PREMIER FINANCIAL CORP - Quarter Report: 2022 September (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2022


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

For the transition period from _____________ to _______________

Commission File Number: 0-26850

Premier Financial Corp.

(Exact Name of Registrant as Specified in its Charter)


Ohio	34-1803915
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
601 Clinton Street Defiance, OH	43512
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (419) 785-8700

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, Par Value $0.01 Per Share

PFC

The NASDAQ Stock Market

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

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

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

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

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

As of November 1, 2022, the registrant had 35,566,382 shares of common stock, $.01 par value per share, outstanding.

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PREMIER FINANCIAL CORP.

INDEX


		Page Number

PART I - FINANCIAL INFORMATION

Item 1.	Consolidated Condensed Financial Statements (Unaudited):	2

	Consolidated Condensed Statements of Financial Condition – September 30, 2022 and December 31, 2021	2

	Consolidated Condensed Statements of Income – three and nine months ended September 30, 2022 and 2021	3

	Consolidated Condensed Statements of Comprehensive Income (Loss) – three and nine months ended September 30, 2022 and 2021	4

	Consolidated Condensed Statements of Changes in Stockholders’ Equity – three and nine months ended September 30, 2022 and 2021	5

	Consolidated Condensed Statements of Cash Flows – nine months ended September 30, 2022 and 2021	7

	Notes to Consolidated Condensed Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	42

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	57

Item 4.	Controls and Procedures	58

PART II - OTHER INFORMATION:

Item 1.	Legal Proceedings	58

Item 1A.	Risk Factors	59

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59

Item 3.	Defaults upon Senior Securities	60

Item 4.	Mine Safety Disclosures	60

Item 5.	Other Information	60

Item 6.	Exhibits	60

	Signatures	61

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PART I-FINANCIAL INFORMATION

PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Financial Condition

(UNAUDITED)

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


	September 30, 2022			December 31, 2021
Assets
Cash and cash equivalents:
Cash and amounts due from depository institutions	$	67,124		$	54,858
Interest-bearing deposits		37,868			106,708
		104,992			161,566
Securities available-for-sale, carried at fair value		1,063,713			1,206,260
Equity securities, carried at fair value		15,336			14,097
Loans held for sale, carried at fair value		129,142			162,947
Loans receivable, net of allowance for credit losses of $70,626 at September 30, 2022 and $66,468 at December 31, 2021, respectively		6,137,082			5,229,700
Mortgage servicing rights		20,832			19,538
Accrued interest receivable		26,021			20,767
Federal Home Loan Bank stock		28,262			11,585
Bank owned life insurance		169,728			166,767
Premises and equipment		53,747			55,602
Real estate and other assets held for sale		416			171
Goodwill		317,948			317,948
Core deposit and other intangibles		19,972			24,129
Other assets		148,949			90,325
Total assets	$	8,236,140		$	7,481,402
Liabilities and stockholders’ equity
Liabilities:
Deposits	$	6,732,505		$	6,282,051
Advances from the Federal Home Loan Bank		411,000			—
Subordinated debentures		85,071			84,976
Advance payments by borrowers		33,511			24,716
Reserve for credit losses - unfunded commitments		7,061			5,031
Other liabilities		102,032			61,132
Total liabilities		7,371,180			6,457,906
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 43,297,260 shares issued and 35,562,684 and 36,383,613 shares outstanding at September 30, 2022 and December 31, 2021, respectively		306			306
Additional paid-in capital		691,578			691,132
Accumulated other comprehensive income, net of tax of $(48,175) and $(912), respectively		(181,231	)		(3,428	)
Retained earnings		488,305			443,517
Treasury stock, at cost, 7,734,576 shares at September 30, 2022 and 6,913,647 shares at December 31, 2021		(133,998	)		(108,031	)
Total stockholders’ equity		864,960			1,023,496
Total liabilities and stockholders’ equity	$	8,236,140		$	7,481,402

See accompanying notes.

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PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Income

(UNAUDITED)

(Amounts in Thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022			2021
Interest Income
Loans	$	65,559	$	55,443	$	177,366		$	168,781
Investment securities:
Taxable		5,965		4,334		15,901			11,054
Non-taxable		849		991		2,588			2,945
Interest-bearing deposits		221		33		387			142
FHLB stock dividends		510		60		743			175
Total interest income		73,104		60,861		196,985			183,097
Interest Expense
Deposits		6,855		3,144		11,749			10,867
FHLB advances and other		2,069		11		2,609			23
Subordinated debentures		868		671		2,326			2,040
Notes payable		—		—		1			—
Total interest expense		9,792		3,826		16,685			12,930
Net interest income		63,312		57,035		180,300			170,167
Credit loss expense (benefit) - loans and leases		3,706		1,594		9,483			(9,549	)
Credit loss expense - unfunded commitments		306		226		2,030			488
Net interest income after credit (benefit) loss expense		59,300		55,215		168,787			179,228
Non-interest Income
Service fees and other charges		6,545		6,067		19,221			17,817
Insurance commissions		3,488		3,461		12,043			12,401
Mortgage banking income		3,970		6,175		10,170			18,865
Gain on sale of securities available for sale		—		233		—			2,218
Gain (loss) on equity securities		43		20		(1,760	)		822
Wealth management income		1,355		1,321		4,246			4,644
Income from Bank Owned Life Insurance		983		947		2,961			2,975
Other non-interest income		320		146		1,051			2,005
Total non-interest income		16,704		18,370		47,932			61,747
Non-interest Expense
Compensation and benefits		24,522		23,355		72,397			66,399
Occupancy		3,463		3,693		10,657			11,642
FDIC insurance premium		976		695		2,370			2,115
Financial institutions tax		1,050		1,187		3,315			3,553
Data processing		3,121		3,387		9,899			10,103
Amortization of intangibles		1,338		1,528		4,156			4,725
Other non-interest expense		6,629		5,256		18,689			17,300
Total non-interest expense		41,099		39,101		121,483			115,837
Income before income taxes		34,905		34,484		95,236			125,138
Income tax expense		6,710		6,124		18,324			24,397
Net income	$	28,195	$	28,360	$	76,912		$	100,741
Earnings per common share
Basic	$	0.79	$	0.76	$	2.15		$	2.70
Diluted	$	0.79	$	0.76	$	2.15		$	2.70

See accompanying notes.

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PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Comprehensive Income (Loss)

(UNAUDITED)

(Amounts in Thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Net income	$	28,195		$	28,360		$	76,912		$	100,741

Other comprehensive (loss) income:
Unrealized (losses) gains on securities available for sale		(55,350	)		(9,042	)		(182,755	)		(16,169	)
Reclassification adjustment for securities gains (losses) included in net income		—			(233	)		—			(2,218	)
Income tax effect		11,624			1,947			38,378			3,861
Net of tax amount		(43,726	)		(7,328	)		(144,377	)		(14,526	)

Unrealized gain (loss) on balance sheet swap		(13,343	)		(1,692	)		(43,294	)		2,742
Reclassification adjustment for cash flow hedge derivatives gain included in net income		(266	)		(860	)		982			(1,310	)
Income tax effect		2,858			536			8,886			(301	)
Net of tax amount		(10,751	)		(2,016	)		(33,426	)		1,131

Total other comprehensive income (loss)		(54,477	)		(9,344	)		(177,803	)		(13,395	)

Comprehensive income (loss)	$	(26,282	)	$	19,016		$	(100,891	)	$	87,346

See accompanying notes.

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PREMIER FINANCIAL CORP.

Consolidated Statement of Changes in Stockholders’ Equity

(UNAUDITED)

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


	Preferred Stock		Common Stock Shares			Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income			Retained Earnings			Treasury Stock			Total Stockholders Equity
Balance at January 1, 2022	$	—		36,383,613		$	306	$	691,132		$	(3,428	)	$	443,517		$	(108,031	)	$	1,023,496
Net income															26,357						26,357
Other comprehensive income (loss)												(72,069	)								(72,069	)
Deferred compensation plan				9,933					(14	)								14			—
Stock based compensation expenses									760												760
Vesting of incentive plans				5,660					(246	)								246			—
Restricted share issuance				19,936					(351	)								351			—
Restricted share forfeitures				(5,398	)				69									(285	)		(216	)
Shares repurchased				(793,166	)													(24,245	)		(24,245	)
Common stock dividend payment ($0.30 per share)															(10,787	)					(10,787	)
Balance at March 31, 2022	$	—		35,620,578		$	306	$	691,350		$	(75,497	)	$	459,087		$	(131,950	)	$	943,296
Net income															22,360						22,360
Other comprehensive income (loss)												(51,257	)								(51,257	)
Deferred compensation plan									(14	)								14			—
Stock based compensation expenses									157												157
Vesting of incentive plans				5,547					(167	)								167			—
Restricted share issuance				24,256					(421	)								421			—
Restricted share forfeitures				(4,033	)													(118	)		(118	)
Shares repurchased				(90,870	)													(2,623	)		(2,623	)
Common stock dividend payment ($0.30 per share)															(10,668	)					(10,668	)
Balance at June 30, 2022	$	—		35,555,478		$	306	$	690,905		$	(126,754	)	$	470,779		$	(134,089	)	$	901,147

Net income															28,195						28,195
Other comprehensive (loss)												(54,477	)								(54,477	)
Deferred compensation plan									(14	)								14			—
Stock based compensation expenses									711												711
Shares issued under stock option plan				3,000														53			53
Restricted share issuance				8,521					(148	)								148			—
Restricted share forfeitures				(4,315	)				124									(124	)		—
Shares repurchased																		—			—
Common stock dividend payment ($0.30 per share)															(10,669	)					(10,669	)
Balance at September 30, 2022	$	—		35,562,684		$	306	$	691,578		$	(181,231	)	$	488,305		$	(133,998	)	$	864,960

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	Preferred Stock		Common Stock Shares			Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income			Retained Earnings			Treasury Stock			Total Stockholders Equity
Balance at January 1, 2021	$	—		37,291,480		$	306	$	689,390		$	15,004		$	356,414		$	(78,838	)	$	982,276
Net income (loss)															40,996						40,996
Other comprehensive income (loss)												(15,506	)								(15,506	)
Deferred compensation plan				7,911					51									(51	)		—
Stock based compensation expenses									551												551
Vesting of incentive plans				6,124					(82	)								82			—
Shares issued under stock option plan				600														8			8
Restricted share issuance				13,708					(183	)								183			—
Restricted share forfeitures				(5,779	)				20									(138	)		(118	)
Shares repurchased				(39,200	)													(1,078	)		(1,078	)
Common stock dividend payment ($0.24 per share)															(8,943	)					(8,943	)
Balance at March 31, 2021	$	—		37,274,844		$	306	$	689,747		$	(502	)	$	388,467		$	(79,832	)	$	998,186
Net income															31,385						31,385
Other comprehensive income (loss)												11,455									11,455
Deferred compensation plan									(26	)								26			—
Stock based compensation expenses									656												656
Vesting of incentive plans				21,834					(291	)								291			—
Shares issued under stock option plan																					—
Restricted share issuance				22,550					(301	)								301			—
Restricted share forfeitures				(15,257	)													(507	)		(507	)
Shares repurchased				(126,366	)													(3,773	)		(3,773	)
Common stock dividend payment ($0.26 per share)															(9,699	)					(9,699	)
Balance at June 30, 2021	$	—		37,177,605		$	306	$	689,785		$	10,953		$	410,153		$	(83,494	)	$	1,027,703
Net income															28,360						28,360
Other comprehensive income (loss)												(9,344	)								(9,344	)
Deferred compensation plan									(10	)								10			—
Stock based compensation expenses									1,176												1,176
Vesting of incentive plans				2,002					(84	)								84			—
Restricted share issuance				6,116					(84	)								84			—
Restricted share forfeitures				(1,287	)													(61	)		(61	)
Shares repurchased				(206,285	)													(5,970	)		(5,970	)
Common stock dividend payment ($0.27 per share)															(9,995	)					(9,995	)
Balance at September 30, 2021	$	—		36,978,151		$	306	$	690,783		$	1,609		$	428,518		$	(89,347	)	$	1,031,869

See accompanying notes.

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PREMIER FINANCIAL CORP.

Consolidated Condensed Statements of Cash Flows

(UNAUDITED)

(Amounts in Thousands)


	Nine Months Ended September 30,
	2022			2021
Operating Activities
Net income	$	76,912		$	100,741
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (benefit) for credit losses		11,513			(9,061	)
Depreciation		4,264			4,837
Amortization of premium and discounts on loans, securities, deposits and debt obligations		6,920			48
Amortization of mortgage servicing rights, net of impairment charges/recoveries		2,504			464
Amortization of intangibles		4,156			4,725
Change in deferred taxes		(774	)		1,708
Proceeds from the sale of loans held for sale		264,253			681,946
Originations of loans held for sale		(227,175	)		(631,573	)
Mortgage banking gain, net		(7,072	)		(13,663	)
Loss (gain) on sale / write-down of real estate and other assets held for sale		(78	)		10
Loss (gain) on sale of available for sale securities		—			(2,218	)
Loss (gain) on equity securities		1,760			(822	)
Shares issued under stock option plan		53			—
Stock based compensation expense		1,628			2,383
Restricted stock forfeitures for taxes and option exercises		(334	)		(678	)
Income from bank owned life insurance		(2,961	)		(2,975	)
Changes in:
Accrued interest receivable and other assets		(62,582	)		(11,908	)
Other liabilities		45,332			(10,957	)
Net cash provided (used) by operating activities		118,319			113,007
Investing Activities
Proceeds from maturities, calls and pay-downs of available-for-sale securities		76,837			109,756
Proceeds from sale of available-for-sale securities		—			158,011
Proceeds from sale of premises and equipment, real estate and other assets held for sale		475			290
Purchases of available-for-sale securities		(122,458	)		(803,082	)
Purchases of equity securities		(2,999	)		(11,053	)
Net change in Federal Home Loan Bank stock		(16,677	)		4,441
Purchases of premises and equipment, net		(2,409	)		(2,025	)
Proceeds from bank owned life insurance		—			893
Purchase of bank owned life insurance		—			(20,000	)
Net (increase) decrease in loans receivable		(919,634	)		226,637
Net cash used in investing activities		(986,865	)		(336,132	)
Financing Activities
Net increase in deposits and advance payments by borrowers		459,964			199,599
Net change in Federal Home Loan Bank advances		411,000			—
Net change in notes payable		—			18,812
Net cash paid for repurchase of common stock		(26,868	)		(10,821	)
Cash dividends paid on common stock		(32,124	)		(28,637	)
Net cash provided by financing activities		811,972			178,953
Increase (decrease) in cash and cash equivalents		(56,574	)		(44,172	)
Cash and cash equivalents at beginning of period		161,566			159,266
Cash and cash equivalents at end of period	$	104,992		$	115,094
Supplemental cash flow information:
Interest paid	$	16,529		$	13,086
Income taxes paid		12,320			23,858
Initial recognition of right-of-use asset		643			500
Initial recognition of lease liability		643			500
Transfers from loans to real estate and other assets held for sale		—			438

See accompanying notes.

