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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
- -----
For the fiscal year ended December 31, 1999
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-20908
PREMIER FINANCIAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-1206757
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
115 N. Hamilton Street
Georgetown, Kentucky 40324
(Address of principal executive offices) (Zip Code)
Registrants' telephone number: (502) 863-1955
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock
(Title of Class)
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 filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this 10-K or any amendment
to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 24, 2000 was $43,492,912. The number of shares
outstanding of the Registrant's Common Stock as of March 24, 2000 was 5,232,230.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the Form
10-K part indicated:
Document Form 10-K
(1) Proxy statement for the 2000 annual meeting of Part III
shareholders
PART I
Item 1. Description of Business
THE COMPANY
Premier Financial Bancorp, Inc. (the "Company" or "Premier") is a
multi-bank holding company that, as of March 24, 2000, operated twenty banking
offices in Kentucky, six banking offices in Ohio, and four banking offices in
West Virginia through its ten bank subsidiaries (the "Affiliate Banks"), the
tenth of which was acquired on January 20, 1999. At December 31, 1999, Premier
had total consolidated assets of $852.5 million, total consolidated deposits of
$692.8 million and total consolidated shareholders' equity of $52.1 million.
Premier began an acquisition program in 1993 and has acquired six
commercial banks and five branches of other commercial banks since that time.
Premier also owns nonbank subsidiaries that provide consumer lending and data
processing services.
Premier continues to explore opportunities to acquire banks, savings
associations, branches of either and nonbank companies as permitted by the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). Premier regularly
reviews, analyzes and engages in discussions regarding possible additional
acquisitions. It is not presently known whether, or on what terms, such
discussions will result in further acquisitions, if any. Premier generally does
not announce an acquisition until after the execution of a definitive agreement.
Premier is a legal entity separate and distinct from its Affiliate
Banks and nonbank subsidiaries. Accordingly, the right of Premier, and thus the
right of Premier's creditors and shareholders, to participate in any
distribution of the assets or earnings of any of the Affiliate Banks or nonbank
subsidiaries is necessarily subject to the prior claims of creditors of such
subsidiaries, except to the extent that claims of Premier, in its capacity as a
creditor, may be recognized. The principal source of Premier's revenue is
dividends from its Affiliate Banks and nonbank subsidiaries. See "REGULATORY
MATTERS -- Dividend Restrictions" for discussion of the restrictions on the
Affiliate Banks' ability to pay dividends to Premier.
Premier was incorporated as a Kentucky corporation in 1991 and has
functioned as a bank holding company since its formation. Premier's principal
executive offices are located at 115 North Hamilton Street, Georgetown, Kentucky
40324, and its telephone number is (502) 863-1955.
BUSINESS
General
Through the Banks and its data processing subsidiary, the Company
focuses on providing quality, community banking services to individuals and
small-to medium sized businesses primarily in non-urban areas. By seeking to
provide such banking services in non-urban areas, the Company believes that it
can minimize the competitive effect of larger financial institutions that
typically are focused on large metropolitan areas. Through its experiences in
acquiring its Banks, the Company has successfully developed and implemented a
strategy of joining together community banks that retain their commitment to
local orientation and direction, while having the benefit of the Company's
capital for growth and staff assistance to promote safety, soundness and
regulatory compliance. Each Bank is managed on a decentralized basis that offers
customers direct access to the Bank's president and other officers in an
environment conducive to friendly, informed and courteous service. This
decentralized approach also enables each Bank to offer local and timely
decision-making, and flexible and reasonable operating procedures and credit
policies limited only by a framework of centralized risk controls provided by
the Company to promote prudent banking practices. Each Bank maintains its
community orientation by, among other things, having selected members of its
community as members of its board of directors, who assist in the introduction
of prospective customers to the Bank and in the development or modification of
products and services to meet customer needs. As a result of the development of
personal banking relationships with its customers and the convenience and
service offered by the Banks, the Banks' lending and investing activities are
funded primarily by core deposits.
When appropriate and economically advantageous, the Company centralizes
certain of the Banks' back office, support and investment functions in order to
achieve consistency and cost efficiency in the delivery of products and
services. The Company centrally provides services such as data processing,
operations support, accounting, loan review and compliance and internal auditing
to the Banks to enhance their ability to compete effectively. The Company also
provides overall direction in the areas of credit policy and administration,
strategic planning, marketing, investment portfolio management and other
financial and administrative services. Each Bank participates in product
development by advising management of new products and services needed by their
customers and desirable changes to existing products and services.
Each of the Banks provides a wide range of retail and commercial
banking services, including commercial, real estate, agricultural and consumer
lending; depository and funds transfer services; collections; safe deposit
boxes; cash management services; and other services tailored for both
individuals and businesses. Farmers Deposit Bank in Eminence, Kentucky, also
offers limited trust services and acts as executor, administrator, trustee and
in various other fiduciary capacities. Through Premier Data Services, Inc., the
Company's data processing subsidiary, the Company currently provides centralized
data processing services to eight of the Banks as well as one non-affiliated
bank.
The Banks' residential mortgage lending activities consist primarily of
loans for purchasing personal residences or loans for commercial or consumer
purposes secured by residential mortgages. Consumer lending activities consist
of traditional forms of financing for automobile and personal loans.
The Banks' range of deposit services includes checking accounts, NOW
accounts, savings accounts, money market accounts, club accounts, individual
retirement accounts, certificates of deposit and overdraft protection. Deposits
of the Banks are insured by the Bank Insurance Fund administered by the FDIC.
County Finance, Inc., a subsidiary of Citizens Deposit Bank & Trust in
Vanceburg, Kentucky, is a consumer loan company that provides secured and
unsecured loans to customers who would generally not qualify, due to credit
experience or other factors, for loans at that Bank.
Competition
The Banks encounter strong competition both in making loans and
attracting deposits. The deregulation of the banking industry and the widespread
enactment of state laws that permit multi-bank holding companies as well as the
availability of nationwide interstate banking have created a highly competitive
environment for financial services providers. In one or more aspects of its
business, each Bank competes with other commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment banking companies and other financial
intermediaries operating in its market and elsewhere, many of whom has
substantially greater financial and managerial resources. Being smaller
financial institutions, each of the Banks' competitors include large bank
holding companies having substantially greater resources and offer certain
services that Premier Banks may not currently provide. Each Bank seeks to
minimize the competitive effect of larger financial institutions through a
community banking approach that emphasizes direct customer access to the Bank's
president and other officers in an environment conducive to friendly, informed
and courteous service.
Management believes that each Bank is well positioned to compete
successfully in its respective primary market area, although no assurances can
be given. Competition among financial institutions is based upon interest rates
offered on deposit accounts, interest rates charged on loans and other credit
and service charges, the quality and scope of the services rendered, the
convenience of the banking facilities and, in the case of loans to commercial
borrowers, relative lending limits. Management believes that the commitment of
its Banks to personal service, innovation and involvement in their respective
communities and primary market areas, as well as their commitment to quality
community banking service, are factors that contribute to their competitiveness.
Regulatory Matters
The following discussion sets forth certain elements of the regulatory
framework applicable to bank holding companies and their subsidiaries and
provides certain specific information relevant to Premier. This regulatory
framework is intended primarily for the protection of depositors and the federal
deposit insurance funds and not for the protection of the holders of securities,
including Premier Common Shares. To the extent that the following information
describes statutory or regulatory provisions, it is qualified in its entirety by
reference to those provisions. A change in the statutes, regulations or
regulatory policies applicable to Premier or its subsidiaries may have a
material effect on the business of Premier.
General - As a bank holding company, Premier is subject to regulation under the
Bank Holding Company Act ("BHC Act"), and to inspection, examination and
supervision by the Board of Governors of the Federal Reserve System ("Federal
Reserve"). Under the BHC Act, bank holding companies generally may not acquire
ownership or control of more than 5% of the voting shares or substantially all
the assets of any company, including a bank, without the Federal Reserve's prior
approval. Similarly, bank holding companies generally may not acquire ownership
or control of a savings association without the prior approval of the Federal
Reserve. Further, branching by the Affiliate Banks is subject to the
jurisdiction, and requires the approval, of each Affiliate Bank's primary
federal banking regulator and, if the Affiliate Bank is a state-chartered bank,
the appropriate state banking regulator. In addition, bank holding companies
generally may engage, directly or indirectly, only in banking and such other
activities as are determined by the Federal Reserve to be closely related to
banking.
Under the BHC Act, the Federal Reserve has the authority to require a
bank holding company to terminate any activity or relinquish control of the
nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a risk to the
financial soundness and stability of any bank subsidiary of the bank holding
company. Premier and the Affiliate Banks are subject to the Federal Reserve Act,
which limits borrowings by Premier and its nonbank subsidiaries from the
Affiliate Banks and also limits various other transactions between Premier and
its nonbank subsidiaries with the Affiliate Banks.
The six Affiliate Banks chartered in Kentucky are supervised, regulated
and examined by the Kentucky Department of Financial Institutions, the two
Affiliate Banks chartered in Ohio are supervised, regulated and examined by the
Ohio Division of Financial Institutions, and the two Affiliate Banks chartered
in West Virginia are supervised, regulated and examined by the West Virginia
Division of Banking. In addition, those Affiliate Banks that are state banks and
members of the Federal Reserve System are supervised and regulated by the
Federal Reserve, and those state banks that are not members of the Federal
Reserve System are supervised and regulated by the Federal Deposit Insurance
Corporation ("FDIC"). Each banking regulator has the authority to issue
cease-and-desist orders if it determines that the activities of a bank regularly
represent an unsafe and unsound banking practice or a violation of law.
Both federal and state law extensively regulates various aspects of the
banking business, such as reserve and capital requirements,truth-in-lending
and truth-in-savings disclosure, equal credit opportunity, fair credit
reporting, trading in securities and other aspects of banking operations.
Premier, the Affiliate Banks and Premier's nonbank subsidiaries are also
affected by the fiscal and monetary policies of the federal government and the
Federal Reserve and by various other governmental laws, regulations and
requirements. Further, the earnings of Premier and Affiliate Banks are affected
by general economic conditions and prevailing interest rates. Legislation and
administrative actions affecting the banking industry are frequently considered
by the United States Congress, state legislatures and various regulatory
agencies. It is not possible to predict with certainty whether such legislation
or administrative actions will be enacted or the extent to which the banking
industry, in general, or Premier and the Affiliate Banks, in particular, would
be affected.
Liability for Bank Subsidiaries - The Federal Reserve has a policy to the effect
that a bank holding company is expected to act as a source of financial and
managerial strength to each of its subsidiary banks and to maintain resources
adequate to support each such subsidiary bank. This support may be required at
times when Premier may not have the resources to provide it. In the event of a
bank holding company's bankruptcy, any commitment by the bank holding company to
a federal bank regulatory agency to maintain the capital of a subsidiary bank
would be assumed by the bankruptcy trustee and entitled to priority of payment.
Any depository institution insured by the FDIC may be held liable for
any loss incurred, or reasonably expected to be incurred, by the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution, or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC-insured depository institution in danger of default. "Default"
is defined generally as the appointment of a conservator or receiver and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a "default" is likely to occur in the absence of regulatory
assistance. In the event that such a default occurred with respect to a bank,
any loans to the bank from its parent holding company will be subordinate in
right of payment to payment of the bank's depositors and certain of its other
obligations.
Capital Requirements - Premier is subject to capital ratios, requirements and
guidelines imposed by the Federal Reserve, which are substantially similar to
the ratios, requirements and guidelines imposed by the Federal Reserve and the
FDIC on the banks within their respective jurisdictions. These capital
requirements establish higher capital standards for banks and bank holding
companies that assume greater credit risks. For this purpose, a bank's or
holding company's assets and certain specified off-balance sheet commitments are
assigned to four risk categories, each weighted differently based on the level
of credit risk that is ascribed to such assets or commitments. A bank's or
holding company's capital is divided into two tiers: "Tier I" capital, which
includes common shareholders' equity, noncumulative perpetual preferred stock
and related surplus (excluding auction rate issues), minority interests in
equity accounts of consolidated subsidiaries, less goodwill, certain
identifiable intangible assets and certain other assets; and "Tier 2" capital,
which includes, among other items, perpetual preferred stock not meeting the
Tier I definition, mandatory convertible securities, subordinated debt and
allowances for loan and lease losses, subject to certain limitations, less
certain required deductions.
Bank holding companies currently are required to maintain Tier I and
total capital (the sum of Tier 1 and Tier 2 capital) equal to at least 4% and 8%
of total risk-weighted assets, respectively. At December 31, 1999, Premier met
both requirements, with Tier I and total capital equal to 8.9% and 11.9% of its
total risk-weighted assets, respectively.
In addition to the risk-based capital guidelines, the Federal Reserve
requires bank holding companies to maintain a minimum "leverage ratio" (Tier I
capital to adjusted total assets) of 3%, if the holding company has the highest
regulatory ratings for risk-based capital purposes and, accordingly, is required
to maintain a minimum "leverage ratio" of 3%. All other bank holding companies
are required to maintain a leverage ratio of 3% plus at least 100 to 200 basis
points. At December 31, 1999, Premier's leverage ratio was 6.2%.
The foregoing capital requirements are minimum requirements. The
Federal Reserve may set capital requirements higher than the minimums described
above for holding companies whose circumstances warrant it. For example, holding
companies experiencing or anticipating significant growth may be expected to
maintain capital ratios, including tangible capital positions, well above the
minimum levels.
Additionally, the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), among other things, identifies five capital categories for
insured depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines could
also subject a banking institution to capital raising requirements.
An "undercapitalized" bank must develop a capital restoration plan and
its parent holding company must guarantee the bank's compliance with the plan.
The liability of the parent holding company under any such guarantee is limited
to the lesser of 5% of the Bank's assets at the time it became
"undercapitalized" or the amount needed to comply with the plan. Furthermore, in
the event of the bankruptcy of the parent holding company, such guarantee would
take priority over the parent's general unsecured creditors. In addition, FDICIA
requires the various regulatory agencies to prescribe certain non-capital
standards for safety and executive compensation and permits regulatory action
against a financial institution that does not meet such standards.
Dividend Restrictions - Premier is dependent to a large extent on dividends from
its Affiliate Banks for its revenues. Various federal and state regulatory
provisions limit the amount of dividends the Affiliate Bank can pay to Premier
without regulatory approval. At December 31, 1999, approximately $8.0 million of
the total shareholders' equity of the Affiliate Banks was available for payment
of dividends to Premier without approval by the applicable regulatory authority.
In addition, federal bank regulatory authorities have authority to
prohibit Premier's Affiliate Banks from engaging in an unsafe or unsound
practice in conducting their business. The payment of dividends, depending upon
the financial condition of the bank in question, could be deemed to constitute
such an unsafe or unsound practice. The ability of the Affiliate Banks to pay
dividends in the future is presently, and could be further, influenced by bank
regulatory policies and capital guidelines as well as each Affiliate Bank's
earnings and financial condition. Additional information regarding dividend
limitations can be found in Note 19 of the accompanying audited consolidated
financial statements.
Interstate Banking - Under the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act"), subject to certain concentration
limits, (i) bank holding companies, such a Premier, are permitted to acquire
banks and bank holding companies located in any state of the United States,
subject to certain restrictions, and (ii) banks are permitted to acquire branch
offices outside their home state by merging with out-of-state banks, purchasing
branches in other states or establishing de novo branch offices in other states;
provided that, in the case of any such purchase or opening of individual
branches, the host state has adopted legislation "opting in" to the relevant
provisions of the Riegle-Neal Act; and provided further, that, in the case of a
merger with a bank located in another state, the host state has not adopted
legislation "opting out" of the relevant provisions of the Riegle-Neal Act.
Gramm-Leach-Bliley Act - On November 12, 1999, the Gramm-Leach-Bliley Act (the
"Act") was signed into law, breaking down the last remaining barriers to full
convergence of the banking, securities, and insurance industries. The major
provisions of the Act take effect on March 12, 2000.
The Act enables a broad-scale consolidation among banks, securities, firms
and insurance companies by creating a new type of financial services company
called a "financial holding company," a bank holding company with dramatically
expanded powers. Financial holding companies can offer virtually any type of
financial service, including banking, securities underwriting, insurance (both
agency and underwriting), and merchant banking. Activities at U. S. banking
organizations are currently permitted to conduct both domestically and overseas
can be conducted by financial holding companies domestically (they include a
broad range of financial activities, including operating a travel agency). In
addition, the Act permits the Federal Reserve and the Treasury Department to
authorize additional activities for financial holding companies, but only if
they jointly determine that such activities are "financial in nature" or
"complementary to financial activities."
The FRB serves as the primary "umbrella" regulator of financial holding
companies, with jurisdiction over the parent company and more limited oversight
over its subsidiaries. The primary regulator of each subsidiary of a financial
holding company depends on the activities conducted by the subsidiary. A
financial holding company need not obtain FRB approval prior to engaging, either
de novo or through acquisition, in financial activities previously determined to
be permissible by the FRB. Instead, a financial holding company need only
provide notice to the FRB within 30 days after commencing the new activity or
consummating the acquistion.
The Company is currently contemplating whether to become a financial
holding company.
Number of Employees
The Company and its subsidiaries collectively had approximately 351
full-time equivalent employees as of March 24, 2000. Its executive offices are
located at 115 North Hamilton Street, Georgetown, Kentucky, telephone number
(502) 863-1955 (facsimile number (502) 863-5604).
