of up to 500,000 shares of outstanding common stock.  On February 18, 2020, the Company announced that its Board of Directors increased the number of shares authorized to be repurchased under the program by an additional 500,000 shares.  On January 26, 2021, 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 information set forth under the caption “Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters - Equity Compensation Plans” of Part III of this Form 10‑K is incorporated herein by reference.

29

 

Item 6. Selected Financial Data

The following table is derived from the Company’s audited financial statements as of and for the five years ended December 31, 2020. The following consolidated selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes included elsewhere in this and prior Forms 10-K. The operating results of acquired companies are included with the Company’s results of operations since their respective dates of acquisition.

 

 

 

As of and For the Year Ended December 31

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2015

 

 

 

(Dollars and Shares in Thousands, Except Per Share Data)

 

Financial Condition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

7,211,734

 

 

$

3,468,992

 

 

$

3,182,376

 

 

$

2,993,403

 

 

$

2,477,597

 

Investment securities

 

 

737,744

 

 

 

283,448

 

 

 

294,602

 

 

 

261,298

 

 

 

251,176

 

Loans receivable, net

 

 

5,409,161

 

 

 

2,746,321

 

 

 

2,511,708

 

 

 

2,322,030

 

 

 

1,914,603

 

Allowance for credit/loan losses(1)

 

 

82,079

 

 

 

31,243

 

 

 

28,331

 

 

 

26,683

 

 

 

25,884

 

Non-performing assets (2)

 

 

52,025

 

 

 

13,537

 

 

 

20,221

 

 

 

32,247

 

 

 

14,803

 

Deposits and borrowers’ escrow balances

 

 

6,069,589

 

 

 

2,875,816

 

 

 

2,624,534

 

 

 

2,440,581

 

 

 

1,984,278

 

FHLB advances

 

 

—

 

 

 

85,063

 

 

 

85,189

 

 

 

84,279

 

 

 

103,943

 

Stockholders’ equity

 

 

982,276

 

 

 

426,167

 

 

 

399,589

 

 

 

373,286

 

 

 

293,018

 

Share Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

1.75

 

 

$

2.49

 

 

$

2.27

 

 

$

1.62

 

 

$

1.61

 

Diluted earnings per share

 

 

1.75

 

 

 

2.48

 

 

 

2.26

 

 

 

1.61

 

 

 

1.60

 

Book value per common share

 

 

26.34

 

 

 

21.60

 

 

 

19.81

 

 

 

18.38

 

 

 

16.31

 

Tangible book value per common share (3)

 

 

17.00

 

 

 

16.34

 

 

 

14.71

 

 

 

13.24

 

 

 

12.80

 

Cash dividends per common share

 

 

0.88

 

 

 

0.79

 

 

 

0.64

 

 

 

0.50

 

 

 

0.44

 

Dividend payout ratio

 

 

31.88

%

 

 

31.73

%

 

 

28.19

%

 

 

30.96

%

 

 

27.41

%

Weighted average diluted shares outstanding

 

 

35,949

 

 

 

19,931

 

 

 

20,468

 

 

 

20,056

 

 

 

18,070

 

Shares outstanding end of period

 

 

37,291

 

 

 

19,730

 

 

 

20,171

 

 

 

20,312

 

 

 

17,966

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

237,946

 

 

$

141,084

 

 

$

124,717

 

 

$

108,102

 

 

$

87,383

 

Interest expense

 

 

29,941

 

 

 

25,435

 

 

 

16,462

 

 

 

11,431

 

 

 

8,440

 

Net interest income

 

 

208,005

 

 

 

115,649

 

 

 

108,255

 

 

 

96,671

 

 

 

78,943

 

Provision for credit losses

 

 

44,250

 

 

 

2,905

 

 

 

1,176

 

 

 

2,949

 

 

 

283

 

Noninterest income

 

 

80,684

 

 

 

44,956

 

 

 

39,208

 

 

 

40,081

 

 

 

34,030

 

Noninterest expense

 

 

165,170

 

 

 

97,063

 

 

 

89,412

 

 

 

85,351

 

 

 

71,093

 

Income before tax

 

 

79,269

 

 

 

60,637

 

 

 

56,875

 

 

 

48,452

 

 

 

41,597

 

Federal income tax

 

 

16,192

 

 

 

11,267

 

 

 

10,626

 

 

 

16,184

 

 

 

12,754

 

Net Income

 

 

63,077

 

 

 

49,370

 

 

 

46,249

 

 

 

32,268

 

 

 

28,843

 

Performance Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

0.96

%

 

 

1.50

%

 

 

1.52

%

 

 

1.13

%

 

 

1.20

%

Return on average equity

 

 

7.02

%

 

 

12.15

%

 

 

12.03

%

 

 

9.19

%

 

 

10.10

%

Interest rate spread (3)

 

 

3.33

%

 

 

3.64

%

 

 

3.79

%

 

 

3.74

%

 

 

3.61

%

Net interest margin (3)

 

 

3.52

%

 

 

3.93

%

 

 

3.98

%

 

 

3.88

%

 

 

3.74

%

Ratio of operating expense to average total assets

 

 

2.51

%

 

 

2.96

%

 

 

2.93

%

 

 

2.99

%

 

 

2.97

%

Efficiency ratio (3)

 

 

57.32

%

 

 

60.08

%

 

 

60.29

%

 

 

61.81

%

 

 

62.20

%

Other Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity to total assets at end of period

 

 

13.62

%

 

 

12.29

%

 

 

12.56

%

 

 

12.47

%

 

 

11.83

%

Average equity to average assets

 

 

13.62

%

 

 

12.37

%

 

 

12.61

%

 

 

12.32

%

 

 

11.91

%

Asset Quality Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing assets to total assets at end of

   period (2)

 

 

0.72

%

 

 

0.39

%

 

 

0.64

%

 

 

1.08

%

 

 

0.60

%

Allowance for credit losses on loans to total loans*

 

 

1.49

%

 

 

1.12

%

 

 

1.12

%

 

 

1.14

%

 

 

1.33

%

Net charge-offs (recoveries) to average loans

 

 

0.05

%

 

 

0.00

%

 

 

-0.02

%

 

 

0.10

%

 

 

-0.01

%

 

(1)

Current year allowance for credit losses are not comparable to prior year allowance for loan losses as a result of the adoption of CECL on January 1, 2020.   See Notes 2 and 7 to the Consolidated Financial Statements for additional information.  

(2)

Non-performing assets include non-accrual loans that are contractually past due 90 days or more and real estate, mobile homes and other assets acquired by foreclosure or deed-in-lieu thereof.

(3)

Refer to Non-GAAP Financial Measures in Item 7- Management’s Discussion and Analysis of Financial Condition and Results of Operations.

*

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

30

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements and Factors that Could Affect Future Results

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

This Item 7 presents information to assess the financial condition and results of operations of Premier. This item should be read in conjunction with the Consolidated Financial Statements and the supplemental financial data contained elsewhere in this Form 10-K.

Non-GAAP Financial Measures

In addition to results presented in accordance with accounting principles generally accepted in the United States (“GAAP”), this report includes non-GAAP financial measures. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the underlying performance and trends of the Company. The Company monitors the non-GAAP financial measures and the Company’s management believes such measures 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.

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.

31

 

Fully taxable-equivalent (“FTE”) is an adjustment to net interest income to reflect tax-exempt income on an equivalent before-tax basis.  The following tables present a reconciliation of non-GAAP measures to their respective GAAP measures for the years ended December 31, 2020 and 2019.

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

 

(In Thousands)

 

December 31,

2020

 

 

December 31,

2019

 

Net interest income (GAAP)

 

$

208,005

 

 

$

115,649

 

Add:  FTE adjustment

 

 

1,018

 

 

 

967

 

Net interest income on a FTE basis (1)

 

$

209,023

 

 

$

116,616

 

Noninterest income – less securities gains/(losses) (2)

 

$

79,130

 

 

$

44,932

 

Noninterest expense (3)

 

 

165,170

 

 

 

97,084

 

Average interest-earning assets (4)

 

 

5,931,965

 

 

 

2,969,662

 

Ratios:

 

 

 

 

 

 

 

 

Net interest margin (1) / (4)

 

 

3.52

%

 

 

3.93

%

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

 

 

57.32

%

 

 

60.10

%

 

Non-GAAP Financial Measures – Tangible Book Value

 

(In Thousands, except per share data)

 

December 31,

2020

 

 

December 31,

2019

 

Total Shareholders’ Equity (GAAP)

 

$

982,276

 

 

$

426,167

 

Less: Goodwill

 

 

(317,948

)

 

 

(100,069

)

     Intangible assets

 

 

(30,337

)

 

 

(3,772

)

Tangible common equity (1)

 

$

633,991

 

 

$

322,326

 

Common shares outstanding (2)

 

 

37,291

 

 

 

19,730

 

Tangible book value per share (1) / (2)

 

$

17.00

 

 

$

16.34

 

 

Overview

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

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

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

The Bank is an Ohio state-chartered bank headquartered in Youngstown, Ohio. It conducts operations through 78 banking center offices, 12 loan offices and two wealth offices in Ohio, Michigan, Indiana, Pennsylvania and West Virginia.  

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

HSB Capital provides mezzanine funding for customers of the Bank. Mezzanine loans are offered by HSB Capital to customers in the Company’s market area and are expected to be repaid from the cash flow from operations of the borrowing businesses.

32

 

First Insurance is an insurance agency that conducts business throughout the Company’s markets offering property and casualty insurance, life insurance and group health insurance.

First Defiance Risk Management insures the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible, in today’s insurance marketplace.  First Defiance Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions to help minimize the risk allocable to each participating insurer.

HSB Insurance was formed as a Delaware-based captive insurance company that insured against certain risks that were unique to the operations of UCFC and its subsidiaries.  The Merger and the existence of Premier Risk Management obviated the need for this subsidiary and the subsidiary was dissolved during the quarter ended September 30, 2020, with the remaining funds being returned to Premier.

Other Recent Developments

On January 31, 2020, Premier completed its previously announced acquisition of UCFC. At the effective time of the Merger, UCFC merged with and into Premier, with Premier surviving the Merger.  Immediately following the Merger, the Bank, acquired UCFC’s wholly owned bank subsidiary, Home Savings Bank, and UCFC’s wholly-owned insurance subsidiaries, HSB Insurance, LLC and United American Financial Services, Inc., each merged into First Insurance, with First Insurance surviving the mergers.

Regulation

The Company is subject to regulation, examination and oversight by the Federal Reserve Board (“Federal Reserve”) and the SEC.  The Bank is subject to regulation, examination and oversight by the Federal Deposit Insurance Corporation (“FDIC”) and the Division of Financial Institutions of the Ohio Department of Commerce (“ODFI”).  In addition, the Bank is subject to regulations of the Consumer Financial Protection Bureau. 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.

Financial Condition

Assets at December 31, 2020, totaled $7.21 billion compared to $3.47 billion at December 31, 2019, an increase of $3.74 billion or 108.8%. The increase in assets was a direct result of the Merger which resulted in significant increases in most balance sheet categories.  Some of the larger increases in assets include loans receivable, net of undisbursed loan funds and deferred fees and costs, which increased $2.7 billion, securities, which increased $454.3 million, goodwill, which increased $217.9 million, bank owned life insurance, which increased $69.2 million and cash and cash equivalents, which increased $28.0 million.  These increases were primarily the result of an increase in total deposits of $3.2 billion and equity of $556.1 million.  

Securities

The securities portfolio increased $454.3 million, or 160.3%, to $737.7 million at December 31, 2020. This increase is primarily a result of the acquisition of $262.8 million of available-for-sale securities pursuant to the Merger and purchases of $99.6 million.  The increase was largely offset by runoff, sales and amortization of $79.0 million.  For additional information regarding Premier’s investment securities see Note 5 to the Consolidated Financial Statements.

Loans

Loans receivable, net of undisbursed loan funds and deferred fees and costs, increased $2.71 billion, or 97.7%, to $5.49 billion at December 31, 2020. The increase was mainly due to $2.3 billion in loans acquired from the Merger. For more details on the loan balances, see Note 7 – Loans Receivable to the Consolidated Financial Statements.

The majority of Premier’s commercial real estate and commercial loans are to small- and mid-sized businesses. The combined commercial and commercial real estate loan portfolios totaled $3.58 billion and $2.08 billion at December 31, 2020 and 2019, respectively, and accounted for approximately 61.4% and 72.5% of Premier’s loan portfolio at the end of those respective periods.  Premier believes it has been able to establish itself as a leader in its market area in the commercial and commercial real estate lending area by hiring experienced lenders and providing a high level of customer service to its commercial lending clients.

The one-to-four family residential portfolio totaled $1.20 billion at December 31, 2020, compared with $324.8 million at the end of 2019, with the increase primarily due to the Merger. At the end of 2020, such loans comprised 20.5% of the total loan portfolio, up from 11.3% at December 31, 2019.  

Construction loans, which include one-to-four residential family and commercial real estate properties, increased to $667.6 million at December 31, 2020, compared to $305.3 million at December 31, 2019. These loans accounted for approximately 11.4% and 10.6% of the total loan portfolio at December 31, 2020 and 2019, respectively.  

Home equity and home improvement loans increased to $272.7 million at December 31, 2020, from $122.9 million at the end of 2019. At the end of 2020, those loans comprised 4.7% of the total loan portfolio, down from 4.3% at December 31, 2019.  

33

 

Consumer finance and mobile home loans were $120.7 million at December 31, 2020 up from $37.6 million at the end of 2019.  These loans accounted for approximately 2.1% and 1.3% of the total loan portfolio at December 31, 2020 and 2019, respectively.

In order to properly assess the collateral dependent loans included in its loan portfolio, the Company has established policies regarding the monitoring of the collateral underlying such loans.  The Company requires an appraisal that is less than one year old for all new collateral dependent real estate loans, and all renewed collateral dependent real estate loans where significant new money is extended.  The appraisal process is handled by the Bank’s Credit Department, which selects the appraiser and orders the appraisal.  Premier’s loan policy prohibits the account officer from talking or communicating with the appraiser to insure that the appraiser is not influenced by the account officer in any way in making a determination of value.

The Bank generally does not require updated appraisals for performing loans unless significant new money is requested by the borrower.

When a collateral dependent loan is downgraded to classified status, the Bank reviews the most current appraisal on file and if appropriate, based on the Bank’s assessment of the appraisal, such as age, market, etc. the Bank will discount the appraisal amount to a more appropriate current value based on inputs from lenders and realtors. This amount may then be discounted further by the Bank’s estimation of the selling costs.  In most instances, if the appraisal is more than twelve to fifteen months old, a new appraisal may be required. Finally, the Bank assesses whether there is any collateral short fall, taking into consideration guarantor support and liquidity, and determines if a charge-off is necessary.  

All loans over 90 days past due and/or on non-accrual are classified as non-performing loans. Non-performing status automatically occurs in the month in which the 90-day delinquency occurs. When a collateral dependent loan moves to non-performing status, the Bank generally gets a new third party appraisal and charges the loan down appropriately based upon the new appraisal and an estimate of costs to liquidate the collateral.  All properties that are moved into the Other Real Estate Owned (“OREO”) category are supported by current appraisals, and the OREO is carried at the lower of cost or fair value, which is determined based on appraised value less the Bank’s estimate of the liquidation costs.

The Bank does not adjust any appraisals upward without written documentation of this valuation change from the appraiser.  When setting reserves and charge-offs on classified loans, appraisal values may be discounted downward based upon the Bank’s experience with liquidating similar properties.  

Appraisals are received within approximately 60 days after they are requested.  The Bank’s Special Assets Committee reviews the amount of each new appraisal and makes any necessary charge-off decisions at its meeting prior to the end of each quarter.

Any partially charged-off collateral dependent loans are considered non-performing, and as such, would need to show an extended period of time with satisfactory payment performance as well as cash flow coverage capability supported by current financial statements before the Bank will consider an upgrade to performing status.   The Bank may consider moving the loan to accruing status after approximately six months of satisfactory payment performance.

The Bank monitors and tracks its loan to value quarterly to determine accuracy and any necessary charge-offs. Based on these results, changes may occur in the processes used.

Loan modifications constitute a troubled debt restructuring (“TDR”) if the Bank, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. For  loans  that  are  considered  TDRs and the balance is over $500,000, the Bank either computes  the  present value of expected future cash flows discounted at the original loan’s effective interest rate or it may measure impairment based on the fair  value  of  the  collateral.   For those loans measured for impairment utilizing the present value of future cash flows method, any discount is carried as a specific reserve in the allowance for credit losses.  For those loans measured for impairment utilizing the fair value of the collateral, any shortfall is charged-off. For loans that are considered TDRs and the balance is under $500,000 a specific reserve is carried in the allowance for credit losses based on a general reserve analysis.  Loan modification made as a result of COVID-19 may not be deemed TDR if certain criteria are met based on regulatory guidance.  As of December 31, 2020, and December 31, 2019, the Bank had $7.2 million and $8.5 million, respectively, of loans that were still performing and which were classified as TDRs.

Allowance for Credit Losses (“ACL”)

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

34

 

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 individually 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 usually charged off.  The Company also considers the impacts of any Small Business Administration (“SBA”) or Farm Service Agency (“FSA”) guarantees. The specific reserve portion of the ACL was $4,274,000 at December 31, 2020, and $422,000 at December 31, 2019.

The second component is a general reserve, which is used to record credit loss reserves for groups of homogenous loans in which the Company estimates the potential losses over the contractual lifetime of the loan adjusted for prepayment tendencies.  In addition, the future economic environment is incorporated in projections 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 13 different loan pools to allocate the ACL. Residential real estate is further segregated into owner occupied and nonowner occupied for ACL.  Commercial real estate is split into owner occupied, nonowner occupied, multifamily, agriculture land and other commercial real estate.  Commercial credits are comprised of commercial working capital, agriculture production and other commercial credits.  The Company utilizes three different methodologies to analyze loan pools.  

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

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

 

•

Becomes 90 days or more past due;

 

•

Is placed on nonaccrual;

 

•

Is marked as a TDR; 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 four most recent quarters.  PD/LGD is determined on a dollar-ratio basis, measuring the ratio of net charged off principal to defaulted principal.  

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

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

The quantitative general allowance increased to $29.2 million at December 31, 2020, up from $6.6 million at December 31, 2019, due to the impact of the Merger, including the larger loan portfolio, as well as the adoption of CECL and the impact of the economic downturn as a result of the COVID-19 pandemic.  .

In addition to the quantitative analysis, a qualitative analysis is performed each quarter to provide additional general reserves on the loan portfolios 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.

35

 

ENVIRONMENT

 

3)

Changes in the nature and volume in the loan portfolio.

 

4)

The existence and effect of any concentrations of credit and changes in the level of such concentrations.

 

5)

Changes in lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices.

 

6)

Changes in the quality and breadth of the loan review process.

 

7)

Changes in the experience, ability and depth of lending management and staff.

RISK

 

8)

Changes in the trends of the volume and severity of delinquent and classified loans, and changes in the volume of non-accrual loans, TDRs, and other loan modifications.

 

9)

Changes in the political and regulatory environment.

The qualitative analysis indicated a general reserve of $48.8 million at December 31, 2020, compared to $24.2 million at December 31, 2019.  The increase was mainly due to the Merger, which increased the pool of loans to which the qualitative reserves are applied, as well as changes in the economy as a result of the COVID-19 pandemic.  Management reviewed the overall economic, environmental and risk factors and determined that it was appropriate to make adjustments to these sub-factors based on that review.    

The economic factors for all loan segments increased in 2020, primarily due to a recession in the national economy, an increase in local unemployment levels and uncertainty in global economic conditions.

The environmental factors for all loan segments decreased in 2020, mainly due to decreases in credit concentrations and a strengthened credit function.

The risk factors for all loan segments decreased in 2020 primarily due to the tightening of lending standards.  

The Company’s general reserve percentages for main loan segments, not otherwise classified, ranged from 0.87% for construction loans to 1.74% for other residential real estate loans at December 31, 2020.

Under CECL, 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.  On January 31, 2020, the Company acquired PCD loans with a fair value of $79.1 million, a recorded adjustment on yield of $4.1 million and an increase to the ACL of $7.7 million.  

As a result of the quantitative and qualitative analyses, along with the change in specific reserves and the increase in net charge-offs during the year, the Company’s provision for credit losses as of December 31, 2020 was $43.1 million, which included $25.9 million attributable to the acquisition in the first quarter.  This is compared to $2.9 million for December 31, 2019. The ACL was $82.0 million at December 31, 2020, and $31.2 million at December 31, 2019. The ACL represented 1.49% of loans, net of undisbursed loan funds and deferred fees and costs at December 31, 2020, and 1.12% at December 31, 2019.  In management’s opinion, the overall ACL of $82.0 million as of December 31, 2020, was adequate to cover anticipated losses over the lifetime of the loan.  

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. During the year ended December 31, 2020, there were no write-downs of real estate held for sale. Management believes that the values recorded at December 31, 2020, for OREO and repossessed assets represent the realizable value of such assets.

Total classified loans increased to $90.4 million at December 31, 2020, compared to $34.6 million at December 31, 2019, an increase of $55.8 million, primarily due to the Merger.

The Company’s ratio of ACL to non-performing loans was 158.8% at December 31, 2020, compared to 232.5% at December 31, 2019. Management monitors collateral values of all loans included on the watch list that are collateral dependent and believes that allowances for such loans at December 31, 2020, were appropriate.  Of the $51.7 million in non-accrual loans at December 31, 2020, $24.7 million or 47.8% are less than 90 days past due.

At December 31, 2020, the Company had total non-performing assets of $52.0 million, compared to $13.6 million at December 31, 2019, primarily due to the Merger. Non-performing assets include loans that are on non-accrual, OREO and other assets held for sale.  OREO balance was $343,000 and $100,000 as of December 31, 2020 and 2019, respectively.

36

 

The net charge-offs and non-accrual loan balances as a percentage of total are presented in the table below at December 31, 2020 and 2019.

 

 

 

For the Twelve Months Ended

 

 

As of December 31,

 

 

 

December 31, 2020

 

 

2020

 

 

 

Net

 

 

% of Total Net

 

 

 

 

 

 

 

 

 

 

 

Charge-offs

 

 

Charge-offs

 

 

Non-accrual

 

 

% of Total Non-

 

 

 

(Recoveries)

 

 

(Recoveries)

 

 

Loans

 

 

Accrual Loans

 

 

 

(In Thousands)

 

 

(In Thousands)

 

Residential real estate

 

$

(39

)

 

 

-1.65

%

 

$

11,043

 

 

 

21.00

%

Commercial real estate

 

 

(1,287

)

 

 

-54.30

%

 

 

12,058

 

 

 

23.00

%

Construction

 

 

1

 

 

 

0.04

%

 

 

806

 

 

 

2.00

%

Commercial

 

 

(1,163

)

 

 

-49.07

%

 

 

1,355

 

 

 

3.00

%

Home equity and improvement

 

 

(98

)

 

 

-4.14

%

 

 

1,869

 

 

 

4.00

%

Consumer finance

 

 

104

 

 

 

4.39

%

 

 

1,586

 

 

 

3.00

%

PCD

 

 

4,852

 

 

 

204.73

%

 

 

22,965

 

 

 

44.00

%

Total

 

$

2,370

 

 

 

100.00

%

 

$

51,682

 

 

 

100.00

%

 

 

 

For the Twelve Months Ended

 

 

As of December 31,

 

 

 

2019

 

 

2019

 

 

 

Net

 

 

% of Total Net

 

 

 

 

 

 

 

 

 

 

 

Charge-offs

 

 

Charge-offs

 

 

Non-accrual

 

 

% of Total Non-

 

 

 

(Recoveries)

 

 

(Recoveries)

 

 

Loans

 

 

Accrual Loans

 

 

 

(In Thousands)

 

 

(In Thousands)

 

Residential

 

$

322

 

 

 

4600.00

%

 

$

2,411

 

 

 

18.00

%

Construction

 

 

—

 

 

 

0.00

%

 

 

—

 

 

 

0.00

%

Commercial real estate

 

 

(497

)

 

 

-7100.00

%

 

 

7,609

 

 

 

57.00

%

Commercial

 

 

(114

)

 

 

(1,628.57

)%

 

 

2,961

 

 

 

22.00

%

Consumer finance

 

 

221

 

 

 

3157.14

%

 

 

7

 

 

 

0.00

%

Home equity and improvement

 

 

61

 

 

 

871.43

%

 

 

449

 

 

 

3.00

%

Total

 

$

(7

)

 

 

100.00

%

 

$

13,437

 

 

 

100.00

%

 

The following table sets forth information concerning the allocation of Premier’s allowance for credit losses by loan categories at December 31, 2020 and 2019.

 

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

Percent of

 

 

 

 

 

 

Percent of

 

 

 

 

 

 

 

total loans

 

 

 

 

 

 

total loans

 

 

 

Amount

 

 

by category

 

 

Amount

 

 

by category

 

 

 

(Dollars in Thousands)

 

Residential real estate

 

$

17,534

 

 

 

20.5

%

 

$

2,867

 

 

 

11.3

%

Commercial real estate

 

 

43,417

 

 

 

40.8

%

 

 

16,302

 

 

 

52.4

%

Construction

 

 

2,741

 

 

 

11.4

%

 

 

996

 

 

 

10.6

%

Commercial loans

 

 

11,665

 

 

 

20.6

%

 

 

9,003

 

 

 

20.1

%

Home equity and improvement loans

 

 

4,739

 

 

 

4.7

%

 

 

1,700

 

 

 

4.3

%

Consumer loans

 

 

1,983

 

 

 

2.1

%

 

 

375

 

 

 

1.3

%

 

 

$

82,079

 

 

 

100.0

%

 

$

31,243

 

 

 

100.0

%

 

Loans Acquired with Impairment

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.

37

 

High Loan-to-Value Mortgage Loans

The majority of Premier’s mortgage loans are collateralized by one-to-four-family residential real estate, have loan-to-value ratios of 80% or less, and are made to borrowers in good credit standing. The Bank usually requires residential mortgage loan borrowers whose loan-to-value is greater than 80% to purchase private mortgage insurance (“PMI”). Management also periodically reviews and monitors the financial viability of its PMI providers.

The Bank originates and retains a limited number of residential mortgage loans with loan-to-value ratios that exceed 80% where PMI is not required if the borrower possesses other demonstrable strengths. The loan-to-value ratios on these loans are generally limited to 85% and exceptions must be approved by the Bank’s Chief Credit Officer. Management monitors the balance of one-to-four family residential loans, including home equity loans and committed lines of credit that exceed certain loan to value standards (90% for owner occupied residences, 85% for non-owner occupied residences and one-to-four family construction loans, 75% for developed land and 65% for raw land).  These loans are generally paying as agreed.

Premier does not make interest-only, first-mortgage residential loans, nor does it have residential mortgage loan products or other consumer products that allow negative amortization.

Goodwill and Intangible Assets

Goodwill was $317.9 million at December 31, 2020, and $100.1 million at December 31, 2019 an increase of $217.8 million that is primarily attributable to the Merger.  Core deposit intangibles and other intangible assets increased to $30.3 million at December 31, 2020, compared to $3.8 million at December 31, 2019.  During 2020, changes to the core deposit intangibles and other intangibles resulted directly from the Merger and were partially offset by the recognition of $6.4 million of amortization.  No impairment of goodwill was recorded in 2020 or 2019.

Deposits

Total deposits at December 31, 2020, were $6.05 billion compared to $2.87 billion at December 31, 2019, an increase of $3.2 billion, or 110.7%, which includes $2.08 billion from the Merger.  Noninterest-bearing checking accounts grew by $966.9 million, interest-bearing checking accounts and money markets grew by $1.4 billion, savings increased by $397.3 million and retail certificates of deposit grew by $383.6 million.  Management can utilize the national market for certificates of deposit to supplement its funding needs if necessary. For more details on the deposit balances in general see Note 11 – Deposits to the Consolidated Financial Statements.

Borrowings

Premier did not have any FHLB advances or securities sold with agreements to repurchase at December 31, 2020, compared to $85.2 million and $3.0 million, respectively at December 31, 2019. The increase in deposits allowed the Bank to pay down all outstanding advances in 2020.  

Subordinated Debentures

Subordinated debentures were $84.9 million at December 31, 2020, an increase of $48.8 million from the December 31 2019 balance of $36.1 million.  In 2020, the Company issued $50.0 million aggregate principal amount fixed-to-floating rate subordinated notes due in 2030 in a private offering exempt from the registration requirements under the Securities Act of 1933, as amended.  These notes carry a fixed rate of 4.00% for five years then a floating rate equal to the three-month SOFR rate plus 388.5 basis points.  The Company may, at its option, redeem the notes, in whole or part, from time to time, subject to certain conditions, beginning on September 30, 2025.  The net proceeds of the sale were approximately $48.8 million, after deducting the estimated offering expenses.  

Equity

Total stockholders’ equity increased $556.1 million to $982.3 million at December 31, 2020, compared to $426.2 million at December 31, 2019. The increase in stockholders’ equity was the result of the $527.3 million in stock issued for the Merger and recording net income of $63.1 million along with an increase in Other Comprehensive Income.   This was partially offset by the payment of $32.9 million of common stock dividends and the repurchase of 435,000 shares of common stock totaling $10.2 million.

Results of Operations

Summary

Premier reported net income of $63.1 million for the year ended December 31, 2020, compared to $49.4 million and $46.2 million for the years ended December 31, 2019 and 2018, respectively.  On a diluted per common share basis, Premier earned $1.75 in 2020, $2.48 in 2019 and $2.26 in 2018. The results for 2020 include eleven months of income and expenses from UCFC compared to none in 2019 as well as $1.01 in Merger-related expense and additional provision cost as a result of the Merger and the adoption of CECL.  

38

 

Net Interest Income

Premier’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 average interest-earning assets and interest-bearing liabilities.

Net interest income was $208.0 million for the year ended December 31, 2020, compared to $115.6 million and $108.3 million for the years ended December 31, 2019 and 2018, respectively. The tax-equivalent net interest margin was 3.52%, 3.93% and 3.98% for the years ended December 31, 2020, 2019 and 2018, respectively. The margin decreased 41 basis points between 2020 and 2019 primarily due to the drop in treasury rates along with the declines in the federal funds rates impacting asset yields more negatively than deposit costs.  Interest-earning asset yields decreased 75 basis points (to 4.03% in 2020 from 4.78% in 2019) but the cost of interest- bearing liabilities between the two periods only decreased 44 basis points (to 0.70% in 2020 from 1.14% in 2019).

Total interest income increased by $96.9 million, or 68.7%, to $237.9 million for the year ended December 31, 2020, from $141.1 million for the year ended December 31, 2019. This increase was primarily due to loans acquired in the Merger and the impact of acquisition marks and related accretion.  Interest income from loans increased to $225.1 million for 2020 compared to $130.9 million in 2019, which represents an increase of 72.0%.  The average balance of loans receivable increased $2.6 billion to $5.2 billion at December 31, 2020, up from $2.6 billion at December 31, 2019.  

During the same period, the average balance of investment securities increased to $544.6 million in 2020 from $294.0 million for the year ended December 31, 2019, primarily as a result of the Merger.  Interest income from investment securities increased to $11.5 million in 2020 compared to $8.2 million in 2019.

Interest expense increased by $4.5 million to $29.9 million in 2020 compared to $25.4 million 2019. This increase was mainly due to a $2.1 billion increase in the average balance of interest-bearing liabilities offset by a 44 basis point decrease in the average cost of interest-bearing liabilities in 2020. The average balance of interest-bearing deposits increased $1.9 billion to $4.1 billion at December 31, 2020, up from $2.1 billion at December 31, 2019.  Interest expense related to interest-bearing deposits was $26.9 million in 2020 compared to $22.6 million in 2019.  

Interest expense on FHLB advances and other interest-bearing funding sources was $1.7 million and $32,000 respectively, in 2020 and $1.4 million and $25,000, respectively in 2019.  The increase in FHLB advance expense was due to the Merger.   Interest expense recognized by the Company related to subordinated debentures was $1.3 million in 2020 and $1.4 million in 2019.

Total interest income increased by $16.4 million, or 13.1%, to $141.1 million for the year ended December 31, 2019, from $124.7 million for the year ended December 31, 2018. This increase was primarily due to solid loan growth, the increase in asset yields and a more profitable earning asset mix.  Interest income from loans increased to $130.9 million for 2019 compared to $114.4 million in 2018, which represents an increase of 14.4%.  The average balance of loans receivable increased $214.9 million to $2.6 billion at December 31, 2019, from $2.4 billion at December 31, 2018.  

During the same period, the average balance of investment securities increased to $294.0 million in 2019 from $280.0 million for the year ended December 31, 2018. Interest income from investment securities increased to $8.2 million in 2019 compared to $8.1 million in 2018. The overall duration of investments decreased to 2.75 years at December 31, 2019, from 4.29 years at December 31, 2018.

Interest expense increased by $9.0 million in 2019 compared to 2018, to $25.4 million from $16.5 million. This increase was mainly due to a 34 basis point increase in the average cost of interest-bearing liabilities in 2019 and a $171.9 million increase in the average balance of interest-bearing liabilities. The average balance of interest-bearing deposits increased $177.3 million to $2.12 billion at December 31, 2019, from $1.95 billion at December 31, 2018.  Interest expense related to interest-bearing deposits was $22.6 million in 2019 compared to $13.9 million in 2018.  

Interest expenses on FHLB advances and other interest-bearing funding sources were $1.4 million and $25,000 respectively, in 2019 and $1.3 million and $23,000, respectively, in 2018.  The increase in FHLB advance expense was due to advances that matured in 2019 being replaced with advances with a higher interest rate than in 2018.  Interest expense recognized by the Company related to subordinated debentures was $1.4 million in 2019 and $1.3 million in 2018.

39

 

The following table shows an analysis of net interest margin on a tax equivalent basis for the years ended December 31, 2020, 2019 and 2018:

 

 

 

Year Ended December 31

 

 

 

(Dollars In Thousands)

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

Average

Balance

 

 

Interest(1)

 

 

Yield/

Rate

 

 

Average

Balance

 

 

Interest(1)

 

 

Yield/

Rate

 

 

Average

Balance

 

 

Interest(1)

 

 

Yield/

Rate

 

Interest-Earning Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable (4)

 

$

5,224,357

 

 

$

225,179

 

 

 

4.31

%

 

$

2,597,864

 

 

$

130,943

 

 

 

5.04

%

 

$

2,382,941

 

 

$

114,500

 

 

 

4.80

%

Securities (5)

 

 

544,643

 

 

 

12,393

 

 

 

2.28

%

 

 

294,027

 

 

 

9,060

 

 

 

3.08

%

 

 

279,867

 

 

 

9,036

 

 

 

3.23

%

Interest-earning deposits

 

 

124,011

 

 

 

435

 

 

 

0.35

%

 

 

65,424

 

 

 

1,395

 

 

 

2.13

%

 

 

63,261

 

 

 

1,270

 

 

 

2.01

%

FHLB stock

 

 

38,954

 

 

 

958

 

 

 

2.46

%

 

 

12,347

 

 

 

653

 

 

 

5.29

%

 

 

15,146

 

 

 

915

 

 

 

6.04

%

Total interest-earning assets

 

 

5,931,965

 

 

 

238,965

 

 

 

4.03

%

 

 

2,969,662

 

 

 

142,051

 

 

 

4.78

%

 

 

2,741,215

 

 

 

125,721

 

 

 

4.59

%

Noninterest-earning assets

 

 

660,668

 

 

 

 

 

 

 

 

 

 

 

314,118

 

 

 

 

 

 

 

 

 

 

307,310

 

 

 

 

 

 

 

 

 

Total Assets

 

$

6,592,633

 

 

 

 

 

 

 

 

 

 

$

3,283,780

 

 

 

 

 

 

 

 

 

 

$

3,048,525

 

 

 

 

 

 

 

 

 

Interest-Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

$

4,050,958

 

 

$

26,918

 

 

 

0.66

%

 

$

2,122,439

 

 

$

22,613

 

 

 

1.07

%

 

$

1,945,114

 

 

$

13,897

 

 

 

0.71

%

FHLB advances

 

 

187,745

 

 

 

1,691

 

 

 

0.90

%

 

 

73,013

 

 

 

1,443

 

 

 

1.98

%

 

 

73,421

 

 

 

1,261

 

 

 

1.72

%

Subordinated debentures

 

 

48,471

 

 

 

1,300

 

 

 

2.68

%

 

 

36,083

 

 

 

1,354

 

 

 

3.75

%

 

 

36,083

 

 

 

1,281

 

 

 

3.55

%

Other borrowings

 

 

6,047

 

 

 

32

 

 

 

0.53

%

 

 

3,924

 

 

 

25

 

 

 

0.64

%

 

 

8,947

 

 

 

23

 

 

 

0.26

%

Total interest-bearing

   liabilities

 

 

4,293,221

 

 

 

29,941

 

 

 

0.70

%

 

 

2,235,459

 

 

 

25,435

 

 

 

1.14

%

 

 

2,063,565

 

 

 

16,462

 

 

 

0.80

%

Noninterest-bearing

   demand deposits

 

 

1,311,478

 

 

 

—

 

 

 

—

 

 

 

594,785

 

 

 

—

 

 

 

—

 

 

562,439

 

 

 

—

 

 

 

—

 

Total including non-

   interest- bearing demand

   deposits

 

 

5,604,699

 

 

 

29,941

 

 

 

0.53

%

 

 

2,830,244

 

 

 

25,435

 

 

 

0.90

%

 

 

2,626,004

 

 

 

16,462

 

 

 

0.63

%

Other noninterest liabilities

 

 

89,842

 

 

 

 

 

 

 

 

 

 

 

47,250

 

 

 

 

 

 

 

 

 

 

38,216

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

5,694,541

 

 

 

 

 

 

 

 

 

 

 

2,877,494

 

 

 

 

 

 

 

 

 

 

 

2,664,220

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

898,092

 

 

 

 

 

 

 

 

 

 

 

406,286

 

 

 

 

 

 

 

 

 

 

 

384,305

 

 

 

 

 

 

 

 

 

Total liabilities and

   stockholders’ equity

 

$

6,592,633

 

 

 

 

 

 

 

 

 

 

$

3,283,780

 

 

 

 

 

 

 

 

 

 

$

3,048,525

 

 

 

 

 

 

 

 

 

Net interest income;

   interest  rate spread (2)

 

 

 

 

 

$

209,024

 

 

 

3.33

%

 

 

 

 

 

$

116,616

 

 

 

3.64

%

 

 

 

 

 

$

109,259

 

 

 

3.79

%

Net interest margin (3)

 

 

 

 

 

 

 

 

 

 

3.52

%

 

 

 

 

 

 

 

 

 

 

3.93

%

 

 

 

 

 

 

 

 

 

 

3.98

%

Average interest-earning

   assets to average interest-

   bearing liabilities

 

 

 

 

 

 

 

 

 

 

138.2

%

 

 

 

 

 

 

 

 

 

 

132.8

%

 

 

 

 

 

 

 

 

 

 

132.8

%

 

(1)

Interest on certain tax exempt loans and tax-exempt securities in 2020, 2019 and 2018 is not taxable for Federal income tax purposes. In order to compare the tax-exempt yields on these assets to taxable yields, the interest earned on these assets is adjusted to a pre-tax equivalent amount based on the marginal corporate federal income tax rate of 21%.

(2)

Interest rate spread is the difference in the yield on interest-earning assets and the cost of interest-bearing liabilities.

(3)

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

(4)

For the purpose of the computation for loans, non-accrual loans are included in the average loans outstanding.

(5)

Securities yield = annualized interest income divided by the average balance of securities, excluding average unrealized gains/losses.

See Non-GAAP Financial Measure discussion above for further details.

40

 

The following table describes the extent to which changes in interest rates and changes in volume of interest-related assets and liabilities have affected Premier’s tax-equivalent interest income and interest expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior year rate), (ii) change in rate (change in rate multiplied by prior year volume), and (iii) total change in rate and volume. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.

 

 

 

Year Ended December 31

 

 

 

(In Thousands)

 

 

 

2020 vs. 2019

 

 

2019 vs. 2018

 

 

 

Increase

(decrease)

due to rate

 

 

Increase

(decrease)

due to volume

 

 

Total

increase

(decrease)

 

 

Increase

(decrease)

due to rate

 

 

Increase

(decrease)

due to volume

 

 

Total

increase

(decrease)

 

Interest-Earning Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

(21,374

)

 

$

115,610

 

 

$

94,236

 

 

$

5,788

 

 

$

10,655

 

 

$

16,443

 

Securities

 

 

(2,844

)

 

 

6,177

 

 

 

3,333

 

 

 

(422

)

 

 

446

 

 

 

24

 

Interest-earning deposits

 

 

(1,669

)

 

 

709

 

 

 

(960

)

 

 

81

 

 

 

44

 

 

 

125

 

FHLB stock

 

 

(499

)

 

 

804

 

 

 

305

 

 

 

(105

)

 

 

(157

)

 

 

(262

)

Total interest-earning assets

 

$

(26,386

)

 

$

123,300

 

 

$

96,914

 

 

$

5,342

 

 

$

10,988

 

 

$

16,330

 

Interest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

(10,774

)

 

$

15,079

 

 

$

4,305

 

 

$

7,352

 

 

$

1,364

 

 

$

8,716

 

FHLB advances

 

 

(1,102

)

 

 

1,351

 

 

 

249

 

 

 

189

 

 

 

(7

)

 

 

182

 

Subordinated Debentures

 

 

(446

)

 

 

392

 

 

 

(54

)

 

 

73

 

 

 

—

 

 

 

73

 

Notes Payable

 

 

(5

)

 

 

12

 

 

 

7

 

 

 

20

 

 

 

(18

)

 

 

2

 

Total interest- bearing liabilities

 

$

(12,327

)

 

$

16,834

 

 

$

4,507

 

 

$

7,634

 

 

$

1,339

 

 

$

8,973

 

Increase in net interest income

 

 

 

 

 

 

 

 

 

$

92,407

 

 

 

 

 

 

 

 

 

 

$

7,357

 

 

(1)

The change in interest rates due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each.

Provision for credit losses – Premier’s provision for credit losses was $43.1 million for the year ended December 31, 2020, compared to $2.9 million for December 31, 2019, and $1.2 million for December 31, 2018.  The increase in provision for 2020 includes $25.9 million related to acquisition accounting under CECL for the Merger. The remaining increase is generally due to the larger loan portfolio post-Merger and the impact of the COVID-19 pandemic.

Provisions for credit losses are charged to earnings to bring the total allowance for credit losses to a level deemed appropriate by management to absorb anticipated losses over the life of the loan. Factors considered by management include identifiable risk in the portfolios, historical experience, the volume and type of lending conducted by Premier, the amount of non-performing loans, the amount of loans graded by management as substandard, doubtful, or loss, general economic conditions (particularly as they relate to Premier’s market areas) and other factors related to the collectability of Premier’s loan portfolio. See also Allowance for Credit Losses in this Management’s Discussion and Analysis and Note 7 to the Consolidated Financial Statements.

Noninterest Income – Noninterest income increased by $35.7 million, or 79.5%, in 2020 to $80.7 million up from $45.0 million for the year ended December 31, 2019.  The increase is primarily due to the Merger with 11 months of combined operations in 2020 compared to none in 2019. Noninterest income decreased by $873 million, or 2.2%, in 2019 compared to the $40.1 million recognized in 2018.

Service fees and other charges increased to $21.4 million for the year ended December 31, 2020, from $14.0 million for 2019. The increase in service fees and other charges in 2019 is primarily due to the Merger.  

41

 

Noninterest income also includes gains, losses and impairment on investment securities. In 2019, Premier realized a $1.6 million gain on sale of securities compared to a $24,000 gain in 2019 and a gain of $173,000 for 2018.

Mortgage banking income includes gains from the sale of mortgage loans, fees for servicing mortgage loans for others, an offset for amortization of mortgage servicing rights, and adjustments for impairment in the value of mortgage servicing rights. Mortgage banking income totaled $28.2 million, $9.5 million and $7.0 million in 2020, 2019 and 2018, respectively. The $18.7 million increase in 2020 from 2019 was primarily attributable to an increase in the gain on sale of loans of $20.5 million and a $3.5 million increase in mortgage servicing revenue offset by an increase of $5.7 million in mortgage servicing rights amortization expense and a $7.7 million negative change in the valuation adjustments on mortgage servicing rights.  Premier originated more residential mortgages for sale into the secondary market in 2020 compared with 2019 as a result of the Merger and due to increased refinance activity as long term interest rates fell in 2020.  The balance of the mortgage servicing right valuation allowance was $8.0 million at the end of 2020.

The $2.4 million increase in 2019 from 2018 is primarily attributable to an increase in the gain on sale of loans of $3.2 million offset by an increase of $468,000 in mortgage servicing rights amortization expense and a $366,000 negative change in the valuation adjustments on mortgage servicing rights.  Premier originated more residential mortgages for sale into the secondary market in 2019 compared with 2018 as long term interest rates fell resulting in more refinance activity.  The balance of the mortgage servicing right valuation allowance was $534,000 at the end of 2019.

Gains on the sale of non-mortgage loans, which include SBA and FSA loans, totaled $324,000 in 2020 compared to $226,000 in 2019 and $317,000 in 2018.  Fluctuations in the volume of eligible SBA loans were the reasons for the difference in income year to year to year.

Insurance commission income increased to $16.8 million at December 31, 2020, up $2.7 million from $14.1million in 2019 primarily as a result of the Merger.  Insurance commission income was flat between 2019 and 2018 at $14.1 million.  

Income from bank owned life insurance (“BOLI”) increased $1.1 million in 2020 to $3.3 million up from $2.2 million in 2019. Income in 2018 was $1.8 million.    

Wealth income increased $3.1 million to $6.2 million in 2020 up from $3.1 million in 2019 and $2.9 million in 2018.  The increase in 2020 is due to the Merger and was primarily driven by an increase in trust revenue of $1.7 million and securities commissions of $1.3 million.  

Other noninterest income increased $1.2 million to $3.0 million in 2020 compared to $1.8 million in 2019 and $(222,000) in 2018.  The increase in 2020 is primarily attributable to the Merger.  The increase in 2019 is primarily attributable to a $907,000 increase in value on deferred compensation plan assets compared to a $388,000 decrease in value on deferred compensation plan assets in 2018. Stock market performance determines the increase or decrease in the deferred compensation plan assets and can be highly volatile.    

Noninterest Expense – Total noninterest expense for 2020 was $165.2 million compared to $97.1 million for the year ended December 31, 2019, and $89.3 million for the year ended December 31, 2018.  The increase is primarily due to the Merger with 11 months of combined operations in 2020 compared to none in 2019 or 2018.

Compensation and benefits increased $20.0 million, or 35.1%, to $77.2 million in 2020 up from $57.2 million in 2019.  The increase is mainly attributable to an increase in staff from the Merger.  Merger costs related to the acquisition and integration of UCFC increased $18.1 million to $19.5 million for 2020 compared to $1.4 million in 2019.  The amortization of intangibles increased $5.3 million to $6.4 million at the end of 2020 compared to $1.1 million in 2019 as a result of an increase in intangibles from the Merger.  Occupancy expense increased $7.3 million, to $16.3 million in 2020 compared to $9.0 million in 2019, financial institutions tax increased $2.0 million to $4.2 million in 2020 from $2.2 million in 2019 and data processing expense increased $6.8 million to $14.9 million in 2020 from $8.1 million in 2019.  The FDIC insurance premium increased to $3.4 million from $484,000 as a result of the Merger and an increase in assets from the Paycheck Protection Program (“PPP”) lending program.  Other noninterest expenses increased $5.7 million to $23.3 million in 2020 from $17.6 million in 2019.  

42

 

Compensation and benefits increased $4.6 million, or 8.8%, to $57.2 million in 2019 from $52.6 million in 2018.  The increase is mainly related to merit increases and increases in health care. Occupancy expense increased $386,000, to $9.0 million in 2019 compared to $8.6 million in 2018 while data processing expense decreased $500,000 to $8.1 million in 2019 from $8.6 million in 2018.  Other noninterest expenses increased $3.7 million to $22.3 million in 2019 from $18.6 million in 2018.  The increase is due to one-time acquisition related charges associated with the acquisition of UCFC, which were $1.4 million in 2019 compared to zero in 2018.  In addition, 2019 saw a $2.2 million increase in expense for an increase in the liability associated with the deferred compensation plan year over year as a result of the stock market performance in 2019 compared to 2018.  See Note 19 to the Consolidation Financial Statements for further details.

Income Taxes – Income taxes totaled $16.2 million in 2020 compared to $11.3 million in 2019 and $10.6 million in 2018. The effective tax rates for those years were 20.4%, 18.6%, and 18.7%, respectively. The tax rate is lower than the statutory 21% tax rate for the Company mainly because of investments in tax-exempt securities. The earnings on tax-exempt securities are not subject to federal income tax. See Note 18 – Income Taxes to the Consolidated Financial Statements for further details.

Concentrations of Credit Risk  

Financial institutions such as Premier generate income primarily through lending and investing activities. The risk of loss from lending and investing activities includes the possibility that losses may occur from the failure of another party to perform according to the terms of the loan or investment agreement. This possibility is known as credit risk.

Lending or investing activities that concentrate assets in a way that exposes the Company to a material loss from any single occurrence or group of occurrences increases credit risk. Diversifying loans and investments to prevent concentrations of risks is one way a financial institution can reduce potential losses due to credit risk. Examples of asset concentrations would include multiple loans made to a single borrower and loans of inappropriate size relative to the total capitalization of the institution. Management believes adherence to its loan and investment policies allows it to control its exposure to concentrations of credit risk at acceptable levels. As of December 31, 2020. Premier’s loan portfolio was concentrated geographically in its northeast, northwest and central Ohio, northeast Indiana, and southeast Michigan market areas. Management has also identified lending for income-generating rental properties within commercial real estate as an industry concentration. Total loans for income-generating rental property totaled $1.9 billion at December 31, 2020, which represents 33.1% of the Company’s loan portfolio. Management believes it has the skill and experience to manage any risks associated with this type of lending. Loans in this category are generally paying as agreed without any unusual or unexpected levels of delinquency. The delinquency rate in this category, which is any loan 30 days or more past due, was 0.34% at December 31, 2020. There are no other industry concentrations that exceed 10% of the Company’s loan portfolio.