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PREMIER FINANCIAL CORP.

Notes to Consolidated Condensed Financial Statements (UNAUDITED)

September 30, 2022 and 2021

1. Basis of Presentation

Premier Financial Corp. (“Premier” or the “Company”) is a bank holding company that conducts business through its wholly-owned subsidiaries, Premier Bank (the "Bank"), First Insurance Group of the Midwest, Inc. (“First Insurance”), PFC Risk Management Inc. (“PFC Risk Management”) and PFC Capital, LLC (“PFC Capital”). All significant intercompany transactions and balances are eliminated in consolidation. Premier’s stock is traded on the NASDAQ Global Select Market under the ticker PFC.

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

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.

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

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

The consolidated condensed statement of financial condition at December 31, 2021, was derived from the audited financial statements at that date, which were included in Premier’s Annual Report on Form 10-K for the year ended December 31, 2021 ("2021 Form 10-K").

The accompanying consolidated condensed financial statements as of September 30, 2022, and for the three and nine months ended September 30, 2022 and 2021 have been prepared by the Company without audit and do not include information or footnotes necessary for the complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). These consolidated condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the 2021 Form 10-K. However, in the opinion of management, all adjustments, consisting of only normal recurring items, necessary for the fair presentation of the financial statements have been made. The results for the three and nine months ended September 30, 2022, are not necessarily indicative of the results that may be expected for the entire year.

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2. Significant Accounting Policies

Accounting Standards Update

ASU No. 2020-04: Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848): On March 12, 2020, the FASB issued Accounting Standards Update (ASU) 2020-04, "Reference Rate Reform (“ASC 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASC 848 contains optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or other reference rates expected to be discontinued. The Company has formed a cross-functional project team to lead the transition from LIBOR to the adoption of alternative reference rates which include Secured Overnight Financing Rate. The Company identified loans that renewed prior to 2021 and began incorporating LIBOR fallback language into existing LIBOR loans. Additionally, management is utilizing the timeline guidance published by the Alternative Reference Rates Committee to develop and achieve internal milestones during this transitional period. The Company has also adhered to the International Swaps and Derivatives Association 2020 IBOR Fallbacks Protocol that was released on October 23, 2020, and has discontinued the issuance of new LIBOR-based loans since December 31, 2021, according to regulatory guidelines. Legacy LIBOR-based loans will be transitioned to an alternative reference rate on or before June 30, 2023. The updates are elective, are only available from March 12, 2020 until December 31, 2022, and their application did not have a material effect on the Company.

Accounting Standards Not Yet Adopted

ASU No. 2022-02, Troubled Debt Restructurings and Vintage Disclosures: On March 30, 2022, the FASB issued ASU 2022-02, "Troubled Debt Restructurings and Vintage Disclosures" which will eliminate troubled debt restructuring ("TDR") accounting for entities that have adopted ASU 2016-13, the current expected credit loss ("CECL") model and will add new vintage disclosures for gross write-offs. The elimination of TDR accounting can be adopted either prospectively for loan modifications after adoption or on a modified retrospective basis that would result in a cumulative effect adjustment to retained earnings in the period of adoption. ASU 2022-02 is effective for the Company for fiscal years beginning after December 15, 2022. The Company can elect to early adopt a part or all of such update. The Company is currently assessing the impacts of adopting the guidance.

3. Fair Value

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

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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, MBS, asset-backed securities ("ABS"), corporate bonds and municipal securities.

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

Loans held for sale, carried at fair value – The Company has elected the fair value option for all loans held for sale originated after January 31, 2020.

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

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

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

Appraisals for both individually analyzed collateral-dependent loans and other real estate owned ("OREO") are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Company’s asset quality or collections department reviews the assumptions and approaches utilized in the appraisal. Appraisal values are discounted from 0% to 30% to account for other factors that may impact the value of collateral. In determining the value of individually analyzed collateral dependent loans and OREO, 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).

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

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The Company also enters into cash flow hedge derivative instruments to hedge the risk of variability in cash flows (future interest payments) attributable to changes in the contractually specified LIBOR benchmark interest rate on the Company’s floating rate loan pool. The Company uses an independent third party to perform a market valuation analysis for these derivatives (Level 2).

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

Assets and Liabilities Measured on a Recurring Basis


September 30, 2022	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Assets:
Available for sale securities:
Obligations of U.S. federal government corporations and agencies	$	47,908	$	96,117	$	—	$	144,025
Mortgage-backed securities		—		169,108		—		169,108
Collateralized mortgage obligations		—		257,055		—		257,055
Asset-backed securities		—		198,548		—		198,548
Corporate bonds		—		67,422		—		67,422
Obligations of state and political subdivisions		—		227,555		—		227,555
Equity securities		15,336		—		—		15,336
Loans held for sale, at fair value		—		23,689		105,453		129,142
Interest rate swaps		—		4,739		—		4,739
Mortgage banking derivatives		—		15,237		—		15,237
Liabilities:
Interest rate swaps		—		4,739		—		4,739
Cash flow hedge derivative		—		41,458		—		41,458


December 31, 2021	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Assets:
Available for sale securities:
Obligations of U.S. federal government corporations and agencies	$	—	$	174,710	$	—	$	174,710
Mortgage-backed securities		—		206,751		—		206,751
Collateralized mortgage obligations		—		260,168		—		260,168
Asset-backed securities		—		220,536		—		220,536
Corporate bonds		—		70,893		—		70,893
Obligations of state and political subdivisions		—		273,202		—		273,202
Equity securities		14,097		—		—		14,097
Loans held for sale, at fair value		—		28,780		134,167		162,947
Interest rate swaps		—		1,287		—		1,287
Cash flow hedge derivative		—		854		—		854
Mortgage banking derivatives		—		2,336		—		2,336
Liabilities:
Interest rate swaps		—		1,292		—		1,292

The table below presents a reconciliation of assets that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2022 and

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2021. There were no securities that were measured at Level 3 for the three and nine months ended September 30, 2022 and 2021.


	Construction loans held for sale
	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Balance of recurring Level 3 assets at beginning of period	$	117,015		$	148,659		$	134,167		$	123,029
Total gains (losses) for the period
Included in change in fair value of loans held for sale		(7,627	)		(3	)		(27,417	)		(3,757	)
Originations		31,245			32,055			95,311			96,983
Sales		(35,180	)		(41,141	)		(96,608	)		(76,685	)
Balance of recurring Level 3 assets at end of period	$	105,453		$	139,570		$	105,453		$	139,570

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


September 30, 2022	Fair Value		Valuation Technique	Unobservable Inputs	Range of Inputs
			(Dollars in Thousands)
Construction loans held for sale	$	105,453	Quoted market price	Time discount using the 60 day forward contract	0.00% - 0.30%


December 31, 2021	Fair Value		Valuation Technique	Unobservable Inputs	Range of Inputs
			(Dollars in Thousands)
Construction loans held for sale	$	134,167	Quoted market price	Time discount using the 60 day forward contract	0.00% - 1.86%

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

Assets and Liabilities Measured on a Non-Recurring Basis


September 30, 2022	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Individually analyzed loans
Commercial real estate	$	—	$	—	$	6,213	$	6,213
Commercial		—		—		5,031		5,031
Total individually analyzed loans	$	—	$	—	$	11,244	$	11,244
Mortgage servicing rights	$	—	$	20,832	$	—	$	20,832


December 31, 2021	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
	(In Thousands)
Individually analyzed loans
Commercial real estate	$	—	$	—	$	2,749	$	2,749
Commercial		—		—		8,564		8,564
Total individually analyzed loans	$	—	$	—	$	11,313	$	11,313
Mortgage servicing rights	$	—	$	19,538	$	—	$	19,538

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For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of September 30, 2022, the significant unobservable inputs used in the fair value measurements were as follows:


	Fair Value		Valuation Technique	Unobservable Inputs	Range of Inputs			Weighted Average
			(Dollars in Thousands)
Individually analyzed Loans- Applies to loan classes with an appraisal valuation	$	7,386	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions	10-70%				22.03	%
Individually analyzed Loans- Applies to loan classes without an appraisal valuation	$	3,858	Equitable Recoupment claim estimate	Discounts for collection issues		0	%		0	%

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


	Fair Value		Valuation Technique	Unobservable Inputs	Range of Inputs			Weighted Average
			(Dollars in Thousands)
Individually analyzed Loans- Applies to loan classes with an appraisal valuation	$	5,821	Appraisals which utilize sales comparison, net income and cost approach	Discounts for collection issues and changes in market conditions	20-50%				35.18	%
Individually analyzed Loans- Applies to loan classes without an appraisal valuation	$	5,492	Equitable Recoupment claim estimate	Discounts for collection issues		25	%		25.00	%

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

The aggregate fair value of the residential mortgage loans held for sale at September 30, 2022 and December 31, 2021 was $23.7 million and $28.8 million, respectively, and they had a contractual balance of $22.7 million and $27.7 million, respectively, for these same periods. The difference between the fair value and the contractual balance is recorded in gains and losses on the sale of loans held for sale. For the three and nine months ended September 30, 2022, $1.7 million and $3.0 million, respectively, were recorded in losses on the sale of loans held for sale for the change in fair value. For the three and nine months ended September 30, 2021, $1.2 million and $4.4 million, respectively, were recorded in losses 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 September 30, 2022 and December 31, 2021, was $105.5 million and $134.2 million, respectively, and they had a contractual balance of $123.7 million and $125.0 million, respectively, for these same periods. The difference between the fair value and the contractual balance is recorded in gains and losses on the sale of loans held for sale. For the three and nine months ended September 30, 2022, $7.6 million and $27.4 million, respectively, were recorded in losses on the sale of loans held for sale for the change in fair value. For the three and nine months ended September 30,

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2021, $3,000 and $3.9 million, respectively, were recorded in losses on the sale of loans held for sale for the change in fair value.

In accordance with FASB ASC Topic 825, the Fair Value Measurements tables are a comparative condensed consolidated statement of financial condition based on carrying amount and estimated fair values of financial instruments as of September 30, 2022, and December 31, 2021. Accordingly, the aggregate fair value amounts presented do not represent the underlying value to Premier.

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

The carrying amount of cash and cash equivalents, as a result of their short-term nature, is considered to be equal to fair value and are classified as Level 1.

It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability.

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

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

The carrying value of notes payable, as a result of their short-term nature, is considered to be equal to fair value and are classified as Level 1.

The fair values of securities sold under repurchase agreements are equal to their carrying amounts resulting in a Level 1 classification. The carrying value of floating rate subordinated debentures was considered to be the carrying value as the debt is floating rate and can be prepaid at any time without penalty. The carrying value of fixed rate subordinated debt is estimated using a DCF calculation that applies interest rates currently being offered in the market to the expected maturity of the debt resulting in a Level 2 classification.

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FHLB advances with maturities greater than 90 days are valued based on a DCF analysis, using interest rates currently being quoted for similar characteristics and maturities resulting in a Level 2 classification. The cost or value of any call or put options is based on the estimated cost to settle the option at September 30, 2022.

The carrying value and estimated fair values of financial instruments at September 30, 2022 and December 31, 2021, were as follows:


			Fair Value Measurements at September 30, 2022
			(In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	104,992	$	104,992	$	104,992	$	—	$	—
Securities available for sale		1,063,713		1,063,713		47,908		1,015,805		—
Equity securities		15,336		15,336		15,336		—		—
Federal Home Loan Bank Stock		28,262	N/A		N/A		N/A		N/A
Loans receivable, net		6,137,082		5,940,156		—		—		5,940,156
Loans held for sale, carried at fair value		129,142		129,142		—		23,689		105,453

Financial Liabilities:
Deposits	$	6,732,505	$	6,706,619	$	5,844,616	$	862,003	$	—
Advances from Federal Home Loan Bank		411,000		410,998		—		410,998		—
Subordinated debentures		85,071		77,175		—		77,175		—


			Fair Value Measurements at December 31, 2021
			(In Thousands)
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	161,566	$	161,566	$	161,566	$	—	$	—
Securities available for sale		1,206,260		1,206,260		—		1,206,260		—
Equity securities		14,097		14,097		14,097		—		—
Federal Home Loan Bank Stock		11,585	N/A		N/A		N/A		N/A
Loans receivable, net		5,229,700		5,265,689		—		—		5,265,689
Loans held for sale, carried at fair value		162,947		162,947		—		28,780		134,167

Financial Liabilities:
Deposits	$	6,282,051	$	6,280,336	$	5,481,928	$	798,408	$	—
Subordinated debentures		84,976		85,417		—		85,417		—

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4. Stock Compensation Plans

Premier has established equity based compensation plans for its directors and employees. On February 27, 2018, the Board adopted, and the shareholders approved at the 2018 Annual Shareholders Meeting, the Premier Financial Corp. 2018 Equity Incentive Plan (the “2018 Equity Plan”). The 2018 Equity Plan replaced all existing plans, although the Company’s former equity plans remain in existence to the extent there were outstanding grants thereunder at the time the 2018 Equity Plan was approved. In addition, as a result of the Company's merger (the "Merger") with United Community Federal Corp. ("UCFC"), Premier assumed certain outstanding stock options granted under UCFC’s Amended and Restated 2007 Long-Term Incentive Plan (the “UCFC 2007 Plan”) and UCFC’s 2015 Long Term Incentive Plan, which has since been renamed as the “Premier Financial Corp. 2015 Long Term Incentive Plan” (the “2015 Plan”). Premier also assumed the shares available for future issuance under the 2015 Plan as of the effective date of the Merger, with appropriate adjustments to the number of shares available to reflect the Merger. The stock options assumed from UCFC in the Merger remain subject to the terms of the 2015 Plan, but became exercisable solely to purchase shares of Premier, with appropriate adjustments to the number of shares subject to the assumed stock options and the exercise price of such stock options. Besides certain options issued under the First Defiance Financial Corp. 2010 Equity Incentive Plan, all awards currently outstanding are issued under the 2018 Equity Plan or the 2015 Plan. The 2018 Equity Plan and the 2015 Plan were each amended and restated in February 2022 to align certain administrative components of the plans in addition to enhancing certain governance components. New awards will be made under either the 2018 Equity Plan or the 2015 Plan as the Company determines. The 2018 Equity Plan allows for issuance of up to 900,000 common shares through the award of options, restricted stock, stock, stock appreciation rights, or other stock-based awards. The 2015 Plan allows for the issuance of up to 1.2 million common shares, as adjusted for the Merger, through the award of options, stock, restyricted stock, stock units, stock appreciation rights, or performance stock awards.

The Company maintains Long-Term Equity Incentive Plans (each, an "LTIP") for select members of management (the "Executive LTIP") and a Key Employee and Commercial Lender Plan (the "Key Plan"). Under the Executive LTIP, participants may earn between 20% to 50% of their salary for potential payout in the form of equity awards based on the achievement of certain corporate performance targets over a three-year period. The Company granted 86,190 performance stock units ("PSUs") to the participants under the 2021 Executive LTIP during the first half of 2022, which represents the maximum target award. The value of awards issued in 2021 and 2022 under the Executive LTIP will be determined individually at the end of each respective 36 month performance period ending December 31. The benefits earned under these LTIPs will be paid out in equity in the first quarter following the end of the performance period. The participants will receive all or a portion of the award if their employment is terminated by the Company without cause, by the participant in certain situations, or by death, disability or retirement of the participant.