Item 2. Properties
The Company owns 115 North Hamilton Street in Georgetown, Kentucky, at
which the Company's executive offices are located. The Company also owns
property located at 104 Jefferson Street, Brooksville, Kentucky, which serves as
a branch for Bank of Germantown. In South Webster, Ohio, Premier owns 110 North
Jackson Street, which is the site occupied by a branch of Ohio River Bank.
Except as noted each of the Banks owns the real property and improvements on
where their banking activities are conducted.
Citizens Deposit Bank & Trust, in addition to its main office at 400
Second Street in Vanceburg, Kentucky, has five branch offices in Lewis County,
Kentucky, including one leased facility. The Bank of Germantown, with its main
office located on Highway 10 in Germantown, Kentucky, has one branch located in
Bracken County, Kentucky. Georgetown Bank & Trust Co., in addition to its main
office at 120 North Hamilton Street in Georgetown, Kentucky, has two branches in
Scott County, Kentucky. Citizens Bank, in addition to its main office at 648
Main Street in Sharpsburg, Kentucky, has one additional branch located in Bath,
Kentucky. Farmers Deposit Bank, in addition to its main office at 5230 South
Main Street in Eminence, Kentucky, has two branches in Henry County, Kentucky.
The Sabina Bank, in addition to its main office at 135 North Howard Street in
Sabina, Ohio, has two branches, one each located in Hardin and Auglaize
Counties, Ohio. Ohio River Bank, in addition to its main office at 221 Railroad
Street in Ironton, Ohio, has two branches, one each located in Lawrence and
Scioto Counties, Ohio. The Bank of Philippi, in addition to its main office at 2
South Main Street in Philippi, West Virginia, has a branch located in Upshur
County, West Virginia, and a loan production office located in Barbour County,
West Virginia. Boone County Bank, in addition to its main office at 300 State
Street, Madison, West Virginia, has a branch located in Boone County, West
Virginia, and a loan production office located in Logan County, West Virginia.
The Bank of Mt. Vernon, in addition to its main office at 112 Saint George
Street in Richmond, Kentucky, has two branches in Rockcastle County, one branch
in Pulaski County, and one loan production office in Madison County, Kentucky.
Item 3. Legal Proceedings
The Banks are respectively parties to legal actions that are ordinary
routine litigation incidental to a commercial banking business. In management's
opinion, the outcome of these matters, individually or in the aggregate, will
not have a material adverse impact on the results of operations or financial
position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is listed on the NASDAQ under the symbol
PFBI. At March 24, 2000, the Company had approximately 822 record holders of its
common shares.
The following table sets forth on a quarterly basis cash dividends paid
and the range of high and low sales prices on a per share basis during the
quarters indicated. Cash dividends paid per share shown below have been adjusted
retroactively to reflect prior stock splits effected in the form of share
dividends.
Cash Sales Price
Dividends Paid High Low
1998:
First Quarter $ 0.15 $25.75 $21.56
Second Quarter 0.15 23.50 20.00
Third Quarter 0.15 22.50 18.81
Fourth Quarter 0.15 19.75 16.50
---------
$ 0.60
1999:
First Quarter $ 0.15 $17.50 $14.00
Second Quarter 0.15 14.88 12.31
Third Quarter 0.15 14.44 11.00
Fourth Quarter 0.15 11.88 9.00
---------
$ 0.60
2000:
First Quarter *$0.15 $10.00 $8.06
*Dividend declared March 1, 2000 to shareholders of record as of
March 20, 2000, payable March 31, 2000.
The Company has paid consecutive quarterly cash dividends since its
organization. The Company's annual cash dividend has increased from $0.12 per
share in 1991 to $0.60 per share in 1999. While the Company currently expects to
declare comparable cash dividends in the future, there can be no assurance that
it will do so. The determination whether to pay cash dividends and the amount of
such dividends is at the discretion of the Company's Board of Directors.
The payment of dividends by the Company depends largely upon the
ability of the Banks to declare and pay dividends to the Company because the
principal source of the Company's revenue will be dividends paid by the Banks.
At December 31, 1999, approximately $8.0 million was available for payment as
dividends from the Banks to the Company without the need for approval from the
FDIC or the state banking regulators. In considering the payment of dividends,
the Board of Directors will take into account the Company's financial condition,
results of operations, tax considerations, costs of expansion, industry
standards, economic conditions and need for funds, as well as governmental
policies and regulations applicable to the Company and the Banks.
Item 6. Selected Financial Data
The following table presents consolidated selected financial data for the
Company, it does not purport to be complete and is qualified in its entirety by
more detailed financial information and the audited consolidated financial
statements contained elsewhere in this annual report. The consolidated selected
financial data presented below has been retroactively adjusted to reflect all
prior stock dividends and splits effected in the form of share dividends and has
been restated to give the effect of acquisitions accounted for as a pooling of
interests.
At or for the Year Ended December 31,
1999 1998 1997 1996 1995
Earnings
Net interest income $ 28,665 $ 20,107 $ 17,458 $ 13,454 $ 8,021
Provision for loan losses 3,294 1,742 1,399 953 314
Non-interest income 3,776 4,673 4,562 1,835 1,042
Non-interest expense 22,630 15,337 12,232 9,230 6,865
Income taxes 1,927 1,997 2,605 1,588 146
Net income $ 4,590 $ 5,704 $ 5,784 $ 3,518 $ 1,737
Financial Position
Total assets $ 852,468 $ 657,744 $ 464,890 $ 363,739 $ 208,502
Loans, net of unearned
income 570,106 395,620 312,102 265,453 147,321
Allowance for loan losses 6,812 4,363 3,479 3,127 2,114
Goodwill and other intangibles 24,339 21,555 7,262 5,565 345
Securities 170,420 177,192 73,409 58,253 34,924
Deposits 692,843 523,193 358,605 297,116 179,792
Other borrowings 73,929 47,670 21,842 15,392 1,502
Debt 28,750 28,750 28,750 0 5,000
Stockholders' equity 52,127 54,399 52,007 48,694 19,883
Share Data
Net income - basic $ .88 $ 1.09 $ 1.11 $ .82 $ 0.59
Net income - diluted .88 1.09 1.10 .82 0.59
Book value 9.96 10.40 9.94 9.30 6.78
Cash dividend 0.60 0.60 0.55 0.50 0.45
Ratios
Return on average assets .57% .97% 1.29% 1.22% 1.27%
Return on average equity 8.54% 10.80% 11.51% 9.54% 11.47%
Dividend payout 68.41% 53.79% 41.60% 51.66% 49.45%
Stockholders' equity to total
assets at period-end 6.11% 8.27% 11.19% 13.39% 9.54%
Average stockholders' equity
to average total assets 6.72% 9.02% 11.21% 12.79% 11.05%
Capital Ratios
Equity to assets 6.1% 8.3% 11.2% 13.4% 9.5%
Leverage ratio 6.2% 8.1% 13.6% 12.2% 10.0%
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion presents Management's analysis of the primary factors affecting
Premier Financial Bancorp, Inc.'s (the "Company" or "Premier") performance and
financial condition. It should be read in conjunction with the accompanying
audited consolidated financial statements included in this report. Unless
otherwise noted, all amounts and per share data have been restated to give the
effect of acquisitions accounted for as a pooling of interests. All dollar
amounts (except per share data) are presented in thousands unless otherwise
noted.
FORWARD-LOOKING STATEMENTS
Management's discussion and analysis contains forward-looking statements that
are provided to assist in the understanding of anticipated future financial
performance. However, such performance involves risks and uncertainties, and
there are certain important factors that may cause actual results to differ
materially from those anticipated. These important factors include, but are not
limited to, economic conditions (both generally and more specifically in the
markets in which Premier operates), competition for Premier's customers from
other providers of financial services, government legislation and regulation
(which changes from time to time), changes in interest rates, Premier's ability
to originate quality loans and attract and retain deposits, the impact of
Premier's growth, Premier's ability to control costs, and new accounting
pronouncements, all of which are difficult to predict and many of which are
beyond the control of Premier.
OVERVIEW
In 1999, Premier continued to pursue its strategic plan to build a network of
independently managed community banks into a well capitalized, risk controlled
bank holding company with quality earnings and shareholder liquidity. For 1999,
net income was $4,590 compared to $5,704 for 1998; total assets increased to
$852,468 from the $657,744 in 1998, and shareholders' equity decreased to
$52,127 from $54,399 in 1998.
Quarterly unaudited financial information for the Company for the years ended
December 31, 1999 and 1998, is summarized as follows:
Quarterly Financial Information
(Dollars in thousands except per share amounts)
Full
First Second Third Fourth Year
1999
Interest Income $14,785 $15,672 $15,936 $16,479 $62,872
Interest Expense 8,067 8,427 8,541 9,172 34,207
Net Interest Income 6,718 7,245 7,395 7,307 28,665
Provision for Loan Losses 474 621 1,648 551 3,294
Securities Gains 31 (26) 2 10 17
Net Overhead 4,613 4,737 4,626 4,895 18,871
Income before Income Taxes 1,662 1,861 1,123 1,871 6,517
Net Income 1,218 1,311 771 1,290 4,590
Basic Net Income per share 0.23 0.25 0.15 0.25 0.88
Diluted Net Income per share 0.23 0.25 0.15 0.25 0.88
Dividends Paid per share 0.15 0.15 0.15 0.15 0.60
1998
Interest Income $9,835 $10,605 $12,456 $12,454 $45,350
Interest Expense 5,279 5,887 7,183 6,894 25,243
Net Interest Income 4,556 4,718 5,273 5,560 20,107
Provision for Loan Losses 276 720 299 447 1,742
Securities Gains 2 141 8 73 224
Net Overhead 2,676 1,702 3,186 3,324 10,888
Income before Income Taxes 1,606 2,437 1,796 1,862 7,701
Net Income 1,381 1,642 1,291 1,390 5,704
Basic Net Income per share 0.26 0.31 0.25 0.27 1.09
Diluted Net Income per share 0.26 0.31 0.25 0.27 1.09
Dividends Paid per share 0.15 0.15 0.15 0.15 0.60
ACQUISITIONS
Premier's acquisition philosophy is to seek community bank candidates in
primarily non-urban areas that can become a part of Premier on a non-dilutive
basis within a two-year timeframe. In evaluating acquisition opportunities,
Premier conducts a due diligence review to determine both risks and earnings
potential. Desirable candidates have an established base of community
involvement, strong local directors, a history of earnings and readily
identifiable asset risks. Acquisition transactions are structured to make a fair
return on investment while meeting the needs of the shareholders of banks
joining Premier.
In 1999, Premier completed one acquisition. On January 20, 1999, the Company
acquired Mount Vernon Bancshares and its wholly owned subsidiary, Bank of Mt.
Vernon, with offices in Somerset, Mt. Vernon, Berea and Richmond, Kentucky, in a
cash transaction that was accounted for as a purchase.
In 1998, Premier completed acquisitions of three banks. On March 20, 1998,
Premier acquired Ohio River Bank, located in Ironton, Ohio, in a share exchange
accounted for as a pooling of interests. On June 26, 1998, the Company chartered
Boone County Bank, Inc. in Madison, West Virginia, and The Bank of Philippi,
Inc. in Philippi, West Virginia, for the purpose of acquiring three branch
offices of Banc One Corporation located in Madison, Van and Philippi, West
Virginia.
In 1997, Premier completed one acquisition and also acquired the deposits and
banking facilities of two branches. On November 13, 1997, Premier acquired The
Sabina Bank, Sabina, Ohio, in a share exchange accounted for as a pooling of
interests. On December 11, 1997, two branch offices of the Fifth Third Bank of
Western Ohio located in Waynesfield and Ada, Ohio were acquired for cash and
accounted for as a purchase.
The significant financial data relative to these acquisitions is set forth in
Note 2 to the financial statements.
On June 9, 1997, Premier completed its public offering of $28.75 million of
mandatorily redeemable capital securities of a subsidiary trust (capital
securities). These securities qualify as Tier I capital up to an amount not to
exceed 25% of Tier I capital and the portion that exceeds the 25% limitation
qualifies as Tier 2 capital.
RESULTS OF OPERATIONS
Earnings Summary
Premier recorded net income for 1999 of $4,590, versus $5,704 and $5,784 for
1998 and 1997. Basic earnings per common share were $0.88 in 1999 compared to
$1.09 in 1998 and $1.11 in 1997. Primary increases can be attributed to an
increase in net interest income from $20,107 in 1998 to $28,665 in 1999, an
increase of $8,558 or 42.6%, and a decrease in provision for income taxes from
$1,997 in 1998 to $1,927 in 1999, a difference of $70 or 3.5%. Offsetting these
increases was an increase in the provision for loan losses from $1,742 in 1998
to $3,294 in 1999, an increase in noninterest expense of $7,293 from $15,337 in
1998 to $22,630 in 1999, and a decrease in other income of $1,167 from $2,396 in
1998 to $1,229 in 1999.
Net income of $5,704 in 1998 represented a 1.4% decrease from the 1997 amount of
$5,784. Net interest income increased from $17,458 in 1997 to $20,107 in 1998,
an increase of $2,649 or 15.2%, and the provision for income taxes decreased
from $2,605 in 1997 to $1,997 in 1998, a difference of $608 or 23.3%. Offsetting
these increases was an increase in the provision for loan losses from $1,399 in
1997 to $1,742 in 1998 and an increase in noninterest expense of $3,105, or
25.4%, from $12,232 in 1997 to $15,337 in 1998.
NET INTEREST INCOME
Premier's primary source of revenue is its net interest income, which is the
difference between the interest received on its earning assets and the interest
paid on the funds acquired to support those assets. Loans made to businesses and
individuals are the primary interest earning assets, followed by investment
securities and federal funds sold in the inter-bank market. Deposits are the
primary interest bearing liabilities used to support the interest earning
assets.
The level of net interest income is affected by both the balances and mix of
interest earning assets and interest bearing liabilities, the changes in their
corresponding yields and costs, by the volume of interest earning assets funded
by non interest bearing deposits, and the level of capital. Premier's long term
objective is to manage this income to provide the largest possible amount of
income while balancing interest rate, credit and liquidity risks.
Nontaxable income from loans and investment securities is presented on a
tax-equivalent basis whereby income exempt from tax has been adjusted upward by
an amount equivalent to the prevailing federal income taxes that would have been
paid if the income had been fully taxable. The discussion of factors influencing
net interest income that follows is based on taxable equivalent data. In each of
the three years, this adjustment is based on an assumed federal income tax rate
of 34%.
Summary of Net Interest Income
(Dollars in thousands on a taxable equivalent basis)
1999 1998 1997
Interest income.......................................... $ 62,872 $ 45,350 $ 36,851
Tax equivalent adjustment................................ 726 608 516
------------- ------------- -------------
Interest income...................................... 63,598 45,958 37,367
Interest expense......................................... 34,207 25,243 19,393
------------- ------------- -------------
Net interest income.................................. $ 29,391 $ 20,715 $ 17,974
============= ============= =============
The following table shows, for the three year period ended December 31, 1999,
the average distribution of assets, liabilities and the interest earned or paid
on those items together with the level of shareholders' equity as well as
Premier's net interest spread and net interest margin on interest earning assets
(net interest income divided by average earning assets). In 1999, tax equivalent
net interest income increased to $29,391 from $20,715 in 1998, an increase of
$8,676 or 41.9%. This increase was due to an increase of $188,915 or 35.1% in
average earning assets and an increase of $197,897 or 41.7% in average interest
bearing liabilities. The yield on earning assets in 1999 of 8.74% was 21 basis
points higher than the 8.53% earned in 1998, and the cost of interest bearing
liabilities decreased 23 basis points to 5.09% in 1999 from 5.32% in 1998.
Consequently, Premier's net interest spread increased from 3.21% in 1998 to
3.65% in 1999 and the net interest margin increased from 3.85% in 1998 to 4.04%
in 1999. The increase in net interest spread and net interest margin is
primarily attributable to the placement of funds in higher yielding loans and
the overall lowering of the cost of interest bearing liabilities.
In 1998, tax equivalent net interest income increased to $20,715 from $17,974 in
1997, an increase of $2,741 or 15.2%. This increase was due to an increase of
$119,241 or 28.4% in average earning assets and an increase of $114,899 or 31.9%
in average interest bearing liabilities. The yield on earning assets in 1998 of
8.53% was 38 basis points lower than the 8.91% earned in 1997, and the cost of
interest bearing liabilities decreased 7 basis points to 5.32% in 1998 from
5.39% in 1997. Premier's net interest spread decreased from 3.52% in 1997 to
3.21% in 1998 and the net interest margin decreased from 4.28% in 1997 to 3.85%
in 1998. The decrease in net interest spread and net interest margin is
primarily attributable to the acquisition of the deposit liabilities of the
three West Virginia branches. Proceeds from these branches were placed in lower
yielding assets until higher yielding assets could be generated.
The following table presents average balances and interest rates for the
three-year period ended December 31, 1999.