Liquidity and Capital Resources

The Company’s primary source of liquidity is its core deposit base, raised through the Bank’s branch network, along with wholesale sources of funding and its capital base. These funds, along with investment securities, provide the ability to meet the needs of depositors while funding new loan demand and existing commitments.

Cash (used in) generated from operating activities was ($55.6) million, $39.7 million and $53.1 million in 2020, 2019 and 2018, respectively. The adjustments to reconcile net income to cash provided by or used in operations during the periods presented consist primarily of proceeds from the sale of loans (less the origination of loans held for sale), the provision for credit losses, depreciation expense, the origination, amortization and impairment of mortgage servicing rights and increases and decreases in other assets and liabilities.  The negative cash from operating activities in 2020 was primarily due to the Company’s decision to originate and sell construction loans held for sale for the first time.  Due to the time it takes to complete the construction and sell the loans, the cash used in the origination of loans held for sale greatly exceeded the proceeds from the sale of loans held for sale.  Since this is strictly a timing difference, the Company was comfortable paying out dividends on its common stock in 2020 even with the negative cash provided by operating activities.

The primary investing activity of Premier is lending and the purchase of available-for-sale securities, which are funded with cash provided from operating and financing activities, as well as proceeds from payment on existing loans and proceeds from maturities of investment securities.  The net cash used for investing activities was $541.9 million, $225.3 million and $213.0 million in 2020, 2019 and 2018, respectively.

Principal financing activities include the gathering of deposits, the utilization of FHLB advances, and the sale of securities under agreements to repurchase such securities and borrowings from other banks. The net cash provided by financing activities was $625.5 million, $218.0 million and $145.2 million in 2020, 2019 and 2018, respectively.  For additional information about cash flows from Premier’s operating, investing and financing activities, see the Consolidated Statements of Cash Flows and related Notes included in the Consolidated Financial Statements.

43

 

At December 31, 2020, Premier had the following commitments to fund deposits, borrowing obligations, leases and post-retirement benefits:

 

 

 

Maturity Dates by Period at December 31, 2020

 

Contractual Obligations

 

Total

 

 

Less than

1 year

 

 

1-3 years

 

 

3-5 years

 

 

More than

5 years

 

 

 

(In Thousands)

 

Certificates of deposit

 

$

1,122,430

 

 

$

781,972

 

 

$

253,691

 

 

$

84,803

 

 

 

1,964

 

Subordinated debentures

 

 

84,860

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

84,860

 

Lease obligations

 

 

24,933

 

 

 

2,429

 

 

 

4,434

 

 

 

3,050

 

 

 

15,020

 

Post-retirement benefits

 

 

1,787

 

 

 

174

 

 

 

379

 

 

 

374

 

 

 

860

 

Total contractual obligations

 

$

1,234,010

 

 

$

784,575

 

 

$

258,504

 

 

$

88,227

 

 

$

102,704

 

 

To meet its obligations management can adjust the rate of savings certificates to retain deposits in changing interest rate environments; it can sell or securitize mortgage and non-mortgage loans; and it can turn to other sources of financing including FHLB advances, the Federal Reserve, and brokered certificates of deposit. At December 31, 2020, Premier had additional borrowing capacity of $1.4 billion under its agreements with the FHLB.

The Bank is subject to various capital requirements. At December 31, 2020, the Bank had capital ratios that exceeded the standard to be considered “well capitalized.” For additional information about Premier and the Bank’s capital requirements, see Note 17 – Regulatory Matters to the Consolidated Financial Statements.

Critical Accounting Policies and Estimates

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.

Allowance for credit losses - Premier believes the allowance for credit losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of its Consolidated Financial Statements. In determining the appropriate estimate for the allowance for credit losses, management considers a number of factors relative to both specific credits in the loan portfolio and macro-economic factors relative to the economy of the U.S. as a whole and the economies of the areas in which the Company does business.

Factors relative to specific credits that are considered include a customer’s payment history, a customer’s recent financial performance, an assessment of the value of collateral held, knowledge of the customer’s character, the financial strength and commitment of any guarantors, the existence of any customer or industry concentrations, changes in a customer’s competitive environment and any other issues that may impact a customer’s ability to meet his obligations.

Economic factors that are considered include levels of unemployment and inflation, GDP growth, Federal Reserve stimulus and broad global and national economic conditions.

In addition to the identification of specific customers who may be potential credit problems, management considers its historical losses, the results of independent loan reviews, an assessment of the adherence to underwriting standards, and other factors in providing for credit losses that have not been specifically classified. Management believes that the level of its allowance for credit losses is sufficient to cover the current expected credit losses. Refer to Allowance for credit losses in this Management’s Discussion and Analysis and Note 2 - Statement of Accounting Policies for a further description of the Company’s estimation process and methodology related to the allowance for credit losses.

44

 

Goodwill and Intangibles - Premier has two reporting units: the Bank and First Insurance. At December 31, 2020, Premier had goodwill of $317.9 million, including $295.6 million in the Bank and $22.3 million in First Insurance. The carrying value of goodwill is tested annually for impairment or more frequently if it is determined appropriate. The evaluation for impairment involves comparing the current estimated fair value of each reporting unit to its carrying value, including goodwill. If the current estimated fair value of a reporting unit exceeds its carrying value, no additional testing is required and impairment loss is not recorded. If the estimated fair value of a reporting unit is less than the carrying value, further valuation procedures are performed and could result in impairment of goodwill being recorded. Further valuation procedures would include allocating the estimated fair value to all assets and liabilities of the reporting unit to determine an implied goodwill value. If the implied value of goodwill of a reporting unit is less than the carrying amount of that goodwill, an impairment loss is recognized in an amount equal to that excess.

Premier evaluated goodwill as of December 31, 2020 and resulted in no additional testing or impairment.  If, for any future period Premier determines that there has been impairment in the carrying value of goodwill balances, Premier will record a charge to earnings, which could have a material adverse effect on net income, but not risk-based capital ratios.

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 years ended December 31, 2020 and 2019.

Off- Balance Sheet Arrangements - For information regarding off-balance sheet commitments as of December 31, 2020, reference Footnote 6 – Commitments and Contingent Liabilities.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Asset/Liability Management

A significant portion of the Company’s revenues and net income is derived from net interest income and, accordingly, the Company strives to manage its interest-earning assets and interest-bearing liabilities to generate an appropriate contribution from net interest income. Asset and liability management seeks to control the volatility of the Company’s performance due to changes in interest rates. The Company attempts to achieve an appropriate relationship between rate sensitive assets and rate sensitive liabilities. Premier does not presently use off-balance sheet derivatives for risk management.

Premier monitors 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, non-maturity deposit assumptions and capital requirements. It should be noted that other areas of Premier’s income statement, such as gains from sales of mortgage loans and amortization of mortgage servicing rights are also impacted by fluctuations in interest rates, but are not considered in the simulation of net interest income.

The table below presents, for the twelve months subsequent to December 31, 2020, and December 31, 2019, 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.  The Company did not complete an earnings at risk analysis for the down 200 basis point change in rates as of December 31, 2020 or December 31, 2019.  

 

 

 

Impact on Future Annual Net Interest Income

 

(dollars in thousands)

 

December 31, 2020

 

 

December 31, 2019

 

Immediate Change in Interest Rates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

+200

 

$

15,215

 

 

 

7.24

%

 

$

4,477

 

 

 

3.80

%

+100

 

 

7,908

 

 

 

3.76

%

 

 

2,487

 

 

 

2.11

%

-100

 

 

(5,036

)

 

 

-2.40

%

 

 

(5,335

)

 

 

-4.53

%

The results of all the simulation scenarios are within the Board mandated guidelines as of December 31, 2020.  Management reviews the Board policy limits in all scenarios to determine if they are adequate and if any changes should be made to Board mandated guidelines.

In addition to the simulation analysis, the Bank also prepares an economic value of equity (“EVE”) analysis. This analysis generally calculates the net present value of the Bank’s assets and liabilities in rate shock environments that range from –400 basis

45

 

points to +400 basis points. However, the likelihood of a decrease in interest rates beyond 100 basis points as of December 31, 2020, was considered to be unlikely given the current interest rate levels and therefore was not included in this analysis. The results of this analysis are reflected in the following tables.

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Value of Equity

 

Change in Rates

 

$ Amount

 

 

$ Change

 

 

% Change

 

 

 

(Dollars in Thousands)

 

+ 400 bp

 

 

1,474,119

 

 

 

228,654

 

 

 

18.36

%

+ 300 bp

 

 

1,441,004

 

 

 

195,539

 

 

 

15.70

%

+ 200 bp

 

 

1,394,640

 

 

 

149,175

 

 

 

11.98

%

+ 100 bp

 

 

1,335,538

 

 

 

90,073

 

 

 

7.23

%

0 bp

 

 

1,245,465

 

 

 

—

 

 

 

—

 

- 100 bp

 

 

1,103,896

 

 

 

(141,569

)

 

 

(11.37

)%

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Value of Equity

 

Change in Rates

 

$ Amount

 

 

$ Change

 

 

% Change

 

 

 

(Dollars in Thousands)

 

+ 400 bp

 

 

769,381

 

 

 

107,066

 

 

 

16.17

%

+ 300 bp

 

 

753,286

 

 

 

90,971

 

 

 

13.74

%

+ 200 bp

 

 

729,852

 

 

 

67,537

 

 

 

10.20

%

+ 100 bp

 

 

701,004

 

 

 

38,689

 

 

 

5.84

%

0 bp

 

 

662,315

 

 

 

—

 

 

 

—

 

- 100 bp

 

 

601,361

 

 

 

(60,954

)

 

 

(9.20

)%

 

In evaluating the Bank’s exposure to interest rate risk, certain shortcomings inherent in each of the methods of analysis presented must be considered. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market rates while interest rates on other types of financial instruments may lag behind current changes in market rates. Furthermore, in the event of changes in rates, prepayments and early withdrawal levels could differ significantly from the assumptions in calculating the table and the results therefore may differ from those presented.

46

 

Item 8.Financial Statements and Supplementary Data

Management’s Report on Internal Control Over Financial Reporting

The management of Premier Financial Corp. is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in  Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of our principal executive and principal financial officers and effected by the Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:

 

1.

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

2.

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

 

3.

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Based on our evaluation under the framework in the 2013 Internal Control – Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2020.

Crowe LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has issued a report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, is included in this Item 8.

 

/s/ Donald P. Hileman

 

/s/ Paul Nungester  

Donald P. Hileman

 

Paul Nungester

Chief Executive Officer

 

Executive Vice President and

 

 

Chief Financial Officer

 

47

 

Report of Independent Registered Public Accounting Firm

Stockholders and the Board of Directors of Premier Financial Corp.

Defiance, Ohio

 

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial condition of Premier Financial Corp. (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

 

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Corporation has changed its method of accounting for credit losses effective January 1, 2020 due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification No. 326, Financial Instruments - Credit Losses (“ASC 326”). The Corporation adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. The adoption of the new credit loss standard and its subsequent application is also related to a critical audit matter communicated below.

 

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

 

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audits provide a reasonable basis for our opinions.

 

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

48

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  

 

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

Allowance for Credit Losses

 

As described in Notes 2 and 7 to the financial statements, the Company adopted ASC 326, Financial Instruments – Credit Losses, as of January 1, 2020, which, among other things, required that the Company recognize expected credit losses over the contractual lives of financial assets carried at amortized cost, including loan receivables, utilizing the Current Expected Credit Losses (“CECL”) methodology. See also the explanatory paragraph above. The allowance for credit losses (“ACL”) was $82,079,000 at December 31, 2020, and consists of two components: a specific reserve based on an analysis of individually evaluated loans, and a general reserve which represents currently anticipated credit losses of the homogeneous loans (“general reserve”).  The general reserve consists of both quantitative and qualitative components and comprises the majority of the ACL.  The calculation of the general reserve of the ACL involves significant estimates and subjective assumptions which require a high degree of judgment.

As described in Notes 2 and 7, the quantitative component is determined using a discounted cash flow (“DCF”) methodology for certain portfolio segments and a probability of default/loss given default (“PD/LGD”) methodology for others.  Both methodologies require the projection of future loan repayments and estimated loan losses, based on assumptions which consider and are impacted by reasonable and supportable forecasts.  Changes in these assumptions can have a material impact on estimated loan losses.  Qualitative adjustments are applied to the quantitative component to adjust for the current environment and include consideration of subjective factors such as the impact that levels of, and trends in loan delinquencies, changes in risk selection and underwriting standards and national and local economic trends and conditions will have on expected lifetime loan losses.  

 

The ACL was identified by us as a critical audit matter because of the extent of auditor judgment applied and significant audit effort to evaluate the significant subjective judgements and complex computations made by management, including the need to assign more experienced auditors to address these matters.

 

The primary procedures we performed to address this critical audit matter included:

 

 

•

Testing the design and operating effectiveness of controls over the inputs and assumptions used to estimate the quantitative and qualitative components, including controls addressing:

 

 

o

Management’s review of the inputs and assumptions used in the DCF and PD/LGD loss estimation models including their development and deployment into the models which compute the quantitative component of the general reserve.

 

o

Management’s review of the completeness and accuracy of data inputs used as the basis for the allowance allocations resulting from the qualitative factors.

 

o

Management’s review of the mathematical accuracy of the allowance calculation.

 

 

•

Substantively testing management’s process, including evaluating their judgments and assumptions which included:

 

 

o

Evaluation of the completeness and accuracy of data inputs used as a basis for the quantitative and qualitative components.

 

o

Evaluation of the reasonableness of management’s judgments related to the qualitative and quantitative assessment of the data used in the determination of the qualitative factors and the resulting allocation to the allowance.  Among other procedures, our evaluation considered, evidence from internal and external sources, loan portfolio performance and whether such assumptions were applied consistently from period to period.

 

o

Analytically evaluating the qualitative factors for directional consistency, testing for reasonableness, and obtaining evidence for significant changes.

 

o

Testing the mathematical accuracy of the allowance calculation, including the application of the computed quantitative and qualitative factors to the loan portfolios. 

 

Accounting for Significant Business Acquisition – Acquired Loans and Core Deposit Intangible

49

 

As more fully described in Notes 1 and 3, during 2020, the Company completed the acquisition of United Community Financial Corp. for stock and cash consideration totaling approximately $527,443,000. Accounting for an acquisition requires management to make significant judgements and assumptions to estimate the fair value of assets acquired, including the fair values of loans and core deposit intangibles, and liabilities assumed.  

 

We identified the Company’s recording of its acquisition of United Community Financial Corp. as a critical audit matter because it involved especially subjective auditor judgment and specialized skills when evaluating management’s judgments with respect to the valuation of acquired loans and intangible assets, the majority of which was a core deposit intangible, and were initially recorded at $2,340,701,000 and $33,014,000 respectively. The primary procedures performed to address this critical audit matter included:

 

 

•

Testing the effectiveness of management’s review controls over the accuracy of data, the appropriateness of assumptions and the estimated fair values reported by the Company engaged valuation specialists for acquired loans and core deposit intangible assets.

 

•

Substantively testing the completeness and accuracy of data provided to Company engaged valuation specialists.

 

•

With the assistance of our valuation specialists, substantively testing the reasonableness of the loan and core deposit intangible fair value estimates by independently developing assumptions, performing shadow calculations and comparing the results to the fair value estimates prepared by Company engaged valuations specialists.

 

 

/s/ Crowe LLP

 

 

 

Crowe LLP

 

 

 

Cleveland, Ohio

 

 

 

March 12, 2021

 

 

 

 

50

 

Premier Financial Corp.

Consolidated Statements of Financial Condition

(Dollars in Thousands, except per share data)

 

 

 

December 31

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Cash and amounts due from depository institutions

 

$

79,593

 

 

$

46,254

 

Federal funds sold

 

 

79,673

 

 

 

85,000

 

 

 

 

159,266

 

 

 

131,254

 

Securities available-for-sale, carried at fair value

 

 

736,654

 

 

 

283,448

 

Equity securities

 

 

1,090

 

 

 

—

 

 

 

 

737,744

 

 

 

283,448

 

Loans held for sale, at fair value at December 31, 2020

 

 

221,616

 

 

 

18,008

 

Loans receivable, net of allowance for credit losses of $82,079 and $31,243 at December 31, 2020 and 2019, respectively

 

 

5,409,161

 

 

 

2,746,321

 

Mortgage servicing rights

 

 

13,153

 

 

 

10,267

 

Accrued interest receivable

 

 

25,434

 

 

 

10,244

 

Federal Home Loan Bank (FHLB) stock

 

 

16,026

 

 

 

11,915

 

Bank owned life insurance

 

 

144,784

 

 

 

75,544

 

Premises and equipment

 

 

58,665

 

 

 

39,563

 

Real estate and other assets held for sale (OREO)

 

 

343

 

 

 

100

 

Goodwill

 

 

317,948

 

 

 

100,069

 

Core deposit and other intangibles

 

 

30,337

 

 

 

3,772

 

Other assets

 

 

77,257

 

 

 

38,487

 

Total assets

 

$

7,211,734

 

 

$

3,468,992

 

 

continued

51

 

Premier Financial Corp

Consolidated Statements of Financial Condition (continued)

(Dollars in Thousands, except per share data)

 

 

 

December 31

 

 

 

2020

 

 

2019

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

1,597,262

 

 

$

630,359

 

Interest-bearing

 

 

4,450,579

 

 

 

2,239,966

 

Total

 

 

6,047,841

 

 

 

2,870,325

 

Advances from the Federal Home Loan Bank

 

 

—

 

 

 

85,063

 

Securities sold under agreements to repurchase

 

 

—

 

 

 

2,999

 

Subordinated debentures

 

 

84,860

 

 

 

36,083

 

Advance payments by borrowers

 

 

21,748

 

 

 

5,491

 

Reserve for credit losses - unfunded commitments

 

 

5,350

 

 

 

571

 

Other liabilities

 

 

69,659

 

 

 

42,293

 

Total liabilities

 

 

6,229,458

 

 

 

3,042,825

 

Commitments and Contingent Liabilities (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

 

 

—

 

 

 

—

 

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

   issued

 

 

—

 

 

 

—

 

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

   43,297,260 and 25,371,086 shares issued and 37,291,480 and 19,729,886

   shares outstanding, respectively

 

 

306

 

 

 

127

 

Additional paid-in capital

 

 

689,390

 

 

 

161,955

 

Accumulated other comprehensive income, net of tax of $3,988 and $1,221, respectively

 

 

15,004

 

 

 

4,595

 

Retained earnings

 

 

356,414

 

 

 

329,175

 

Treasury stock, at cost, 6,005,780 and 5,641,200 shares respectively

 

 

(78,838

)

 

 

(69,685

)

Total stockholders’ equity

 

 

982,276

 

 

 

426,167

 

Total liabilities and stockholders’ equity

 

$

7,211,734

 

 

$

3,468,992

 

See accompanying notes

52

 

PREMIER FINANCIAL CORP.

Consolidated Statements of Income

(Dollar Amounts in Thousands, except per share data)

 

 

 

Years Ended December 31

 

 

 

2020

 

 

2019

 

 

2018

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

225,084

 

 

$

130,853

 

 

$

114,398

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

3,509

 

 

 

4,883

 

 

 

4,738

 

Tax-exempt

 

 

7,960

 

 

 

3,300

 

 

 

3,396

 

Interest-bearing deposits

 

 

435

 

 

 

1,395

 

 

 

1,270

 

FHLB stock dividends

 

 

958

 

 

 

653

 

 

 

915

 

Total interest income

 

 

237,946

 

 

 

141,084

 

 

 

124,717

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

26,918

 

 

 

22,613

 

 

 

13,897

 

Federal Home Loan Bank advances and other

 

 

1,691

 

 

 

1,443

 

 

 

1,261

 

Subordinated debentures

 

 

1,300

 

 

 

1,354

 

 

 

1,281

 

Securities sold under agreement to repurchase

 

 

32

 

 

 

25

 

 

 

23

 

Total interest expense

 

 

29,941

 

 

 

25,435

 

 

 

16,462

 

Net interest income

 

 

208,005

 

 

 

115,649

 

 

 

108,255

 

Credit loss expense - loans and leases (1)

 

 

43,154

 

 

 

2,905

 

 

 

1,176

 

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

 

 

1,096

 

 

 

(21

)

 

 

82

 

Net interest income after provision for credit losses

 

 

163,755

 

 

 

112,765

 

 

 

106,997

 

Non-interest Income

 

 

 

 

 

 

 

 

 

 

 

 

Service fees and other charges

 

 

21,369

 

 

 

14,028

 

 

 

13,100

 

Mortgage banking income

 

 

28,199

 

 

 

9,483

 

 

 

7,077

 

Insurance commissions

 

 

16,788

 

 

 

14,118

 

 

 

14,085

 

Gain on sale of non-mortgage loans

 

 

324

 

 

 

226

 

 

 

317

 

Gain on sale of securities available for sale

 

 

1,464

 

 

 

24

 

 

 

173

 

Gain on equity securities

 

 

90

 

 

 

—

 

 

 

—

 

Wealth management income

 

 

6,159

 

 

 

3,127

 

 

 

2,911

 

Income from Bank Owned Life Insurance

 

 

3,306

 

 

 

2,158

 

 

 

1,767

 

Other non-interest income

 

 

2,985

 

 

 

1,792

 

 

 

(222

)

Total non-interest income

 

 

80,684

 

 

 

44,956

 

 

 

39,208

 

Non-interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

77,213

 

 

 

57,175

 

 

 

52,566

 

Occupancy

 

 

16,320

 

 

 

9,027

 

 

 

8,641

 

FDIC insurance premium

 

 

3,355

 

 

 

484

 

 

 

1,021

 

Financial institutions tax

 

 

4,173

 

 

 

2,194

 

 

 

2,118

 

Data processing

 

 

14,886

 

 

 

8,055

 

 

 

8,555

 

Acquisition related charges

 

 

19,485

 

 

 

1,422

 

 

 

—

 

Amortization of intangibles

 

 

6,449

 

 

 

1,119

 

 

 

1,312

 

Other non-interest expense

 

 

23,289

 

 

 

17,608

 

 

 

15,117

 

Total non-interest expense

 

 

165,170

 

 

 

97,084

 

 

 

89,330

 

Income before income taxes

 

 

79,269

 

 

 

60,637

 

 

 

56,875

 

Federal income taxes

 

 

16,192

 

 

 

11,267

 

 

 

10,626

 

Net Income

 

$

63,077

 

 

$

49,370

 

 

$

46,249

 

Earnings per common share (Note 4)

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.75

 

 

$

2.49

 

 

$

2.27

 

Diluted

 

$

1.75

 

 

$

2.48

 

 

$

2.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

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

 

See accompanying notes

53

 

PREMIER FINANCIAL CORP.

Consolidated Statements of Comprehensive Income

(Dollar Amounts in Thousands)

 

 

 

For the Years Ended December 31

 

 

 

2020

 

 

2019

 

 

2018

 

Net income

 

$

63,077

 

 

$

49,370

 

 

$

46,249

 

Change in securities available-for-sale (AFS):

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) on available-for-sale securities

   arising during the period

 

 

14,431

 

 

 

8,754

 

 

 

(3,356

)

Reclassification adjustment for (gains) losses realized in income

 

 

(1,464

)

 

 

(24

)

 

 

(173

)

Net unrealized gains (losses)

 

 

12,967

 

 

 

8,730

 

 

 

(3,529

)

Income tax effect

 

 

(2,723

)

 

 

(1,834

)

 

 

742

 

Net of tax amount

 

 

10,244

 

 

 

6,896

 

 

 

(2,787

)

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

 

 

 

 

 

 

 

 

 

 

 

 

Net gain (loss) on defined benefit postretirement medical

   plan realized during the period

 

 

195

 

 

 

(310

)

 

 

560

 

Net amortization and deferral

 

 

13

 

 

 

14

 

 

 

18

 

Net gain (loss) activity during the period

 

 

208

 

 

 

(296

)

 

 

578

 

Income tax effect

 

 

(43

)

 

 

143

 

 

 

(203

)

Net of tax amount

 

 

165

 

 

 

(153

)

 

 

375

 

Total other comprehensive income  (loss)

 

 

10,409

 

 

 

6,743

 

 

 

(2,412

)

Comprehensive income

 

$

73,486

 

 

$

56,113

 

 

$

43,837

 

 

See accompanying notes

54

 

PREMIER FINANCIAL CORP.

Consolidated Statements of Changes in Stockholders’ Equity

(Dollar Amounts In Thousands, except number of shares)

 

 

 

Preferred

Stock

 

 

Common

Stock

Shares(1)

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Retained

Earnings

 

 

Treasury

Stock

 

 

Total

Stockholder’s

Equity

 

Balance at December 31, 2017

 

$

—

 

 

 

20,312,082

 

 

$

127

 

 

$

160,940

 

 

$

217

 

 

$

262,900

 

 

$

(50,898

)

 

$

373,286

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

46,249

 

 

 

 

 

 

 

46,249

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,412

)

 

 

 

 

 

 

 

 

 

 

(2,412

)

Adoption of ASU 2018-02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

47

 

 

 

(47

)

 

 

 

 

 

 

—

 

Deferred compensation plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

636

 

 

 

636

 

Stock based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

420

 

Shares issued under stock option plan, net of 8,872 repurchased and retired

 

 

 

 

 

 

38,628

 

 

 

 

 

 

 

(93

)

 

 

 

 

 

 

(270

)

 

 

474

 

 

 

111

 

Restricted share activity under stock incentive plans net of 17,818 repurchased and retired

 

 

 

 

 

 

48,300

 

 

 

 

 

 

 

258

 

 

 

 

 

 

 

(201

)

 

 

511

 

 

 

568

 

Shares issued from direct stock sales

 

 

 

 

 

 

3,542

 

 

 

 

 

 

 

68

 

 

 

 

 

 

 

 

 

 

 

36

 

 

 

104

 

Shares repurchased

 

 

 

 

 

 

(231,160

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,330

)

 

 

(6,330

)

Common stock dividends paid ($0.64 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,043

)

 

 

 

 

 

 

(13,043

)

Balance at December 31, 2018

 

$

—

 

 

 

20,171,392

 

 

$

127

 

 

$

161,593

 

 

$

(2,148

)

 

$

295,588

 

 

$

(55,571

)

 

$

399,589

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

49,370

 

 

 

 

 

 

 

49,370

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,743

 

 

 

 

 

 

 

 

 

 

 

6,743

 

Deferred compensation plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(80

)

 

 

 

 

 

 

 

 

 

 

158

 

 

 

78

 

Stock based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

286

 

Shares issued under stock option plan, net of 178 repurchased and retired

 

 

 

 

 

 

19,022

 

 

 

 

 

 

 

(32

)

 

 

 

 

 

 

(5

)

 

 

226

 

 

 

189

 

Restricted share activity under stock incentive plans net of 27,728 repurchased and retired

 

 

 

 

 

 

51,194

 

 

 

 

 

 

 

117

 

 

 

 

 

 

 

(154

)

 

 

597

 

 

 

560

 

Shares issued from direct stock sales

 

 

 

 

 

 

4,255

 

 

 

 

 

 

 

71

 

 

 

 

 

 

 

 

 

 

 

52

 

 

 

123

 

Shares repurchased

 

 

 

 

 

 

(515,977

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,147

)

 

 

(15,147

)

Common stock dividends paid ($0.79 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,624

)

 

 

 

 

 

 

(15,624

)

Balance at December 31, 2019

 

$

—

 

 

 

19,729,886

 

 

$

127

 

 

$

161,955

 

 

$

4,595

 

 

$

329,175

 

 

$

(69,685

)

 

$

426,167

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

63,077

 

 

 

 

 

 

 

63,077

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,409

 

 

 

 

 

 

 

 

 

 

 

10,409

 

Adoption of ASC 326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,566

)

 

 

 

 

 

 

(2,566

)

Deferred compensation plan

 

 

 

 

 

 

7,524

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

 

 

(24

)

 

 

—

 

Stock based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,312

 

Capital stock issuance related to acquisition

 

 

 

 

 

 

17,926,174

 

 

 

179

 

 

 

527,132

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

527,311

 

Vesting of incentive plans

 

 

 

 

 

 

39,548

 

 

 

 

 

 

 

(1,864

)

 

 

 

 

 

 

 

 

 

 

493

 

 

 

(1,371

)

Shares issued under stock option plan, net

 

 

 

 

 

 

11,408

 

 

 

 

 

 

 

(122

)

 

 

 

 

 

 

 

 

 

 

122

 

 

 

—

 

Restricted share issuance

 

 

 

 

 

 

13,349

 

 

 

 

 

 

 

198

 

 

 

 

 

 

 

(374

)

 

 

176

 

 

 

—

 

Restricted share forfeitures

 

 

 

 

 

 

(2,265

)

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

—

 

Shares issued from direct stock sales

 

 

 

 

 

 

1,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

18

 

Shares repurchased

 

 

 

 

 

 

(435,292

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,183

)

 

 

(10,183

)

Common stock dividends paid ($0.88 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,898

)

 

 

 

 

 

 

(32,898

)

Other, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(258

)

 

 

 

 

 

 

 

 

 

 

258

 

 

 

—

 

Balance at December 31, 2020

 

$

—

 

 

 

37,291,480

 

 

$

306

 

 

$

689,390

 

 

$

15,004

 

 

$

356,414

 

 

$

(78,838

)

 

$

982,276

 

 

 

(1)

Share data has been adjusted to reflect a 2-for-1 stock split on July 12, 2018.

 

 

See accompanying notes

55

 

PREMIER FINANCIAL CORP.

Consolidated Statements of Cash Flows

(Dollar Amounts in Thousands)

 

 

 

Years Ended December 31

 

 

 

2020

 

 

2019

 

 

2018

 

Operating Activities

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

63,077

 

 

$

49,370

 

 

$

46,249

 

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

 

 

 

 

 

 

 

 

 

 

 

 

Provision for credit losses

 

 

44,250

 

 

 

2,905

 

 

 

1,176

 

Depreciation

 

 

6,512

 

 

 

4,231

 

 

 

3,688

 

Net amortization of premium and discounts on loans, securities, deposits and debt

   obligations

 

 

(5,157

)

 

 

730

 

 

 

861

 

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

 

 

15,456

 

 

 

2,043

 

 

 

1,209

 

Amortization of intangibles

 

 

6,449

 

 

 

1,119

 

 

 

1,312

 

Gain on sale of loans

 

 

(36,683

)

 

 

(7,932

)

 

 

(4,819

)

Loss on sale or disposals or write-downs of property, plant and equipment

 

 

—

 

 

 

10

 

 

 

13

 

(Gain) loss on sale or write-down of OREO and other assets held for sale

 

 

(10

)

 

 

180

 

 

 

581

 

(Gain) on sale of available for sale securities

 

 

(1,464

)

 

 

(24

)

 

 

(173

)

Unrealized gain on equity securities

 

 

(90

)

 

 

—

 

 

 

—

 

Change in deferred taxes

 

 

(9,781

)

 

 

(419

)

 

 

881

 

Proceeds from sale of loans held for sale

 

 

847,141

 

 

 

302,554

 

 

 

212,688

 

Origination of loans held for sale

 

 

(967,861

)

 

 

(308,434

)

 

 

(205,884

)

Stock  option expense

 

 

2,312

 

 

 

286

 

 

 

420

 

Restricted stock vesting

 

 

(1,371

)

 

 

560

 

 

 

568

 

Excess tax benefit (expense) on stock compensation plans

 

 

—

 

 

 

(108

)

 

 

(154

)

Income from bank owned life insurance

 

 

(3,306

)

 

 

(2,158

)

 

 

(1,767

)

Changes in:

 

 

 

 

 

 

 

 

 

 

 

 

Accrued interest receivable and other assets

 

 

(14,729

)

 

 

(6,916

)

 

 

(2,878

)

Other liabilities

 

 

(363

)

 

 

1,688

 

 

 

(916

)

Net cash provided by operating activities

 

 

(55,618

)

 

 

39,685

 

 

 

53,055

 

Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from maturities, calls and paydowns of held-to-maturity securities

 

 

—

 

 

 

120

 

 

 

122

 

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

 

 

124,731

 

 

 

49,104

 

 

 

32,620

 

Proceeds from sale of available-for-sale securities

 

 

52,420

 

 

 

2,667

 

 

 

5,503

 

Proceeds from sale of OREO

 

 

1,081

 

 

 

1,262

 

 

 

887

 

Proceeds from sale of office properties and equipment

 

 

—

 

 

 

—

 

 

 

14

 

Purchases of available-for-sale securities

 

 

(362,426

)

 

 

(33,463

)

 

 

(76,647

)

Purchases of equity securities

 

 

(1,000

)

 

 

—

 

 

 

—

 

Purchases of office properties and equipment

 

 

(5,361

)

 

 

(3,134

)

 

 

(4,168

)

Investment in bank owned life insurance

 

 

—

 

 

 

(6,600

)

 

 

—

 

Proceeds from bank owned life insurance death benefit

 

 

—

 

 

 

874

 

 

 

337

 

Proceeds from sale of bank owned life insurance

 

 

—

 

 

 

—

 

 

 

17,689

 

Proceeds from FHLB stock redemption

 

 

8,642

 

 

 

2,302

 

 

 

1,775

 

Net cash received (paid) in acquisitions

 

 

52,448

 

 

 

(1,600

)

 

 

—

 

Proceeds from sale of non-mortgage loans

 

 

5,241

 

 

 

21,239

 

 

 

28,729

 

Net increase in loans receivable

 

 

(417,630

)

 

 

(258,119

)

 

 

(219,885

)

Net cash used in investing activities

 

 

(541,854

)

 

 

(225,348

)

 

 

(213,024

)

Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

1,098,867

 

 

 

249,443

 

 

 

183,037

 

Net increase advance payments by borrowers

 

 

(10,035

)

 

 

1,839

 

 

 

727

 

Net change in Federal Home Loan Bank advances and PPPLF

 

 

(466,063

)

 

 

(126

)

 

 

910

 

Proceeds from subordinated debentures

 

 

48,777

 

 

 

—

 

 

 

—

 

Decrease in securities sold under repurchase agreements

 

 

(2,999

)

 

 

(2,742

)

 

 

(20,278

)

Cash dividends paid on common stock

 

 

(32,898

)

 

 

(15,624

)

 

 

(13,043

)

Net cash paid for repurchase of common stock

 

 

(10,183

)

 

 

(15,147

)

 

 

(6,330

)

Proceeds from exercise of stock options

 

 

—

 

 

 

189

 

 

 

111

 

Proceeds from direct treasury stock sales

 

 

18

 

 

 

123

 

 

 

104

 

Net cash  provided by financing activities

 

 

625,484

 

 

 

217,955

 

 

 

145,238

 

Increase (decrease) in cash and cash equivalents

 

 

28,012

 

 

 

32,292

 

 

 

(14,731

)

Cash and cash equivalents at beginning of period

 

 

131,254

 

 

 

98,962

 

 

 

113,693

 

Cash and cash equivalents at end of period

 

$

159,266

 

 

$

131,254

 

 

$

98,962

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$

30,536

 

 

$

25,348

 

 

$

16,198

 

Income taxes paid

 

 

32,390

 

 

 

11,200

 

 

 

7,950

 

Transfer from other liability to equity

 

 

—

 

 

 

—

 

 

 

636

 

Transfers from held to maturity securities to available for sale securities

 

 

—

 

 

 

404

 

 

 

—

 

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

 

 

192

 

 

 

337

 

 

 

1,141

 

Initial recognition of right-of-use asset

 

 

10,106

 

 

 

8,808

 

 

 

—

 

Initial recognition of lease liability

 

 

10,254

 

 

 

9,339

 

 

 

—

 

Initial recognition ASU 326

 

 

2,566

 

 

 

—

 

 

 

—

 

 

See accompanying notes.

56

 

Notes to the Consolidated Financial Statements

1.

Basis of Presentation

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

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

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

Immediately following the Merger, the Bank acquired UCFC’s wholly-owned bank subsidiary, Home Savings Bank (“Home Savings”).  Immediately prior to the merger of the banks, the Bank converted from a federal thrift into an Ohio state-chartered bank. In addition, immediately following the merger of the banks, UCFC’s wholly-owned insurance subsidiaries, HSB Insurance, LLC, and United American Financial Services, Inc., each merged into First Insurance, with First Insurance surviving the mergers. Premier acquired two additional subsidiaries in the Merger, HSB Capital and HSB Insurance, Inc.  HSB Insurance Inc. was dissolved in September 2020.  

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

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

First Insurance is an insurance agency that conducts business throughout Premier’s markets.  First Insurance offers property and casualty insurance, life insurance and group health insurance.

First Defiance Risk Management is a wholly-owned insurance company subsidiary of the Company that insures the Company and its subsidiaries against certain risks unique to the operations of the Company and for which insurance may not be currently available or economically feasible in today’s insurance marketplace.  First Defiance Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions to help minimize the risk allocable to each participating insurer.

 

The COVID-19 pandemic has continued to create extensive disruptions to the global economy and to the lives of individuals throughout the world.  Business and consumer customers of the Bank are experiencing varying degrees of financial distress, which is expected to continue over the coming months and will likely adversely affect their ability to pay interest and principal on their loans.  Further, value of the collateral securing their obligations may decline.  These uncertainties may negatively impact the Statement of Financial Condition, the Statement of Income and the Statement of Cash Flows of the Company.

2.

Statement of Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

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Earnings Per Common Share

Basic earnings per common share is computed by dividing net income applicable to common shares (net income less dividend requirements for preferred stock, accretion of preferred stock discount and redemption of preferred stock) by the weighted average number of shares of common stock outstanding during the period. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for the calculation. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options, warrants, restricted stock awards and stock grants. See also Note 4.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on available-for-sale securities and the net unrecognized actuarial losses and unrecognized prior service costs associated with the Company’s Defined Benefit Postretirement Medical Plan. All items included in other comprehensive income are reported net of tax. See also Notes 5, 16 and 25 and the Consolidated Statements of Comprehensive Income.

Cash Flows

For purposes of the statement of Cash flows, Premier considers all highly liquid investments with a term of three months or less to be cash equivalents.   Net cash flows are reported for loan and deposit transactions, interest-bearing deposits in other financial institutions and repurchase agreements.

Investment Securities

Securities are classified as held-to-maturity when Premier has the positive intent and ability to hold the securities to maturity and are reported at amortized cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.   In addition, Premier may purchase equity securities for its portfolio.  Equity securities are a separate category of investments as changes in market value must be run through earnings as a gain (loss) on equity securities.

Securities available‑for‑sale consists of those securities which might be sold prior to maturity due to changes in interest rates, prepayment risks, yield and availability of alternative investments, liquidity needs or other factors. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive income (loss) until realized. Realized gains and losses are included in gains (losses) on securities or other-than-temporary impairment losses on securities. Realized gains and losses on securities sold are recognized on the trade date based on the specific identification method.

Interest income includes amortization of purchase premiums and discounts. Premiums and discounts are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are expected.  

 

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

 

 

•

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

 

 

•

Any securities that are downgraded by a third party ratings company would be subjected to additional analysis that may include, but is not limited to: changes in market interest rates, changes in securities credit ratings, security type, service area economic factors, financial performance of the issuer/or obligor of the underlying issue and third-party guarantee.

 

•

If the Company determines that a credit loss exists, the credit portion of the allowance will be measured using a DCF analysis using the effective interest rate as of the security’s purchase date. The amount of credit loss the Company records will be limited to the amount by which the amortized cost exceeds the fair value.  As of December 31, 2020, management had determined that no credit loss exists.

FHLB Stock

The Bank is a member of the FHLB system.  Members are required to own a certain amount of stock based on the level of borrowings and other factors.  FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value.  Both cash and stock dividends are reported as income.  At December 31, 2020 and 2019, the Company held $16.0 million and $11.9 million, respectively, at the FHLB of Cincinnati.

Loans Receivable

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal amount outstanding, net of deferred loan fees and costs, purchase premiums and discounts and the allowance for credit losses. Deferred fees net of deferred incremental loan origination costs, are amortized to interest income generally over the contractual

58

 

life of the loan using the interest method without anticipating prepayments. The recorded investment in loans includes accrued interest receivable, unamortized premiums and discounts, and net deferred fees and costs and undisbursed loan amounts.

Mortgage loans originated and intended for sale in the secondary market are classified as loans held for sale and are carried at fair value, as determined by market pricing from investors. Net unrealized gains and losses are recorded as a part of mortgage banking income on the Consolidated Statement of Income. Mortgage loans held for sale are generally sold with servicing rights retained. The carrying value of mortgage loans sold is reduced by the amount allocated to the servicing right. Gains or losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

The Company may incur losses pertaining to loans sold to Fannie Mae and Freddie Mac but repurchased due to underwriting issues. Repurchase losses are recognized when the Company determines they are probable and estimable.

Interest receivable is accrued on loans and credited to income as earned. The accrual of interest on loans 90 days delinquent or those loans individually analyzed is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. For these loans, interest accrual is only to the extent cash payments are received. The accrual of interest on these loans is generally resumed after a pattern of repayment has been established and the collection of principal and interest is reasonably assured.

Purchased Credit Deteriorated (“PCD”) Loans

The Company acquires loans individually and in groups or portfolios. At acquisition, the Company reviews each loan to determine whether there is evidence of more than insignificant deterioration of credit quality since origination. The Company determines whether each such loan is to be accounted for individually or whether such loans will be assembled into pools of loans based on common risk characteristics (loan type and date of origination).

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.

Allowance for credit losses

On January 1, 2020, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.  The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.  It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance to Topic 842 on leases.   In addition, ASC 326 made changes to the accounting for available-for-sale debt securities.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30.  In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption.  As a part of the merger, the Bank recognized $7.6 million of the allowance for credit losses related to PCD loans.  The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at the effective interest rate as of the merger date.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity of payoff are reported at amortized cost.  Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, adjustments, and deferred loan fees and costs.  Accrued interest receivable was reported in other assets and is excluded from the estimate of credit losses.  

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.  Historical credit loss experience provides the basis for the estimation of expected credit losses.  Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, nature or volume of the Company’s financial assets, changes in experience in staff, as well as changes in environmental conditions, such as changes in unemployment rates, property values and other external factors, such as regulatory, legal and technological environments.

59

 

The allowance for credit losses is measured on a collective pool basis when similar risk characteristics exist.  The Company has identified the following portfolio segments and is generally utilizing two methodologies to analyze loan pools: discounted cash flow (“DCF”) and probability of default/loss given default (“PD/LGD”):

 

Portfolio Segments

 

Loan Pool

 

Methodology

 

Loss Drivers

Residential real estate

 

1-4 Family nonowner occupied

 

DCF

 

National unemployment

 

 

1-4 Family owner occupied

 

DCF

 

National unemployment

Commercial real estate

 

Commercial real estate nonowner occupied

 

DCF

 

National unemployment

 

 

Commercial real estate owner occupied

 

DCF

 

National unemployment

 

 

Multi Family

 

DCF

 

National unemployment

 

 

Agriculture Land

 

DCF

 

National unemployment

 

 

Other commercial real estate

 

DCF

 

National unemployment

Construction secured by real estate

 

Construction

 

PD/LGD

 

Call report loss history

 

 

 

 

 

 

 

Commercial

 

Commercial working capital

 

PD/LGD

 

Call report loss history

 

 

Agriculture production

 

PD/LGD

 

Call report loss history

 

 

Other commercial

 

PD/LGD

 

Call report loss history

Home equity and improvement

 

Home equity and improvement

 

PD/LGD

 

Call report loss history

Consumer finance

 

Consumer finance

 

Remaining life

 

Call report loss history

 

Loans that do not share risk characteristics are evaluated on an individual basis and included in the collective evaluation.  A loan is individually analyzed when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loans agreement. Loans, for which terms have been modified and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.   When a loan is considered individually analyzed, an analysis of the net present value of estimated cash flows is performed and an allowance may be established based on the outcome of that analysis, or if the loan is deemed to be collateral dependent an allowance is established based on the fair value of collateral. All modifications are reviewed by the bank’s Chief Credit Officer or Chief Credit Administration Officer to determine whether or not the modification constitutes a troubled debt restructure. Commercial and commercial real estate loan relationships greater than $500,000 are individually evaluated. If a loan is individually analyzed, a portion of the allowance is allocated so that the loan is reported net of the allowance allocation which is determined based on the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Loan relationships less than $500,000 are aggregated by loan segment and risk level and given a specific reserve based on the general reserve factor for that loan segment and risk level.  Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated, and accordingly, they are not separately identified for disclosure.

Troubled Debt Restructurings (“TDR”):  A loans for which terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to be a TDR.  The allowance for credit loss on a TDR is measured using the same method as all other loans held for investment, except when the value of a concession is measured using the discounted cash flow method, the allowance for credit loss is determined by discounting the expected future cash flow at the original interest rate of the loan.  If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral.  For TDRs that subsequently default, the Company determines the amount of the allowance on that loan in accordance with the accounting policy for the allowance for credit losses on loans individually identified.  The Company incorporates recent historical experience related to TDRs including the performance of TDRs that subsequently default into the calculation of the allowance by loan portfolio segment.  See Footnote 7 – Loans for further discussion on TDRs.

Servicing Rights

Servicing rights are recognized separately when they are acquired through sales of loans. Servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. The Company compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions.  All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans, driven, generally, by changes in market interest rates.

Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. Impairment is recognized through a valuation allowance for an individual grouping, to the extent that fair value is less than the carrying amount. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a

60

 

reduction of the allowance may be recorded as an increase to income. Changes in valuation allowances are reported within mortgage banking income on the income statement. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.

Servicing fee income, which is reported on the income statement with mortgage banking income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan, and are recorded as income when earned. The amortization of mortgage servicing rights is netted against loan servicing fee income. Servicing fees totaled $7.3 million, $3.8 million and $3.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. Late fees and ancillary fees related to loan servicing are not material. See Note 8.

Bank Owned Life Insurance

The Company has purchased life insurance policies for certain key employees. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Premises and Equipment and Long Lived Assets

Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation and amortization computed principally by the straight-line method over the following estimated useful lives:

 

Buildings and improvements

 

20 to 50 years

Furniture, fixtures and equipment

 

3 to 15 years

 

Long-lived assets to be held and those to be disposed of and certain intangibles are periodically evaluated for impairment. See Note 9.

Goodwill and Other Intangibles

Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. The Company has selected November 30 as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on Premier’s balance sheet.

Other intangible assets consist of core deposit and acquired customer relationship intangible assets arising from whole bank and branch acquisitions, as well as, , wealth management and insurance agency acquisitions. They are initially recorded at fair value and then amortized on an accelerated basis over their estimated lives, which range from five years for non-compete agreements to 10 years for core deposit and customer relationship intangibles. See Note 10.

Real Estate and Other Assets Held for Sale

Real estate and other assets held for sale are comprised of properties or other assets acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. These assets are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Losses arising from the acquisition of such property are charged against the allowance for credit losses at the time of acquisition. These properties are carried at the lower of cost or fair value, less estimated costs to dispose. If fair value declines subsequent to foreclosure, the property is written down against expense. Costs after acquisition are expensed.

Stock Compensation Plans

Compensation cost is recognized for stock options and restricted share awards issued to employees and directors, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options. Restricted shares awards are valued at the market value of Company stock at the date of the grant. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. See Note 20.

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 22. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

61

 

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Mortgage Banking Derivatives

Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. The Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into, in order to hedge the change in interest rates resulting from its commitments to fund the loans. Changes in fair values of these derivatives are included in mortgage banking income.

Operating Segments

Management considers the following factors in determining the need to disclose separate operating segments: (1) the nature of products and services, which are all financial in nature; (2) the type and class of customer for the products and services; in Premier’s case retail customers for retail bank and insurance products and commercial customers for commercial loan, deposit, life, health and property and casualty insurance needs; (3) the methods used to distribute products or provide services; such services are delivered through banking and insurance offices and through bank and insurance customer contact representatives. Retail and commercial customers are frequently targets for both banking and insurance products; (4) the nature of the regulatory environment; both banking and insurance entities are subject to various regulatory bodies and a number of specific regulations.

Quantitative thresholds as stated in FASB ASC Topic 280, Segment Reporting are monitored. For the year ended December 31, 2020, the reported revenue for First Insurance was 5.6% of total revenue for Premier. Total revenue includes interest income plus noninterest income. Net income for First Insurance for the year ended December 31, 2020, was 5.5% of consolidated net income. Total assets of First Insurance at December 31, 2020, were 0.5% of total assets. First Insurance does not meet any of the quantitative thresholds of FASB ASC Topic 280. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable segment.

Dividend Restriction

Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to Premier. See Note 17 for further details on restrictions.

Loan Commitments and Related Financial Instruments

Financial instruments include off‑balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are any such matters that will have a material effect on the financial statements.

Income Taxes

Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized.  The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

An effective tax rate of 21% is used to determine after-tax components of other comprehensive income (loss) included in the statements of stockholders’ equity.  See Note 18.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.  

62

 

Retirement Plans

Pension expense is the net of service and interest cost, return on plan assets and amortization of gains and losses not immediately recognized.  Employee 401(k) plan expense is the amount of matching contributions.  Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service. See Notes 16 and 19.

 

Revenue Recognition

ASC 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers.    The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, letters of credit, and investment securities, as well as revenue related to mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within the Company’s disclosures. Descriptions of the Company’s revenue-generating activities that are within the scope of ASC 606, which are presented in the Company’s statement of income as components of noninterest income are as follows:

 

•

Service charges on deposit accounts - these represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.  Service charges on deposit accounts that are within the scope of ASC 606 were $10.2 million in 2020, $7.1 million in 2019 and $7.6 million in 2018. Income from services charges on deposit accounts is included in service fees and other charges in noninterest income.

 

•

Interchange income - this represents fees earned from debit and credit cardholder transactions.  Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrent with the transaction processing services provided to the cardholder. Interchange fees were $9.3 million in 2020, $4.7 million in 2019 and $4.1 million in 2018, which are reported net of network related charges.  Interchange income is included in service fees and other charges in noninterest income.

