PREMIER FINANCIAL BANCORP INC - FORM 10-Q

Attached files

file	filename
EX-32 - CEO AND CFO SECTION 906 CERTIFICATION - PREMIER FINANCIAL BANCORP INC	exhibit32.htm
EX-31.2 - CFO SECTION 302 CERTIFICATION - PREMIER FINANCIAL BANCORP INC	exhibit31-2.htm
EX-31.1 - CEO SECTION 302 CERTIFICATION - PREMIER FINANCIAL BANCORP INC	exhibit31-1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2010

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

For the transition period from ___________ to ___________

Commission file number 0-20908

PREMIER FINANCIAL BANCORP, INC.

(Exact name of registrant as specified in its charter)

Kentucky		61-1206757
(State or other jurisdiction of incorporation organization)		(I.R.S. Employer Identification No.)

2883 Fifth Avenue Huntington, West Virginia		25702
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number (304) 525-1600

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 þ No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o.

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

Large accelerated filer o.

Accelerated filer o.

Non-accelerated filer o

(Do not check if smaller reporting company)

Smaller reporting company þ

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

Common stock, no par value, – 7,937,143 shares outstanding at November 1, 2010

PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, 2010

INDEX TO REPORT

Part I - Financial Information
Item 1 – Financial Statements	3
Item 2 – Management’s Discussion and Analysis	28
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	42
Item 4(T) – Controls and Procedures	42
Part II - Other Information	43
Item 1 – Legal Proceedings	43
Item 1A – Risk Factors	43
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3 – Defaults Upon Senior Securities	43
Item 4 – Submission of Matters to a Vote of Security Holders	43
Item 5 – Other Information	43
Item 6 – Exhibits	43
Signatures -	44

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PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, 2010

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

The accompanying information has not been audited by independent public accountants; however, in the opinion of management such information reflects all adjustments necessary for a fair presentation of the results for the interim period. All such adjustments are of a normal and recurring nature. Premier Financial Bancorp, Inc.’s (“Premier’s”) accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America. Certain accounting principles used by Premier involve a significant amount of judgment about future events and require the use of estimates in their application. The following policies are particularly sensitive in terms of judgments and the extent to which estimates are used: allowance for loan losses, the identification and evaluation of impaired loans, the impairment of goodwill, the realization of deferred tax assets and stock based compensation disclosures. These estimates are based on assumptions that may involve significant uncertainty at the time of their use. However, the policies, the estimates and the estimation process as well as the resulting disclosures are periodically reviewed by the Audit Committee of the Board of Directors and material estimates are subject to review as part of the external audit by the independent public accountants.

The accompanying financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the registrant’s annual report on Form 10-K. Accordingly, the reader of the Form 10-Q may wish to refer to the registrant’s Form 10-K for the year ended December 31, 2009 for further information in this regard.

Index to consolidated financial statements:

Consolidated Balance Sheets	4
Consolidated Statements of Income	5
Consolidated Statements of Comprehensive Income	6
Consolidated Statements of Cash Flows	7
Notes to Consolidated Financial Statements	9

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2010 AND DECEMBER 31, 2009

(DOLLARS IN THOUSANDS)

	(UNAUDITED)
	2010			2009
ASSETS
Cash and due from banks	$	89,879		$	61,611
Federal funds sold		20,143			22,985
Securities available for sale		240,972			240,970
Loans held for sale		1,307			897
Loans		742,721			699,133
Allowance for loan losses		(9,540	)		(7,569	)
Net loans		733,181			691,564
Federal Home Loan Bank and Federal Reserve Bank stock		7,247			7,005
Premises and equipment, net		16,683			15,200
Real estate and other property acquired through foreclosure		11,083			9,251
Interest receivable		4,299			4,250
Goodwill		29,806			28,724
Other intangible assets		4,543			2,795
Prepaid FDIC insurance premiums		2,307			2,900
Deferred taxes		8,553			10,713
Other assets		2,660			2,885
Total assets	$	1,172,663		$	1,101,750

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing	$	187,847		$	172,182
Time deposits, $100k and over		145,920			149,890
Other interest bearing		642,433			591,712
Total deposits		976,200			913,784
Securities sold under agreements to repurchase		26,715			24,600
Federal Home Loan Bank advances		10,605			14,937
Other borrowed funds		20,684			16,027
Interest payable		1,029			1,037
Other liabilities		3,068			2,809
Total liabilities		1,038,301			973,194

Stockholders' equity
Preferred stock, no par value; $22,252 liquidation preference,
1,000,000 shares authorized, 22,252 shares issued and outstanding		21,813			21,705
Common stock, no par value; 20,000,000 shares authorized;
7,937,143 shares issued and outstanding		71,450			71,412
Retained earnings		37,297			33,349
Accumulated other comprehensive income		3,802			2,090
Total stockholders' equity		134,362			128,556
Total liabilities and stockholders' equity	$	1,172,663		$	1,101,750

See Accompanying Notes to Consolidated Financial Statements

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2010			2009		2010		2009
Interest income
Loans, including fees	$	10,964		$	7,496	$	33,534	$	22,374
Securities available for sale
Taxable		1,976			1,541		5,997		4,764
Tax-exempt		63			60		193		178
Federal funds sold and other		49			17		110		54
Total interest income		13,052			9,114		39,834		27,370

Interest expense
Deposits		2,125			2,126		6,538		6,715
Repurchase agreements and other		42			32		124		94
FHLB advances and other borrowings		215			188		726		573
Total interest expense		2,382			2,346		7,388		7,382

Net interest income		10,670			6,768		32,446		19,988
Provision for loan losses		761			127		2,741		339
Net interest income after provision for loan losses		9,909			6,641		29,705		19,649

Non-interest income
Service charges on deposit accounts		1,025			886		3,016		2,439
Electronic banking income		383			257		1,095		749
Secondary market mortgage income		128			115		312		327
Other		199			116		523		355
		1,735			1,374		4,946		3,870
Non-interest expenses
Salaries and employee benefits		3,978			2,873		11,965		8,323
Occupancy and equipment expenses		1,166			638		3,498		2,001
Outside data processing		1,029			771		3,059		2,305
Professional fees		249			212		740		794
Taxes, other than payroll, property and income		254			194		767		547
Write-downs, expenses, sales of other real estate owned, net of gains		(48	)		14		419		145
Supplies		124			91		362		299
FDIC insurance		473			207		1,345		813
Other expenses		1,245			723		3,380		2,145
		8,470			5,723		25,535		17,372
Income before income taxes		3,174			2,292		9,116		6,147
Provision for income taxes		1,069			790		2,479		2,061

Net income	$	2,105		$	1,502	$	6,637	$	4,086

Preferred stock dividends and accretion		305			-		943		-
Net income available to common stockholders	$	1,800		$	1,502	$	5,694	$	4,086

Net income per common share:
Basic	$	0.23		$	0.23	$	0.72	$	0.64
Diluted		0.22			0.23		0.70		0.64
Dividends per common share		-			0.11		0.22		0.33

See Accompanying Notes to Consolidated Financial Statements

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Net income	$	2,105	$	1,502	$	6,637	$	4,086

Other comprehensive income:
Unrealized gains (losses) arising during the period		719		1,858		2,598		1,073
Reclassification of realized amount		-		-		-		-
Net change in unrealized gain (loss) on securities		719		1,858		2,598		1,073
Less tax impact		247		632		886		365
Other comprehensive income (loss):		472		1,226		1,712		708

Comprehensive income	$	2,577	$	2,728	$	8,349	$	4,794

See Accompanying Notes to Consolidated Financial Statements

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	2010			2009
Cash flows from operating activities
Net income	$	6,637		$	4,086
Adjustments to reconcile net income to net cash from operating activities
Depreciation		1,093			758
Provision for loan losses		2,741			339
Amortization (accretion), net		(2,310	)		398
OREO writedowns (gains on sales), net		(264	)		130
Stock compensation expense		38			41
Loans originated for sale		(15,265	)		(23,708	)
Secondary market loans sold		15,167			22,505
Secondary market income		(312	)		(327	)
Gain on sale of building		(81	)		-
Changes in :
Interest receivable		170			575
Other assets		2,022			(260	)
Interest payable		(107	)		(171	)
Other liabilities		238			(135	)
Net cash from operating activities		9,767			4,231