The maximum amount of compensation expense that may be earned for the PSUs at September 30, 2022, is approximately $6.8 million in the aggregate. However, the estimated expense that is expected to be earned as of September 30, 2022, is $4.5 million of which $1.3 million was unrecognized at September 30, 2022, and will be recognized over the remaining performance periods. Total expense of $432,000 and $842,000 was recorded during each of the three and nine months ended September 30, 2022, respectively, compared to expense of $825,000 and $1.5 million for the three and nine months ended September 30, 2021, respectively.

Beginning in 2022, under the Key Plan, the participants are granted restricted stock awards ("RSAs") based upon the achievement of certain targets in the prior year. Prior to 2022, restricted stock units ("RSUs") were issued to participants under the same plan. The participants can earn from 5% to 10% of their salary in RSAs or RSUs, that vest three years from the date of grant. The Company granted 19,612 in RSAs and 17,542 RSUs in the first quarter of2022 and 2021, respectively, as a payout under the Key Plan.

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In the nine months ended September 30, 2022, the Company also granted 33,101 discretionary RSAs that vest over a period of time ranging from one to three years. Of these grants, 14,712 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.

At September 30, 2022, a total of 347,343 RSAs were outstanding. Compensation expense is recognized over the performance or vesting period. Total expense of $280,000 and $786,000 was recorded during each of the three and nine months ended September 30, 2022, respectively, compared to expense of $351,000 and $908,000 for the three and nine months ended September 30, 2021, respectively. Approximately $2.3 million and $2.7 million is included within other liabilities at September 30, 2022 and December 31, 2021, respectively, related to the cash portion of the Company's Short-Term Incentive Plans.

The following table sets forth Premier's performance and restricted stock activity during the nine months ended September 30, 2022:


	Performance Stock Units					Restricted Stock Units					Restricted Stock Awards
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, 2022		161,674		$	28.36		51,773		$	28.44		58,260		$	29.71
Granted		86,190			30.67		—			—		52,713			29.24
Vested		—			—		(13,637	)		29.00		(35,159	)		27.97
Forfeited		(3,030	)		31.12		(6,340	)		27.25		(5,101	)		30.50
Unvested at September 30, 2022		244,834		$	29.14		31,796		$	28.44		70,713		$	30.17

As of September 30, 2022, 29,661 options to acquire Premier shares were outstanding at option prices based on the market value of the underlying shares on the date the options were granted. All options expire ten years from the date of grant. Vested options of retirees expire on the earlier of the scheduled expiration date or one year after the retirement date.

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 nine months ended September 30, 2022 and 2021.

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Following is stock option activity under the plans during the nine months ended September 30, 2022:


	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in 000’s)
Options outstanding, January 1, 2022		35,661		$	21.72
Forfeited or cancelled		(3,000	)		17.68
Exercised		(3,000	)		17.68
Granted		—			—
Options outstanding, September 30, 2022		29,661		$	22.54
Exercisable at September 30, 2022		29,661		$	22.54		4.34	$	100

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Proceeds of options exercised	$	53	$	—	$	53	$	8
Related tax benefit recognized		6		—		6		—
Intrinsic value of options exercised		29		—		29		11

As of September 30, 2022, 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 one month.

5. Dividends on Common Stock

Premier declared and paid $0.90 per common stock dividend in the first nine months of 2022 and $0.77 per common stock dividend in the first nine months of 2021. Premier declared and paid a $0.30 per common stock dividend in the third quarter of 2022 and declared and paid a $0.27 per common stock dividend in the third quarter of 2021.

6. Earnings Per Common Share

Basic earnings per share are calculated using the two-class method. The two-class method is an earnings allocation formula under which earnings per share is calculated from common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings distributed and undistributed, are allocated to participating securities and common shares based on their respective rights to receive dividends. Unvested share-based payment awards that contain non-forfeitable rights to dividends are considered participating securities (i.e., unvested restricted stock), not subject to performance based measures.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In Thousands, except per share data)
Basic Earnings Per Share:
Net income available to common shareholders	$	28,195	$	28,360	$	76,912	$	100,741
Less: income allocated to participating securities		22		27		80		98
Net income allocated to common shareholders		28,173		28,333		76,832		100,643

Weighted average common shares outstanding including participating securities		35,610		37,135		35,746		37,262
Less: Participating securities		28		35		37		36
Average common shares		35,582		37,100		35,709		37,226

Basic earnings per common share	$	0.79	$	0.76	$	2.15	$	2.70
Diluted Earnings Per Share:
Net income allocated to common shareholders	$	28,173	$	28,333	$	76,832	$	100,643
Weighted average common shares outstanding for basic earnings per common share		35,582		37,100		35,709		37,226
Add: Dilutive effects of stock options and restricted stock units		122		85		109		85
Average shares and dilutive potential common shares		35,704		37,185		35,818		37,311

Diluted earnings per common share	$	0.79	$	0.76	$	2.15	$	2.70

There were 17,644 and 18,437 shares for the three and nine months ended September 30, 2022, respectively, that were excluded from the diluted earnings per common share calculation. There were no shares for the three and nine months ended September 30, 2021 that were excluded from the dilutive earnings per common share calculation as no shares were anti-dilutive.

7. Investment Securities

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


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss			Fair Value
	(In Thousands)
At September 30, 2022
Available-for-Sale Securities:
Obligations of U.S. government corporations and agencies	$	173,907	$	—	$	(29,882	)	$	144,025
Mortgage-backed securities		204,655				(35,547	)		169,108
Collateralized mortgage obligations		306,623		—		(49,568	)		257,055
Asset-backed securities		206,505		557		(8,514	)		198,548
Corporate bonds		73,659				(6,237	)		67,422
Obligations of state and political subdivisions		286,213		32		(58,690	)		227,555
Total Available-for-Sale	$	1,251,562	$	589	$	(188,438	)	$	1,063,713

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	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss			Fair Value
	(In Thousands)
At December 31, 2021
Available-for-sale
Obligations of U.S. government corporations and agencies	$	174,644	$	984	$	(918	)	$	174,710
Mortgage-backed securities		208,281		851		(2,381	)		206,751
Collateralized mortgage obligations		264,541		363		(4,736	)		260,168
Asset-backed securities		221,545		610		(1,619	)		220,536
Corporate bonds		70,008		1,160		(275	)		70,893
Obligations of state and political subdivisions		272,334		5,898		(5,030	)		273,202
Total Available-for-Sale	$	1,211,353	$	9,866	$	(14,959	)	$	1,206,260

The amortized cost and fair value of the investment securities portfolio at September 30, 2022, are shown below by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. For purposes of the maturity table, MBS, CMOs and ABS, which are not due at a single maturity date, have not been allocated over the maturity groupings. These securities may mature earlier than their weighted-average contractual maturities because of principal prepayments.


	Available-for-Sale
	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	3,238	$	3,239
Due after one year through five years		49,077		45,193
Due after five years through ten years		233,374		202,166
Due after ten years		248,090		188,403
MBS/CMO/ABS		717,783		624,712
	$	1,251,562	$	1,063,713

Investment securities with a carrying amount of $736.1 million and $564.4 million at September 30, 2022 and December 31, 2021, respectively, were pledged as collateral.

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The following tables summarize Premier’s securities that were in an unrealized loss position at September 30, 2022 and December 31, 2021:


	Duration of Unrealized Loss Position
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Unrealized Loss
	(In Thousands)
At September 30, 2022
Available-for-sale securities:
Obligations of U.S. government corporations and agencies	$	99,589	$	(19,180	)	$	44,436	$	(10,702	)	$	144,025	$	(29,882	)
Mortgage-backed securities		48,282		(5,761	)		120,826		(29,786	)		169,108		(35,547	)
Collateralized mortgage obligations		111,746		(14,355	)		145,309		(35,213	)		257,055		(49,568	)
Asset-backed securities		82,184		(1,816	)		81,491		(6,698	)		163,675		(8,514	)
Corporate bonds		57,170		(4,946	)		10,252		(1,291	)		67,422		(6,237	)
Obligations of state and political subdivisions		128,802		(19,309	)		89,875		(39,381	)		218,677		(58,690	)
Total available-for-sale	$	527,773	$	(65,367	)	$	492,189	$	(123,071	)	$	1,019,962	$	(188,438	)


	Duration of Unrealized Loss Position
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Unrealized Loss
	(In Thousands)
At December 31, 2021
Available-for-sale securities:
Obligations of U.S. government corporations and agencies	$	73,810	$	(918	)	$	—	$	—		$	73,810	$	(918	)
Mortgage-backed securities-residential		167,379		(2,048	)		13,689		(333	)		181,068		(2,381	)
Collateralized mortgage obligations		222,134		(4,736	)		—		—			222,134		(4,736	)
Asset-backed securities		140,226		(1,589	)		2,705		(30	)		142,931		(1,619	)
Corporate bonds		24,173		(270	)		504		(5	)		24,677		(275	)
Obligations of state and political subdivisions		99,199		(3,355	)		34,548		(1,675	)		133,747		(5,030	)
Total available-for-sale	$	726,921	$	(12,916	)	$	51,446	$	(2,043	)	$	778,367	$	(14,959	)

The Company realized no gains from the sale of available-for-sale securities in the three and nine months ended September 30, 2022. For the three and nine months ended September 30, 2021, the Company had $233,000 and $2.2 million in realized gains from the sale of investment securities.

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 security that has a loss rate greater than 3%, credit rating below investment grade or not rated by a third-party credit ratings company would be subjected to additional analysis that may include, but is

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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 September 30, 2022, management determined that no credit loss exists and that the unrealized losses are due to the increased interest rate environment.

At September 30, 2022, and December 31, 2021, the Company held preferred and common stock of various bank holding companies totaling $15.3 million and $14.1 million, respectively. During the three and nine months ended September 30, 2022, an unrealized gain of $43,000 and a $1.8 million unrealized loss were recorded within gain (loss) on equity securities on the Consolidated Condensed Statements of Income. During the three and nine months ended September 30, 2021, $20,000 and $822,000 of unrealized gains were recorded within gain (loss) on equity securities on the Consolidated Condensed Statements of Income.

8. Loans

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


	September 30, 2022			December 31, 2021
	(In Thousands)
Real Estate:
Residential	$	1,478,360		$	1,167,466
Commercial		2,674,078			2,450,349
Construction		1,242,045			862,815
		5,394,483			4,480,630
Other Loans:
Commercial		1,042,604			895,638
Home equity and improvement		272,367			264,354
Consumer finance		212,790			126,417
		1,527,761			1,286,409
Loans before deferred loan origination fees and costs		6,922,244			5,767,039
Deduct:
Undisbursed construction loan funds		(724,797	)		(477,890	)
Net deferred loan origination fees and costs		10,261			7,019
Allowance for credit losses		(70,626	)		(66,468	)
Total loans	$	6,137,082		$	5,229,700

The Company has responded to the pandemic in numerous ways, including by actively participating in the Paycheck Protection Program (“PPP”) and distributing $636.9 million to small businesses in our markets. As of September 30, 2022, the Company had $1.2 million in PPP loans, that remained unpaid and were included in commercial loans in the above loan table. As of December 31, 2021, the Company had $58.9 million in PPP loans.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans and collateral type as of September 30, 2022 and December 31, 2021 (in thousands):

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	September 30, 2022
	Real Estate		Equipment and Machinery		Inventory and Receivables		Vehicles		Total
Real Estate:
Residential	$	54	$	—	$	—	$	—	$	54
Commercial		12,394		—		2,716		—		15,110
Construction		—		—		—		—		—

Other Loans:
Commercial		2,607		561		3,858		—		7,026
Home equity and improvement		—		—		—		—		—
Consumer finance		—		—		—		—		—

Total	$	15,055	$	561	$	6,574	$	—	$	22,190


	December 31, 2021
	Real Estate		Equipment and Machinery		Inventory and Receivables		Vehicles		Total
Real Estate:
Residential	$	226	$	—	$	—	$	—	$	226
Commercial		18,399		—		—		—		18,399
Construction		—		—		—		—		—

Other Loans:
Commercial		1,574		160		14,023		25		15,782
Home equity and improvement		—		—		—		—		—
Consumer finance		—		—		—		—		—

Total	$	20,199	$	160	$	14,023	$	25	$	34,407

Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually analyzed loans. All loans greater than 90 days past due are placed on non-accrual status. The following table presents the current balance of the aggregate amounts of non-performing assets, comprised of non-performing loans and real estate owned as of the dates indicated:


	September 30, 2022		December 31, 2021
	(In Thousands)
Non-accrual loans with reserve	$	19,308	$	35,480
Non-accrual loans without reserve		13,829		12,534
Loans 90 days plus past due and still accruing		—		—
Total non-performing loans		33,137		48,014
Real estate and other assets held for sale		416		171
Total non-performing assets	$	33,553	$	48,185
Troubled debt restructuring, still accruing	$	6,909	$	7,768

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The following table presents the aging of the amortized cost in past due and non-accrual loans as of September 30, 2022, by class of loans (in thousands):


	Current		30 - 59 days		60 - 89 days		90 + days		Total Past Due		Total Non- Accrual
Real Estate:
Residential	$	1,460,105	$	547	$	5,816	$	4,954	$	11,317	$	6,458
Commercial		2,663,003		809		177		11,570		12,556		13,709
Construction		517,248		—		—		—		—		—

Other Loans:
Commercial		1,031,322		333		50		4,685		5,068		4,895
Home equity and improvement		266,002		2,586		207		992		3,785		1,423
Consumer finance		209,642		2,540		803		1,759		5,102		1,881
PCD		18,332		358		220		3,648		4,226		4,771

Total Loans	$	6,165,654	$	7,173	$	7,273	$	27,608	$	42,054	$	33,137

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


	Current		30 - 59 days		60 - 89 days		90 + days		Total Past Due		Total Non- Accrual
Real Estate:
Residential	$	1,144,533	$	234	$	5,340	$	7,487	$	13,061	$	9,034
Commercial		2,439,552		96		847		7,168		8,111		14,621
Construction		383,136		43		1,746		—		1,789		—

Other Loans:
Commercial		884,025		42		35		867		944		11,531
Home equity and improvement		257,055		1,851		408		1,634		3,893		2,051
Consumer finance		124,073		1,112		819		1,728		3,659		1,873
PCD		25,111		225		1,005		5,996		7,226		8,904

Total Loans	$	5,257,485	$	3,603	$	10,200	$	24,880	$	38,683	$	48,014

Troubled Debt Restructurings

As of September 30, 2022, and December 31, 2021, the Company had a recorded investment in TDRs of $19.8 million and $11.9 million, respectively. The Company allocated $353,000 and $378,000 of reserves to those loans at September 30, 2022, and December 31, 2021, respectively, and had committed to lend additional amounts totaling up to $319,000 and $348,000 at September 30, 2022, and December 31, 2021, respectively.