Average Consolidated Balance Sheets and Net Interest
Analysis
(Dollars in thousands)
1999 1998 1997
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
Assets:
Interest earning assets
U.S. Treasury and federal agency
Securities $ 152,454 $ 9,213 6.04% $ 139,655 $ 8,249 5.91% $ 92,530 $ 5,679 6.14%
States and municipal obligations(1) 23,906 1,920 8.03 19,223 1,556 8.09 18,027 1,455 8.07
Other securities (1) 6,839 577 8.44 5,953 565 9.49 5,155 507 9.84
--------- ---------- ------- --------- --------- ------- --------- --------- ------
Total investment securities $ 183,199 $ 11,710 6.39 $ 164,831 $ 10,370 6.29 $ 115,712 $ 7,641 6.60
Federal funds sold 20,909 1,047 5.01 31,667 1,686 5.32 18,572 1,037 5.58
Interest-bearing deposits with
Banks 3,273 192 5.87 2,146 115 5.36 0 0 0
Loans, net of unearned income(3)(4)
Commercial 211,948 20,200 9.53 144,557 14,284 9.88 118,530 11,944 10.08
Real estate mortgage 241,708 23,065 9.54 145,004 14,208 9.80 120,863 11,640 9.63
Installment 66,611 7,384 11.09 50,528 5,295 10.48 45,815 5,105 11.14
--------- ---------- ------- --------- --------- ------- --------- --------- ------
Total loans $ 520,267 $ 50,649 9.74 $ 340,089 $ 33,787 9.93 $ 285,208 $ 28,689 10.06
Total interest-earning assets $ 727,648 $ 63,598 8.74% $ 538,733 $ 45,958 8.53% $ 419,492 $ 37,367 8.91%
Allowance for loan losses (6,084) (3,936) (3,256)
Cash and due from banks 21,794 17,657 10,083
Premises and equipment 14,120 9,850 7,034
Other assets 41,395 23,280 14,734
--------- --------- ---------
Total assets $ 798,873 $ 585,584 $ 448,087
Liabilities:
Interest bearing deposits:
NOW and money market $ 150,165 $ 5,475 3.65% $ 93,741 $ 3,268 3.49% $ 51,268 $ 1,733 3.38%
Savings 63,227 1,961 3.10 51,818 1,525 2.94 32,671 968 2.96
Certificates of deposit and other
time deposits 368,720 20,372 5.53 251,047 14,666 5.84 195,177 11,495 5.89
--------- ---------- ------- --------- --------- ------- --------- --------- ------
Total interest-bearing deposits $ 582,112 $ 27,808 4.78 $ 396,606 $ 19,459 4.91 $ 279,116 $ 14,196 5.09
Other borrowings 28,977 1,754 6.05 18,271 1,194 6.53 49,993 2,755 5.51
FHLB advances 32,826 1,793 5.46 31,141 1,738 5.58 14,301 810 5.66
Debt 28,750 2,852 9.91 28,750 2,852 9.91 16,460 1,632 9.91
--------- ---------- ------- --------- --------- ------- --------- --------- ------
Total interest-bearing liabilities $ 672,665 $ 34,207 5.09% $ 474,768 $ 25,243 5.32% $ 359,870 $ 19,393 5.39%
Non-interest bearing demand deposits 66,483 54,043 34,462
Other liabilities 6,005 3,949 3,514
--------- --------- ---------
Total liabilities $ 745,153 $ 532,760 $ 397,846
Shareholders' Equity: 53,720 52,824 50,241
Total liabilities and shareholders'
Equity $ 798,873 $ 585,584 $ 448,087
Net interest income (1) 29,391 20,715 17,974
Net interest spread (1) 3.65% 3.21% 3.52%
Net interest margin (1) 4.04% 3.85% 4.28%
(1) Taxable - equivalent yields are calculated assuming a 34% federal income
tax rate.
(2) Yields are calculated on historical cost except for yields on marketable
equity securities that are calculated using fair value.
(3) Includes loan fees, immaterial in amount, in both interest income and the
calculation of yield on loans.
(4) Includes loans on nonaccrual status.
The accompanying analysis of changes in net interest income in the following
table shows the relationship of the volume and rate portions of these changes in
1999 and 1998.
Analysis of Changes in Net
Interest Income
(Dollars in thousands on a taxable equivalent basis)
1999 vs. 1998 1998 vs. 1997
Increase (decrease) due to change in Increase (decrease) due to change in
Net Net
Volume Rate Change Volume Rate Change
Interest Income:
Loans $ 17,554 $ (692) $ 16,862 $ 5,456 $ (358) $ 5,098
Investment securities 1,172 169 1,341 3,105 (377) 2,728
Federal funds sold (544) (95) (639) 699 (50) 649
Deposits with banks 65 12 77 115 115
----------- ----------- ----------- ----------- ----------- -----------
Total interest income $ 18,247 $ (606) $ 17,641 $ 9,375 $ (785) $ 8,590
Interest Expense:
Deposits -
NOW and money market $ 2,051 $ 156 $ 2,207 $ 1,479 $ 56 $ 1,535
Savings 350 86 436 564 (7) 557
Certificates of deposit 6,540 (834) 5,706 3,265 (94) 3,171
Other borrowings 654 (94) 560 (1,999) 438 (1,561)
FHLB borrowings 93 (37) 56 939 (12) 927
Debt - - - 1,219 1 1,220
----------- ----------- ----------- ----------- ----------- -----------
Total interest expense $ 9,688 $ (723) $ 8,965 $ 5,467 $ 382 $ 5,849
Net interest income $ 8,559 $ 117 $ 8,676 $ 3,908 $ (1,167) $ 2,741
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The company maintains its allowance for possible loan losses (allowance) at a
level that is considered sufficient to absorb potential losses in the loan
portfolio. The allowance is increased by the provision for possible loan losses
as well as recoveries of previously charged-off loans, and is decreased by loan
charge-offs. The provision is the necessary charge to expense to provide for
current loan losses and to maintain the allowance at an adequate level
commensurate with management's evaluation of the risks inherent in the loan
portfolio. Various factors are taken into consideration when the Company
determines the amount of the provision and the adequacy of the allowance. Some
of the factors include:
o Past due and nonperforming assets;
o Specific internal analyses of loans requiring special attention;
o The current level of regulatory classified and criticized assets and the
associated risk factors with each;
o Examinations and reviews by the Company's independent accountants and internal
loan review personnel; and
o Examinations of the loan portfolio by federal and state regulatory agencies.
The data collected from these sources is evaluated with regard to current
national and local economic trends, prior loss history, underlying collateral
values, credit concentrations, and industry risks. An estimate of potential
future loss on specific loans is developed in conjunction with an overall risk
evaluation of the total loan portfolio.
The following table is a summary of the Company's loan loss experience for each
of the past five years.
Summary of Loan Loss Experience
(Dollars in Thousands)
Years Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
Balance at beginning of year $ 4,363 $ 3,479 $ 3,127 $ 2,113 $ 1,172
Balance of allowance for loan losses of
Acquired subsidiaries at acquisition date 1,310 115 - 812 803
Amounts charged off:
Commercial 1,380 500 532 252 74
Real estate mortgage 381 60 139 68 19
Consumer 795 629 634 656 181
----------- ----------- ----------- ------------ ------------
Total loans charged off $ 2,556 $ 1,189 $ 1,305 $ 976 $ 274
Recoveries on amounts previously charged off:
Commercial 158 45 48 91 32
Real estate mortgage 12 1 - 4 2
Consumer 231 170 210 130 64
----------- ----------- ----------- ------------ ------------
Total recoveries 401 216 258 225 98
Net charge-offs 2,155 973 1,047 751 176
Provision for loan losses 3,294 1,742 1,399 953 314
----------- ----------- ----------- ------------ ------------
Balance at end of year $ 6,812 $ 4,363 $ 3,479 $ 3,127 $ 2,113
Total loans, net of unearned income:
Average 520,267 340,089 285,208 207,006 117,947
At December 31 570,106 395,620 312,102 265,453 147,321
As a percentage of average loans:
Net charge-offs .41% .29% .37% .36% .15%
Provision for possible loan losses .63% .51% .49% .46% .27%
Allowance as a percentage of year-end net loans 1.19% 1.10% 1.11% 1.18% 1.43%
Allowance as a multiple of net charge-offs 3 4 3 4 12
The provision for possible loan losses for 1999 was $3,294 compared to $1,742 in
1998, an increase of $1,552. This increase can be mainly attributed to loan
growth, additional charge-offs, and the additional provision of $950,000
recorded in the quarter ended September 30, 1999. This additional provision was
deemed prudent after revision of loan loss reserve adequacy measurement methods.
In 1999, net charge-offs were $2,155 compared to $973 in 1998, an increase of
$1,182. The increase in 1999 net charge-offs is primarily attributed to one
fraud loss and small business lending losses in one of the Company's markets
which experienced an economic downturn. Also contributing to the 1999 increase
were net charge-offs in connection with the Mt. Vernon purchase. At December 31,
1999, Premier's allowance for possible loan losses was 1.19% of period-end loans
compared to 1.10% at December 31, 1998.
Net charge-offs to average loans were .41% for the year 1999 compared to .29%
for the year 1998. At December 31, 1999, Premier's allowance for possible loan
losses totaled $6,812, representing an increase of $2,449 over the amount for
December 31, 1998. The allowance for possible loan losses was 98% of
nonperforming loans on December 31, 1999, compared to 89% at December 31, 1998.
At year end 1999, nonperforming loans represented 1.22% of total outstanding
loans, down from 1.25% on December 31, 1998.
The following table sets forth an allocation for the allowance for possible loan
losses by category of loan and a percentage of loans in that category. In making
the allocation, consideration was given to such factors as management's
evaluation of risk in each category, current economic conditions and charge-off
experience. An allocation for the allowance for possible loan losses is an
estimate of the portion of the allowance that will be used to cover future
charge-offs in each major loan category, but it does not preclude any portion of
the allowance allocated to one type of loan being used to absorb losses of
another loan type.
Allocation of the Allowance for Loan Losses and
Percent of Loans to Total Loans
(Dollars in thousands)
At December 31,
-----------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
Amount % Amount % Amount % Amount % Amount %
Commercial $ 2,123 20.6% $ 1,695 22.5% $ 1,226 27.0% $ 1,066 18.5% $ 704 19.6%
Real estate mortgage 2,490 61.9 1,728 57.8 732 51.1 1,229 60.7 616 58.3
Consumer 948 17.5 738 19.7 965 21.9 739 20.8 620 22.1
Unallocated 1,251 -- 202 -- 556 -- 93 -- 174 --
------- ----- ------- ----- ------- ----- ------- ----- -------- -----
Total $ 6,812 100.0% $ 4,363 100.0% $ 3,479 100.0% $ 3,127 100.0% $ 2,114 100.0%
Any reallocation of the allowance is primarily indicative of changes in loan
portfolio mix, not changes in loan concentrations or terms. The Company
considers quality in regards to specific loans when determining an adequate
allowance allocation. The level of increase in nonperforming loans, which is
more specifically addressed in the nonperforming loan section, is believed to be
temporary and should not materially affect the allowance.
NONINTEREST INCOME AND EXPENSES
Noninterest income is a significant component of the Company's total income. The
Company continues to develop and enhance existing products and to create new
products in order to augment fee income as trends in the financial services
industry and the economic environment continue to put pressure on the Company's
ability to increase its net interest income. Noninterest income includes deposit
service charges, fees from data processing and trust services, fees and
commissions from many other corporate and retail products and gains and losses
from the sale of investment securities.
Total fees and other income in 1999 increased $641 or 20.6% to $3,759 from
$3,118 in 1998. Service charges on deposit accounts increased 24.0% or $380 to
$1,965 from $1,585 in 1998. Insurance commissions increased 20.7% and other
income increased 15.4%.
Total fees and other income increased $759 or 32.2% in 1998 to $3,118 from
$2,359 in 1997. Service charges on deposit accounts increased 25.7% and all
other income increased 73.2%.
Gains on the sale of investment securities in 1999 were $17, a decrease of $207
from 1998.
Investment securities gains in 1998 were $224 versus $2,203 in 1997. The amount
in 1997 was primarily due to the unwinding of an arbitrage investment portfolio
established to maximize the utilization of the proceeds received from the
issuance of capital securities.
Premier recognized a $1.3 million finder's fee during the second quarter of
1998. Received in cash and without recourse, the fee is the Company's portion of
an agreement to assist another financial institution in connection with the
acquisition and subsequent resale of several branches of Banc One Corporation
located in West Virginia. There was no similar non-recurring fee recognized in
1999.
Noninterest expenses increased $7,293 or 47.6% in 1999, from $15,337 in 1998 to
$22,630 in 1999, and increased $3,105 or 25.4% in 1998 from $12,232 in 1997.
Salaries and employee benefits, the largest component of noninterest expense,
increased 53.0% in 1999 and 23.4% in 1998. The increases include salary
increases and reflect increases in the number of full time equivalent employees
from 177 at December 31, 1997 to 273 at December 31, 1998 and 351 at December
31, 1999, due to acquisitions and expansion of the Company's business activity.
1999 was the first full year of salaries and employee benefits expense
associated with the mid year 1998 purchase of the West Virginia branches. Also
contributing to the 1999 increase was the January 20, 1999 acquisition of Mt.
Vernon Bancshares.
Occupancy and equipment expense for 1999 of $2,885 was $704 or 32.3% higher than
the $2,181 for 1998. The increase in 1998 was $547 or 33.5% from $1,634 in 1997.
The increase in 1998 and 1999 are primarily attributable to the expansion in the
number of banking locations from 23 at December 31, 1997 up to 30 at December
31, 1999.
Other noninterest expense, which is the second largest category, increased
$1,703 or 50.1% in 1999 and $801 or 30.9% in 1998. This increase includes the
addition of the purchased West Virginia branches in June 1998 and their
respective operating expenses as full service banks. Also included in the 1999
increases are the respective costs acquired with the Mt. Vernon Bancshares
purchase.
Premier incurred no acquisition-related expenses in 1999.
The Company incurred expenses relating to the acquisitions of Ohio River Bank
and the West Virginia branches of $132 in 1998. Acquisition expenses of $482
were incurred in 1997. Expenses related to acquisitions are charged to expense
for acquisitions accounted for as pooling of interests while certain expenses
related to acquisitions accounted for as purchases are capitalized as a
component of the purchase price and ultimately increase the amount of goodwill
included with the purchase.
Amortization of intangibles increased $643 or 65.5% to $1,625 for 1999 from the
1998 amount of $982. The 1998 amount is an increase of $596 from the amount of
$386 in 1997. Both the 1999 and 1998 increases are primarily attributed to
goodwill amortization of intangible cost regarding branch acquisitions along
with the purchase of Mt. Vernon Bancshares.
The Company continually seeks to develop fees and other income for services
provided while holding operating expenses to the minimum amount required to
provide quality service. In 1999, total net noninterest expenses (excluding
investment securities gains, finders fee and acquisition expenses) as a percent
of average total assets were 2.36%, compared to 2.06% in 1998 and 2.10% in 1997.
The following table is a summary of non-interest income and expense for the
three-year period indicated.
Non-Interest Income and Expense
(Dollars in thousands)
Increase Increase
(decrease) (decrease)
1999 vs. 1998 vs.
1999 1998 1998 1998 1997 1997
--------- --------- ----------- --------- --------- -----------
Non-Interest Income:
Service charges on deposit accounts $ 1,965 $ 1,585 $ 380 $ 1,585 $ 1,261 $ 324
Insurance income 565 468 97 468 483 (15)
Other 1,229 1,065 164 1,065 615 450
--------- --------- ----------- --------- --------- -----------
Total fees and other income $ 3,759 $ 3,118 $ 641 $ 3,118 $ 2,359 $ 759
Investment securities gains 17 224 (207) 224 2,203 (1,979)
Finders Fee - 1,331 (1,331) 1,331 0 1,331
--------- --------- ------------ --------- --------- -----------
Total non-interest income $ 3,776 $ 4,673 $ (897) $ 4,673 $ 4,562 $ 111
Non-Interest Expense:
Salaries and employee benefits 11,679 7,634 4,045 7,634 6,185 1,449
Occupancy and equipment expense 2,885 2,181 704 2,181 1,634 547
Professional fees 547 452 95 452 504 (52)
Taxes, other than payroll, property
and income 794 559 235 559 445 114
Acquisition related expenses - 132 (132) 132 482 (350)
Amortization of intangibles 1,625 982 643 982 386 596
Other expenses 5,100 3,397 1,703 3,397 2,596 801
--------- --------- ----------- --------- --------- -----------
Total non-interest expenses $ 22,630 $ 15,337 $ 7,293 $ 15,337 $ 12,232 $ 3,105
Net non-interest expenses as a percent
of average assets 2.36% 1.82% 1.82% 1.71%
Net non-interest expenses as a percent
of average assets (excluding investment
securities gains, finders fee, and
acquisition related expenses) 2.36% 2.06% 2.06% 2.10%
INCOME TAXES
The Company's provision for income taxes was $1,927 in 1999, which represented
29.6% of pre-tax income versus $1,997 in 1998. The decrease is primarily
attributed to the decrease in income before income taxes.
Premier's provision for income taxes was $1,997 in 1998, which represented 25.9%
of pre-tax income versus $2,605 or 31.1% of pre-tax income in 1997. The decrease
is primarily due to the higher percentage of tax-exempt income in relation to
total pre-tax income and the elimination of the valuation allowance of $235 for
deferred tax assets at Ohio River Bank.
FINANCIAL CONDITION
Lending Activities
Loans are the Company's primary use of financial resources and represent the
largest component of earning assets. The Company's loans are made predominantly
within the Banks' market areas and the portfolio is diversified. Credit risk is
inherent in each financial institution's loan and investment portfolio. In an
effort to minimize credit risk, the Company utilizes a credit administration
network, including specific lending authorities for each loan officer, a system
of loan committees to review and approve loans, and a loan review and credit
quality rating system. This network assists in the evaluation of the quality of
new loans and in the identification of problem or potential problem credits and
provides information to aid management in determining the adequacy of the
allowance for possible loan losses.