Cash flows from investing activities
Purchases of securities available for sale		(228,715	)		(90,555	)
Proceeds from maturities and calls of securities available for sale		231,033			99,558
Purchase of FRB and FHLB stock, (net of redemptions)		(242	)		93
Purchase of branches, net of cash received		8,936			-
Net change in federal funds sold		2,842			(5,898	)
Net change in loans		14,048			(845	)
Purchases of premises and equipment, net		(934	)		(684	)
Proceeds from sale of other real estate acquired through foreclosure		2,597			628
Net cash from investing activities		29,565			2,297

Cash flows from financing activities
Net change in deposits		(11,111	)		15,095
Common stock dividends paid		(1,746	)		(2,109	)
Preferred stock dividends paid		(835	)		-
Net change in short-term Federal Home Loan Bank advances		-			(3,000	)
Repayment of Federal Home Loan Bank advances		(4,144	)		(159	)
Repayment of other borrowed funds		(6,643	)		(1,444	)
Proceeds from other borrowings		11,300			-
Net change in agreements to repurchase securities		2,115			(6,048	)
Net cash from financing activities		(11,064	)		2,335

Net change in cash and cash equivalents		28,268			8,863

Cash and cash equivalents at beginning of period		61,611			22,148

Cash and cash equivalents at end of period	$	89,879		$	31,011

(continued)

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	2010		2009
Supplemental disclosures of cash flow information:
Cash paid during period for interest	$	7,396	$	7,553

Cash paid during period for income taxes		930		1,125

Non-cash transactions
Loans transferred to real estate acquired through foreclosure	$	7,396	$	909
Branches acquired:
Fair value of assets acquired from via branch purchase	$	71,825
Cash paid for branches		2,432
Liabilities assumed of Abigail Adams	$	74,257

See Accompanying Notes to Consolidated Financial Statements

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1 - BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Premier Financial Bancorp, Inc. (“the Company” or “Premier”) and its wholly owned subsidiaries:

					September 30, 2010
		Year	Total		Net Income
Subsidiary	Location	Acquired	Assets		QTD			YTD
Citizens Deposit Bank & Trust	Vanceburg, Kentucky	1991	$	200,710	$	439		$	1,174
Farmers Deposit Bank	Eminence, Kentucky	1996		61,053		182			508
Ohio River Bank	Ironton, Ohio	1998		92,381		359			991
First Central Bank, Inc.	Philippi, West Virginia	1998		130,377		375			1,131
Boone County Bank, Inc.	Madison, West Virginia	1998		175,868		477			1,138
Traders Bank	Spencer, West Virginia	2008		155,846		229			1,239
Adams National Bank	Washington, DC	2009		275,968		269			753
Consolidated Bank & Trust	Richmond, Virginia	2009		72,051		194			653
Mt. Vernon Financial Holdings, Inc.	Huntington, West Virginia	1999		226		5			(2	)
Parent and Intercompany Eliminations				8,183		(424	)		(948	)
Consolidated Total			$	1,172,663	$	2,105		$	6,637

All significant intercompany transactions and balances have been eliminated.

New Accounting Standards:

In June 2009, the FASB amended previous guidance relating to transfers of financial assets and eliminates the concept of a qualifying special purpose entity. This guidance must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. This guidance must be applied to transfers occurring on or after the effective date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. Therefore, formerly qualifying special-purpose entities should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. The disclosure provisions were also amended and apply to transfers that occurred both before and after the effective date of this guidance. The adoption of this guidance did not have a material impact on the Company’s consolidated results of operations or financial position.

In June 2009, the FASB amended guidance for consolidation of variable interest entity guidance by replacing the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. Additional disclosures about an enterprise’s involvement in variable interest entities are also required. This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Early adoption is prohibited. The adoption of this guidance did not have a material impact on the Company’s consolidated results of operations or financial position.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1–BASIS OF PRESENTATION - continued

In January 2010, the FASB issued Accounting Standards Update No. 2010-4, “Accounting for Various Topics, Technical Corrections to SEC Paragraphs.” In addition, in February 2010, the FASB issued Accounting Standards Update No. 2010-8, “Technical Corrections to Various Topics.” These updates covered a wide variety of accounting matters, including subsequent events, goodwill, derivative financial instruments, and investments in limited partnerships. The most significant provisions of these updates were effective upon issuance and did not have a material effect on the Company’s results of operations or financial position.

In January 2010, the FASB amended previous guidance related to fair value measurements and disclosures, which requires new disclosures for transfers in and out of Levels 1 and 2 and requires a reconciliation to be provided for the activity in Level 3 fair value measurements. A reporting entity should disclose separately the amounts of significant transfers in and out of Levels 1 and 2 and provide an explanation for the transfers. This guidance is effective for interim periods beginning after December 15, 2009, and did not have a material effect on the Company’s results of operations or financial position.

In the reconciliation for fair value measurements using unobservable inputs (Level 3) a reporting entity should present separately information about purchases, sales, issuances, and settlements on a gross basis rather than a net basis. Disclosures relating to purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurement will become effective beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position but it will require expansion of the Company’s future disclosures about fair value measurements.

In July 2010, the FASB issued ASU No. 2010-20, “Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The ASU expands the disclosures about the credit quality of financing receivables and the related allowance for credit losses. The ASU also requires disaggregation of existing disclosures by portfolio segment. The amendments that require disclosures as of the end of a reporting period are effective for periods ending on or after December 15, 2010. The amendments that require disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010. The adoption of this guidance will expand the Company’s disclosures surrounding credit quality of financing receivables and the related allowance for credit losses.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 2 –SECURITIES

Amortized cost and fair value of investment securities, by category, at September 30, 2010 are summarized as follows:

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. agency MBS - residential	$	40,779	$	2,195	$	-		$	42,974
U. S. agency CMO’s		92,831		1,331		-			94,162
Total mortgage-backed securities of government sponsored entities		133,610		3,526		-			137,136
U. S. government sponsored entity securities		85,931		573		(79	)		86,425
Obligations of states and political subdivisions		10,337		389		(1	)		10,725
Other securities		5,329		1,357		-			6,686
Total available for sale	$	235,207	$	5,845	$	(80	)	$	240,972

Amortized cost and fair value of investment securities, by category, at December 31, 2009 are summarized as follows:

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. agency MBS - residential	$	52,563	$	1,934	$	(15	)	$	54,482
U. S. agency CMO’s		18,771		789		-			19,560
Total mortgage-backed securities of government sponsored entities		71,334		2,723		(15	)		74,042
U. S. Treasury securities		1,000		5		-			1,005
U. S. government sponsored entity securities		149,951		407		(291	)		150,067
Obligations of states and political subdivisions		10,195		175		(123	)		10,247
Other securities		5,323		322		(36	)		5,609
Total available for sale	$	237,803	$	3,632	$	(465	)	$	240,970

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 2–SECURITIES - continued

The amortized cost and fair value of securities at September 30, 2010 by 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 Cost		Fair Value
Available for sale
Due in one year or less	$	656	$	664
Due after one year through five years		21,666		22,059
Due after five years through ten years		74,498		75,120
Due after ten years		3,685		4,531
Corporate preferred securities		1,092		1,462
Mortgage-backed securities of government sponsored entities		133,610		137,136
Total available for sale	$	235,207	$	240,972

Securities with unrealized losses at September 30, 2010 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss

U.S. government sponsored entity securities	$	7,492	$	(8	)	$	2,016	$	(71	)	$	9,508	$	(79	)
Obligations of states and political subdivisions		969		(1	)		-		-			969		(1	)
Other securities		-		-			-		-			-		-

Total temporarily impaired	$	8,461	$	(9	)	$	2,016	$	(71	)	$	10,477	$	(80	)

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 2–SECURITIES - continued

Securities with unrealized losses at December 31, 2009 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

	Less than 12 Months					12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

U.S. government sponsored entity securities	$	52,300	$	(291	)	$	-	$	-	$	52,300	$	(291	)
Obligations of states and political subdivisions		3,439		(123	)		-		-		3,439		(123	)
U.S. agency MBS-residential		5,197		(15	)						5,197		(15	)
Other securities		964		(36	)		-		-		964		(36	)