The Company offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted. Each TDR is uniquely designed to meet the specific needs of the borrower. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions and converting revolving credit lines to term loans. Additional collateral or an additional guarantor is often requested when granting a concession. Commercial mortgage loans modified in a TDR often involve temporary interest-only payments, re-amortization of remaining debt in order to lower payments and sometimes reducing the interest rate lower than the current market rate. Residential mortgage loans modified in a TDR are comprised of loans where monthly payments are lowered, either through interest rate reductions or principal only payments for a period of time, to accommodate the borrowers’ financial needs, interest is capitalized into principal, or the term and amortization are extended. Home equity modifications are made infrequently and

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usually involve providing an interest rate that is lower than the borrower would be able to obtain due to credit issues. All retail loans where the borrower is in bankruptcy are classified as TDRs regardless of whether or not a concession is made.

Of the loans modified in a TDR as of September 30, 2022, $12.9 million were on non-accrual status and partial charge-offs have in some cases been taken against the outstanding balance. Loans modified as a TDR may have the financial effect of increasing the allowance associated with the loan. If the loan is determined to be collateral dependent, the estimated fair value of the collateral, less any selling costs is used to determine if there is a need for a specific allowance or charge-off. If the loan is determined to be cash flow dependent, the allowance is measured based on the present value of expected future cash flows discounted at the loan’s pre-modification effective interest rate.

The following tables present loans by class modified as TDRs that occurred during the three and nine months ended September 30, 2022:


	Loans Modified as a TDR for the Three Months Ended September 30, 2022 (Dollars in Thousands)				Loans Modified as a TDR for the Nine Months Ended September 30, 2022 (Dollars in Thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		3	$	1,084		11	$	2,097
Commercial		1		115		4		5,094
Construction		—		—		—		—

Other Loans:
Commercial		1		17		3		4,281
Home equity and improvement		3		198		6		277
Consumer finance		3		43		8		87

Total		11	$	1,457		32	$	11,836

The loans described above increased the ACL by $28,000 and $428,000 in the three and nine months ended September 30, 2022, respectively.


	Loans Modified as a TDR for the Three Months Ended September 30, 2021 (Dollars in Thousands)				Loans Modified as a TDR for the Nine Months Ended September 30, 2021 (Dollars in Thousands)
Troubled Debt Restructurings	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		1	$	263		4	$	512
Commercial		—		—		—		—
Construction		—		—		—		—

Other Loans:
Commercial		1		275		6		1,853
Home equity and improvement		—		—		—		—
Consumer finance		—		—		—		—

Total		2	$	538		10	$	2,365

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The loans described above increased the ACL by $9,000 and $382,000 in the three and nine months ended September 30, 2021, respectively.

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

There were no TDRs that subsequently defaulted as of September 30, 2021. The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the three and nine months ended September 30, 2022:


	Three Months Ended September 30, 2022				Nine Months Ended September 30, 2022
	(Dollars in Thousands)				(Dollars in Thousands)
Troubled Debt Restructurings That Subsequently Defaulted	Number of Loans		Recorded Investment (as of period end)		Number of Loans		Recorded Investment (as of period end)
Real Estate:
Residential		2	$	219		3	$	282
Commercial		—		—		—		—
Construction		—		—		—		—

Other Loans:
Commercial		—		—		—		—
Home equity and improvement		—		—		—		—
Consumer finance		2		40		2		40

Total		4	$	259		5	$	322

The TDRs that subsequently defaulted described above increased the ACL by $9,000 and $11,000 for each of the three and nine months ended September 30, 2022.

Credit Quality Indicators

Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans are analyzed individually by classifying the loans by credit risk. This analysis includes all non-homogeneous loans, such as commercial and commercial real estate loans and certain homogenous mortgage, home equity and consumer loans. This analysis is performed on a quarterly basis. Premier uses the following definitions for risk ratings:

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

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

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of September 30, 2022, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):


Class	Unclassified		Special Mention		Substandard		Doubtful		Total classified		Total
Real Estate:
Residential	$	1,463,034	$	1,267	$	7,121	$	—	$	7,121	$	1,471,422
Commercial		2,588,092		65,233		22,234		—		22,234		2,675,559
Construction		515,948		1,300		—		—		—		517,248

Other Loans:
Commercial		1,009,333		20,106		6,951		—		6,951		1,036,390
Home equity and improvement		268,385		—		1,402		—		1,402		269,787
Consumer finance		212,853		—		1,891		—		1,891		214,744
PCD		17,044		93		5,421		—		5,421		22,558

Total Loans	$	6,074,689	$	87,999	$	45,020	$	—	$	45,020	$	6,207,708

As of December 31, 2021, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):


Class	Unclassified		Special Mention		Substandard		Doubtful		Total classified		Total
Real Estate:
Residential	$	1,146,212	$	1,316	$	10,066	$	—	$	10,066	$	1,157,594
Commercial		2,324,846		93,676		29,141		—		29,141		2,447,663
Construction		365,403		19,522		—		—		—		384,925

Other Loans:
Commercial		856,402		14,815		13,752		—		13,752		884,969
Home equity and improvement		258,914		—		2,034		—		2,034		260,948
Consumer finance		125,879		—		1,853		—		1,853		127,732
PCD		19,547		101		12,689		—		12,689		32,337

Total Loans	$	5,097,203	$	129,430	$	69,535	$	—	$	69,535	$	5,296,168

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The tables below present the amortized cost basis of loans by credit quality indicator and class of loans as of September 30, 2022 and December 31, 2021 (in thousands):


	Term of loans by origination
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
As of September 30, 2022

Real Estate
Residential:
Risk Rating
Pass	$	194,669	$	472,696	$	338,397	$	95,857	$	53,398	$	306,452	$	1,565	$	1,463,034
Special Mention		—		183		182		—		—		144		758		1,267
Substandard		—		1,397		741		856		591		3,536		—		7,121
Doubtful		—		—		—		—		—		—		—		—
Total	$	194,669	$	474,276	$	339,320	$	96,713	$	53,989	$	310,132	$	2,323	$	1,471,422

Commercial:
Risk Rating
Pass	$	468,444	$	504,860	$	521,889	$	321,775	$	198,095	$	560,364	$	12,665	$	2,588,092
Special Mention		2,345		2,284		—		268		25,660		34,210		466		65,233
Substandard		116		2,121		549		4,612		4,490		10,120		226		22,234
Doubtful		—		—		—		—		—		—		—		—
Total	$	470,905	$	509,265	$	522,438	$	326,655	$	228,245	$	604,694	$	13,357	$	2,675,559

Construction:
Risk Rating
Pass	$	213,186	$	220,569	$	52,156	$	30,037	$	-	$	—	$	-	$	515,948
Special Mention		—		1,300		—		—		—		—		—		1,300
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	213,186	$	221,869	$	52,156	$	30,037	$	-	$	—	$	-	$	517,248

Other Loans
Commercial:
Risk Rating
Pass	$	224,003	$	209,901	$	97,286	$	58,663	$	28,214	$	27,355	$	363,911	$	1,009,333
Special Mention		2,527		3,733		2,099		1,694		1,291		5,572		3,190		20,106
Substandard		40		120		3,898		5		190		200		2,498		6,951
Doubtful		—		—		—		—		—		—		—		—
Total	$	226,570	$	213,754	$	103,283	$	60,362	$	29,695	$	33,127	$	369,599	$	1,036,390

Home equity and Improvement:
Risk Rating
Pass	$	21,616	$	21,726	$	5,606	$	3,744	$	1,948	$	31,676	$	182,069	$	268,385
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		14		—		28		32		521		807		1,402
Doubtful		—		—		—		—		—		—		—		—
Total	$	21,616	$	21,740	$	5,606	$	3,772	$	1,980	$	32,197	$	182,876	$	269,787

Consumer Finance:
Risk Rating
Pass	$	123,887	$	36,307	$	19,016	$	15,473	$	5,140	$	3,279	$	9,751	$	212,853
Special Mention		—		—		—		—		—		—		—		—
Substandard		61		554		715		393		97		70		1		1,891
Doubtful		—		—		—		—		—		—		—		—
Total	$	123,948	$	36,861	$	19,731	$	15,866	$	5,237	$	3,349	$	9,752	$	214,744

PCD:
Risk Rating
Pass	$	—	$	—	$	—	$	137	$	376	$	13,343	$	3,188	$	17,044
Special Mention		—		—		—		—		—		93		—		93
Substandard		—		—		—		3		27		4,393		998		5,421
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	140	$	403	$	17,829	$	4,186	$	22,558

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	Term of loans by origination
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
As of December 31, 2021

Real Estate
Residential:
Risk Rating
Pass	$	219,006	$	373,439	$	112,781	$	65,544	$	71,794	$	301,735	$	1,913	$	1,146,212
Special Mention		—		190		—		—		59		109		958		1,316
Substandard		465		780		1,198		1,006		2,095		4,522		—		10,066
Doubtful		—		—		—		—		—		—		—		—
Total	$	219,471	$	374,409	$	113,979	$	66,550	$	73,948	$	306,366	$	2,871	$	1,157,594

Commercial:
Risk Rating
Pass	$	514,333	$	493,575	$	388,117	$	230,734	$	237,712	$	451,113	$	9,262	$	2,324,846
Special Mention		294		5,349		5,533		11,055		49,993		20,662		790		93,676
Substandard		172		570		4,920		5,525		62		17,665		227		29,141
Doubtful		—		—		—		—		—		—		—		—
Total	$	514,799	$	499,494	$	398,570	$	247,314	$	287,767	$	489,440	$	10,279	$	2,447,663

Construction:
Risk Rating
Pass	$	198,221	$	100,606	$	55,707	$	10,039	$	685	$	145	$	—	$	365,403
Special Mention		—		12,500		—		5,996		1,026		—		—		19,522
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	198,221	$	113,106	$	55,707	$	16,035	$	1,711	$	145	$	—	$	384,925

Other Loans
Commercial:
Risk Rating
Pass	$	293,644	$	132,703	$	84,668	$	47,421	$	24,269	$	17,038	$	256,659	$	856,402
Special Mention		—		2,180		4,094		272		1,264		4,663		2,342		14,815
Substandard		136		11,550		23		288		388		131		1,236		13,752
Doubtful		—		—		—		—		—		—		—		—
Total	$	293,780	$	146,433	$	88,785	$	47,981	$	25,921	$	21,832	$	260,237	$	884,969

Home equity and Improvement:
Risk Rating
Pass	$	24,707	$	6,870	$	4,867	$	2,879	$	5,534	$	31,317	$	182,740	$	258,914
Special Mention		—		—		—		—		—		—		—		—
Substandard		15		—		28		48		27		690		1,226		2,034
Doubtful		—		—		—		—		—		—		—		—
Total	$	24,722	$	6,870	$	4,895	$	2,927	$	5,561	$	32,007	$	183,966	$	260,948

Consumer Finance:
Risk Rating
Pass	$	50,202	$	25,866	$	23,000	$	9,643	$	4,313	$	2,769	$	10,086	$	125,879
Special Mention		—		—		—		—		—		—		—		—
Substandard		196		707		619		129		67		131		4		1,853
Doubtful		—		—		—		—		—		—		—		—
Total	$	50,398	$	26,573	$	23,619	$	9,772	$	4,380	$	2,900	$	10,090	$	127,732

PCD:
Risk Rating
Pass	$	—	$	—	$	170	$	1,753	$	1,860	$	12,496	$	3,268	$	19,547
Special Mention		—		—		—		—		—		101		—		101
Substandard		—		—		67		28		3,242		6,490		2,862		12,689
Doubtful		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	237	$	1,781	$	5,102	$	19,087	$	6,130	$	32,337

Allowance for Credit Losses

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

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collected on the loan. The ACL is adjusted through the provision for credit losses and reduced by net charge offs of loans.

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

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

A default can be triggered by one of several different asset quality factors including past due status, non-accrual status, TDR status or if the loan has had a charge-off. The PD/LGD utilizes charge off data from the Federal Financial Institutions Examination Council to construct a default rate. This default rate is further segmented based on the risk of the credit assigning a higher default rate to riskier credits.

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

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


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 Other	PD/LGD	Call report loss history
	Construction Residential	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 direct	Remaining life	Call report loss history
	Consumer indirect	DCF	National unemployment

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According to the accounting standard, an entity may make an accounting policy election not to measure an ACL for accrued interest receivable if the entity writes off the applicable accrued interest receivable balance in a timely manner. The Company has made the accounting policy election not to measure an ACL for accrued interest receivables for all loan segments. 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 is considered by the company’s management as likely to fund over the life of the instrument. At September 30, 2022, the Company had $1.8 billion in unfunded commitments and set aside $7.1 million in anticipated credit losses. This reserve is recorded in other liabilities as opposed to the ACL.

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

The following table discloses allowance for credit loss (“ACL”) activity for the three and nine months ended September 30, 2022 and 2021 by portfolio segment (in thousands):


Three Months Ended September 30, 2022	Residential Real Estate			Commercial Real Estate			Construction		Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	14,113		$	34,952		$	2,999	$	9,762		$	4,003		$	1,245		$	67,074
Charge-Offs		(15	)		(206	)		—		(29	)		(47	)		(185	)		(482	)
Recoveries		77			48			—		84			95			24			328
Provisions		2,136			(2,082	)		287		2,465			159			741			3,706
Ending Allowance	$	16,311		$	32,712		$	3,286	$	12,282		$	4,210		$	1,825		$	70,626


Nine Months Ended September 30, 2022	Residential Real Estate			Commercial Real Estate			Construction			Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	12,029		$	32,399		$	3,004		$	13,410		$	4,221		$	1,405		$	66,468
Charge-Offs		(1,016	)		(350	)		(16	)		(5,342	)		(324	)		(426	)		(7,474	)
Recoveries		831			562			3			370			208			175			2,149
Provisions		4,467			101			295			3,844			105			671			9,483
Ending Allowance	$	16,311		$	32,712		$	3,286		$	12,282		$	4,210		$	1,825		$	70,626


Three Months Ended September 30, 2021	Residential Real Estate			Commercial Real Estate			Construction		Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	15,268		$	34,461		$	2,739	$	12,211		$	4,988		$	1,700		$	71,367
Charge-Offs		(27	)		(84	)		—		(375	)		(47	)		(85	)		(618	)
Recoveries		75			143			—		576			23			57			874
Provisions		(1,567	)		(428	)		882		3,016			(276	)		(33	)		1,594
Ending Allowance	$	13,749		$	34,092		$	3,621	$	15,428		$	4,688		$	1,639		$	73,217

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Nine Months Ended September 30, 2021	Residential Real Estate			Commercial Real Estate			Construction		Commercial			Home Equity and Improvement			Consumer Finance			Total
Beginning Allowance	$	17,534		$	43,417		$	2,741	$	11,665		$	4,739		$	1,983		$	82,079
Charge-Offs		(29	)		(689	)		—		(445	)		(50	)		(227	)		(1,440	)
Recoveries		165			332			12		1,279			217			122			2,127
Provisions		(3,921	)		(8,968	)		868		2,929			(218	)		(239	)		(9,549	)
Ending Allowance	$	13,749		$	34,092		$	3,621	$	15,428		$	4,688		$	1,639		$	73,217

Purchased Credit Deteriorated Loans

Under ASU Topic 326, when loans are purchased with evidence of more than insignificant deterioration of credit, they are accounted for as PCD. PCD loans acquired in a transaction are marked to fair value and a mark on yield is recorded. In addition, an adjustment is made to the ACL for the expected loss on the acquisition date. These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. The outstanding balance and related allowance on these loans as of September 30, 2022 and December 31, 2021 is as follows (in thousands):


	As of September 30, 2022				As of December 31, 2021
	Loan Balance		ACL Balance		Loan Balance		ACL Balance
	(In Thousands)				(In Thousands)
Real Estate:
Residential	$	11,890	$	151	$	13,396	$	197
Commercial		1,627		27		5,878		151
Construction		—		—		—		—
		13,517		178		19,274		348
Other Loans:
Commercial		6,163		871		9,167		1,531
Home equity and improvement		2,581		104		3,405		154
Consumer finance		297		5		491		7
		9,041		980		13,063		1,692
Total	$	22,558	$	1,158	$	32,337	$	2,040

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $2.7 million as of September 30, 2022, and $3.3 million as of December 31, 2021.