Total loans, net of unearned income, averaged $520,267 in 1999 compared with
$340,089 in 1998. At year end 1999, loans net of unearned income totaled
$570,106 compared to $395,620 at December 31, 1998, an increase of $174,486 or
44.1%.
The following table presents a summary of the Company's loan portfolio by
category for each of the last five years. Other than the categories noted, there
is no concentration of loans in any industry greater than 5% in the portfolio.
The Company has no foreign loans or highly leveraged transactions in its loan
portfolio.
LOAN PORTFOLIO COMPOSITION
Loans Outstanding
(Dollars in thousands)
December 31
1999 % 1998 % 1997 % 1996 % 1995 %
Commercial, secured by real
estate $135,078 23.7% $ 86,010 21.6% $ 71,818 22.8% $ 63,179 23.6% $ 39,724 26.8%
Commercial, other 98,543 17.3 73,982 18.6 48,309 15.4 37,609 14.1 22,115 14.9
Real estate construction 26,092 4.6 13,374 3.4 8,352 2.7 4,523 1.7 2,495 1.7
Real estate mortgage 192,088 33.6 131,212 33.0 103,664 33.0 94,844 35.4 44,215 29.8
Agricultural 17,525 3.1 15,433 3.9 13,232 4.2 11,751 4.4 6,924 4.7
Consumer 100,075 17.5 73,100 18.4 68,461 21.8 54,160 20.2 32,362 21.8
Other 1,352 0.2 4,502 1.1 674 .2 1,493 .6 435 0.3
-------- ---- -------- ---- -------- ---- -------- ---- -------- -----
Total loans $570,753 100.0% $397,613 100.0% $314,510 100.0% $267,559 100.0% $148,270 100.0%
Less unearned income (647) (1,993) (2,408) (2,106) (949)
-------- -------- -------- -------- --------
Total loans net of
unearned income $570,106 $395,620 $312,102 $265,453 $147,321
Commercial loans generally are made to small-to-medium size businesses located
within a Bank's defined market area and typically are secured by business assets
and guarantees of the principal owners. Collateral for real estate mortgage
loans include residential properties and the loans generally do not exceed 80%
of the value of the real property securing the loan based on recent independent
appraisals. The Company's real estate mortgage loan portfolio primarily consists
of adjustable rate residential mortgage loans. The origination of these mortgage
loans can be more difficult in a low interest rate environment where there is a
significant demand for fixed rate mortgages. A number of the banks do
participate in the origination of loans into the secondary market and recognize
the referral fees into other income. Consumer loans generally are made to
individuals living in a Bank's defined market area who are known to the Bank's
staff. Consumer loans are made for terms of up to seven years on a secured or
unsecured basis. While consumer loans generally provide the Company with
increased interest income, consumer loans may involve a greater risk of default.
Loss experience in all categories has been at an acceptable level over the past
five years, with net charge-offs being .41% of loans in 1999 and .29% in 1998.
With respect to consumer loans in particular, net charge-offs for the year ended
December 31, 1999 were $564, or .56% of total consumer loans outstanding at
December 31, 1999, and $460 in 1998, or .63% of total consumer loans outstanding
at December 31, 1998.
The following table sets forth the maturity distribution and interest
sensitivity of selected loan categories at December 31, 1999. Maturities are
based upon contractual terms. The Company's policy is to specifically review and
approve any loan renewed; no loans are automatically rolled over.
Loan Maturities and Interest Sensitivity
December 31, 1999
(Dollars in thousands)
One Year One Through Over Total
or Less Five Years Five Years Loans
Commercial, secured by real estate $ 92,557 $ 37,341 $ 5,180 $ 135,078
Commercial, other 78,267 16,816 3,460 98,543
Real estate construction 19,143 5,846 1,103 26,092
Agricultural 17,525 - - 17,525
------------ ------------ ------------ ------------
Total $ 207,492 $ 60,003 $ 9,743 $ 277,238
============ ============ ============ ============
Fixed rate loans $ 157,528 $ 60,003 $ 9,743 $ 227,274
Floating rate loans 49,964 - - 49,964
------------ ------------ ------------ ------------
Total $ 207,492 $ 60,003 $ 9,743 $ 277,238
============ ============ ============ ============
Nonperforming assets
Nonperforming assets consist of loans on which interest is no longer accrued,
certain restructured loans where interest rate or other terms have been
renegotiated, accruing loans past due 90 days or more and real estate acquired
through foreclosure. All loans considered impaired under SFAS 114 are included
in nonperforming loans.
The Company generally discontinues the accrual of interest on loans that become
90 days past due as to principal or interest unless they are adequately secured
and in the process of collection. A loan remains in a nonaccrual status until
doubts concerning the collectibility no longer exist. A loan is classified as a
restructured loan when the interest rate is materially reduced or the term is
extended beyond the original maturity date because of the inability of the
borrower to service the loan under the original terms. Other real estate is
recorded at the lower of cost or fair value less estimated costs to sell.
A summary of the components of nonperforming assets, including several ratios
using period-end data, is shown as follows:
Nonperforming Assets
(Dollars in thousands)
December 31
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
Nonaccrual loans $ 4,540 $ 3,500 $ 562 $ 768 $ 693
Accruing loans which are contractually
past due 90 days or more 1,721 1,322 522 594 480
Restructured loans 666 105 356 0 0
--------------- --------------- --------------- -------------- --------------
Total nonperforming and restructured
Loans $ 6,927 $ 4,927 $ 1,440 $ 1,362 $ 1,173
Other real estate acquired through
Foreclosures 3,009 961 836 485 132
--------------- --------------- --------------- -------------- --------------
Total nonperforming and restructured
loans and other real estate $ 9,936 $ 5,888 $ 2,276 $ 1,847 $ 1,305
Nonperforming and restructured loans
as a percentage of net loans 1.22% 1.25% .46% .51% .80%
Nonperforming and restructured loans
and other real estate as a percentage
of total assets 1.17% .90% .49% .51% .63%
Nonaccrual loans increased from $3,500 at December 31, 1998 to $4,540 at
December 31, 1999. Total nonperforming assets increased from $5,888 at December
31, 1998 to $9,936 at December 31, 1999. The percentage of nonperforming loans
to total loans decreased from 1.25% to 1.22%
The increase in total nonperforming loans and other real estate owned of $4,048
is largely attributable to loans at the Bank of Mt. Vernon acquired in January
1999. The $2,932 of nonperforming loans and other real estate owned at the Bank
of Mt. Vernon are primarily residential real estate development and rental
properties which are expected to be liquidated in 2000.
The increase in other real estate owned of $2,048 represents the acquisition of
real estate with an appraised value of $3,000. This property was acquired at
year end 1999 and is currently leased with a purchase option.
Reserves allocated in connection with these assets are believed to be adequate.
The Company continues to follow its long-standing policy of not engaging in
international lending and not concentrating lending activity in any one
industry.
Although loans may be classified as nonperforming, many continue to pay interest
irregularly or at less than original contractual rates. A summary of actual
income recognized on nonaccrual and restructured loans versus their full
contractual yields for each of the past five years is presented below.
Interest Income on Non-Accrual and Restructured Loans
Year ended December 31
(Dollars in thousands)
1999 1998 1997 1996 1995
Contractual interest 272 135 77 73 32
Interest recognized 6 6 62 2 22
Investment Activities
The securities portfolio consists of debt and equity securities, which provide
the Company with a relatively stable source of income. Additionally, the
investment portfolio provides a balance to interest rate and credit risks in
other categories of the balance sheet. The Company also uses the securities
portfolio as a secondary source of liquidity. The Company has classified the
majority of its municipal securities and certain U. S. Treasury and agency
securities as held to maturity based on management's positive intent and ability
to hold such securities to maturity. These municipal securities provide tax-free
income and are within management's guidelines with respect to credit risk and
market risk. The municipal securities have been issued principally by Kentucky
municipalities. The U. S. Treasury and agency securities are held as a source of
stable, long-term income, which can be used as collateral to secure municipal
deposits and repurchase agreements. All other investment securities are
classified as available for sale. The portfolio does contain holdings in GNMA
mortgage-backed securities. The securities portfolio does not contain
significant holdings in collateralized mortgage obligations or other
mortgage-related derivative products and/or structured notes.
Securities as a percentage of average interest-earning assets decreased to 25.2%
in 1999 versus 30.6% in 1998 and 27.6% in 1997. The 1999 decrease in securities
reflects the movement of funds into higher yielding loan balances, primarily in
regards to the acquisition of deposits held in the West Virginia branches.
At December 31, 1999 and 1998, the Company had an investment in noncumulative
perpetual preferred stock of First Guaranty Bank, Hammond, Louisiana. The market
value of this investment approximated its book value, which totaled $2 million
at December 31, 1999 and 1998. The dividend rate on the preferred stock is 2% in
excess of the prime rate as in effect from time to time.
The following tables present the carrying values and maturity distribution of
investment securities.
Carrying Value of Securities
(Dollars in thousands)
December 31
1999 1998 1997
U.S. Treasury and Federal agencies:
Available for sale $ 128,101 $ 132,106 $ 43,088
Held to maturity 1,733 3,529 5,588
State and municipal obligations:
Available for sale 7,354 3,831 3,564
Held to maturity 16,876 16,474 14,625
Equity securities:
Available for sale 2,775 2,798 2,795
Held to maturity 0 0 0
Other securities:
Available for sale 13,557 18,405 3,600
Held to maturity 24 49 149
Total securities:
Available for sale 151,787 157,140 53,047
Held to maturity 18,633 20,052 20,362
---------- ---------- ----------
Total $ 170,420 $ 177,192 $ 73,409
Maturity Distribution of Securities
December 31, 1999
(Dollars in thousands)
One Five
Year Through Through Over
Or Five Ten Ten Other Market
Less Years Years Years Securities Total Value
U.S. Treasury and Federal agencies:
Available for sale $ 12,889 $ 68,687 $ 38,325 $ 8,200 $ - $ 128,101 $ 128,101
Held to maturity 370 1,363 - - - 1,733 1,703
State and municipal obligations:
Available for sale 488 2,131 2,357 2,378 - 7,354 7,354
Held to maturity 810 5,555 8,928 1,583 - 16,876 16,858
Other securities:
Available for sale - - - - 16,332 16,332 16,332
Held to maturity - - - - 24 24 24
Total securities:
Available for sale 13,377 70,818 40,682 10,578 16,332 151,787 151,787
Held to maturity 1,180 6,918 8,928 1,583 24 18,633 18,585
--------- --------- ---------- -------- -------- ---------- ----------
Total $ 14,557 $ 77,736 $ 49,610 $ 12,161 $ 16,356 $ 170,420 $ 170,372
========= ========= ========== ======== ======== ========== ==========
Percent of total 8.54% 45.61% 29.11% 7.14% 9.60% 100.00%
Weighted average yield* 5.25% 5.91% 6.23% 6.85% 7.37% 6.16%
*The weighted average yields are calculated on historical cost on a non
tax-equivalent basis.
Deposit Activities
Managing the mix and repricing of deposit liabilities is an important aspect of
the Company's ability to maximize its net interest margin. The strategies used
to manage interest-bearing deposit liabilities are designed to adjust as the
interest rate environment changes. In this regard, management of the Company
regularly assesses its funding needs, deposit pricing, and interest rate
outlooks.
Total deposits averaged $648,595 in 1999, a 43.9% increase over 1998. Total
deposits averaged $450,649 in 1998, an increase of $137,071 or 43.7% over 1997.
Noninterest bearing deposits averaged 10.3% of total deposits in 1999, compared
to 12.0% in 1998 and 11.0% in 1997.
At December 31, 1999, deposits totaled $692,843, compared to $523,193 at
December 31, 1998, an increase of $169,650, or 32.4%. Of this increase,
approximately $115,000 is attributable to the acquisition of Mt. Vernon
Bancshares. Exclusive of this acquisition, deposits increased $54,650 from
December 31, 1998 to December 31, 1999, representing a 10.4% increase.
The table below provides information on the maturities of time deposits of
$100,000 or more at December 31, 1999.
Maturity of Time
Deposits of $100,000 or More
December 31, 1999
(In thousands)
Maturing 3 months or less $ 24,044
Maturing over 3 months through 6 months 16,153
Maturing over 6 months through 12 months 30,532
Maturing over 12 months 28,563
-------------
Total $ 99,292
=============
The following table sets forth the average amount of and average rate paid on
selected deposit categories during the past three full years.
Selected Deposit Categories
(Dollars in Thousands)
1999 1998 1997
Category Amount Rate (%) Amount Rate (%) Amount Rate (%)
Demand $ 66,483 0% $ 54,043 0% $ 34,462 0%
NOW and money
market accounts 150,165 3.65% 93,741 3.49% 51,268 3.38%
Savings 63,227 3.10% 51,818 2.94% 32,671 2.96%
Certificates of deposit
and other time 368,720 5.53% 251,047 5.84% 195,177 5.89%
----------- --------- ----------- --------- ----------- ---------
Total $ 648,595 4.29% $ 450,649 4.32% $ 313,578 4.53%
Capital
Stockholders' equity decreased $2,272 in 1999 to $52.1 million or 6.1% of total
assets at December 31, 1999. This compares to $54.4 million, or 8.3% of total
assets at December 31, 1998. The primary reason for the 1999 decrease in
stockholders' equity was the increase in unrealized loss on securities of $3,722
from ($300) on December 31, 1998, to ($4,022) on December 31, 1999. This is a
component of accumulated other comprehensive income. The decrease was partially
offset by the retention of net earnings of $1,450 in 1999. The primary source of
growth in stockholders' equity in 1998 was the retention of net earnings of
$2,636. The consolidated statements of changes in stockholders' equity detail
the changes in equity for the last three years.
The fair value adjustment of the Company's available for sale securities
portfolio, which is recorded as a component of stockholders' equity, may change
significantly as market conditions change. At December 31, 1999 and 1998, the
adjustment resulted in a reduction of stockholders' equity of $4,022 and $300.
Further volatility in stockholders' equity may occur in the future as market
conditions change.
The Company's principal source of funds for dividend payments to stockholders is
dividends received from the subsidiary Banks. Banking regulations limit the
amount of dividends that may be paid without prior approval of regulatory
agencies. Under these regulations, the amount of dividends that may be paid
without prior approval of regulatory agencies in any calendar year is limited to
the current year's net profits, as defined, combined with the retained net
profits of the preceding two years, subject to regulatory capital requirement
limitations. During 2000, the Banks could, without prior approval, declare
dividends to the Company of approximately $8.0 million plus any 2000 net profits
retained to the date of the dividend declaration.
The various regulatory agencies having supervisory authority over financial
institutions have adopted risk-based capital guidelines, which define the
adequacy of the capital levels of regulated institutions. These risk-based
capital guidelines require minimum levels of capital based upon the risk rating
of assets and certain off-balance-sheet items. Assets and off-balance-sheet
items are assigned regulatory-risk weights ranging from 0% to 100% depending on
their level of credit risk. The guidelines classify capital in two tiers, Tier I
and Tier 2, the sum of which is total capital. Tier I capital is essentially
common equity, less intangible assets. Tier 2 capital is essentially qualifying
long-term debt and a portion of the allowance for possible loan losses.
During 1997, the Company completed its public offering of $28.75 million of
mandatorily redeemable capital securities of a subsidiary trust. These
securities qualify as Tier I capital up to an amount not to exceed 25% of Tier I
capital and the portion that exceeds the 25% limitation qualifies as Tier 2
capital.
Selected Capital Information
(Dollars in thousands)
December 31
1999 1998 Change
Stockholders' Equity $ 52,127 $ 54,399 $ (2,272)
Qualifying capital securities of subsidiary
trust 18,683 18,213 470
Disallowed amounts of goodwill and other
intangibles (24,339) (21,555) (2,784)
Unrealized loss on securities available
for sale 3,923 231 3,692
-------- -------- --------
Tier I capital $ 50,394 $ 51,288 $ (894)
Tier II capital adjustments:
Qualifying capital securities of subsidiary
trust 10,067 10,537
Allowance for loan losses 6,812 4,363
-------- --------
Total capital $ 67,273 $ 66,188
Total risk-weighted assets $566,632 $408,245
Ratios
Tier I capital to risk-weighted assets 8.9% 12.6%
Total capital to risk-weighted assets 11.9% 16.2%
Leverage at year-end 6.2% 8.1%
The Company believes that its capital, together with existing credit facilities
and its ability to obtain future credit facilities, provides funds sufficient to
support the Company's current operations.
Liquidity
Liquidity for a financial institution can be expressed in terms of maintaining
sufficient cash flows to meet both existing and unplanned obligations in a
cost-effective manner. Adequate liquidity allows the Company to meet the demands
of both the borrower and the depositor on a timely basis, as well as pursuing
other business opportunities as they arise. Thus, liquidity management embodies
both an asset and liability aspect. Liquidity is maintained through the
Company's ability to convert assets into cash, manage the maturities of
liabilities and generate funds through the attraction of local deposits.
As part of its liquidity management, the Company maintains funding relationships
with the Federal Home Loan Bank and other financial institutions. The Company
prefers to manage its liquidity requirements generally through the matching of
maturities of assets and liabilities.
The consolidated statements of cash flows for the periods presented in the
financial statements provide an indication of the Company's sources and uses of
cash as well as an indication of the ability of the Company to maintain an
adequate level of liquidity.
Liquidity risk is the possibility that the Company may not be able to meet its
cash requirements. Management of liquidity risk includes maintenance of adequate
cash and sources of cash to fund operations and meets the needs of borrowers,
depositors and creditors. Liquidity must be maintained at a level, which is
adequate but not excessive. Excess liquidity has a negative impact on earnings
resulting from the lower yields on short-term assets.