 

•

Wealth management income - this represents monthly fees due from wealth management customers as consideration for managing the customers’ assets. Wealth management and trust services include custody of assets, investment management, escrow services, and fees for trust services and similar fiduciary activities. Revenue is recognized when our performance obligation is completed each month, which is generally the time that payment is received. Also included are fees received from a third party broker-dealer as part of a revenue-sharing agreement for fees earned from customers that we refer to the third party. These fees are paid to us by the third party on a quarterly basis and recognized ratably throughout the quarter as our performance obligation is satisfied. Revenues from wealth management were $6.2 million, $3.1 million and $2.9 million in 2020, 2019 and 2018, respectively, and are included in in total noninterest income.

 

•

Gain/loss on sales of other real estate owned (“OREO”) - the Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable.  Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.  In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain or loss on sale if a significant financing component is present. Income from the gain/loss on sales of OREO were losses of $19,000 in 2020, $108,000 in 2019 and $28,000 in 2018. Income from the gain or loss on sales of OREO is included in total noninterest income.

 

•

Insurance commissions - this represents new commissions that are recognized when the Company sells insurance policies to customers. The Company is also entitled to renewal commissions and, in some cases, contingent commissions in the form of profit sharing which are recognized in subsequent periods. The initial commission is recognized when the insurance policy is sold to a customer.  Renewal commission is variable consideration and is recognized in subsequent periods when the uncertainty around variable consideration is subsequently resolved (e.g., when customer renews the policy). Contingent commission is also a variable consideration that is not recognized until the variability surrounding realization of revenue is resolved. Another source of variability is the ability of the policy holder to cancel the policy anytime and in such cases, the Company may be required, under the terms of the contract, to return part of the commission received. The variability related to cancellation of the policy is not deemed significant and thus, does not impact the amount of revenue recognized. In the event the policyholder chooses to cancel the policy at any time, the revenue for amounts which qualify for claw-back are reversed in the period the cancellation occurs. Management views the income

63

 

 

sources from insurance commissions in two categories: (i) new/renewal commissions and (ii) contingent commissions.  Insurance commissions were $16.8 million for 2020, of which $15.4 million were new/renewal commissions and $1.4 million were contingent commissions.  In 2019, insurance commissions were $14.1 million, of which $13.2 million were new/renewal commissions and $921,000 million were contingent commissions.  In 2018, insurance commissions were $14.1 million, of which $13.1 million were new/renewal commission and $1.0 million were contingent commissions.  

 

Accumulated Other Comprehensive Income

In February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for certain income tax effects stranded in AOCI as a result of public law No. 115-97, known as the Tax Cuts and Jobs Act (“Tax Act”). Consequently, the reclassification eliminates the stranded tax effects resulting from the Tax Act and is intended to improve the usefulness of information reported to financial statement users. However, because the ASU only relates to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires the effect of a change in tax laws or rates to be included in income from continuing operations is not affected. The Company adopted ASU No. 2018-02 during the first quarter of 2018, and elected to reclassify the income tax effects of the Tax Act from AOCI to retained earnings. The reclassification increased AOCI and decreased retained earnings by $47,000, with zero net effect on total shareholders’ equity.

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The guidance in the update supersedes the requirements in ASC Topic 840, Leases. The guidance is intended to increase transparency and comparability among organizations by recognizing right-of-use assets and lease liabilities on the balance sheet. The Company adopted this guidance in the first quarter of 2019. Upon adoption, the Company elected a practical expedient which allows existing leases to retain their classification as operating leases. The Company has elected to account for lease and related non-lease components as a single lease component. The Company also elected to not recognize right-of-use assets and lease liabilities arising from short-term leases, which are twelve months or less. Implementation of the guidance resulted in the recording of a right-of-use asset of $8.8 million and a lease liability of $9.3 million as of January 1, 2019.  See additional disclosures in Note 9.

Accounting Standards Updates

ASU 2017-12, Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging Activities: In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU gave all entities an opportunity to reclassify securities held to maturity without tainting the rest of the portfolio if they are eligible to be hedged using the “last-of-layer method.” Note that the securities need not be hedged but simply eligible to be hedged.  The amendments in this ASU are effective for the reporting periods after December 15, 2018. The Company adopted ASU No. 2017-12 effective December 31, 2019 and reclassified its’ held to maturity securities to available-for-sale.

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

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

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments: Issued in June 2016, ASU 2016-13 will add FASB ASC Topic 326, “Financial Instruments-Credit Losses” and finalizes amendments to FASB ASC Subtopic 825-15, “Financial Instruments-Credit Losses.” The amendments of ASU 2016-13 are intended to provide financial statement users with more decision-useful information related to expected credit losses on financial instruments and other commitments to extend credit by replacing the current incurred loss impairment methodology with a methodology that reflects

64

 

expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. The amendments of ASU 2016-13 eliminate the probable initial recognition threshold and, in turn, reflect an entity’s current estimate of all expected credit losses. ASU 2016-13 does not specify the method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate. The amendments of ASU 2016-13, and all subsequent ASUs issued by FASB to provide additional guidance and clarification related to this Topic, became effective for the Company on January 1, 2020.

As a result of adopting the amendments of ASU 2016-13, the Company recorded an increase to its allowance for credit losses of $2.4 million and an increase to its allowance for credit losses on off-balance sheet credit exposures of $0.9 million resulting in a one-time cumulative effect adjustment through retained earnings of $2.6 million net of $0.7 million tax at the date of adoption. This adjustment included a qualitative adjustment to the allowance for credit losses related to loans and an allowance on off-balance sheet credit exposures. The Company estimates losses over an approximate one-year forecast period using Moody’s baseline economic forecasts, and then reverts to longer term historical loss experience over a three-year period.

 

Accounting Standards not yet adopted:

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

 

3.

Business Combinations

 

On September 30, 2019, Premier, through the Bank, completed the acquisition of Strategic Investment Advisors, LLC (“SIA”), a financial advisory and brokerage firm.  Located in Sylvania, Ohio, with assets under management of approximately $115 million and annual revenues of approximately $0.6 million, SIA was added to the Bank’s Trust and Wealth Management platform.  The total purchase price paid in cash was made up of the following: $1.6 million was paid at closing, and $400,000 at the end of a two-year earn-out based on the compound revenue growth over the performance period of SIA, for a total purchase price of $2.0 million.  At December 31, 2019, the Company had recorded goodwill of $1.5 million and identifiable intangible assets of $500,000 consisting of customer relationship intangible.  

Effective January 31, 2020, the Company merged (the “Merger”) with United Community Financial Corp. (“UCFC”) and its subsidiaries, pursuant to an Agreement and Plan of Merger dated September 9, 2019.  Immediately following the Merger, Home Savings was merged with and into the Bank, with the Bank surviving.  In addition, UCFC’s wholly-owned insurance subsidiaries, HSB Insurance, LLC, and United American Financial Services, Inc., each merged with and into First Insurance. UCFC’s consolidated assets and equity (unaudited) as of January 31, 2020 totaled $2.8 billion and $324.5 million, respectively.  The Company accounted for the transaction under the acquisition method of accounting, which means that the acquired assets and liabilities were recorded at fair value at the date of acquisition.    

In accordance with ASC 805, the Company expensed approximately $19.5 million and $1.4 million of direct acquisition costs during the years ended December 31, 2020 and 2019, respectively.  The Company recorded $217.9 million of goodwill and $33.0 million of intangible assets in 2020 as a result of the combination.  Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities.  The Company analyzes goodwill annually for impairment.  The Merger was consistent with the Company’s strategy to enhance and expand its presence in northern Ohio.  The Merger offers the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded market area. The intangible assets are related to core deposits, which are being amortized over 10 years on an accelerated basis, and customer relationships, which are being amortized over 10 years on a straight-line basis.  For tax purposes, goodwill is non-deductible.  The following table summarizes the fair value of the total consideration transferred as part of the Merger as well as the fair value of identifiable assets and liabilities assumed as of the effective date of the transaction.

 

 

65

 

 

 

January 31, 2020

 

 

 

(In Thousands)

 

Cash Consideration

 

$

132

 

Fair Value of Options Exchanged

 

 

461

 

Equity – Dollar Value of Issued Shares

 

 

526,850

 

Fair Value of Total Consideration Transferred

 

 

527,443

 

Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:

 

 

 

 

Cash and Cash Equivalents

 

 

52,580

 

Securities available for sale

 

 

262,753

 

Net loans, including loans held for sale and allowance

 

 

2,340,701

 

FHLB Stock

 

 

12,753

 

Office Properties and Equipment

 

 

20,253

 

Intangible Assets

 

 

33,014

 

Bank-Owned Life Insurance

 

 

65,934

 

Mortgage Servicing Rights

 

 

9,747

 

Accrued Interest Receivable and Other Assets

 

 

35,943

 

Deposits – NonInterest-Bearing

 

 

(430,921

)

Deposits – Interest-Bearing

 

 

(1,651,669

)

Advances from FHLB

 

 

(381,000

)

Accrued Interest Payable and Other Liabilities

 

 

(60,524

)

Total Identifiable Net Assets

 

 

309,564

 

Goodwill

 

$

217,879

 

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

 

66

 

The following table presents unaudited pro forma information as if the acquisition had occurred on January 1, 2019, after giving effect to certain adjustments.  The unaudited pro forma information for the years ended December 31, 2020 and 2019 includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects.  The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

 

 

 

Pro Forma Twelve Months Ended

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(In Thousands, except per share data)

 

Net Interest Income

 

$

215,922

 

 

$

212,498

 

Provision for loan losses

 

 

18,295

 

 

 

3,195

 

Noninterest Income

 

 

83,966

 

 

 

71,202

 

Noninterest Expense

 

 

154,544

 

 

 

166,429

 

Income Before Income Taxes

 

 

127,049

 

 

 

114,076

 

Income Tax Expense

 

 

26,216

 

 

 

21,478

 

Net Income

 

$

100,833

 

 

$

92,598

 

Diluted Earnings Per Share

 

$

2.66

 

 

$

2.44

 

 

The above pro forma financial information related to 2020 excludes non-recurring merger costs that totaled $19.5 million on a pre-tax basis. The above pro forma financial information excludes the $25.9 million pre-tax provision expense recognized for the year ended December 31, 2020, under CECL for acquired non-PCD loans as CECL was not effective as of the assumed transaction date of January 1, 2019.    

 

 

 

4.

Earnings Per Common Share

Basic earnings per share is 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.

The following table sets forth the computation of basic and diluted earnings per common share for the years ended December 31:

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands, Except Per Share Amounts)

 

Basic Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common shareholders

 

$

63,077

 

 

$

49,370

 

 

$

46,249

 

Less: Income allocated to participating securities

 

 

89

 

 

 

36

 

 

 

16

 

Net income allocated to common shareholders

 

$

62,988

 

 

$

49,334

 

 

$

46,233

 

Weighted average common shares outstanding Including participating

   securities

 

 

35,952

 

 

 

19,844

 

 

 

20,358

 

Less: Participating securities

 

 

50

 

 

 

20

 

 

 

9

 

Average common shares

 

 

35,902

 

 

 

19,824

 

 

 

20,349

 

Basic earnings per common share

 

$

1.75

 

 

$

2.49

 

 

$

2.27

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated to common shareholders

 

$

62,988

 

 

$

49,334

 

 

$

46,233

 

Weighted average common shares outstanding for basic earnings per

   common share

 

 

35,902

 

 

 

19,824

 

 

 

20,349

 

Add: Dilutive effects of stock options and restricted stock units

 

 

47

 

 

 

107

 

 

 

119

 

Average shares and dilutive potential common shares

 

 

35,949

 

 

 

19,931

 

 

 

20,468

 

Diluted earnings per common share

 

$

1.75

 

 

$

2.48

 

 

$

2.26

 

 

Shares subject to issue upon exercise of options and vesting requirements of restricted stock units of 97,724 in 2020, zero in 2019 and 10,500 in 2018 were excluded from the diluted earnings per common share calculation as they were anti-dilutive.

67

 

5.

Investment Securities

The following tables summarize the amortized cost and fair value of available-for-sale securities at December 31, 2020 and 2019, and the corresponding amounts of gross unrealized and unrecognized gains and losses:

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

(In Thousands)

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

39,233

 

 

$

1,707

 

 

$

—

 

 

$

40,940

 

Mortgage-backed securities

 

 

270,683

 

 

 

6,746

 

 

 

(247

)

 

 

277,182

 

Collateralized mortgage obligations

 

 

103,532

 

 

 

2,927

 

 

 

(160

)

 

 

106,299

 

Asset-backed securities

 

 

30,643

 

 

 

1

 

 

 

(98

)

 

 

30,546

 

Corporate bonds

 

 

43,826

 

 

 

489

 

 

 

(146

)

 

 

44,169

 

Obligations of state and political subdivisions

 

 

229,645

 

 

 

8,069

 

 

 

(196

)

 

 

237,518

 

Total Available-for-Sale

 

$

717,562

 

 

$

19,939

 

 

$

(847

)

 

$

736,654

 

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

 

(In Thousands)

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

2,518

 

 

$

6

 

 

$

—

 

 

$

2,524

 

Mortgage-backed securities - residential

 

 

88,380

 

 

 

1,380

 

 

 

(113

)

 

 

89,647

 

REMICs

 

 

1,618

 

 

 

18

 

 

 

—

 

 

 

1,636

 

Collateralized mortgage obligations - residential

 

 

81,390

 

 

 

796

 

 

 

(85

)

 

 

82,101

 

Corporate bonds

 

 

12,011

 

 

 

90

 

 

 

—

 

 

 

12,101

 

Obligations of state and political subdivisions

 

 

91,406

 

 

 

4,042

 

 

 

(9

)

 

 

95,439

 

Total Available-for-Sale

 

$

277,323

 

 

$

6,332

 

 

$

(207

)

 

$

283,448

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The amortized cost and fair value of the investment securities portfolio at December 31, 2020, is shown below by contractual maturity. Expected maturities will differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity tables below, mortgage-backed securities, collateralized mortgage obligations, and asset-backed securities which are not due at a single maturity date, have not been allocated over maturity groupings.

 

 

 

Available-for-Sale

 

 

 

Amortized

 

 

Fair

 

 

 

Cost

 

 

Value

 

 

 

(In Thousands)

 

Available-for-sale

 

 

 

 

 

 

 

 

Due in one year or less

 

$

9,656

 

 

$

9,711

 

Due after one year through five years

 

 

16,746

 

 

 

17,147

 

Due after five years through ten years

 

 

89,827

 

 

 

92,652

 

Due after ten years

 

 

196,475

 

 

 

203,117

 

MBS/CMO/ABS

 

 

404,858

 

 

 

414,027

 

Total

 

$

717,562

 

 

$

736,654

 

 

Securities pledged at year-end 2020 and 2019 had a carrying amount of $324.4 million and $158.8 million, respectively, and were pledged to secure public deposits, securities sold under repurchase agreements and FHLB advances.

68

 

The following table summarizes Premier’s securities that were in an unrealized loss position at December 31, 2020, and December 31, 2019:

 

 

Duration of Unrealized Loss Position

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

 

Value

 

 

Loss

 

 

Value

 

 

Loss

 

 

Value

 

 

Loses

 

 

 

(In Thousands)

 

At December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

26,361

 

 

$

(247

)

 

$

—

 

 

$

—

 

 

$

26,361

 

 

$

(247

)

Collateralized mortgage obligations

 

 

5,161

 

 

 

(160

)

 

 

—

 

 

 

—

 

 

 

5,161

 

 

 

(160

)

Asset-backed securities

 

 

18,439

 

 

 

(98

)

 

 

—

 

 

 

—

 

 

 

18,439

 

 

 

(98

)

Corporate Bonds

 

 

12,177

 

 

 

(146

)

 

 

—

 

 

 

—

 

 

 

12,177

 

 

 

(146

)

Obligations of state and political subdivisions

 

 

41,088

 

 

 

(196

)

 

 

—

 

 

 

—

 

 

 

41,088

 

 

 

(196

)

Total temporarily impaired securities

 

$

103,226

 

 

$

(847

)

 

$

—

 

 

$

—

 

 

$

103,226

 

 

$

(847

)

 

At December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities-residential

 

$

13,830

 

 

$

(42

)

 

$

9,721

 

 

$

(71

)

 

$

23,551

 

 

$

(113

)

Collateralized mortgage obligations

 

 

7,448

 

 

 

(29

)

 

 

5,549

 

 

 

(56

)

 

 

12,997

 

 

 

(85

)

Obligations of state and political subdivisions

 

 

1,413

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

1,413

 

 

 

(9

)

Total temporarily impaired securities

 

$

22,691

 

 

$

(80

)

 

$

15,270

 

 

$

(127

)

 

$

37,961

 

 

$

(207

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASU 2016-13 makes targeted improvements to the accounting for credit losses on securities available for sale. The concept of other than-temporarily impaired (OTTI) has been replaced in 2020 with the allowance for credit losses. Unlike securities held to maturity, securities available for sale are evaluated on an individual level and pooling of securities is not allowed.

 

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

 

 

•

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

 

 

•

Any securities that are downgraded by a third party ratings company above would be subjected to additional analysis that may include, but is not limited to: changes in market interest rates, changes in securities credit ratings, security type, service area economic factors, financial performance of the issuer/or obligor of the underlying issue and third-party guarantee.

 

•

If the Company determines that a credit loss exists, the credit portion of the allowance will be measured using a DCF analysis using the effective interest rate as of the security’s purchase date. The amount of credit loss the Company records will be limited to the amount by which the amortized cost exceeds the fair value.  As of December 31, 2020, management had determined that no credit loss exists.

In 2019 and 2018, management determined there was no OTTI.    

Net realized gains from the sales of investment securities totaled $1.5 million ($1.2 million after tax) in 2020 while there were net realized gains of $24,000 ($19,000 after tax) and $173,000 ($136,000 after tax) in 2019 and 2018, respectively.

69

 

The proceeds from sales and calls of securities and the associated gains and losses for the years ended December 31 are listed below:

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Proceeds

 

$

52,420

 

 

$

2,667

 

 

$

5,503

 

Gross realized gains

 

 

1,471

 

 

 

35

 

 

 

178

 

Gross realized losses

 

 

(7

)

 

 

(11

)

 

 

(5

)

 

At December 31, 2020, the Company also owned $1.1 million of equity securities which consisted of a single trust preferred security.  During 2020, the Company recognized a gain of $90,000 associated with the mark to market requirement for equity securities.  The Company did not own any equity securities at December 31, 2019.

 

6.

Commitments and Contingent Liabilities

Loan Commitments

Loan commitments are made to accommodate the financial needs of the Bank’s customers. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. They primarily are issued to facilitate customers’ trade transactions.

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

The Company’s maximum obligation to extend credit for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding on December 31 was as follows (in thousands):

 

 

 

2020

 

 

2019

 

 

 

Fixed Rate

 

 

Variable Rate

 

 

Fixed Rate

 

 

Variable Rate

 

Commitments to make loans

 

$

409,813

 

 

$

292,290

 

 

$

55,013

 

 

$

123,798

 

Unused lines of credit

 

 

74,364

 

 

 

844,106

 

 

 

7,625

 

 

 

425,484

 

Standby letters of credit

 

 

—

 

 

 

22,250

 

 

 

—

 

 

 

14,215

 

Total

 

$

484,177

 

 

$

1,158,646

 

 

$

62,638

 

 

$

563,497

 

 

Commitments to make loans are generally made for periods of 60 days or less.  The fixed rate loan commitments at December 31, 2020, had interest rates ranging from 0.00% to 25.00% and maturities ranging from less than one year to 37 years.

 

70

 

7.

Loans

Loans receivable consist of the following:

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

(In Thousands)

 

Real Estate:

 

 

 

 

 

 

 

 

Residential

 

$

1,201,051

 

 

$

324,773

 

Commercial

 

 

2,383,001

 

 

 

1,506,026

 

Construction

 

 

667,649

 

 

 

305,305

 

 

 

 

4,251,701

 

 

 

2,136,104

 

Other Loans:

 

 

 

 

 

 

 

 

Commercial

 

 

1,202,353

 

 

 

578,071

 

Home equity and improvement

 

 

272,701

 

 

 

122,864

 

Consumer Finance

 

 

120,729

 

 

 

37,649

 

 

 

 

1,595,783

 

 

 

738,584

 

Total loans

 

 

5,847,484

 

 

 

2,874,688

 

Deduct:

 

 

 

 

 

 

 

 

Undisbursed loan funds

 

 

(355,065

)

 

 

(94,865

)

Net deferred loan origination fees and costs

 

 

(1,179

)

 

 

(2,259

)

Allowance for credit loss

 

 

(82,079

)

 

 

(31,243

)

Totals

 

$

5,409,161

 

 

$

2,746,321

 

 

 

 

 

 

 

 

 

 

 

Loan segments have been identified by evaluating the portfolio based on collateral and credit risk characteristics.  

The following tables disclose the annual activity in the allowance for credit losses for the periods indicated by portfolio segment (in thousands):

 

Year ended December 31, 2020

 

Residential Real Estate

 

 

Commercial

Real

Estate

 

 

Construction

 

 

Commercial

 

 

Home

Equity

and

Improvement

 

 

Consumer

Finance

 

 

Total

 

Beginning Allowance

 

$

2,867

 

 

$

16,302

 

 

$

996

 

 

$

9,003

 

 

$

1,700

 

 

$

375

 

 

$

31,243

 

Impact of ASC 326 Adoption

 

 

1,765

 

 

 

3,682

 

 

 

(223

)

 

 

(2,263

)

 

 

(521

)

 

 

(86

)

 

 

2,354

 

Acquisition related allowance for credit loss (PCD)

 

 

1,077

 

 

 

4,053

 

 

 

—

 

 

 

2,272

 

 

 

248

 

 

 

48

 

 

 

7,698

 

Charge-Offs

 

 

(307

)

 

 

(4,237

)

 

 

(1

)

 

 

(1,350

)

 

 

(164

)

 

 

(293

)

 

 

(6,352

)

Recoveries

 

 

342

 

 

 

1,352

 

 

 

—

 

 

 

1,850

 

 

262

 

 

176

 

 

 

3,982

 

Provisions(1)(2)

 

 

11,790

 

 

 

22,265

 

 

 

1,969

 

 

 

2,153

 

 

 

3,214

 

 

 

1,763

 

 

 

43,154

 

Ending Allowance

 

$

17,534

 

 

$

43,417

 

 

$

2,741

 

 

$

11,665

 

 

$

4,739

 

 

$

1,983

 

 

$

82,079

 

 

 

(1)

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

 

(2)

Provision for the twelve months ended December 31, 2020, includes $25.9 million as a result of the Merger with UCFC in the first quarter.

 

Year ended December 31, 2019

 

Residential Real Estate

 

 

Commercial

Real

Estate

 

 

Construction

 

 

Commercial

 

 

Home

Equity

and

Improvement

 

 

Consumer

Finance

 

 

Total

 

Beginning Allowance

 

$

2,881

 

 

$

15,142

 

 

$

682

 

 

$

7,281

 

 

$

2,026

 

 

$

319

 

 

$

28,331

 

Charge-Offs

 

 

(515

)

 

 

(148

)

 

 

—

 

 

 

(528

)

 

 

(245

)

 

 

(289

)

 

 

(1,725

)

Recoveries

 

 

193

 

 

 

645

 

 

 

—

 

 

 

642

 

 

184

 

 

68

 

 

 

1,732

 

Provisions

 

 

308

 

 

 

663

 

 

 

314

 

 

 

1,608

 

 

 

(265

)

 

 

277

 

 

 

2,905

 

Ending Allowance

 

$

2,867

 

 

$

16,302

 

 

$

996

 

 

$

9,003

 

 

$

1,700

 

 

$

375

 

 

$

31,243

 

71

 

 

Year ended December 31, 2018

 

Residential Real Estate

 

 

Commercial

Real

Estate

 

 

Construction

 

 

Commercial

 

 

Home

Equity

and

Improvement

 

 

Consumer

Finance

 

 

Total

 

Beginning Allowance

 

$

2,532

 

 

$

13,056

 

 

$

647

 

 

$

7,965

 

 

$

2,255

 

 

$

228

 

 

$

26,683

 

Charge-Offs

 

 

(261

)

 

 

(1,387

)

 

 

—

 

 

 

(724

)

 

 

(269

)

 

 

(233

)

 

 

(2,874

)

Recoveries

 

 

131

 

 

 

777

 

 

 

—

 

 

 

2,221

 

 

 

191

 

 

 

26

 

 

 

3,346

 

Provisions

 

 

479

 

 

 

2,696

 

 

 

35

 

 

 

(2,181

)

 

 

(151

)

 

 

298

 

 

 

1,176

 

Ending Allowance

 

$

2,881

 

 

$

15,142

 

 

$

682

 

 

$

7,281

 

 

$

2,026

 

 

$

319

 

 

$

28,331

 

 

 

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

 

 

 

Residential

Real Estate

 

 

Commercial

Real

Estate

 

 

Construction

 

 

Commercial

 

 

Home

Equity &

Improvement

 

 

Consumer

Finance

 

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending allowance balance

   attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated

   for impairment

 

$

115

 

 

$

85

 

 

$

—

 

 

$

174

 

 

$

48

 

 

$

—

 

 

$

422

 

Collectively evaluated

   for impairment

 

 

2,752

 

 

 

16,217

 

 

 

996

 

 

 

8,829

 

 

 

1,652

 

 

 

375

 

 

 

30,821

 

Acquired with deteriorated

   credit quality

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total ending allowance

   balance

 

$

2,867

 

 

$

16,302

 

 

$

996

 

 

$

9,003

 

 

$

1,700

 

 

$

375

 

 

$

31,243

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated

   for impairment

 

$

7,049

 

 

$

21,132

 

 

$

—

 

 

$

6,655

 

 

$

759

 

 

$

28

 

 

$

35,623

 

Loans collectively evaluated

   for impairment

 

 

318,106

 

 

 

1,490,306

 

 

 

206,721

 

 

 

573,244

 

 

 

122,963

 

 

 

37,808

 

 

 

2,749,148

 

Loans acquired with

   deteriorated credit quality

 

 

989

 

 

 

921

 

 

 

—

 

 

 

12

 

 

 

—

 

 

 

—

 

 

 

1,922

 

Total ending loans

   balance

 

$

326,144

 

 

$

1,512,359

 

 

$

206,721

 

 

$

579,911

 

 

$

123,722

 

 

$

37,836

 

 

$

2,786,693

 

 

The following tables presents the average balance, interest income recognized and cash basis income recognized on individually analyzed loans by class of loans for the years ended December 31, 2019 and 2018 (in thousands):

 

 

 

 

Twelve Months Ended December 31, 2019

 

 

 

Average

Balance

 

 

Interest

Income

Recognized

 

 

Cash Basis

Income

Recognized

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

7,040

 

 

$

341

 

 

$

335

 

Commercial

 

 

23,080

 

 

 

1,382

 

 

 

1,301

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

8,397

 

 

 

446

 

 

 

345

 

Home equity and improvement

 

 

862

 

 

 

38

 

 

 

35

 

Consumer finance

 

 

27

 

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

39,406

 

 

$

2,208

 

 

$

2,017

 

72

 

 

 

 

Twelve Months Ended December 31, 2018

 

 

 

Average

Balance

 

 

Interest

Income

Recognized

 

 

Cash Basis

Income

Recognized

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

7,058

 

 

$

284

 

 

$

276

 

Commercial

 

 

29,387

 

 

 

1,099

 

 

 

1,084

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

11,548

 

 

 

375

 

 

 

364

 

Home equity and improvement

 

 

1,150

 

 

 

38

 

 

 

38

 

Consumer finance

 

 

39

 

 

 

4

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

49,182

 

 

$

1,800

 

 

$

1,766

 

 

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

 

 

 

December 31, 2020

 

 

 

Real Estate

 

 

Equipment and Machinery

 

 

Inventory and Receivables

 

 

Vehicles

 

 

Total

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

1,024

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

1,024

 

Commercial

 

 

33,999

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

33,999

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,426

 

 

 

5,317

 

 

 

4,943

 

 

 

125

 

 

 

11,811

 

Home equity and improvement

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Consumer finance

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

36,449

 

 

$

5,317

 

 

$

4,943

 

 

$

125

 

 

$

46,834

 

73

 

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

 

 

 

December 31, 2019

 

 

 

Unpaid

Principal

Balance*

 

 

Recorded

Investment

 

 

Allowance

for Loan

Losses

Allocated

 

With no allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

1,048

 

 

$

1,053

 

 

$

—

 

Commercial

 

 

19,775

 

 

 

18,742

 

 

 

—

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

5,886

 

 

 

5,906

 

 

 

—

 

Home equity and improvement

 

 

151

 

 

 

151

 

 

 

—

 

Consumer finance

 

 

—

 

 

 

—

 

 

 

—

 

Total loans with no allowance recorded

 

$

26,860

 

 

$

25,852

 

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

6,151

 

 

$

5,996

 

 

$

115

 

Commercial

 

 

3,065

 

 

 

2,390

 

 

 

85

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,000

 

 

 

749

 

 

 

174

 

Home equity and improvement

 

 

654

 

 

 

608

 

 

 

48

 

Consumer finance

 

 

28

 

 

 

28

 

 

 

—

 

Total loans with an allowance recorded

 

$

10,898

 

 

$

9,771

 

 

$

422

 

 

*

Presented gross of charge offs

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

 

 

December 31,

2020

 

 

December 31,

2019

 

 

 

(In Thousands)

 

Non-accrual loans

 

$

51,682

 

 

$

13,437

 

Loans over 90 days past due and still accruing

 

 

—

 

 

 

—

 

Total non-performing loans

 

 

51,682

 

 

 

13,437

 

Real estate and other assets held for sale

 

 

343

 

 

 

100

 

Total non-performing assets

 

$

52,025

 

 

$

13,537

 

Troubled debt restructuring, still accruing

 

$

7,173

 

 

$

8,486

 

 

74

 

The following table presents the aging of the recorded investment in past due and non-accrual loans as of December 31, 2020, by class of loans (in thousands):

 

 

 

Current

 

 

30-59 days

 

 

60-89 days

 

 

90+ days

 

 

Total

Past Due

 

 

Total Non

Accrual

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

1,173,979

 

 

 

433

 

 

 

7,669

 

 

 

9,000

 

 

 

17,102

 

 

 

10,178

 

Commercial

 

 

2,357,909

 

 

 

1,033

 

 

 

369

 

 

 

844

 

 

 

2,246

 

 

 

11,980

 

Construction

 

 

310,152

 

 

 

—

 

 

 

1,626

 

 

 

806

 

 

 

2,432

 

 

 

806

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,172,636

 

 

 

9

 

 

 

4

 

 

 

394

 

 

 

407

 

 

 

1,365

 

Home equity and improvement

 

 

262,373

 

 

 

3,440

 

 

 

839

 

 

 

1,137

 

 

 

5,416

 

 

 

1,537

 

Consumer finance

 

 

117,088

 

 

 

1,687

 

 

 

491

 

 

 

1,521

 

 

 

3,699

 

 

 

1,624

 

PCD

 

 

50,218

 

 

 

402

 

 

 

1,882

 

 

 

13,299

 

 

 

15,583

 

 

 

24,192

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans

 

$

5,444,355

 

 

$

7,004

 

 

$

12,880

 

 

$

27,001

 

 

$

46,885

 

 

$

51,682

 

 

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

 

 

 

Current

 

 

30-59 days

 

 

60-89 days

 

 

90+ days

 

 

Total

Past Due

 

 

Total Non

Accrual

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

323,600

 

 

 

1,328

 

 

 

570

 

 

 

646

 

 

 

2,544

 

 

 

2,411

 

Commercial

 

 

1,509,132

 

 

 

339

 

 

 

172

 

 

 

2,716

 

 

 

3,227

 

 

 

7,609

 

Construction

 

 

206,721

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

576,988

 

 

 

273

 

 

 

206

 

 

 

2,444

 

 

 

2,923

 

 

 

2,961

 

Home equity and improvement

 

 

122,487

 

 

 

956

 

 

 

240

 

 

 

39

 

 

 

1,235

 

 

 

449

 

Consumer finance

 

 

37,622

 

 

 

143

 

 

 

64

 

 

 

7

 

 

 

214

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans

 

$

2,776,550

 

 

$

3,039

 

 

$

1,252

 

 

$

5,852

 

 

$

10,143

 

 

$

13,437

 

 

Troubled Debt Restructurings

As of December 31, 2020 and 2019, the Company had a recorded investment in TDRs of $16.6 million and $15.1 million, respectively.  The Company allocated $883,000 and $388,000 of specific reserves to those loans at December 31, 2020 and 2019, respectively, and committed to lend additional amounts totaling up to $303,000 and $226,000 at December 31, 2020 and 2019, respectively.

The Company has responded to the COVID-19 pandemic in numerous ways, including by actively participating in the Paycheck Protection Program (“PPP”) and distributing over $450 million to small businesses in our markets.  As of December 31, 2020, the Company had $386.9 million in PPP loans, which remained unpaid and were included in other commercial loans in our loan tables.  Through February 28th the Company had $327.7 million in PPP loans from the first round of originations still outstanding.  In addition, the Company originated $139.3 million in PPP loans associated with the second round of originations.  The Company also worked with borrowers impacted by the COVID-19 pandemic by providing modifications to include either interest only deferral or principal and interest deferral.  These modifications range from one to nine months.  As of December 31, 2020, the Company had approximately $53.5 million in deferrals.  These modifications are excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. Modified loans will be considered current and will continue to accrue interest during the deferral period unless repayment of the loan under contractual terms is not expected and thereby loans will be placed on non-accrual.

75

 

A breakout of active deferrals by loan category as of December 31, 2020, is as follows (in thousands):

 

 

Balance deferred

 

Residential real estate

$

7,016

 

Commercial real estate

 

34,831

 

Construction

 

9,579

 

Commercial

 

1,628

 

Home equity and improvement

 

114

 

Consumer finance

 

282

 

Total

$

53,450

 

The following table is a breakout of commercial deferrals as of December 31, 2020 (in thousands):  

 

Commercial deferral expirations

Balance

 

January

$

15,698

 

February

 

5,075

 

March

 

-

 

April

 

25,265

 

May

 

-

 

June

 

-

 

Total

$

46,038

 

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

Of the loans modified in a TDR, $9.4 million are on non-accrual status and partial charge-offs have in some cases been taken against the outstanding balance.  Loans modified as a TDR may have the financial effect of increasing the allowance associated with the loan.  If the loan is determined to be collateral dependent, the estimated fair value of the collateral, less any selling costs is used to determine if there is a need for a specific allowance or charge-off.  If the loan is determined to be cash flow dependent, the allowance is measured based on the present value of expected future cash flows discounted at the loan’s pre-modification effective interest rate.

76

 

The following table presents loans by class modified as TDRs that occurred during the years indicated (Dollars in Thousands):

 

 

 

Loans Modified as a TDR for the Twelve Months Ended December 31, 2020

($ in thousands)

 

 

Loans Modified as a TDR for the Twelve Months Ended December 31, 2019

($ in thousands)

 

 

Loans Modified as a TDR for the Twelve Months Ended December 31, 2018

($ in thousands)

 

Troubled Debt Restructurings:

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

7

 

 

$

892

 

 

 

12

 

 

$

1,332

 

 

 

22

 

 

$

1,169

 

Commercial

 

 

6

 

 

 

7,760

 

 

 

2

 

 

 

621

 

 

 

13

 

 

 

1,681

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

9

 

 

 

7,546

 

 

 

5

 

 

 

317

 

 

 

6

 

 

 

2,942

 

Home equity and improvement

 

 

4

 

 

 

92

 

 

 

1

 

 

 

25

 

 

 

7

 

 

 

89

 

Consumer finance

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

8

 

 

 

29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

26

 

 

$

16,290

 

 

 

20

 

 

$

2,295

 

 

 

56

 

 

$

5,910

 

 

The loans described above increased the allowance by $660,000 and $34,000 for the years ended December 31, 2020 and 2019, respectively, and decreased the allowance by $110,000 for the year ended December 31, 2018, respectively.  

The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the indicated:

 

 

 

Loans Modified as a TDR for the Twelve Months Ended December 31, 2020

($ in thousands)

 

 

Loans Modified as a TDR for the Twelve Months Ended December 31, 2019

($ in thousands)

 

 

Loans Modified as a TDR for the Twelve Months Ended December 31, 2018

($ in thousands)

 

TDRs That Subsequently Defaulted:

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

 

Number of

Loans

 

 

Recorded Investment

(as of period end)

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

2

 

 

$

229

 

 

 

—

 

 

$

—

 

 

 

2

 

 

$

121

 

Commercial

 

 

—

 

 

 

—

 

 

 

1

 

 

 

81

 

 

 

—

 

 

 

—

 

Construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

—

 

 

 

—

 

 

 

3

 

 

 

2,248

 

 

 

3

 

 

 

2,644

 

Home equity and improvement

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

 

 

30

 

Consumer finance

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

 

 

61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

2

 

 

$

229

 

 

 

4

 

 

$

2,329

 

 

 

7

 

 

$

2,856

 

 

The TDRs that subsequently defaulted described above increased the allowance by $5,000, $4,000 and $17,000 for the years ended December 31, 2020, 2019 and 2018, respectively.     

77

 

A default for purposes of this disclosure is a TDR loan in which the borrower is 90 days contractually past due under the modified terms.

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

Credit Quality Indicators

Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  Loans are analyzed individually by classifying the loans as to credit risk.  This analysis includes all non-homogeneous loans, such as commercial and commercial real estate loans and certain homogenous mortgage, home equity and consumer loans. This analysis is performed on a quarterly basis.  Premier uses the following definitions for risk ratings with loans not meeting such classifications being considered “unclassified”:

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

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

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

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  

As of December 31, 2020, and based on the most recent analysis performed, the risk category and recorded investment in loans is as follows (in thousands):

 

Class

 

Unclassified

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total classified

 

 

Total

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

1,187,923

 

 

 

795

 

 

 

2,363

 

 

 

—

 

 

 

2,363

 

 

 

1,191,081

 

Commercial

 

 

2,203,652

 

 

 

111,039

 

 

 

45,464

 

 

 

—

 

 

 

45,464

 

 

 

2,360,155

 

Construction

 

 

299,866

 

 

 

12,718

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

312,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,142,289

 

 

 

23,907

 

 

 

6,847

 

 

 

—

 

 

 

6,847

 

 

 

1,173,043

 

Home equity and improvement

 

 

267,350

 

 

 

—

 

 

 

439

 

 

 

—

 

 

 

439

 

 

 

267,789

 

Consumer finance

 

 

120,682

 

 

 

—

 

 

 

105

 

 

 

—

 

 

 

105

 

 

 

120,787

 

PCD

 

 

26,829

 

 

 

3,813

 

 

 

35,159

 

 

 

—

 

 

 

35,159

 

 

 

65,801

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans

 

$

5,248,591

 

 

$

152,272

 

 

$

90,377

 

 

$

—

 

 

$

90,377

 

 

$

5,491,240

 

 

78

 

As of December 31, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):

 

Class

 

Unclassified

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Total classified

 

 

Total

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

322,250

 

 

 

415

 

 

 

3,479

 

 

 

—

 

 

 

3,479

 

 

 

326,144

 

Commercial

 

 

1,462,065

 

 

 

27,197

 

 

 

23,097

 

 

 

—

 

 

 

23,097

 

 

 

1,512,359

 

Construction

 

 

205,076

 

 

 

1,645

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

206,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

548,012

 

 

 

24,162

 

 

 

7,737

 

 

 

—

 

 

 

7,737

 

 

 

579,911

 

Home equity and improvement

 

 

123,407

 

 

 

—

 

 

 

315

 

 

 

—

 

 

 

315

 

 

 

123,722

 

Consumer finance

 

 

37,816

 

 

 

—

 

 

 

20

 

 

 

—

 

 

 

20

 

 

 

37,836

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans

 

$

2,698,626

 

 

$

53,419

 

 

$

34,648

 

 

$

—

 

 

$

34,648

 

 

$

2,786,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

79

 

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

 

 

Term of loans by origination

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

Prior

 

 

Revolving Loans

 

 

Total

 

As of December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

250,979

 

 

$

196,158

 

 

$

136,247

 

 

$

130,759

 

 

$

137,581

 

 

$

333,572

 

 

$

2,627

 

 

$

1,187,923

 

Special Mention

 

199

 

 

 

—

 

 

 

—

 

 

 

62

 

 

 

116

 

 

 

211

 

 

 

207

 

 

 

795

 

Substandard

 

—

 

 

 

74

 

 

 

289

 

 

 

252

 

 

 

136

 

 

 

1,612

 

 

 

 

 

 

 

2,363

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

251,178

 

 

$

196,232

 

 

$

136,536

 

 

$

131,073

 

 

$

137,833

 

 

$

335,395

 

 

$

2,834

 

 

$

1,191,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

517,691

 

 

$

457,905

 

 

$

299,072

 

 

$

300,573

 

 

$

198,247

 

 

$

414,082

 

 

$

16,082

 

 

$

2,203,652

 

Special Mention

 

6,014

 

 

 

7,239

 

 

 

10,452

 

 

 

60,712

 

 

 

7,977

 

 

 

17,723

 

 

 

922

 

 

 

111,039

 

Substandard

 

—

 

 

 

279

 

 

 

18,851

 

 

 

1,937

 

 

 

3,143

 

 

 

19,107

 

 

 

2,147

 

 

 

45,464

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

523,705

 

 

$

465,423

 

 

$

328,375

 

 

$

363,222

 

 

$

209,367

 

 

$

450,912

 

 

$

19,151

 

 

$

2,360,155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

101,616

 

 

$

100,553

 

 

$

82,972

 

 

$

11,666

 

 

$

2,911

 

 

$

148

 

 

$

-

 

 

$

299,866

 

Special Mention

 

5,587

 

 

 

—

 

 

 

7,131

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

12,718

 

Substandard

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

107,203

 

 

$

100,553

 

 

$

90,103

 

 

$

11,666

 

 

$

2,911

 

 

$

148

 

 

$

-

 

 

$

312,584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

568,678

 

 

$

144,977

 

 

$

82,492

 

 

$

42,421

 

 

$

21,262

 

 

$

21,969

 

 

$

260,490

 

 

$

1,142,289

 

Special Mention

 

1,180

 

 

 

2,026

 

 

 

2,514

 

 

 

2,109

 

 

 

37

 

 

 

5,121

 

 

 

10,920

 

 

 

23,907

 

Substandard

 

148

 

 

 

201

 

 

 

497

 

 

 

543

 

 

 

257

 

 

 

269

 

 

 

4,932

 

 

 

6,847

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

570,006

 

 

$

147,204

 

 

$

85,503

 

 

$

45,073

 

 

$

21,556

 

 

$

27,359

 

 

$

276,342

 

 

$

1,173,043

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity and Improvement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

8,736

 

 

$

7,483

 

 

$

4,508

 

 

$

7,963

 

 

$

7,748

 

 

$

31,382

 

 

$

199,530

 

 

$

267,350

 

Special Mention

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

86

 

 

 

353

 

 

 

439

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

8,736

 

 

$

7,483

 

 

$

4,508

 

 

$

7,963

 

 

$

7,748

 

 

$

31,468

 

 

$

199,883

 

 

$

267,789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Finance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

38,665

 

 

$

37,601

 

 

$

19,401

 

 

$

10,607

 

 

$

4,393

 

 

$

3,272

 

 

$

6,743

 

 

$

120,682

 

Special Mention

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

—

 

 

 

98

 

 

 

3

 

 

 

—

 

 

 

4

 

 

 

—

 

 

 

—

 

 

 

105

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

38,665

 

 

$

37,699

 

 

$

19,404

 

 

$

10,607

 

 

$

4,397

 

 

$

3,272

 

 

$

6,743

 

 

$

120,787

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PCD:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$

-

 

 

$

45

 

 

$

2,378

 

 

$

2,547

 

 

$

1,524

 

 

$

18,998

 

 

$

1,337

 

 

$

26,829

 

Special Mention

 

—

 

 

 

—

 

 

 

—

 

 

 

1,160

 

 

 

509

 

 

 

1,758

 

 

 

386

 

 

 

3,813

 

Substandard

 

—

 

 

 

—

 

 

 

—

 

 

 

14,371

 

 

 

2,502

 

 

 

7,207

 

 

 

11,079

 

 

 

35,159

 

Doubtful

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

$

-

 

 

$

45

 

 

$

2,378

 

 

$

18,078

 

 

$

4,535

 

 

$

27,963

 

 

$

12,802

 

 

$

65,801

 

 

80

 

Allowance for Credit Losses (“ACL”)

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

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

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

A default can be triggered by one of several different asset quality factors including past due status, non-accrual status or if the loan has had a charge-off.  The PD/LGD utilizes charge off data from the Federal Financial Institutions Examination Council to construct a default rate.  The Company estimates losses over an approximate one-year forecast period using Moody’s baseline economic forecasts, and then reverts to longer term historical loss experience over a three-year period.  This default rate is further segmented based on the risk of the credit assigning a higher default rate to riskier credits.  

The DCF methodology was selected as the most appropriate for loan segments with longer average lives and regular payment structures.  The DCF model has two key components, the loss driver analysis combined with a cash flow analysis.  The contractual cash flow is adjusted for PD/LGD and prepayment speed to establish a reserve level.  The prepayment studies are updated quarterly by a third-party for each applicable pool.  

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

 

 

Portfolio Segments

 

Loan Pool

 

Methodology

 

Loss Drivers

Residential real estate

 

1-4 Family nonowner occupied

 

DCF

 

National unemployment

 

 

1-4 Family owner occupied

 

DCF

 

National unemployment

Commercial real estate

 

Commercial real estate nonowner occupied

 

DCF

 

National unemployment

 

 

Commercial real estate owner occupied

 

DCF

 

National unemployment

 

 

Multi Family

 

DCF

 

National unemployment

 

 

Agriculture Land

 

DCF

 

National unemployment

 

 

Other commercial real estate

 

DCF

 

National unemployment

Construction secured by real estate

 

Construction

 

PD/LGD

 

Call report loss history

 

 

 

 

 

 

 

Commercial

 

Commercial working capital

 

PD/LGD

 

Call report loss history

 

 

Agriculture production

 

PD/LGD

 

Call report loss history

 

 

Other commercial

 

PD/LGD

 

Call report loss history

Home equity and improvement

 

Home equity and improvement

 

PD/LGD

 

Call report loss history

Consumer finance

 

Consumer finance

 

Remaining life

 

Call report loss history

 

According to the accounting standard an entity may make an accounting policy election not to measure an allowance for credit losses for accrued interest receivable if the entity writes off the applicable accrued interest receivable balance in a timely

81

 

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

In addition, 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 considered by the company’s management as likely to fund over the life of the instrument.  At December 31, 2020, the Company had $1.3 billion in unfunded commitments and set aside $5.3 million in anticipated credit losses.  This reserve is recorded in other liabilities as opposed to the ACL.  

 

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

 

 

Certain loans acquired had evidence that the credit quality of the loan had deteriorated since its origination and in management’s assessment at the acquisition date it was probable that Premier would be unable to collect all contractually required payments due. In accordance with FASB ASC Topic 310 Subtopic 30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, these loans have been recorded based on management’s estimate of the fair value of the loans.

 

 

Purchased Loans

 

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

 

 

 

2020

 

Par value of acquired loans at acquisition

 

$

2,247,317

 

Credit discount

 

 

(34,610

)

Non-credit discount/(premium) at acquisition

 

 

8,497

 

Purchase price of loans at acquisition

 

$

2,221,204

 

 

Under ASU Topic 326, when loans are purchased with evidence of more than insignificant deterioration of credit, they are accounted for as PCD. PCD loans acquired in a transaction are marked to fair value and a mark on yield is recorded. In addition, an adjustment is made to the ACL for the expected loss on the acquisition date. These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. On January 31, 2020, the Company acquired PCD loans with a fair value of $79.1 million, credit discount $7.7 million and a noncredit discount of $4.1 million. The outstanding balance at December 31, 2020 and related allowance on these loans is as follows (in thousands):

  

 

 

Loan Balance

 

 

ACL Balance

 

 

 

(In Thousands)

 

Real Estate:

 

 

 

 

 

 

 

 

Residential

 

$

14,895

 

 

$

201

 

Commercial

 

 

24,334

 

 

 

2,286

 

Construction

 

 

—

 

 

 

—

 

 

 

 

39,229

 

 

 

2,487

 

Other Loans:

 

 

 

 

 

 

 

 

Commercial

 

 

20,990

 

 

 

1,896

 

Home equity and improvement

 

 

4,912

 

 

 

214

 

Consumer finance

 

 

670

 

 

 

20

 

 

 

 

26,572

 

 

 

2,130

 

Total

 

$

65,801

 

 

$

4,617

 

82

 

 

At December 31, 2020 the Company had $1.8 million in loans that had previously been accounted for as purchase credit impaired.

 

Loans to executive officers, directors, and their affiliates are as follows:

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

 

(In Thousands)

 

Beginning balance

 

$

21,849

 

 

$

21,563

 

New loans

 

 

14,913

 

 

 

4,152

 

Effect of changes in composition of related parties

 

 

883

 

 

 

—

 

Repayments

 

 

(14,261

)

 

 

(3,866

)

Ending Balance

 

$

23,384

 

 

$

21,849

 

 

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $784,000 as of December 31, 2020 and $981,000 as of December 31, 2019.

8.

Mortgage Banking

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

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Gain from sale of mortgage loans

 

$

36,359

 

 

$

7,706

 

 

$

4,502

 

Mortgage loan servicing revenue (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage loan servicing revenue

 

 

7,296

 

 

 

3,820

 

 

 

3,784

 

Amortization of mortgage servicing rights

 

 

(7,477

)

 

 

(1,809

)

 

 

(1,341

)

Mortgage servicing rights valuation adjustments

 

 

(7,979

)

 

 

(234

)

 

 

132

 

 

 

 

(8,160

)

 

 

1,777

 

 

 

2,575

 

Net mortgage banking income

 

$

28,199

 

 

$

9,483

 

 

$

7,077

 

 

The unpaid principal balance of residential mortgage loans serviced for third parties was $2.95 billion at December 31, 2020, and $1.46 billion at December 31, 2019.