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9. Mortgage Banking

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
	(In Thousands)
Mortgage banking gain, net	$	3,363		$	5,353		$	7,072		$	13,663
Mortgage loans servicing revenue (expense):
Mortgage loans servicing revenue		1,861			1,861			5,602			5,666
Amortization of mortgage servicing rights		(1,350	)		(1,822	)		(4,128	)		(6,119	)
Mortgage servicing rights valuation adjustments		96			783			1,624			5,655
		607			822			3,098			5,202

Net revenue from sale and servicing of mortgage loans	$	3,970		$	6,175		$	10,170		$	18,865

The unpaid principal balance of residential mortgage loans serviced for third parties was $2.94 billion at both September 30, 2022 and December 31, 2021.

Activity for capitalized mortgage servicing rights and the related valuation allowance follows for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
	(In Thousands)
Mortgage servicing assets:
Balance at beginning of period	$	21,873		$	21,682		$	22,244		$	21,666
Loans sold, servicing retained		1,392			2,103			3,799			6,416
Amortization		(1,350	)		(1,822	)		(4,128	)		(6,119	)
Carrying value before valuation allowance at end of period		21,915			21,963			21,915			21,963

Valuation allowance:
Balance at beginning of period		(1,180	)		(3,641	)		(2,707	)		(8,513	)
Impairment recovery (charges)		97			783			1,624			5,655
Balance at end of period		(1,083	)		(2,858	)		(1,083	)		(2,858	)
Net carrying value of MSRs at end of period	$	20,832		$	19,105		$	20,832		$	19,105
Fair value of MSRs at end of period	$	27,633		$	20,189		$	27,633		$	20,189

Amortization of mortgage servicing rights is computed based on payments and payoffs of the related mortgage loans serviced. Estimates of future amortization expense are not easily estimable.

The Company had no accrual for secondary market buy-back activity at September 30, 2022 or December 31, 2021 based on management’s estimate of potential losses from this activity. There was no expense or credit recognized in the three and nine months ended September 30, 2022. The company recognized a credit of $0 and $43,000 in the three and nine months ended September 31, 2021.

10. Leases

The Company’s lease agreements have maturity dates ranging from April 2022 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 13.44 years as of September 30, 2022 and 14.21 years as of December 31, 2021.

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The weighted average discount rate for leases was 2.49% as of September 30, 2022 and 2.57% as of December 31, 2021.

The total operating lease costs were $540,000 and $1.6 million for the three and nine months ended September 30, 2022, respectively, and $560,000 and $1.8 million for the three and nine months ended September 30, 2021, respectively. The right-of-use asset, included in other assets, was $15.2 million and $15.4 million at September 30, 2022 and December 31, 2021, respectively. The lease liabilities, included in other liabilities, were $15.8 million and $16.1 million as of September 30, 2022 and December 31, 2021, respectively.

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


(In Thousands)	September 30, 2022
Remainder of 2022	$	2,523
2023		2,087
2024		1,693
2025		1,470
2026		1,308
Thereafter		11,853
Total undiscounted minimum lease payments		20,934
Present value adjustment		(5,100	)
Total lease liabilities	$	15,834

11. Deposits

A summary of deposit balances is as follows:


	September 30, 2022		December 31, 2021
	(In Thousands)
Non-interest-bearing checking accounts	$	1,826,511	$	1,724,772
Interest-bearing checking and money market accounts		3,197,455		2,952,705
Savings deposits		820,650		804,451
Retail certificates of deposit less than $250,000		550,275		636,477
Retail certificates of deposit greater than $250,000		267,733		163,646
Brokered deposits		69,881		—
	$	6,732,505	$	6,282,051

12. Borrowings

The Company's FHLB advances and junior subordinated debentures owed to unconsolidated subsidiary trusts and subordinated debentures are comprised of the following:


	September 30, 2022		December 31, 2021
	(In Thousands)
FHLB Advances:
Overnight advances	$	411,000		—
Single maturity fixed rate advances		—		—
Total	$	411,000	$	—
First Defiance Statutory Trust I due December 2035	$	20,619	$	20,619
First Defiance Statutory Trust II due June 2037	$	15,464		15,464
Junior subordinated debentures owed to unconsolidated subsidiary trusts	$	36,083	$	36,083
Subordinated debentures	$	48,988	$	48,893

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At September 30, 2022, the Company had $411.0 million of outstanding FHLB advances with a maturity date in 2022. There were no outstanding FHLB advances at December 31, 2021.

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 has used, and intends to continue using, 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", as such term is defined under current regulatory guidelines and interpretations.

In March 2007, the Company sponsored an affiliated trust, First Defiance Statutory Trust II (“Trust Affiliate II”) that issued $15.0 million of Guaranteed Capital Trust Securities (“Trust Preferred Securities”). In connection with this transaction, the Company issued $15.5 million of Junior Subordinated Deferrable Interest Debentures ("Subordinated Debentures") to Trust Affiliate II. The Company formed Trust Affiliate II for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Subordinated Debentures held by Trust Affiliate II are the sole assets of that trust. The Company is not considered the primary beneficiary of Trust Affiliate II (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the Subordinated Debentures are shown as a liability. Distributions on the Trust Preferred Securities issued by Trust Affiliate II are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.5%. The coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate II was 4.79% as of September 30, 2022, and 1.70% as of December 31, 2021.

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

The Company also sponsored an affiliated trust, First Defiance Statutory Trust I (“Trust Affiliate I”) that issued $20.0 million of Trust Preferred Securities in 2005. In connection with this transaction, the Company issued $20.6 million of Subordinated Debentures to Trust Affiliate I. Trust Affiliate I was formed for the purpose of issuing Trust Preferred Securities to third-party investors and investing the proceeds from the sale of these capital securities solely in Subordinated Debentures of the Company. The Junior Debentures held by Trust Affiliate I are the sole assets of the trust. The Company is not considered the primary beneficiary of Trust Affiliate I (variable interest entity), therefore the trust is not consolidated in the Company’s financial statements, but rather the subordinated debentures are shown as a liability. Distributions on the Trust Preferred Securities issued by Trust Affiliate I are payable quarterly at a variable rate equal to the three-month LIBOR rate plus 1.38%. The coupon rate payable on the Trust Preferred Securities issued by Trust Affiliate I was 3.21% and 1.58% on September 30, 2022 and December 31, 2021, 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

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Preferred Securities and Subordinated Debentures mature on December 15, 2035, but can be redeemed at the Company’s option at any time now.

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

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

13. Commitments, Guarantees and Contingent Liabilities

Loan commitments are made to accommodate the financial needs of Premier’s customers in the form of unfunded loans or unused lines of credit and result in market risk. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. They primarily are issued to facilitate customers’ trade transactions.

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

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



	September 30, 2022		December 31, 2021
Commitments to make loans	$	1,175,293	$	1,175,916
Unused lines of credit		1,012,298		626,348
Standby letters of credit		16,114		10,851
Total	$	2,203,705	$	1,813,115

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

14. Income Taxes

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in the states of Indiana and West Virginia. The Company is no longer subject to examination by income taxing authorities for years before 2018. The Company also currently operates in the states of Ohio, Michigan and Pennsylvania which tax financial institutions based on their equity rather than their income.

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


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
	(In Thousands)						(In Thousands)
Current:
Federal	$	6,716		$	6,600		$	18,581		$	22,199
State and local		162			162			517			490
Deferred		(168	)		(638	)		(774	)		1,708
	$	6,710		$	6,124		$	18,324		$	24,397

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


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
	(In Thousands)						(In Thousands)
Tax expense (benefit) at statutory rate (21%)	$	7,330		$	7,242		$	20,000		$	26,278
Increases (decreases) in taxes from:
State income tax - net of federal tax benefit		129			128			409			387
Tax exempt interest income, net of TEFRA		(180	)		(213	)		(554	)		(641	)
Bank owned life insurance		(207	)		(199	)		(622	)		(625	)
Captive insurance		(125	)		(90	)		(326	)		(282	)
Other		(237	)		(744	)		(583	)		(720	)
Totals	$	6,710		$	6,124		$	18,324		$	24,397

15. Derivative Financial Instruments

At September 30, 2022, the Company had approximately $64.2 million of interest rate lock commitments and $311.0 million of forward sales of mortgage backed securities. These commitments are considered derivatives. The Company had $65.4 million of interest rate lock commitments and $305.0 million of forward commitments at December 31, 2021.

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


	September 30, 2022		December 31, 2021
	(In Thousands)
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives	$	15,237	$	2,336

The table below provides data about the amount of gains and losses recognized in income on derivative instruments not designated as hedging instruments. The difference in derivative carrying value at September 30, 2022 and 2021 represents a fair value adjustment that runs through mortgage banking income.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In Thousands)
Derivatives not designated as hedging instruments
Mortgage Banking Derivatives – Gain (Loss)	$	13,386	$	2,122	$	12,901	$	2,446

Interest Rate Swaps

The Company maintains an interest rate protection program for commercial loan customers. Under this program, the Company provides a customer with a fixed rate loan while creating a variable rate asset for the Company by the customer entering into an interest rate swap with terms that match the loan. The Company offsets its risk exposure by entering into an offsetting interest rate swap with an unaffiliated institution. The Company had interest rate swaps associated with commercial loans with a notional value of $67.9 million and fair value of $4.7 million in other assets and $4.7 million in other liabilities at September 30, 2022. As of December 31, 2021, the Company had interest rate swaps associated with commercial loans with a notional value

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of $69.4 million and fair value of $1.3 million in other assets and $1.3 million in other liabilities. For the three and nine months ended September 30, 2022, ($54,000) and ($53,000) flowed through noninterest income, respectively. For the three and nine months ended September 30, 2021, ($7,000) and $136,000 flowed through noninterest income, respectively.

Interest Rate Swap Designated as Cash Flow Hedge

In May 2021, the Company entered into derivative instruments designated as a cash flow hedge. For a derivative instrument that is designated and qualifies as a cash flow hedge, the change in fair value of the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

An interest rate swap with notional amount totaling $250.0 million as of September 30, 2022 was designated as a cash flow hedge to hedge the risk of variability in cash flows (future interest receipts) attributable to changes in the contractually specified LIBOR benchmark interest rate on the Company’s floating rate loan pool. The gross aggregate fair value of the swap of $41.5 million is recorded in other liabilities in the unaudited Consolidated Balance Sheets at September 30, 2022, with changes in fair value recorded net of tax in other comprehensive income (loss). As of December 31, 2021, the gross aggregate fair value of the swap of $854,000 was recorded in other assets in the Consolidated Balance Sheets. A summary of the interest-rate swap designated as a cash flow hedge is presented below (dollars in thousands):


	September 30, 2022			December 31, 2021

Notional amount	$	250,000		$	250,000
Weighted average fixed receive rates		1.437	%		1.437	%
Weighted average variable 1-month LIBOR pay rates		3.143	%		0.089	%
Weighted average remaining maturity (in years)		8.4			9.3
Fair value	$	(41,458	)	$	854

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16. Other Comprehensive (Loss) Income

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


	Before Tax Amount			Tax (Expense) Benefit			Net of Tax Amount
	(In Thousands)
Three Months Ended September 30, 2022
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	(55,350	)	$	11,624		$	(43,726	)
Reclassification adjustment for net losses included in net income		—			—			—
Cash flow hedge derivatives
Change in net unrealized gain/loss during the period		(13,343	)		2,802			(10,541	)
Reclassification adjustment for net gains included in net income		(266	)		56			(210	)
Total other comprehensive loss	$	(68,959	)	$	14,482		$	(54,477	)

Nine Months Ended September 30, 2022
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	(182,755	)	$	38,378		$	(144,377	)
Reclassification adjustment for net gains included in net income		—			—			—
Cash flow hedge derivatives
Change in net unrealized gain/loss during the period		(43,294	)		9,092			(34,202	)
Reclassification adjustment for net gains included in net income		982			(206	)		776
Total other comprehensive loss	$	(225,067	)	$	47,264		$	(177,803	)


	Before Tax Amount			Tax (Expense) Benefit			Net of Tax Amount
	(In Thousands)
Three Months Ended September 30, 2021
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	(9,042	)	$	1,898		$	(7,144	)
Reclassification adjustment for net gains included in net income		(233	)		49			(184	)
Cash flow hedge derivatives
Change in net unrealized gain/loss during the period		(1,692	)		356			(1,336	)
Reclassification adjustment for net gains included in net income		(860	)		180			(680	)
Total other comprehensive loss	$	(11,827	)	$	2,483		$	(9,344	)

Nine Months Ended September 30, 2021
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	$	(16,169	)	$	3,395		$	(12,774	)
Reclassification adjustment for net gains included in net income		(2,218	)		466			(1,752	)
Cash flow hedge derivatives
Change in net unrealized gain/loss during the period		2,742			(576	)		2,166
Reclassification adjustment for net gains included in net income		(1,310	)		275			(1,035	)
Total other comprehensive loss	$	(16,955	)	$	3,560		$	(13,395	)

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


	Securities Available For Sale			Post- retirement Benefit			Cash Flow Hedge Derivatives			Accumulated Other Comprehensive Income (Loss)
	(In Thousands)
Balance January 1, 2022	$	(4,023	)	$	(79	)	$	674		$	(3,428	)
Other comprehensive income/(loss) before reclassifications		(144,377	)		—			(34,202	)		(178,579	)
Amounts reclassified from accumulated other comprehensive income		—			—			776			776

Net other comprehensive income/(loss) during period		(144,377	)		—			(33,426	)		(177,803	)

Balance September 30, 2022	$	(148,400	)	$	(79	)	$	(32,752	)	$	(181,231	)

Balance January 1, 2021	$	15,083		$	(79	)	$	—		$	15,004
Other comprehensive income (loss) before reclassifications		(12,774	)		—			2,166			(10,608	)
Amounts reclassified from accumulated other comprehensive income		(1,752	)		—			(1,035	)		(2,787	)

Net other comprehensive income/(loss) during period		(14,526	)		—			1,131			(13,395	)

Balance September 30, 2021	$	557		$	(79	)	$	1,131		$	1,609

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

Forward-Looking Information

This quarterly report, as well as other publicly available documents, including those incorporated herein by reference, may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. These statements may include, but are not limited to, statements regarding projections, forecasts, goals and plans of Premier and its management, future movements of interests, loan or deposit production levels, future credit quality ratios, future strength in the market area, and growth projections. These statements do not describe historical or current facts and may be identified by words such as “intend,” “intent,” “believe,” “expect,” “estimate,” “target,” “plan,” “anticipate,” or similar words or phrases, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “may,” “can,” or similar verbs. There can be no assurances that the forward-looking statements included in this quarterly report will prove to be accurate. In light of the significant uncertainties in the forward-looking statements, the inclusion of such information should not be regarded as a representation by Premier or any other persons, that our objectives and plans will be achieved.