Total temporarily impaired	$	61,900	$	(465	)	$	-	$	-	$	61,900	$	(465	)

The investment portfolio is predominately high quality interest-bearing debt securities with defined maturity dates backed by the U.S. Government or Government sponsored entities. The unrealized losses at September 30, 2010 and December 31, 2009 are price changes resulting from changes in the interest rate environment and it is more likely than not that the Company will not be required to sell the securities before their anticipated recovery. Therefore, the Company does not consider the securities to be other-than-temporarily impaired. Their fair value is expected to recover as the securities approach their maturity date and/or market conditions improve.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 3 – LOANS

Major classifications of loans at September 30, 2010 and December 31, 2009 are summarized as follows:

	2010		2009
Commercial, secured by real estate	$	334,490	$	304,607
Commercial, other		80,331		76,140
Real estate construction		45,369		51,637
Residential real estate		212,334		211,552
Agricultural		3,131		2,710
Consumer and home equity		58,800		49,312
Other		8,266		3,175
	$	742,721	$	699,133

The following table sets forth information with respect to the Company’s impaired loans at September 30, 2010 and December 31, 2009.

	2010		2009
Impaired loans at period end with an allowance	$	24,816	$	14,494
Impaired loans at period end with no allowance		46,889		49,370
Amount of allowance for loan losses allocated		2,180		1,279

The following table sets forth information with respect to the Company’s nonperforming loans at September 30, 2010 and December 31, 2009.

	2010		2009
Non-accrual loans	$	49,103	$	46,299
Accruing loans which are contractually past due 90 days or more		648		489
Restructured loans		11,596		11,974
Total	$	61,347	$	58,762

NOTE 4 – ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses for the three and nine months ended September 30, 2010 and 2009 are as follows:

	Three Months Ended						Nine Months Ended
	September 30						September 30,
	2010			2009			2010			2009
Balance, beginning of period	$	9,201		$	8,450		$	7,569		$	8,544
Gross charge-offs		(526	)		(800	)		(1,109	)		(1,276	)
Recoveries		104			85			339			255
Provision for loan losses		761			127			2,741			339
Balance, end of period	$	9,540		$	7,862		$	9,540		$	7,862

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 5 – FEDERAL HOME LOAN BANK ADVANCES

The Banks own stock of the Federal Home Loan Bank (FHLB) of Cincinnati, Ohio, the FHLB of Pittsburgh, Pennsylvania, and the FHLB of Atlanta, Georgia. This stock allows the Banks to borrow advances from the FHLB.

Advances from the FHLB at September 30, 2010 and December 31, 2009 were as follows:

	2010		2009
Payment due at maturity in March 2012, fixed rate at 1.81%	$	10,354	$	10,542
Payments due at maturity in May 2010, fixed rate at rates from 6.25% to 6.64%, averaging 6.45%		-		4,000
Payments due monthly with maturities from November 2011 to July 2012, fixed rates from 4.10% to 4.40%, averaging 4.26%		251		395
Overnight borrowed funds		-		-
	$	10,605	$	14,937

Advances are secured by the FHLB stock, certain pledged investment securities and substantially all single family first mortgage loans of the participating Banks. Scheduled principal payments due on advances during the five years subsequent to September 30, 2010 are as follows:

2010 (remaining three months)	$	104
2011		413
2012		10,088
2013		-
2014		-
Thereafter		-
	$	10,605

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 6 - STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS

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 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 and additional restrictions as discussed below. Except for restrictions discussed below, during 2010 the Banks could, without prior approval, declare dividends of approximately $2.5 million plus any 2010 net profits retained to the date of the dividend declaration.

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 operations and financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, 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 September 30, 2010, that the Company and the Banks meet all quantitative capital adequacy requirements to which they are subject.

Shown below is a summary of regulatory capital ratios for the Company:

	Sept 30, 2010			December 31, 2009			Regulatory Minimum Requirements			To Be Considered Well Capitalized
Tier I Capital (to Risk-Weighted Assets)		13.2	%		13.6	%		4.0	%		6.0	%
Total Capital (to Risk-Weighted Assets)		14.5	%		14.6	%		8.0	%		10.0	%
Tier I Capital (to Average Assets)		8.9	%		8.9	%		4.0	%		5.0	%

Adams National Bank entered into an agreement with the Office of the Comptroller of the Currency (“OCC”) on October 1, 2008 restricting the bank from declaring or paying dividends, without prior approval from the OCC. During 2009, Farmers Deposit Bank requested and received approval from its primary regulatory authority to make a dividend payment to the Company in an amount that exceeded the retained net profits of the preceding two years. As such, Farmers Deposit will be required to continue to request permission to pay any additional dividends to the Company for up to two years.

As of September 30, 2010, the most recent notification from each of the Banks’ primary Federal regulators categorized the subsidiary Banks as well capitalized under the regulatory framework for prompt corrective action, except Adams National Bank. To be categorized as well capitalized,

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 6 - STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS - continued

the Banks must maintain minimum Total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the preceding table. There are no conditions or events since that notification that management believes have changed the Banks’ categories. Adams National Bank is subject to a written agreement with the OCC and is required to maintain minimum capital ratios in excess of the ratios required to be defined as well capitalized under the framework for prompt corrective action. This requirement means that the bank will not be deemed to be well capitalized while the written agreement is in effect. At September 30, 2010, Adams National Bank’s capital ratios met or exceeded the minimum capital ratios required by its written agreement with the OCC.

As more fully discussed in Note 12 – Regulatory Agreements, Premier and Consolidated Bank and Trust Company (“CB&T”) are parties to a Written Agreement with the Federal Reserve Bank of Richmond (“FRB”) and the State Corporation Commission Bureau of Financial Institutions (“Virginia Bureau”) which requires prior written approval of the FRB and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System for declaring or paying any dividends from Premier and also the Virginia Bureau’s approval for declaring or paying any dividends from CB&T.

On August 3, 2010, Premier submitted a request to the FRB for written approval from the FRB and the Director of the Division of Banking Supervision and Regulation of the Board of Governors to pay a $0.11 per share cash dividend to Premier’s common shareholders on September 30, 2010. On August 19, 2010, Premier was notified in writing that the FRB and the Director of the Division of Banking Supervision and Regulation of the Board of Governors did not approve Premier’s request to pay the cash dividend on its common stock as Premier had requested.

NOTE 7 – PREFERRED STOCK

On October 2, 2009, as part of the Troubled Asset Relief Program (“TARP”) Capital Purchase Program, the Company entered into a Letter Agreement and Securities Purchase Agreement (collectively, the “Purchase Agreement”) with the United States Department of the Treasury (“U.S. Treasury”). Pursuant to the Purchase Agreement, the Company issued and sold to the U.S. Treasury 22,252 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, no par value, with a liquidation preference of one thousand dollars per share (the “Series A Preferred Stock”) and a ten-year warrant (the “Warrant”) to purchase 628,587 shares of the Company’s common stock, no par value, at an exercise price of $5.31 per share, for an aggregate purchase price of $22,252 in cash.

Under standardized TARP Capital Purchase Program terms, cumulative dividends on the Series A Preferred Stock will accrue on the liquidation preference at a rate of 5% per annum until November 14, 2014, and at a rate of 9% per annum thereafter. These dividends will be paid only if, as and when declared by Premier’s Board of Directors. The Series A Preferred Stock has no maturity date and ranks senior to the Company’s common stock with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of Premier. Subject to the approval of the Appropriate Federal Banking Agency (as defined in the Securities Purchase Agreement, which for Premier is the Board of Governors of the Federal

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 7 – PREFERRED STOCK - continued

Reserve System), the Series A Preferred Stock is redeemable at the option of Premier at 100% of its liquidation preference plus accrued and unpaid dividends, without penalty, delay or the need to raise additional replacement capital.