In addition to cash, cash equivalents and Federal funds sold, the securities
portfolio provides an important source of liquidity. The total of securities
maturing within one year along with cash, due from banks, interest-earning
balances with banks maturing within one year, and Federal funds sold totaled
$68.9 million as of December 31, 1999. Additionally, securities
available-for-sale with maturities greater than one year, equity securities, and
interest-earning balances with banks with maturities greater than one year,
totaled $143.3 million at December 31, 1999. These securities represent a
secondary source available to meet liquidity needs on a continuing basis.
To maintain a desired level of liquidity, the Company has several sources of
funds available. One is the cash flow generated daily from the Banks' various
loan portfolios in the form of principal and interest payments. Another source
is its deposit base. The Company maintains a relatively stable base of customer
deposits which has historically exhibited steady growth. This growth, when
combined with other sources, is expected to be adequate to meet its demand for
funds. Due to the nature of the markets served by the Company's subsidiary
banks, management believes that the majority of certificates of deposit of
$100,000 or more are no more volatile than its core deposits. Certificates of
deposits and other time deposits of $100,000 or more represented approximately
14.3% and 11.7% of total deposits at December 31, 1999 and 1998. A number of
techniques are used to measure the liquidity position, including the utilization
of ratios that are presented below. These ratios are calculated based on annual
averages for each year.
Liquidity Ratios
1999 1998 1997
Total loans/total deposits.................. 80.2% 75.5% 91.0%
Total loans/total deposits less float....... 81.0% 76.3% 91.8%
This analysis shows that the Company's loan to deposit ratio decreased in 1998
from the 1997 level. This is due to the acquisition of deposits held in the West
Virginia branches. The increase in 1999 is primarily the result of those funds
moving from lower yielding assets into higher yielding loans.
Information regarding short-term borrowings for the past three years is
presented below.
Short-Term Borrowings
(Dollars in thousands)
1999 1998 1997
Repurchase Agreements:
Balance at year end $ 21,282 $ 7,772 $ 6,579
Weighted average rate at year end 5.80% 4.47% 5.38%
Average balance during the year $ 8,640 $ 20,167 $ 49,939
Weighted average rate during the year 5.14% 4.58% 5.51%
Maximum month-end balance $ 21,282 $ 82,755 $ 120,257
Other short-term borrowings:
Balance at year end $ 11,225 $ 18,225 $ 4,082
Weighted average rate at year end 5.93% 5.74% 6.17%
Average balance during the year $ 12,184 $ 14,867 $ 6,914
Weighted average rate during the year 5.61% 5.83% 6.04%
Maximum month-end balance $ 15,788 $ 19,800 $ 9,396
Total short-term borrowings:
Balance at year end $ 32,507 $ 25,997 $ 10,661
Weighted average rate at year end 5.84% 5.36% 5.68%
Average balance during the year $ 20,824 $ 35,034 $ 56,853
Weighted average rate during the year 5.41% 5.12% 5.49%
Maximum month-end balance $ 32,507 $ 92,719 $ 130,348
Substantially all federal funds purchased and repurchase agreements mature in
less than ninety days. Other short-term borrowings primarily represent Federal
Home Loan Bank (FHLB) advances to Bank Affiliates (with varying maturity dates)
which are funding residential mortgage and commercial loans.
Interest Rate Sensitivity
The interest spread and liability funding discussed above are directly related
to changes in asset and liability mixes, volumes, maturities and repricing
opportunities of interest-earning assets and interest-bearing liabilities.
Interest-sensitive assets and liabilities are those, which are subject to being
repriced in the near term, including either floating or adjustable rate
instruments and instruments approaching maturity. The interest sensitivity gap
is the difference between total interest-sensitive assets and total
interest-sensitive liabilities. Interest rates on the Company's various asset
and liability categories do not respond uniformly to changing market conditions.
Interest rate risk is the degree to which interest rate fluctuations in the
marketplace can affect net interest income.
The need for interest sensitivity gap management is most critical in times of a
significant change in overall interest rates. Management generally seeks to
limit the exposure of the Company to interest rate fluctuations by maintaining a
relatively balanced mix of rate sensitive assets and liabilities on a one-year
time horizon. This mix is altered periodically depending upon management's
assessment of current business conditions and the interest rate outlook.
One tool, which is used to monitor interest rate risk, is the interest
sensitivity analysis as shown in the table below. This analysis reflects the
repricing characteristics of assets and liabilities over various time periods.
The gap indicates the level of assets and liabilities that are subject to
repricing over a given time period.
As shown by the interest rate sensitivity analysis as of December 31, 1999, the
cumulative amount of the Company's interest earning assets repricing during the
first year is higher than the total amount of its interest bearing liabilities
repricing during this period. This position, which is normally termed a positive
interest sensitivity gap, generally allows for enhanced net interest income
during periods of rising interest rates. This positive gap is within the
Company's internal policy guidelines and is not expected to impact significantly
the Company's net interest income during a period of falling interest rates.
The following table provides an analysis of the Company's interest rate
sensitivity at December 31, 1999.
Interest Rate Sensitivity Analysis
(Dollars in Thousands)
0 - 90 91 days - 1 - 5 Over 5
Days 1 Year Years Years Total
Assets
Loans, net of unearned income $ 222,417 $ 168,232 $ 137,617 $ 41,840 $ 570,106
Investment securities 6,518 8,039 77,736 82,250 174,543
Interest-earning balances 900 - 580 154 1,634
Federal funds sold 25,197 - - - 25,197
------------ ----------- ------------ ----------- ------------
Total earning assets $ 255,032 $ 176,271 $ 215,933 $ 124,244 $ 771,480
Sources of Funds
NOW, money market and
savings $ 40,737 $ 58,031 $ 48,078 $ 86,389 $ 233,235
Time deposits 90,116 190,397 110,605 - 391,118
Borrowings 25,559 12,832 35,538 - 73,929
------------ ----------- ------------ ----------- ------------
Total interest bearing liabilities $ 156,412 $ 261,260 $ 194,221 $ 86,389 $ 698,282
Interest Sensitivity Gap
For the period $ 98,620 $ (84,989) $ 21,712 $ 37,855 $ 73,198
Cumulative 98,620 13,631 35,343 73,198 -
Cumulative as a percent of
Earning assets 12.78% 1.77% 4.58% 9.49%
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Asset/Liability Management and Market Risk
Market risk is the risk of gain or loss from changes in the fair value of
financial instruments due to changes in interest rates, exchange rates and
equity prices. Premier's market risk is composed almost exclusively with
interest rate risk. This exposure is managed primarily through the strategy of
selecting the types and terms of interest earning assets and interest bearing
liabilities which generate favorable earnings, while limiting the potential
negative effects of changes in market interest rates. Since Premier's primary
source of interest bearing liabilities is customer deposits, the ability to
manage the types and terms of such deposits may be somewhat limited by customer
preferences in the market areas in which it operates. Borrowings, which include
Federal Home Loan Bank advances, short-term borrowings and long-term borrowings,
are generally structured with specific terms, which in management's judgment,
when aggregated with the terms for outstanding deposits and matched with
interest earning assets, mitigate our exposure to interest rate risk.
The Company's Board of Directors is responsible for reviewing the interest rate
sensitivity of the Company and establishing policies to monitor and limit
exposure to interest rate risk. Interest rate risk is monitored through
the use of an earnings simulation model to analyze net interest income
sensitivity.
The earnings simulation model forecasts the effect of instantaneous movements in
interest rates of both 100 and 200 basis points. The most recent earnings
simulation model projects net interest income would increase by approximately
3.0% of stable rate net interest income if rates rise by 100 basis points over
the next year. It projects a decrease of 3.2% if the rates fall by 100 basis
points. Management believes this reflects a slight asset sensitive rate risk
position for the one-year horizon.
Within the same time frame, but assuming a 200 basis point movement in rates,
the model forecasts that net interest income would rise above that earned in a
stable rate environment by 5.3% in a rising rate scenario and decrease by 9.3%
in a falling rate scenario. Under both the 100 and 200 basis point forecast, the
percentage changes in net interest income are within Company guidelines.
This simulation model includes assumptions about how the balance sheet is likely
to evolve through time. Loan prepayments are developed from industry median
estimates for prepayment speeds. Noncontractual deposit pricing and sensitivity
are assumed to follow historical patterns.
The Economic Value at Risk (EVR) of the balance sheet, at a point in time, is
defined as the discounted present value of asset cash flows minus the discounted
value of liability cash flows. The resulting percentage change in EVR is an
indication of the longer term repricing risk imbedded in the balance sheet. At
December 31, 1999, a 200 basis point increase in rates is estimated to increase
EVR by .5%. Additionally, EVR is projected to decrease by 16.2% if rates fall by
200 basis points. The calculations of present value have certain shortcomings.
The discount rates utilized are based on estimated market interest rate levels
for similar loans and securities nationwide.
The unique characteristics of Premier's loans and securities may not necessarily
parallel those assumed in this calculation, and therefore, would likely result
in different discount rates, prepayment experiences and present values. The
discount rates utilized for deposits and borrowings are based upon available
alternative types and sources of funds which are not necessarily indicative of
the present value of deposits and FHLB advances since such deposits and advances
are unique to, and have certain price and customer relationship advantages for,
depository institutions. A higher or lower interest rate environment will most
likely result in different investment and borrowing strategies by Premier
designed to further mitigate the effect on the value of, and the net earnings
generated from, the Company's net assets from any change in interest rates.
Summary information about the simulation model's interest rate risk measures is
presented below:
Year-End Year-End ALCO
1999 1998 Guidelines
Projected 1-Year Net Interest Income
-100 bp change vs. Base Rate -3.2% 3.5% +/-10%
+100 bp change vs. Base Rate 3.0% -3.6% +/-10%
Projected 1-Year Net Interest Income
-200 bp change vs. Base Rate -9.3% 7.1% +/-10%
+200 bp change vs. Base Rate 5.3% -7.2% +/-10%
Economic Value Change
-200 bp change vs. Base Rate -16.2% 15.6% +/-10%
+200 bp change vs. Base Rate .5% -15.6% +/-10%
Interest Rate Risk Management
Premier's strategy of investing primarily in loans and securities permits it to
limit its exposure to interest rate risk, together with credit risk, while at
the same time achieving a positive interest rate spread from the difference
between the income earned on interest earning assets and the cost of interest
bearing liabilities. Managing this exposure involves significant assumptions
about the relationship of various interest rate indices of certain financial
instruments. Prepayments on loans generally increase when long-term interest
rates fall or are at historically low levels relative to short-term interest
rates making fixed rate loans more desirable. Investment securities, other than
those with early call provisions, generally do not have significant imbedded
options and repay pursuant to specific terms until maturity. While savings and
checking deposits generally may be withdrawn upon the customer's request without
prior notice, a continuing relationship with customers resulting in future
deposits and withdrawals is generally predictable resulting in a dependable and
uninterruptible source of funds. Time deposits generally have early withdrawal
penalties, which discourage customer withdrawal, while term Federal Home Loan
Bank advances have prepayment penalties, which discourage prepayment prior to
maturity.
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates.
Also, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates. Additionally, certain
assets, such as adjustable rate mortgage loans, have features that restrict
changes in interest rates on a short-term basis and over the life of the loan.
Further, in the event of a change in interest rates, prepayment and early
withdrawal levels could deviate significantly from those assumed in calculating
the table. Finally, the ability of many borrowers to service their debt may
decrease in the event of a significant interest rate increase.
The previous table does not necessarily indicate the impact of general interest
rate movements on Premier's net interest income because the repricing of certain
categories of assets and liabilities are subject to competitive and other
pressures beyond our control. As a result, certain assets and liabilities
indicated as maturing or otherwise repricing within a stated period may in fact
mature or reprice at different times and at different volumes.
Management expects interest rates to be biased toward increasing slightly during
2000 and believes that the current modest level of asset sensitivity is
appropriate when taken in conjunction with the unlikely event of a significant
rate decrease. Premier's interest sensitivity profile changed from 1998 to 1999
as a result of the increase in shorter term loan instruments.
Trade Risk Management
Premier does not maintain a trading account, which would primarily provide
investment products and risk management services to its customers as well as to
take propriety risk positions.
Derivative Instruments
A derivative financial instrument includes futures, forwards, interest rate
swaps, options and other financial instruments with similar characteristics.
Premier currently does not enter into futures, forwards, swaps or options.
However, the Company is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to make loans and
standby letters of credit, which involve to varying degrees elements of credit
risk and interest rate risk in excess of amounts recognized on the balance
sheets. Commitments to make loans are agreements to lend to a customer as long
as there is no violation of any contract condition. Commitments generally have
fixed expiration dates and may require collateral if deemed necessary. Standby
letters of credit are conditional commitments issued by Premier to guarantee the
performance of a customer to a third party up to a stipulated amount and with
specific terms and conditions. Commitments to make loans and standby letters of
credit are not recorded as an asset or liability by the Company until the
instrument is exercised.
Year 2000
Premier undertook a project (the "Year 2000 Plan") to identify and assess the
readiness of its computer systems, programs and other infrastructure that could
be affected by the Year 2000 issue and to remedy any problems identified.
Premier's Year 2000 Plan also included an assessment of the Year 2000 readiness
of key third parties on whom the Company's operations depend, as well as
customers Premier deemed to have material Year 2000 issues.
Premier also developed contingency plans permitting the company to continue
operations, consistent with the highest quality standards, in the event Year
2000 problems arose. Management believes that its Year 2000 Plan proceeded
successfully as all operating systems performed well during the year change.
While management does not expect future problems resulting from the Year 2000
issue, it is possible that other dates in the year 2000 may further affect
computer software or systems, or cause a Year 2000 problem relating to the
Company's own systems or to those of key third parties with whom Premier
conducts business that could adversely affect its financial condition.
Premier has incurred costs of approximately $200,000 attributable to Year 2000
remediation which has been expensed as incurred. Management projects additional
Year 2000 expenses to be minimal, however Year 2000 expenses are subject to
change and could vary from current estimates if the final requirements for
complete year 2000 readiness exceed management's expectations.
Monitoring of computer date sensitive issues will continue at least through the
year 2000. Corrective action will be taken if management encounters any
previously unidentified Year 2000 problems internally or in interfacing with
third parties, and the Company's contingency plans remain available. Management
has determined that if an unlikely business interruption as a result of computer
date-sensitive issues occurred, such an interruption could be material to
Premier's overall financial performance.
Item 8. Financial Statements and Supplementary Data
The Company's Financial Statements and related Independent Auditors'
Report are presented in the following pages. The financial statements filed in
this Item 8 are as follows:
Independent Auditors' Report
Financial Statements:
Balance Sheets - December 31, 1999 and 1998
Statements of Income - Years Ended December 31, 1999, 1998 and 1997
Statements of Changes in Stockholders' Equity - Years ended December
31, 1999, 1998 and 1997 Statements of Cash Flows - Years ended
December 31, 1999, 1998 and 1997 Notes to Financial Statements
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
CONTENTS
REPORT OF INDEPENDENT AUDITORS........................................ 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets........................................ 2
Consolidated Statements of Income and Comprehensive Income......... 3 - 4
Consolidated Statements of Changes in Stockholders' Equity......... 5
Consolidated Statements of Cash Flows.............................. 6 - 7
Notes to Consolidated Financial Statements......................... 8 - 30
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Premier Financial Bancorp, Inc.