Forward-looking statements involve numerous risks and uncertainties, any one or more of which could affect Premier’s business and financial results in future periods and could cause actual results to differ materially from plans and projections. These risks and uncertainties include, but are not limited to: impacts from the novel coronavirus ("COVID-19") pandemic on the economy, financial markets, our customers, and our business and results of operation; changes in interest rates; disruptions in the mortgage market; risks and uncertainties inherent in general and local banking, insurance and mortgage conditions; political uncertainty; uncertainty in U.S. fiscal or monetary policy; uncertainty concerning or disruptions relating to tensions surrounding the current socioeconomic landscape; competitive factors specific to markets in which Premier and its subsidiaries operate; future interest rate levels; legislative or regulatory rulemaking or actions; capital market conditions; security breaches or unauthorized disclosure of confidential customer or Company information; interruptions in the effective operation of information and transaction processing systems of Premier or Premier’s vendors and service providers; failures or delays in integrating or adopting new technology; the impact of the cessation of LIBOR interest rates and implementation of a replacement rate; and other risks and uncertainties detailed from time to time in our Securities and Exchange Commission (“SEC”) filings, including our Annual Report on Form 10-K for the year ended December 31, 2021, (the “2021 Form 10-K”). Any one or more of these factors have affected or could in the future affect Premier’s business and financial results in future periods and could cause actual results to differ materially from plans and projections.

All forward-looking statements made in this quarterly report are based on information presently available to the management of Premier and speak only as of the date on which they are made. We assume no obligation to update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law.

Non-GAAP Financial Measures

In addition to results presented in accordance with GAAP, this report includes non-GAAP financial measures. The Company believes these non-GAAP financial measures provide additional information that is useful to investors in helping to understand the underlying performance and trends of the Company. The Company monitors the non-GAAP financial measures and the Company’s management believes they are helpful to investors because they provide an additional tool to use in evaluating the Company’s financial and business trends and operating results. In addition, the Company’s management uses these non-GAAP measures to compare the

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Company’s performance to that of prior periods for trend analysis and for budgeting and planning purposes. Fully taxable-equivalent (“FTE”) is an adjustment to net interest income to reflect tax-exempt income on an equivalent before-tax basis.

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

The following tables present a reconciliation of non-GAAP measures to their respective GAAP measures for the three and nine months ended September 30, 2022 and 2021.

Reconciliations of Net Interest Income on an FTE basis, Net Interest Margin and Efficiency Ratio


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
	(In Thousands)
Net interest income (GAAP)	$	63,312		$	57,035		$	180,300		$	170,167
Add: FTE adjustment		198			256			652			763
Net interest income on a FTE basis (1)	$	63,510		$	57,291		$	180,952		$	170,930

Non-interest income-less securities gains/losses (2)	$	16,661		$	18,061			49,692		$	59,093
Non-interest expense (3)		41,099			39,045			121,483			116,223
Average interest-earning assets net of average
unrealized gains/losses on securities (4)		7,477,795			6,773,021			7,097,421			6,730,807

Ratios:
Net interest margin (1) / (4)		3.40	%		3.38	%		3.40	%		3.39	%
Efficiency ratio (3) / (1) + (2)		51.26	%		51.82	%		52.67	%		50.53	%

Critical Accounting Policies

Premier has established various accounting policies that govern the application of GAAP in the preparation of its consolidated financial statements. The significant accounting policies of Premier are described in the notes to the consolidated financial statements. Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities and management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates, which could have a material impact on the carrying value of assets and liabilities and the results of operations of Premier.

General

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Premier is a financial holding company that conducts business through its wholly-owned subsidiaries, the Bank, First Insurance, PFC Risk Management and PFC Capital.

The Bank is an Ohio state-chartered bank headquartered in Youngstown, Ohio. It conducts operations through 74 banking center offices, 12 loan offices and serves clients through a team of wealth professionals. These operations are located in Ohio, Michigan, Indiana, Pennsylvania and West Virginia. The Bank provides a broad range of financial services including checking accounts, savings accounts, certificates of deposit, real estate mortgage loans, commercial loans, consumer loans, home equity loans and trust and wealth management services through its extensive branch network.

First Insurance is a wholly-owned subsidiary of the Company. First Insurance is an insurance agency that conducts business throughout the Company’s markets. First Insurance offers property and casualty insurance, life insurance and group health insurance.

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

Regulation – The Company is subject to regulation, examination and oversight by the Federal Reserve Board (“Federal Reserve”) and the SEC. The Bank is subject to regulation, examination and oversight by the FDIC and the Division of Financial Institutions of the Ohio Department of Commerce ("ODFI"). In addition, the Bank is subject to regulations of the Consumer Financial Protection Bureau (“CFPB”), which was established by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and has broad powers to adopt and enforce consumer protection regulations. The Company and the Bank must file periodic reports with the Federal Reserve, and examinations are conducted periodically by the Federal Reserve, the FDIC and the ODFI to determine whether the Company and the Bank are in compliance with various regulatory requirements and are operating in a safe and sound manner. The Company is also subject to various Ohio laws which restrict takeover bids, tender offers and control-share acquisitions involving public companies which have significant ties to Ohio.

Changes in Financial Condition

At September 30, 2022, the Company's total assets amounted to $8.2 billion compared to $7.5 billion at December 31, 2021. The increase is primarily attributable to growth in net loans of $907.4 million from $5.2 billion at December 31, 2021 to $6.1 billion at September 30, 2022. The increase was due to increases in all loan categories. Residential loans increased as the Company sold fewer loans due to higher yields on holding loans than selling loans. Loans held for sale decreased from $162.9 million at December 31, 2021, to $129.1 million at September 30, 2022 as a result of lessened sales activity. The increase in net loans was funded by advances from the FHLB and deposit growth. Deposits increased $450.5 million from $6.3 billion at December 31, 2021, to $6.7 billion as of September 30, 2022. Non-interest bearing deposits grew $101.7 million since December 31, 2021 to $1.8 billion during the nine months ended September 30, 2022, while non-brokered interest-bearing deposits grew $278.8 million to $4.8 billion during the same period. Brokered deposits added $69.9 million in the nine months ended September 30, 2022.

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Stockholders’ equity decreased $158.5 million from $1.0 billion at December 31, 2021, to $865.0 million at September 30, 2022. The decrease in stockholders’ equity was primarily due to a decrease in accumulated other comprehensive income (“AOCI”) and stock buybacks. The decrease in AOCI is primarily related to an after-tax $148.4 million negative valuation adjustment on the available-for-sale securities portfolio. The Company also completed the repurchase of 884,036 common shares for $26.9 million during the first none months of the year. At September 30, 2022, 1,200,130 common shares remained available for repurchase under the Company’s existing repurchase program.

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

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


	Three Months Ended September 30,
	2022							2021
	Average				Yield/			Average				Yield/
	Balance		Interest (1)		Rate (2)			Balance		Interest (1)		Rate (2)
Interest-earning assets:
Loans receivable	$	6,120,324	$	65,564		4.29	%	$	5,416,696	$	55,444		4.09	%
Securities		1,261,527		7,006		2.22			1,273,148		5,580		1.75
Interest bearing deposits		68,530		221		1.29			71,276		33		0.19
FHLB stock		27,414		510		7.44			11,901		60		2.02
Total interest-earning assets		7,477,795		73,301		3.92			6,773,021		61,117		3.61
Non-interest-earning assets		683,594							756,079
Total assets	$	8,161,389						$	7,529,100

Interest-bearing liabilities:
Deposits	$	4,846,419	$	6,855		0.57	%	$	4,649,462	$	3,144		0.27	%
FHLB advances and other		377,533		2,069		2.19			20,098		11		0.22
Subordinated debentures		85,049		868		4.08			84,924		671		3.16
Notes payable		—		—		-			204		—		0.75
Total interest-bearing liabilities		5,309,001		9,792		0.74			4,754,688		3,826		0.32
Non-interest bearing deposits		1,807,909		—		—			1,667,767		—		—
Total including non-interest bearing demand deposits		7,116,910		9,792		0.55			6,422,455		3,826		0.24
Other non-interest-bearing liabilities		132,255							86,439
Total liabilities		7,249,165							6,508,894
Stockholders’ equity		912,224							1,020,206
Total liabilities and stockholders’ equity	$	8,161,389						$	7,529,100
Net interest income; interest rate spread			$	63,509		3.18	%			$	57,291		3.29	%
Net interest margin (3)						3.40	%						3.38	%
Average interest-earning assets to average interest-bearing liabilities						141	%						142	%

(1)

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

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(2)

Annualized

(3)

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


	Nine Months Ended September 30,
	2022							2021
	Average				Yield/			Average				Yield/
	Balance		Interest (1)		Rate (2)			Balance		Interest (1)		Rate (2)
Interest-earning assets:
Loans receivable	$	5,726,369	$	177,385		4.13	%	$	5,513,285	$	168,810		4.08	%
Securities		1,266,681		19,122		2.01			1,098,478		14,733		1.79
Interest bearing deposits		84,745		387		0.61			107,381		142		0.18
FHLB stock		19,626		743		5.05			11,663		175		2.00
Total interest-earning assets		7,097,421		197,637		3.71			6,730,807		183,860		3.64
Non-interest-earning assets		709,592							742,396
Total assets	$	7,807,013						$	7,473,203

Interest-bearing liabilities:
Deposits	$	4,688,047	$	11,749		0.33	%	$	4,612,354	$	10,867		0.31	%
FHLB advances and other		210,908		2,609		1.65			16,828		23		0.18
Subordinated debentures		85,019		2,326		3.65			84,895		2,040		3.20
Notes payable		143		1		0.93			69		—		0.75
Total interest-bearing liabilities		4,984,117		16,685		0.45			4,714,146		12,930		0.37
Non-interest bearing deposits		1,764,666		—		—			1,670,508		—		—
Total including non-interest bearing demand deposits		6,748,783		16,685		0.33			6,384,654		12,930		0.27
Other non-interest-bearing liabilities		113,089							88,502
Total liabilities		6,861,872							6,473,156
Stockholders' equity		945,141							1,000,047
Total liabilities and stockholders' equity	$	7,807,013						$	7,473,203
Net interest income; interest rate spread			$	180,952		3.26	%			$	170,930		3.27	%
Net interest margin (3)						3.40	%						3.39	%
Average interest-earning assets to average interest-bearing liabilities						142	%						143	%

(1)

(2)

Annualized

(3)

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

Results of Operations

Three months ended September 30, 2022 and 2021

For the three months ended September 30, 2022, the Company reported net income of $28.2 million compared to net income of $28.4 million for the three months ended September 30, 2021. On a per share basis, basic and diluted earnings per common share were $0.79 for the three months ended September 30, 2022 and basic and diluted income per common share were $0.76 for the three months ended September 30, 2021. The changes from 2021 to 2022 are primarily due to fluctuations in interest on loans and deposits, provision for credit losses, and mortgage banking income, which are described in further detail below.

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Net Interest Income

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

Net interest income was $63.3 million for the quarter ended September 30, 2022, up from $57.0 million for the same period in 2021. Average earning assets for the quarter ended September 30, 2022 were $7.5 billion compared to $6.8 billion for the quarter ended September 30, 2021. The tax-equivalent net interest margin was 3.40% for the quarter ended September 30, 2022, an increase from 3.38% for the same period in 2021. The slight increase in margin between the 2022 and 2021 quarters was primarily due to loan growth and higher loan yields. The yield on interest-earning assets was 3.92% for the quarter ended September 30, 2022 compared to 3.61% for the same period in 2021. The cost of interest-bearing liabilities between the two periods increased 42 basis points to 0.74% in the third quarter of 2022 from 0.32% in the third quarter of 2021.

Interest income increased $12.2 million to $73.1 million for the quarter ended September 30, 2022, from $60.9 million for the quarter ended September 30, 2021. This increase is due to an increase in interest on loans and securities. Income from loans increased to $65.6 million for the quarter ended September 30, 2022, compared to $55.4 million for the same period in 2021 due to an increase in average loan balances to $6.1 billion for the three months ended September 30, 2022 from $5.4 billion for the third quarter of 2021. Interest income from investments increased $1.5 million in the third quarter of 2022 to $6.8 million compared to $5.3 million in the same period in 2021 primarily due to an increase in yield on securities of 47 basis points to 2.22% for the three months ended September 30, 2022, compared to 1.75% for the same period in 2021. Income from interest-earning deposits increased to $221,000 in the third quarter of 2022 compared to $33,000 for the same period in 2021. Average balances on interest-earning deposits decreased $2.7 million to $68.5 million in the third quarter of 2022 from $71.3 million for the same period in 2021. The yield earned on interest-earning deposits increased 110 basis points in the third quarter of 2022 compared to the same period in 2021.

Interest expense increased $6.0 million to $9.8 million in the third quarter of 2022 compared to $3.8 million for the same period in 2021. An increase in the cost of interest-bearing liabilities of 42 basis points is the primary reason for this change. Interest expense related to interest-bearing deposits was $6.9 million in the third quarter of 2022 compared to $3.1 million for the same period in 2021. Interest expense recognized by the Company related to FHLB advances was $2.1 million in the third quarter of 2022 compared to $11,000 for the same period in 2021. Expenses on subordinated debentures and notes payable increased to $868,000 in the third quarter of 2022 compared to $671,000 for the same period in 2021 due to increased rates on the variable-rate junior subordinated debentures.