The Series A Preferred Stock is non-voting, but has class voting rights on (i) any authorization or issuance of shares ranking senior to the Series A Preferred Stock; (ii) any amendment to the rights of the Series A Preferred Stock; or (iii) any merger, consolidation, share exchange, reclassification or similar transaction which would adversely affect the rights of the Series A Preferred Stock. In the event that the cumulative dividends described above are not paid in full for an aggregate of six dividend periods or more, whether or not consecutive, the authorized number of directors of Premier would automatically be increased by two and the holders of the Series A Preferred Stock would have the right to elect two directors. The right to elect directors would end when dividends have been paid in full for four consecutive dividend periods.

The U.S. Treasury has agreed not to exercise voting power with respect to any common stock issued to it upon exercise of the Warrant. The common stock will be issued from authorized but unissued common stock and thus will dilute the interests of existing Premier common shareholders. As of December 31, 2009, the Warrant has not yet been exercised.

Pursuant to the terms of the Purchase Agreement, the ability of the Company to declare or pay dividends or distributions on, or purchase, redeem or otherwise acquire for consideration, shares of its common stock will be subject to restrictions, including a restriction against increasing dividends from the last quarterly cash dividend per share ($0.11) declared on the common stock prior to October 2, 2009.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 8 – STOCK COMPENSATION EXPENSE

From time to time the Company grants stock options to its employees. The Company estimates the fair value of the options at the time they are granted to employees and expenses that fair value over the vesting period of the option grant.

On March 17, 2010, 47,700 incentive stock options were granted out of the 2002 Plan at an exercise price of $8.90, the closing market price of Premier on the grant date. These options vest in three equal annual installments ending on March 17, 2013. On February 18, 2009, 47,100 incentive stock options were granted out of the 2002 Plan at an exercise price of $6.55. These options vest in three equal annual installments ending on February 18, 2012. On February 20, 2008, 45,300 incentive stock options were granted out of the 2002 Plan at an exercise price of $12.92. These options vest in three equal annual installments ending on February 20, 2011. On January 17, 2007, 37,000 incentive stock options were granted out of the 2002 Plan at an exercise price of $14.22. These options vested in three equal annual installments and were fully vested on January 17, 2010.

The fair value of the Company's employee stock options granted is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. The assumptions used in the Black-Scholes option-pricing model are as follows:

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 8– STOCK COMPENSATION EXPENSE - continued

	2010			2009			2008
Risk-free interest rate		3.65	%		2.74	%		3.50	%
Expected option life (yrs)		10.00			10.00			7.00
Expected stock price volatility		24.67	%		19.26	%		23.00	%
Dividend yield		4.94	%		6.72	%		3.10	%
Weighted average fair value of options granted during the year	$	1.41		$	0.37		$	2.55

The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield in effect at the time of the grant. The expected option life was estimated since there has been little option exercise history. The expected stock price volatility is based on historical volatilities of the Company’s common stock. The estimated dividend yield is the dividend yield at the time of the option grant.

Compensation expense of $38,000 was recorded for the first nine months of 2010 compared to $41,000 for the first nine months of 2009. For the three months ended September 30, $14,000 was recorded for 2010 while $14,000 was recorded for 2009. Stock-based compensation expense is recognized ratably over the requisite service period for all awards. Unrecognized stock-based compensation expense related to stock options totaled $51,000 at September 30, 2010. This unrecognized expense is expected to be recognized over the next 29 months based on the vesting periods of the options.

A summary of the Company’s stock option activity and related information is presented below for the nine months ended September 30:

	2010					2009
				Weighted Average Exercise					Weighted Average Exercise
	Options			Price		Options			Price
Outstanding at beginning of year		212,449		$	11.18		181,916		$	12.47
Grants		47,700			8.90		47,100			6.55
Exercises		-			-		-			-
Forfeitures or expired		(2,000	)		12.42		(16,567	)		12.25
Outstanding at September 30,		258,149		$	10.75		212,449		$	8.65

Exercisable at September 30,		165,699					127,630
Weighted average remaining life of options outstanding		6.6					7.0
Weighted average fair value of options granted during the year	$	1.41				$	0.37

Options outstanding at period-end are expected to fully vest.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 8– STOCK COMPENSATION EXPENSE - continued

Additional information regarding stock options outstanding and exercisable at September 30, 2010, is provided in the following table:

	- - - - - - - - Outstanding - - - - - - - -						- - - - - - - - Currently Exercisable - - - - - - - -
Range of Exercise Prices	Number		Weighted Average Exercise Price		Aggregate Intrinsic Value		Number		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Aggregate Intrinsic Value

$6.50 to $10.00		131,716	$	8.00	$	-		52,959		4.5	$	8.06	$	-
$10.01 to $12.50		28,333		11.62		-		28,333		4.3		11.62		-
$12.51 to $15.00		70,600		13.46		-		56,907		6.8		13.59		-
$15.01 to $17.50		27,500		16.00		-		27,500		5.4		16.00		-
Outstanding - Sept 30, 2010		258,149		10.75	$	-		165,699		5.4		11.89	$	-

NOTE 9 – 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 the three and nine months ended September 30, 2010 and 2009 is presented below:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Basic earnings per share
Income available to common stockholders	$	1,800	$	1,502	$	5,694	$	4,086
Weighted average common shares outstanding		7,937		6,393		7,937		6,393
Earnings per share	$	0.23	$	0.23	$	0.72	$	0.64

Diluted earnings per shares
Income available to common stockholders	$	1,800	$	1,502	$	5,694	$	4,086
Weighted average common shares outstanding		7,937		6,393		7,937		6,393
Add dilutive effects of potential additional common stock		156		-		210		-
Weighted average common and dilutive potential common shares outstanding		8,093		6,393		8,147		6,393
Earnings per share assuming dilution	$	0.22	$	0.23	$	0.70	$	0.64

Stock options for 211,049 and 212,449 shares of common stock were not considered in computing diluted earnings per share for the periods ended September 30, 2010 and 2009 because they were antidilutive.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 10 – FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:

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

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and the Company must use other valuation methods to develop a fair value.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument measured on a recurring basis:

Investment Securities: The fair values for securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using estimates of current market rates for each type of security. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 10 – FAIR VALUE - continued

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements at September 30, 2010 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale
Mortgage-backed securities
U. S. agency MBS - residential	$	42,974	$	-	$	42,974	$	-
U. S. agency CMO’s		94,162		-		94,162		-
Total mortgage-backed securities of government sponsored entities		137,136		-		137,136		-
U. S. government sponsored entity securities		86,425		-		86,425		-
Obligations of states and political subdivisions		10,725		-		10,585		140
Other securities		6,686		-		6,686		-
Total available for sale	$	240,972	$	-	$	240,832	$	140

			Fair Value Measurements at December 31, 2009 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale
Mortgage-backed securities
U. S. agency MBS - residential	$	54,482	$	-	$	54,482	$	-
U. S. agency CMO’s		19,560		-		19,560		-
Total mortgage-backed securities of government sponsored entities		74,042		-		74,042		-
U. S. Treasury securities		1,005		-		1,005		-
U. S. government sponsored entity securities		150,067		-		150,067		-
Obligations of states and political subdivisions		10,247		-		10,107		140
Other securities		5,609		-		5,609		-
Total available for sale	$	240,970	$	-	$	240,830	$	140

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 10 – FAIR VALUE - continued

The carrying amounts and estimated fair values of financial instruments at September 30, 2010 and December 31, 2009 were as follows:

	September 30, 2010						December 31, 2009
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Financial assets
Cash and due from banks	$	89,879		$	89,879		$	61,611		$	61,611
Federal funds sold		20,143			20,143			22,985			22,985
Securities available for sale		240,972			240,972			240,970			240,970
Loans held for sale		1,307			1,307			897			897
Loans, net		733,181			735,154			691,564			691,708
Federal Home Loan Bank and Federal Reserve Bank stock		7,247			n/a			7,005			n/a
Interest receivable		4,299			4,299			4,250			4,250

Financial liabilities
Deposits	$	(976,200	)	$	(978,142	)	$	(913,784	)	$	(917,859	)
Securities sold under agreements to repurchase		(26,715	)		(26,715	)		(24,600	)		(24,600	)
Federal Home Loan Bank advances		(10,605	)		(10,765	)		(14,937	)		(15,028	)
Other borrowed funds		(20,684	)		(22,468	)		(16,027	)		(15,984	)
Interest payable		(1,029	)		(1,029	)		(1,037	)		(1,037	)

Carrying amount is the estimated fair value for cash and due from banks, federal funds sold, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. It was not practicable to determine the fair value of Federal Home Loan Bank and Federal Reserve Bank stock due to the restrictions placed on its transferability. 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 material.