Activity for capitalized mortgage servicing rights (“MSRs”) and the related valuation allowance is as follows:

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Mortgage servicing assets:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

10,801

 

 

$

10,419

 

 

$

10,240

 

Loans sold, servicing retained

 

 

8,595

 

 

 

2,191

 

 

 

1,520

 

Mortgage servicing rights acquired

 

 

9,747

 

 

 

—

 

 

 

—

 

Amortization

 

 

(7,477

)

 

 

(1,809

)

 

 

(1,341

)

Carrying value before valuation allowance at end of period

 

 

21,666

 

 

 

10,801

 

 

 

10,419

 

Valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

(534

)

 

 

(300

)

 

 

(432

)

Impairment recovery (charges)

 

 

(7,979

)

 

 

(234

)

 

 

132

 

Balance at end of period

 

 

(8,513

)

 

 

(534

)

 

 

(300

)

Net carrying value of MSRs at end of period

 

$

13,153

 

 

$

10,267

 

 

$

10,119

 

Fair value of MSRs at end of period

 

$

13,153

 

 

$

10,378

 

 

$

10,656

 

 

Amortization of mortgage servicing rights is computed based on payments and payoffs of the related mortgage loans serviced.

83

 

The Company had no actual losses from secondary market buy-backs in 2020, 2019 or 2018.  Based on management’s estimate of potential losses from secondary market buyback activity, a liability of $43,000 was accrued at both December 31, 2020 and 2019, and is reflected in other liabilities in the Consolidated Statements of Financial Condition.  Expense (credit) recognized related to the accrual was $0, $0 and $0 for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company’s servicing portfolio is comprised of the following:

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

Number of

 

 

Principal

 

 

Number of

 

 

Principal

 

Investor

 

Loans

 

 

Outstanding

 

 

Loans

 

 

Outstanding

 

 

 

(In Thousands)

 

Fannie Mae

 

 

8,365

 

 

$

998,359

 

 

 

4,915

 

 

$

465,982

 

Freddie Mac

 

 

17,385

 

 

 

1,925,717

 

 

 

9,833

 

 

 

977,649

 

Federal Home Loan Bank

 

 

89

 

 

 

13,143

 

 

 

118

 

 

 

17,564

 

Other

 

 

105

 

 

 

9,826

 

 

 

12

 

 

 

450

 

Totals

 

 

25,944

 

 

$

2,947,045

 

 

 

14,878

 

 

$

1,461,645

 

 

Custodial escrow balances maintained in connection with serviced loans were $33.8 million and $15.3 million at December 31, 2020 and 2019, respectively.

Significant assumptions at December 31, 2020, used in determining the value of MSRs include a weighted average prepayment speed assumption (“PSA”) of 390 and a weighted average discount rate of 11.01%.  Significant assumptions at December 31, 2019, used in determining the value of MSRs include a weighted average prepayment rate of 177 PSA and a weighted average discount rate of 12.01%.  

 

 

9.

Premises and Equipment and Leases

Premises and equipment are summarized as follows:

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(In Thousands)

 

Cost:

 

 

 

 

 

 

 

 

Land

 

$

13,382

 

 

$

8,137

 

Land improvements

 

 

1,326

 

 

 

1,326

 

Buildings

 

 

58,426

 

 

 

44,707

 

Leasehold improvements

 

 

3,616

 

 

 

969

 

Furniture, fixtures and equipment

 

 

37,138

 

 

 

25,703

 

Construction in process

 

 

2,538

 

 

 

990

 

 

 

 

116,426

 

 

 

81,832

 

Less allowances for depreciation and amortization

 

 

(57,761

)

 

 

(42,269

)

 

 

$

58,665

 

 

$

39,563

 

 

Depreciation expense was $6.5 million, $4.2 million and $3.7 million for the years ended December 31, 2020, 2019 and 2018, respectively.

 

Leases

 

Effective January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842) using a modified retrospective transition approach applying several of available practical expedients at the date of initial application. These practical expedients included carryover of historical lease determination and classification conclusions, carryover of historical initial direct cost balances for existing leases and accounting for lease and non-lease components in contracts in which the Company is a lessee as a single lease component.  All periods presented after January 1, 2019 are under ASC 842 whereas periods presented prior to January 1, 2019 are in accordance with prior lease accounting of ASC 840. Financial information was not updated and the disclosures required under ASC 842 were not provided for dates and periods before January 1, 2019.

84

 

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

 

The Company’s lease agreements have maturity dates ranging from January 2021 to September 2044, some of which include options for multiple five and ten year extensions. The weighted average remaining life of the lease term for these leases was 15.09 and 17.07 years as of December 31, 2020 and 2019, respectively.

 

The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate or swap rate which corresponded with the remaining lease term as of January 1, 2019 for leases that existed at adoption and as of the lease commencement date for leases subsequently entered into. The weighted average discount rate for leases was 2.61% and 3.17% as of December 31, 2020 and 2019, respectively.

 

The total operating lease costs were $2.3 million and $945,000 for the years ended December 31, 2020 and 2019, respectively.  Rent expense for operating leases was $1.0 million in 2018.  The right-of-use asset, included in other assets, was $16.9 million and $8.9 million at December 31, 2020 and 2019, respectively.  The lease liabilities, included in other liabilities, were $17.8 million and $9.5 million as of December 31, 2020 and 2019, respectively.

 

 

Undiscounted cash flows included in lease liabilities have expected contractual payments at December 31, 2020 as follows:

 

(in thousands)

 

 

 

 

2021

 

$

2,429

 

2022

 

 

2,413

 

2023

 

 

2,021

 

2024

 

 

1,638

 

2025

 

 

1,412

 

Thereafter

 

 

15,020

 

Total undiscounted minimum lease payments

 

$

24,933

 

Present value adjustment

 

 

(7,167

)

Total lease liabilities

 

$

17,766

 

 

10.

Goodwill and Intangible Assets

Goodwill

The change in the carrying amount of goodwill for the year is as follows:

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(In Thousands)

 

Beginning balance

 

$

100,069

 

 

$

98,569

 

Goodwill acquired or adjusted during the year

 

 

217,879

 

 

 

1,500

 

Ending balance

 

$

317,948

 

 

$

100,069

 

 

 

 

 

 

 

 

 

 

 

85

 

The Company tests goodwill at least annually and, more frequently, if events or changes in circumstances indicate that it may be more likely than not that there is a possible impairment. Due to the ongoing economic impacts from the COVID-19 pandemic, the Company conducted a quantitative goodwill impairment assessment at December 31, 2020. The impairment assessment compared the fair value of identified reporting units with their carrying amount (including goodwill). If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. The Company's assessment estimated fair value on an income approach that incorporated a discounted cash flow (“DCF”) model that involves management assumptions based upon future growth projections, which include estimates of the COVID-19 impact on the Company’s business. Results of the assessment indicated no goodwill impairment as of December 31, 2020. The Company will continue to monitor its goodwill for possible impairment.  

 

 

Acquired Intangible Assets

Activity in intangible assets for the years ended December 31, 2020, 2019 and 2018, was as follows:

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Value

 

 

 

(In Thousands)

 

Balance as of January 1, 2018

 

$

20,133

 

 

$

(14,430

)

 

$

5,703

 

Amortization of intangible assets

 

 

—

 

 

 

(1,312

)

 

 

(1,312

)

Balance as of December 31, 2018

 

 

20,133

 

 

 

(15,742

)

 

 

4,391

 

Intangible assets acquired

 

 

500

 

 

 

—

 

 

 

500

 

Amortization of intangible assets

 

 

—

 

 

 

(1,119

)

 

 

(1,119

)

Balance as of December 31, 2019

 

 

20,633

 

 

 

(16,861

)

 

 

3,772

 

Intangible assets acquired

 

 

33,014

 

 

 

—

 

 

 

33,014

 

Amortization of intangible assets

 

 

—

 

 

 

(6,449

)

 

 

(6,449

)

Balance as of December 31, 2020

 

$

53,647

 

 

$

(23,310

)

 

$

30,337

 

 

Estimated amortization expense for each of the next five years and thereafter is as follows (in thousands):

 

2021

 

$

6,208

 

2022

 

 

5,450

 

2023

 

 

4,722

 

2024

 

 

4,013

 

2025

 

 

3,306

 

Thereafter

 

 

6,638

 

Total

 

$

30,337

 

 

11.

Deposits

The following schedule sets forth interest expense by type of deposit:

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Checking and money market accounts

 

$

9,710

 

 

$

7,650

 

 

$

3,997

 

Savings accounts

 

 

222

 

 

 

142

 

 

 

115

 

Certificates of deposit

 

 

16,986

 

 

 

14,821

 

 

 

9,785

 

Totals

 

$

26,918

 

 

$

22,613

 

 

$

13,897

 

 

86

 

A summary of deposit balances is as follows:

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(In Thousands)

 

Noninterest-bearing checking accounts

 

$

1,597,262

 

 

$

630,359

 

Interest-bearing checking and money market accounts

 

 

2,627,669

 

 

 

1,198,012

 

Savings deposits

 

 

700,480

 

 

 

303,166

 

Retail certificates of deposit less than $250,000

 

 

912,006

 

 

 

631,253

 

Retail certificates of deposit greater than $250,000

 

 

210,424

 

 

 

107,535

 

 

 

$

6,047,841

 

 

$

2,870,325

 

 

Scheduled maturities of certificates of deposit at December 31, 2020, are as follows (in thousands):

 

2021

 

$

781,972

 

2022

 

 

190,425

 

2023

 

 

63,266

 

2024

 

 

59,718

 

2025

 

 

25,085

 

Thereafter

 

 

1,964

 

Total

 

$

1,122,430

 

 

12.

Advances from Federal Home Loan Bank

The Bank has the ability to borrow funds from the FHLB. The Bank pledges its single-family residential mortgage loan portfolio, certain commercial real estate loans, and certain agriculture real estate loans as security for these advances. Advances secured by residential mortgages must have collateral of at least 128% of the borrowings. Advances secured by commercial real estate loans, and agriculture real estate loans must have collateral of at least 120% and 123% of the borrowings, respectively. Total loans pledged to the FHLB at December 31, 2020, and December 31, 2019, were $2.0 billion and $1.2 billion, respectively. The Bank could obtain advances of up to approximately $1.4 billion from the FHLB at December 31, 2020.

At December 31, 2020, the Bank had no outstanding FHLB advances.  At December 31, 2019, advances from the FHLB were as follows:

 

Principal Terms

 

Advance

Amount

 

 

Range of Maturities

 

Weighted

Average

Interest

Rate

 

 

 

(In Thousands)

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

Single maturity fixed rate advances

 

$

83,999

 

 

January 2020 to October 2024

 

 

2.00

%

Amortizable mortgage advances

 

 

1,085

 

 

August 2027

 

 

2.14

%

Fair value adj. on acquired balances

 

 

(21

)

 

 

 

 

 

 

 

 

$

85,063

 

 

 

 

 

 

 

 

 

13.

Subordinated Debentures and Junior Subordinated Debentures Owed to Unconsolidated Subsidiary Trust

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

87

 

In March 2007, the Company sponsored an affiliated trust, Premier Statutory Trust II (“Trust Affiliate II”) that issued $15.0 million of Guaranteed Capital Trust Securities (Trust Preferred Securities). In connection with the transaction, the Company issued $15.5 million of Junior Subordinated Deferrable Interest Debentures (“Subordinated Debentures”) to Trust Affiliate II. The Company formed Trust Affiliate II for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Subordinated Debentures held by Trust Affiliate II are the sole assets of that trust. The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. Distributions on the Trust Preferred Securities issued by Trust Affiliate II are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.5%. The Coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate II was 1.72% and 3.39% as of December 31, 2020 and 2019, respectively.

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

The Company also sponsors an affiliated trust, Premier Statutory Trust I (“Trust Affiliate I”) that issued $20.0 million of Trust Preferred Securities in 2005. In connection with this transaction, the Company issued $20.6 million of Subordinated Debentures to Trust Affiliate I. Trust Affiliate I was formed for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Junior Debentures held by Trust Affiliate I are the sole assets of the trust. The Company is not considered the primary beneficiary of this Trust (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability.  Distributions on the Trust Preferred Securities issued by Trust Affiliate I are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.38%. The Coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate I was 1.60% and 3.27% as of December 31, 2020 and 2019, respectively.

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

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

A summary of all junior subordinated debentures issued by the Company to affiliates and subordinated debentures follows. For the junior subordinated debentures, these amounts represent the par value of the obligations owed to these affiliates, including the Company’s equity interest in the trusts. For the subordinated debentures, these amounts represent the par value less remaining deferred offering expense associated with the issuance the debentures.  Balances were as follows:

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(In Thousands)

 

First Defiance Statutory Trust I due December 2035

 

$

20,619

 

 

$

20,619

 

First Defiance Statutory Trust II due June 2037

 

 

15,464

 

 

 

15,464

 

Total junior subordinated debentures owed to unconsolidated subsidiary Trusts

 

$

36,083

 

 

$

36,083

 

 

 

 

 

 

 

 

 

 

Subordinated debentures

 

$

48,777

 

 

$

—

 

 

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

88

 

14.

Securities Sold Under Agreements to Repurchase and Other Short Term Borrowings

Total securities sold under agreement to repurchase are summarized as follows:

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

 

(In Thousands, Except Percentages)

 

Securities sold under agreement to repurchase

 

 

 

 

 

 

 

 

Amounts outstanding at year-end

 

$

-

 

 

$

2,999

 

Year-end interest rate

 

 

-

 

 

 

0.24

%

Average daily balance during year

 

 

4,309

 

 

 

3,587

 

Maximum month-end balance during the year

 

 

14,487

 

 

 

6,402

 

Average interest rate during the year

 

 

0.55

%

 

 

0.29

%

 

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

The remaining contractual maturity of the securities sold under agreements to repurchase in the consolidated balance sheet as of December 31, 2019, is presented in the following table.

 

 

 

Overnight and

Continuous

 

 

Up to 30

Days

 

 

30-90 Days

 

 

Greater

than 90

Days

 

 

Total

 

At December 31, 2019

 

 

 

 

 

(In Thousands)

 

 

 

 

 

Repurchase agreements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities – residential

 

$

1,848

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

1,848

 

Collateralized mortgage obligations

 

 

1,151

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,151

 

Total borrowings

 

$

2,999

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

2,999

 

Gross amount of recognized liabilities for repurchase

   agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,999

 

 

As of December 31, 2020 and 2019, the Company had the following undrawn lines of credit facilities available for short-term borrowing purposes:

A $20.0 million line of credit with First Horizon Bank.  The rate on the line of credit is at three- month LIBOR, which floats quarterly. This line was undrawn upon as of December 31, 2020 and 2019.

A $25.0 million line of credit with U.S. Bank.  The rate on this line of credit is U.S. Bank’s federal funds rate, which floats daily.  This line was undrawn upon as of December 31, 2020 and 2019.

15.

Other Noninterest Expense

The following is a summary of other noninterest expense:

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Legal and other professional fees

 

$

5,119

 

 

$

3,693

 

 

$

3,328

 

Marketing

 

 

1,938

 

 

 

2,262

 

 

 

2,407

 

OREO expenses and write-downs

 

 

86

 

 

 

369

 

 

 

742

 

Printing and office supplies

 

 

1,032

 

 

 

603

 

 

 

631

 

Postage

 

 

1,173

 

 

 

484

 

 

 

505

 

Check charge-offs and fraud losses

 

 

870

 

 

 

384

 

 

 

415

 

Credit and collection expense

 

 

550

 

 

 

398

 

 

 

379

 

Other (1)

 

 

12,521

 

 

 

9,415

 

 

 

6,710

 

Total other noninterest expense

 

$

23,289

 

 

$

17,608

 

 

$

15,117

 

89

 

 

1)

2018 includes a credit of $806,000 for an accounting correction related to the Deferred Compensation Plan. See Note 19 for further details.

    

16.

Postretirement Benefits

Premier sponsors a defined benefit postretirement plan that is intended to supplement Medicare coverage for certain retirees who meet minimum age requirements. The Bank employees who retired prior to April 1, 1997, and who completed 20 years of service after age 40 receive full medical coverage at no cost. The Bank employees retiring after April 1, 1997, are provided medical benefits at a cost based on their combined age and years of service at retirement. Surviving spouses are also eligible for continued coverage after the retiree is deceased at a subsidy level that is 10% less than what the retiree is eligible for. The Bank employees retiring before July 1, 1997, receive dental and vision care in addition to medical coverage. The Bank employees who retire after July 1, 1997, are not eligible for dental or vision care.

The Bank employees who were born after December 31, 1950, are not eligible for the medical coverage described above at retirement. Rather, a one-time medical spending account of up to $10,000 (based on the participant’s age and years of service) will be established to reimburse medical expenses for those individuals. First Insurance employees who were born before December 31, 1950, can continue coverage until they reach age 65, or in lieu of continuing coverage, can elect the medical spending account option, subject to eligibility requirements. Employees hired or acquired after January 1, 2003, are eligible only for the medical spending account option.

Included in accumulated other comprehensive income at December 31, 2020, 2019 and 2018, are the following amounts that have not yet been recognized in net periodic benefit cost:

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Unrecognized prior service cost

 

$

71

 

 

$

84

 

 

$

97

 

Unrecognized actuarial gains (losses)

 

 

29

 

 

 

224

 

 

 

(86

)

Total loss recognized in Accumulated Other Comprehensive Income

 

 

100

 

 

 

308

 

 

 

11

 

Income tax effect

 

 

(21

)

 

 

(64

)

 

 

80

 

Net loss recognized in Accumulated Other Comprehensive Income

 

$

79

 

 

$

244

 

 

$

91

 

 

The prior service cost and actuarial loss included in other comprehensive income and expected to be recognized in net postretirement benefit cost during the fiscal year-ended December 31, 2020, is $13,000 ($10,000 net of tax) and $0, respectively.

Reconciliation of Funded Status and Accumulated Benefit Obligation

The plan is not currently funded. The following table summarizes benefit obligation and plan asset activity for the plan measured as of December 31 each year:

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(In Thousands)

 

Change in benefit obligation:

 

 

 

 

 

 

 

 

Benefit obligation at beginning of year

 

$

2,987

 

 

$

2,642

 

Service cost

 

 

61

 

 

 

53

 

Interest cost

 

 

87

 

 

 

105

 

Participant contribution

 

 

29

 

 

 

29

 

Actuarial  (gains) / losses

 

 

(195

)

 

 

310

 

Benefits paid

 

 

(182

)

 

 

(152

)

Benefit obligation at end of year

 

 

2,787

 

 

 

2,987

 

Change in fair value of plan assets:

 

 

 

 

 

 

 

 

Balance at beginning of year

 

 

—

 

 

 

—

 

Employer contribution

 

 

153

 

 

 

123

 

Participant contribution

 

 

29

 

 

 

29

 

Benefits paid

 

 

(182

)

 

 

(152

)

Balance at end of year

 

 

—

 

 

 

—

 

Funded status at end of year

 

$

(2,787

)

 

$

(2,987

)

 

90

 

Net periodic postretirement benefit cost includes the following components:

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Service cost-benefits attributable to service during the period

 

$

61

 

 

$

53

 

 

$

55

 

Interest cost on accumulated postretirement benefit obligation

 

 

87

 

 

 

105

 

 

 

105

 

Net amortization and deferral

 

 

13

 

 

 

14

 

 

 

18

 

Net periodic postretirement benefit cost

 

 

161

 

 

 

172

 

 

 

178

 

Net (gain) / loss during the year

 

 

(195

)

 

 

310

 

 

 

(632

)

Plan amendment for acquisition

 

 

—

 

 

 

—

 

 

 

72

 

Amortization of prior service cost and actuarial losses

 

 

(13

)

 

 

(14

)

 

 

(18

)

Total recognized in comprehensive income (loss)

 

 

(208

)

 

 

296

 

 

 

(578

)

Total recognized in net periodic postretirement benefit cost and other

   comprehensive income

 

$

(47

)

 

$

468

 

 

$

(400

)

 

The following assumptions were used in determining the components of the postretirement benefit obligation:

 

 

 

2020

 

 

2019

 

 

2018

 

Weighted average discount rates:

 

 

 

 

 

 

 

 

 

 

 

 

Used to determine benefit obligations at December 31

 

 

2.00

%

 

 

3.00

%

 

 

4.00

%

Used to determine net periodic postretirement benefit cost for years

   ended December 31

 

 

3.00

%

 

 

4.00

%

 

 

3.50

%

Assumed health care cost trend rates at December 31:

 

 

 

 

 

 

 

 

 

 

 

 

Health care cost trend rate assumed for next year

 

 

5.50

%

 

 

6.00

%

 

 

6.50

%

Rate to which the cost trend rate is assumed to decline (the ultimate

   trend rate)

 

 

4.00

%

 

 

4.00

%

 

 

3.90

%

Year that rate reaches ultimate trend rate

 

2075

 

 

2075

 

 

2075

 

 

The following benefits are expected to be paid over the next five years and in aggregate for the next five years thereafter. Because the plan is unfunded, the expected net benefits to be paid and the estimated Company contributions are the same amount.

 

 

 

Expected to be Paid

 

 

 

(In Thousands)

 

2021

 

$

174

 

2022

 

 

186

 

2023

 

 

193

 

2024

 

 

207

 

2025

 

 

167

 

2026 through 2030

 

 

860

 

 

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effect:

 

 

 

One-Percentage-Point

Increase

 

 

One-Percentage-Point

Decrease

 

 

 

Year Ended December 31,

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In Thousands)

 

Effect on total of service and interest cost

 

$

6

 

 

$

7

 

 

$

(5

)

 

$

(6

)

Effect on postretirement benefit obligation

 

 

162

 

 

 

199

 

 

 

(140

)

 

 

(172

)

 

The Company expects to contribute $174,000 before reflecting expected Medicare retiree drug subsidy payments in 2020.

91

 

17.

Regulatory Matters

Premier and the Bank are subject to minimum capital adequacy guidelines. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators, which could have a material impact on Premier’s financial statements.  Under capital adequacy guidelines, Premier and the Bank must maintain capital amounts in excess of minimum ratios based on quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

In July 2013, the Federal Reserve and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (commonly known as Basel III).  Under the final rules, which began for Premier and the Bank on January 1, 2015, and are subject to a phase-in period through January 1, 2019, minimum requirements will increase for both quantity and quality of capital held by Premier and the Bank.  The rules include a minimum common equity tier 1 capital to risk-weighted assets ratio (“CET1”) of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, which effectively results in a minimum CET1 ratio of 7.0%.  Basel III raises the minimum ratio of tier 1 capital to risk-weighted assets from 4.0% to 6.0% (which, with the capital conservation buffer, effectively results in a minimum tier 1 capital ratio of 8.5%), which effectively results in a minimum total capital to risk-weighted assets ratio of 10.5%, and requires a minimum leverage ratio of 4.0%.  Basel III also makes changes to risk weights for certain assets and off-balance sheet exposures.

The federal banking agencies have also established a system of “prompt corrective action” to resolve certain problems of undercapitalized banks.  The regulatory agencies can initiate certain mandatory actions if the Bank fails to meet the minimum capital requirements, which could have a material effect on Premier’s financial statements.

The following schedule presents Premier consolidated and the Bank’s regulatory capital ratios as of December 31, 2020 and 2019 (dollars in thousands):

 

 

 

December 31, 2020

 

 

 

Actual

 

 

Minimum Required for

Adequately Capitalized

 

 

Minimum Required to be

Well Capitalized for

Prompt Corrective Action

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio(1)

 

 

Amount

 

 

Ratio

 

CET1 Capital (to Risk-Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

624,069

 

 

 

10.40

%

 

$

270,017

 

 

 

4.5

%

 

N/A

 

 

N/A

 

Premier Bank

 

$

629,653

 

 

 

10.52

%

 

$

269,396

 

 

 

4.5

%

 

$

389,128

 

 

 

6.5

%

Tier 1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

659,069

 

 

 

9.76

%

 

$

270,072

 

 

 

4.0

%

 

N/A

 

 

N/A

 

Premier Bank

 

$

629,653

 

 

 

9.36

%

 

$

269,189

 

 

 

4.0

%

 

$

336,487

 

 

 

5.0

%

Tier 1 Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

659,069

 

 

 

10.98

%

 

$

360,022

 

 

 

6.0

%

 

N/A

 

 

N/A

 

Premier Bank

 

$

629,653

 

 

 

10.52

%

 

$

359,195

 

 

 

6.0

%

 

$

478,926

 

 

 

8.0

%

Total Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

784,148

 

 

 

13.07

%

 

$

480,030

 

 

 

8.0

%

 

N/A

 

 

N/A

 

Premier Bank

 

$

704,586

 

 

 

11.77

%

 

$

478,926

 

 

 

8.0

%

 

$

598,658

 

 

 

10.0

%

 

(1)

Excludes capital conservation buffer of 2.50% as of December 31, 2020.

 

92

 

 

 

 

December 31, 2019

 

 

 

Actual

 

 

Minimum Required for

Adequately Capitalized

 

 

Minimum Required to be

Well Capitalized for

Prompt Corrective Action

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio(1)

 

 

Amount

 

 

Ratio

 

CET1 Capital (to Risk-Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

322,813

 

 

 

10.60

%

 

$

137,001

 

 

 

4.5

%

 

N/A

 

 

N/A

 

First Federal

 

$

335,251

 

 

 

11.03

%

 

$

136,752

 

 

 

4.5

%

 

$

197,531

 

 

 

6.5

%

Tier 1 Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

357,813

 

 

 

10.78

%

 

$

132,805

 

 

 

4.0

%

 

N/A

 

 

N/A

 

First Federal

 

$

335,251

 

 

 

10.13

%

 

$

132,435

 

 

 

4.0

%

 

$

165,544

 

 

 

5.0

%

Tier 1 Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

357,813

 

 

 

11.75

%

 

$

182,667

 

 

 

6.0

%

 

N/A

 

 

N/A

 

First Federal

 

$

335,251

 

 

 

11.03

%

 

$

182,336

 

 

 

6.0

%

 

$

243,114

 

 

 

8.0

%

Total Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

389,056

 

 

 

12.78

%

 

$

243,556

 

 

 

8.0

%

 

N/A

 

 

N/A

 

First Federal

 

$

366,494

 

 

 

12.06

%

 

$

243,114

 

 

 

8.0

%

 

$

303,893

 

 

 

10.0

%

 

(1)

Excludes capital conservation buffer of 2.50% as of December 31, 2019.

Dividend Restrictions - Dividends paid by the Bank to Premier are subject to various regulatory restrictions. The Bank paid $24.0 million in dividends to Premier in 2020 and $36.0 million in 2019. The Bank may not pay dividends to Premier in excess of its net profits (as defined by statute) for the last two fiscal years, plus any year to date net profits without the approval of the ODFI.  First Insurance paid $400,000 in dividends to Premier in 2020 and $1.2 million in dividends in 2019.  First Defiance Risk Management paid $1.5 million in dividends to Premier in 2020 and $1.4 million in 2019.

18.

Income Taxes

The components of income tax expense are as follows:

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

25,323

 

 

$

11,476

 

 

$

9,538

 

State and local

 

 

650

 

 

 

210

 

 

 

207

 

Deferred

 

 

(9,781

)

 

 

(419

)

 

 

881

 

 

 

$

16,192

 

 

$

11,267

 

 

$

10,626

 

 

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

 

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Tax expense at statutory rate (21%)

 

$

16,646

 

 

$

12,734

 

 

$

11,944

 

Increases (decreases) in taxes from:

 

 

 

 

 

 

 

 

 

 

 

 

State income tax – net of federal tax benefit

 

 

513

 

 

 

166

 

 

 

164

 

Tax exempt interest income, net of TEFRA

 

 

(806

)

 

 

(729

)

 

 

(770

)

Bank owned life insurance

 

 

(882

)

 

 

(555

)

 

 

(255

)

Captive insurance

 

 

(445

)

 

 

(354

)

 

 

(325

)

Other

 

 

1,166

 

 

 

5

 

 

 

(132

)

Totals

 

$

16,192

 

 

$

11,267

 

 

$

10,626

 

 

Deferred federal income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

93

 

Significant components of Premier’s deferred federal income tax assets and liabilities are as follows:

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(In Thousands)

 

Deferred federal income tax assets:

 

 

 

 

 

 

 

 

Allowance for credit losses

 

$

17,237

 

 

$

6,475

 

Allowance for unfunded commitments

 

 

1,123

 

 

 

—

 

Interest on nonaccrual loans

 

 

1,003

 

 

 

344

 

Postretirement benefit costs

 

 

546

 

 

 

613

 

Deferred compensation

 

 

2,057

 

 

 

1,208

 

Individually evaluated loans

 

 

2,483

 

 

 

855

 

Deferred loan origination fees and costs

 

 

—

 

 

 

474

 

Accrued vacation

 

 

10

 

 

 

11

 

Accrued bonus

 

 

1,065

 

 

 

938

 

Right of use asset

 

 

3,731

 

 

 

1,993

 

Net operating loss carryforward

 

 

307

 

 

 

—

 

Other

 

 

2,175

 

 

 

1,173

 

Total deferred federal income tax assets

 

 

31,737

 

 

 

14,084

 

Deferred federal income tax liabilities:

 

 

 

 

 

 

 

 

FHLB stock dividends

 

 

—

 

 

 

1,404

 

Goodwill

 

 

4,542

 

 

 

4,956

 

Mortgage servicing rights

 

 

2,762

 

 

 

2,156

 

Fixed assets

 

 

2,230

 

 

 

1,935

 

Other intangible assets

 

 

7,118

 

 

 

647

 

Loan mark to market

 

 

—

 

 

 

5

 

Deferred loan origination fees and costs

 

 

1,294

 

 

 

—

 

Net unrealized gains on available-for-sale securities

 

 

4,009

 

 

 

1,286

 

Prepaid expenses

 

 

762

 

 

 

708

 

Lease liabilities

 

 

3,557

 

 

 

1,876

 

Other

 

 

25

 

 

 

16

 

Total deferred federal income tax liabilities

 

 

26,299

 

 

 

14,989

 

Net deferred federal income tax asset/ (liability)

 

$

5,438

 

 

$

(905

)

 

The realization of the Company’s deferred tax assets is dependent upon the Company’s ability to generate taxable income in future periods and the reversal of deferred tax liabilities during the same period. The Company has evaluated the available evidence supporting the realization of its deferred tax assets and determined it is more likely than not that the assets will be realized and thus no valuation allowance was required at December 31, 2020.

Retained earnings at December 31, 2020, include approximately $32.1 million for which no tax provision for federal income taxes has been made. This amount represents the tax bad debt reserve at December 31, 1987, which is the end of the Company’s base year for purposes of calculating the bad debt deduction for tax purposes. If this portion of retained earnings is used in the future for any purpose other than to absorb bad debts, the amount used will be added to future taxable income. The unrecorded deferred tax liability on the above amount at December 31, 2020, was approximately $6.7 million.

The total amount of interest and penalties recorded in the income statement was $0 for each of the years ended December 31, 2020, 2019 and 2018.  The amount accrued for interest and penalties was $0 at December 31, 2020, 2019 and 2018.

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 taxing authorities for years before 2017. At December 31, 2020, the Company operated primarily in the states of Ohio and Michigan, which tax financial institutions based on their equity rather than their income.

The Company’s net operating loss of $1.5 million will be carried forward to use against future taxable income.  The net operating loss carryforwards begin to expire in the year ending December 31, 2029.  This tax benefit is subject to an annual limitation under Internal Revenue Code Section 382; however, Premier and the Bank expect to utilize the full amount of the benefit.  

 

94

 

19.

Employee Benefit Plans

401(k) Plan

Employees of Premier are eligible to participate in the Premier Financial Corp. 401(k) Employee Savings Plan (the “Premier 401(k)”) if they meet certain age and service requirements. Under the Premier 401(k), Premier matches 100% of the participants’ contributions up to 3% of compensation and then 50% of the participants’ contributions for the next 2% of compensation. The Premier 401(k) also provides for a discretionary Premier contribution in addition to the Premier matching contribution. Premier matching contributions totaled $2.5 million, $1.4 million and $1.3 million for the years ended December 31, 2020, 2019 and 2018, respectively. There were no discretionary contributions in any of those years.

Group Life Plan

On June 30, 2010, the Bank adopted the First Federal Bank of the Midwest Executive Group Life Plan – Post Separation (the “Group Life Plan”) in which various employees, including the Company’s named executive officers, may participate. Under the terms of the Group Life Plan, the Bank will purchase and own life insurance policies covering the lives of employees selected by the Board of Directors of the Bank as participants. There was $40,000, $60,000 and $38,000 of expense recorded for the years ended December 31, 2020, 2019 and 2018, respectively, with a liability of $1.8 million and $1.8 million for future benefits recorded at December 31, 2020 and 2019, respectively.

Deferred Compensation

The deferred compensation plan covers all directors and certain employees that elect to participate.  Under the plan, the Company pays each participant, or their beneficiary, the amount of fees deferred plus interest over a defined time period.  In the fourth quarter of 2018, the stock market declined significantly resulting in a significant decline in the value of the assets and liabilities of the deferred compensation plan and an accounting correction in the deferred compensation plan was recognized.  The deferred compensation plan has approximately $8.2 and $6.8 million in assets and liabilities, respectively, as of December 31, 2020, which are matched in terms of investment elections.  As of December 31, 2019, the deferred compensation plan had approximately $6.9 and $5.5 million in assets and liabilities, respectively, which were matched in terms of investment elections.  Every year, other noninterest income and other noninterest expense reflects the changes in fair value of the underlying investments in the assets and liabilities, respectively.  The Company made an accounting correction in 2018, which was expected to minimize any net impact to earnings from the deferred compensation plan going forward.  This accounting correction was deemed immaterial and resulted in a one-time reduction to other noninterest expense of $806,000, including a $636,000 adjustment to equity for the phantom stock elections within the plan, and a $170,000 adjustment for the tax liability, as of December 31, 2018.  The phantom shares are carried at cost in equity and will be treated as outstanding shares for earnings per share calculations. The net expense (income) recorded for the deferred compensation plan, excluding the one-time accounting correction, for each of the last three years was ($11,000), $85,000 and $15,000 in 2020, 2019 and 2018, respectively.

As a part of the Merger, Premier assumed the United Community Financial Corp. Deferred Compensation Plan.  This is an unfunded plan for a select group of key management including named executive officers.  The deferred compensation plan has approximately $1.9 million in both assets and liabilities as of December 31, 2020.  As of December 31, 2020, this plan has been frozen.  Participants can choose to receive a lump sum payout or elect to receive installments for up to 11 years once they are eligible to withdraw funds.  

 

20.

Stock Compensation Plans

Premier has established equity based compensation plans for its directors and employees.  On February 27, 2018, the Board adopted, and the shareholders approved at the 2018 Annual Shareholders Meeting, the Premier Financial Corp. 2018 Equity Incentive Plan (the “2018 Equity Plan”). The 2018 Equity Plan replaced all existing plans, although the Company’s former equity plans remain in existence to the extent there were outstanding grants thereunder at the time the 2018 Equity Plan was approved. In addition, as a result of the Merger, Premier assumed certain outstanding stock options granted under UCFC’s Amended and Restated 2007 Long-Term Incentive Plan and UCFC’s 2015 Long Term Incentive Plan (the “UCFC 2015 Plan”).  Premier also assumed the UCFC 2015 Plan with respect to the available shares under the UCFC 2015 Plan as of the effective date of the Merger, with appropriate adjustments to the number of shares available to reflect the Merger. The stock options assumed from UCFC in the Merger 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.  All awards currently outstanding under prior plans will remain in effect in accordance with their respective terms. Any new awards will be made under the 2018 Equity Plan.  The 2018 Equity Plan allows for issuance of up to 900,000 common shares through the award of options, stock grants, restricted stock units (“RSU”), stock appreciation rights or other stock-based awards.

As of December 31, 2020, 36,261 options had been granted pursuant to previous plans, and remain outstanding at option prices based on the market value of the underlying shares on the date the options were granted. On the date of the Merger, 39,983 Premier options were exchanged for all of the outstanding stock options on the books of UCFC at the same conversion price and ratio applied to UCFC common shares at January 31, 2020.  All of these options were fully vested at the time of acquisition.  Options granted under all plans

95

 

vest 20% per year. All options expire ten years from the date of grant. Vested options of retirees expire on the earlier of the scheduled expiration date or three months after the retirement date.

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

Under the 2018, 2019 and 2020 STIPs, the participants can earn a cash payout.  The final amount of benefits under the STIPs is determined as of December 31 of the same year and paid out in cash in the first quarter of the following year.

Under each Executive LTIP, the participants may earn between 20% to 45% of their salary for potential payout in the form of equity awards based on the achievement of certain corporate performance targets over a three-year period. The Company granted 41,676 and 69,014 RSU’s to the participants in the 2018 and 2019 Executive LTIPs, respectively, which represents the maximum target award. The Company granted 100,714 performance stock units to the participants in the 2020 Executive LTIP.  The performance stock units work like the RSU’s under the Executive LTIP. A total of 32,288 shares of PFC common stock were issued to the participants of the 2017 LTIP in the first quarter of 2020 for the three year performance period ended December 31, 2019.  In addition, as a result of the Merger, the 2018 and 2019 grants were accelerated and vested based on performance up to the date of the Merger.  This resulted in the award of 51,677 shares of PFC stock to the participants with another 21,834 shares to be issued in 2021 to the CEO of the Company.  This delay in the receipt of the CEO’s shares was mandated by the merger agreement.  The amount of benefit under the remaining 2020 LTIP will be determined individually at the end of the 36 month performance period ending December 31. The benefits earned under this LTIP will be paid out in equity in the first quarter following the end of the performance period. The participants are required to be employed on the day of payout in order to receive the payment.  

Under each Key LTIP, the participants are granted shares based upon the achievement of certain targets in the prior year.  The participants can earn from 5% to 10% of their salary in restricted stock units that vest three years from the date of grant.  The Company granted 12,038 RSU’s in the first quarter of 2020 as a payout under the Key LTIP.

In 2020, the Company also granted 14,859 restricted shares, of which 1,510 were discretionary RSUs that vest three years from the date of grant and 13,349 were restricted stock grants.  Of the 13,349 restricted stock grants, all were issued to directors and have a one-year vesting period.  The fair value of all granted restricted shares was determined by the stock price at the date of the grant.

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

There were no options granted during the years ended December 31, 2020, 2019 or 2018.

Following is options activity under the plans during 2020:

 

 

 

Options

Outstanding

 

 

Weighted

Average

Exercise Price

 

 

Weighted

Average

Remaining

Contractual

Term (in years)

 

 

Aggregate

Intrinsic

Value

(in 000’s)

 

Options outstanding, January 1, 2020

 

 

17,700

 

 

$

17.60

 

 

 

 

 

 

 

 

 

Forfeited or cancelled

 

 

(1,500

)

 

 

17.92

 

 

 

 

 

 

 

 

 

Exercised

 

 

(19,922

)

 

 

7.10

 

 

 

 

 

 

 

 

 

Exchanged

 

 

39,983

 

 

 

16.00

 

 

 

 

 

 

 

 

 

Granted

 

 

—

 

 

 

—

 

 

 

 

 

 

 

 

 

Options outstanding, December 31, 2020

 

 

36,261

 

 

$

21.59

 

 

 

5.78

 

 

$

107

 

Exercisable at December 31, 2020

 

 

34,661

 

 

$

21.72

 

 

 

5.81

 

 

$

100

 

 

Information related to the stock option plans is as follows:

 

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands, except per share amounts)

 

Intrinsic value of options exercised

 

$

189

 

 

$

390

 

 

$

893

 

Cash received from option exercises

 

 

—

 

 

 

189

 

 

 

111

 

Tax benefit realized from option exercises

 

 

40

 

 

 

4

 

 

 

28

 

Weighted average fair value of options granted

 

$

—

 

 

$

—

 

 

$

—

 

 

96

 

As of December 31, 2020, 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 1.0 month.

At December 31, 2020, a total of 187,707 restricted share awards were outstanding. Compensation expense is recognized over the performance or vesting period. Total expense of $2.3 million, $2.1 million and $2.0 million was recorded during the years ended December 31, 2020, 2019 and 2018, respectively, and approximately $3.2 million and $1.2 million is included within other liabilities at December 31, 2020 and 2019, respectively, related to the cash portion of the STIPs.

 

 

 

Performance Stock Units

 

 

Restricted Stock Units

 

 

Stock Grants

 

Unvested Shares

 

Shares

 

 

Weighted-

Average

Grant Date

Fair Value

 

 

Shares

 

 

Weighted-

Average

Grant Date

Fair Value

 

 

Shares

 

 

Weighted-

Average

Grant Date

Fair Value

 

Unvested at January 1, 2020

 

 

—

 

 

$

—

 

 

 

158,470

 

 

$

25.72

 

 

 

48,545

 

 

$

27.49

 

Granted

 

 

100,714

 

 

 

26.48

 

 

 

13,548

 

 

 

21.69

 

 

 

13,349

 

 

 

25.75

 

Vested

 

 

—

 

 

 

—

 

 

 

(88,005

)

 

 

25.48

 

 

 

(19,502

)

 

 

27.32

 

Forfeited

 

 

(9,823

)

 

 

26.48

 

 

 

(28,254

)

 

 

25.61

 

 

 

(1,335

)

 

 

29.97

 

Unvested at December 31, 2020

 

 

90,891

 

 

$

26.48

 

 

 

55,759

 

 

$

25.18

 

 

 

41,057

 

 

$

26.93

 

 

The maximum amount of compensation expense that may be earned for the 2020 Executive LTIP at December 31, 2020, is approximately $2.4 million in the aggregate.  However, the estimated expense expected to be earned as of December 31, 2020, based on the performance measures in the plans, is $1.6 million of which $1.0 million was unrecognized at December 31, 2020, and will be recognized over the remaining performance period.

As of December 31, 2020, 695,869 shares were available for grant under the 2018 Equity Plan and 126,758 shares were available for grant under the 2015 UCFC Plan. Options forfeited or cancelled under all plans except the 2018 Equity Plan and the UCFC 2015 Plan are no longer available for grant to other participants.

21.

Parent Company Statements

Condensed parent company financial statements, which include transactions with subsidiaries, are as follow:

 

 

 

December 31,

 

Statements of Financial Condition

 

2020

 

 

2019

 

 

 

(In Thousands)

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

58,017

 

 

$

18,011

 

Investment in banking subsidiary

 

 

962,675

 

 

 

419,496

 

Investment in non-bank subsidiaries

 

 

39,699

 

 

 

24,103

 

Other assets

 

 

7,103

 

 

 

1,169

 

Total assets

 

$

1,067,494

 

 

$

462,779

 

Liabilities and stockholders’ equity:

 

 

 

 

 

 

 

 

Subordinated debentures

 

$

84,860

 

 

$

36,083

 

Accrued liabilities

 

 

358

 

 

 

529

 

Stockholders’ equity

 

 

982,276

 

 

 

426,167

 

Total liabilities and stockholders’ equity

 

$

1,067,494

 

 

$

462,779

 

97

 

 

 

 

Years Ended December 31,

 

Statements of Income

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Dividends from subsidiaries

 

$

25,900

 

 

$

38,585

 

 

$

24,550

 

Interest income

 

 

30

 

 

 

—

 

 

 

—

 

Interest expense

 

 

(1,308

)

 

 

(1,368

)

 

 

(1,281

)

Other income

 

 

105

 

 

 

1

 

 

 

1

 

Noninterest expense

 

 

(902

)

 

 

(1,234

)

 

 

(831

)

Income before income taxes and equity in earnings of subsidiaries

 

 

23,825

 

 

 

35,984

 

 

 

22,439

 

Income tax credit

 

 

(423

)

 

 

(534

)

 

 

(431

)

Income before equity in earnings of subsidiaries

 

 

24,248

 

 

 

36,518

 

 

 

22,870

 

Undistributed equity in earnings of subsidiaries

 

 

38,829

 

 

 

12,852

 

 

 

23,379

 

Net income

 

 

63,077

 

 

 

49,370

 

 

 

46,249

 

Other comprehensive income (loss)

 

 

10,409

 

 

 

6,743

 

 

 

(2,412

)

Comprehensive income

 

$

73,486

 

 

$

56,113

 

 

$

43,837

 

 

 

 

Years Ended December 31,

 

Statements of Cash Flows

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

63,077

 

 

$

49,370

 

 

$

46,249

 

Adjustments to reconcile net income to net cash (used in)

   provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Undistributed equity in earnings of subsidiaries

 

 

(38,829

)

 

 

(12,852

)

 

 

(23,379

)

Change in other assets and liabilities

 

 

1,630

 

 

 

(201

)

 

 

(419

)

Net cash provided by (used in) operating activities

 

 

25,878

 

 

 

36,317

 

 

 

22,451

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net Cash received for United Community Financial Corp.

 

 

9,414

 

 

 

—

 

 

 

—

 

Purchase of equity securities

 

 

(1,000

)

 

 

—

 

 

 

—

 

Net cash used in investing activities

 

 

8,414

 

 

 

—

 

 

 

—

 

Financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase of common stock

 

 

(10,183

)

 

 

(15,147

)

 

 

(6,330

)

Cash dividends paid

 

 

(32,898

)

 

 

(15,624

)

 

 

(13,043

)

Proceeds from subordinated debentures

 

 

48,777

 

 

 

—

 

 

 

—

 

Stock Options Exercised

 

 

—

 

 

 

189

 

 

 

111

 

Direct stock sales

 

 

18

 

 

 

123

 

 

 

104

 

Net cash used in financing activities

 

 

5,714

 

 

 

(30,459

)

 

 

(19,158

)

Net increase (decrease) in cash and cash equivalents

 

 

40,006

 

 

 

5,858

 

 

 

3,293

 

Cash and cash equivalents at beginning of year

 

 

18,011

 

 

 

12,153

 

 

 

8,860

 

Cash and cash equivalents at end of year

 

$

58,017

 

 

$

18,011

 

 

$

12,153

 

 

22.

Fair Value

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

98

 

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

 

•

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

 

•

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

 

•

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

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

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

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

Loans held for sale, carried at fair value – The Company elected the fair value option for all conventional residential one-to four-family loans held for sale and all permanent construction loans held for sale that were acquired from UCFC in the Merger.  In addition, the Company has elected the fair value option for all loans held for sale originated after January 31, 2020.

The fair value of conventional loans held for sale is determined using the current 15 day forward contract price for either 15 or 30 year conventional mortgages (Level 2). The fair value of permanent construction loans held for sale is determined using the current 60 day forward contract price for 15 or 30 year conventional mortgages which is then adjusted for unobservable market data such as estimated fall out rates and estimated time from origination to completion of construction (Level 3).

Collateral Dependant 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 collateral-dependent loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.  Once received, a member of the Company’s asset quality or collections department reviews

99

 

the assumptions and approaches utilized in the appraisal.  Appraisal values are discounted from 0% to 30% to account for other factors that may impact the value of collateral. In determining the value of collateral dependent loans and other real estate owned, significant unobservable inputs may be used, which include but are not limited to:  physical condition of comparable properties sold, net operating income generated by the property and investor rates of return.

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

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

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

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

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

Assets and Liabilities Measured on a Recurring Basis

 

December 31, 2020

 

Level 1

Inputs

 

 

Level 2

Inputs

 

 

Level 3

Inputs

 

 

Total Fair

Value

 

 

 

(In Thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

—

 

 

$

40,940

 

 

$

—

 

 

$

40,940

 

Mortgage-backed securities

 

 

—

 

 

 

277,182

 

 

 

—

 

 

 

277,182

 

Collateralized mortgage obligations

 

 

—

 

 

 

106,299

 

 

 

—

 

 

 

106,299

 

Asset-backed securities

 

 

—

 

 

 

30,546

 

 

 

—

 

 

 

30,546

 

Corporate bonds

 

 

—

 

 

 

44,169

 

 

 

—

 

 

 

44,169

 

Obligations of state and political subdivisions

 

 

—

 

 

 

237,518

 

 

 

—

 

 

 

237,518

 

Equity securities

 

 

1,090

 

 

 

—

 

 

 

—

 

 

 

1,090

 

Loans held for sale, at fair value

 

 

—

 

 

 

98,587

 

 

 

123,029

 

 

 

221,616

 

Purchased certificate of deposit option

 

 

—

 

 

 

56

 

 

 

—

 

 

 

56

 

Interest rate swaps

 

 

—

 

 

 

1,870

 

 

 

—

 

 

 

1,870

 

Mortgage banking derivative - asset

 

 

—

 

 

 

3,833

 

 

 

—

 

 

 

3,833

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Written certificate of deposit option

 

 

—

 

 

 

56

 

 

 

—

 

 

 

56

 

Interest rate swaps

 

 

—

 

 

 

2,036

 

 

 

—

 

 

 

2,036

 

100

 

 

December 31, 2019

 

Level 1

Inputs

 

 

Level 2

Inputs

 

 

Level 3

Inputs

 

 

Total Fair

Value

 

 

 

(In Thousands)

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government corporations and agencies

 

$

—

 

 

$

2,524

 

 

$

—

 

 

$

2,524

 

Mortgage-backed securities

 

 

—

 

 

 

89,647

 

 

 

—

 

 

 

89,647

 

REMICs

 

 

—

 

 

 

1,636

 

 

 

—

 

 

 

1,636

 

Collateralized mortgage obligations

 

 

—

 

 

 

82,101

 

 

 

—

 

 

 

82,101

 

Corporate bonds

 

 

—

 

 

 

12,101

 

 

 

—

 

 

 

12,101

 

Obligations of state and political subdivisions

 

 

—

 

 

 

92,028

 

 

 

3,411

 

 

 

95,439

 

Mortgage banking derivative - asset

 

 

—

 

 

 

892

 

 

 

—

 

 

 

892

 

 

The tables below present a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the twelve month periods ended December 31, 2020 and 2019.

 

 

Construction loans held for sale

 

 

Twelve Months Ended

December 31,

 

 

2020

 

 

2019

 

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

 

13,492

 

 

 

—

 

Originations

 

108,847

 

 

 

—

 

Acquired in acquisition

 

37,711

 

 

 

—

 

Sales

 

(37,021

)

 

 

—

 

Balance of recurring Level 3 assets at end of period

$

123,029

 

 

$

—

 

 

 

 

 

 

 

 

 

 

Securities available-for-sale

 

 

Twelve Months Ended

December 31,

 

 

2020

 

 

2019

 

Balance of recurring Level 3 assets at beginning of period

$

3,411

 

 

$

—

 

Balance of assets classified as Level 3 during the period

 

—

 

 

 

3,411

 

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

 

(3,411

)

 

 

—

 

Balance of recurring Level 3 assets at end of period

$

—

 

 

$

3,411

 

 

 

 

 

 

 

 

 

 

The Company has elected the fair value option for new applications taken post January 31, 2020, and subsequently originated for residential mortgage and permanent construction loans held for sale.  These loans are intended for sale and the Company believes that fair value is the best indicator of the resolution of these loans.  Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policies.  There were no loans at December 31, 2019, where the fair value option had been elected.  