Georgetown, Kentucky
We have audited the accompanying consolidated balance sheets of Premier
Financial Bancorp, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of income and comprehensive income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Premier Financial
Bancorp, Inc. as of December 31, 1999 and 1998 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999 in conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Lexington, Kentucky
February 18, 2000
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1999 1998
---- ----
(In Thousands)
ASSETS
Cash and due from banks $ 28,227 $ 20,171
Interest earning balances with banks 1,634 -
------------ ------------
Cash and cash equivalents 29,861 20,171
Federal funds sold 25,197 19,406
Investment securities
Available for sale 151,787 157,140
Held to maturity 18,633 20,052
Loans 570,753 397,613
Unearned income (647) (1,993)
Allowance for loan losses (6,812) (4,363)
------------ ------------
Net loans 563,294 391,257
Federal Home Loan Bank and Federal Reserve Bank stock 4,123 3,416
Premises and equipment, net 14,935 11,764
Real estate and other property acquired through foreclosure 3,019 992
Interest receivable 9,814 8,053
Goodwill and other intangibles 24,339 21,555
Other assets 7,466 3,938
------------ ------------
Total assets $ 852,468 $ 657,744
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 68,490 $ 62,813
Time deposits, $100,000 and over 99,292 61,190
Other interest bearing 525,061 399,190
------------ ------------
Total deposits 692,843 523,193
Securities sold under agreements to repurchase 21,282 7,772
Federal Home Loan Bank advances 32,647 31,898
Other borrowed funds 20,000 8,000
Interest payable 3,265 2,384
Other liabilities 1,554 1,348
------------ ------------
Total liabilities 771,591 574,595
Guaranteed preferred beneficial interests in Company's debentures 28,750 28,750
Stockholders' equity
Preferred stock, no par value; 1,000,000 shares
authorized; none issued or outstanding - -
Common stock, no par value; 10,000,000 shares authorized;
5,232,230 shares issued and outstanding 1,103 1,103
Surplus 43,445 43,445
Retained earnings 11,601 10,151
Accumulated other comprehensive income (4,022) (300)
------------ ------------
Total stockholders' equity 52,127 54,399
------------ ------------
Total liabilities and stockholders' equity $ 852,468 $ 657,744
============ ============
- --------------------------------------------------------------------------------
See accompanying notes
2.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years Ended December 31
- --------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
Interest income
Loans, including fees $ 50,649 $ 33,787 $ 28,690
Investment securities -
Taxable 9,575 8,582 5,802
Tax-exempt 1,409 1,180 1,158
Federal funds sold 1,047 1,686 1,036
Other interest income 192 115 165
----------- ----------- -----------
Total interest income 62,872 45,350 36,851
Interest expense
Deposits 27,808 19,459 14,196
Other borrowings 3,547 2,932 3,566
Debt 2,852 2,852 1,631
----------- ----------- -----------
Total interest expense 34,207 25,243 19,393
Net interest income 28,665 20,107 17,458
Provision for loan losses 3,294 1,742 1,399
----------- ----------- -----------
Net interest income after provision for loan losses 25,371 18,365 16,059
Non-interest income
Service charges 1,965 1,585 1,261
Insurance commissions 565 468 483
Investment securities gains 17 224 2,203
Other income 1,229 2,396 615
----------- ----------- -----------
3,776 4,673 4,562
Non-interest expenses
Salaries and employee benefits 11,679 7,634 6,185
Occupancy and equipment expenses 2,885 2,181 1,634
Professional fees 547 452 504
Taxes, other than payroll, property and income 794 559 445
Acquisition related expenses - 132 482
Amortization of intangibles 1,625 982 386
Other expenses 5,100 3,397 2,596
----------- ----------- -----------
22,630 15,337 12,232
Income before income taxes 6,517 7,701 8,389
Provision for income taxes 1,927 1,997 2,605
----------- ----------- -----------
Net income $ 4,590 $ 5,704 $ 5,784
=========== =========== ===========
Weighed average common shares outstanding:
Basic 5,232 5,232 5,232
Diluted 5,232 5,247 5,245
Earnings per share:
Basic $ .88 $ 1.09 $ 1.11
Diluted .88 1.09 1.10
- --------------------------------------------------------------------------------
(Continued)
3.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years Ended December 31
- --------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
Other comprehensive income (loss), net of tax:
Unrealized gains and (losses) arising during
the period $ (3,711) $ (95) $ 1,521
Reclassification of realized amount (11) (149) (1,454)
----------- ----------- -----------
Net change in unrealized gain (loss) on
securities (3,722) (244) 67
----------- ----------- -----------
Comprehensive income $ 868 $ 5,460 $ 5,851
=========== =========== ===========
- --------------------------------------------------------------------------------
See accompanying notes
4.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
Accumulated
Other
Common Retained Comprehensive
Stock Surplus Earnings Income Total
----- ------- -------- ------ -----
(In Thousands, Except Per Share Data)
Balances, January 1, 1997 $ 985 $ 38,795 $ 8,988 $ (123) $ 48,645
Net change in unrealized losses on
securities available for sale - - - 67 67
Net income - - 5,784 - 5,784
Dividends paid - $.55 per share - - (2,406) - (2,406)
Dividends paid - Sabina prior to pooling - - (83) - (83)
-------- --------- --------- ---------- ----------
Balances, December 31, 1997 985 38,795 12,283 (56) 52,007
Net change in unrealized losses on
securities available for sale - - - (244) (244)
Net income - - 5,704 - 5,704
Dividends paid - $.60 per share - - (3,068) - (3,068)
Stock dividend 118 4,650 (4,768) - -
-------- --------- --------- ---------- ----------
Balances, December 31, 1998 1,103 43,445 10,151 (300) 54,399
Net change in unrealized losses on
securities available for sale - - - (3,722) (3,722)
Net income - - 4,590 - 4,590
Dividends paid - $.60 per share - - (3,140) - (3,140)
-------- --------- --------- ---------- ----------
Balances, December 31, 1999 $ 1,103 $ 43,445 $ 11,601 $ (4,022) $ 52,127
======== ========= ========= ========== ==========
- --------------------------------------------------------------------------------
See accompanying notes
5.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
- --------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
Cash flows from operating activities
Net income $ 4,590 $ 5,704 $ 5,784
Adjustments to reconcile net income to
net cash from operating activities
Depreciation 1,214 872 644
Provision for loan losses 3,294 1,742 1,399
Amortization, net 1,750 591 378
FHLB stock dividends (254) (227) (155)
Investment securities gains, net (17) (224) (2,203)
Changes in
Interest receivable (409) (2,566) (946)
Other assets (311) (161) (1,795)
Interest payable 256 578 296
Other liabilities 127 (531) 908
------------ ----------- -----------
Net cash from operating activities 10,240 5,778 4,310
Cash flows from investing activities
Purchases of securities available for sale (82,373) (640,535) (311,373)
Proceeds from sales of securities available for sale 40,082 222,750 277,135
Proceeds from maturities and calls of securities
available for sale 52,865 313,671 18,870
Purchases of investment securities held to maturity (2,055) (4,978) (4,255)
Proceeds from maturities and calls of securities
held to maturity 3,472 5,276 4,879
Purchases of FHLB stock (61) (155) (1,073)
Net change in federal funds sold 6,933 21,840 (27,348)
Net change in loans (82,882) (75,665) (48,436)
Purchases of premises and equipment, net (2,396) (2,129) (2,232)
Proceeds from sale of other real estate acquired
through foreclosure 943 399 368
Net cash received (paid) related to acquisitions (8,579) 123,971 20,613
------------ ----------- -----------
Net cash from investing activities (74,051) (35,555) (72,852)
Cash flows from financing activities
Net change in deposits 50,983 14,137 38,170
Advances from Federal Home Loan Bank 16,345 27,225 17,727
Repayment of Federal Home Loan Bank advances (15,596) (10,590) (11,842)
Proceeds from other borrowed funds 12,000 8,000 -
Net change in agreements to repurchase securities 12,909 1,193 565
Proceeds from issuance of guaranteed preferred
beneficial interests in Company's debentures - - 28,750
Dividends paid (3,140) (3,068) (2,489)
------------ ----------- -----------
Net cash from financing activities 73,501 36,897 70,881
------------ ----------- -----------
- --------------------------------------------------------------------------------
(Continued)
6.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
- --------------------------------------------------------------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
Net change in cash and cash equivalents $ 9,690 $ 7,120 $ 2,339
Cash and cash equivalents at beginning
of year 20,171 13,051 10,712
------------ ----------- -----------
Cash and cash equivalents at end of year $ 29,861 $ 20,171 $ 13,051
============ =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for -
Interest $ 33,951 $ 24,665 $ 19,097
Income taxes 2,050 2,550 2,462
Loans transferred to real estate acquired
through foreclosure $ 2,943 $ 555 $ 829
- --------------------------------------------------------------------------------
See accompanying notes
7.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Premier Financial
Bancorp, Inc. (the Company) and its wholly owned subsidiaries:
December 31, 1999
Year Net
Acquired Assets Income
-------- ------ ------
(In Thousands)
Citizens Deposit Bank & Trust Vanceburg, Kentucky 1991 $ 129,261 $1,650
Bank of Germantown Germantown, Kentucky 1992 27,006 200
Georgetown Bank & Trust Co. Georgetown, Kentucky 1995 60,399 802
Citizens Bank Sharpsburg, Kentucky 1995 46,306 836
Farmers Deposit Bank Eminence, Kentucky 1996 142,065 1,794
The Sabina Bank Sabina, Ohio 1997 57,584 414
Ohio River Bank Ironton, Ohio 1998 57,200 422
The Bank of Philippi, Inc. Philippi, West Virginia 1998 59,506 169
Boone County Bank, Inc. Madison, West Virginia 1998 137,991 649
The Bank of Mt. Vernon Mt. Vernon, Kentucky 1999 130,979 1,068
The Company also has a data processing subsidiary, Premier Data Services, Inc.,
and PFBI Capital Trust subsidiary as discussed in Note 11. All intercompany
transactions and balances have been eliminated.
Prior period consolidated financial statements have been restated to include the
accounts of significant acquisitions accounted for using the pooling of
interests method of accounting. Business combinations accounted for as purchases
are included in the consolidated financial statements from the respective dates
of acquisition. Assets and liabilities of financial institutions accounted for
as purchases are adjusted to their fair values as of their dates of acquisition.
Certain prior amounts have been reclassified to conform with the current year
presentation.
Nature of Operations: The Banks operate under state bank charters and provide
traditional banking services, including trust services, to customers primarily
located in the counties and adjoining counties in Kentucky, Ohio, and West
Virginia in which the Banks operate. Chartered as state banks, the Banks are
subject to regulation by their respective state banking regulators and the
Federal Deposit Insurance Corporation (FDIC) or the Federal Reserve Bank for
member banks. The Company is also subject to regulation by the Federal Reserve
Bank.
Estimates in the Financial Statements: The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
- --------------------------------------------------------------------------------
(Continued)
8.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998, and 1997
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
estimates. The allowance for loan losses and fair values of financial
instruments are particularly subject to change.
Cash Flows: For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and interest-earning balances with
banks. Net cash flows are reported for loans, federal funds sold, deposits, and
other borrowing transactions.
Investment Securities: The Company classifies its investment securities
portfolio into three categories: trading, securities available for sale and
securities held to maturity. Fair value adjustments are made to the securities
based on their classification with the exception of the held to maturity
category. The Company has no investments classified as trading.
Investment securities available for sale are carried at fair value. Adjustments
from amortized cost to fair value are recorded in stockholders' equity, net of
related income tax, under accumulated other comprehensive income on securities
available for sale. The adjustment is computed on the difference between fair
value and cost adjusted for amortization of premiums and accretion of discounts
which are recorded as adjustments to interest income using the constant yield
method.
Investment securities for which the Banks have the positive intent and ability
to hold to maturity are stated at cost, adjusted for amortization of premiums
and accretion of discounts, which are recorded as adjustments to interest income
using the constant yield method.
Gains or losses on dispositions are based on the net proceeds and adjusted
carrying amount of the securities sold using the specific identification method.
Loans: Loans are stated at the amount of unpaid principal, reduced by unearned
income and an allowance for loan losses. Interest income on loans is recognized
on the accrual basis except for those loans in a nonaccrual of income status.
The accrual of interest on impaired loans is discontinued when management
believes, after consideration of economic and business conditions and collection
efforts, that the borrowers' financial condition is such that collection of
interest is doubtful. When interest accrual is discontinued, interest income is
subsequently recognized only to the extent cash payments are received.
The allowance for loan losses is established through a provision for loan losses
charged to expense. The allowance is an amount that management believes will be
adequate to absorb losses on existing loans that may become uncollectible based
on evaluations of the collectibility of loans and prior loan loss experience.
The evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrowers'
ability to pay. Loans are charged against the allowance for loan losses when
management believes that the collection of principal is unlikely.
- --------------------------------------------------------------------------------
(Continued)
9.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral.
Certain loan origination fees and direct origination costs are capitalized and
recognized as an adjustment of the yield on the related loan.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is recorded principally by the
straight-line method over the estimated useful lives of the premises and
equipment.
Real Estate Acquired Through Foreclosure: Real estate acquired through
foreclosure is carried at the lower of the recorded investment in the property
or its fair value. The value of the underlying loan is written down to the fair
value of the real estate to be acquired by a charge to the allowance for loan
losses, if necessary. Any subsequent write-downs are charged to operating
expenses. Certain parcels of real estate are being leased to third parties to
offset holding period costs. Operating expenses of such properties, net of
related income, and gains and losses on their disposition are included in other
expenses.
Goodwill and Other Intangibles: The unamortized costs in excess of the fair
value of acquired net tangible assets are included in goodwill and other
intangibles. Identifiable intangibles, except for premiums on purchased deposits
which are amortized on a straight-line method over 10 years, are amortized over
the estimated periods benefited. The remaining costs (goodwill) are amortized on
a straight-line basis over 15 to 25 years.
Income Taxes: The Company uses the liability method for computing deferred
income taxes. Under the liability method, deferred income taxes are based on the
change during the year in the deferred tax liability or asset established for
the expected future tax consequences of differences in the financial reporting
and tax bases of assets and liabilities. The differences relate principally to
premises and equipment, unrealized gains and losses on investment securities
available for sale, changes in tax methods of accounting, FHLB stock, and the
allowance for loan losses.
Earnings Per Common Share: Basic earnings per common share is net income divided
by the weighted average number of common shares outstanding during the period.
Diluted earnings per common share includes the dilutive effect of additional
potential common shares issuable under stock options. Earnings and dividends per
share are restated for all stock splits and dividends through the date of
issuance of the financial statements.
- --------------------------------------------------------------------------------
(Continued)
10.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale which are also recognized as a separate
component of equity.
New Accounting Pronouncements: Beginning January 1, 2001, a new accounting
standard will require all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
income statement. Fair value changes involving hedges will generally be recorded
by offsetting gains and losses on the hedge and on the hedged item, even if the
fair value of the hedged item is not otherwise recorded. This standard is not
expected to have a material effect, but the effect will depend on derivative
holdings when it applies.
Industry Segments: All of the Company's operations are considered by management
to be aggregated into one reportable operating segment.
NOTE 2 - BUSINESS COMBINATIONS
On January 20, 1999, the Company acquired all of the outstanding shares of Mt.
Vernon Bancshares, Inc., Mt. Vernon, Kentucky, a one-bank holding company owning
all of the shares of Bank of Mt. Vernon (Mt. Vernon) for cash. Mt. Vernon offers
full service banking in the counties of Rockcastle, Pulaski, and Madison,
Kentucky. The total acquisition cost exceeded the fair value of net assets
acquired by approximately $4.5 million. The combination was accounted for as a
purchase and the results of operations of Mt. Vernon are included in the
consolidated financial statements from January 20, 1999. At date of acquisition,
Mt. Vernon had total assets of $129.5 million, total loans of $96.8 million, and
total deposits of $118.7 million.
On June 26, 1998, the Company chartered Boone County Bank, Inc. in Madison, West
Virginia, and The Bank of Philippi, Inc. in Philippi, West Virginia, for the
purpose of acquiring three branch offices of Banc One Corporation located in
Madison, Philippi and Van, West Virginia. Included in the purchase were $150
million in deposits and $9 million in loans. These branches were part of a
larger group of branches acquired in cooperation with another bank holding
company headquartered in Kentucky. Certain individual branches within the group
were not retained by either company. The gain on disposition of these branches
was shared between the Company and the other bank holding company. The Company's
portion of the gain, $1.3 million, is included in other income in the
accompanying financial statements.
On March 20, 1998, the Company acquired Ohio River Bank, Ironton, Ohio, (Ohio
River) whereby the Company exchanged 297,840 shares of its common stock for all
the issued and outstanding shares of Ohio River in a business combination
accounted for as a pooling of interests. Based on the date of the acquisition
agreement, the market value of the shares
- --------------------------------------------------------------------------------
(Continued)
11.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 2 - BUSINESS COMBINATIONS (Continued)
exchanged was $7.7 million. The accompanying consolidated financial statements
for 1998 are based on the assumption that the companies were combined for the
full year. Prior years presented have been restated to give effect to the
combination. At the date of acquisition, Ohio River had $40.9 million in total
assets, $28.0 million in net loans, $35.2 million in deposits, and $4.3 million
in stockholders' equity.
On November 13, 1997, the Company acquired The Sabina Bank, Sabina, Ohio
(Sabina), in a business combination accounted for as a pooling of interests. All
of the outstanding shares of Sabina were exchanged for 476,300 shares of the
Company's common stock. Based on the date of the acquisition agreement, the
market value of the shares exchanged was $7.6 million. The 1997 consolidated
financial statements are based on the assumption that the companies were
combined for a full year. At the date of acquisition, Sabina had $23.8 million
in net loans, $36.6 million in total assets, $31.6 million in deposits, and $4.4
million in stockholders' equity.
On December 11, 1997, Sabina completed its purchase and assumption of two branch
offices of the Fifth Third Bank of Western, Ohio. Included in the purchase was
approximately $23.3 million of deposits from the Ada and Waynesfield, Ohio
branches. The net deposits assumed exceeded the cash received by $2.1 million.
NOTE 3 - RESTRICTIONS ON CASH AND DUE FROM BANKS
Included in cash and due from banks are certain non-interest bearing deposits
that are held at the Federal Reserve or maintained in vault cash in accordance
with average balance requirements specified by the Federal Reserve Board of
Governors. The balance requirement at December 31, 1999 and 1998 was $2.2
million and $1.1 million.