The Company used the following methods and significant assumptions to estimate the fair value of each type of asset measured on a non-recurring basis:

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent third-party real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 10 – FAIR VALUE - continued

Other real estate owned (OREO): The fair value of OREO is based on third-party appraisals less cost to sell at the date of foreclosure. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less cost to sell.

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements at September 30, 2010 Using
	Sept 30, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans	$	22,636	$	-	$	-	$	22,636
Other real estate owned		11,083		-		-		11,083

			Fair Value Measurements at December 31, 2009 Using
	Dec 31, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired Loans	$	13,215	$	-	$	-	$	13,215
Other real estate owned		9,251		-		-		9,251

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $24,816,000 at September 30, 2010 with a valuation allowance of $2,180,000 and a carrying amount of $14,494,000 at December 31, 2009 with a valuation allowance of $1,279,000, resulting in a provision for loan losses of $901,000 for the nine months ended September 30, 2010 and a negative provision for loan losses of $41,000 for the three months ended September 30, 2010.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 11 – BRANCH PURCHASE

On September 10, 2010 Citizens Deposit Bank and Trust (“Citizens”), a wholly-owned subsidiary of Premier completed its purchase of four banking offices from Integra Bank N.A. (“Integra Bank”). The banking offices are located in Maysville and Mount Olivet, Kentucky and Ripley and Aberdeen, Ohio. The purchase of the branches was a strategic move to increase Citizens’ presence in its current market area without a significant increase in its operating costs. Citizens paid a $2.4 million deposit premium for the deposit liabilities it assumed and also acquired $17.8 million of branch related loans as well as $34.0 million of additional commercial real estate loans and $10.0 million of other commercial loans selected by Citizens originated from other Integra offices. The four banking offices were also included in the branch purchase. The purchase resulted in approximately $1.1 million of goodwill and $2.1 million in core deposit intangible. The core deposit intangible will be amortized using an accelerated method.

Net assets acquired via the branch purchase is shown in the table below:

Cash and due from banks	$	8,936
Loans, net		60,372
Goodwill and other intangible assets		3,162
Other assets		1,787
Total assets acquired		74,257

Deposits		(74,137	)
Other liabilities		(120	)
Total liabilities assumed		(74,257	)
Net assets acquired	$	0

NOTE 12 – REGULATORY AGREEMENT

On July 29, 2010, Consolidated Bank and Trust Company (“CB&T” or “the Bank”), a wholly owned subsidiary of Premier, the Federal Reserve Bank of Richmond (“FRB”) and the State Corporation Commission Bureau of Financial Institutions (“Virginia Bureau”) entered into a written agreement (“Written Agreement”) requiring CB&T to perform certain actions primarily designed to improve the credit quality of the Bank. Abigail Adams National Bancorp, Inc. (“AANBI”), as parent of CB&T, and Premier, as parent of AANBI, were also named as parties to the Written Agreement to ensure that the Bank complies with the Written Agreement.

The Written Agreement requires the Bank to submit written plans to strengthen board oversight of the Bank, improve the Bank’s asset quality, review and revise the Bank’s methodology for determining the allowance for loan losses, maintain sufficient capital at the Bank, improve the Bank’s earnings, and enhance the Bank’s liquidity position and funds management practices. The Bank is also required to submit quarterly written progress reports. The agreement restricts the Bank’s ability to declare and pay dividends without prior written approval of the regulatory agencies or incur, increase, or guarantee any debt without prior written approval of the regulatory agencies.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 12 – REGULATORY AGREEMENT - continued

In addition to ensuring the Bank complies with provisions of the Written Agreement, Premier is also specifically subject to the provision requiring prior written approval of the FRB and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System for declaring or paying any dividends, and the provision requiring prior written approval of the FRB before incurring, increasing or guaranteeing any debt or purchasing or redeeming any shares of its stock.

NOTE 13 – SUBSEQUENT EVENT

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2010

Item 2. Management’s Discussion and Analysis

of Financial Condition and Results of Operations

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, collect delinquent 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. The words “may,” “could,” “should,” “would,” “will,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “project,” “predict,” “continue” and similar expressions are intended to identify forward-looking statements.

REGULATORY AGREEMENTS

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2010

On September 20, 2010, Premier submitted a request to the FRB for written approval from the FRB and the Director of the Division of Banking Supervision and Regulation of the Board of Governors to declare and pay its quarterly dividend obligation to the U.S. Treasury due on November 15, 2010. On October 4, 2010, Premier received a notice in writing that the FRB and the Director of the Division of Banking Supervision and Regulation of the Board of Governors did not approve Premier’s request to pay the cash dividend on its Series A, Fixed Rate Cumulative Perpetual Preferred Stock as Premier had requested. Subsequent to receipt of the notice from the FRB, Premier has held telephone conversations with the FRB to appeal the Board of Governors’ decision. On October 13, 2010, Premier received telephonic notice that its appeal had been denied. In the event that the cumulative dividends described above are not paid in full for an aggregate of six dividend periods or more, whether or not consecutive, the authorized number of directors of Premier would automatically be increased by two and the holders of the Series A Preferred Stock would have the right to elect two directors. The right to elect directors would end when dividends have been paid in full for four consecutive dividend periods. See Note 7 for additional details on Premier’s Series A, Fixed Rate Cumulative Perpetual Preferred Stock.

A. Results of Operations

A financial institution’s primary sources of revenue are generated by interest income on loans, investments and other earning assets, while its major expenses are produced by the funding of these assets with interest bearing liabilities. Effective management of these sources and uses of funds is essential in attaining a financial institution’s optimal profitability while maintaining a minimum amount of interest rate risk and credit risk.

Net income for the nine months ended September 30, 2010 was $6,637,000, or $0.70 per diluted share, compared to net income of $4,086,000, or $0.64 per diluted share for the nine months ended September 30, 2009. The increase in income in 2010 is largely due to the acquisition of Abigail Adams National Bancorp, Inc. (Abigail Adams) and its two subsidiary banks, Adams National Bank (Adams) and Consolidated Bank and Trust (CB&T) on October 1, 2009 (collectively the “Acquired Banks”). The operations of the Acquired Banks are only included in Premier’s results from the date of acquisition and therefore, are included in the first nine months of 2010 results but not the first nine months of 2009 results. The operations of Adams and CB&T added $1,406,000 of net income in the first nine months of 2010. Excluding this income, the remaining Premier operations increased net income in the first nine months of 2010 by $1,145,000, or 28.0%, compared to the same period of 2009, as the decrease in interest expense exceeded the decrease in interest income and a decrease in net overhead costs partially offset an increase in the provision for loan losses. There was also a decrease in income tax expense. The annualized returns on average common shareholders’ equity and average assets were approximately 6.81% and 0.80% for the nine months ended September 30, 2010 compared to 5.94% and 0.74% for the same period in 2009. For the quarter ending September 30, 2010, annualized returns on average common shareholders’ equity and average assets were approximately 6.42% and 0.76% compared to 6.62% and 0.82% for the same quarter of 2009.

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2010

Net income for the three months ended September 30, 2010 was $2,105,000, or $0.22 per diluted share, compared to net income of $1,502,000, or $0.23 per diluted share for the three months ended September 30, 2009. Again, the increase in income in 2010 is largely due to the inclusion of the operations of the Acquired Banks in 2010 but not in 2009. The operations of Adams and CB&T added $463,000 of net income in the third quarter of 2010. Excluding this income, the remaining Premier operations increased net income in the third quarter of 2010 by $140,000, or 9.3%, compared to the same period of 2009, as the decrease in interest expense exceeded an increase in the provision for loan losses.