 

The aggregate fair value of the residential mortgage loans held for sale at December 31, 2020 was $98.6 million and they had a contractual balance of $93.2 million for this same period.  The difference between these two figures is recorded in gains and losses on the sale of loans held for sale.  For the twelve months ended December 31, 2020, $5.4 million was recorded in gains on the sale of loans held for sale for the change in fair value.

 

The aggregate fair value of the permanent construction loans held for sale at December 31, 2020 was $123.0 million and they had a contractual balance of $109.5 million for this same period.  The difference between these two figures is recorded in gains and losses on the sale of loans held for sale.  For the twelve months ended December 31, 2020, $13.5 was recorded in gains on the sale of loans held for sale for the change in fair value.

101

 

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

 

December 31, 2020

 

Level 1

Inputs

 

 

Level 2

Inputs

 

 

Level 3

Inputs

 

 

Total Fair

Value

 

 

 

(In Thousands)

 

Collateral dependent loans held for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate

 

$

—

 

 

$

—

 

 

$

4,601

 

 

$

4,601

 

Commercial

 

 

—

 

 

 

—

 

 

 

7,151

 

 

 

7,151

 

Total individually analyzed loans

 

 

—

 

 

 

—

 

 

 

11,752

 

 

 

11,752

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

 

—

 

 

 

13,153

 

 

 

—

 

 

 

13,153

 

 

December 31, 2019

 

Level 1

Inputs

 

 

Level 2

Inputs

 

 

Level 3

Inputs

 

 

Total Fair

Value

 

 

 

(In Thousands)

 

Impaired loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate

 

$

—

 

 

$

—

 

 

$

68

 

 

$

68

 

Commercial

 

 

—

 

 

 

—

 

 

 

38

 

 

 

38

 

Total impaired loans

 

 

—

 

 

 

—

 

 

 

106

 

 

 

106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage servicing rights

 

 

—

 

 

 

273

 

 

 

—

 

 

 

273

 

 

For Level 3 assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2020, the significant unobservable inputs used in the fair value measurements were as follows:

 

 

Fair

Value

 

 

Valuation Technique

 

Unobservable Inputs

 

Range of

Inputs

 

Weighted

Average

 

 

 

 

 

 

 

(Dollars in Thousands)

 

Collateral Dependent Loans- Applies to

   all loan classes

 

$

11,752

 

 

Appraisals which utilize

sales comparison, net

income and cost approach

 

Discounts for collection

issues and changes in

market conditions

 

5 - 37%

 

24.17%

 

 

For Level 3 assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2019, the significant unobservable inputs used in the fair value measurements were as follows:

 

 

 

Fair

Value

 

 

Valuation Technique

 

Unobservable Inputs

 

Range of

Inputs

 

Weighted

Average

 

 

 

 

 

 

 

(Dollars in Thousands)

 

Impaired Loans- Applies to

   all loan classes

 

$

106

 

 

Appraisals which utilize

sales comparison, net

income and cost approach

 

Discounts for collection

issues and changes in

market conditions

 

10-13%

 

10.86%

 

 

Individually analyzed loans, which are evaluated using the fair value of the collateral for collateral dependent loans, had a fair value of $11.7 million that includes a valuation allowance of $2.9 million and a fair value of $106,000 that includes a valuation allowance of $26,000 at December 31, 2020 and 2019, respectively. A provision expense of $2.9 million, $12,000, $1.2 million for the years ended December 31, 2020, 2019 and 2018, respectively, related to these loans was included in earnings.

102

 

Mortgage servicing rights, which are carried at the lower of cost or fair value, had a fair value of $13.2 million with a valuation allowance of $8.5 million and a fair value of $273,000 with a valuation allowance of $534,000 at December 31, 2020 and 2019, respectively.  Expense of $8.0 million and $234,000 was included in earnings for the years ended December 31, 2020 and 2019, respectively, and a recovery of $132,000 was included in earnings for the year ended December 31, 2018.

Real estate held for sale is determined using Level 3 inputs which include appraisals and are adjusted for changes in market conditions. The change in fair value of real estate held for sale was $0, $264,000 and $552,000 for the years ended December 31, 2020, 2019 and 2018, respectively, which was recorded directly as an adjustment to current earnings through noninterest expense.

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

Much of the information used to arrive at “fair value” is highly subjective and judgmental in nature and therefore the results may not be precise. Subjective factors include, among other things, estimated cash flows, risk characteristics and interest rates, all of which are subject to change. With the exception of investment securities, the Company’s financial instruments are not readily marketable and market prices do not exist. Since negotiated prices for the instruments, which are not readily marketable, depend greatly on the motivation of the buyer and seller, the amounts that will actually be realized or paid per settlement or maturity of these instruments could be significantly different.

The carrying amount of cash and cash equivalents, 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 adopted the amendments to ASU 2016-01 relating to the loan portfolio in 2018 and an exit price income approach is now used to determine the fair value. The loans were valued on an individual basis, with consideration given to the loans underlying characteristics, including account types, remaining terms (in months), annual interest rates or coupons, interest types, past delinquencies, timing of principal and interest payments, current market rates, loss exposures, and remaining balances. The model utilizes a discounted cash flow approach to estimate the fair value of the loans using assumptions for the coupon rates, remaining maturities, prepayment speeds, projected default probabilities, losses given defaults, and estimates of prevailing discount rates. The discounted cash flow approach models the credit losses directly in the projected cash flows. The model applies various assumptions regarding credit, interest, and prepayment risks for the loans based on loan types, payment types and fixed or variable classifications. For all periods presented, 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 noninterest-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, NOW 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 discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.  

The fair values of securities sold under repurchase agreements are equal to their carrying amounts resulting in a Level 1 classification.  The fair value of subordinated debentures are estimated using a discounted cash flow calculation that applies interest rates currently being offered on subordinated debentures to the schedule of maturities on the subordinated debt tranches resulting in a Level 2 classification.

103

 

FHLB advances with maturities greater than 90 days are valued based on discounted cash flow analysis, using interest rates currently being quoted for similar characteristics and maturities resulting in a Level 2 classification.

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2020

(In Thousands)

 

 

 

Carrying

Value

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

159,266

 

 

$

159,266

 

 

$

159,266

 

 

$

—

 

 

$

—

 

Securities available for sale

 

 

736,654

 

 

 

736,654

 

 

 

—

 

 

 

736,654

 

 

 

—

 

Equity securities

 

 

1,090

 

 

 

1,090

 

 

 

1,090

 

 

 

—

 

 

 

—

 

FHLB Stock

 

 

16,026

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Loans receivable, net

 

 

5,409,161

 

 

 

5,412,814

 

 

 

—

 

 

 

—

 

 

 

5,412,814

 

Loans held for sale, carried at fair value

 

 

221,616

 

 

 

221,616

 

 

 

—

 

 

 

98,587

 

 

 

123,029

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

6,047,841

 

 

$

6,056,426

 

 

$

4,925,411

 

 

$

1,131,015

 

 

$

—

 

Subordinated debentures

 

 

84,860

 

 

 

83,237

 

 

 

—

 

 

 

—

 

 

 

83,237

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2019

(In Thousands)

 

 

 

Carrying

Value

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

131,254

 

 

$

131,254

 

 

$

131,254

 

 

$

—

 

 

$

—

 

Investment securities

 

 

283,448

 

 

 

283,448

 

 

 

—

 

 

 

280,037

 

 

 

3,411

 

FHLB Stock

 

 

11,915

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Loans, net, including loans held for sale

 

 

2,764,329

 

 

 

2,756,092

 

 

 

—

 

 

 

18,456

 

 

 

2,737,636

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

2,870,325

 

 

$

2,871,166

 

 

$

2,131,537

 

 

$

739,629

 

 

$

—

 

Advances from FHLB

 

 

85,063

 

 

 

85,003

 

 

 

—

 

 

 

85,003

 

 

 

—

 

Securities sold under repurchase agreements

 

 

2,999

 

 

 

2,999

 

 

 

2,999

 

 

 

—

 

 

 

—

 

Subordinated debentures

 

 

36,083

 

 

 

36,083

 

 

 

—

 

 

 

36,083

 

 

 

—

 

 

23.

Derivative Financial Instruments

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third-party investors are considered derivatives.  It is the Company’s practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans.  These mortgage banking derivatives are not designated in hedge relationships.  The Bank had approximately $135.7 million and $17.0 million of interest rate lock commitments at December 31, 2020 and 2019, respectively.  There were $265.0 million of forward sales of mortgage-backed securities and $34.4 million of forward commitments for the future delivery of residential mortgage loans at December 31, 2020 and 2019, respectively.  

The fair value of these mortgage banking derivatives are reflected by a derivative asset or a derivative liability.  The table below provides data about the carrying values of these derivative instruments:

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

Assets

 

 

(Liabilities)

 

 

 

 

 

 

Assets

 

 

(Liabilities)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative

 

 

 

 

 

 

 

 

 

 

Derivative

 

 

 

Carrying

 

 

Carrying

 

 

Net Carrying

 

 

Carrying

 

 

Carrying

 

 

Net Carrying

 

 

 

Value

 

 

Value

 

 

Value

 

 

Value

 

 

Value

 

 

Value

 

 

 

(In Thousands)

 

Derivatives not designated as hedging

   instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Banking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

$

3,833

 

 

$

—

 

 

$

3,833

 

 

$

883

 

 

$

(9

)

 

$

892

 

 

104

 

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 net carrying value at December 31, 2020 and 2019 represents a fair value adjustment that runs through mortgage banking income.  For fiscal year 2020, $2.2 million of this difference ran through mortgage banking income while the remaining difference of $806,000 was part of the Merger consideration.

 

 

 

Twelve Months Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(In Thousands)

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Banking Derivatives – Gain (Loss)

 

$

2,154

 

 

$

598

 

 

$

(304

)

 

Interest Rate Swaps

 

The Company maintains an interest rate protection program for commercial loan customers that was acquired in the Merger.  Under this program, the Company provides a customer with a fixed rate loan while creating a variable rate asset for the Company by the customer entering into an interest rate swap with terms that match the loan.  The Company offsets its risk exposure by entering into an offsetting interest rate swap with an unaffiliated institution.  The Company had interest rate swaps associated with commercial loans with a notional value of $87.8 million and fair value of $1.9 million in other assets and $2.0 million in other liabilities at December 31, 2020.  The difference in fair value of $166,000 between the asset and liability represents a credit valuation adjustment that flows through noninterest income.  For the twelve months ended December 31, 2020, $80,000 of this figure flowed through noninterest income.  The remainder was part of the Merger consideration.  The Company had no interest rate swaps outstanding at December 31, 2019.

 

Equity Linked Time Deposit

 

The Company also acquired time deposits in its acquisition of UCFC that have written and purchased option derivatives to facilitate an equity linked time deposit product.  The time deposit provides the purchaser a guaranteed return of principal at maturity plus a potential equity return (a written option), while the Bank receives a known stream of funds based on the equity return (a purchase option).  The written and purchased options are mirror derivative instruments which are carried at fair value on the consolidated statement of financial condition.  At December 31, 2020, the balance of the equity linked time deposits was $5.7 million and the written and purchased options each had a fair value of $56,000.

24.

Quarterly Consolidated Results of Operations (Unaudited)

The following is a summary of the quarterly consolidated results of operations:

 

 

 

Three Months Ended

 

 

 

March 31

 

 

June 30

 

 

September 30

 

 

December 31

 

2020

 

(In Thousands, Except Per Share Amounts)

 

Interest income

 

$

54,522

 

 

$

62,449

 

 

$

60,159

 

 

$

60,816

 

Interest expense

 

 

9,059

 

 

 

8,145

 

 

 

6,888

 

 

 

5,849

 

Net interest income

 

 

45,463

 

 

 

54,304

 

 

 

53,271

 

 

 

54,967

 

Provision for credit losses

 

 

43,786

 

 

 

1,868

 

 

 

3,658

 

 

 

(6,158

)

Provision for unfunded commitments

 

 

1,459

 

 

 

1,107

 

 

 

(864

)

 

 

(606

)

Net interest income after provision for credit losses

 

 

218

 

 

 

51,329

 

 

 

50,477

 

 

 

61,731

 

Noninterest income

 

 

13,999

 

 

 

23,015

 

 

 

25,000

 

 

 

18,670

 

Noninterest expense

 

 

42,310

 

 

 

37,984

 

 

 

43,563

 

 

 

41,313

 

Income before income taxes

 

 

(28,093

)

 

 

36,360

 

 

 

31,914

 

 

 

39,088

 

Income taxes

 

 

(5,610

)

 

 

7,303

 

 

 

6,259

 

 

 

8,240

 

Net income

 

$

(22,483

)

 

$

29,057

 

 

$

25,655

 

 

$

30,848

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.71

)

 

$

0.78

 

 

$

0.69

 

 

$

0.83

 

Diluted

 

$

(0.71

)

 

$

0.78

 

 

$

0.69

 

 

$

0.82

 

105

 

 

 

 

Three Months Ended

 

 

 

March 31

 

 

June 30

 

 

September 30

 

 

December 31

 

2019

 

(In Thousands, Except Per Share Amounts)

 

Interest income

 

$

33,919

 

 

$

35,241

 

 

$

35,683

 

 

$

36,241

 

Interest expense

 

 

5,649

 

 

 

6,252

 

 

 

6,791

 

 

 

6,743

 

Net interest income

 

 

28,270

 

 

 

28,989

 

 

 

28,892

 

 

 

29,498

 

Provision for loan losses

 

 

212

 

 

 

282

 

 

 

1,327

 

 

 

1,084

 

Provision for loan losses

 

 

87

 

 

 

(85

)

 

 

(62

)

 

 

39

 

Net interest income after provision for loan losses

 

 

27,971

 

 

 

28,792

 

 

 

27,627

 

 

 

28,375

 

Noninterest income

 

 

10,813

 

 

 

10,486

 

 

 

11,842

 

 

 

11,815

 

Noninterest expense

 

 

24,779

 

 

 

24,320

 

 

 

23,265

 

 

 

24,720

 

Income before income taxes

 

 

14,005

 

 

 

14,958

 

 

 

16,204

 

 

 

15,470

 

Income taxes

 

 

2,523

 

 

 

2,759

 

 

 

3,033

 

 

 

2,952

 

Net income

 

$

11,482

 

 

$

12,199

 

 

$

13,171

 

 

$

12,518

 

Earnings per common share:

 

$

0.57

 

 

$

0.62

 

 

$

0.67

 

 

$

0.63

 

Basic

 

$

0.57

 

 

$

0.61

 

 

$

0.66

 

 

$

0.63

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25.

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. Reclassification adjustments related to securities available for sale are included in gains on sale or call of securities in the accompanying consolidated condensed statements of income.  Reclassification adjustments related to the defined benefit postretirement medical plan are included in compensation and benefits in the accompanying consolidated condensed statements of income.

 

 

 

Before Tax

Amount

 

 

Tax Effect

 

 

Net of Tax

Amount

 

 

 

(In Thousands)

 

Twelve months ended December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale and transferred securities:

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized gain/(loss) during the period

 

$

14,431

 

 

$

3,030

 

 

$

11,401

 

Reclassification adjustment for net gains included in net income

 

 

(1,464

)

 

 

(307

)

 

 

(1,157

)

Defined benefit postretirement medical plan:

 

 

 

 

 

 

 

 

 

 

 

 

Net gain on defined benefit postretirement medical plan realized

   during the period

 

 

195

 

 

 

41

 

 

 

154

 

Reclassification adjustment for net amortization and deferral on defined

   benefit postretirement medical plan (included in compensation and

   benefits)

 

 

13

 

 

 

2

 

 

 

11

 

Total other comprehensive income

 

$

13,175

 

 

$

2,766

 

 

$

10,409

 

 

 

 

Before Tax

Amount

 

 

Tax Effect

 

 

Net of Tax

Amount

 

 

 

(In Thousands)

 

Twelve months ended December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale and transferred securities:

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized gain/(loss) during the period

 

$

8,754

 

 

$

1,839

 

 

$

6,915

 

Reclassification adjustment for net gains included in net income

 

 

(24

)

 

 

(5

)

 

 

(19

)

Defined benefit postretirement medical plan:

 

 

 

 

 

 

 

 

 

 

 

 

Net gain on defined benefit postretirement medical plan realized

   during the period

 

 

(310

)

 

 

(146

)

 

 

(164

)

Reclassification adjustment for net amortization and deferral on defined

   benefit postretirement medical plan (included in compensation and

   benefits)

 

 

14

 

 

 

3

 

 

 

11

 

Total other comprehensive income

 

$

8,434

 

 

$

1,691

 

 

$

6,743

 

106

 

 

 

 

Before Tax

Amount

 

 

Tax Effect

 

 

Net of Tax

Amount

 

 

 

(In Thousands)

 

Twelve months ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale and transferred securities:

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized gain/(loss) during the period

 

$

(3,356

)

 

$

(706

)

 

$

(2,650

)

Reclassification adjustment for net gains included in net income

 

 

(173

)

 

 

(36

)

 

 

(137

)

Defined benefit postretirement medical plan:

 

 

 

 

 

 

 

 

 

 

 

 

Net gain on defined benefit postretirement medical plan realized

   during the period

 

 

560

 

 

 

200

 

 

 

360

 

Reclassification adjustment for net amortization and deferral on defined

   benefit postretirement medical plan (included in compensation and

   benefits)

 

 

18

 

 

 

3

 

 

 

15

 

Total other comprehensive income

 

$

(2,951

)

 

$

(539

)

 

$

(2,412

)

 

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

 

 

 

Securities

Available

For Sale

 

 

Post-

retirement

Benefit

 

 

Accumulated

Other

Comprehensive

Income

 

 

 

(In Thousands)

 

Balance January 1, 2020

 

$

4,839

 

 

$

(244

)

 

$

4,595

 

Other comprehensive income before reclassifications

 

 

11,401

 

 

 

154

 

 

 

11,555

 

Amounts reclassified from accumulated other comprehensive loss

 

 

(1,157

)

 

 

11

 

 

 

(1,146

)

Net other comprehensive income during period

 

 

10,244

 

 

 

165

 

 

 

10,409

 

Balance December 31, 2020

 

$

15,083

 

 

$

(79

)

 

$

15,004

 

Balance January 1, 2019

 

$

(2,057

)

 

$

(91

)

 

$

(2,148

)

Other comprehensive income before reclassifications

 

 

6,915

 

 

 

(164

)

 

 

6,751

 

Amounts reclassified from accumulated other comprehensive loss

 

 

(19

)

 

 

11

 

 

 

(8

)

Net other comprehensive income during period

 

 

6,896

 

 

 

(153

)

 

 

6,743

 

Balance December 31, 2019

 

$

4,839

 

 

$

(244

)

 

$

4,595

 

Balance January 1, 2018

 

$

601

 

 

$

(384

)

 

$

217

 

Other comprehensive income before reclassifications

 

 

(2,650

)

 

 

360

 

 

 

(2,290

)

Amounts reclassified from accumulated other comprehensive loss

 

 

(137

)

 

 

15

 

 

 

(122

)

Net other comprehensive income during period

 

 

(2,787

)

 

 

375

 

 

 

(2,412

)

Reclassification Adjustment upon adoption of ASU 2018-02

 

 

129

 

 

 

(82

)

 

 

47

 

Balance December 31, 2018

 

$

(2,057

)

 

$

(91

)

 

$

(2,148

)

 

107

 

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Premier’s management carried out an evaluation, under the supervision and with the participation of the chief executive officer and the chief financial officer, of the effectiveness of Premier’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2020. Based upon that evaluation, the chief executive officer along with the chief financial officer concluded that Premier’s disclosure controls and procedures as of December 31, 2020, are effective.

The information set forth under “Management’s Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting Firm” included in Item 8 above is incorporated herein by reference.

There were no changes in Premier’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, Premier’s internal control over financial reporting.

Item 9B. Other Information

None

 

108

 

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item relating to our directors, nominees for directorship and executive officers is incorporated herein by reference from the section captioned “Composition of the Board” under the heading “PROPOSAL 1 – Election of Directors” and the section immediately following the heading “EXECUTIVE OFFICERS” in the Company’s definitive proxy statement which will be filed no later than 120 days after December 31, 2020 (the “Proxy Statement”). Information regarding our Audit Committee and compliance with Section 16(a) of the Securities Exchange Act of 1934 required by this item is incorporated herein by reference from the sections respectively captioned, “Board Committees” under the “PROPOSAL 1 – Election of Directors” and the section immediately following the heading “DELINQUENT SECTION 16(a) REPORTS” of the Proxy Statement.  There have been no material changes to the procedures by which shareholders may recommend nominees to the board of directors.  

Premier has adopted a code of ethics applicable to all officers, directors and employees that complies with SEC requirements, and is available on its Internet site at www.premierfincorp.com under the Governance Documents tab on the Investor Relations page.

Item 11. Executive Compensation

Information regarding director compensation is set forth under the section captioned “Director Compensation” under the heading “PROPOSAL 1 – Election of Directors” of the Proxy Statement, and is incorporated herein by reference. Executive compensation information has been provided under the headings “COMPENSATION DISCUSSION AND ANALYSIS” and “EXECUTIVE COMPENSATION” in the Proxy Statement, and is incorporated herein by reference.

The Compensation Committee Report and information related to compensation committee interlocks and insider participation have been respectively set forth under the section immediately following the heading “COMPENSATION COMMITTEE REPORT” and under the section captioned “Compensation Committee Interlocks and Insider Participation” following the heading “PROPOSAL 1 – Election of Directors” in the Proxy Statement, and are incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information regarding security ownership of certain beneficial owners and management and information relating thereto is set forth in the section under the heading “BENEFICIAL OWNERSHIP” in the Proxy Statement, and is incorporated herein by reference.

Equity Compensation Plans

The following table provides information as of December 31, 2020, with respect to the shares of Premier common stock that are reserved for issuance under Premier’s existing equity compensation plans.

 

Plan Category

 

Number of

securities to

be Issued

Upon Exercise

of Outstanding

Options,

Warrants

and Rights

 

 

Weighted

Average

Exercise Price of

Outstanding

Options,

Warrants

and Rights

 

 

Number of

Securities

Remaining

Available

for Future

Issuance

Under Equity

Compensation

Plans (Excluding

Securities

Reflected

in Column (a)

 

 

 

(a)

 

 

(b)

 

 

(c)

 

Equity Compensation Plans Approved by Security Holders

 

 

36,261

 

 

$

21.59

 

 

 

822,627

 

 

The information required by this item, including related transactions and director independence, is set forth respectively in the section following the heading “RELATED PERSON TRANSACTIONS” and in the section captioned “Composition of the Board” following the heading “PROPOSAL 1 – Election of Directors” in the Proxy Statement, which are both incorporated by reference.

Item 14. Principal Accountant Fees and Services

The information required by this item is set forth under the section captioned “Audit Fees” following the heading “INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” in the Proxy Statement, and is incorporated herein by reference.

109

 

PART IV

Item 15.Exhibits, Financial Statement Schedules

(a)

Financial Statements

 

(1)

The following documents are filed as Item 8 of this Form 10-K.

 

(A)

Report of Independent Registered Public Accounting Firm (Crowe LLP)

 

(B)

Consolidated Statements of Financial Condition as of December 31, 2020 and 2019

 

(C)

Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018

 

(D)

Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018

 

(E)

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018

 

(F)

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

 

(G)

Notes to Consolidated Financial Statements

 

(2)

Separate financial statement schedules are not being filed because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements or the related notes.

 

(3)

The exhibits required by this item are listed in the Exhibit Index of this Form 10-K.

Item 16.10-K Summary

None.

110

 

SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) 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.

 

 

 

 

March 12, 2021

 

By:

/s/ Paul Nungester

 

 

 

Paul Nungester, Chief Financial Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 11, 2021.

 

Signature

 

Title

 

 

 

/s/ John L. Bookmyer

 

Chairman of the Board

John L. Bookmyer

 

 

 

 

 

/s/ Richard J. Schiraldi

 

Vice Chairman of the Board

Richard J. Schiraldi

 

 

 

 

 

/s/ Donald P. Hileman

 

Chief Executive Officer and Director

Donald P. Hileman

 

 

 

 

 

/s/ Gary M. Small

 

President and Director

Gary M. Small

 

 

 

 

 

/s/ Paul Nungester

 

Executive Vice President and Chief

Paul Nungester

 

Financial Officer (principal accounting officer)

 

 

 

/s/ Marty E. Adams

 

Director

Marty E. Adams

 

 

 

 

 

/s/ Zahid Afzal

 

Director

Zahid Afzal

 

 

 

 

 

/s/ Louis M. Altman

 

Director

Louis M. Altman

 

 

 

 

 

/s/ Terri A. Bettinger

 

Director

Terri A. Bettinger

 

 

 

 

 

/s/ Lee Burdman

 

Director

Lee Burdman

 

 

 

/s/ Jean A. Hubbard

 

Director

Jean A. Hubbard

 

 

 

 

 

/s/ Charles D. Niehaus

 

Director

Charles D. Niehaus

 

 

 

 

 

/s/ Mark A. Robison

 

Director

Mark A. Robison

 

 

 

 

 

/s/ Samuel S. Strausbaugh

 

Director

Samuel S. Strausbaugh

 

 

 

111

 

Exhibit Index

This report incorporates by reference the documents listed below that we have previously filed with the SEC. The SEC allows us to incorporate by reference information in this document. The information incorporated by reference is considered to be part of this document.

The SEC maintains an internet web site that contains reports, proxy statements, and other information about issuers, like Premier, who file electronically with the SEC. The address of the site is http://www.sec.gov. The reports and other information filed by Premier with the SEC are also available at the Premier Financial Corp. web site. The address of the site is http://www.yourpremierbank.com. Except as specifically incorporated by reference into this Form 10-K, information on those web sites is not part of this report.

 

Exhibit

 

 

 

Number

 

Description

 

 

 

 

 

  2.1

 

Agreement and Plan of Merger, dated as of September 9, 2019, between First Defiance Financial Corp. and United Community Financial Corp. (incorporated herein by reference to Exhibit 2.1 in Registrant’s Form 8-K filed September 10, 2019 (File No. 000-26850))

 

 

 

 

 

  3.1

 

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

 

 

 

 

 

  3.2

 

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

 

 

 

 

 

 

 

 

 

4.1*

 

Description of Capital Stock

 

 

 

 

 

  4.2

 

Indenture, dated September 30, 2020, between Premier Financial Corp. and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.1 in Registrant’s Form 8-K filed September 30, 2020 (File No. 000-26860))

 

 

 

 

 

  4.3

 

First Supplemental Indenture, dated September 30, 2020, between Premier Financial Corp, and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.2 in Registrant’s Form 8-K filed September 30, 2020 (File No. 000-26860))

 

 

 

 

 

4.4

 

Form of 4.00% Fixed-to-Floating Rate Subordinated Note due 2030 (included in Exhibit 4.3)

 

 

 

 

 

10.1+

 

First Federal Amended and Restated Executive Group Life Plan – Post Separation, effective June 30, 2010 (incorporated herein by reference to Exhibit 10.1 in the Registrant’s Form 10-Q filed November 2, 2010 (File No. 000-26850))

 

 

 

 

 

10.2+

 

2010 Equity Incentive Plan (incorporated herein by reference to Annex A to the Registrant’s 2010 Proxy Statement filed March 19, 2010 (File No. 000-26850))

 

 

 

 

 

10.3+

 

First Amendment to First Defiance Financial Corp. 2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 in the Registrant’s Form 8-K filed March 15, 2012 (File No. 000-26850))

 

 

 

 

 

10.4+

 

2010 Equity Plan Form of Long-Term Incentive Performance-Based Award Agreement (incorporated herein by reference to Exhibit 10.1 in the Registrant’s Form 10-Q filed November 8, 2011 (File No. 000-26850))

 

 

 

 

 

 

 

 

 

10.5+

 

First Defiance Financial Corp. and Affiliates Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.2 in the Registrant’s Form 8-K filed March 15, 2012 (File No. 000-26850))

 

 

 

 

 

 

 

 

 

10.6+*

 

Premier Financial Corp. 2018 Equity Incentive Plan (formerly the First Defiance Financial Corp. 2018 Equity Incentive Plan)

 

 

 

 

 

10.7+

 

United Community Financial Corp. Amended and Restated 2007 Long-Term Incentive Plan (incorporated herein by reference to Exhibit 4.3 in the Registrant’s Form S-8 filed February 3, 2020 (File No. 000-26850))

 

10.8+*

 

Jude J. Nohra Consulting Agreement and General Release

 

 

 

 

 

10.9+

 

Form of Restricted Stock Award Agreement under 2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 in the Registrant’s Form 10-Q filed August 7, 2018 (File No. 000-26850))

 

 

 

 

 

10.10+

 

Form of Restricted Stock Unit Award Agreement under 2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.2 in the Registrant’s Form 10-Q filed August 7, 2018 (File No. 000-26850))

 

10.11+

 

First Defiance Deferred Compensation Plan, revised October 30, 2014 (incorporated herein by reference to Exhibit 10.3 in the Registrant’s Form 10-Q filed August 7, 2018 (File No. 000-26850))

 

 

 

 

 

10.12+

 

Employment Agreement with Donald P. Hileman, dated December 20, 2018 (incorporated herein by reference to Exhibit 10.1 in the Registrant’s Form 8-K filed December 27, 2018 (File No. 000-26850))

 

 

 

 

 

112

 

10.13+

 

First Amendment to the Employment Agreement with Donald P. Hileman, dated March 4, 2019 (incorporated herein by reference to Exhibit 10.1 in the Registrant’s Form 8-K filed March 6, 2019 (File No. 000-26850))

 

 

 

 

 

10.14+*

 

Premier Financial Corp. 2015 Long Term Incentive Plan (formerly the United Community Financial Corp. 2015 long term Incentive Plan)

 

 

 

 

 

10.15+

 

Form of Performance-Based Restricted Stock Unit Award Agreement (LTIP) under the 2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.26 in the Registrant’s Form 10-K filed February 28, 2019 (File No. 000-26850))

 

 

 

 

 

10.16+

 

Amendment to Form of Performance-Based Restricted Stock Unit Award Agreements (LTIP) under the 2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.3 in Registrant’s Form 8-K filed January 21, 2020 (File No. 000-26850))

 

 

 

 

 

10.17+

 

Form of Performance-Based Restricted Stock Unit Award Agreement (Long-Term Equity Asset Growth) under the 2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.27 in the Registrant’s Form 10-K filed February 28, 2019 (File No. 000-26850))

 

 

 

 

 

10.18+

 

Amendment to Form of Performance-Based Restricted Stock Unit Award Agreement (Long-Term Equity Asset Growth) under the 2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.4 in the Registrant’s Form 8-K filed January 21, 2020 (File No. 000-26850))

 

 

 

 

 

10.19+

 

Form of Performance-Based Restricted Stock Unit Award Agreement (LTIP) under the 2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.28 in the Registrant’s Form 10-K filed February 28, 2019 (File No. 000-26850))

 

 

 

 

 

10.20+

 

Form of Performance-Based Restricted Stock Unit Award Agreement (Long-Term Equity Asset Growth) under the 2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.29 in the Registrant’s Form 10-K filed February 28, 2019 (File No. 000-26850))

 

 

 

 

 

10.21+

 

2020 Form of Long Term Incentive Plan Performance Share Units Award Agreement (incorporated herein by reference to Exhibit 10.1 in the Registrant’s Form 8-K filed March 16, 2020 (File No. 000-26850))

 

 

 

 

 

10.22+*

 

Employment Agreement with Vince Liuzzi, dated March 4, 2019

 

 

 

 

 

10.23+

 

Employment Agreement with Paul D. Nungester, dated May 1, 2019 (incorporated herein by reference to Exhibit 10.1 in the Registrant’s Form 10-Q filed May 7, 2019 (File No. 000-26850))

 

 

 

 

 

10.24+

 

Employment Agreement with Donald P. Hileman, dated September 9, 2019 (incorporated herein by reference to Exhibit 10.1 in Registrant’s Form 8-K filed September 10, 2019 (File No. 000-26850))

 

 

 

 

 

10.25+

 

Employment Agreement with Gary M. Small, dated September 9, 2019 (incorporated herein by reference to Exhibit 10.2 in Registrant’s Form 8-K filed September 10, 2019 (File No. 000-26850))

 

 

 

 

 

10.26+

 

Amendment to Donald P. Hileman Performance-Based Restricted Stock Unit Award Agreements (LTIP) under the 2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.1 in Registrant’s Form 8-K filed January 21, 2020 (File No. 000-26850))

 

 

 

 

 

10.27+

 

Amendment to Donald P. Hileman Performance-Based Restricted Stock Unit Award Agreement (Long-Term Equity Asset Growth) under the 2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.2 in the Registrant’s Form 8-K filed January 21, 2020 (File No. 000-26850))

 

 

 

 

 

10.28

 

Form of Severance and Change in Control Agreement (incorporated herein by reference to Exhibit 10.5 in the Registrant’s Form 10-Q filed June 18, 2020 (File No. 000-26850))

 

 

 

 

 

10.29

 

Purchase Agreement, among Premier Financial Corp., Premier Bank and Piper Sandler & Co., dated September 25, 2020 (incorporated herein by reference to Exhibit 10.1 in Registrant’s Form 8-K filed September 30, 2020 (File 000-26850))

 

 

 

 

 

10.30+*

 

2021 Form of Restricted Stock Award Agreement under 2018 Equity Incentive Plan

 

 

 

 

 

10.31+*

 

2021 Form of Restricted Stock Unit Award Agreement under 2018 Equity Incentive Plan

 

 

 

 

 

10.32+*

 

2021 Form of Long Term Incentive Plan Performance Share Units Award Agreement

 

 

 

 

 

21*

 

List of Subsidiaries of the Company

 

 

 

 

 

23.1*

 

Consent of Crowe LLP

 

 

 

 

 

31.1*

 

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

 

 

 

 

 

31.2*

 

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

 

 

 

 

 

32.1*

 

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

 

 

 

 

 

32.2*

 

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

 

 

 

 

 

113

 

101**

 

The following financial information from the Registrant's Annual Report on Form 10-K for the year ended December 31, 2020 is formatted in Inline XBRL: (i) Audited Consolidated Condensed Statements of Financial Condition at December 31, 2020 and December 31, 2019; (ii) Audited Consolidated Condensed Statements of Income for the years ended December 31, 2020, 2019 and 2018; (iii) Audited Consolidated Condensed Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018; (iv) Audited Consolidated Condensed Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018; (v) Audited Consolidated Condensed Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018; and (vi) Notes to Audited Consolidated Condensed Financial Statements.

 

104

 

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

 

 

*

Filed herewith

**

Furnished herewith

+

Indicates management contract or compensatory plan.

 

 

114

Exhibit 4.1

Description of Premier Financial Corp. Capital Stock

As of December 31, 2020, Premier Financial Corp., an Ohio corporation (“Premier,” the “Company,” “we,” or “our”), had one class of securities registered pursuant to Section 12 of the U.S. Securities Exchange Act of 1934, as amended: Common Stock, par value $0.01 per share (“Common Shares”).

Premier’s Amended and Restated Articles of Incorporation (the “Articles”) authorize 80,000,000 shares of capital stock, consisting of 75,000,000 Common Shares, and 5,000,000 shares of preferred stock, $0.01 par value (“Preferred Shares”). Premier has no Preferred Shares issued or outstanding.

The following summary is subject to, and qualified in its entirety by reference to, the Articles, and Premier’s Amended and Restated Code of Regulations, as amended through December 30, 2020 (the “Regulations”), as well as the applicable provisions of Chapters 1701, 1704 and 1707 of the Ohio Revised Code. For a complete description of the terms and provisions of our Common Shares, refer to the Articles and the Regulations, both of which are exhibits to Premier’s Annual Report on Form 10-K.

Common Shares

Voting Rights

Holders of Common Shares are entitled to one vote for each share held of record on each matter submitted to a vote of shareholders. Our Common Shares do not have cumulative voting rights for the election of directors. Unless otherwise provided in the Articles or the Regulations, a majority of votes cast by shareholders at a meeting is sufficient to pass on any matter before the shareholders.

Board of Directors

Our Board of Directors (“Board”) is divided into three classes (Class I, Class II and Class III), elected for staggered three-year terms. Our Regulations provide that the Board consist of 13 directors: (i) Donald Hileman, John Bookmyer and five other persons who served as directors of Premier (f/k/a First Defiance Financial Corp.) or Premier Bank (f/k/a First Federal Bank of the Midwest) immediately prior to the effective time of the Merger (the “First Defiance related directors”) and (ii) Gary Small, Richard Schiraldi, and four other persons who served as directors of United Community Financial Corp. or Home Savings Bank immediately prior to the effective time of the merger of United Community Financial Corp. into Premier (the “UCFC related directors”). If, prior to the second anniversary of the “succession date” (as defined in the Regulations), which has been set as April 1, 2021, any of the initial Class I, II or III directors ceases to serve as a director for any reason or does not stand for reelection, the vacancy will be filled by the Board with an individual selected by the UCFC related directors (if such director was a UCFC related director) or the Premier related directors (if such director was a Premier related director) in good faith in a manner intended to preserve the principles of representation in the Regulations, provided that such individual is reasonably agreeable to the Governance and Nominating Committee of the Board in accordance with the good faith execution of its duties.

Dividends

The Board may, at any regular or special meeting, declare dividends on our outstanding capital stock. Dividends may be paid in cash, in property or in our capital stock.

Premier’s ability to pay dividends to its shareholders is primarily dependent on its receipt of dividends from Premier Bank (the “Bank”) and its other subsidiaries.  The Federal Reserve expects Premier to serve as a source of strength for the Bank and may require Premier to retain capital for further investment in the Bank, rather than pay dividends to Premier shareholders. Payment of dividends by Premier or the Bank may be restricted at any time at the discretion of its applicable regulatory authorities if they deem such dividends to constitute an unsafe or unsound practice.  These provisions could have the effect of limiting Premier's ability to pay dividends on its common shares.

The Bank must have the approval of the Ohio Division of Financial Institutions if the payment of a cash dividend in any year would cause the total dividends for that year to exceed the total of the Bank’s net income for the current year and the retained net income of the Bankfor the preceding two years. Payments of dividends by the Bank may be restricted at any time at the discretion of the Bank’s governing regulatory authorities if such regulatory authorities deem such dividends to constitute unsafe and/or unsound banking practices or if necessary to maintain adequate capital.

The Federal Reserve Board has issued a policy statement with regard to the payment of cash dividends by financial holding companies and other bank holding companies. The policy statement provides that, as a matter of prudent banking, a financial holding company or a bank holding company should not maintain a rate of cash dividends on common stock unless its net income available to common shareholders over the past year has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears to be consistent with the financial holding company’s or bank holding company’s capital needs, asset quality and overall financial condition. Accordingly, a financial holding company or a bank holding company should not pay dividends that exceed its net income or can only be funded in ways that weaken the financial holding company's or bank holding company’s financial health, such as by borrowing. In addition, Premier may not pay dividends that would cause Premier to fail to satisfy the capital adequacy regulations applicable to bank holding companies which qualify as financial holding companies, including having a capital conservation buffer that is greater than 2.5%.

No Preemptive Rights

No shareholder of the Company shall have, as a matter of right, the preemptive right to purchase or subscribe for shares of any class, now or hereafter authorized, or to purchase or subscribe for securities or other obligations convertible into or exchangeable for such shares or which by warrants or otherwise entitle the holders thereof to subscribe for or purchase any such shares.

Share Repurchases by the Company

We have the right, but not the obligation, to repurchase our common shares from our shareholders.

Preferred Shares

    Our 5,000,000 authorized but unissued preferred shares are typically referred to as “blank check” preferred shares. This term refers to preferred shares for which the rights and restrictions are determined by the board of directors of a corporation at the time the preferred shares are issued. Under our Articles, our Board has the authority, without any further shareholder vote or action, to issue the preferred shares in one or more series, from time to time, with full or limited voting power, or without voting power, and with all designations, preferences and relative, participating, optional or other special rights and privileges of, and qualifications, limitations or restrictions upon, the preferred shares, as may be provided in the amendment or amendments to our Articles adopted by our Board. The authority of our Board includes, but is not limited to, the determination or fixing of the following with respect to a particular series of preferred shares: the distinctive serial designation and the number of shares constituting such series; the voting rights, full, conditional or limited, of shares of such series; the dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date or dates, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends; the amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Company; whether the shares of such series shall be entitled to the benefits of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and, if so entitled, the amount of such fund and the manner of its application, including the price or prices at which such shares may be redeemed or purchased through the application of such funds; whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Company and, if so convertible or exchangeable, the conversion price or prices, or the rates or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; the price or other consideration for which the shares of such series shall be issued; restrictions, if any, on the issuance of shares of the same series or any other class or series; and whether the shares of such series shall be redeemable and, if so, the price or prices at which, and the terms and conditions upon which such shares may be redeemed; and such other rights, preferences and limitations as shall not be inconsistent with our Articles, our Regulations or Ohio law.

Transfer Agent and Registrar

The transfer agent and registrar for our common shares is Broadridge Financial Solutions, Inc.

Listing

Our common shares are listed on the NASDAQ Global Market under the symbol “PFC.”

Ohio Anti-takeover Statutes

Certain state laws make a change in control of an Ohio corporation more difficult, even if desired by the holders of a majority of the corporation’s shares. Provided below is a summary of the Ohio anti-takeover statutes.

Ohio Revised Code Section 1701.831 is a “control share acquisition” statute. The control share acquisition statute provides, in essence, that any person acquiring shares of an “issuing public corporation” (which Premier meets by definition) in any of the following three ownership ranges must seek and obtain shareholder approval of the acquisition transaction that first puts such ownership within each such range: (i) one-fifth or more but less than one-third; (ii) one-third or more but less than a majority; and (iii) a majority or more.

The control share acquisition statute applies not only to traditional offers but also to open market purchases, privately-negotiated transactions and original issuances by an Ohio corporation, whether friendly or unfriendly. The procedural requirements of the control share acquisition statute could render approval of any control share acquisition difficult because it must be authorized at a special meeting of shareholders, for which the statutorily prescribed form of notice has been given and at which the statutorily prescribed quorum is present, by the affirmative vote of the majority of the voting power of the corporation in the election of directors represented at the meeting and by a majority of the portion of such voting power, excluding the voting power of interested shares.

A corporation may elect not to be covered by the provisions of the control share acquisition statute by the adoption of an appropriate amendment to its articles of incorporation or its regulations. We have not adopted such an amendment. Our Articles, as currently in effect, provide that Section 1701.831 of the Ohio Revised Code applies to control share acquisitions of shares of Premier.

Ohio Revised Code Chapter 1704 is a “merger moratorium” statute. The merger moratorium statute provides that, unless a corporation’s articles of incorporation otherwise provide, an “issuing public corporation” (which Premier meets by definition) may not engage in a “Chapter 1704 transaction” for three years following the date on which a person acquires more than 10% of the voting power in the election of directors of the issuing corporation, unless the Chapter 1704 transaction is approved by the corporation’s board of directors prior to such transaction. A person who acquires such voting power is an “interested shareholder,” and “Chapter 1704 transactions” involve a broad range of transactions, including mergers, consolidations, combinations, liquidations, recapitalizations and other transactions between an issuing public corporation and an interested shareholder if such transactions involve at least 5% of the aggregate fair market value of the assets or shares of the issuing public corporation or assets representing at least 10% of its earning power or income. After the initial three-year moratorium, Chapter 1704 prohibits such transactions absent approval by disinterested shareholders or the transaction meeting certain statutorily defined fair price provisions.

A corporation may elect not to be covered by the provisions of Ohio Revised Code Chapter 1704 by the adoption of an appropriate amendment to its articles of incorporation. We have not adopted such an amendment. Our Articles, as currently in effect, provide that Ohio Revised Code Chapter 1704 applies to Premier.

Ohio also has enacted Ohio Revised Code Section 1707.043, which provides that a person who announces a control bid with respect to an Ohio corporation that has issued and outstanding shares listed on a national securities exchange (which Premier does with our common shares) must disgorge profits realized by that person upon the sale of any equity securities within 18 months of the announcement.

In addition, Section 1701.59 of the Ohio Revised Code provides that, in determining what a director reasonably believes to be in the best interests of the corporation, such director may consider, in addition to the interests of the corporation’s shareholders, any of the interests of the corporation’s employees, suppliers, creditors and customers, the economy of the State of Ohio and the United States, community and societal considerations and the long-term as well as the short-term interests in the corporation and its shareholders, including the possibility that these interests may be best served by the continued independence of the corporation.

The overall effect of the statutes described above may be to render more difficult or discourage the removal of incumbent management of an Ohio corporation or the assumption of effective control of an Ohio corporation by other persons.

 

 

Exhibit 10.6

 

PREMIER FINANCIAL CORP.

2018 EQUITY INCENTIVE PLAN

The purpose of the Plan is to promote the Company’s long-term financial success and increase shareholder value by motivating performance through incentive compensation.  The Plan also is intended to encourage Participants to acquire ownership interests in the Company, attract and retain talented employees and directors and enable Participants to participate in the Company’s long-term growth and financial success.  

 

ARTICLE I

DEFINITIONS

 

When used in the Plan, the following capitalized words, terms and phrases shall have the meanings set forth in this Article I.  For purposes of the Plan, the form of any word, term or phrase shall include any and all of its other forms.

 

1.1“Act” shall mean the Securities Exchange Act of 1934, as amended from time to time, or any successor thereto.

 

1.2“Affiliate” shall mean any entity with whom the Company would be considered a single employer under Section 414(b) or (c) of the Code, but modified as permitted under Treasury Regulations promulgated under any Code section relevant to the purpose for which the definition is applied.

 

1.3“Award” shall mean any Nonqualified Stock Option, Incentive Stock Option, Stock Appreciation Right, Restricted Stock, Performance Board Award, or Other Stock-Based Award granted pursuant to the Plan.

 

1.4“Award Agreement” shall mean any written or electronic agreement between the Company and a Participant that describes the terms and conditions of an Award.  If there is a conflict between the terms of the Plan and the terms of an Award Agreement, the terms of the Plan shall govern.

 

1.5“Board” shall mean the Board of Directors of the Company.

 

1.6“Cause” shall mean, unless otherwise provided in the related Award Agreement or in any employment agreement between the Participant and the Company or any Affiliate or in any other agreement between the Participant and the Company or any Affiliate (but only within the context of the events contemplated by the employment agreement or other agreement, as applicable), a Participant’s: (a) willful and continued failure to substantially perform assigned duties; (b) gross misconduct; (c) breach of any term of any agreement with the Company or any Affiliate, including the Plan and any Award Agreement; (d) conviction of (or plea of no contest or nolo contendere to) (i) a felony or a misdemeanor that originally was charged as a felony but which was subsequently reduced to a misdemeanor through negotiation with the charging entity or (ii) a crime other than a felony, which involves a breach of trust or fiduciary duty owed to the Company or any Affiliate; or (e) violation of the Company’s code of conduct or any other policy of the Company or any Affiliate that applies to the Participant.  Notwithstanding the foregoing, Cause will not arise solely because the Participant is absent from active employment during periods of vacation, consistent with the Company’s applicable vacation policy, or other period of absence approved by the Company.  

 

1.7“Change in Control” shall mean, unless otherwise provided in any employment agreement between the Participant and the Company or any Affiliate or in any other agreement between the Participant and the Company or any Affiliate (but only within the context of events contemplated by the employment agreement or other agreement, as applicable), the occurrence of any of the following:

 

(a)the members of the Board on the effective date of this Plan (the “Incumbent Directors”) cease for any reason other than death to constitute at least a majority of the members of the Board; provided however, that any individual becoming a director after the effective date of this Plan whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the then Incumbent Directors shall also be

treated as an Incumbent Director, but excluding any individual whose initial assumption of office occurs as a result of a proxy contest or any agreement arising out of an actual or threatened proxy contest;

 

(b)the acquisition by any person or group (within the meaning of Sections 13(d) and 14(d)(2) of the Act), other than the Company, any Subsidiary or any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary of the Company, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act), directly or indirectly, of thirty percent (30%) or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors of the Company; provided, however, that the provisions of this paragraph (b) shall not include the acquisition of voting securities by any entity or person with respect to which that acquirer has filed SEC Schedule 13G (or any successor form or filing) indicating that the voting securities were not acquired and are not held for the purpose of or with the effect of changing or influencing, directly or indirectly, the Company’s management or policies, unless and until that entity or person indicates that its intent has changed by filing SEC Schedule 13D (or any successor form or filing);

 

(c)the consummation of a merger, consolidation or other business combination of the Company with or into another entity, or the acquisition by the Company of assets or shares or equity interests of another entity, as a result of which the stockholders of the Company immediately prior to such merger, consolidation, other business combination or acquisition, do not, immediately thereafter, beneficially own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the entity resulting from such merger, consolidation or other business combination or the Company;

 

(d)the sale or other disposition of all or substantially all of the assets of the Company; or

 

(e)the liquidation or dissolution of the Company.  

 

Notwithstanding the foregoing, with respect to the payment, exercise or settlement of any Award that is subject to Section 409A of the Code (and for which no exception applies), a Change in Control shall be deemed not to have occurred unless the events or circumstances constituting a Change in Control also constitute a “change in control event” within the meaning of Section 409A of the Code and the Treasury Regulations promulgated thereunder.

1.8“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.

 

1.9“Committee” shall mean the Compensation Committee of the Board, which will be comprised of at least two (2) directors, each of whom is a “non-employee” director within the meaning of Rule 16b-3 under the Act.

 

1.10“Company” shall mean Premier Financial Corp., an Ohio corporation, and any successor thereto.

 

1.11“Consultant” shall mean any person who renders services to the Company or any of its Affiliates other than an Employee or a Director.