Allowance for Credit Losses

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

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The ACL is made up of two basic components. The first component of the allowance for credit loss is the specific reserve in which the Company sets aside reserves based on the analysis of individual analyzed credits. In establishing specific reserves, the Company analyzes all substandard, doubtful and loss graded loans quarterly and makes judgments about the risk of loss based on the cash flow of the borrower, the value of any collateral and the financial strength of any guarantors. If the loan is individually analyzed and cash flow dependent, then a specific reserve is established for the discount on the net present value of expected future cash flows. If the loan is individually analyzed and collateral dependent, then any shortfall is either charged off or a specific reserve is established. The Company also considers the impacts of any Small Business Administration or Farm Service Agency guarantees. The specific reserve portion of the ACL was $2.8 million as of September 30, 2022, and $7.1 million as of December 31, 2021.

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

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

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

•

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 maximum possible quarters. The PD is then combined with a LGD derived from historical charge-off data to construct a default rate. This loss rate is then supplemented with adjustments for reasonable and supportable forecasts of relevant economic indicators, particularly the unemployment rate forecast from the Federal Open Market Committee's Summary of Economic Projections. LGD is determined on a dollar-ratio basis, measuring the ratio of net charged off principal to defaulted principal.

The consumer portfolio contains loans with many different payment structures, payment streams and collateral. The remaining life method was deemed most appropriate for consumer direct loans and DCF for consumer indirect. The weighted average remaining life uses an annual charge-off rate over several vintages to

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estimate credit losses. The average annual charge-off rate is applied to the contractual term adjusted for prepayments. The DCF method was selected for consumer indirect due to the loan segments' longer average remaining life in addition to regular payment structure.

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

The quantitative general allowance increased to $23.5 million at September 30, 2022, up from $12.3 million at December 31, 2021. As a part of the CECL model in certain calculations, especially discounted cash flows, projected loan losses are correlated to the levels of the unemployment rate over the life of the loans in addition to the fluctuation of loan balances. The increase in the quantitative general allowance during 2022 is attributed to loan growth.

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

ECONOMIC

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

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

ENVIRONMENT

Changes in the nature and volume in the loan portfolio.

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

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

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

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

RISK

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.

Changes in other external factors, such as regulatory, legal and technological environments.

The qualitative analysis indicated a general reserve of $44.3 million at September 30, 2022, compared to $47.1 million at December 31, 2021. Overall, the factors decreased slightly in the third quarter as a result of favorable trends in the risk factors listed above and were partially offset by an increase in the economic and environmental factors.

The Company’s general reserve percentages for main loan segments, not otherwise classified, ranged from 0.64% for construction other loans to 1.47% for home equity/home improvement loans at September 30, 2022.

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Under ASU Topic 326, when loans are purchased with evidence of more than insignificant deterioration of credit, they are accounted for as purchase credit deteriorated (“PCD”). PCD loans acquired in a transaction are marked to fair value and a mark on yield is recorded. In addition, an adjustment is made to the ACL for the expected loss through retained earnings on the acquisition date. These loans are assessed on a regular basis and subsequent adjustments to the ACL are recorded on the income statement. The outstanding balance and related allowance on these loans as of September 30, 2022, is $22.6 million and $1.2 million, respectively.

As a result of the quantitative and qualitative analyses, along with the change in specific reserves and the change in net charge-offs in the quarter, the Company’s provision for credit losses for the three and nine months ended September 30, 2022 was an expense of $3.7 million and $9.5 million, respectively. This is compared to an expense of $1.6 million and a recovery of $9.5 million, respectively, for the three and nine months ended September 30, 2021. The ACL was $70.6 million at September 30, 2022, and $66.5 million at December 31, 2021. The ACL represented 1.14% of loans, net of undisbursed loan funds and deferred fees and costs at September 30, 2022, compared to 1.26% at December 31, 2021. In management’s opinion, the overall ACL of $70.6 million as of September 30, 2022, is adequate to cover current estimated credit losses.

Management also assesses the value of OREO as of the end of each accounting period and recognizes write-downs to the value of that real estate in the income statement if conditions dictate. In the nine months ended September 30, 2022, total write-downs of real estate held for sale were $9,000. Management believes that the values recorded at September 30, 2022 for OREO and repossessed assets represent the realizable value of such assets.

Total classified loans decreased to $45.0 million at September 30, 2022, compared to $69.5 million at December 31, 2021, a decrease of $24.5 million. Management monitors collateral values of all loans included on the watch list that are collateral dependent and believes that allowances for such loans at September 30, 2022, were appropriate. Of the $33.1 million in non-accrual loans at September 30, 2022, $5.5 million, or16.7%, are less than 90 days past due. Non-performing assets include loans that are on non-accrual, OREO and other assets held for sale. Non-performing assets at September 30, 2022, and December 31, 2021, by category, were as follows:


	September 30,			December 31,
	2022			2021
	(In Thousands)
Non-performing loans:
Residential real estate	$	6,458		$	9,034
Commercial real estate		13,709			14,621
Construction		—			—
Commercial		4,895			11,531
Home equity and improvement		1,423			2,051
Consumer finance		1,881			1,873
PCD		4,771			8,904
Total non-performing loans		33,137			48,014

Real estate owned		416			171
Total repossessed assets		416			171

Total Nonperforming assets	$	33,553		$	48,185
TDR loans, accruing	$	6,909		$	7,768

Total nonperforming assets as a percentage of total assets		0.41	%		0.64	%
Total nonperforming assets as a percentage of total loans plus OREO*		0.54	%		0.91	%
ACL as a percent of total nonperforming assets		210.49	%		137.94	%

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

PCD loans account for 14.4% of non-performing loans. Excluding non-performing PCD loans, non-performing loans in the commercial loan category represented 0.47% of the total loans in that category at September 30, 2022, compared to 1.29% for the same category at December 31, 2021. Non-performing loans in the non-residential and multi-family residential real estate loan category were 0.51% of the total loans in this category at September 30, 2022, compared to 0.60% at December 31, 2021. Non-performing loans in the residential loan category represented 0.43% of the total loans in that category at September 30, 2022, compared to 0.77% for the same category at December 31, 2021.

The Bank’s Special Assets Committee meets monthly to review the status of work-out strategies for all criticized relationships, which include all non-accrual loans. Based on such factors as anticipated collateral values in liquidation scenarios, cash flow projections, assessment of net worth of guarantors and all other factors which may mitigate risk of loss, the Special Assets Committee makes recommendations regarding proposed charge-offs which are then approved by the Committee.

The following tables detail net charge-offs/recoveries and non-accrual loans by loan type.


	For the Nine Months Ended September 30, 2022						As of September 30, 2022
	Net Charge-offs (Recovery)			% of Total Net Charge-offs			Nonaccrual Loans		% of Total Non- Accrual Loans
	(In Thousands)						(In Thousands)
Residential	$	194			3.64	%	$	6,458		19.49	%
Commercial real estate		(211	)		(3.96	)%		13,709		41.37	%
Construction		13			0.24	%		—		—
Commercial		4,977			93.46	%		4,895		14.77	%
Home equity and improvement		76			1.43	%		1,423		4.29	%
Consumer finance		282			5.30	%		1,881		5.68	%
PCD		(6	)		(0.11	)%		4,771		14.40	%
Total	$	5,325			100.00	%	$	33,137		100.00	%


	For the Nine Months Ended September 30, 2021						As of September 30, 2021
	Net Charge-offs (Recovery)			% of Total Net Charge-offs			Nonaccrual Loans		% of Total Non-Accrual Loans
	(In Thousands)						(In Thousands)
Residential	$	(94	)		13.68	%	$	6,777		11.32	%
Commercial real estate		(215	)		31.30	%		17,982		30.04	%
Construction		—			—			—		—
Commercial		159			(23.14	)%		19,007		31.75	%
Home equity and improvement		(167	)		24.31	%		1,807		3.02	%
Consumer finance		101			(14.70	)%		1,539		2.57	%
PCD		(471	)		68.56	%		12,753		21.30	%
Total	$	(687	)		100.00	%	$	59,865		100.00	%

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	For the Quarter Ended
	3rd Qtr 2022		2nd Qtr 2022		1st Qtr 2022			4th Qtr 2021		3rd Qtr 2021
					(In Thousands)
Allowance at beginning of period	$	67,074	$	67,195	$	66,468		$	73,217	$	71,367
Provision (benefit) for credit losses		3,706		5,151		626			2,818		1,594
Charge-offs:
Residential		15		832		140			83		27
Commercial real estate		206		137		7			3,087		84
Construction		—		16		—			—		—
Commercial		29		5,303		10			6,513		372
Home equity and improvement		47		216		20			13		47
Consumer finance		185		136		102			249		85
PCD		—		63		10			2		3
Total charge-offs		482		6,703		289			9,947		618
Recoveries		328		1,431		390			380		874
Net charge-offs (recoveries)		154		5,272		(101	)		9,567		(256	)
Ending allowance	$	70,626	$	67,074	$	67,195		$	66,468	$	73,217

The following table sets forth information concerning the allocation of the Company’s ACL by loan categories at the dates indicated.


	September 30, 2022					June 30, 2022					March 31, 2022					December 31, 2021					September 30, 2021
	Amount		Percent of total loans by category			Amount		Percent of total loans by category			Amount		Percent of total loans by category			Amount		Percent of total loans by category			Amount		Percent of total loans by category
	(Dollars In Thousands)
Residential	$	16,311		21.4	%	$	14,113		21.0	%	$	11,640		20.7	%	$	12,029		20.2	%	$	13,749		19.7	%
Commercial real estate		32,712		38.6	%		34,952		40.4	%		34,201		42.3	%		32,399		42.5	%		34,092		41.6	%
Construction		3,286		17.9	%		2,999		16.7	%		2,613		15.0	%		3,004		15.0	%		3,621		15.4	%
Commercial		12,282		15.1	%		9,762		15.1	%		13,821		15.4	%		13,410		15.5	%		15,428		16.6	%
Home equity and improvement		4,210		3.9	%		4,003		4.1	%		3,919		4.4	%		4,221		4.6	%		4,688		4.6	%
Consumer finance		1,825		3.1	%		1,245		2.7	%		1,001		2.2	%		1,405		2.2	%		1,639		2.2	%
	$	70,626		100.0	%	$	67,074		100.0	%	$	67,195		100.0	%	$	66,468		100.0	%	$	73,217		100.0	%

Key Asset Quality Ratio Trends


	3rd Qtr 2022			2nd Qtr 2022			1st Qtr 2022			4th Qtr 2021			3rd Qtr 2021
Allowance for credit losses / loans*		1.14	%		1.14	%		1.25	%		1.26	%		1.39	%
Allowance for credit losses / loans excluding PPP loans		1.14	%		1.14	%		1.25	%		1.27	%		1.43	%
Allowance for credit losses / non-performing assets		210.49	%		190.57	%		141.31	%		137.94	%		121.77	%
Allowance for credit losses / non-performing loans		213.13	%		193.10	%		142.07	%		138.43	%		122.30	%
Non-performing assets / loans plus OREO*		0.54	%		0.60	%		0.88	%		0.91	%		1.14	%
Non-performing assets / total assets		0.41	%		0.44	%		0.63	%		0.64	%		0.81	%
Net charge-offs / average loans (annualized)		0.01	%		0.37	%		(0.01	)%		0.71	%		(0.02	)%

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

Non-Interest Income

Total non-interest income increased $1.7 million in the third quarter of 2022 to $16.7 million from $18.4 million for the same period in 2021.

Service Fees. Service fees and other charges increased by $478,000 from $6.1 million for the three months ended September 30, 2021, to $6.5 million for the same period in 2022. This increase is due primarily to higher ATM and interchange related fees in the third quarter of 2022 compared to the same quarter in 2021.

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Mortgage Banking Activity. Mortgage banking income decreased to $4.0 million in the third quarter of 2022 from $6.2 million in the third quarter of 2021. Mortgage banking gains decreased to $3.4 million in the third quarter of 2022 from $5.4 million in the third quarter of 2021. This decrease was primarily due to compressed margins and lower saleable mix. Mortgage loan servicing revenue was $1.9 million in the third quarter of both 2022 and 2021. Amortization of mortgage servicing rights decreased to $1.4 million in the third quarter of 2022 from $1.8 million in the third quarter of 2021. The valuation adjustment in mortgage servicing assets was $96,000 in the third quarter of 2022 compared with an adjustment of $783,000 in the third quarter of 2021. These fluctuations have primarily resulted from changes in the level of interest rates and prepayment speeds.

Gain on Sale of Available-for-Sale Securities. The Company sold available-for-sale securities during the third quarter of 2021 resulting in a gain of $233,000 compared to no activity for the same period in 2022. The Company sold the securities to exit from fast paying MBS and take advantage of favorable pricing.

Gain (loss) on Equity Securities. The Company recognized an unrealized gains on equity securities of $43,000 and $20,000 for the third quarter of 2022 and 2021, respectively. These amounts are attributable to changes in valuations in the equity securities portfolio as a result of market conditions.

Insurance Commissions. Insurance commissions were $3.5 million for the third quarter of 2021 and 2022.

Wealth Management Income. Income from wealth management was $1.4 million for the third quarter of 2022 compared to $1.3 million in the third quarter of 2021.

Bank-Owned Life Insurance ("BOLI"). Income from BOLI increased slightly from $947,000 in the third quarter of 2021 to $983,000 for the same period in 2022.

Other Non-Interest Income. Other non-interest income increased to $320,000 in the third quarter of 2022 from $146,000 in the same period in 2021.

Non-Interest Expense

Non-interest expense increased $2.0 million to $41.1 million for the third quarter of 2022 compared to $39.1 million for the same period in 2021. The increase is mainly attributable to compensation and benefits.

Compensation and Benefits. Compensation and benefits increased to $24.5 million in the third quarter of 2022, compared to $23.4 million in the third quarter of 2021. This is primarily due to higher costs related to higher staffing levels for our growth initiatives.

Occupancy. Occupancy expense decreased to $3.5 million in the third quarter of 2022 compared to $3.7 million in the third quarter of 2021. This decrease was due to the closure of three branches in 2021 and one in 2022.

FDIC Insurance Premium. The premiums on FDIC insurance increased to $976,000 for the three months ended September 30, 2022 compared to $695,000 for the third quarter of 2021 primarily resulting from growth in deposits.

Financial Institutions Tax. The Company’s financial institutions tax decreased slightly to $1.1 million in the third quarter of 2022 compared to $1.2 million in the third quarter of 2021.

Data Processing. Data processing costs declined slightly at $3.1 million in the third quarter of 2022, a decrease of $266,000 from $3.4 million in the third quarter of 2021.

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Amortization of Intangibles. Expense from the amortization of intangibles decreased to $1.3 million in the third quarter of 2022 from $1.5 million in the third quarter of 2021. The decrease is primarily related to the amortization of core deposit intangibles over the past year.

Other Non-Interest Expenses. Other non-interest expenses increased $1.4 million to $6.6 million for the three months ended September 30, 2022, compared to $5.2 million for the same quarter in 2021.

Nine Months Ended September 30, 2022 and 2021

On a consolidated basis, the Company’s net income for the nine months ended September 30, 2022 was $76.9 million compared to income of $100.7 million for the same period in 2021. On a per share basis, basic and diluted earnings per common share for the nine months ended September 30, 2022 were both $2.15, compared to basic and diluted earnings per common share of $2.70 for the same period in 2021.