Net interest income for the nine months ending September 30, 2010 totaled $32.45 million, up $12.46 million, or 62.3%, from the $19.99 million of net interest income earned in the first nine months of 2009, as the $11.28 million of additional net interest income of the Acquired Banks added to the 5.9% increase in net interest income of Premier’s other operations. Interest income in the first nine months of 2010 increased by $12.46 million, or 45.5%, as a result of the $12.90 million of interest income added by the operations of the Acquired Banks. Excluding the operations of the Acquired Banks, interest income decreased by $434,000, or 1.6%, in the first nine months of 2010. Interest income on loans decreased by $93,000, largely due to a lower average volume of loans outstanding and a slightly lower yield earned on those loans. Interest earned on investments decreased by $343,000, due to lower average yields even though on a higher average volume of investments. Interest earned on federal funds sold and interest bearing bank balances increased by $2,000, largely due to a higher average volume of interest bearing bank balances, while interest earned on fed funds sold is down resulting from the Federal Reserve Board of Governors’ policy to stimulate the economy by maintaining the federal funds sold rate near 0.00% to 0.25%.

Interest expense in the first nine months of 2010 (which includes the $1.62 million increase in interest expense in 2010 from the operations of the Acquired Banks) increased by $6,000, or 0.08%, when compared to the same nine months of 2009. Excluding the Acquired Banks’ operations, interest expense decreased by $1.61 million, or 21.9%, in 2010 compared to the first nine months of 2009, more than offsetting the decrease in interest income from the remaining Premier operations. Interest expense on deposits (excluding the operations of the Acquired Banks) decreased by $1.59 million, or 23.7%, largely due to lower rates paid, although on a higher average balance of deposits outstanding. Also excluding the operations of the Acquired Banks, interest expense on repurchase agreements and other short-term borrowings decreased by $10,000, largely due to a lower average balance and interest expense on FHLB advances decreased by $121,000, largely due to a decrease in the average balance outstanding resulting from principal payments and maturities during the last twelve months. Slightly offsetting these decreases, interest expense on other borrowings increased by $110,000 due to higher rates paid on a higher average outstanding balance. The Board of Governors’ policy to reduce the federal funds rate to nearly zero, coupled with the U.S. Treasury actively buying investment securities, has significantly reduced the yield on much of Premier’s earning assets including investments, federal funds sold and variable rate loans. Premier has tried to offset some of the lower interest income by lowering the rates paid on its deposits and repurchase agreements with customers. However, the higher yield on the loans of the Acquired Banks coupled with the lower rates paid on the interest bearing deposits and borrowings of the Acquired Banks have combined to boost Premier’s overall net interest margin. Premier’s net interest margin in the first nine months of 2010 was 4.30% compared to 4.03% for the same period in 2009.

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2010

A portion of the additional interest income on loans from the acquired banks is the result of recognizing into interest income the remaining fair value discount on notes that are fully paid-off during the period. These events cannot be predicted with certainty and may positively or negatively affect interest income on loans in future months.

Additional information on Premier’s net interest income for the first nine months of 2010 and 2009 is contained in the following table.

PREMIER FINANCIAL BANCORP, INC.
AVERAGE CONSOLIDATED BALANCE SHEETS
AND NET INTEREST INCOME ANALYSIS

	Nine Months Ended Sept 30, 2010								Nine Months Ended Sept 30, 2009
	Balance			Interest		Yield/Rate			Balance			Interest		Yield/Rate
Assets
Interest Earning Assets
U.S. Treasury and federal agency security	$	150,299		$	3,408		3.02	%	$	89,902		$	2,358		3.50	%
States and municipal obligations		10,302			248		4.86			7,464			178		4.82
Mortgage backed securities		73,062			2,070		3.78			70,519			2,312		4.37
Other securities		13,156			464		4.70			3,886			94		3.23
Total investment securities		246,819			6,190		3.41			171,771			4,942		3.91
Federal funds sold and other		72,263			110		0.20			30,841			54		0.23
Total loans		692,026			33,534		6.48			463,828			22,374		6.45
Total interest-earning assets		1,011,108			39,834		5.28	%		666,440			27,370		5.51	%
Allowance for loan losses		(8,366	)							(8,384	)
Cash and due from banks		20,105								24,496
Other assets		76,133								48,595
Total assets	$	1,098,980							$	731,147

Liabilities and Equity
Interest-bearing liabilities
Interest-bearing deposits	$	737,021			6,538		1.19		$	496,925			6,715		1.81
Short-term borrowings		22,765			124		0.73			13,447			94		0.93
FHLB advances		12,750			257		2.69			4,966			214		5.76
Other borrowings		15,761			469		3.98			14,814			359		3.24
Total interest-bearing liabilities		788,297			7,388		1.25	%		530,152			7,382		1.86	%
Non-interest bearing deposits		174,213								105,758
Other liabilities		4,498								4,461
Preferred equity		21,759								-
Common equity		110,213								90,776
Total liabilities and equity	$	1,098,980							$	731,147

Net interest income				$	32,446							$	19,988
Net interest spread							4.03	%							3.65	%
Net interest margin							4.30	%							4.03	%

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2010

Additional information on Premier’s net interest income for the third quarter of 2010 and third quarter of 2009 is contained in the following table.

PREMIER FINANCIAL BANCORP, INC.
AVERAGE CONSOLIDATED BALANCE SHEETS
AND NET INTEREST INCOME ANALYSIS

	Three Months Ended Sept 30, 2010								Three Months Ended Sept 30, 2009
	Balance			Interest		Yield/Rate			Balance			Interest		Yield/Rate
Assets
Interest Earning Assets
U.S. Treasury and federal agency security	$	130,017		$	1,047		3.22	%	$	97,103		$	769		3.17	%
States and municipal obligations		10,404			118		6.87			7,553			60		4.81
Mortgage backed securities		82,106			727		3.54			70,257			739		4.21
Other securities		13,498			147		4.36			3,876			33		3.41
Total investment securities		236,025			2,039		3.56			178,789			1,601		3.65
Federal funds sold and other		86,743			49		0.22			24,124			17		0.28
Total loans		700,102			10,964		6.21			462,683			7,496		6.43
Total interest-earning assets		1,022,870			13,052		5.09	%		665,596			9,114		5.46	%
Allowance for loan losses		(9,251	)							(8,067	)
Cash and due from banks		20,601								23,750
Other assets		76,375								50,191
Total assets	$	1,110,595							$	731,470

Liabilities and Equity
Interest-bearing liabilities
Interest-bearing deposits	$	743,157			2,125		1.13		$	498,218			2,126		1.69
Short-term borrowings		24,223			42		0.69			12,105			32		1.05
FHLB advances		10,525			50		1.88			4,653			71		6.05
Other borrowings		16,204			165		4.04			14,340			117		3.24
Total interest-bearing liabilities		794,109			2,382		1.19	%		529,316			2,346		1.76	%
Non-interest bearing deposits		177,996								105,746
Other liabilities		4,600								5,647
Preferred equity		21,797								-
Common equity		112,093								90,760
Total liabilities and equity	$	1,110,595							$	731,470

Net interest income				$	10,670							$	6,768
Net interest spread							3.90	%							3.70	%
Net interest margin							4.17	%							4.06	%

Net interest income for the quarter ending September 30, 2010 totaled $10.67 million, up $3.90 million or 57.6% from the $6.77 million of net interest income earned in the third quarter of 2009, as the $3.29 million of additional net interest income of the Acquired Banks added to the 9.1% increase in net interest income of Premier’s other operations. Interest income in the third quarter of 2010 increased by $3.94 million, or 43.2%, as a result of the $3.87 million of interest income added by the operations of the Acquired Banks. Excluding the operations of the Acquired Banks, interest income increased by $71,000, or 0.78%, in the third quarter of 2010 when compared to the same quarter of 2009. Interest income on loans increased by $179,000, largely due to a larger average volume of loans outstanding and a slightly higher yield. Interest earned on investments decreased by $114,000, due to lower average yields even though on a higher average volume of investments. Interest earned on interest bearing bank balances increased by $6,000, largely due to higher yields earned on interest bearing bank balances, while interest earned on fed funds sold is down resulting from the Federal Reserve Board of Governors’ policy to stimulate the economy by maintaining the federal funds sold rate near 0.00% to 0.25%.