 

1.12“Covered Employee” shall mean a “covered employee” within the meaning of Section 162(m) of the Code and the Treasury Regulations promulgated thereunder.

 

1.13“Director” shall mean a person who is a member of the Board, excluding any member who is an Employee.

 

1.14“Disability” shall mean:

 

 

(a)

with respect to an Incentive Stock Option, “disability” as defined in Section 22(e)(3) of the Code;

 

(b)with respect to the payment, exercise or settlement of any Award that is (or becomes) subject to Section 409A of the Code (and for which no exception applies), (i) the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, (ii) the Participant is,

2

 

by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering Employees of the Participant’s employer, or (iii) the Participant is determined to be totally disabled by the Social Security Administration or Railroad Retirement Board; and

 

(c)with respect to a Participant’s right to exercise or receive settlement of any Award or with respect to the payment, exercise or settlement of any Award not described in subsection (a) or (b) of this definition, a Participant’s inability (established by an independent physician selected by the Committee and reasonably acceptable to the Participant or to the Participant’s legal representative) due to illness, accident or otherwise to perform his or her duties, which is expected to be permanent or for an indefinite duration longer than twelve (12) months.

 

1.15“Employee” shall mean any person who is a common law employee of the Company or any Affiliate.  A person who is classified as other than a common-law employee but who is subsequently reclassified as a common law employee of the Company or any Affiliate for any reason and on any basis shall be treated as a common law employee only from the date that reclassification occurs and shall not retroactively be reclassified as an Employee for any purpose under the Plan.

 

1.16“Fair Market Value” shall mean the value of one Share on any relevant date, determined under the following rules:

 

(a)If the Shares are traded on an exchange, the reported “closing price” on the relevant date if it is a trading day, otherwise on the next trading day;

 

(b)If the Shares are traded over-the-counter with no reported closing price, the mean between the lowest bid and the highest asked prices on that quotation system on the relevant date if it is a trading day, otherwise on the next trading day; or

 

(c)If neither (a) nor (b) applies, (i) with respect to Options, Stock Appreciation Rights and any Award that is subject to Section 409A of the Code, the value as determined by the Committee through the reasonable application of a reasonable valuation method, taking into account all information material to the value of the Company, within the meaning of Section 409A of the Code and the Treasury Regulations promulgated thereunder, and (ii) with respect to all other Awards, the fair market value as determined by the Committee in good faith.

 

1.17“Incentive Stock Option” shall mean an Option that is intended to meet the requirements of Section 422 of the Code.

 

1.18“Nonqualified Stock Option” shall mean an Option that is not intended to be an Incentive Stock Option.

 

1.19“Option” shall mean an option to purchase Shares which is granted pursuant to Article V of the Plan.  An Option may be either an Incentive Stock Option or a Nonqualified Stock Option.

 

1.20“Other Stock-Based Award” shall mean an Award granted pursuant to Article VIII of the Plan.

 

1.21“Participant” shall mean an Employee, Director or Consultant who is granted an Award under the Plan.

 

1.22“Performance-Based Award” shall mean an Award described in Article IX of the Plan.

 

1.23“Plan” shall mean the Premier Financial Corp. 2018 Equity Incentive Plan, as set forth herein and as may be amended from time to time.

 

1.24“Prior Plan” shall mean the First Defiance Financial Corp. 2010 Equity Incentive Plan, as amended.

 

1.25“Restricted Stock” shall mean an Award granted pursuant to Article VII of the Plan through which a Participant is issued Shares which are subject to specified restrictions on vesting and transferability.

 

3

 

1.26“Retirement” shall mean, unless otherwise specified in an Award Agreement, in the case of an Employee, the retirement from the employ of the Company under one or more of the retirement plans of the Company, or as otherwise specified by the Committee and, in the case of Director, shall mean the retirement from the Board at any time after the Director attains age fifty-five (55) and has served at least five (5) years as a Director.  

 

1.27“Shares” shall mean the common shares, par value $0.01 per share, of the Company or any security of the Company issued in satisfaction, exchange or in place of these shares.

 

1.28“Stock Appreciation Right” shall mean an Award granted pursuant to Article VI of the Plan through which a Participant is given the right to receive the difference between the Fair Market Value of a Share on the date of grant and the Fair Market Value of a Share on the date of exercise of the Award.

 

1.29“Subsidiary” shall mean: (a) with respect to an Incentive Stock Option, a “subsidiary corporation” as defined under Section 424(f) of the Code; and (b) for all other purposes under the Plan, any corporation or other entity in which the Company owns, directly or indirectly, a proprietary interest of more than fifty (50%) by reason of stock ownership or otherwise.

 

ARTICLE II

SHARES SUBJECT TO THE PLAN

 

2.1Number of Shares Available for Awards.  Subject to this Article II, the number of Shares with respect to which Awards may be granted under the Plan shall be 450,000, all of which may be granted with respect to Incentive Stock Options.  The Shares may consist, in whole or in part, of treasury Shares, authorized but unissued Shares not reserved for any other purpose or Shares purchased by the Company or an independent agent in either a private transaction or in the open market.  Subject to this Article II, the number of Shares available for issuance under the Plan shall be reduced by one (1) Share for each Share subject to a grant of an Award, and any Shares underlying an Award that become available for future grant under the Plan pursuant to Section 2.2 shall be added back to the Plan.  Without limiting the foregoing, with respect to any Stock Appreciation Right that is settled in Shares, the full number of Shares subject to the Award shall count against the number of Shares available for Awards under the Plan regardless of the number of Shares used to settle the Stock Appreciation Right upon exercise.

 

2.2Share Usage.  In addition to the number of Shares provided for in Section 2.1, the following Shares shall be available for Awards under the Plan: (a) Shares covered by an Award or a Prior Plan Award that expires or is forfeited, canceled, surrendered or otherwise terminated without the issuance of such Shares; (b) Shares covered by an Award or a Prior Plan Award that, by its terms, may be settled only in cash; (c) Shares granted through the assumption of, or in substitution for, outstanding awards granted by a company to individuals who become Employees, Directors or Consultants as the result of a merger, consolidation, acquisition or other corporate transaction involving such company and the Company or any of its Affiliates; and (d) any Shares from awards exercised for or settled in vested and nonforfeitable Shares that are later returned to the Company pursuant to any compensation recoupment policy, provision or agreement.

 

2.3Adjustments.  In the event of any Share dividend, Share split, recapitalization (including payment of an extraordinary dividend), merger, reorganization, consolidation, combination, spin-off, distribution of assets to stockholders, exchange of Shares or any other change affecting the Shares, the Committee shall make such substitutions and adjustments, if any, as it deems equitable and appropriate to: (a) the aggregate number of Shares that may be issued under the Plan; (b) any Share-based limits imposed under the Plan; and (c) the exercise price, number of Shares and other terms or limitations applicable to outstanding Awards.  Notwithstanding the foregoing, an adjustment pursuant to this Section 2.3 shall be made only to the extent such adjustment complies, to the extent applicable, with Section 409A of the Code.

 

ARTICLE III

ADMINISTRATION

 

3.1In General.  The Plan shall be administered by the Committee.  The Committee shall have full power and authority to: (a) interpret the Plan and any Award Agreement; (b) establish, amend and rescind any rules and regulations relating to the Plan; (c) select Participants; (d) establish the terms and conditions of any Award consistent

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with the terms and conditions of the Plan; and (e) make any other determinations that it deems necessary or desirable for the administration of the Plan.  The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award Agreement in the manner and to the extent the Committee deems necessary or desirable.  Any decision of the Committee in the interpretation and administration of the Plan shall be made in the Committee’s sole and absolute discretion and shall be final, conclusive and binding on all persons.

 

3.2Delegation of Duties.  In its sole discretion, the Committee may delegate any ministerial duties associated with the Plan to any person (including Employees) it deems appropriate; provided, however, that the Committee may not delegate (a) any duties that it is required to discharge to comply with Section 162(m) of the Code or any other applicable law; (b) its authority to grant Awards to any Participant who is subject to Section 16 of the Act; and (c) its authority under the Company’s equity award granting policy that may be in effect from time to time.

 

ARTICLE IV

ELIGIBILITY

 

Any Employee, Director or Consultant selected by the Committee shall be eligible to be a Participant in the Plan; provided, however, that Incentive Stock Options shall only be granted to Employees who are employed by the Company or any of its Subsidiaries.

 

ARTICLE V

OPTIONS

 

5.1Grant of Options.  Subject to the terms and conditions of the Plan, Options may be granted to Participants in such number, and upon such terms and conditions, as shall be determined by the Committee in its sole discretion.

 

5.2Award Agreement.  Each Option shall be evidenced by an Award Agreement that shall specify the exercise price, the term of the Option, the number of Shares covered by the Option, the conditions upon which the Option shall become vested and exercisable and such other terms and conditions as the Committee shall determine and which are not inconsistent with the terms and conditions of the Plan.  The Award Agreement also shall specify whether the Option is intended to be an Incentive Stock Option or a Nonqualified Stock Option.

 

5.3Exercise Price.  The exercise price per Share of an Option shall be determined by the Committee at the time the Option is granted and shall be specified in the related Award Agreement; provided, however, that in no event shall the exercise price of any Option be less than one hundred percent (100%) of the Fair Market Value of a Share on the date of grant.

 

5.4Term.  The term of an Option shall be determined by the Committee and set forth in the related Award Agreement; provided, however, that in no event shall the term of any Option exceed ten (10) years from its date of grant.

 

5.5Exercisability.  Options shall become exercisable at such times and upon such terms and conditions as shall be determined by the Committee and set forth in the related Award Agreement.  Such terms and conditions may include, without limitation, the satisfaction of (a) performance goals; and (b) time-based vesting requirements.

 

5.6Exercise of Options.  Except as otherwise provided in the Plan or in a related Award Agreement, an Option may be exercised for all or any portion of the Shares for which it is then exercisable.  An Option shall be exercised by the delivery of a notice of exercise to the Company or its designee in a form specified by the Committee which sets forth the number of Shares with respect to which the Option is to be exercised and full payment of the exercise price for such Shares.  The exercise price of an Option may be paid: (a) in cash or its equivalent; (b) by tendering (either by actual delivery or attestation) previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the aggregate exercise price; provided that such Shares had been held for at least six (6) months or such other period required to obtain favorable accounting treatment; (c) by a cashless exercise (including by withholding Shares deliverable upon exercise and through a broker-assisted arrangement to the extent permitted by applicable law); (d) by a combination of the methods described in clauses (a), (b) and/or (c); or (e) though any other method approved by the Committee in its sole discretion.  As soon as practicable after receipt of the notification of exercise and full payment of the exercise price, the Company shall cause the appropriate number of Shares to be

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issued to the Participant.  An Option may be settled in full Shares, cash or a combination thereof, as specified by the Committee in a related Award Agreement.

 

5.7Special Rules Applicable to Incentive Stock Options.  Notwithstanding any other provision in the Plan to the contrary:

 

(a)The terms and conditions of Incentive Stock Options shall be subject to and comply with the requirements of Section 422 of the Code.

 

(b)The aggregate Fair Market Value of the Shares (determined as of the date of grant) with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company and its Subsidiaries) may not be greater than $100,000 (or such other amount specified in Section 422 of the Code), as calculated under Section 422 of the Code.

 

(c)No Incentive Stock Option shall be granted to any Participant who, at the time the Incentive Stock Option is granted, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Subsidiary, unless (i) the exercise price of such Incentive Stock Option is at least one hundred and ten percent (110%) of the Fair Market Value of a Share on the date the Incentive Stock Option is granted and (ii) the date on which such Incentive Stock Option will expire is not later than five (5) years from the date the Incentive Stock Option is granted.

 

ARTICLE VI

STOCK APPRECIATION RIGHTS

 

6.1Grant of Stock Appreciation Rights.  Subject to the terms and conditions of the Plan, Stock Appreciation Rights may be granted to Participants in such number, and upon such terms and conditions, as shall be determined by the Committee in its sole discretion.

 

6.2Award Agreement.  Each Stock Appreciation Right shall be evidenced by an Award Agreement that shall specify the exercise price, the term of the Stock Appreciation Right, the number of Shares covered by the Stock Appreciation Right, the conditions upon which the Stock Appreciation Right shall become vested and exercisable and such other terms and conditions as the Committee shall determine and which are not inconsistent with the terms and conditions of the Plan.

 

6.3Exercise Price.  The exercise price per Share of a Stock Appreciation Right shall be determined by the Committee at the time the Stock Appreciation Right is granted and shall be specified in the related Award Agreement; provided, however, that in no event shall the exercise price of any Stock Appreciation Right be less than one hundred percent (100%) of the Fair Market Value of a Share on the date of grant.

 

6.4Term.  The term of a Stock Appreciation Right shall be determined by the Committee and set forth in the related Award Agreement; provided however, that in no event shall the term of any Stock Appreciation Right exceed ten (10) years from its date of grant.

 

6.5Exercisability of Stock Appreciation Rights.  A Stock Appreciation Right shall become exercisable at such times and upon such terms and conditions as may be determined by the Committee and set forth in the related Award Agreement.  Such terms and conditions may include, without limitation, the satisfaction of (a) performance goals; and (b) time-based vesting requirements.

 

6.6Exercise of Stock Appreciation Rights.  Except as otherwise provided in the Plan or in a related Award Agreement, a Stock Appreciation Right may be exercised for all or any portion of the Shares for which it is then exercisable.  A Stock Appreciation Right shall be exercised by the delivery of a notice of exercise to the Company or its designee in a form specified by the Committee which sets forth the number of Shares with respect to which the Stock Appreciation Right is to be exercised.  Upon exercise, a Stock Appreciation Right shall entitle a Participant to an amount equal to (a) the excess of (i) the Fair Market Value of a Share on the exercise date over (ii) the exercise price per Share, multiplied by (b) the number of Shares with respect to which the Stock Appreciation Right is

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exercised.  A Stock Appreciation Right may be settled in full Shares, cash or a combination thereof, as specified by the Committee in the related Award Agreement.

 

ARTICLE VII

RESTRICTED STOCK

 

7.1Grant of Restricted Stock.  Subject to the terms and conditions of the Plan, Shares of Restricted Stock may be granted to Participants in such number, and upon such terms and conditions, as shall be determined by the Committee in its sole discretion.

 

7.2Award Agreement.  Each Restricted Stock Award shall be evidenced by an Award Agreement that shall specify the number of Shares of Restricted Stock, the restricted period(s) applicable to the Shares of Restricted Stock, the conditions upon which the restrictions on the Shares of Restricted Stock will lapse and such other terms and conditions as the Committee shall determine and which are not inconsistent with the terms and conditions of the Plan.

 

7.3Terms, Conditions and Restrictions.

 

(a)The Committee shall impose such other terms, conditions and/or restrictions on any Shares of Restricted Stock as it may deem advisable, including, without limitation, a requirement that the Participant pay a purchase price for each Share of Restricted Stock, restrictions based on the achievement of specific performance goals, time-based restrictions or holding requirements or sale restrictions placed on the Shares by the Company upon vesting of such Restricted Stock.  

 

(b)To the extent deemed appropriate by the Committee, the Company may retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as all terms, conditions and/or restrictions applicable to such Shares have been satisfied or lapse.

 

(c)Unless otherwise provided in the related Award Agreement or required by applicable law, the restrictions imposed on Shares of Restricted Stock shall lapse upon the expiration or termination of the applicable restricted period and the satisfaction of any other applicable terms and conditions.

 

7.4Rights Associated with Restricted Stock during Restricted Period.  During any restricted period applicable to Shares of Restricted Stock:

 

(a)Such Shares of Restricted Stock may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated.

 

(b)Unless otherwise provided in the related Award Agreement, (i) the Participant shall be entitled to exercise full voting rights associated with such Shares of Restricted Stock and (ii) the Participant shall be entitled to all dividends and other distributions paid with respect to such Shares of Restricted Stock during the restricted period; provided, however, that receipt of any such dividends or other distributions will be subject to the same terms and conditions as the Shares of Restricted Stock with respect to which they are paid.  

 

ARTICLE VIII

OTHER STOCK-BASED AWARDS

 

8.1Grant of Other Stock-Based Awards.  Subject to the terms and conditions of the Plan, Other Stock-Based Awards may be granted to Participants in such number, and upon such terms and conditions, as shall be determined by the Committee in its sole discretion.  Other Stock-Based Awards are Awards that are valued in whole or in part by reference to, or otherwise based on the Fair Market Value of, the Shares, and shall be in such form as the Committee shall determine, including without limitation, (a) unrestricted Shares or (b) time-based or performance-based restricted stock units that are settled in Shares and/or cash.

 

8.2Award Agreement.  Each Other Stock-Based Award shall be evidenced by an Award Agreement that shall specify the terms and conditions upon which the Other Stock-Based Award shall become vested, if applicable,

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the time and method of settlement, the form of settlement and such other terms and conditions as the Committee shall determine and which are not inconsistent with the terms and conditions of the Plan.  

 

8.3Form of Settlement.  An Other Stock-Based Award may be settled in full Shares, cash or a combination thereof, as specified by the Committee in the related Award Agreement.

 

8.4Dividend Equivalents.  Awards of Other Stock-Based Awards may provide the Participant with dividend equivalents, as determined by the Committee in its sole discretion and set forth in the related Award Agreement.

 

ARTICLE IX

PERFORMANCE-BASED AWARDS

 

Subject to the terms and conditions of the Plan, Performance-Based Awards may be granted to Participants in such amounts and upon such other terms and conditions as shall be determined by the Committee in its sole discretion.  Each Performance-Based Award shall be evidenced by an Award Agreement that shall specify the payment amount or payment range, the time and method of settlement and other terms and conditions, as applicable, of such Award including, that the vesting and/or payment of the Award is subject to the attainment of one (1) or more performance goals during a performance period established by the Committee.

 

ARTICLE X

TERMINATION OF EMPLOYMENT OR SERVICE

 

With respect to each Award granted under the Plan, the Committee shall, subject to the terms and conditions of the Plan, determine the extent to which the Award shall vest and the extent to which the Participant shall have the right to exercise and/or receive settlement of the Award on or following the Participant’s termination of employment or services with the Company and/or any of its Affiliates.  Such provisions shall be determined in the sole discretion of the Committee, shall be included in the related Award Agreement, need not be uniform among all Awards granted under the Plan and may reflect distinctions based on the reasons for termination.  

 

ARTICLE XI

CHANGE IN CONTROL

 

11.1Effect of Change in Control.  Except as otherwise provided in the related Award Agreement, in the event of a Change in Control, the Committee, in its sole discretion, may take such actions, if any, as it deems necessary or desirable with respect to any Award that is outstanding as of the date of the consummation of the Change in Control.  Such actions may include, without limitation: (a) the acceleration of the vesting, settlement and/or exercisability of an Award; (b) the payment of a cash amount in exchange for the cancellation of an Award; and/or (c) the issuance of substitute Awards that substantially preserve the value, rights and benefits of any affected Awards.  Any action relating to an Award that is subject to Section 409A of the Code shall be consistent with the requirements thereof.

 

11.2Golden Parachute Limitations.  Except as otherwise provided in any other written agreement between the Company or any Affiliate and a Participant, including any Award Agreement, if the sum of the amounts payable under the Plan and those provided under all other plans, programs or agreements between the Participant and the Company or any Affiliate constitutes a “parachute payment” as defined in Section 280G of the Code, the Company will reduce any payments to the minimum extent necessary to avoid the imposition of an excise tax under Section 4999 of the Code or a loss of deduction under Section 280G of the Code.  Any reduction pursuant to this Section 11.2 shall be made in compliance with Section 409A of the Code.  

 

ARTICLE XII

AMENDMENT OR TERMINATION OF THE PLAN

 

12.1In General.  The Board or the Committee may amend or terminate the Plan at any time; provided, however, that no amendment or termination shall be made without the approval of the Company’s stockholders to the extent that (a) the amendment materially increases the benefits accruing to Participants under the Plan, (b) the amendment materially increases the aggregate number of Shares authorized for grant under the Plan (excluding an

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increase in the number of Shares that may be issued under the Plan as a result of Section 2.3, (c) the amendment materially modifies the requirements as to eligibility for participation in the Plan, or (d) such approval is required by any law, regulation or stock exchange rule.

 

12.2Repricing.  Except for adjustments made pursuant to Section 2.3 of the Plan, in no event may the Board or the Committee amend the terms of an outstanding Award to reduce the exercise price of an outstanding Option or Stock Appreciation Right or cancel an outstanding Option or Stock Appreciation Right in exchange for cash, other Awards or Options or Stock Appreciation Rights with an exercise price that is less than the exercise price of the original Option or Stock Appreciation Right without shareholder approval.

 

ARTICLE XIII

TRANSFERABILITY

 

13.1Except as described in Section 13.2 or as provided in a related Award Agreement, an Award may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except by will or the laws of descent and distribution and, during a Participant’s lifetime, may be exercised only by the Participant or the Participant’s guardian or legal representative.  Notwithstanding any provision contained in this Article XIII, no Award may be transferred by a Participant for value or consideration.

 

13.2Unless otherwise specifically designated by the Participant in writing, a Participant’s beneficiary under the Plan shall be the Participant’s spouse or, if no spouse survives the Participant, the Participant’s estate.

 

ARTICLE XIV

MISCELLANEOUS

 

14.1No Right to Continue Services or to Awards.  The granting of an Award under the Plan shall impose no obligation on the Company or any Affiliate to continue the employment or services of a Participant or interfere with or limit the right of the Company or any Affiliate to terminate the services of any Employee, Director or Consultant at any time.  In addition, no Employee, Director or Consultant shall have any right to be granted any Award, and there is no obligation for uniformity of treatment of Participants.  The terms and conditions of Awards and the Committee’s interpretations and determinations with respect thereto need not be the same with respect to each Participant.

 

 

14.2Tax Withholding.

 

(a)The Company or an Affiliate, as applicable, shall have the power and the right to deduct, withhold or collect any amount required by law or regulation to be withheld with respect to any taxable event arising with respect to an Award granted under the Plan.  This amount may, as determined by the Committee in its sole discretion, be (i) withheld from other amounts due to the Participant, (ii) withheld from the value of any Award being settled or any Shares being transferred in connection with the exercise or settlement of an Award or (iii) withheld from the vested portion of any Award (including the Shares transferable thereunder), whether or not being exercised or settled at the time the taxable event arises, or (iv) collected directly from the Participant.

 

(b)Subject to the approval of the Committee, a Participant may elect to satisfy the withholding requirement, in whole or in part, by having the Company or an Affiliate, as applicable, withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction, or a higher level of withholding elected by the Participant; provided that such Shares would otherwise be distributable to the Participant at the time of the withholding and if such Shares are not otherwise distributable at the time of the withholding, provided that the Participant has a vested right to distribution of such Shares at such time.  All such elections shall be irrevocable and made in writing and shall be subject to any terms and conditions that the Committee, in its sole discretion, deems appropriate.

 

14.3Requirements of Law.  The grant of Awards and the issuance of Shares shall be subject to all applicable laws, rules and regulations (including applicable federal and state securities laws) and to all required approvals of any governmental agencies or national securities exchange, market or other quotation system.  Without limiting the

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foregoing, the Company shall have no obligation to issue Shares under the Plan prior to (a) receipt of any approvals from any governmental agencies or national securities exchange, market or quotation system that the Committee deems necessary and (b) completion of registration or other qualification of the Shares under any applicable federal or state law or ruling of any governmental agency that the Committee deems necessary.

 

14.4Legends.  Certificates for Shares delivered under the Plan may be subject to such stock transfer orders and other restrictions that the Committee deems advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange or other recognized market or quotation system upon which the Shares are then listed or traded, or any other applicable federal or state securities law.  The Committee may cause a legend or legends to be placed on any certificates issued under the Plan to make appropriate reference to restrictions within the scope of this Section 14.4.

 

14.5Uncertificated Shares.  To the extent that the Plan provides for the issuance of certificates to reflect the transfer of Shares, the transfer of Shares may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange.

 

14.6Governing Law.  The Plan and all Award Agreements shall be governed by and construed in accordance with the laws of (other than laws governing conflicts of laws) the State of Ohio, except to the extent that the laws of the state in which the Company is incorporated are mandatorily applicable.

 

14.7No Impact on Benefits.  Awards are not compensation for purposes of calculating a Participant’s rights under any employee benefit plan that does not specifically require the inclusion of Awards in calculating benefits.

 

14.8Rights as a Shareholder.  Except as otherwise provided in the Plan or in a related Award Agreement, a Participant shall have none of the rights of a shareholder with respect to Shares covered by an Award unless and until the Participant becomes the record holder of such Shares.

 

14.9Successors and Assigns.  The Plan shall be binding on all successors and assigns of the Company and each Participant, including without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant’s creditors.

 

14.10Section 409A of the Code.

 

(a) Awards granted pursuant to the Plan that are subject to Section 409A of the Code, or that are subject to Section 409A but for which an exception from Section 409A of the Code applies, are intended to comply with or be exempt from Section 409A of the Code and the Treasury Regulations promulgated thereunder, and the Plan shall be interpreted, administered and operated accordingly.

 

(b) If a Participant is determined to be a “specified employee” (within the meaning of Section 409A of the Code and as determined under the Company’s policy for determining specified employees), the Participant shall not be entitled to payment or to distribution of any portion of an Award that is subject to Section 409A of the Code (and for which no exception applies) and is payable or distributable on account of the Participant’s “separation from service” (within the meaning of Section 409A of the Code) until the expiration of six (6) months from the date of such separation from service (or, if earlier, the Participant’s death).  Such Award, or portion thereof, shall be paid or distributed on the first (1st) business day of the seventh (7th) month following such separation from service.

 

(c)Nothing in the Plan shall be construed as an entitlement to or guarantee of any particular tax treatment to a Participant, and none of the Company, its Affiliates, the Board or the Committee shall have any liability with respect to any failure to comply with the requirements of Section 409A of the Code.

 

14.11Savings Clause.  In the event that any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

 

ARTICLE XV

EFFECTIVE DATE AND TERM OF THE PLAN

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The effective date of the Plan is _______________, 2018.  No Incentive Stock Options shall be granted under the Plan after _______________, 2028 and no other Awards shall be granted under the Plan after the tenth anniversary of the effective date of the Plan or, if earlier, the date the Plan is terminated.  Notwithstanding the foregoing, the termination of the Plan shall not preclude the Company from complying with the terms of Awards outstanding on the date the Plan terminates.  

3/09/2021 29340666 V.2

 

 

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Exhibit 10.8

 

CONSULTING AGREEMENT AND GENERAL RELEASE

This Consulting Agreement and General Release (this “Consulting Agreement”), is made and entered into as of this ___ day of January, 2021, by and between Premier Financial Corp., a financial holding company incorporated under Ohio law (“PFC”), Premier Bank, an Ohio chartered commercial bank (“Premier”) and their respective affiliates, parents, successors, predecessors, and subsidiaries (collectively, the “Company”), and Jude J. Nohra, an individual ( “Executive”), agree that:

The Company and Executive agreed to a separation of service from the Executive’s employment with the Company, which was effective upon the close of business December 31, 2020 (the “Separation Date”).  In connection with that termination and as a condition to receiving payments of certain amounts under the Severance and Change in Control Agreement between Executive and the Company (the “CIC Agreement”), Executive executed a Waiver and General Release (the “First Release”).  The parties hereto wish to enter into this Consulting Agreement to (a) address certain transition services, (b) release additional claims, and (c) subject the parties to additional covenants.

The parties, for the good and valuable consideration stated below, the sufficiency of which is acknowledged, agree as follows:

1.Acknowledgement and Release.  Executive acknowledges that the First Release contains a broad release of claims Executive and any person claiming on behalf of Executive may have against the Released Parties (as that term is defined in the First Release).  Executive acknowledges that (a) as of the date of this Consulting Agreement, Executive has not suffered any workplace injuries or occupational disease and (b) that he is not aware of any facts that would support a claim that has not been released by the First Release.

2.Confidentiality.  Prior to the date that this Consulting Agreement is required to be publicly filed, the parties agrees to keep the terms of this Consulting Agreement confidential and not to disclose the terms of this Consulting Agreement to any third party at any time, other than in the Company’s case, to its Board of Directors or a Committee thereof or to its auditors or regulatory authorities, and in the Executive’s case, to Executive’s spouse, attorneys, taxing authorities, accountants, financial advisor or lender, or as otherwise required by law or in a proceeding to enforce its terms.  Executive agrees to use Executive’s best efforts to ensure that the terms of this Consulting Agreement are kept confidential by Executive’s spouse, heirs, assigns, attorneys, and other advisors.  Except as provided in this Section 2, should Executive receive legal papers or process that Executive believes would require Executive to disclose the terms of this Consulting Agreement, Executive agrees to notify, in writing and within 7 days of Executive’s receipt of such legal papers or process, Sharon Davis, Executive Vice President and Chief Human Resources Officer, Premier Financial Corp., 601 Clinton Street, P.O. Box 248, Defiance Ohio 43512, phone: 419-782-5333, e-mail: sdavis@yourpremierbank.com.

3.Payments.  To the extent that Executive remains in compliance with the covenants set forth in Section 4 of this Consulting Agreement, the Company agrees to pay to Executive eight monthly payments each equal to $24,468.75 payable in the first regular pay period of each month commencing with the first pay period in May 2021.  In the event that Executive should die prior to the completion of all eight monthly payments, any remaining unpaid monthly payments will be paid in a single lump sum payment to the beneficiary or beneficiaries designated by Executive to receive such payment.  Such payment shall be made within thirty (30) days following Executive’s death.  In the event that Executive should fail to designate a beneficiary, in writing, to the Company, or, in the event that Executive’s designated beneficiary should

1

predecease him, the payment described in this Section 3 will be paid to Executive’s estate, within thirty (30) days following his death.

4.Covenants.  The parties acknowledge that they have agreed to be bound by the following covenants:

4.1Consulting. Executive agrees to provide up to a total of 20 hours of consulting services through December 31, 2021 to assist the Company in training Executive’s successor, assisting the Company’s administrative staff or any colleague reasonably requesting his services, and assisting any such successor with the transition.  Executive is only obligated to provide such services if reasonably requested by the Company and only during regular business hours.  The Company will reimburse Executive for any out-of-pocket expenses, including mileage, reasonably and actually incurred by Executive in providing such Services. Executive’s failure to provide these consulting services will not constitute a breach of this Consulting Agreement if the Company does not request performance of any such services.

4.2Intentionally deleted.

4.3Standstill.

4.3.1.Without the express prior written approval of the Company, until June 30, 2022, Executive will not, and will cause his Affiliates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) “Affiliates”) not to, directly or indirectly, solicit proxies or initiate, propose or become a “participant” in a “solicitation” (as such terms are defined in Regulation 14A under the Exchange Act), in opposition to any matter that has been recommended by a majority of the members of the Board of Directors of PFC (the “Board”) or in favor of any matter that has not been approved by the Board or seek to advise, encourage or influence any “person” (as such term is used in Section 13(d) and 14(d) of the Exchange Act, “Person”) with respect to the voting of any shares of common stock of PFC (“Securities”) in such manner, or initiate, or induce or attempt to induce any Person to initiate, any shareholder proposal relating to the Company. For purposes of this Section 4.3.1, “Affiliates” will not include any entities that the Executive does not directly, or indirectly through one or more intermediaries, control.

4.3.2.Without the express prior written approval of the Board, until June 30, 2022, Executive will not, and will cause his Affiliates not to, join a consortium, partnership, limited partnership, syndicate or other “group” (within the meaning of Section 13(d)(3) of the Exchange Act), or otherwise act in concert with any Person, for the purpose of acquiring, holding, voting or disposing of Securities, or for any other purpose that would require disclosure under Item 4 of Schedule 13D adopted by the Securities and Exchange Commission under the Exchange Act.

5.Taxation. All payments made pursuant to this Consulting Agreement will be subject to withholding of applicable income, employment and other taxes. The Company does not represent or guarantee that any particular federal, state or local income, payroll or other tax treatment will result from this Consulting Agreement or the benefits provided hereunder. Executive, for Executive and Executive’s successors in interest, assumes full responsibility for all of Executive’s portion of federal, state and local taxes arising from the payments provided hereunder and by accepting benefits hereunder agrees to indemnify and hold the Company harmless from any and all tax consequences, including interest and/or penalties, related to taxes owed and payable by Executive or any successor in interest.

6.This Consulting Agreement and the first release contains the complete understanding between the parties.  The parties agree that no promises or agreements will be binding or will modify this

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understanding unless in writing and signed by THE parties. This Consulting Agreement shall not affect the validity or enforceability of any prior written agreements by and between Company and Executive.

7.THE COMPANY AND EXECUTIVE, EACH AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF, OR RELATED TO, THIS CONSULTING AGREEMENT.  NO PARTY SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY LITIGATION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.

8.This Consulting Agreement may be executed in multiple counterparts, each of which will be considered an original, and all of which will be considered a single memorandum.  A copy of the original or of a signature to the original will have the same force and effect as the original.  The signature of any signatory to this Consulting Agreement may be executed through the use of a facsimile transmission or by way of a PDF (Portable Document Format) as an attachment to an e-mail, in which case the signature (whether by facsimile or PDF) on this Consulting Agreement will be as effective as if an original signature were affixed to this Consulting Agreement.

9.The validity, construction, and interpretation of this Consulting Agreement and the rights and duties of the parties to this Consulting Agreement will be governed by the laws of the State of Ohio without regard to any state conflict of law rules.

[Signature Page Follows]

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The parties agree that they have read this Consulting Agreement, understand and agree to its terms, and have knowingly and voluntarily signed it on the dates written below.

 

 

JUDE J. NOHRA

 

 

 

 

 

 

PREMIER  BANK

 

 

By:  

Name:

Its:  

 

 

 

 

PREMIER FINANCIAL CORP.

 

 

By:  

Name:

Its:  

 

 

 

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Exhibit 10.14

 

 

 

 

 

 

 

Premier FINANCIAL CORP.

2015 LONG TERM INCENTIVE PLAN

 

 

 

 

 

 

 

 

 

 


 

Premier Financial Corp.

 

2015 LONG TERM INCENTIVE PLAN

 

INDEX

 

SECTIONDESCRIPTION

 

1Purpose and Effective Date

2Definitions

3Administration

4Eligibility and Awards

5Common Shares

6Stock Options

7Stock Awards

8Stock Units

9Stock Appreciation Rights (SARs)

10Annual Bonus Awards

11Long-Term Incentive Awards

12Change in Control

13Securities Law Restrictions

14Payment of Taxes

15Nontransferability

16Termination or Amendment of Plan
and Award Agreements

17No Contract of Employment

18Applicable Law

19Term of Plan

20Miscellaneous

 

 

Premier FINANCIAL CORP.

2015 LONG TERM INCENTIVE PLAN

Section 1. PURPOSE AND EFFECTIVE DATE

1.1Purpose

. The purpose of the Premier Financial Corp. 2015 Long Term Incentive Plan (the “Plan”) is to provide a means through which the Company and its Subsidiaries may attract and retain Employees and Non-Employee Directors, to provide incentives that align their interests with those of the Company’s shareholders, and to promote the success of the Company’s business.

1.2Effective Date

. The Plan will become effective on the later of the date on which the Plan is approved by the Board or by the Company’s shareholders (“Effective Date”).

Section 2. DEFINITIONS

As used in the Plan, the following terms shall have the meanings set forth below:

2.1“Annual Bonus Award”

means an Award to Employees who are Participants pursuant to Section 10 consisting of the right to receive a cash payment on an annual basis.

2.2“Award”

means, individually or collectively, any award or benefit to an Employee or Non-Employee Director permitted and granted under the Plan, including Stock Options, Stock Awards, Stock Units, Stock Appreciation Rights, Annual Bonus Awards, and Long-Term Incentive Awards.

2.3“Award Agreement”

means any agreement, document, or other instrument (which may be in written or electronic form) evidencing an Award granted under the Plan and specifying the terms, conditions, and restrictions thereof, including, without limitation, a Stock Option Agreement, Stock Award Agreement, Stock Unit Agreement, Stock Appreciation Right Agreement, Annual Bonus Award Agreement and Long-Term Incentive Award Agreement.

2.4“Board”

means the Board of Directors of the Company.

2.5“Cause”

means the definition of “Cause” set forth in an Employee’s employment agreement or in a Participant’s Award Agreement, or in the absence thereof, “Cause” means:

(a)a Participant’s continued intentional failure or refusal to materially abide by the terms and conditions of his employment or perform substantially the Participant’s assigned duties (other than as a result of a Disability) for a period of ten (10) days following written notice by the Company to the Participant of such failure; or

(b)a Participant’s engagement in willful misconduct, including without limitation, fraud, embezzlement, theft or dishonesty in the course of the Participant’s employment with the Company; or

 

 

(c)a Participant’s conviction of, or plea of guilty or nolo contendere to a felony or crime other than a felony, which felony or crime involves moral turpitude or a breach of trust or fiduciary duty owed to the Company or any Subsidiary; or

(d)a Participant’s disclosure of trade secrets or material, non-public confidential information of the Company or any Subsidiary in violation of the Company’s or Subsidiary’s policies that applies to the Participant or any agreement with the Company or any Subsidiary in respect of confidentiality, nondisclosure, non-competition or otherwise; or

(e)a Participant’s engagement in any intentional misconduct which would cause the Company or any Subsidiary to violate any state or federal law relating to sexual harassment or age, sex or other prohibitive discrimination, or intentional violation of any written policy of the Company or any Subsidiary adopted with respect to any such law.

Each case is determined by the Committee in its discretion, which determination shall be final and binding upon each Participant.

2.6“Change in Control”

has the meaning set forth in Section 12.2 of the Plan.

2.7“Code”

means the Internal Revenue Code of 1986, as amended from time to time.

2.8“Committee”

means the Compensation Committee of the Board or such other committee, subcommittee (including a subcommittee thereof if required with respect to actions taken to comply with Section 162(m) in respect of Awards to Covered Employees), or officer as may be designated by the Board from time to time to administer the Plan.

2.9“Common Share(s)”

means the common share(s), no par value, of the Company.

2.10“Company”

means Premier Financial Corp., an Ohio corporation, or any successor thereto.

2.11“Covered Employee”

has the meaning given the term in Code Section 162(m)(3) as interpreted by Internal Revenue Service Notice 2007-49.

2.12“Director”

means a member of the Board of Directors of the Company.

2.13“Disability”

means the definition of “Disability” set forth in an Employee’s employment agreement or in a Participant’s Award Agreement, or in the absence thereof “Disability” means that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of not less than 12 months; provided, however, for purposes of determining the term of an Incentive Stock Option, the term Disability shall have the meaning ascribed to it under Section 22(e)(3) of the Code. The determination of whether an individual has a Disability shall be determined under procedures established by the Committee. Except in situations where the Committee is determining Disability for purposes of the term of an Incentive Stock Option within the meaning of Section 22(e)(3) of the Code, the Committee may rely on any determination that a Participant is disabled for purposes of benefits under any

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long-term disability plan maintained by the Company or any Subsidiary in which a Participant participates.

2.14“Effective Date”

has the meaning set forth in Section 1.2.

2.15“Eligible Person”

means any Employee or Non-Employee Director (and such other individuals designated by the Committee to become Employees or Non-Employee Directors upon or after the receipt of Awards).

2.16“Employee”

means any individual classified as an employee of the Company or any Subsidiary by the Company on its payroll system; provided, however, that with respect to Incentive Stock Options, the term “Employee” means any individual who is considered an employee of the Company or any Subsidiary for purposes of United States Treasury Regulation Section 1.421-l(h) (or any successor provision thereof).

2.17“Employee Award”

means any Award granted to an Employee.

2.18“Exchange Act”

means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto, and the rules and regulations promulgated thereunder.

2.19“Fair Market Value”

means, on a particular date,

(a)if the Common Shares are listed on a national securities exchange, the closing price per Common Share on the consolidated transaction reporting system for the principal national securities exchange on which Common Shares are listed on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, (it) if Common Shares are not so listed but is quoted on the NASDAQ National Market, the mean between the highest and lowest sales price per Common Share reported by the NASDAQ National Market on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, (iii) if Common Shares are not so listed or quoted, the mean between the closing bid and asked price on that date, or, if there are no quotations available for such date, on the last preceding date on which such quotations shall be available, as reported by the NASDAQ Stock Market, or, if not reported by the NASDAQ Stock Market, by the National Quotation Bureau, Incorporated, or (iv) if Common Shares are not publicly traded, the most recent value determined by an independent appraiser appointed by the Company for such purpose, or

(b)if applicable, the price per share as determined by the Committee in good faith (which determination shall be conclusive and binding on all persons); provided, however, that with respect to any Award that is intended to be exempt from the requirements of Section 409A, a value determined by the reasonable application of a reasonable valuation method as defined in Section 409A (and, with respect to ISOs, in accordance with Section 422 of the Code and the regulations thereunder).

2.20“Good Reason”

means, in the case of a Participant who is an Employee, the definition of “Good Reason” set forth in the Employee’s employment agreement or in the Employee’s Award Agreement, or in the absence thereof, “Good Reason” means:

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(a)a material reduction in the Participant’s rate of base salary; or

(b)the Company changes by fifty (50) miles or more the principal location in which the Participant is required to perform services; or

(c)the Company terminates, materially amends or materially restricts the Participant’s participation in, any equity, bonus or equity-based compensation plans or qualified or supplemental retirement plans so that, when considered in the aggregate with any substitute plan or plans, the plans in which the Participant is participating materially fail to provide him or her with a level of benefits provided in the aggregate by such plans prior to such termination or amendment; or

(d)the Company materially breaches the provisions of an Award Agreement.

A termination of the Participant’s employment shall not be deemed to be for Good Reason unless (i) the Participant gives notice to the Company of the existence of the event or condition constituting Good Reason within thirty (30) days after such event or condition initially occurs or exists, (ii) the Company fails to cure such event or condition within thirty (30) days after receiving such notice, and (iii) the Participant’s termination occurs not later than ninety (90) days after such event or condition initially occurs or exists, in each case without the Participant’s written consent.

2.21“Incentive Stock Option” or “ISO”

means a Stock Option granted under Section 6 of the Plan that meets the requirements of Section 422(b) of the Code or any successor provision.

2.22“Long-Term Incentive Award”

means an Award to Employees who are Participants pursuant to Section 11 consisting of the right to receive a payment in cash and/or in Common Shares to the extent Performance Goals are achieved and/or other requirements are met.

2.23“Non-Employee Director”

means a Director, or a member of the board of directors of a Subsidiary, who is not an Employee.

2.24“Nonqualified Performance Award” means a Performance Award that is not intended to be a Qualified Performance Award

.

2.25“Nonqualified Stock Option” or “NSO”

means a Stock Option granted under Section 6 of the Plan that is not an Incentive Stock Option.

2.26“Participant”

means any Eligible Person selected to receive an Award under the Plan.

2.27“Performance Award”

means an Award, other than an ISO, NSO, or SAR, that is subject to the attainment of one or more Performance Goals.

2.28“Performance Goals”

means, with respect to a Qualified Performance Award (and if the Committee so decides, with respect to a Nonqualified Performance Award) one (1) or

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more (either alone or in combination) of the following performance factors or business criteria which may be established by the Committee with respect to the Company or any one or more of its Subsidiaries or other business units:

(a)net earnings or net income, before or after taxes (including, but not limited to, net income, net income available to common shareholders, and income before taxes);

(b)earnings before or after taxes, interest, depreciation and/or amortization;

(c)earnings per share or earnings per diluted common share;

(d)revenue growth;

(e)net operating profit;

(f)pre-tax, pre-credit costs income;

(g)net interest margin;

(h)return measures (including, but not limited to, return on average assets, capital, invested capital, or average equity);

(i)cash flow (including, but not limited to, operating cash flow, free cash flow, cash generation, cash flow return on equity, and cash flow return on investment).

(j)gross or operating margins;

(k)productivity ratios (including, but not limited to, efficiency ratio);

(l)capital ratios;

(m)liquidity ratios;

(n)share price (including, but not limited to, growth measures and total shareholder return);

(o)expense targets;

(p)margins;

(q)operating efficiency;

(r)market share (including, but not limited to, deposit market share or loan market share);

(s)loan and/or deposit growth;

(t)working capital targets and change in working capital;

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(u)economic value added (including, but not limited to, net operating profit after tax minus the sum of capital multiplied by the cost of capital);

(v)asset growth;

(w)non-interest expenses as a percentage of total expense;

(x)loan charge-offs as a percentage of total loans;

(y)risk and asset quality measures (including, but not limited to, net charge-off ratio, non-performing assets ratio, and classified assets ratio); and

(z)other specific criteria adopted by the Committee.

As to each Performance Goal, the relevant measurement of performance shall be computed in accordance with United States generally accepted accounting principles to the extent applicable, but, unless otherwise determined and specified by the Committee will exclude the effects of the following; (i) charges or expenses for reorganizing and restructuring; (ii) discontinued operations; (iii) asset write-downs; (iv) gains or losses on the disposition of a business; (v) changes in tax or accounting principles, regulations or laws; (vi) mergers, acquisitions or dispositions; (vii) restatements and accounting charges; (viii) impacts on interest expense, preferred dividends and share dilution as a result of debt and capital transactions; and (ix) extraordinary, unusual and/or non-recurring items of income, expense, gain or loss, or charges that, in case of each of the foregoing, the Company identifies in its financial statements, including notes to the final statements.

In addition, the Committee may appropriately adjust any evaluation of performance under a Performance Goal to exclude any of the following events that occurs during a performance period: (aa) litigation, claims, judgments or settlements; (bb) the effects of changes in other laws or regulations affecting reported results; and (cc) accruals of any amounts for payment under the Plan or any other compensation arrangements maintained by the Company; provided that such adjustment was specified in the Award during the initial ninety (90) days of an applicable performance period if the Award is subject to Section 409A. Performance Goals may be specified in absolute terms, in percentages, or in terms of growth from period to period or growth rates over time, as well as measured relative to the performance of a group of comparator companies, or a published or special index, or a stock market index, that the Committee, in its discretion, deems appropriate. The Performance Goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be paid (or specified vesting will occur), and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur). In addition, in the case of Awards that will not be Qualified Performance Awards, the Committee may establish other Performance Goals and provide for other exclusions or adjustments not listed in this Section 2.28.

2.29“Plan”

means this Premier Financial Corp. 2015 Long Term Incentive Plan, as it may be amended from time to time.

2.30“Proceeding”

has the meaning set forth in Section 18 of the Plan.

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2.31“Qualified Performance Award”

means an Employee Award that is a Performance Award to a Covered Employee that is intended to qualify as performance-based compensation under Section 162(m).

2.32“Restriction Period”

means the period during which an Award may be earned by a Participant.

2.33“Restricted Stock”

means an Award of Common Shares that is subject to forfeiture until vesting conditions are satisfied.

2.34“Retirement” means the voluntary separation from service (as defined in Section 409A of the Code) of a Participant between ages 60 and 64 with 15 or more years of service to the Corporation or a Subsidiary, or after age 65, or as such meaning may be modified by the Committee or Board in the future.

2.35“Section 162(m)”

means Code Section 162(m) and the regulatory and other guidance issued thereunder by the United States Department of the Treasury and/or Internal Revenue Service.

2.36“Section 409A”

means Section 409A of the Code and the regulatory and other guidance issued thereunder by the United States Department of the Treasury and/or Internal Revenue Service.

2.37“Stock Appreciation Right” or “SAR”

means a right granted under Section 9 of the Plan.

2.38“Stock Award”

means a grant of Common Shares under Section 7 of the Plan, which grant may be a grant of Restricted Stock.

2.39“Stock Option”

means an Incentive Stock Option or a Nonqualified Stock Option granted under Section 6 of the Plan.

2.40“Stock Unit”

means a right granted to a Participant to receive Common Shares or cash or a combination of Common Shares and cash under Section 8 of the Plan.

2.41“Subsidiary”

means an entity of which the Company is the direct or indirect (in an unbroken chain of entities beginning with the Company) beneficial owner of not less than fifty percent (50%) of all issued and outstanding equity interests of such entity, including entities acquired after the Effective Date.

2.42“Substitute Awards”

means Common Shares subject to Awards granted in assumption, substitution or exchange for previously granted share-based awards under a shareholder-approved plan of a company acquired by the Company.

 

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Section 3. Administration

3.1The Committee

.  Except as otherwise provided herein, this Plan shall be administered by the Committee. Any Award that is intended to be a Qualified Performance Award shall be issued by the Committee or a subcommittee consisting solely of members of the Board who are “outside directors” under Section 162(m).  As to the selection of and grant of Awards to Participants who are not executive officers of the Company, the Committee may, pursuant to a written delegation of authority which sets out the specific limits of such delegation, delegate its responsibilities to the Chief Executive Officer or other officers in a manner consistent with applicable law and provided the such Participant’s compensation is not subject to the limitations in Section 162(m) of the Code.

3.2Authority of the Committee

.

(a)Subject to the provisions hereof, the Committee shall have full and exclusive power and authority to administer this Plan and to take all actions that are specifically contemplated hereby or are necessary or appropriate in connection with the administration hereof. The Committee shall also have full and exclusive power to interpret this Plan and adopt such rules, regulations and guidelines to carrying out this Plan as it may deem necessary or proper, all of which power shall be exercised in the best interests of the Company and in keeping with the objectives of this Plan. The Committee may, in its discretion, provide for the extension of the exercisability of an Employee Award, accelerate the vesting or exercisability of an Employee Award, eliminate or make less restrictive any restrictions applicable to an Employee Award, waive any restriction or other provision of this Plan (insofar as such provision relates to Employee Awards) or an Employee Award or otherwise amend or modify an Employee Award in any manner that is either (i) not adverse to the Participant to whom such Employee Award was granted or (ii) consented to by such Participant. The Committee may correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any Award in the manner and to the extent the Committee deems necessary or desirable to further the Plan purposes. Any decision of the Committee, with respect to Employee Awards, in the interpretation and administration of this Plan shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned.

(b)The Committee shall have the independent authority and discretion over the appointment, compensation and oversight of the services of advisors to the Committee, including compensation consultants and legal counsel, provided such advisors meet the standards for independence as established by the exchange on which the Common Shares are traded. The Company shall pay the compensation and expenses of such advisors. The Committee may engage or authorize, the engagement of a third party administrator to carry out administrative functions under the Plan.