NOTE 4 - INVESTMENT SECURITIES
Amortized cost and fair value of investment securities, by category, at December
31, 1999 are as follows:
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
Available for sale
U. S. Treasury securities $ 2,900 $ - $ (6) $ 2,894
U. S. agency securities 130,254 - (5,047) 125,207
Obligations of states and political
subdivisions 7,468 - (114) 7,354
Mortgage-backed securities 14,333 - (776) 13,557
Preferred stock 2,000 - - 2,000
Other securities 925 - (150) 775
----------- -------- --------- -----------
Total available for sale $ 157,880 $ - $ (6,093) $ 151,787
=========== ======== ========= ===========
- --------------------------------------------------------------------------------
(Continued)
12.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 4 - INVESTMENT SECURITIES (Continued)
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
Held to maturity
U. S. Treasury securities $ 500 $ - $ (1) $ 499
U. S. agency securities 1,233 - (29) 1,204
Obligations of states and political
subdivisions 16,876 132 (150) 16,858
Mortgage-backed securities 24 - - 24
----------- -------- --------- -----------
Total held to maturity $ 18,633 $ 132 $ (180) $ 18,585
=========== ======== ========= ===========
Amortized cost and fair value of investment securities, by category, at December
31, 1998 are as follows:
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
Available for sale
U. S. Treasury securities $ 7,185 $ 44 $ - $ 7,229
U. S. agency securities 125,372 45 (540) 124,877
Obligations of states and political
subdivisions 3,691 142 (2) 3,831
Mortgage-backed securities 18,452 20 (67) 18,405
Preferred stock 2,000 - - 2,000
Other securities 900 - (102) 798
----------- -------- --------- -----------
Total available for sale $ 157,600 $ 251 $ (711) $ 157,140
=========== ======== ========= ===========
Held to maturity
U. S. Treasury securities $ 899 $ 16 $ - $ 915
U. S. agency securities 2,630 - (73) 2,557
Obligations of states and political
subdivisions 16,474 770 (1) 17,243
Mortgage-backed securities 49 - - 49
----------- -------- --------- -----------
Total held to maturity $ 20,052 $ 786 $ (74) $ 20,764
=========== ======== ========= ===========
- --------------------------------------------------------------------------------
(Continued)
13.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 4 - INVESTMENT SECURITIES (Continued)
The amortized cost and fair value of investment securities at December 31, 1999,
by category and contractual maturity are shown below. 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.
Amortized Fair
Cost Value
---- -----
(In Thousands)
Available for sale
Due in one year or less $ 13,524 $ 13,377
Due after one year through five years 72,661 70,818
Due after five years through ten years 42,966 40,682
Due after ten years 11,471 10,578
Mortgage-backed securities 14,333 13,557
Preferred stock 2,000 2,000
Other securities 925 775
----------- -----------
Total available for sale $ 157,880 $ 151,787
=========== ===========
Held to maturity
Due in one year or less $ 1,180 $ 1,181
Due after one year through five years 6,918 6,973
Due after five years through ten years 8,928 8,866
Due after ten years 1,583 1,541
Mortgage-backed securities 24 24
----------- -----------
Total held to maturity $ 18,633 $ 18,585
=========== ===========
Proceeds from sales of investment securities during 1999, 1998 and 1997 were
$40.1 million, $222.7 million and $277.1 million. Gross gains of $44,000,
$232,000 and $2.2 million, and gross losses of $27,000, $8,000 and $1,000 were
realized on those sales.
Investment securities with an approximate carrying value of $76.3 million and
$45.6 million at December 31, 1999 and 1998 were pledged to secure public
deposits, trust funds, securities sold under agreements to repurchase and for
other purposes as required or permitted by law.
- --------------------------------------------------------------------------------
(Continued)
14.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 5 - LOANS
Major classifications of loans are summarized as follows:
----------December 31----------
1999 1998
---- ----
(In Thousands)
Commercial, secured by real estate $ 135,078 $ 86,010
Commercial, other 98,543 73,982
Real estate construction 26,092 13,374
Residential real estate 192,088 131,212
Agricultural 17,525 15,433
Consumer and home equity 100,075 73,100
Other 1,352 4,502
------------ ------------
$ 570,753 $ 397,613
============ ============
Certain directors and executive officers of the Banks and companies, in which
they have beneficial ownership, were loan customers of the Banks during 1999 and
1998. Such loans were made in the ordinary course of business at the Banks'
normal credit terms and interest rates. An analysis of the 1999 activity with
respect to all director and executive officer loans is as follows:
(In Thousands)
Balance, December 31, 1998 $ 11,574
Additions, including loans now meeting disclosure
requirements 3,700
Amounts collected, including loans no longer meeting
disclosure requirements (2,998)
--------------
Balance, December 31, 1999 $ 12,276
==============
- --------------------------------------------------------------------------------
(Continued)
15.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 5 - LOANS (Continued)
Changes in the allowance for loan losses are as follows:
1999 1998 1997
---- ---- ----
(In Thousands)
Balance, beginning of year $ 4,363 $ 3,479 $ 3,127
Allowance related to acquired subsidiaries 1,310 115 -
Loans charged off (2,556) (1,189) (1,305)
Recoveries 401 216 258
Provision for loan losses 3,294 1,742 1,399
--------- --------- ---------
Balance, end of year $ 6,812 $ 4,363 $ 3,479
========= ========= =========
Information about impaired loans is presented below. There were no impaired
loans for the periods presented without an allowance allocation.
1999 1998 1997
---- ---- ----
(In Thousands)
Impaired loans at year end $ 2,717 $ 2,562 $ 1,049
Amount of the allowance for loan losses allocated 543 659 149
Average of impaired loans during the year 3,810 905 1,262
Interest income recognized during impairment 6 6 62
Nonperforming loans at year end were as follows:
Loans past due over 90 days still on accrual $ 1,721 $ 1,322 $ 522
Nonaccrual loans 4,540 3,500 562
Nonperforming loans include impaired loans and smaller balance homogeneous
loans, such as residential mortgage and consumer loans, that are collectively
evaluated for impairment.
- --------------------------------------------------------------------------------
(Continued)
16.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
---------December 31-------
1999 1998
---- ----
(In Thousands)
Land $ 2,275 $ 1,683
Buildings and leasehold improvements 10,543 8,174
Furniture and equipment 8,655 7,205
---------- ----------
21,473 17,062
Less: accumulated depreciation (6,538) (5,298)
---------- ----------
$ 14,935 $ 11,764
========== ==========
NOTE 7 - DEPOSITS
At December 31, 1999, the scheduled maturities of time deposits are as follows:
(In Thousands)
2000 $ 275,518
2001 78,223
2002 24,993
2003 5,917
2004 and thereafter 6,467
----------
$ 391,118
==========
NOTE 8 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase generally mature within one to
ninety days from the transaction date. Information concerning securities sold
under agreements to repurchase is summarized as follows:
-------December 31-------
1999 1998
---- ----
(Dollars In Thousands)
Year-end balance $ 21,282 $ 7,772
Average balance during the year 8,640 20,167
Average interest rate during the year 5.14% 4.58%
Maximum month-end balance during the year $ 21,282 $ 82,755
- --------------------------------------------------------------------------------
(Continued)
17.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 9 - FEDERAL HOME LOAN BANK ADVANCES
The Banks own stock of the Federal Home Loan Bank (FHLB) of Cincinnati, Ohio.
This stock allows the Banks to borrow advances from the FHLB.
At December 31, 1999 and 1998, $32.6 million and $31.9 million represented the
balance due on the above advances from the FHLB. All advances are paid either on
a monthly basis or at maturity, over remaining terms of one to sixteen years,
with interest rates ranging from 5.08% to 8.45%. Advances are secured by the
FHLB stock and substantially all single family first mortgage loans of the
participating Banks. Scheduled principal payments due on advances during the
five years subsequent to December 31, 1999 are as follows:
(In Thousands)
2000 $ 13,853
2001 620
2002 396
2003 143
2004 and thereafter 17,635
----------
$ 32,647
NOTE 10 - OTHER BORROWED FUNDS
The Company has a $20 million line of credit with a financial institution for
general corporate purposes, including acquisitions. The line of credit, expiring
April 2001, contains certain covenants and performance terms, all of which have
been complied with at December 31, 1999. Interest is payable at term at LIBOR
plus 1.125% and adjusts based on agreed terms. Common stock of eight of the
Company's subsidiary Banks is pledged to secure the agreement. There was $20
million and $8 million borrowed under this agreement at December 31, 1999 and
1998.
NOTE 11 - GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S
DEBENTURES
Guaranteed preferred beneficial interests in Company's debentures (Preferred
Securities) represent preferred beneficial interests in the assets of PFBI
Capital Trust (Trust). The Trust holds certain 9.75% junior subordinated
debentures due June 30, 2027 issued by the Company on June 9, 1997.
Distributions on the Preferred Securities is payable at an annual rate of 9.75%
of the stated liquidation amount of $25 per Capital Security, payable quarterly.
Cash distributions on the Preferred Securities are made to the extent interest
on the debentures is received by the Trust. In the event of certain changes or
amendments to regulatory requirements or federal tax rules, the Preferred
Securities are redeemable in whole. Otherwise, the Preferred Securities are
generally redeemable by the Company in whole or in part on or after June 30,
2002 at 100% of the liquidation amount. The Trust's obligations under the
Preferred Securities are fully and unconditionally guaranteed by the Company.
- --------------------------------------------------------------------------------
(Continued)
18.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 12 - INCOME TAXES
The components of the provision for income taxes are as follows:
1999 1998 1997
---- ---- ----
(In Thousands)
Current $ 2,157 $ 2,350 $ 2,348
Deferred (230) (118) 317
Change in valuation allowance - (235) (60)
-------- -------- --------
$ 1,927 $ 1,997 $ 2,605
======== ======== ========
The Company's deferred tax assets and liabilities at December 31, 1999 and 1998
are shown below. No valuation allowance for the realization of deferred tax
assets is considered necessary at December 31, 1999.
1999 1998
---- ----
(In Thousands)
Deferred tax assets
Allowance for loan losses $ 1,703 $ 848
NOL carryforwards - 96
Unrealized loss on investment securities 2,071 160
Other 184 182
--------- ---------
Total deferred tax assets 3,958 1,286
Deferred tax liabilities
Depreciation (445) (331)
Change in accounting method (20) (40)
Federal Home Loan Bank dividends (300) (182)
Other (115) (84)
-------- ---------
Total deferred tax liabilities (880) (637)
Net deferred tax asset, included in other assets $ 3,078 $ 649
========= =========
At December 31, 1999, the balances presented above include net deferred tax
assets of $288,000 associated with the January 20, 1999 acquisition of Mt.
Vernon.
- --------------------------------------------------------------------------------
(Continued)
19.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 12 - INCOME TAXES (Continued)
An analysis of the differences between the effective tax rates and the statutory
U.S. federal income tax rate is as follows:
1999 1998 1997
---- ---- ----
(Dollars In Thousands)
U. S. federal income tax rate $ 2,216 34.0% $ 2,618 34.0% $ 2,852 34.0%
Changes from the statutory rate
Tax-exempt investment income (494) (7.6) (425) (5.5) (408) (5.0)
Non-deductible interest expense
related to carrying tax-exempt
investments 66 1.0 57 .7 50 .6
Tax credits (70) (1.1) (149) (1.9) (70) (0.8)
Change in valuation allowance - - (235) (3.1) (60) (0.6)
Goodwill amortization 202 3.1 137 1.8 131 1.6
Other 7 0.1 (6) (0.1) 110 1.3
--------- --- -------- --- --------- ---
$ 1,927 29.5% $ 1,997 25.9% $ 2,605 31.1%
========= ===== ======== ===== ========= =====
NOTE 13 - EMPLOYEE BENEFIT PLANS
The Company has qualified profit sharing plans that cover substantially all
employees. Contributions to the plans consist of a Company match and additional
amounts are at the discretion of the Company's Board of Directors. Total
contributions to the plans were $251,000, $180,000 and $191,000 in 1999, 1998
and 1997.
The Company also maintains the Premier Financial Bancorp, Inc. 1996 Employee
Stock Ownership Incentive Plan (the Plan), whereby certain employees of the
Company are eligible to receive incentive stock options. The Plan is accounted
for in accordance with Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees", and related interpretations. Under
the Plan, a maximum of 100,000 shares of the Company's common stock may be
issued through the exercise of these incentive stock options. The option price
is the fair market value of the Company's shares at the date of the grant. The
options are exercisable ten years from the date of grant.
- --------------------------------------------------------------------------------
(Continued)
20.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 13 - EMPLOYEE BENEFIT PLANS (Continued)
A summary of the Company's stock option activity is as follows:
---------1999--------- ---------1998--------- ----------1997----------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
Outstanding at beginning of year 62,000 $ 13.71 42,000 $ 12.38 42,000 $ 12.38
Granted - - 20,000 16.50 - -
-------- -------- --------
Outstanding at year end 62,000 $ 13.71 62,000 $ 13.71 42,000 $ 12.38
======== ======== ========
Exercisable at year end 49,800 41,600 29,400
Weighted average remaining life 7.3 8.3 8.5
Although the Company has elected to follow APB No. 25, SFAS No. 123, "Accounting
for Stock Based Compensation" requires pro forma disclosure of net income and
earnings per share as if the Company had accounted for its employee stock
options under that Statement. The fair value of each option grant was estimated
on the grant date using an option-pricing model.
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this statement are as follows:
1999 1998 1997
---- ---- ----
(Dollars In Thousands)
Net income
As reported $ 4,590 $ 5,704 $ 5,784
Pro forma 4,550 5,649 5,731
Basic earnings per share
As reported $ .88 $ 1.09 $ 1.11
Pro forma .87 1.08 1.10
Diluted earnings per share
As reported $ .88 $ 1.09 $ 1.10
Pro forma .87 1.08 1.09
- --------------------------------------------------------------------------------
(Continued)
21.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 13 - EMPLOYEE BENEFIT PLANS (Continued)
The weighted average assumptions for options granted during the year and the
resulting estimated weighted average fair value per share used in computing pro
forma disclosures are as follows:
1999 1998 1997
---- ---- ----
(Dollars In Thousands)
Weighted averages
Fair value of options granted $ - $ 4.66 $ 5.77
Risk free interest rate - 5.50% 6.00%
Expected life - 10 years 10 years
Expected volatility - 17.88% 38.02%
Expected dividend $ - $ .60 $ .60
Future pro forma net income will be negatively impacted should the Company
choose to grant additional options.
NOTE 14 - RELATED PARTY TRANSACTIONS
During 1999, 1998 and 1997, the Company paid approximately $432,000, $369,000
and $233,000 for printing, supplies, furniture, and equipment from a company
affiliated by common ownership. The Company also paid this affiliate
approximately $820,000, $649,000 and $339,000 in 1999, 1998 and 1997 to permit
the Company's employees to participate in its employee medical benefit plan.
The Company has purchased and currently holds noncumulative perpetual preferred
stock with a carrying value of $2.0 million in a Louisiana bank controlled by
the Company's largest stockholder. The dividend rate on the preferred stock is
2% over the prevailing prime rate.
- --------------------------------------------------------------------------------
(Continued)
22.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 15 - EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the earnings per common
share and earnings per common share assuming dilution computations for 1999,
1998 and 1997 is presented below:
------------------Year Ended----------------
1999 1998 1997
---- ---- ----
(In Thousands, Except Per Share Data)
Basic earnings per share
Net income available to common
stockholders $ 4,590 $ 5,704 $ 5,784
Weighted average common shares
outstanding 5,232 5,232 5,232
Earnings per share $ .88 $ 1.09 $ 1.11
Diluted earnings per share
Net income available to common
stockholders $ 4,590 $ 5,704 $ 5,784
Weighted average common shares
outstanding 5,232 5,232 5,232
Add dilutive effects of assumed exercise
of stock options - 15 13
--------- --------- ---------
Weighted average common and dilutive
potential common shares outstanding 5,232 5,247 5,245
Earnings per share assuming dilution $ .88 $ 1.09 $ 1.10
Stock options for 62,000 shares of common stock were not included in the 1999
computation of earnings per share assuming dilution because their impact was
anti-dilutive.
- --------------------------------------------------------------------------------
(Continued)
23.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 16 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's financial instruments at December 31, 1999 and
1998 are as follows:
--------------1999------------- -------------1998--------------
Carrying Fair Carrying Fair
Amount Value Amount Value
(In Thousands)
Financial assets
Cash and due from banks $ 28,227 $ 28,227 $ 20,171 $ 20,171
Interest-earning balances 1,634 1,642 - -
Federal funds sold 25,197 25,197 19,406 19,406
Investment securities 170,420 170,372 177,192 177,904
Loans, net 563,294 563,324 391,257 393,047
Federal Home Loan Bank and
Federal Reserve Bank stock 4,123 4,123 3,416 3,416
Interest receivable 9,814 9,814 8,053 8,053
Financial liabilities
Deposits $ (692,843) $ (693,250) $ (523,193) $ (526,733)
Securities sold under agreements
to repurchase (21,282) (21,282) (7,772) (7,772)
Federal Home Loan Bank advances (32,647) (32,236) (31,898) (32,163)
Other borrowed funds (20,000) (20,000) (8,000) (8,000)
Guaranteed preferred beneficial
interests in Company's debentures (28,750) (28,063) (28,750) (28,750)
Interest payable (3,265) (3,265) (2,384) (2,384)
Carrying amount is the estimated fair value for cash and cash equivalents,
short-term borrowings, Federal Home Loan Bank and Federal Reserve Bank stock,
accrued interest receivable and payable, demand deposits, short-term debt, and
variable rate loans or deposits that reprice frequently and fully. Security fair
values are based on market prices or dealer quotes, and if no such information
is available, on the rate and term of the security and information about the
issuer. For fixed rate loans or deposits and for variable rate loans or deposits
with infrequent repricing or repricing limits, fair value is based on discounted
cash flows using current market rates applied to the estimated life and credit
risk. Fair values for impaired loans are estimated using discounted cash flow
analysis or underlying collateral values. Fair value of debt is based on current
rates for similar financing. The fair value of commitments to extend credit and
standby letters of credit is not considered material.
- --------------------------------------------------------------------------------
(Continued)
24.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 17 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Banks are parties to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of their customers.
These financial instruments include standby letters of credit and commitments to
extend credit in the form of unused lines of credit. The Banks use the same
credit policies in making commitments and conditional obligations as they do for
on-balance sheet instruments.