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2010

Interest expense in the third quarter of 2010 (which includes the $578,000 increase in interest expense in the third quarter of 2010 from the operations of the Acquired Banks) increased by $36,000, or 1.5%, when compared to the same quarter of 2009. Excluding the Acquired Banks’ operations, interest expense decreased by $542,000, or 23.1%, in the third quarter of 2010 compared to the third quarter of 2009, complementing the increase in interest income from the remaining Premier operations. Interest expense on deposits (excluding the operations of the Acquired Banks) decreased by $515,000, or 24.2%, largely due to lower rates paid, although on a higher average balance of deposits outstanding. Also excluding the operations of the Acquired Banks, interest expense on repurchase agreements and other short-term borrowings decreased by $7,000, largely due to a decrease in rates paid although on a higher average volume outstanding, and interest expense on FHLB advances decreased by $68,000, due to a decrease in the average balance outstanding resulting from principal payments and maturities during the last twelve months. Interest expense on other borrowings increased by $48,000 due to higher rates paid on a higher average outstanding balance including additional money borrowed to facilitate the purchase of four branches from Integra Bank.

The Board of Governors’ policy to reduce the federal funds rate to nearly zero, coupled with the U.S. Treasury actively buying investment securities, has significantly reduced the yield on much of Premier’s earning assets including investments, federal funds sold and variable rate loans. Premier has tried to offset some of the lower interest income by lowering the rates paid on its deposits and repurchase agreements with customers. However, the higher yield on the loans of the Acquired Banks coupled with the lower rates paid on the interest bearing deposits and borrowings of the Acquired Banks have combined to boost Premier’s overall net interest margin. Premier’s net interest margin in the third quarter of 2010 was 4.17% compared to 4.06% for the same period in 2009. A portion of the additional interest income on loans from the acquired banks is the result of recognizing into interest income the remaining fair value discount on notes that fully paid-off during the period. These events cannot be predicted with certainty and may positively or negatively affect interest income on loans in future months.

Non-interest income increased $1.08 million to $4,946,000 for the first nine months of 2010. Included in this increase is $986,000 of non-interest income from the operations of the Acquired Banks. Excluding their operations, electronic banking income (income from debit/credit cards, ATM fees and internet banking charges) increased by $113,000 or 15.1% and other non-interest income increased by $14,000, or 3.9%. These increases were partially offset by a $22,000, or 0.9%, decrease in service charges on deposit accounts and a $15,000, or 4.6%, decrease in secondary market mortgage income. Secondary market mortgage income decreased as the number of mortgage borrowers have decreased compared to the first nine months of 2009 even though the increased requirements to approve the purchase of mortgage loans by government agency buyers have become more widely accepted. Premier concentrates its efforts on selling high quality mortgage loans and routinely searches for new buyers for these loans; however, the volume of future sales may depend on factors beyond the control of the Company. Electronic banking income increased largely due to continued increases in Premier’s deposit customer base and customers’ greater propensity to use electronic means to conduct their banking business. Premier’s conversion to a more modern banking software system in 2005 has allowed Premier to offer more electronic banking services and made it easier for customers to conduct their banking electronically.

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2010

For the quarter ending September 30, 2010, non-interest income increased $361,000 to $1,735,000, again largely due to the inclusion of $331,000 of non-interest income from the operations of the Acquired Banks in 2010. Excluding their operations, electronic banking income increased by $49,000 or 19.1%, secondary market mortgage income increased $13,000, or 11.3%, and other non-interest income increased $22,000, or 19.0%. These increases were partially offset by a $54,000, or 6.1%, decrease in service charges on deposit accounts.

Non-interest expenses for the first nine months of 2010 totaled $25,535,000, or 3.11% of average assets on an annualized basis, compared to $17,372,000, or 3.18% of average assets for the same period of 2009. The $8,163,000 increase in non-interest expenses in 2010 when compared to the first nine months of 2009 is largely due to the $8,493,000 of additional non-interest expenses from the operations of the Acquired Banks. Excluding their operations, non-interest expenses in the first nine months of 2010 decreased by $330,000, or 1.9%. Excluding the operations of the Acquired Banks, staff costs increased by $169,000, or 2.0%, in 2010 largely due to normal salary and benefit increases. Outside data processing increased by $84,000, or 3.6%, due to increases in processing fees and the outsourcing of statement rendering services. Taxes not on income increased by $165,000, or 30.2%, due to increases in taxes on equity resulting from the additional equity from the acquisition of Abigail Adams and the issuance of preferred stock to the U.S. Treasury. The increase in these expenses was more than offset by decreases in occupancy and equipment expenses, professional fees, OREO expenses and writedowns, supplies, FDIC insurance and other operating expenses. Occupancy and equipment expenses decreased by $182,000, or 9.1%, largely due to $81,000 from gains on the sale of three buildings in the first quarter of 2010 and a $90,000 decrease in equipment depreciation and maintenance expenses including information technology and furniture and fixtures, as many of these assets have become fully depreciated. Professional fees decreased by $304,000, or 38.3%, in 2010 largely due to legal fees expensed in 2009 related to the acquisition of Abigail Adams and other legal fees incurred to settle outstanding lawsuits in 2009. OREO expenses and writedowns decreased by $5,000, or 3.4%, in 2010, largely due to writedowns of OREO property in the first quarter of 2009, substantially offset by higher OREO expenses in 2010. FDIC insurance decreased by $151,000, or 18.6%, due to the FDIC’s special assessment on all banks in the United States during the second quarter of 2009 which cost Premier approximately $319,000, partially offset by a combination of higher FDIC insurance rate increases in 2010 and the expiration of offsetting FDIC insurance credits used to offset some FDIC insurance in 2009. Supplies expense decreased by $44,000 in the first nine months of 2010 while other operating expenses decreased in total by $62,000, largely due to customer fraud losses incurred in the first nine months of 2009.

Non-interest expenses for the third quarter of 2010 totaled $8,470,000 or 3.03% of average assets on an annualized basis compared to $5,723,000 or 3.13% of average assets for the same period of 2009. The $2,747,000 increase in non-interest expenses in the third quarter of 2010 when compared to the third quarter of 2009 is largely due to the $2,688,000 of additional non-interest expenses from the operations of the Acquired Banks. Excluding the operations of the Acquired Banks, staff costs increased by $9,000, or 0.3%, in 2010 largely due to normal salary and benefit increases. Outside data processing increased by $15,000, or 1.9%, due to increases in processing fees and the outsourcing of statement rendering services. Taxes not on income increased by $37,000, or 19.1%, due to increases in taxes on equity resulting from the additional equity from the acquisition of Abigail Adams and the issuance of preferred stock to the U.S. Treasury. OREO expenses and writedowns increased by $13,000, or 92.9%, in 2010, largely due to higher OREO maintenance expenses in 2010. FDIC insurance increased by $22,000, or 10.6% largely due to higher FDIC insurance rate increases in 2010 and the expiration of offsetting FDIC insurance credits used to offset

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2010

some FDIC insurance in 2009. Other operating expenses increased by $36,000, or 5.0%, due to fraud and other losses, marketing expense and conversion expense related to the Integra branch purchase. The increase in these expenses were partially offset by decreases in occupancy and equipment expenses, professional fees and supplies. Occupancy and equipment expenses decreased by $22,000, or 3.4%, largely due to lower depreciation and maintenance expenses on buildings, information technology equipment and furniture and fixtures. Professional fees decreased by $44,000, or 20.8%, in 2010 largely due to legal fees expensed in 2009 related to the acquisition of Abigail Adams. Supplies expense decreased by $7,000 in the third quarter of 2010.

Income tax expense was $2,479,000 for the first nine months of 2010 compared to $2,061,000 for the first nine months of 2009. The effective tax rate for the nine months ended September 30, 2010 was 27.2% compared to the 33.5% effective tax rate for the same period in 2009. The decrease in the effective tax rate is largely due to the recognition of a $538,000, net of federal income tax expense, West Virginia income tax benefit resulting from Premier’s projected ability to fully realize its West Virginia state deferred tax assets. The majority of the state deferred tax assets are made up of West Virginia net operating loss carryforwards, some of which were incurred as a result of Premier’s historical operations and some of which were obtained from the Traders Bankshares acquisition in 2008. The projection takes into account changes in West Virginia’s corporation income tax rules regarding consolidated income tax returns and the likelihood that the projected taxable income from the Acquired Banks will accelerate the utilization of all carryforwards. Income tax expense for the quarter ending September 30, 2010 was $1,069,000 (33.7% effective tax rate) compared to $790,000 (34.5% effective tax rate) for the same period of 2009. The increase in income tax expense can be primarily attributed to the increase in pre-tax income detailed above.