Net Interest Income

Net interest income was $180.3 million for the first nine months of 2022 compared to $170.2 million in the first nine months of 2021. Average interest-earning assets increased to $7.1 billion in the first nine months of 2022 compared to $6.7 billion in the first nine months of 2021. This increase was primarily due to organic loan growth and an increase in average securities.

For the nine months ended September 30, 2022, total interest income was $197.0 million compared to $183.1 million for the same period in 2021. Interest expense increased by $3.8 million to $16.7 million for the nine months ended September 30, 2022, compared to $12.9 million for the same period in 2021.

Net interest margin for the first nine months of 2022 was 3.40%, up 1 basis point from the 3.39% margin reported for the nine months ended September 30, 2021. The increase in net interest margin was primarily due to loan growth.

Provision for Credit Losses

The provision for credit losses on loans and unfunded commitments was $11.5 million for the nine months ended September 30, 2022, compared to a recovery of $9.1 million for the nine months ended September 30, 2021. Charge-offs for the first nine months of 2022 were $7.5 million and recoveries of previously charged off loans totaled $2.1 million for net charge-offs of $5.3 million. By comparison, $1.4 million of charge-offs were recorded in the same period of 2021 and $2.1 million of recoveries were realized for net recoveries of $689,000. The current year provision expense is primarily due to loan growth, whereas the prior year recovery was primarily due to the improving economic environment following the COVID-19 pandemic-induced economic recession and reserve increase in 2020.

Non-Interest Income

Total non-interest income decreased $13.8 million to $47.9 million for the nine months ended September 30, 2022, from $61.7 million recognized for the same period in 2021.

Service Fees. Service fees and other charges were $19.2 million for the first nine months of 2022, an increase of $1.4 million from the same period in 2021.

Mortgage Banking Activity. Total revenue from the sale and servicing of mortgage loans decreased $8.7 million to $10.2 million for the nine months ended September 30, 2022, down from $18.9 million for the same period in 2021, which was primarily attributable to compressed margins and lower saleable mix. Mortgage banking gains decreased $6.7 million to $7.1 million for the first nine months of 2022 from $13.7 million for the same period in 2021. Mortgage loan servicing revenue decreased slightly to $5.6 million in the first nine months

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of 2022 from $5.7 million for the first nine months of 2021. The amortization of mortgage servicing rights decreased from an expense of $6.1 million for the first nine months of 2021 to an expense of $4.1 million for the first nine months of 2022. The Company recorded a positive valuation adjustment of $1.6 million in the first nine months of 2022 compared to a positive adjustment of $5.7 million in the first nine months of 2021.

Insurance Commission Income. Income from the sale of insurance and investment products was $12.0 million in the first nine months 2022 compared to $12.4 for the same period in 2021.

Wealth Management Income. Income in this category was $4.2 million in the first nine months of 2022, compared to $4.6 million in the first nine months of 2021.

Income from Bank Owned Life Insurance. Income from BOLI was $3.0 million in the first nine months of each of 2022 and 2021. In 2021, the Company received $334,000 in claim gains in the first nine months of 2021. No claim gains have been received in 2022.

Other Non-Interest Income. Other non-interest income for the first nine months of 2022 was $1.1 million compared to $2.0 million in the first nine months of 2021. This change is primarily attributable to a $1.3 million non-recurring settlement payment in the second quarter of 2021.

Non-Interest Expense

Non-interest expense was $121.5 million for the first nine months of 2022, up from $115.8 million for the same period in 2021.

Compensation and Benefits. Compensation and benefits increased to $72.4 million for the nine months ended September 30, 2022, compared to $66.4 million for the same period in 2021 primarily due to costs related to higher staffing levels to meet the Company's growth initiatives.

Occupancy. Occupancy expense decreased by $985,000 to $10.7 million for the nine months ended September 30, 2022, compared to the same period in 2021. This can be primarily attributed to the closure of three branches in 2021 and one branch in 2022.

Data Processing. Data processing costs were $9.9 million in the first nine months of 2022, a decline of $204,000 from $10.1 million in same period for 2021.

Amortization of Intangibles. Intangible amortization decreased by $569,000 to $4.2 million in the nine months ended September 30, 2022, compared to $4.7 million for the same period in 2021.

Other Non-Interest Expenses. Other non-interest expenses increased $1.4 million to $18.7 million for the first nine months of 2022 from $17.3 million for the same period in 2021.

Liquidity

As a regulated financial institution, the Company is required to maintain appropriate levels of “liquid” assets to meet short-term funding requirements. The Company’s liquidity, primarily represented by cash and cash equivalents, is a result of its operating, investing and financing activities.

The principal source of funds for the Company are deposits, loan repayments, maturities of securities, borrowings from financial institutions and other funds provided by operations. The Bank also has the ability to borrow from the FHLB. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan repayments are more influenced by interest rates, general economic conditions and competition. Investments in liquid assets maintained by the Company and the Bank are based upon management’s assessment of (i) the need for funds, (ii) expected deposit flows, (iii) yields available on short-term liquid assets, and (iv) objectives of the asset and liability management program.

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The Bank’s Asset/Liability Committee (“ALCO”) is responsible for establishing and monitoring liquidity guidelines, policies and procedures. ALCO uses a variety of methods to monitor the liquidity position of the Bank including liquidity analyses that measure potential sources and uses of funds over future periods out to one year. ALCO also performs contingency funding analyses to determine the Bank’s ability to meet potential liquidity needs under stress scenarios that cover varying time horizons ranging from immediate to longer term.

At September 30, 2022, the Bank had $1.5 billion of on-hand liquidity, defined as cash and cash equivalents, unencumbered securities and additional FHLB borrowing capacity.

Liquidity risk arises from the possibility that the Company may not be able to meet its financial obligations and operating cash needs or may become overly reliant upon external funding sources. In order to manage this risk, the Company’s Board of Directors has established a Liquidity Policy that identifies primary sources of liquidity, establishes procedures for monitoring and measuring liquidity and quantifies minimum liquidity requirements. This policy designates ALCO as the body responsible for meeting these objectives. ALCO reviews liquidity on a monthly basis and approves significant changes in strategies that affect balance sheet or cash flow positions.

Capital Resources

Capital is managed at the Bank and on a consolidated basis. Capital levels are maintained based on regulatory capital requirements and the economic capital required to support credit, market, liquidity and operational risks inherent in the business, as well as flexibility needed for future growth and new business opportunities.

In July 2013, the Federal Reserve and FDIC approved the final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (commonly known as Basel III). The Company is in compliance with the Basel III guidelines.

The Company met each of the well-capitalized ratio guidelines at September 30, 2022. The following table indicates the capital ratios for the Company (consolidated) and the Bank at September 30, 2022, and December 31, 2021 (in thousands):


	September 30, 2022
	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	$	713,352		9.66	%	$	332,364		4.5	%	N/A		N/A
Premier Bank	$	749,803		10.20	%	$	330,770		4.5	%	$	477,779		6.5	%
Tier 1 Capital
Consolidated	$	748,352		9.34	%	$	320,645		4.0	%	N/A		N/A
Premier Bank	$	749,803		9.39	%	$	319,434		4.0	%	$	399,293		5.0	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	748,352		10.13	%	$	443,153		6.0	%	N/A		N/A
Premier Bank	$	749,803		10.20	%	$	441,027		6.0	%	$	588,036		8.0	%
Total Capital (to Risk Weighted Assets)
Consolidated	$	874,882		11.85	%	$	590,870		8.0	%	N/A		N/A
Premier Bank	$	826,333		11.24	%	$	588,036		8.0	%	$	735,045		10.0	%

(1)

Excludes capital conservation buffer of 2.50%

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	December 31, 2021
	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	$	689,930		10.92	%	$	284,394		4.5	%	N/A		N/A
Premier Bank	$	725,600		11.53	%	$	283,265		4.5	%	$	409,160		6.5	%

Tier 1 Capital
Consolidated	$	724,930		10.10	%	$	287,138		4.0	%	N/A		N/A
Premier Bank	$	725,600		10.16	%	$	285,664		4.0	%	$	357,080		5.0	%

Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	724,930		11.47	%	$	379,192		6.0	%	N/A		N/A
Premier Bank	$	725,600		11.53	%	$	377,686		6.0	%	$	503,582		8.0	%

Total Capital (to Risk Weighted Assets)
Consolidated	$	844,389		13.36	%	$	505,589		8.0	%	N/A		N/A
Premier Bank	$	795,059		12.63	%	$	503,582		8.0	%	$	629,477		10.0	%

(1)

Excludes capital conservation buffer of 2.50%.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As discussed in detail in the Company’s 2021 Form 10-K, the Company's ability to maximize net income is dependent on management’s ability to plan and control net interest income through management of the pricing and mix of assets and liabilities. Because a large portion of assets and liabilities of the Company are monetary in nature, changes in interest rates and monetary or fiscal policy affect its financial condition and can have significant impact on the net income of the Company.

The Company monitors its exposure to interest rate risk on a quarterly basis through simulation analysis that measures the impact changes in interest rates can have on net interest income. The simulation technique analyzes the effect of a presumed 100 basis point shift in interest rates (which is consistent with management’s estimate of the range of potential interest rate fluctuations) and takes into account prepayment speeds on amortizing financial instruments, loan and deposit volumes and rates, non-maturity deposit assumptions and capital requirements.

The table below presents, for the twelve months subsequent to September 30, 2022 and December 31, 2021, an estimate of the change in net interest income that would result from an immediate (shock) change in interest rates, moving in a parallel fashion over the entire yield curve, relative to the measured base case scenario. Based on our net interest income simulation as of September 30, 2022, net interest income sensitivity to changes in interest rates for the twelve months subsequent to September 30, 2022, decreased in the rising rate environment and in the falling rate environment for the shock compared to the sensitivity profile for the twelve months subsequent to December 31, 2021.

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	Impact on Future Annual Net Interest Income
	September 30, 2022		December 31, 2021
Immediate Change in Interest Rates
+ 400		7.45%	19.16%
+ 300		5.62%	14.52%
+ 200		3.89%	9.66%
+ 100		1.97%	4.82%
- 100		(0.45)%	(3.21)%
- 200		(2.85)%	—
- 300		(6.42)%	—

To analyze the impact of changes in interest rates in a more realistic manner, non-parallel interest rate scenarios are also simulated. These non-parallel interest rate scenarios indicate that net interest income may increase from the base case scenario should the yield curve flatten, become inverted or steepen.

In addition to the simulation analysis, Premier also uses an economic value of equity (“EVE”) analysis to measure risk in the balance sheet incorporating all cash flows over the estimated remaining life of all balance sheet positions. The EVE analysis generally calculates the net present value of Premier’s assets and liabilities in rate shock environments that range from -300 basis points to +400 basis points. The results of this analysis are reflected in the following tables for the quarter ended September 30, 2022, and the year ended December 31, 2021.


	September 30, 2022	December 31, 2021
Change in Rates	Economic Value of Equity % Change	Economic Value of Equity % Change

+400 bp	0.31%	7.01%
+ 300 bp	0.43%	6.61%
+ 200 bp	0.77%	5.39%
+ 100 bp	0.44%	3.10%
0 bp	—		—
- 100 bp	(1.15)%	(6.83)%
- 200 bp	(3.51)%	—
- 300 bp	(1.39)%	—

Item 4. Controls and Procedures

An evaluation of the Company's disclosure controls and procedures was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2022. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. No changes occurred in the Company’s internal controls over financial reporting during the quarter ended September 30, 2022, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

Premier and its subsidiaries are involved in various legal proceedings that arise in the ordinary course of its business. While the ultimate liability with respect to litigation matters and claims cannot be determined at this

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time, management believes any resulting liability and other amounts relating to pending matters are not likely to be material to the Company’s consolidated financial position or results of operations.

Item 1A. Risk Factors

There are no material changes from the risk factors set forth under Part I, Item 1A, “Risk Factors” in the 2021 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information regarding Premier’s purchases of its common stock during the three-month period ended September 30, 2022:


Period	Total Number of Shares Purchased(2)		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)
Beginning Balance, June 30, 2022								1,200,130
July 1 - July 31, 2022		333	$	26.79		—		1,200,130
August 1 - August 31, 2022		3,816		28.89		—		1,200,130
September 1 - September 30, 2022		166		26.62		—		1,200,130
Total		4,315	$	28.64		—		1,200,130

(1)

On January 26, 2021, the Company announced that its Board of Directors authorized a program for the repurchase of up to 2,000,000 shares of outstanding common stock. On January 25, 2022, the Company announced that its Board of Directors approved an increase in the Company’s repurchasing authorization to up to 2,000,000 shares of outstanding common stock. There is no expiration date for the repurchase program.

(2)

Of this amount, no shares were obtained in fulfillment of tax obligations from vesting of restricted stock compensation and 4,315 shares were obtained as a result of the forfeiture of stock compensation and were not part of the publicly announced repurchase program.

Premier discovered that it issued approximately 77,847 more shares of the Company’s common stock in connection with its employee share purchase plan (“ESPP”) than were registered on July 2, 2014 on the previously filed Registration Statement on Form S-8 (File No. 333-197203), as amended on July 17, 2018, relating to the ESPP. Because the Company sponsors the ESPP, it is required to register shares issued through the ESPP even though all ESPP shares are purchased by Broadridge Corporate Issuer Solutions, Inc., the plan administrator, in the open market. The Company expects to file a new registration statement on Form S-8 to register future shares issued through the ESPP on or about November 7, 2022.

The Company has always treated the shares issued through the ESPP as outstanding for financial reporting purposes. The Company believes that it has always provided the employee-participants in the ESPP with the same information they would have received had the additional shares been registered. Original purchasers of the unregistered ESPP shares may have rescission rights with respect to such shares under applicable federal securities laws for up to one year following the date of acquisition of the shares. These rescission rights represent a potential liability to the Company. In addition, the Company may be subject to civil and other penalties by regulatory authorities as a result of the failure to register these transactions.

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Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit 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))
Exhibit 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))
Exhibit 31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 101		The following financial information from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 is formatted in Inline XBRL: (i) Unaudited Consolidated Condensed Statements of Financial Condition at September 30, 2022 and December 31, 2021; (ii) Unaudited Consolidated Condensed Statements of Income for the three and nine months ended September 30, 2022 and 2021; (iii) Unaudited Consolidated Condensed Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021; (iv) Unaudited Consolidated Condensed Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021; (v) Unaudited Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2022 and 2021; and (vi) Notes to Unaudited Consolidated Condensed Financial Statements.

Exhibit 104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Premier Financial Corp.
	(Registrant)


Date: November 7, 2022	By:	/s/ Gary M. Small
		Gary M. Small
		President and Chief Executive Officer (Principal Executive Officer)


Date: November 7, 2022	By:	/s/ Paul D. Nungester, Jr.
		Paul D. Nungester, Jr.
		Executive Vice President and
		Chief Financial Officer (Principal Financial and Accounting Officer)