At December 31, 1999 and 1998, the Banks had the following financial instruments
whose approximate contract amounts represent credit risk:
1999 1998
---- ----
(In Thousands)
Standby letters of credit $ 2,219 $ 1,010
Commitments to extend credit:
Fixed $ 19,638 $ 28,673
Variable 31,623 5,581
Standby letters of credit represent conditional commitments issued by the Banks
to guarantee the performance of a third party. The credit risk involved in
issuing these letters of credit is essentially the same as the risk involved in
extending loans to customers. Collateral held varies but primarily includes real
estate and certificates of deposit. Some letters of credit are unsecured.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Outstanding
commitments are at current market rates. Fixed rate loan commitments have
interest rates ranging from 6% to 18%. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
The Banks evaluate each customer's creditworthiness on a case-by-case basis.
Since some of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. Collateral held varies but may include accounts receivable,
inventory, property and equipment, and income producing properties.
NOTE 18 - LEGAL PROCEEDINGS
Legal proceedings involving the Company and its subsidiaries periodically arise
in the ordinary course of business, including claims by debtors and their
related interests against the Company's subsidiaries following initial
collection proceedings. These legal proceedings sometimes can involve claims for
substantial damages. At December 31, 1999, management is unaware of any legal
proceedings, of which the ultimate result would have a material adverse effect
upon the consolidated financial statements of the Company.
- --------------------------------------------------------------------------------
(Continued)
25.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 19 - STOCKHOLDERS' EQUITY
Common Stock - The Company paid a 5% stock dividend on September 30, 1998 to
stockholders of record on September 21, 1998. For comparability, prior earnings
per share information has been restated to reflect the 249,027 shares issued as
a result.
Dividend Limitations - The Company's principal source of funds for dividend
payments is dividends received from the subsidiary Banks. Banking regulations
limit the amount of dividends that may be paid without prior approval of
regulatory agencies. Under these regulations, the amount of dividends that may
be paid in any calendar year is limited to the current year's net profits, as
defined, combined with the retained net profits of the preceding two years,
subject to the capital requirements as discussed below. During 2000, the Banks
could, without prior approval, declare dividends of approximately $8.0 million
plus any 2000 net profits retained to the date of the dividend declaration.
Regulatory Matters - The Company and the subsidiary Banks are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Banks must meet specific guidelines that involve
quantitative measures of their assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices.
These quantitative measures established by regulation to ensure capital adequacy
require the Company and Banks to maintain minimum amounts and ratios (set forth
in the following table) of Total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1999, the Company and the Banks meet all quantitative capital adequacy
requirements to which they are subject.
The capital amounts and classifications are also subject to qualitative
judgments by the regulators. As a result of these qualitative judgments,
Citizens Deposit Bank (Citizens) entered into an agreement with the Federal
Reserve Bank (FRB) on December 14, 1999 restricting Citizens from declaring or
paying dividends if its Tier 1 capital to average assets falls below 8%. This
agreement, in effect until terminated by the FRB, is more restrictive than the
quantitative measures governing a bank's ability to pay dividends. Citizens Tier
I capital to average assets was 9.2% at December 31, 1999.
As of December 31, 1999, the most recent notification from the Federal Reserve
Bank categorized the Company as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the Company
must maintain minimum Total risk-based, Tier I risk-based and Tier I leverage
ratios as set forth in the following table. There are no conditions or events
since that notification that management believes have changed the Company's
category.
- --------------------------------------------------------------------------------
(Continued)
26.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 19 - STOCKHOLDERS' EQUITY (Continued)
The Company's and the four and three largest subsidiary Banks' capital amounts
and ratios as of December 31, 1999 and 1998 are presented in the table below.
To Be Well Capitalized
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
1999 Amount Ratio Amount Ratio Amount Ratio
----
(Dollars In Thousands)
Total Capital (to Risk-Weighted Assets):
Consolidated $ 67,273 11.9% $ 45,331 8% $ 56,663 10%
Farmers Deposit Bank 14,759 14.4 8,181 8 10,227 10
Boone County Bank 12,800 18.3 5,603 8 7,004 10
Citizens Deposit Bank 12,608 13.5 7,468 8 9,335 10
The Bank of Mt. Vernon 11,400 11.9 7,652 8 9,565 10
Tier I Capital (to Risk-Weighted Assets):
Consolidated $ 50,394 8.9% $ 22,665 4% $ 33,998 6%
Farmers Deposit Bank 13,481 13.2 4,091 4 6,136 6
Boone County Bank 12,005 17.1 2,802 4 4,202 6
Citizens Deposit Bank 11,468 12.3 3,734 4 5,601 6
The Bank of Mt. Vernon 10,422 10.9 3,826 4 5,739 6
Tier I Capital (to Average Assets):
Consolidated $ 50,394 6.2% $ 32,372 4% $ 40,465 5%
Farmers Deposit Bank 13,481 9.8 5,505 4 6,881 5
Boone County Bank 12,005 9.6 5,018 4 6,272 5
Citizens Deposit Bank1 11,468 9.2 4,980 4 6,224 5
The Bank of Mt. Vernon 10,422 8.3 5,040 4 6,300 5
1998
Total Capital (to Risk-Weighted Assets):
Consolidated $ 66,188 16.2% $ 32,660 8% $ 40,825 10%
Farmers Deposit Bank 15,297 15.6 7,833 8 9,792 10
Boone County Bank 10,975 17.3 5,068 8 6,336 10
Citizens Deposit Bank 11,730 13.5 6,948 8 8,685 10
Tier I Capital (to Risk-Weighted Assets):
Consolidated $ 51,288 12.6% $ 16,330 4% $ 24,495 6%
Farmers Deposit Bank 14,075 14.4 3,917 4 5,875 6
Boone County Bank 10,817 17.1 2,534 4 3,801 6
Citizens Deposit Bank 10,800 12.4 3,474 4 5,211 6
Tier I Capital (to Average Assets):
Consolidated $ 51,288 8.1% $ 25,483 4% $ 31,854 5%
Farmers Deposit Bank 14,075 10.5 5,350 4 6,687 5
Boone County Bank 10,817 9.3 4,649 4 5,812 5
Citizens Deposit Bank 10,800 9.0 4,775 4 5,969 5
1Subject to additional limitations as discussed above.
- --------------------------------------------------------------------------------
(Continued)
27.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 20 - PARENT COMPANY FINANCIAL STATEMENTS
Condensed Balance Sheets
December 31
1999 1998
---- ----
(In Thousands)
ASSETS
Cash $ 616 $ 317
Investment in subsidiaries 95,175 83,297
Investment securities available for sale 2,005 2,000
Premises and equipment 1,653 3,594
Other real estate acquired through foreclosure 490 -
Other assets 1,507 2,080
--------- ---------
Total assets $ 101,446 $ 91,288
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 569 $ 139
Other borrowed funds 20,000 8,000
--------- ---------
Total liabilities 20,569 8,139
Guaranteed preferred beneficial interests in Company's
debentures 28,750 28,750
Stockholders' equity
Preferred stock - -
Common stock 1,103 1,103
Surplus 43,445 43,445
Retained earnings 11,601 10,151
Accumulated other comprehensive income (4,022) (300)
---------- ---------
Total stockholders' equity 52,127 54,399
---------- ---------
Total liabilities and stockholders' equity $ 101,446 $ 91,288
========== =========
- --------------------------------------------------------------------------------
(Continued)
28.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 20 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
Condensed Statements of Income
Years Ended December 31
1999 1998 1997
---- ---- ----
(In Thousands)
Income
Dividends from subsidiary banks $ 6,300 $ - $ -
Interest and dividend income 203 1,748 4,049
Gain on sale of investment securities - 136 2,183
Other income 93 1,620 16
------- ------- -------
Total income 6,596 3,504 6,248
Expenses
Interest expense 4,111 3,593 4,037
Salaries and employee benefits 921 461 465
Other expenses 708 684 804
------- ------- -------
Total expenses 5,740 4,738 5,306
Income (loss) before income taxes and equity
in undistributed income of subsidiaries 856 (1,234) 942
Income tax expense (benefit) (1,899) (516) 326
------- ------- -------
Income (loss) before equity in undistributed
income of subsidiaries 2,755 (718) 616
Equity in undistributed income of subsidiaries 1,835 6,422 5,168
------- ------- -------
Net income $ 4,590 $ 5,704 $ 5,784
======= ======= =======
- --------------------------------------------------------------------------------
(Continued)
29.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
NOTE 20 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
Condensed Statements of Cash Flows
Years Ended December 31
1999 1998 1997
---- ---- ----
(In Thousands)
Cash flows from operating activities
Net income $ 4,590 $ 5,704 $ 5,784
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 169 134 74
Investment securities gains - (136) (2,183)
Equity in undistributed income of
subsidiaries (1,835) (6,422) (5,168)
Change in other assets 573 (534) (1,453)
Change in other liabilities 430 (28) 41
--------- --------- ---------
Net cash from operating activities 3,927 (1,282) (2,905)
Cash flows from investing activities
Purchase of subsidiary banks (13,677) (15,168) -
Capital contributed to subsidiaries (88) (14,908) (2,100)
Purchase of securities available for sale (5) (87,687) (273,500)
Proceeds from sale of securities - 87,823 275,683
Net change in federal funds sold - 16,340 (16,340)
Net change in loans (490) 5,621 (5,621)
Purchase of premises and equipment (269) (1,309) (1,307)
Proceeds from sale of fixed assets 2,041 - -
--------- --------- ---------
Net cash from investing activities (12,488) (9,288) (23,185)
Cash flows from financing activities
Dividends paid (3,140) (3,068) (2,406)
Proceeds from issuance of guaranteed preferred
beneficial interests in Company's debentures - - 28,750
Proceeds from other borrowed funds 12,000 8,000 -
--------- --------- ---------
Net cash from financing activities 8,860 4,932 26,344
Net change in cash and cash equivalents 299 (5,638) 254
Cash and cash equivalents at beginning of year 317 5,955 5,701
--------- --------- ---------
Cash and cash equivalents at end of year $ 616 $ 317 $ 5,955
========= ========= =========
Supplemental disclosure of cash flow information:
Loans transferred to real estate acquired
through foreclosure $ 490 $ - $ -
- --------------------------------------------------------------------------------
30.
PART III
Item 10, 11, 12 and 13. Directors and Executive Officers of the Registrant;
Executive Compensation; Security Ownership of Certain Beneficial Owners
and Management; and Certain Relationships and Related Transactions
The information required by these Items is omitted because the
Corporation is filing a definitive proxy statement pursuant to Regulation 14A
not later than 120 days after the end of the fiscal year covered by this report
which includes the required information. The required information contained in
the Corporation's proxy statement is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
Independent Auditors Report
Balance Sheets - December 31, 1999 and 1998
Statement of Income - Years Ended December 31, 1999, 1998 and 1997
Statements of Changes in Stockholders' Equity - Years Ended December
31, 1999, 1998 and 1997
Statements of Cash Flows - Years Ended December 31, 1999, 1998
and 1997
Notes to Financial Statements
2. Financial Statement Schedules:
No financial statement schedules have been included as part of this
report because they are either not required or the information is
otherwise included.
3. List of Exhibits:
The following is a list of exhibits required by Item 601 of
Regulation S-K and by paragraph (c) of this Item 14.
Exhibit
Number Description of Document
3.1 Form of Articles of Incorporation of registrant (included as
Exhibit 3.1 to registrant's Registration Statement on Form S-1,
Registration No. 333-1702, filed on February 28, 1996 with the
Commission and incorporated herein by reference).
3.2 Form of Articles of Amendment to Articles of Incorporation
effective March 15, 1996 re: amendment to Article IV (included as
Exhibit 3.2 to registrant's Amendment No. 1 to Registration
Statement on Form S-1, Registration No. 333-1702, filed on
March 25, 1996 with the Commission and incorporated herein by
reference).
3.3 Bylaws of registrant (included as Exhibit 3.2 to registrant's
Registration Statement on Form S-1, Registration No. 333-1702,
filed on February 28, 1996 with the Commission and incorporated
herein by reference).
4.1 Form of Junior Subordinated Indenture dated as of June 6, 1997
between Registrant and Bankers Trust Company, as Trustee,
with respect to 9.75% Junior Subordinated Deferrable Interest
Debentures due June 30, 2027 (incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-1 of
Registrant filed May 28, 1997 with the Commission (Registration
No. 333-27943)).
4.2 Form of 9.75% Junior Subordinated Deferrable Interest
Debenture Certificate (incorporated by reference to Exhibit
4.2 to the Registration Statement on Form S-1 of Registrant
filed May 28, 1997 with the Commission (Registration No.
333-27943)).
4.3 Form of Amended and Restated Trust Agreement dated as of
June 6, 1997 among Registrant, as Depositor, Bankers Trust
Company, as Property Trustee, and Bankers Trust (Delaware),
as Delaware Trustee (incorporated by reference to Exhibit
4.4 to the Registration Statement on Form S-1 of Registrant
filed May 28, 1997 with the Commission (Registration No.
333-27943)).
4.4 Form of Guarantee Agreement dated as of June 6, 1997 between
Registrant and Bankers Trust Company (incorporated by reference
to Exhibit 4.6 to the Registration Statement on Form S-1 of
Registrant filed May 28, 1997 with the Commission (Registration
No. 333-27943)).
10.1 Amended and Restated Preferred Stock Purchase Agreement dated
as of September 29, 1994 between First Guaranty Bank, Hammond,
Louisiana, and registrant (included as Exhibit 10.3 to
registrant's Registration Statement on Form S-1, Registration
No. 333-1702, filed on February 28, 1996 with the Commission
and incorporated herein by reference).
10.2 Employment Agreement dated March 16, 1992, between Georgetown
Bank & Trust Company and Gardner E. Daniel(included as Exhibit
10.4 to registrant's Registration Statement on Form S-1,
Registration No. 333-1702, filed on February 28, 1996 with the
Commission and incorporated herein by reference).
10.3 Deferred Compensation Agreement dated December 17, 1992, between
Georgetown Bank & Trust Company and Gardner E. Daniel (included
as Exhibit 10.5 to registrant's Registration Statement on Form
S-1, Registration No. 333-1702, filed on February 28, 1996 with
the Commission and incorporated herein by reference).
10.4 Premier Financial Bancorp, Inc. 1996 Employee Stock Ownership
Incentive Plan (included as Exhibit 10.6 to registrant's
Registration Statement on Form S-1, Registration No. 333-1702,
filed on February 28, 1996 with the Commission and incorporated
herein by reference).
21 Subsidiaries of registrant
23.1 Consent of Crowe, Chizek and Company, LLP
(b) Reports on Form 8-K
Form 8-K dated November 13, 1998 reporting consummation of the Company's
acquisition from Bank One West Virginia NA, three branches located in Madison,
Van and Philippi, West Virginia.
Form 8-K dated January 25, 1999 reporting consummation of the Company's
acquisition of Mt. Vernon Bancshares, Inc. located in Somerset, Kentucky.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
registrant has duly caused this Annual Report on Form 10-K to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Georgetown,
Commonwealth of Kentucky, on the 27th day of March, 2000.
PREMIER FINANCIAL BANCORP, INC.
By: /s/ J. Howell Kelly, President
------------------------------
J. Howell Kelly, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the registrant in the capacities and on the dates indicated.
March 27, 2000 /s/ J. Howell Kelly Principal Executive
-------------------- and Director
J. Howell Kelly
March 27, 2000 /s/ Toney K. Adkins Director
--------------------
Toney K. Adkins
March 27, 2000 /s/ Gardner E. Daniel Director
---------------------
Gardner E. Daniel
March 27, 2000 /s/ E. V. Holder, Jr. Director
---------------------
E. V. Holder, Jr.
March 27, 2000 /s/ Jeanne D. Hubbard Director
---------------------
Jeanne D. Hubbard
March 27, 2000 /s/ Wilbur M. Jenkins Director
---------------------
Wilbur M. Jenkins
March 27, 2000 /s/ Keith F. Molihan Director
--------------------
Keith F. Molihan
March 27, 2000 /s/ Benjamin T. Pugh Director
--------------------
Benjamin T. Pugh
March 27, 2000 /s/ Marshall T. Reynolds Director
------------------------
Marshall T. Reynolds
March 27, 2000 /s/ Neal Scaggs Director
-----------------------
Neal Scaggs
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of all subsidiaries of Premier Financial Bancorp,
Inc. and their state of incorporation.
Subsidiary State of Incorporation
Citizens Deposit Bank and Trust Company Kentucky
County Finance (a direct subsidiary of Citizens Deposit
Bank and Trust Company) Kentucky
Bank of Germantown Kentucky
Georgetown Bancorp, Inc. Kentucky
Georgetown Bank and Trust Company (a direct subsidiary
of Georgetown Bancorp, Inc.) Kentucky
Citizens Bank Kentucky
Premier Data Services, Inc. Kentucky
Farmers Deposit Bancorp, Inc. Kentucky
Farmers Deposit Bank (a direct subsidiary of Farmers
Deposit Bancorp, Inc.) Kentucky
Mt. Vernon Bancshares, Inc. Kentucky
The Bank of Mt. Vernon (a direct subsidiary of
Mt. Vernon Bancshares, Inc.) Kentucky
The Sabina Bank Ohio
Ohio River Bank Ohio
The Bank of Philippi West Virginia
Boone County Bank West Virginia
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated February 18,
2000 in the annual report on Form 10-K of Premier Financial Bancorp, Inc. as of
December 31, 1999 and 1998 and for each of years in the three year period ended
December 31, 1999.
/s/ Crowe, Chizek and Company, LLP
Crowe, Chizek and Company, LLP
Lexington, Kentucky
March 27, 2000