(c)No member of the Committee shall be liable for any action taken or determination made hereunder in good faith. Service on the Committee shall constitute service as a Director so that the members of the Committee shall be entitled to indemnification and reimbursement as Directors of the Company pursuant to the Company’s articles of incorporation and regulations.

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3.3Performance Goals

.

(a)The Committee may, in its discretion, provide that any Award granted under the Plan shall be subject to the attainment of Performance Goals. Performance Goals may be absolute in their terms or measured against or in relationship to the performance of other companies or indices selected by the Committee. In addition, as provided in Section 2.28, Performance Goals may be adjusted for any events or occurrences, as may be determined by the Committee. Performance Goals may be particular to one or more lines of business, corporate functions or Subsidiaries or may be based on the performance of the Company and its Subsidiaries as a whole.

(b)As provided in Sections 2.28 and 3.3(a), with respect to each performance period established by the Committee, (i) the Committee shall establish such Performance Goals relating to one or more of the business criteria selected pursuant to Sections 2.28 and 3.3(a), and (ii) the Committee shall establish targets for Participants for achievement of Performance Goals. The Performance Goals and performance targets established by the Committee may be identical for all Participants for a given performance period or, at the discretion of the Committee, may differ among Participants. Following the completion of each performance period, the Committee shall determine the extent to which Performance Goals for that performance period have been achieved and shall authorize the award of Common Shares or cash, as applicable, to the Participant for whom the targets were established, in accordance with the terms of the applicable Award Agreements.

Section 4. Eligibility and Awards

4.1Participants

.  Participants shall consist of all Eligible Persons the Committee may designate from time to time to receive Awards under the Plan; provided, however, that Awards of Incentive Stock Options may only be made to an Employee who is considered an employee of the Company or any Subsidiary for purposes of United States Treasury Regulation Section 1.421-l(h) or any successor provision related thereto.

4.2Awards

. Subject to the terms of the Plan, any type of Awards may be granted by the Committee to any Participant, but only Employees may receive Awards of Incentive Stock Options. Awards may be granted alone, or in addition to, in tandem with, or (subject to the prohibition on repricing set forth in Section 16.3) in substitution for any other Award (or any other award granted under another plan of the Company or any Subsidiary, including the plan of an acquired entity).

4.3Award Agreements

. Each Award shall be evidenced by an Award Agreement specifying the terms and conditions of the Award. In the sole discretion of the Committee, the Award Agreement may condition the grant of an Award upon the Participant’s entering into one or more of the following agreements with the Company: (a) an agreement not to compete with, or solicit the customers or employees of, the Company and its Subsidiaries, which shall become effective as of the date of the grant of the Award and remain in effect for a specified period of time following termination of the Participant’s employment with the Company; (b) an agreement to cancel any employment agreement, fringe benefit or compensation arrangement in effect between the Company and the Participant; and (c) an agreement to retain the confidentiality of

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certain information. Such Award Agreement or other agreement may contain such other terms and conditions as the Committee shall determine, including provisions for the Participant’s forfeiture of an Award or the return of vested Common Shares received in connection with an Award in the event of the Participant’s noncompliance with the provisions of, or as otherwise provided in, such Award Agreement or other agreement. If the Participant shall fail to enter into any such agreement at the request of the Committee and within any period specified by the Committee, then the Award granted or to be granted to such Participant shall be forfeited and cancelled. The applicable Award Agreement shall specify the termination provisions of an Award upon a Participant’s termination of employment or service with the Company and its Subsidiaries.

4.4Performance Awards

. Without limiting the type or number of Awards that may be made under the other provisions of this Plan, an Award may be in the form of a Performance Award. The terms, conditions and limitations applicable to any Performance Awards granted to Participants pursuant to this Plan shall be determined by the Committee; provided that any Stock Award which is a Performance Award shall have a minimum Restriction Period of one year from the Grant Date; provided further that the Committee may provide for earlier vesting in an Employee Award upon a termination of employment by reason of death, Disability or Retirement. The Committee shall set Performance Goals in its discretion which, depending on the extent which they are met, will determine the value, vesting and/or amount of Performance Awards that will be paid out.

(a)Nonqualified Performance Awards.  Nonqualified Performance Awards granted to Participants shall be based on achievement of such Performance Goals and be subject to such terms, conditions and restrictions as the Committee shall determine.

(b)Qualified Performance Awards. Qualified Performance Awards granted to Covered Employees under the Plan shall be paid, vested or otherwise deliverable solely on account of the attainment of one or more Performance Goals established by the Committee prior to the earlier to occur of (x) ninety (90) days after the commencement of the period of service to which the Performance Goal relates, or (y) the lapse of 25% of the period of service (as scheduled in good faith at the time the goal is established) to which the Performance Goal relates, and in any event while the outcome of the Performance Award is substantially uncertain. In interpreting Plan provisions applicable to Performance Goals and Qualified Performance Awards, it is the intent of the Plan to conform with the standards of Section 162(m), as to grants to Covered Employees and those Employees whose compensation is likely to be subject to Section 162(m), and the Committee shall be guided by such provisions in establishing such goals. Prior to the payment of any compensation relating to Qualified Performance Awards based on the achievement of Performance Goals, the Committee must certify in writing that applicable Performance Goals and any of the material terms thereof were, in fact, satisfied. Subject to the foregoing provisions, the terms, conditions and limitations applicable to any Qualified Performance Awards made pursuant to this Plan shall be determined by the Committee. No Qualified Performance Awards shall be granted unless the Performance Goals have been approved by the shareholders of the Company within five (5) years of the commencement of the performance period to which such Performance Goals relate. The Committee, in determining the actual amount of a Qualified Performance Award, may reduce or eliminate (but not increase) the amount of the Qualified Performance Award payout through the use of negative discretion

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provided that the exercise of such negative discretion does not cause the Qualified Performance Award to fail to qualify as performance-based compensation under Section 162(m).

Section 5. COMMON SHARES

5.1Total Number of Common Shares

.

(a)Subject to adjustment as provided in Section 5.3, the total number of Common Shares that may be subject to Awards granted under the Plan shall be 1,200,000 Common Shares. The number of Common Shares available for grant under the Plan shall be reduced by (i) one (1) for each Common Share subject to a Stock Option or SAR; and (ii) one (1) for each Common Share subject to a Stock Award, a Stock Unit or a Long-Term Incentive Award. Common Shares subject to Awards granted under the Plan may be either authorized but unissued shares or treasury shares, and shall be adjusted in accordance with the provisions of Section 5.3 of the Plan. Substitute Awards do not reduce the Common Shares available for Awards under the Plan.

(b)Any Common Shares subject to an Award that is cancelled, forfeited or expires prior to exercise or realization, either in full or in part, shall again become available for issuance under the Plan. Any Common Shares that again become available for future grants pursuant to this Section 5.1(b) shall be added back as one (1) Common Share if such shares were subject to Options or Stock Appreciation Rights; and as one (1) Common Share if such shares were subject to other Awards. Notwithstanding anything to the contrary contained herein, Common Shares subject to an Award under the Plan shall not again be made available for issuance or delivery under the Plan if such shares are (i) shares tendered in payment of an Option, (ii) shares delivered to or withheld by the Company to satisfy any tax withholding obligation, or (iii) shares covered by a share-settled Stock Appreciation Right or other Awards that were not issued upon the settlement of the Award.

5.2Limitations

. Subject to adjustment as provided in Section 5.3:

(a)Of the total Common Shares authorized for issuance under the Plan pursuant to Section 5.1, the maximum number of Common Shares under the Plan that shall be available for (i) Awards of Incentive Stock Options is 600,000 Common Shares; and (ii) Awards of Nonqualified Stock Options and Stock Appreciation Rights is 400,000 Common Shares.

(b)No Participant shall be granted, during any one (1) calendar year period, Options and Stock Appreciation Rights with respect to more than 300,000 Common Shares in the aggregate, or any other Awards with respect to more than 300,000 Common Shares in the aggregate. If an Award is to be settled in cash, the number of Common Shares on which the Award is based shall not count towards the individual share limit set forth in this Section 5.2(b).

(c)The maximum number of Common Shares subject to a Qualified Performance Award that may be granted under the Plan in any one (1) calendar year to a Participant is 300,000 Common Shares.

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(d)During any one (1) calendar year, no Non-Employee Director may receive Awards with an aggregate grant date Fair Market Value in excess of Two Hundred Thousand and 00/100 Dollars ($200,000.00).

5.3Adjustment

. In the event of any reorganization, recapitalization, share split, share distribution, share dividend, merger, consolidation, split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the Company or any similar corporate transaction, the Committee shall make such adjustments as are necessary and appropriate to preserve the benefits or intended benefits of the Plan and Awards granted under the Plan. Such adjustments may include: (a) adjustment in the number and kind of Common Shares reserved for issuance under the Plan; (b) adjustment in the number and kind of Common Shares covered by outstanding Awards; (c) adjustment in the exercise price of outstanding Stock Options or Stock Appreciation Rights, or the price of other Awards under the Plan; (d) adjustments to the share limitations set forth in Section 5.2 of the Plan; and (e) any other changes that the Committee determines to be equitable under the circumstances. Notwithstanding the foregoing, previously granted Stock Options and SARs are subject only to such adjustments as are necessary to maintain the relative proportionate interest the Stock Options and SARs represented immediately prior to such event and to preserve, without exceeding, the value of Stock Options and SARs in accordance with Code Section 422 and Section 409A.

Section 6. Stock Options

6.1Grant

. Subject to the terms of the Plan, the Committee may from time to time grant Stock Options to Participants. Stock Options granted under the Plan to Non-Employee Directors shall be NSOs. Unless otherwise expressly provided at the time of the grant to be Awards of ISOs, Stock Options granted under the Plan to Employees shall be NSOs.

6.2Stock Option Agreement

. The grant of each Stock Option shall be evidenced by a written Award Agreement sometimes referred to herein as a “Stock Option Agreement” specifying the type of Stock Option granted, the exercise period, the exercise price, the terms for payment of the exercise price, the expiration date of the Stock Option, the number of Common Shares to be subject to each Stock Option, how the Stock Option will be exercised, and such other terms and conditions established by the Committee, in its sole discretion, not inconsistent with the Plan. With respect to a Stock Option, in no event shall a Participant be entitled to amounts equivalent to cash dividends, share dividends or other property dividends on the Common Shares subject to the Stock Option.

6.3Exercise Price and Period

. With respect to each Stock Option granted to a Participant;

(a)Except as provided in Section 6.4(b), Section 16.3, or in the case of Substituted Awards, the per share exercise price of each Stock Option shall be one hundred percent (100%) of the Fair Market Value of the Common Shares subject to the Stock Option on the date on which the Stock Option is granted.

(b)Each Stock Option shall become exercisable as set forth in the Stock Option Agreement. Notwithstanding the foregoing sentence, the Committee shall have the

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discretion to accelerate the date as of which any Stock Option shall become exercisable in the event of the Employee’s termination of employment with the Company or any Subsidiary, or a Non-Employee Director’s termination of service on the Board or on the board of directors of a Subsidiary, without Cause.

(c)Except as provided in Section 6.4(b), each Stock Option that has not terminated earlier as provided in the Stock Option Agreement shall expire, and all rights to purchase Common Shares thereunder shall expire, on the date ten (10) years after the date of grant.

(d)If the employee's employment terminates as a result of the employee's Disability, the employee may exercise the vested portion of each ISO, but only within such period of time ending on the earlier of: (a) the date 12 months following the employee's termination of employment or (b) the Expiration Date.  If the employee’s employment terminates as a result of the employee's death, the vested portion of each ISO may be exercised by the employee's estate, by a person who acquired the right to exercise the ISO by bequest or inheritance or by the person designated to exercise the ISO upon the employee's death, but only within the time period ending on the earlier of: (a) the date 12 months following the employee's termination of employment or (b) the Expiration Date.

6.4Required Terms and Conditions of ISOs

. In addition to the foregoing, each ISO granted to an Employee shall be subject to the following specific rules:

(a)The aggregate Fair Market Value (determined with respect to each ISO at the time such Option is granted) of the Common Shares with respect to which ISOs are exercisable for the first time by an Employee during any calendar year (under all incentive stock option plans of the Company and its Subsidiaries) shall not exceed One Hundred Thousand Dollars ($100,000). If the aggregate Fair Market Value (determined at the time of grant) of the Common Shares subject to an ISO which first becomes exercisable in any calendar year exceeds the limitation of this Section 6.4(a), so much of the ISO that does not exceed the applicable dollar limit shall be an ISO and the remainder shall be a NSO; but in all other respects, the original Stock Option Agreement shall remain in full force and effect.

(b)Notwithstanding anything herein to the contrary, if an ISO is granted to an Employee who owns shares possessing more than ten percent (10%) of the total combined voting power of all classes of shares of the Company (or its parent or subsidiaries within the meaning of Section 422(b)(6) of the Code): (i) the purchase price of each Common Share subject to the ISO shall be not less than one hundred ten percent (110%) of the Fair Market Value of the Common Share on the date the ISO is granted; and (ii) the ISO shall expire, and all rights to purchase Common Shares thereunder shall expire, no later than the fifth (5th) year anniversary of the date the ISO was granted.

(c)No ISOs shall be granted under the Plan after the ten (10) year anniversary of the Effective Date.

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6.5Exercise of Stock Options

.

(a)A Participant entitled to exercise a Stock Option may do so by delivering written notice to that effect specifying the number of Common Shares with respect to which the Stock Option is being exercised and any other information the Committee may prescribe. All notices or requests provided for herein shall be delivered to the Secretary of the Company or such party as the Secretary of the Company may designate.

(b)The Committee in its sole discretion may make available one or more of the following alternatives for the payment of the Stock Option exercise price and specified in the Award Agreement:

(i)in cash;

(ii)by directing the Company to withhold the number of Common Shares otherwise issuable in connection with the exercise of the Stock Option that have an aggregate Fair Market Value equal to the exercise price;

(iii)by delivering previously acquired Common Shares that are acceptable to the Committee and that have an aggregate Fair Market Value on the date of exercise equal to the Stock Option exercise price.

The Committee shall have the sole discretion to establish the terms and conditions applicable to any alternative made available for payment of the Stock Option exercise price; however, such terms shall be specified in the Award Agreement effective at the date of grant.

(c)The Company shall, subject to compliance with the Exchange Act and other applicable laws, issue, in the name of the Participant, share certificates representing the total number of Common Shares issuable pursuant to the exercise of any Stock Option as soon as reasonably practicable after such exercise.

Section 7. Stock Awards

7.1Grant

. The Committee may, in its discretion, (a) grant Common Shares under the Plan to any Participant without payment of consideration by such Participant, (b) grant shares of Restricted Stock to any Participant, or (c) sell Common Shares under the Plan to any Participant for such amount of cash, Common Shares or other consideration as the Committee deems appropriate.

7.2Stock Award Agreement

. Each Common Share issued to a Participant under this Section 7 shall be evidenced by a written Award Agreement sometimes referred to herein as a “Stock Award Agreement”, which shall specify whether the Common Shares are granted or sold to the Participant and such other restrictions, terms and conditions (including the attainment of Performance Goals) established by the Committee in its sole discretion, not inconsistent with the Plan and the following provisions:

(a)The restrictions to which the Common Shares awarded hereunder are subject shall lapse as set forth in the Stock Award Agreement. The Committee shall have the

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discretion to accelerate the date as of which the restrictions lapse with respect to a Stock Award in the event of an Employee’s termination of employment with the Company or any Subsidiary, or a Non-Employee Director’s termination of service on the Board or on the board of directors of a Subsidiary, without Cause, after giving consideration to Section 409A.

(b)Except as provided in this subsection (b) and unless otherwise provided in the Stock Award Agreement, the Participant receiving a grant of or purchasing Common Shares shall thereupon be a shareholder with respect to all of the Common Shares subject to the Stock Award and shall have the rights of a shareholder with respect to such shares, including the right to vote such shares and to receive dividends and other distributions paid with respect to such shares. Notwithstanding the preceding sentence, in the case of a Stock Award that provides for the right to receive dividends or distributions: (i) if such Stock Award is Restricted Stock, the Company may accumulate and hold such dividends or distributions. In either such case, the accumulated dividends or other distributions shall be paid to the Participant only upon the lapse of the restrictions to which the Stock Award is subject, and any such dividends or distributions attributable to the portion of a Stock Award for which the restrictions do not lapse shall be forfeited.

(c)The Company shall, subject to compliance with the Exchange Act and other applicable laws, issue, in the name of the Participant, share certificates representing the total number of Common Shares granted or sold to the Participant, as soon as may be reasonably practicable after such grant or sale, which, in the case of Restricted Stock, may be held by the Secretary of the Company until such time as the Common Shares are forfeited or the restrictions lapse.

(d)A Participant may make an election under Section 83(b) of the Code.  If any Participant shall make the election permitted under Section 83(b) of the Code, such Participant shall notify the Company of such election within 10 days of filing notice of the election with the Internal Revenue Service

Section 8. Stock Units

8.1Grant

. The Committee may, in its discretion, grant Stock Units to any Participant. Each Stock Unit shall entitle the Participant to receive, on the date or upon the occurrence of an event (including the attainment of Performance Goals) as described in the Stock Unit Agreement, one Common Share or cash equal to the Fair Market Value of a Common Share on the date of such event, as provided in the Stock Unit Agreement.

8.2Stock Unit Agreement

. Each grant of Stock Units to a Participant under this Section 8 shall be evidenced by a written Award Agreement sometimes referred to herein as a “Stock Unit Agreement”, which shall specify the restrictions, terms and conditions established by the Committee in its sole discretion, not inconsistent with the Plan and the following provisions:

(a)The restrictions to which the Stock Units awarded hereunder are subject shall lapse as set forth in the Stock Unit Agreement. The Board shall have the discretion to accelerate the date as of which the restrictions lapse in the event of an Employee’s termination of

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employment with the Company or any Subsidiary, or a Non-Employee Director’s termination of service on the Board or on the board of directors of a Subsidiary, without Cause, after giving consideration to Section 409A.

(b)Except as provided in this subsection (b), and unless otherwise provided in the Stock Unit Agreement, a Participant shall have no rights of a shareholder, including voting or dividend or other distribution rights, with respect to any Stock Units prior to the date they are settled in Common Shares. A Stock Unit Agreement may provide that, until the Stock Units are settled in Common Shares or cash, the Participant shall receive, on each dividend or distribution payment date applicable to the Common Shares, an amount equal to the dividends or distributions that the Participant would have received had the Stock Units held by the Participant as of the related record date been actual Common Shares. Notwithstanding the preceding sentence, in the case of a Stock Unit Award that provides for the right to receive amounts related to dividends or distributions: (i) if such Stock Unit Award is subject to performance-based restrictions as described in Section 3.3, the Company shall accumulate and hold such amounts, and (ii) in the case of all other such Stock Unit Awards, the Committee shall have the discretion to cause the Company to accumulate and hold such amounts. In either such case, the accumulated amounts shall be paid to the Participant only upon the lapse of the restrictions to which the Stock Unit Award is subject and any such amounts attributable to the portion of a Stock Unit Award for which the restrictions do not lapse shall be forfeited.

(c)Upon settlement of Stock Units in Common Shares, the Company shall, subject to compliance with the Exchange Act and other applicable laws, issue, in the, name of the Participant, share certificates representing a number of Common Shares equal to the number of Stock Units being settled.

Section 9. Stock Appreciation Rights (SARs)

9.1Grant

. The Committee may, in its discretion, grant an SAR under the Plan to any Participant who is an Employee. Each SAR granted to a Participant shall entitle the Participant to receive an amount (payable in cash or in Common Shares, or a combination thereof, determined by the Committee and set forth in the related Stock Appreciation Right Agreement) equal to the excess of (a) the Fair Market Value per Common Share on the date of exercise of such SAR, over (b) the exercise price of the SAR, multiplied by the number of Common Shares with respect to which the SAR is being exercised.

9.2Stock Appreciation Right Agreement

. Each SAR granted under this Section 9 shall be evidenced by a written Award Agreement sometimes referred to herein as a “Stock Appreciation Right Agreement”, specifying the conditions for exercise, the exercise period, the exercise price, the expiration date, the number of Common Shares subject to each SAR, whether the SAR is to be settled in Common Shares or cash and such other terms and conditions established by the Board in its sole discretion, not inconsistent with the Plan and the following provisions:

(a)Except in the case of Substituted Awards and Section 16.3, the per share exercise price of each SAR shall be one hundred percent (100%) of the Fair Market Value of the Common Shares subject to the SAR on the date on which the SAR is granted.

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(b)Each SAR shall become exercisable as set forth in the Stock Appreciation Right Agreement. The Committee shall have the discretion to accelerate the date as of which any SAR shall become exercisable in the event of a Participant’s termination of employment with the Company or any Subsidiary without Cause.

(c)Unless a shorter period is provided in the Stock Appreciation Right Agreement, each SAR shall expire on the date ten (10) years after the date of grant.

(d)Upon exercise of a SAR settled in Common Shares, the Company shall, subject to compliance with the Exchange Act and other applicable laws, issue, in the name of the Participant, share certificates representing the total number of Common Shares issuable to the Participant.

With respect to a Stock Appreciation Right, in no event shall a Participant be entitled to amounts equivalent to cash dividends, share dividends or other dividends on the Common Shares subject to the SAR.

Section 10. Annual Bonus Awards

Subject to the terms of the Plan, the Committee will determine all terms and conditions of an Annual Bonus Award, including but not limited to, whether or not the Annual Bonus Award will be solely a discretionary Annual Bonus Award, any Performance Goals, performance period, the potential payable, and the timing and form of payment.  If the Committee determines that the Annual Bonus Award shall be a Performance Award (instead of a discretionary Annual Bonus Award): (a) the Committee must require that payment of all or any portion of the amount subject to the Annual Bonus Award is contingent on the achievement of one or more Performance Goals during the performance period the Committee specifies, although the Committee may specify that all or a portion of the Performance Goals subject to an Award is deemed achieved upon a Participant’s death, Disability or Retirement, or such other circumstances as the Committee may specify; and (b) the performance period must relate to a period of one (1) fiscal year of the Company except that, if the Award is made in the year this Plan becomes effective, at the time of commencement of employment with the Company or on the occasion of a promotion, then the Award may relate to a period shorter than one (1) fiscal year.

Section 11. Long-Term Incentive Awards

Subject to the terms of the Plan, the Committee will determine all terms and conditions of a Long-Term Incentive Award, including but not limited to the Performance Goals, performance period, the potential amount payable, and the timing and form of payment, subject to the following: (a) the Committee must require that payment of all or any portion of the amount subject to the Long-Term Incentive Award is contingent on the achievement of one or more Performance Goals during the performance period the Committee specifies, although the Committee may specify that all or a portion of the Performance Goals subject to an Award is deemed achieved upon a Participant’s death, Disability or Retirement, or such other circumstances as the Committee may specify; and (b) the performance period must relate to a

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period of more than one (1) fiscal year of the Company. Dividend equivalents shall not be paid until and to the extent that the Performance Goals are met.

The Committee may from time to time grant Awards under this Plan that provide a Participant the right to purchase Common Shares that are valued by reference to the Fair Market Value of the Common Shares (including, but not limited to, dividend equivalents).  Such Awards shall be in a form determined by the Committee (and may include terms contingent upon a Change of Control); provided that such Awards shall not be inconsistent with the terms and purposes of this Plan.

Section 12. Change in Control

12.1Effect of Change in Control

. Except as otherwise provided in any Award Agreement, notwithstanding any provision of the Plan to the contrary upon a Change in Control of the Company (as defined in Section 12.2) all NSOs, ISOs, and SARs shall become immediately exercisable with respect to one hundred percent (100%) of the Common Shares subject to such NSOs, ISOs, and SARs. With respect to all Performance Awards, all Performance Goals and vesting criteria will be deemed achieved at one hundred percent (100%) of target levels, the Restriction Period shall immediately expire, and all other terms and conditions shall be deemed met.  With respect to all other Awards, any Restriction Period shall immediately expire, such Awards shall become one hundred percent (100%) vested, and all other terms and conditions will be deemed met. Notwithstanding the foregoing, upon the occurrence of a Change in Control, the Committee, in its sole discretion (which exercise of discretion shall be conclusive and binding upon each Participant without the need for any amendment to the Plan or to any Award Agreement), may take the following action with respect to any NSOs, ISOs, or SARs that are outstanding immediately prior to such Change in Control: cancel outstanding NSOs, ISOs, and/or SARs in exchange for a cash payment in an amount equal to the excess, if any, of the Fair Market Value of the Common Shares underlying the unexercised portion of the NSO, ISO, or SAR as of the date of the Change in Control over the exercise price or grant price, as the case may be, of such portion, provided that any NSO, ISO, or SAR with an exercise price or grant price, as the case may be, that equals or exceeds the Fair Market Value of the Common Shares on the date of such Change in Control shall be cancelled with no payment due the Participant.

12.2Definition of Change in Control

. “Change in Control” shall mean (except as otherwise provided in a Participant’s employment agreement or Award Agreement) the occurrence, at any time during the specified term of an Award granted under the Plan, of any of the following events:

(a)The date any one person, or more than one person acting as a group acquires ownership of shares of the Company possessing 30% or more of the total voting power of the shares of the Company;

(b)The date that any one person, or more than one person acting as a group, acquires the ability to control the election of a majority of the directors of the Company;

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(c)The date a majority of the members of the board of directors of the Company is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of such board of directors before the date of the appointment or election;

(d)The acquisition by any person, or more than one person acting as a group, of “control” of the Company within the meaning of 12 C.F.R. Section 303.81(c).

If an Award is deferred compensation subject to Section 409A, the Award shall become payable only if the event constituting a Change in Control would also constitute a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A of the Code and Treasury Regulation §1.409A-3(i)(5).

Section 13. Securities Law Restrictions

The Committee may impose such restrictions on Awards and Common Shares or any other benefits underlying Awards hereunder as it may deem advisable, including without limitation restrictions under the Code and federal securities laws, the requirements of any stock exchange or similar organization, and any blue sky, state, or foreign securities laws applicable to such securities. Notwithstanding any other Plan provision to the contrary, the Committee shall not be obligated to issue, deliver, or transfer Common Shares under the Plan, make any other distribution of benefits under the Plan, or take any other action, unless such delivery, distribution, or action is in compliance with all applicable laws, rules, and regulations (including but not limited to the requirements of the Code and the securities acts). The Committee may cause a restrictive legend to be placed on any Common Shares issued pursuant to an Award hereunder in such form as may be prescribed from time to time by applicable laws and regulations or as may be advised by legal counsel. The term of an Award shall not be extended, and neither the Committee, nor the Company nor its Directors or officers shall have any obligation or liability to a Participant, the Participant’s successor or any other person with respect to any Common Shares as to which the Award shall lapse because of such restrictions.

Section 14. Payment of Taxes

In connection with any Award, and as a condition to the issuance or delivery of any Common Shares or cash amount to the Participant in connection therewith, the Company may require the Participant to pay the Company an amount equal to the minimum amount of the tax the Company or any Subsidiary may be required to withhold to obtain a deduction for federal, state or local income tax purposes as a result of such Award or to comply with applicable law. The Committee in its sole discretion may make available one or more of the following alternatives for the payment of such taxes:

(a)in cash;

(b)by directing the Company to withhold the number of Common Shares otherwise issuable in connection with the Award that have an aggregate Fair Market Value equal to the minimum amount of tax required to be withheld; or

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(c)by delivering previously acquired Common Shares of the Company that are acceptable to the Committee that have an aggregate Fair Market Value equal to the amount required to be withheld.

The Committee shall have the sole discretion to establish the terms and conditions applicable to any alternative made available for payment of the required withholding taxes.

Notwithstanding the foregoing, neither the Committee nor the Company makes any representation to any Participant or beneficiary of a Participant as to the tax consequences of any Awards made pursuant to the Plan, and the Committee and the Company shall have no liability or other obligation to indemnity or hold harmless any Participant or any beneficiary of a Participant for any tax, additional tax, interest or penalties that any Participant or any beneficiary of a Participant may incur as a result of the grant, vesting, or payment of an Award under the Plan.

If Sections 280G and 4999 of the Code are applicable, then in the event that any acceleration of vesting pursuant to an Award and any other payment or benefit received or to be received by a Participant would subject the Participant to any excise tax pursuant to Section 4999 of the Code due to the characterization of such acceleration of vesting, payment or benefit as an "excess parachute payment" under Section 280G of the Code, the Participant may elect, in his or her sole discretion, to reduce the amount of any acceleration of vesting called for under the Award in order to avoid such characterization.

To aid the Participant in making any election called for under the preceding paragraph, no later than the date of the occurrence of any event that might reasonably be anticipated to result in an "excess parachute payment" to the Participant as described in the preceding paragraph, the Company shall request a determination in writing by independent public accountants selected by the Company (the "Accountants"). As soon as practicable thereafter, the Accountants shall determine and report to the Company and the Participant the amount of such acceleration of vesting, payments and benefits which would produce the greatest after-tax benefit to the Participant. For the purpose of such determination, the Accountants may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Participant shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make their required determination. The Company shall bear all fees and expenses the Accountants may reasonably charge in connection with their services contemplated by this Subsection 32 (b).

Section 15. Nontransferability

Awards granted under the Plan, and any rights and privileges pertaining thereto, may not be transferred, assigned, pledged or hypothecated in any manner, or be subject to execution, attachment or similar process, by operation of law or otherwise, other than;

(a)by last will and testament or by the laws of descent and distribution;

(b)pursuant to the terms of a qualified domestic relations order to which the Participant is a party that meets the requirements of any relevant provisions of the Code; or

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(c)as permitted by the Committee with respect to a NSO transferable by the Participant during his or her lifetime for no consideration to (i) the Participant’s spouse or lineal descendant, (ii) the trustee of a trust established for the primary benefit of the Participant’s spouse or lineal descendant, (iii) a partnership or other entity of which the Participant’s spouse and lineal descendants are the only partners or equity owners, or (iv) a tax-exempt organization as described in Code Section 501(c)(3).

In each case, the transfer shall be for no value, and the other terms and conditions applicable to the transfer of the Award shall be established by the Committee.

Section 16. Termination or Amendment of Plan and Award Agreements

16.1Termination or Amendment of Plan

. Except as described in Section 16.3 below, the Board may terminate, suspend, or amend the Plan, in whole or in part, from time to time, without the approval of the shareholders of the Company, unless such approval is required by applicable law, regulation or rule of any stock exchange on which the Common Shares are listed. No amendment or termination of the Plan shall adversely affect the right of any Participant under any outstanding Award in any material way without the written consent of the Participant, unless such amendment or termination is required by applicable law, regulation or rule of any stock exchange on which the Common Shares are listed. Subject to the foregoing, the Board may correct any defect or supply an omission or reconcile any inconsistency in the Plan or in any Award granted hereunder in the manner and to the extent it shall deem desirable, in its sole discretion, to effectuate the Plan.

16.2Amendment of Award Agreements

. The Committee shall have the authority to amend any Award Agreement at any time; provided however, that no such amendment shall adversely affect the right of any Participant under any outstanding Award Agreement in any material way without the written consent of the Participant, unless such amendment is required by applicable law, regulation or rule.

16.3No Repricing of Stock Options or SARs

. Notwithstanding the foregoing, any amendment to the Plan or any outstanding Stock Option Agreement or SAR Agreement that results in the repricing of Stock Options or SARs shall not be effective without prior approval of the shareholders of the Company, except with respect to adjustments in accordance with Section 5.2 and 5.3. For this purpose, repricing includes a reduction in the exercise price of a Stock Option or SAR or the cancellation of a Stock Option or SAR in exchange for cash. Stock Options or SARs with an exercise price less than the exercise price of the cancelled Stock Options or SARs, other Awards or any other consideration provided by the Company.

Section 17. No Contract of Employment

Neither the adoption of the Plan nor the grant of any Award under the Plan shall be deemed to obligate the Company or any Subsidiary to continue the employment or service of any Participant for any particular period.

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Section 18. Applicable Law

All questions pertaining to the validity, construction and administration of the Plan and all Awards granted under the Plan shall be determined in conformity with the laws of the State of Ohio, without regard to the conflict of law provisions of any state, and with the relevant provisions of the Code and regulations issued thereunder. Any suit, action or proceeding with respect to the Plan or any Award Agreement, or any judgment entered by any court of competent jurisdiction in respect of any thereof, shall be resolved only in the courts of the State of Ohio or the United States District Court for the Northern District of Ohio and the appellate courts having jurisdiction of appeals in such courts. In that context, and without limiting the generality of the foregoing, the Company and each Participant and beneficiary of a Participant shall irrevocably and unconditionally (a) submit in any proceeding relating to the Plan or any Award Agreement, or for the recognition and enforcement of any judgment in respect thereof (a “Proceeding”), to the exclusive jurisdiction of the courts of the State of Ohio, the United States District Court for the Northern District of Ohio, and appellate courts having jurisdiction of appeals from any of the foregoing, and agree that all claims in respect of any such Proceeding shall be heard and determined in such State of Ohio court or, to the extent permitted by law, in such federal court, (b) consent that any such Proceeding may and shall be brought in such courts and waives any objection that the Company and each Participant and beneficiary of a Participant may now or thereafter have to the venue or jurisdiction of any such Proceeding in any such court or that such Proceeding was brought in an inconvenient court and agree not to plead or claim the same, (c) waive all right to trial by jury in any Proceeding (whether based on contract, tort or otherwise) arising out of or relating to the Plan or any Award Agreement, (d) agree that service of process in any such Proceeding may be effected by mailing a copy of such process by registered or certified mail, postage prepaid, to such party, in the case of a Participant (or the Participant’s beneficiary) at the Participant’s (or the Participant’s beneficiary’s) address shown in the books and records of the Company or, in the case of the Company, at the Company’s principal offices, attention General Counsel, and (e) agree that nothing in the Plan shall affect the right to effect service of process in any other manner permitted by the laws of the State of Ohio.

Section 19. Term of Plan

19.1Term of Plan

. Notwithstanding anything to the contrary contained herein, no Awards shall be granted on or after the ten (10) year anniversary of the Plan’s Effective Date; however, any Award theretofore granted may extend beyond such date.

Section 20. Miscellaneous

20.1Unfunded Plan

. The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payment as to which a Participant (or a Participant’s beneficiary) has a fixed and vested interest but which is not yet made to a Participant (or a Participant’s beneficiary) by the Company, nothing contained herein shall give any such Participant (or such Participant’s beneficiary) any right that is greater than those of a general unsecured creditor of the Company.

20.2No Uniformity; No Future Rights

. No Employee, Participant or other person shall have any claim to be granted any Award under the Plan, and there is no obligation for

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uniformity or treatment of Employees, Participants, or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to each recipient. Any Award granted under the Plan shall be a one-time Award, and shall not constitute a promise of future grants. The Committee, in its sole discretion, maintains the right to make available future Awards hereunder,

20.3No Trust

. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company, the Board, the Committee and a Participant or any other person,

20.4Fractional Shares

.  No fractional Common Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash or other securities shall be paid or transferred in lieu of any fractional Common Shares, or whether such fractional Common Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.

20.5Section 409A

.  Notwithstanding any contrary provision in the Plan or Award Agreement, for purposes of an Award that is subject to Section 409A, if a Participant’s termination of employment or service triggers the payment of “nonqualified deferred compensation” under such Award, then the Participant will not be deemed to have terminated employment or service until the Participant incurs a “separation from service” within the meaning of Section 409A.

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Exhibit 10.22

EMPLOYMENT AGREEMENT

AGREEMENT, dated this 4th day of March, 2019, among First Defiance Financial Corp. (“First Defiance”), an Ohio-chartered corporation and savings and loan holding company, First Federal Bank of the Midwest (“First Federal”), a federally-chartered stock savings bank, both of which are located in Defiance, Ohio, and Vince Liuzzi (the “Executive”).  First Defiance and First Federal are referred to jointly herein as the “Companies.”

WITNESSETH:

WHEREAS, First Federal desires to employ, and Executive agrees to serve, as President of First Federal;

NOW THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereby agree as follows:

1.Definitions.  The following words and terms shall have the meanings set forth below for the purposes of this Agreement:

(a)Annual Compensation.  The Executive’s “Annual Compensation” for purposes of this Agreement shall be deemed to mean the average annual Compensation paid to the Executive by the Companies during the five most recent taxable years ending prior to the date of termination.

(b)Base Salary.  “Base Salary” shall have the meaning set forth in Section 3(a) hereof.

(c)Bonus.  “Bonus” shall have the meaning set forth in Section 3(a) hereof.

(d)Cause.  “Cause” shall mean personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order or material breach of any provision of this Agreement.  For purposes of this paragraph, no act or failure to act on the Executive’s part shall be considered “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive’s action or omission was in the best interest of the Companies.

(e)Change in Control of First Defiance.  “Change in Control” of First Defiance shall have the meaning set forth in Section 409A(a)(2)(A)(v) of the Code.

(f)Code.  “Code” shall mean the Internal Revenue Code of 1986, as amended.

(g)Compensation.  “Compensation” shall have the meaning set forth in Section 3(a) hereof.

(h)Date of Termination.  “Date of Termination” shall mean the date of the Executive’s Separation from Service, as that term is defined under Section 409A(a)(2)(A)(i) of the Code.

(i)Disability.  “Disability” shall mean any physical or mental impairment that qualifies the Executive for disability benefits under the applicable long-term disability plan maintained by the Companies or any subsidiary or, if no such plan applies, which would qualify the Executive for disability benefits under the Federal Social Security System.

(j)Good Reason.  “Good Reason” shall mean:

(i)Without the Executive’s express written consent:

(a)the assignment by the Companies to the Executive of any duties that are materially inconsistent with the Executive’s positions, duties, responsibilities and status with the Companies immediately prior to such assignment, or in the event of a Change in Control, immediately prior to such a Change in Control of First Defiance;

(b)a material change in the Executive’s reporting responsibilities, titles or offices as an employee and as in effect immediately prior to such change or, in the event of a Change in Control, immediately prior to such a Change in Control of First Defiance; or

(c)any removal of the Executive from or any failure to re-elect the Executive to the office of President of First Federal, except in connection with Cause, Disability, Retirement, or the Executive’s death;

(ii)Without the Executive’s express written consent, a reduction by the Companies in the Executive’s Base Salary, as the same may be increased from time to time;

(iii)The principal executive office of the Companies is relocated outside of the Defiance, Ohio area or, without the Executive’s express written consent, the Companies require the Executive to be based anywhere other than an area in which the Companies’ principal executive office is located, except for required travel on business of the Companies to an extent substantially consistent with the Executive’s present business travel obligations;

(iv)Without the Executive’s express written consent, the Companies fail to provide the Executive with the same fringe benefits that were provided to the Executive immediately prior to a Change in Control of First Defiance, or with a package of fringe benefits (including paid vacations) that, though one or more of such benefits may vary from those in effect immediately prior to such Change in Control, is substantially comparable in all material respects to such fringe benefits taken as a whole;

(v)The failure by First Defiance to obtain the assumption of an agreement to perform this Agreement by any successor as contemplated in Section 10 hereof; or

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(vi)Without the Executive’s express written consent, the Companies fail to comply with any material provision of this Agreement.

(k)IRS.  “IRS” shall mean the Internal Revenue Service.

(1)Notice of Termination.  “Notice of Termination” shall mean a dated notice that (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) is given in the manner specified in Section 11 hereof.

(m)Retirement.  “Retirement” shall mean voluntary termination by the Executive in accordance with the Companies’ retirement policies, including early retirement, generally applicable to their salaried employees.

2.Term of Employment.

(a)The Companies hereby employ the Executive in the positions described above.  The Executive hereby accepts said employment and agrees to render such services to the Companies on the terms and conditions set forth in this Agreement.  The term of employment under this Agreement shall commence on January 1, 2019 and continue for a period of 12 months (together with any renewal period described in Section 2(b), the “Term”).

(b)The Term of this Agreement shall be extended for one day each day so that the Term is always 12 months.  The Term shall continue until the Companies’ Boards of Directors or the Executive provide written notice of non-renewal to the other, in which case renewals will cease and the Term will become fixed, ending 12 months after the date of receipt of any such written notice.  

(c)During the Term of this Agreement, the Executive shall perform such executive services for the Companies as may be consistent with his titles and written job description and from time to time assigned to him by the Companies’ Boards of Directors; provided, however, that the Executive shall not be precluded from (i) vacations and other leave time in accordance with Section 3(c) below; (ii) reasonable participation in community, civic, charitable, or similar organizations; (iii) reasonable participation in industry-related activities; or (iv) pursuing personal investments that do not interfere or conflict with the performance of the Executive’s duties to the Companies.

3.Compensation and Benefits.

(a)The Companies shall compensate and pay the Executive for his services during the Term of this Agreement at a minimum base annual salary of $300,000.00 (“Base Salary”), which may be increased from time to time in such amounts as may be determined by the Companies’ Boards of Directors and may not be decreased without the Executive’s express written consent.  In addition to his Base Salary, the Executive shall be entitled to receive during the Term of this Agreement an annual cash bonus based on such terms and conditions as are set forth from time to time in the Companies’ short term incentive bonus

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program (the “Bonus”).  The Executive’s Base Salary and Bonus, if any, are referred to herein as his “Compensation.”

(b)During the Term of the Agreement, the Executive shall be entitled to participate in and receive the benefits of any pension or other retirement benefit plan, deferred compensation, profit sharing, stock option, management recognition, employee stock ownership, or other plans, benefits and privileges given to employees and executives of the Companies, to the extent commensurate with his then duties and responsibilities, as fixed by the Boards of Directors of the Companies including, but not limited to, the following: (i) the Companies shall pay membership dues for the Executive for membership in such organizations, including professional organizations, as are approved by the Companies from time to time; and (ii) the Companies shall, at their discretion, provide the use of an automobile (the terms and conditions for the Executive’s use and possession of the automobile and the quality of the automobile provided for the Executive’s use shall be consistent with, or not less favorable than, the past practices of the Companies) or an automobile expense reimbursement.  The Companies shall not make any changes in such plans, benefits or privileges that would adversely affect the Executive’s rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Companies and does not result in a proportionately greater adverse change in the rights of or benefits to the Executive as compared with any other executive officer of the Companies.  Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to the Executive pursuant to Section 3(a) hereof.

(c)During the Term of this Agreement, the Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Companies, which shall in no event be less than four weeks per annum.  The Executive shall not be entitled to receive any additional compensation from the Companies for failure to take a vacation, nor shall the Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of the Companies.

4.Expenses.  The Companies shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance or in connection with the business of the Companies, including, but not by way of limitation, traveling expenses and all reasonable entertainment expenses (whether incurred at the Executive’s residence, while traveling or otherwise), subject to such reasonable documentation and other limitations as may be established by the Boards of Directors of the Companies.  If such expenses are paid in the first instance by the Executive, the Companies shall reimburse the Executive therefor.

5.Termination.

(a)The Companies shall have the right, at any time, to terminate the Executive’s employment hereunder for any reason, including without limitation termination for Cause, Disability or Retirement.

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(b)The Executive shall have the right to terminate his employment hereunder for any reason.

(c)In the event that (i) the Executive’s employment is terminated by the Companies for Cause, Disability or Retirement or in the event of the Executive’s death, or (ii) the Executive terminates his employment hereunder other than for Good Reason, the Executive shall have no right pursuant to this Agreement to compensation or other benefits for any period after the applicable Date of Termination.

(d)In the event that the Executive’s employment is terminated by the Companies for other than Cause, Disability, Retirement or the Executive’s death or such employment is terminated by the Executive for Good Reason, which has not been cured within a period of thirty (30) days after a written notice of non-compliance has been given by the Executive to the Companies, and provided that Executive has executed a Release pursuant to Section 5(f) below, then the Companies shall pay to the Executive, in a lump sum payment on the first business day of the first month following the Date of Termination, an amount equal to his then current Base Salary plus the average annual payment made to the Executive under the short term incentive plan over the last completed five year period.

(e)Notwithstanding Section 5(d) above, in the event that (A) the Executive’s employment is terminated by the Companies for other than Cause, Disability, Retirement or the Executive’s death or such employment is terminated by the Executive for Good Reason, which has not been cured within a period of thirty (30) days after a written notice of non-compliance has been given by the Executive to the Companies, (B) the Date of Termination is within six months prior to a Change in Control of First Defiance or within one year after a Change in Control of First Defiance, and (C) Executive has executed a Release pursuant to Section 5(f) below, then the Companies shall, subject to the provisions of Section 6 hereof, if applicable:

(i)pay to the Executive, in a lump sum payment on the first business day of the first month following the Date of Termination, an amount equal to 2.99 times the sum of (1) the Executive’s current annual base salary, and (2) the average of the annual short-term cash bonus payable to Executive for the 5 years preceding the Date of Termination; and

(ii)pay the premiums required to maintain coverage for the Executive and his eligible dependents under the medical, dental and vision insurance coverage of the Companies in which the Executive is a participant immediately prior to the Change of Control of the First Defiance in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, until the earliest of (A) the first anniversary of the termination of the Executive employment or (B) the date on which the Executive is eligible to participate in another employer’s comparable health insurance plan as a full-time employee.  Notwithstanding the foregoing, the Companies may in lieu of providing for continuation of the foregoing benefits, pay to the Executive in a lump sum cash payment an amount equal to twelve times the Companies’ cost of providing such benefits to the Executive during the month immediately prior to the Executive’s termination of employment.

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(f)As a condition to receiving any payments under Section 5(d) or (e) of this Agreement, the Executive shall agree to release the Companies and all of their affiliates and subsidiaries, employees and directors from any and all claims that the Executive may have against the Companies and all of their affiliates and subsidiaries, employees and directors through the date of such release (the “Release”) in a form similar to the attached Exhibit A, and no payments shall be made under Section 5(d) or (e) until such Release has become irrevocable, effective and enforceable.  In the event that the period of time required to obtain an enforceable release spans two tax years, no payments shall be made under Section 5(d) or (e) until the second tax year.

6.Limitation of Benefits under Certain Circumstances.  If the payments and benefits pursuant to Section 5 hereof, either alone or together with other payments and benefits that the Executive has the right to receive from the Companies, would constitute a “parachute payment” under Section 280G of the Code, such payments and benefits shall be reduced by the amount, if any, that is the minimum necessary to result in no portion of the payments or benefits constituting a parachute payment under Section 280G of the Code.  The determination of any reduction in the payments and benefits made pursuant to this Section 6 shall be based upon the opinion of tax counsel selected by the Companies’ independent public accountants, paid by the Companies and reasonably acceptable to the Companies and the Executive.  Such counsel shall promptly prepare the foregoing opinion, but in no event later than thirty (30) days from the Date of Termination or applicable severance from employment, and may use such technical advisors as such counsel deems necessary or advisable for this purpose.  In the event a reduction in payments is necessary in order to comply with the requirements of this Agreement relating to the limitations of Section 280G, then such reductions shall be applied based on the following principles, in order: (i) the payment or benefit with the higher ratio of the parachute payment value to present economic value (determined using reasonable actuarial assumptions) shall be reduced or eliminated before a payment or benefit with a lower ratio; (ii) the payment or benefit with the later possible payment date shall be reduced or eliminated before a payment or benefit with an earlier payment date; and (iii) cash payments shall be reduced prior to non-cash benefits; provided that if the foregoing order of reduction or elimination would violate Code Section 409A, then the reduction shall be made pro-rata among the payments or benefits otherwise due or payable (on the basis of the relative present value of the parachute payments).

7.Mitigation; Exclusivity of Benefits.

(a)The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Executive as a result of employment by another employer after the Date of Termination or otherwise.

(b)The specific arrangements referred to herein are not intended to exclude any other benefits that may be available to the Executive upon a termination of employment with the Companies pursuant to employee benefit plans of the Companies or otherwise.

8.Withholding.  All payments required to be made by the Companies hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to

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tax and other payroll deductions as the Companies may reasonably determine should be withheld pursuant to any applicable law or regulation.

9.Covenant Not to Compete and Confidential Information.

(a)Throughout the employment of the Executive under this Agreement and for a period of one year after termination of employment for any reason, the Executive agrees that he will not, except on behalf of the Companies or with the written consent of the Companies:

(i)engage in any business activity, directly or indirectly, on his own behalf or as a partner, stockholder (except by ownership of less than 1% of the outstanding stock of a publicly held corporation), director, trustee, principal, agent, employee, consultant or otherwise of any person, firm or corporation, which is engaged in any activity in which the Companies or any parent, subsidiary or affiliate of the Companies is engaged at the time;

(ii)allow the use of his name by or in connection with any business that is competitive with any activity in which the Companies or any parent, subsidiary or affiliate of the Companies is engaged; or

(iii)offer employment to or employ, for himself or on behalf of any competitor of the Companies or any parent, subsidiary or affiliate, any person who at any time within the prior three years shall have been employed by the Companies or any parent, subsidiary or affiliate of the Companies.

(b)The parties acknowledge that this Section 9 is fair and reasonable under the circumstances.  It is the desire and intent of the parties that the provisions of this Section 9 shall be enforced to the fullest extent permitted by law.  Accordingly, if any particular portion of this Section 9 shall be adjudicated to be invalid or unenforceable, this Section 9 shall be deemed amended to:

(i)reform the particular portion to provide for such maximum restrictions as will be valid and enforceable, or if that is not possible,

(ii)delete the portion found invalid or unenforceable, such reformation or deletion to apply only with respect to the operation of this Section 9 in the particular jurisdiction in which such adjudication is made.

(c)During the Term of the Executive’s employment, the covenants contained in this Section 9 shall apply without regard to geographic location.  Upon the termination of the Executive’s employment, the covenants contained in this Section 9 shall be limited to a twenty-five (25) mile radius of any office of the Companies.

(d)Notwithstanding any other provision of this Agreement to the contrary, in the event the Executive violates the above restrictive covenants, all amounts otherwise owing to the Executive by the Companies shall be forfeited by the Executive and the

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Companies, in addition to any other remedy, shall be under no further obligation to the Executive.

(e)The Executive shall not at any time, in any manner, while employed by the Companies or thereafter, either directly or indirectly, except in the course of carrying out the Companies’ business or as previously authorized in writing on behalf of the Companies, disclose or communicate to any person, firm, or corporation, any information of any kind concerning any matters affecting or relating to the Companies’ business or any of its data, figures, projections, estimates, customer lists, tax records, personnel histories, and accounting procedures, without regard to whether any or all of such information would otherwise be deemed confidential or material.

10.Assignability.  The Companies may assign this Agreement and their rights hereunder in whole, but not in part, to any corporation, bank or other entity with or into which either of the Companies may hereafter merge or consolidate or to which either of the Companies may transfer all or substantially all of their respective assets, if in any such case said corporation, bank or other entity shall by operation of law or expressly in writing assume all obligations of the Companies hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights hereunder.  The Executive may not assign or transfer this Agreement or any rights or obligations hereunder.

11.Notice.  For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective address set forth below:

To First Defiance:First Defiance Financial Corp.

601 Clinton Street

Defiance, Ohio 43512

To First Federal:First Federal Bank of the Midwest

601 Clinton Street

Defiance, Ohio 43512

To the Executive:Vince Liuzzi

 

 

12.Amendment; Waiver.  No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer or officers as may be specifically designated by the Boards of Directors of the Companies to sign on their behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

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13.Governing Law.  The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of Ohio.

14.Nature of Obligations.  Nothing contained herein shall create or require the Companies to create a trust of any kind to fund any benefits that may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Companies hereunder, such right shall be no greater than the right of any unsecured general creditor of the Companies.

15.Headings.  The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

16.Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect.

17.Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

18.Regulatory Actions.  The following provisions shall be applicable to the parties to the extent that they are required to be included in the employment agreements between a savings association and its employees pursuant to Section 163.39(b) of the regulations applicable to all savings associations, 12 C.F.R. 163.39(b), or any successor thereto, and shall be controlling in the event of a conflict with any other provision of this Agreement, including without limitation Section 5 hereof.

(a)If the Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the Companies’ affairs pursuant to notice served under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. 1818 (e)(3) and 1818(g)(1)), the Companies’ obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Companies may, in their discretion: (i) pay the Executive all or part of the compensation withheld while its obligations under this Agreement were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended.

(b)If the Executive is removed from office and/or permanently prohibited from participating in the conduct of the Companies’ affairs by an order issued under Section 8(e)(4) or Section 8(g)(1) of the FDIA (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Companies under this Agreement shall terminate as of the effective date of the order, but vested rights of the Executive and the Companies as of the date of termination shall not be affected.

(c)If the Companies are in default, as defined in Section 3(x)(1) of the FDIA (12 U.S.C. 1813(x)(1)), all obligations under this Agreement shall terminate as of the date

9

of default, but vested rights of the Executive and the Companies as of the date of termination shall not be affected.

(d)All obligations under this Agreement shall be terminated pursuant to 12 C.F.R. 163.39(b)(5), except to the extent that it is determined that continuation of the Agreement is necessary for the continued operation of the Companies: (i) by the Office of the Comptroller of the Currency (the “Comptroller”), or his/her designee, at the time the Federal Deposit Insurance Corporation (“FDIC”) enters into an agreement to provide assistance to or on behalf of First Federal under the authority contained in Section 13(c) of the FDIA (12 U.S.C. 1823(c)); or (ii) by the Comptroller, or his/her designee, at the time the Comptroller, or his/her designee, approves a supervisory merger to resolve problems related to operation of the Companies or when the Companies are determined by the Comptroller to be in an unsafe or unsound condition, but vested rights of the Executive and the Companies as of the date of termination shall not be affected.

19.Regulatory Prohibition.  Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. 1828(K) and any regulations promulgated thereunder to the extent such laws and regulations are applicable to the Companies and the Executive.

20.Additional Restriction on Distributions to Key Executives.

(a)Notwithstanding the provisions of this Agreement providing for payment of benefits upon termination of employment, if at the time a benefit would otherwise be payable, the Executive is a “specified employee” (as defined below), and the payment provided for would be deferred compensation with the meaning of Section 409A of the Code, the distribution of the Executive’s benefit may not be made until six months after the date of the Executive’s separation from service with the Company (as that term may be defined in Section 409A(a)(2)(A)(i) of the Code and relevant regulations), or, if earlier the date of death of the Executive.  This requirement shall remain in effect only for periods in which the stock of the Company is publicly traded on an established securities market.

(b)For purposes of this Section 20 a “specified employee” shall mean any executive of the Company who is a “key employee” of the Company within the meaning of Section 416(i) of the Code as of the last day of the calendar year preceding the date of the termination of employment.  This shall include any executive who is (i) a 5-percent owner of the Company’s common stock, or (ii) an officer of the Company with annual compensation from the Company of $130,000.00 or more, or (iii) a 1-percent owner of Company’s common stock with annual compensation from the Company of $150,000.00 or more (or such higher annual limit as may be in effect for years subsequent to 2005 pursuant to indexing Section 416(i) of the Code).

(c)The provisions of this Section 20 have been adopted only in order to comply with the requirements added by Section 409A of the Code.  These provisions shall be interpreted and administered in a manner consistent with the requirements of Section 409A of the Code, together with any regulations or other guidance which may be published by the Treasury Department or Internal Revenue Service interpreting such Section 409A of the Code.

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IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written.

Attest:FIRST DEFIANCE FINANCIAL CORP.

 

 

_________________________By:  ____________________________________

Name:Donald P. Hileman

Title:President and CEO

 

 

Attest:FIRST FEDERAL BANK OF MIDWEST

 

 

_________________________By:  _____________________________________

Name:Donald P. Hileman

Title:CEO

 

 

Witness:

 

 

 

_________________________

Name:  Vince Liuzzi

 

 

 


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EXHIBIT A

FINAL AND BINDING GENERAL RELEASE

This General Release (hereinafter referred to as the “Release”) is executed on ___, ___ by Vince Liuzzi, _______ [address], Social Security Number ending in ______ (hereinafter referred to as “Executive”), pursuant to Section 5(f) of the Employment Agreement (hereinafter referred to as the “Agreement”) dated January 1, 2014, entered into among First Defiance Financial Corp. (“First Defiance”), First Federal Bank of the Midwest (“First Federal”), both of which are located in Defiance, Ohio, (collectively hereinafter referred to as the “Company”) and Executive.

1.In consideration for receiving the termination payments described in Section 5(d) or 5(e) of the Agreement, Executive does hereby fully release, discharge, compromise and settle any and all charges, claims, demands, judgments, causes of action, damages, expenses, liabilities or obligations (including all attorney’s fees and costs actually incurred), whether known or unknown, matured or unmatured, vested or contingent, of whatever nature and whether or not presently known that exist as of the execution date of this Release, in law, equity or otherwise, including but not limited to all claims under Title VII of the Civil Rights Act of 1964, all claims under the Fair Labor Standards Act, all claims under the Occupational Safety and Health Act, all claims under the Worker Adjustment and Retraining Notification Act, all claims under the Equal Pay Act, all claims under the Ohio Revised Code Sections 4112.01 through 4112.99 and any other provisions of Ohio law, all claims under the Americans with Disabilities Act, all claims under the Family and Medical Leave Act, all claims arising under the Age Discrimination in Employment Act of 1967, all claims arising under the Older Worker Benefit Protection Act and all claims under the Employee Retirement Income Security Act of 1974, all as amended; all statutory or common law claims under state or federal law, whether in contract, in tort, or in equity; and any other claim arising out of Executive’s employment with the Companies and his separation from that employment, as against the Companies and their directors, officers, employees, owners, attorneys, consultants, agents, insurers and volunteers, and any and all related and affiliated entities and corporations, including any and all parent, brother-sister, and subsidiary corporations and the parent, brother-sister and subsidiary corporations of any of them, unincorporated employers, partnerships, alliances, joint ventures, and companies, and each and every employee, agent, consultant, volunteer, insurer, officer, director, owner, and trustee of any of them (collectively the “Released Entities”).

2.Executive acknowledges that he has been and is hereby advised in writing to consult with an attorney concerning this Agreement and that he had the opportunity to seek the advice of legal counsel in connection with the negotiation and execution of this Agreement.  Executive further acknowledges that he has had the opportunity to ask questions about each and every provision of this Agreement and that he fully understands the effect of the provisions contained in this Agreement upon his legal rights.  Executive acknowledges that he has been given at least 21 days to consider the terms of this Agreement before signing it, and that he may revoke his signature at any time before the expiration of seven (7) days after he signs and returns this Agreement.  This Agreement does not take effect until eight (8) days after he signs it.  If Executive intends to revoke his signature, he shall notify the Corporation pursuant to Section 11 of the Agreement.

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3.Executive agrees and acknowledges that he has received all compensation, including minimum wage and overtime pay, to which he may have been entitled under the Fair Labor Standards Act and/or Ohio law for work performed through the date of his termination from employment.  He further agrees and acknowledges that he has been accorded all time off from work and any other rights to which he has been entitled pursuant to the Family and Medical Leave Act.

4.This Release shall be binding upon Executive and his heirs, administrators, representatives, executors, successors and assigns.

5.It is the intention of the parties hereto that this Release is and shall be a complete and absolute defense to anything released hereunder.  Executive expressly and knowingly waives his rights to assert any claims against the Released Entities that are released hereunder, and covenants not to sue any Released Entity based upon any claims released hereunder.

6.Executive agrees that he has read this Release in its entirety and that his agreement to all of its provisions is made freely, voluntarily, and with full knowledge and understanding of its contents.

7.This Release shall be interpreted and enforced under the laws of the State of Ohio.

EXECUTIVE ACKNOWLEDGES THAT HE HAS CAREFULLY READ AND FULLY UNDERSTANDS ALL THE PROVISIONS OF THIS RELEASE AND SETTLEMENT AGREEMENT, THAT HE HAS BEEN GIVEN AT LEAST TWENTY-ONE DAYS WITHIN WHICH TO CONSIDER SIGNING THIS AGREEMENT, THAT HE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY, THAT HE MAY REVOKE THIS AGREEMENT WITHIN SEVEN DAYS AFTER HE SIGNS IT AND THAT HE KNOWINGLY AND VOLUNTARILY HAS ENTERED INTO THIS AGREEMENT IN EXCHANGE FOR VALUABLE CONSIDERATION, INCLUDING THE PAYMENTS IDENTIFIED IN PARAGRAPH 2 , TO WHICH HE WOULD NOT OTHERWISE BE ENTITLED ABSENT THIS AGREEMENT.

[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]


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IN WITNESS WHEREOF, I have set my hand this ___ day of _____, ____.

WITNESSES:

 

Executive

 

STATE OF )

)SS:

COUNTY OF )

 

Subscribed to and sworn before me this ____ day of ____, ____.

 

 

 

Notary Public

 

My Commission Expires:

 

 

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Exhibit 10.30

 

      FIRST DEFIANCE FINANCIAL CORP.

2018 EQUITY INCENTIVE PLAN

 

RESTRICTED STOCK

AWARD AGREEMENT

 

 

Premier Financial Corp., (the “Company”) formerly known as First Defiance Financial Corp., hereby grants the undersigned Participant an Award consisting of Shares of Restricted Stock in the Company, subject to the terms and conditions described in the First Defiance Financial Corp. 2018 Equity Incentive Plan (the “Plan”) and this Restricted Stock Award Agreement (this “Award Agreement”).

For purposes of clarity, the Company adopted the First Defiance Financial Corp. 2018 Equity Incentive Plan pursuant to which Restricted Stock may be granted; First Defiance Financial Corp. and United Community Financial Corp. merged effective January 31, 2020; and the survivor subsequently changed its name to Premier Financial Corp.

1.Name of Participant:  __________ (the “Participant”).

2.

Grant Date:  __________ (the “Grant Date”).

3.

Award of Restricted Stock:  The Award consists of __________ Shares of Restricted Stock.

4.

Vesting:  Subject to the provisions of this Award Agreement, the Award shall vest on the third anniversary of the Grant Date (the “Vesting Date”) provided that the Participant is employed on that date.

5.

Limitations on Vesting:  If the Participant’s employment terminates for any reason prior to the Vesting Date, the Participant shall forfeit the Award.  Notwithstanding the foregoing:

 

(a)

Death or Disability:  In the event of the Participant’s death or Disability prior to the Vesting Date, the Award shall become immediately vested as of the date of death or Disability.

 

(b)

Change in Control:  If a Change in Control of the Company occurs after the Grant Date but prior to the Vesting Date and the Participant is terminated by the Company other than for Cause prior to the Vesting Date and during the period beginning immediately prior to the date of the Change in Control and ending 12 months after the date of the Change in Control, the Award shall become immediately vested as of the later of the date of such termination or the date of such Change in Control.

6.

Settlement:  If the applicable terms and conditions of this Award Agreement are satisfied, the Shares of Restricted Stock shall be released from any transfer restrictions or delivered to the Participant as soon as practicable, but not later than 30 days after all applicable restrictions have lapsed.

7.

Non-Competition and Non-Solicitation:  

 

(a)

Throughout the period from the Grant Date to the Vesting Date or, if earlier, to the first anniversary of the Participant’s termination of employment for any reason (the “Non-

 

Compete Period”), the Participant agrees that he will not, except on behalf of the Company or any Subsidiary (collectively, the “Control Group”) or with the written consent of a member the Control Group: (a) engage in any business activity, directly or indirectly, on his own behalf or as a partner, stockholder (except by ownership of less than 1% of the outstanding stock of a publicly held corporation), director, trustee, principal, agent, employee, consultant or otherwise of any person, firm or corporation, which is engaged in any activity in which the Control Group is engaged at the time; or (b) allow the use of his name by or in connection with any business that is competitive with any activity in which the Control Group is engaged.  

 

(b)

Throughout the period from the Grant Date to the first anniversary of the Participant’s termination of employment for any reason (the “Non-Solicit Period”), the Participant agrees that he will not, except on behalf of the Control Group or with the written consent of a member of the Control Group, offer employment to or employ, for himself or on behalf of any competitor of the Control Group, any person who at any time within the prior three years shall have been employed by the Control Group.  

 

(c)

In the event that the Participant violates any of these restrictive covenants, (i) the Award (whether or not vested) will be cancelled and forfeited in its entirety; and (ii) to the extent the Award has vested, the Participant shall pay to the Company within 90 days of the Company’s request an amount equal to the Fair Market Value of the Shares.  The parties acknowledge that this Section 7 is fair and reasonable under the circumstances.  It is the desire and intent of the parties that the provisions of this Section 7 shall be enforced to the fullest extent permitted by law.  Accordingly, if any particular portion of this Section 7 shall be adjudicated to be invalid or unenforceable, this Section 7 shall be deemed amended to: (1) reform the particular portion to provide for such maximum restrictions as will be valid and enforceable, or if that is not possible, (2) delete the portion found invalid or unenforceable, such reformation or deletion to apply only with respect to the operation of this Section 7 in the particular jurisdiction in which such adjudication is made.  During the Participant’s employment, the covenants contained in this Section 7 shall apply without regard to geographic location.  Upon the termination of the Participant’s employment, the covenants contained in this Section 7 shall be limited to a twenty-five (25) mile radius of any office of the Control Group.

8.

Miscellaneous:  

 

 

(a)

Non-Transferability.  The Shares of Restricted Stock subject to the Award may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except by will or the laws of descent and distribution.  

 

 

(b)

Beneficiary.  Unless otherwise specifically designated by the Participant in writing, the Participant’s beneficiary shall be the Participant’s spouse or, if no spouse survives the Participant, the Participant’s estate.

 

 

(c)

No Right to Continued Service or to Awards.  The granting of an Award shall impose no obligation on the Company or any Affiliate to continue the employment of the Participant or interfere with or limit the right of the Company or any Affiliate to terminate the employment of the Participant at any time, with or without Cause, which right is expressly reserved.  

 

2

 

(d)

Tax Withholding.  The Company or an Affiliate, as applicable, shall have the power and right to deduct, withhold or collect any amount required by law or regulation to be withheld with respect to any taxable event arising with respect to the Award.  To the extent permitted by the Committee, in its sole discretion, this amount may be: (i) withheld from other amounts due to the Participant, (ii) withheld from the value of any Award being settled or any Shares transferred in connection with the exercise or settlement of an Award, (iii) withheld from the vested portion of any Award (including Shares transferable thereunder), whether or not being exercised or settled at the time the taxable event arises, or (iv) collected directly from the Participant.  Unless the Participant has otherwise irrevocably elected a different method to satisfy the withholding requirement, the Participant shall be deemed to have elected to satisfy the withholding requirement by having the Company or an Affiliate, as applicable, withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction. The Participant may elect a higher level of withholding. All such elections will be irrevocable and made in writing and will be subject to any terms and conditions that the Committee, in its sole discretion, deems appropriate.

 

(e)

Requirements of Law.  The grant of the Award shall be subject to all applicable laws, rules and regulations (including applicable federal and state securities laws) and to all required approvals of any governmental agencies or national securities exchange, market or other quotation system.  

 

 

(f)

Governing Law.  The Plan and the Award Agreement shall be governed by and construed in accordance with the laws of (other than laws governing conflicts of laws) the State of Ohio.

 

 

(g)

Award Subject to Plan.  The Award is subject to the terms and conditions described in this Award Agreement and the Plan, which is incorporated by reference into and made a part of this Award Agreement.  In the event of a conflict between the terms of the Plan and the terms of this Award Agreement, the terms of the Plan will govern.  The Committee has the sole responsibility of interpreting the Plan and this Award Agreement, and its determination of the meaning of any provision in the Plan or this Award Agreement will be binding on the Participant.  Capitalized terms that are not defined in this Award Agreement have the same meanings as in the Plan.

 

 

(h)

Section 409A of the Code.  This Award Agreement is intended, and shall be construed and interpreted, to comply with Section 409A of the Code and if necessary, any provision shall be held null and void to the extent such provision (or part thereof) fails to comply with Section 409A of the Code or the Treasury Regulations thereunder.  For purposes of Section 409A of the Code, each payment of compensation under the Award Agreement shall be treated as a separate payment of compensation.  Any amounts payable solely on account of an involuntary termination shall be excludible from the requirements of Section 409A of the Code, either as separation pay or as short-term deferrals to the maximum possible extent.  Nothing herein shall be construed as the guarantee of any particular tax treatment to the Participant, and the Company shall have no liability with respect to any failure to comply with the requirements of Section 409A of the Code.  Any reference to the Participant’s “termination” shall mean the Participant’s “separation from service”, as defined in Section 409A of the Code.  In addition, if the Participant is determined to be a “specified employee” (within the meaning of Section 409A of the Code and as determined under the Company’s policy for determining specified employees), the Participant shall not be entitled to payment or to distribution of any portion of an Award that is subject to

3

 

Section 409A of the Code (and for which no exception applies) and is payable or distributable on account of the Participant’s termination until the expiration of six months from the date of such termination (or, if earlier, the Participant’s death).  Such Award, or portion thereof, shall be paid or distributed on the first business day of the seventh month following such termination.

 

 

(i)

Signature in Counterparts.  This Award Agreement may be signed in counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument.

 

 

[Signature page follows]


4

PARTICIPANT

______________________________________Date:______________________
Signature

______________________________________
Print Name

 

 

PREMIER FINANCIAL CORP.

 

By: _________________________________Date:______________________

Its:_________________________________

 

5

Exhibit 10.31

 

FIRST DEFIANCE FINANCIAL CORP.
2018 EQUITY INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

 

Premier Financial Corp. (the “Company”) formerly known as First Defiance Financial Corp., hereby grants the undersigned Participant a Restricted Stock Unit Award (the "Award"), subject to the terms and conditions described in the First Defiance Financial Corp. 2018 Equity Incentive Plan (the "Plan") and this Restricted Stock Unit Award Agreement (this "Award Agreement").

For purposes of clarity, the Company adopted the First Defiance Financial Corp. 2018 Equity Incentive Plan pursuant to which Restricted Stock Units (“RSUs”) may be granted; First Defiance Financial Corp. and United Community Financial Corp. merged effective January 31, 2020; and the survivor subsequently changed its name to Premier Financial Corp.

1.

Name of Participant:                                                    (the “Participant”).

2.

Grant Date:                      (the "Grant Date").

3.

Award of Restricted Stock Units: The Award consists of              RSUs.

 

 

4.

Vesting: Subject to the provisions of this Award Agreement, the Award shall vest on third anniversary of the Grant Date (the "Vesting Date") provided that the Participant is employed on that date and the Participant is in compliance with the covenants set forth in Section 7.

 

5.

Limitations on Vesting: If the Participant's employment terminates for any reason prior to the Vesting Date, the Participant shall forfeit all unvested RSUs subject to the Award. Notwithstanding the foregoing, if the Participant is employed and in compliance with the covenants set forth in Section 7 on the applicable date described below:

 

(a)

Death; Disability or Retirement: If the Participant Retires, dies or becomes Disabled before the Vesting Date, the Award shall become immediately vested as of the date of such Retirement, death or Disability.  

 

 

(b)

Change in Control: If a Change in Control occurs after the Grant Date but prior to the Vesting Date and the Participant is terminated by the Company other than for Cause prior to the Vesting Date, the Award shall become immediately vested as of the date of such termination.

 

6.

Form of Settlement: If the applicable terms and conditions of this Award Agreement are satisfied and the Participant becomes vested in the Award pursuant to Section 4 or 5, the Company shall issue a Share to such Participant for each vested RSU.  The Shares shall be issued as soon as practicable but not later than 30 days after the applicable date of vesting.

 

7.Non-Solicitation Covenant. In consideration for this Award of RSUs, the Participant hereby agrees and covenants that:

 

(a)

During Participant’s employment with Company, and for an additional period of one (1) year following the termination of Participant’s employment with Company for any reason, Participant agrees that Participant shall not, in any capacity or manner whatsoever, directly or indirectly:

 

 

(i)

interfere with, or attempt to interfere with, any contractual or other relationship between Company or its affiliates and any of its or their customers or suppliers;

 

 

(ii)

hire or attempt to hire for employment any person who is employed by Company or its affiliates, or who was employed by Company or its affiliates during the one (1) year period prior to Participant’s termination, or attempt to influence such person to terminate employment with Company or its affiliates; or  

 

 

(iii)

solicit, or attempt to solicit, any person or entity that was a customer, or an actively sought prospective customer, of Company or its affiliates as of the date of Participant’s termination, for the purpose of taking or diverting away any business from Company or its affiliates.

 

 

(b)

Reasonable Restrictions.  The parties hereto acknowledge and agree that the restrictions in Section 7(a) of this Agreement are reasonable and properly required for the adequate protection of the business of Company and its affiliates.  If it is judicially determined that Participant has violated any obligations under this Agreement, then the period applicable to each obligation determined to have been violated shall automatically be extended by a period of time equal in length to the period during which such violation(s) occurred.  If the scope of any restriction contained in this Section 7 is too broad to permit enforcement of such restriction to its fullest extent, then such restriction will be enforced to the maximum extent permitted by law, and the Participant hereby consents and agrees that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction

 

 

(c)

Remedies for Breach of this Agreement.  Participant acknowledges and agrees that a breach of the covenants, promises, agreements and obligations set forth in this Agreement will result in material and irreparable injury to Company for which there is no adequate remedy at law, and that it would not be possible to measure damages for such injury precisely.  In the event of such a breach or threat thereof, the Company shall have the right to seek, in addition to money damages, a temporary restraining order, preliminary injunction or permanent injunction restraining Participant from engaging in the activities prohibited by this Agreement, or any other relief as may be appropriate in law or equity or required for specific enforcement of the covenants set forth in this Agreement.  

 

 

(d)

Waivers.  No waiver of any breach or delay in enforcing the terms of this Agreement shall operate or be construed as a waiver of any subsequent breach.  No action taken pursuant to this Agreement, including any investigation by or on behalf of Company shall be deemed to constitute a waiver by Company of its rights and remedies available to it.

 

8.Miscellaneous:

 

(a)

Non-Transferability. RSUs may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except by will or the laws of descent and distribution.

 

 

(b)

Beneficiary. Payments with respect to the Award shall be made to the Participant, except that, in the event of the Participant's death, payment shall be made to the Participant's

 

 

beneficiary.  Unless otherwise specifically designated by the Participant in writing, the Participant's beneficiary shall be the Participant's spouse or, if none, the Participant's estate.

 

 

(c)

No Right to Continued Service or to Awards. The granting of an Award shall impose no obligation on the Company or any Affiliate to continue the employment of a Participant or interfere with or limit the right of the Company or any Affiliate to terminate the employment of the Participant at any time, with or without Cause, which right is expressly reserved.

 

 

(d)

Tax Withholding. The Company or an Affiliate, as applicable, will have the power and right to deduct, withhold or collect any amount required by law or regulation to be withheld with respect to any taxable event arising with respect to the RSUs. To the extent permitted by the Committee, in its sole discretion, this amount may be: (i) withheld from other amounts due to the Participant, (ii) withheld from the value of any Award being settled or any Shares transferred in connection with the exercise or settlement of an Award, (iii) withheld from the vested portion of any Award (including Shares transferable thereunder), whether or not being exercised or settled at the time the taxable event arises, or (iv) collected directly from the Participant. Subject to the approval of the Committee, the Participant may elect to satisfy the withholding requirement, in whole or in part, by having the Company or an Affiliate, as applicable, withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction; provided that such Shares would otherwise be distributable to the Participant at the time of the withholding if such Shares are not otherwise distributable at the time of the withholding, provided that the Participant has a vested right to distribution of such Shares at such time. All such elections will be irrevocable and made in writing and will be subject to any terms and conditions that the Committee, in its sole discretion, deems appropriate.

 

 

(e)

Requirements of Law. The grant of Awards shall be subject to all applicable laws, rules and regulations (including applicable federal and state securities laws) and to all required approvals of any governmental agencies or national securities exchange, market or other quotation system.

 

 

(f)

Governing Law. The Plan and all Award Agreements shall be governed by and construed in accordance with the laws of (other than laws governing conflicts of laws) the State of Ohio.

 

 

(g)

Award Subject to Plan. The Award is subject to the terms and conditions described in this Award Agreement and the Plan, which is incorporated by reference into and made a part of this Award Agreement. In the event of a conflict between the terms of the Plan and the terms of this Award Agreement, the terms of the Plan will govern. The Committee has the sole responsibility of interpreting the Plan and this Award Agreement, and its determination of the meaning of any provision in the Plan or this Award Agreement will be binding on the Participant. Capitalized terms that are not defined in this Award Agreement have the same meanings as in the Plan.

 

 

(h)

Section 409A of the Code. This Award Agreement is intended, and shall be construed and interpreted, to comply with Section 409A of the Code and if necessary, any provision shall be held null and void to the extent such provision (or part thereof) fails to comply with Section 409A of the Code or the Treasury Regulations thereunder. Any amounts payable solely on account of an involuntary termination shall be excludible from the requirements of Section 409A of the Code, either as separation pay or as short-term deferrals to the maximum possible extent. Nothing herein shall be construed as the guarantee of any particular tax treatment to the Participant, and the Company shall have no liability with respect to any failure to comply with the requirements of Section 409A of the Code. Any

 

 

reference to the Participant's "termination" shall mean the Participant's "separation from service," as defined in Section 409A of the Code. In addition, if the Participant is determined to be a "specified employee" (within the meaning of Section 409A of the Code and as determined under the Company's policy for determining specified employees), the Participant shall not be entitled to payment or to distribution of any portion of an Award that is subject to Section 409A of the Code (and for which no exception applies) and is payable or distributable on account of the Participant's termination until the expiration of six months from the date of such termination (or, if earlier, the Participant's death). Such Award, or portion thereof, shall be paid or distributed on the first business day of the seventh month following such termination.

 

 

(i)

Signature in Counterparts. This Award Agreement may be signed in counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument.

 

[signature page attached]

PARTICIPANT

 

Date:

 

 

 

 

 

PREMIER FINANCIAL CORP.

By: Date:

Its:

Exhibit 10.32

 

PREMIER FINANCIAL CORP.

2018 EQUITY INCENTIVE PLAN

 

2021 LONG-TERM INCENTIVE PLAN PERFORMANCE SHARE UNITS AWARD AGREEMENT

 

This 2021 Long Term Incentive Plan (“LTIP”) Performance Share Units Award Agreement (this “Agreement”) is made and entered into as of [Date], (the “Grant Date”) by and between Premier Financial Corp. (the “Company”), formerly known as First Defiance Financial Corp. and [Name] (the “Grantee”).

 

WHEREAS, the Company has adopted the First Defiance Financial Corp. 2018 Equity Incentive Plan (the “Plan”) pursuant to which Performance Share Units (“PSUs”) may be granted; and

 

WHEREAS, First Defiance Financial Corp. and United Community Financial Corp. merged effective January 31, 2020, and the survivor subsequently changed its name to Premier Financial Corp.; and

 

WHEREAS, for purposes of clarity, the Plan is now referred to as the Premier Financial Corp. 2018 Equity Incentive Plan; and

 

WHEREAS, the Compensation Committee of the Board of Directors (the “Committee”) has determined that it is in the best interests of the Company and its shareholders to grant the award of PSUs provided for herein.

 

NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows:

 

1.Grant of Target Award and Performance Period.  The Company hereby grants to the Grantee a target award represented as PSUs as further set forth in Statement of Award attached hereto as Exhibit A and incorporated herein by reference (the “Target Award”).  Each PSU represents the right to receive one Common Share, subject to the terms and conditions set forth in this Agreement and the Plan.  The Target Award will be determined as a percentage of base salary, and translated into PSU’s based upon the Company’s average stock price for the twenty (20) trading days prior to the approval of the LTIP by the Committee.  The actual number of Common Shares that the Grantee earns for the Performance Period will be determined by the level of achievement of the Performance Goals in accordance with Section 2, and is referred to in this Agreement as the “Actual Award.”  Capitalized terms that are used but not defined herein have the meanings ascribed to them in the Plan.

 

2018 FDEF Equity Plan-2021 Long Term Incentive Plan PSU Award Agreement (EO)1

The “Performance Period” shall be the period commencing on January 1, 2021, and ending on December 31, 2023.

 

2.Performance Goals and Average Compensation.

 

The Actual Award that shall vest and be payable in Common Shares to the Grantee for the Performance Period will be determined at the end of the Performance Period based on the level of achievement of the Performance Goals listed below and the amount of the Grantee’s average base salary over the Performance Period.  In addition to the issuance of Common Shares to the Grantee upon the certification of performance by the Committee as described further below, the Grantee shall receive all dividends on the Common Shares underlying the PSUs, if any, paid prior to the Certification Date (defined below), whether in cash or in the form of additional Company Common Shares, calculated based upon the actual dividends paid to shareholders during the Peformance Period and the Actual Award of PSUs paid to the Grantee.  All determinations of whether Performance Goals have been achieved, the adjustments attributed to changes in average base salary, the Actual Award earned by the Grantee, and all other matters related to this Section 2 shall be made by the Committee in its sole discretion.

 

Promptly following completion of the Performance Period (and no later than sixty (60) days following the end of the Performance Period), the Committee will review and certify in writing (a) whether, and to what extent, the Performance Goals for the Performance Period have been achieved, and (b) the number of Common Shares that the Grantee shall earn, if any, subject to compliance with the requirements of Section 3 (the date upon which the Committee certifies performance is referred to in this Agreement as the “Certification Date”).  Such certification shall be final, conclusive and binding on the Grantee, and on all other persons, to the maximum extent permitted by law.

 

Following the Certification Date, the Actual Award will be reflected on a Statement of Award, the form of which is attached hereto as Exhibit A.

 

Peer Group:

 

The “Peer Group” includes the following seventeen (17) organizations:

 

1st Source Corporation (SRCE)

Midland Bancorp, Inc. (MSBI)

City Holding Company (CHCO)

MidwestOne Financial Group, Inc (MOFG)

Enterprise Financial Services Corp. (EFSC)

Park National (PRK)

First Busey (BUSE)

Peoples Bancorp Inc. (PEBO)

First Commonwealth Financial Corp. (FCF)

QCR Holdings, Inc. (QCRH)

German American Bancorp Inc. (GABC)

Republic Bancorp, Inc. (RBCA)

Great Southern Bancorp, Inc. (GSBC)

S & T Bancorp, Inc. (STBA)

Horizon Bancorp. (HBNC)

Univest Financial Corporation (UVSP)

Lakeland Financial Corporation (LKFN)

 

-2-

 

The Committee maintains discretion to amend, modify and replace one or more members of the Peer Group when events warrant, such as in the event that a Peer Group member ceases to be a reporting company or is acquired and in other similar circumstances.

 

Performance Measures, Weightings, Goals, and Payout Calibration:

 

The performance measures are:

 

 

•

3-year average core ROA will be weighted 50% and be evaluated relative to Peer Group performance; and

 

•

3-year relative Total Shareholder Return (TSR) will be weighted 50% and be evaluated relative to the Peer Group.

 

The table below sets forth the two performance measures, their respective weighting, how performance on each measure will be evaluated (relative to peers or relative to plan) and the goals for threshold performance, target performance and superior performance.  Achievement of the threshold performance goal will result in 50% of the target payout, achievement of the target performance goal will result in 100% of target payout for the respective measure, and achievement of the superior performance goal will result in 150% of the target payout for the measure.  Payouts for performance between threshold and target, or between target and superior, will be interpolated.

 

Performance-Payout Table:

 

 

Evaluated

Performance Goals

Performance Measure

Weight

vs.

Threshold

Target

Superior

3-year Average Core ROA

50%

Peers

25th %ile

50th %ile

75th %ile

3-year Total Shareholder Return (rTSR)

50%

Peers

25th %ile

50th %ile

75th %ile

Payout for Performance Level (% of Target Opportunity):

50%

100%

150%

 

Definitions:

 

 

•

3-year Average Core ROA:  determine each company’s core return on average assets for each annual period, which is then averaged over the Performance Period.  The “core return on average assets” means the return on average assets adjusted for merger related costs and expenses; and

 

•

Total Shareholder Return:  stock price appreciation measured by comparing each company’s 20 day average stock price prior to the start of the first calendar year of the Performance Period, with each company’s 20 day average stock price at the end of the third calendar year of the Performance Period, plus reinvested dividends throughout the Performance Period.

-3-

 

The Committee maintains flexibility and discretion amend, modify, terminate or otherwise adjust the Plan, as necessary, including, but not limited to, adjusting measure definitions, if such adjustments ensure a better comparison relative to the peer group and most appropriately reflect the goals of the LTIP and the Company’s compensation philosophy.

 

3.Vesting of PSUs.  The PSUs are subject to forfeiture until they vest. Except as otherwise provided herein, the PSUs will vest and become nonforfeitable on the Certification Date, subject to (a) the achievement of the minimum threshold Performance Goals for payout set forth in Section 2, and (b) the Grantee’s Continuous Service from the Grant Date through the Certification Date.  The Actual Award earned upon PSU vesting shall be determined by the Committee based on the level of achievement of the Performance Goals set forth in Section 2 and shall be rounded to the nearest whole Common Share.  “Continuous Service” means that the Grantee’s service with the Company as an Employee is not terminated.

 

4.Termination of Continuous Service.

 

(a)Except as otherwise expressly provided in this Agreement, if the Grantee’s Continuous Service terminates for any reason at any time before all of his or her PSUs have vested, the Grantee’s unvested PSUs shall be automatically forfeited upon such termination of Continuous Service, and neither the Company nor any Affiliate shall have any further obligations to the Grantee under this Agreement.

 

(b)Notwithstanding Section 4(a):

 

 

(i)

If the Grantee’s Continuous Service terminates during the Performance Period as a result of the Grantee’s death or Disability, all of the outstanding PSUs will vest in accordance with Section 3, and further provided that the amount to be paid shall be determined in the manner set forth in Section 2, as if the Grantee’s Continuous Service had not terminated; and

 

 

(ii)

If the Grantee’s Continuous Service terminates before the end of the Performance Period as a result of Retirement, termination by the Company without Cause, or termination by the Grantee for Good Reason, a pro-rata portion of the outstanding PSUs shall vest in proportion to the number of months, including any partial month, elapsed in the Performance Period, and further provided that the amount to be paid shall be determined in the manner set forth in Section 2.

 

(c)“Good Reason” means the definition of “Good Reason” set forth in the Grantee’s employment, severance, change in control or similar agreement, or in the absence thereof, “Good Reason” means:

 

 

(i)

a material reduction in the Grantee’s rate of base salary; or

-4-

 

 

(ii)

the Company changes by fifty (50) miles or more the principal location in which the Grantee is required to perform services; or

 

 

(iii)

the Company terminates, materially amends or materially restricts the Grantee’s participation in, any equity, bonus or equity-based compensation plans or qualified or supplemental retirement plans so that, when considered in the aggregate with any substitute plan or plans, the plans in which the Grantee is participating materially fail to provide him or her with a level of benefits provided in the aggregate by such plans prior to such termination or amendment; or

 

 

(iv)

the Company materially breaches the provisions of this Agreement.

 

A termination of the Grantee’s employment shall not be deemed to be for Good Reason unless (i) the Grantee gives notice to the Company of the existence of the event or condition constituting Good Reason within thirty (30) days after such event or condition initially occurs or exists, (ii) the Company fails to cure such event or condition within thirty (30) days after receiving such notice, and (iii) the Grantee’s termination occurs not later than ninety (90) days after such event or condition initially occurs or exists, in each case without the Grantee’s written consent.

 

5.Effect of a Change in Control.  If there is a Change in Control during the Performance Period, all outstanding PSUs shall be earned and vest at Target Award levels for open years in the Performance period and in the manner set forth in Section 2 for any closed years in the Performance Period, on the effective date of the Change in Control and shall be paid in cash no later than sixty (60) days following the effective date of such Change in Control.

 

6.Payment of PSUs.  Payment in respect of the PSUs earned for the Performance Period shall be made in Common Shares and shall be issued to the Grantee as soon as practicable following the later of the vesting date or the end of the Performance Period and in any event not later than two and one-half (2-1/2) months following the end of the year in which the vesting date or the end of the Performance Period occurs.  The Company shall (a) issue and deliver to the Grantee the number of Common Shares equal to the number of vested PSUs, and (b) enter the Grantee’s name on the books of the Company as the shareholder of record with respect to the Common Shares delivered to the Grantee.

 

7.Transferability.  Subject to any exceptions set forth in this Agreement or the Plan, the PSUs or the rights relating thereto may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Grantee, except by will or the laws of descent and distribution, and upon any such transfer by will or the laws of descent and distribution, the transferee shall hold such PSUs subject to all of the terms and conditions that were applicable to the Grantee immediately prior to such transfer.

 

-5-

8.Rights as Shareholder; Dividend Equivalents.

 

(a)The Grantee shall not have any rights of a shareholder with respect to the Common Shares underlying the PSUs, including voting rights.  Notwithstanding the foregoing, dividends on the Common Shares underlying the PSUs, if any, paid prior to the certification date, whether in cash or in the form of additional Company Common Shares, shall accrue and be deferred and subject to forfeiture if the PSUs granted hereby do not vest with the Grantee on the Certification Date; then paid in cash or shares as applicable, subject to adjustment based upon the Actual Award paid to the Grantee.

 

(b)Upon and following the vesting of the PSUs and the issuance of Common Shares, the Grantee shall be the record owner of the Common Shares underlying the PSUs unless and until such shares are sold or otherwise disposed of, and as record owner shall be entitled to all rights of a shareholder of the Company (including voting and dividend rights).

 

9.No Right to Continued Service.  Neither the Plan nor this Agreement shall confer upon the Grantee any right to be retained in any position, as an Employee, Consultant or Director of the Company.  Further, nothing in the Plan or this Agreement shall be construed to limit the discretion of the Company to terminate the Grantee’s Continuous Service at any time, with or without Cause.

 

10.Adjustments.  On any change in the number or kind of outstanding Common Shares of the Company by reason of recapitalization, merger, consolidation, reorganization, separation, liquidation, share split, share dividend, combination of shares or any other change in the corporate structure or Common Shares of the Company, the Company, by action of the Committee, is empowered to make such adjustment, if any, in the number and kind of PSUs subject to this Agreement as it considers appropriate for the protection of the Company and of the Grantee.

 

11.Tax Liability and Withholding.

 

(a)The Grantee shall be required to pay to the Company, and the Company shall have the right to deduct from any compensation paid to the Grantee pursuant to the Plan, the amount of any required withholding taxes in respect of the Common Shares issued upon the vesting of the PSUs and to take all such other action as the Committee deems necessary to satisfy all obligations for the payment of such withholding taxes.  The Committee may permit the Grantee to satisfy any federal, state or local tax withholding obligation by any of the following means, or by a combination of such means:

 

 

(i)

tendering a cash payment;

 

 

(ii)

authorizing the Company to withhold Common Shares from the Common Shares otherwise issuable or deliverable to the Grantee as a result of the vesting of the PSUs; provided, however, that no Common Shares shall be withheld with a value exceeding the minimum amount of tax required to be withheld by law; or

-6-

 

 

(iii)

delivering to the Company previously owned and unencumbered Common Shares.

 

(b)Notwithstanding any action the Company takes with respect to any or all income tax, social insurance, payroll tax, or other tax-related withholding (“Tax-Related Items”), the ultimate liability for all Tax-Related Items is and remains the Grantee’s responsibility and the Company (i) makes no representation or undertakings regarding the treatment of any Tax-Related Items in connection with the grant, vesting or settlement of the PSUs or the subsequent sale of any shares, and (ii) does not commit to structure the Award to reduce or eliminate the Grantee’s liability for Tax-Related Items.

 

12.Compliance with Law.  The issuance and transfer of Common Shares in connection with the PSUs shall be subject to compliance by the Company and the Grantee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Company’s Common Shares may be listed.  No Common Shares shall be issued or transferred unless and until any then applicable requirements of state and federal laws and regulatory agencies have been fully complied with to the satisfaction of the Company and its counsel.

 

13.Notices.  Any notice required to be delivered to the Company under this Agreement shall be in writing and addressed to the Secretary of the Company at the Company’s principal corporate offices.  Any notice required to be delivered to the Grantee under this Agreement shall be in writing and addressed to the Grantee at the Grantee’s address as shown in the records of the Company.  Either party may designate another address in writing (or by such other method approved by the Company) from time to time.

 

14.Governing Law.  This Agreement will be construed and interpreted in accordance with the laws of the State of Ohio without regard to conflict of law principles.

 

15.Interpretation.  Any dispute regarding the interpretation of this Agreement shall be submitted by the Grantee or the Company to the Committee for review.  The resolution of such dispute by the Committee shall be final and binding on the Grantee and the Company.

 

16.PSUs Subject to Plan.  The PSUs are in all respects subject to the terms, conditions and provisions of the Agreement and the Plan.

 

17.Successors and Assigns.  The Company may assign any of its rights under this Agreement.  This Agreement will be binding upon and inure to the benefit of the successors and assigns of the Company.  Subject to the restrictions on transfer set forth herein, this Agreement will be binding upon the Grantee and the Grantee’s beneficiaries, executors, administrators and the person(s) to whom the PSUs may be transferred by will or the laws of descent or distribution.

 

18.Severability.  The invalidity or unenforceability of any provision of the Plan or this Agreement shall not affect the validity or enforceability of any other provision of the Plan or this

-7-

Agreement, and each provision of the Plan and this Agreement shall be severable and enforceable to the extent permitted by law.

 

19.Discretionary Nature of Plan.  The Plan is discretionary and may be amended, cancelled or terminated by the Company at any time, in its discretion.  The grant of the PSUs in this Agreement does not create any contractual right or other right to receive any PSUs or other Awards in the future. Future Awards, if any, will be at the sole discretion of the Company.  Any amendment, modification, or termination of the Plan shall not constitute a change or impairment of the terms and conditions of the Grantee’s employment with the Company.

 

20.Amendment.  The Committee has the right to amend, alter, suspend, discontinue or cancel the PSUs, prospectively or retroactively; provided that, no such amendment shall adversely affect the Grantee’s material rights under this Agreement without the Grantee’s consent.

 

21.Section 409A.  This Agreement is intended to comply with Section 409A of the Code or an exemption thereunder and shall be construed and interpreted in a manner that is consistent with the requirements for avoiding additional taxes or penalties under Section 409A of the Code.  Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A of the Code and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by the Grantee on account of non-compliance with Section 409A of the Code.

 

22.Non-solicitation Covenants.  By accepting this Agreement and the Target Award provided for herein, the Grantee agrees that during his or her employment with the Company and/or its subsidiaries and affiliates, including but not limited to Premier Bank, and for a period of one year after such employment ceases, either voluntarily or involuntary for any reason, he or she will not, either directly or indirectly:

 

(a)Solicit, encourage, or induce any person employed by the Company, or attempt to solicit, encourage or induce any person employed by the Company, to terminate his or her employment with the Company or to seek or accept employment with any other person or entity;

 

(b)Contact or attempt to contact any customer or prospective customer of the Company for whom the Grantee performed any services or had any direct or indirect business contact for the purposes of identifying his or her new association or his or her change of employment or current affiliation;

 

(c)Contact any customer of the Company for whom the Grantee performed any services or had any direct or indirect business contact for the purpose of soliciting, influencing, enticing, attempting to divert, or inducing any such customers to obtain any product or service offered by the Company from any person or entity other than the Company;

 

-8-

(d)Contact any customer or prospective customer of the Company whose identity or other customer specific information the Grantee obtained or gained access to as an employee of Company for the purpose of soliciting, influencing, enticing, attempting to divert, or inducing any such customers or prospective customers to obtain any product or service provided by the Company from any person or entity other than the Company;

 

(e)Accept or provide assistance in the accepting of business from any customers or any prospective customers of the Company for whom the Grantee performed any services or had any direct or indirect business contact, or whose identity or other customer specific information the Grantee obtained or gained access to as an employee of the Company.

 

Notwithstanding the foregoing non-solicitation provisions of this Agreement, if the Grantee separates employment within one (1) year following a Change in Control that is not pursuant to a transaction approved by the Company’s Board of Directors, then the Grantee’s obligations will cease as of the date of his or her employment termination.

 

23.No Impact on Other Benefits.  Except as otherwise provided in a Grantee’s employment agreement, the value of the Grantee’s PSUs is not part of his or her normal or expected compensation for purposes of calculating any severance, retirement, welfare, insurance or similar employee benefit.

 

24.Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.

 

25.Acceptance.  The Grantee hereby acknowledges receipt of a copy of the Plan and this Agreement.  The Grantee has read and understands the terms and provisions thereof, and accepts the PSUs subject to all of the terms and conditions of the Plan and this Agreement.  The Grantee acknowledges that there may be adverse tax consequences upon the vesting or settlement of the PSUs or disposition of the underlying shares and that the Grantee has been advised to consult a tax advisor prior to such vesting, settlement or disposition.

 

26.Clawback.  Notwithstanding any other provisions in this Agreement or the Plan, all payments made to the Grantee pursuant to this Agreement shall be subject to recovery, deduction or clawback (collectively, “Clawback”) under any law, regulation, stock exchange listing requirement requiring Clawback and under the Company’s Incentive Compensation Clawback Policy, as may be amended from time to time.

 

[Signature Page Follows]


-9-

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

Premier Financial Corp.

 

 

____________________________________

Name: [Name]

Title: [Title]

 

 

____________________________________

Name: [Name]

 

-10-

EXHIBIT A

 

2021 LONG TERM INCENTIVE PLAN

STATEMENT OF AWARD

Grantee’s Name and Address:

[Name]

[Address]

 

Target Award:   Performance Share Units

2018 FDEF Equity Plan-2021 Long Term Incentive Plan PSU Award Agreement (EO)1

Exhibit 21

List of Subsidiaries of First Defiance Financial Corp.

Name

 

Jurisdiction of Incorporation

Premier Bank

 

OH

First Insurance Group of the Midwest, Inc.

 

OH

First Defiance Risk Management, Inc.

 

NV

HSB Capital, LLC

 

OH

 

 

 

 

Exhibit 23.1

 

 

 

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

We consent to the incorporation by reference in the Registration Statements on Form S-8 No. (333-236215; 333-197203; 333-224483 and 333-166891) of Premier Financial Corp. of our report dated March 12, 2021 relating to the consolidated financial statements and effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Premier Financial Corp. for the year ended December 31, 2020.

 

 

 

/s/ Crowe LLP

 

 

Crowe LLP

 

South Bend, Indiana

March 12, 2021

 

Exhibit 31.1

 

SARBANES-OXLEY ACT OF 2002, SECTION 302

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

 

I, Donald P. Hileman, President and Chief Executive Officer, certify that:

 

 

1)

I have reviewed this annual report on Form 10-K of Premier Financial Corp. (the “registrant”);

 

 

2)

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

 

 

3)

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

 

 

4)

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

 

 

a)

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

 

 

b)

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

 

 

c)

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

 

 

d)

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

 

 

5.

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

 

 

a)

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

 

 

b)

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

 

Dated: March 12, 2021

 

/s/ Donald P. Hileman

Donald P. Hileman

President and Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

 

SARBANES-OXLEY ACT OF 2002, SECTION 302

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

 

I, Paul Nungester, Chief Financial Officer, certify that:

 

 

1)

I have reviewed this annual report on Form 10-K of Premier Financial Corp. (the “registrant”);

 

 

2)

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

 

 

3)

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

 

 

4)

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

 

 

a)

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

 

 

b)

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

 

 

c)

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

 

 

d)

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

 

 

5.

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

 

 

a)

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

 

 

b)

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

 

Dated: March 12, 2021

 

/s/ Paul Nungester

Paul Nungester

Chief Financial Officer

(Principal Financial Officer)

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Premier Financial Corp (the “Registrant”) on Form 10-K for the year ended December 31, 2020 as filed with the Securities and Exchange Commission (the “Report”), I, Donald P. Hileman, President and Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

 

 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

 

By:

/s/ Donald P. Hileman

 

 

Name:  Donald P. Hileman

 

 

Title: President and Chief

 

 

Executive Officer

 

 

 

Date: March 12, 2021

 

 

 

A signed original of this Certification has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Premier Financial Corp (the “Registrant”) on Form 10-K for the year ended December 31, 2020 as filed with the Securities and Exchange Commission (the “Report”), I, Paul Nungester, Executive Vice President and Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

 

 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

 

By:

/s/ Paul Nungester

 

 

Name:  Paul Nungester

 

 

Title: Executive Vice President

 

 

and Chief Financial Officer

 

 

 

Date: March 12, 2021

 

 

 

A signed original of this Certification has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.