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2010

B. Financial Position

Total assets at September 30, 2010 increased by $70.9 million to approximately $1.173 billion from the $1.102 billion at December 31, 2009 due to the addition of $74.3 million from the purchase of the four Integra branches by Citizens (“Integra Branch Purchase”). Likewise, earning assets increased by $45.4 million from $972.5 million at year-end 2009 to end the quarter at $1.018 billion. The increase in earning assets was largely due to an increase of $60.4 million in total loans outstanding from the purchase of the four Integra branches. Excluding the operations of the Integra branch purchase, total assets decreased by $3.3 million and earning assets decreased $22.9 million due to decreases in total loans of $18.8 million and fed funds sold of $10.7 million converted into cash.

Cash and due from banks at September 30, 2010 was $89.9 million, a $28.3 million increase from the $61.6 million at December 31, 2009. Federal funds sold decreased by $2.8 million from the $23.0 million reported at December 31, 2009. Changes in these two highly liquid assets are generally in response to increases in deposits, the demand for deposit withdrawals or the funding of loans or investment purchases and are part of Premier’s management of its liquidity and interest rate risks. Excluding the Integra branch purchase federal funds sold decreased $10.7 million during the first nine months of 2010. The decrease was largely in response to meet the demand for deposit withdrawals of $11.7 million.

Securities available for sale totaled $241.0 million at September 30, 2010, unchanged from the $241.0 million at December 31, 2009 due to securities being replaced as they were called or matured. During the first quarter of 2010, longer-term bond yields began increasing in anticipation of potential future increases in the Federal Reserve Board of Governors’ policy on interest rates. During the second quarter of 2010, this anticipation waned and investment yields began decreasing once again. During the third quarter of 2010, the bond yields continued decreasing. During this time of falling market yields, issuers called eligible securities in an effort to issue new investments at even lower coupon rates. The level of proceeds from maturities and calls of securities in the first nine months of 2010 was 132% more than the level in the first nine months of 2009. As a result, the average yield on Premier’s investment portfolio continued to decline. The investment portfolio is predominately high quality interest-bearing bonds with defined maturity dates backed by the U.S. Government or Government sponsored entities. The unrealized gains at September 30, 2010 and December 31, 2009 are price changes resulting from changes in the interest rate environment. Additional details on investment activities can be found in the Consolidated Statements of Cash Flows.

Total loans at September 30, 2010 were $742.7 million compared to $699.1 million at December 31, 2009, an increase of approximately $43.6 million. The increase in loans is largely due to $60.4 million of loans acquired with the Integra Branch Purchase. An additional $8.1 million of loans were purchased from Integra Bank in June of 2010 as part of a separate agreement. Excluding these loans, total loans have decreased approximately $24.9 million since year-end. The decrease in loans is largely due to a $25.0 million decrease in loans at the Acquired Banks as decreasing the total assets of these two banks is part of management’s strategy to improve the ratio of the banks’ capital to assets. The remaining increase was due to loan demand during the first nine months of 2010 substantially offsetting payoffs and principal payments.

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2010

Deposits totaled $976.2 million as of September 30, 2010, a $62.4 million increase from the $913.8 million in deposits at December 31, 2009. The overall increase in deposits is largely due to the Integra branch purchase of $74.1 million. This increase was partially offset by a $23.6 million decrease in deposits at the Acquired Banks. Again, the decrease is part of management’s strategy to improve the ratio of the banks’ capital to assets. The remaining banks, during the first nine months of 2010, experienced a $2.3 million increase in non-interest bearing deposits, a $5.1 million increase in other interest bearing deposits and a $4.4 million increase in time deposits $100,000 and over. Similarly, repurchase agreements with corporate and public entity customers increased during the first nine months of 2010, increasing by $2.1 million to $26.7 million as of September 30, 2010. Decreases at Adams of $1.2 million offset this increase with the remaining banks increasing their repurchase agreement balances by $887,000 in total during the first nine months of 2010.

Long-term Federal Home Loan Bank (“FHLB”) advances declined by $4.3 million in the first nine months of 2010 largely to $4.0 million of debt maturities in May. The remaining $332,000 decrease is due to regularly scheduled principal payments and accretion of a yield adjustment on the FHLB advance assumed via acquisition of Adams. Other borrowed funds increased by $4.7 million during the first nine months of 2010 due to Premier increasing its borrowed funds to inject capital in Citizens to support the purchase of the Integra branches. See Note 5 to the consolidated financial statements for additional information on the Company’s outstanding FHLB advances.

The following table sets forth information with respect to the Company’s nonperforming assets at September 30, 2010 and December 31, 2009.

	(In Thousands)
	2010			2009
Non-accrual loans	$	49,103		$	46,299
Accruing loans which are contractually past due 90 days or more		648			489
Restructured		11,596			11,974
Total non-performing loans		61,347			58,762
Other real estate acquired through foreclosure (OREO)		11,083			9,251
Total non-performing assets	$	72,430		$	68,013

Non-performing loans as a percentage of total loans		8.26	%		8.40	%

Non-performing assets as a percentage of total assets		6.18	%		6.17	%

Total non-performing loans have increased since year-end, due to increases in non-accrual loans and loans past due 90 days or more. These increases were in addition to an increase in other real estate owned acquired through foreclosure. The increase in other real estate owned is largely due to the foreclosure of approximately $4.2 million of loans partially offset by sales of $2.6 million of OREO properties. The significant level of non-accrual loans and OREO is due to the non-performing assets that came with the acquisition of Abigail Adams and the Acquired Banks.

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2010

At December 31, 2009, the Acquired Banks accounted for $48.0 million or 70.5% of Premier’s non-performing assets while at September 30, 2010 the Acquired Banks accounted for $51.4 million or 70.9% of Premier’s non-performing assets. However, since these assets were recorded at an estimated fair value on the date of acquisition, the amount of credit risk assumed by Premier is not nearly as great as the volume of non-performing assets suggests taken at face value. The estimate of fair value on all loans, but particularly on non-performing assets, included factors for the measurement of credit risk, interest rate risk and re-salability in the most advantageous market for the loans in an orderly transaction between market participants. These estimates included significant discounts on the non-accrual loans. Since the estimated fair value of these loans was believed to have accounted for the reasonably estimable credit risk in the loans, consistent with new accounting guidance for acquisitions after 2008, no allowance for loan losses for these loans was recorded at the date of acquisition. Under previous accounting standards, the loan loss allowance of the Acquired Banks would have carried over to Premier’s books and records, as was the case for the acquisitions of Traders Bankshares and Citizens First Bank in 2008. The following table illustrates the face value of the non-performing assets of the Acquired Banks as of September 30, 2010 and December 31, 2009 and the discounted net carrying value of those non-performing assets.

NON-PERFORMING ASSETS AT ACQUIRED SUBSIDIARY BANKS
(Dollars in thousands)
	September 30, 2010				December 31, 2009
	Face Value		Discounted Net Carrying Value		Face Value		Discounted Net Carrying Value
Non-performing Assets
Non-accrual loans	$	53,903	$	42,562	$	48,430	$	39,306
Loans 90+ days past due		5		5		119		115
Other real estate owned		8,125		6,830		9,830		8,535
Total non-performing assets	$	62,033	$	49,397	$	58,379	$	47,956

(1) Face value includes reductions for interest payments received on loans while on non-accrual status in accordance with the cost recovery method of accounting for non-accrual loans.

Many of the non-accrual loans obtained from the Acquired Banks are continuing to be accounted for under cost recovery methods of income recognition as permitted by the guidance for accounting for non-accrual loans acquired in a business combination. Most of the non-accrual loans at the Acquired Banks were placed in that status due to a lack of predictable cash flows from the borrower. At acquisition by Premier, these loans were recorded at their estimated fair value. These estimates included significant discounts on the non-accrual loans. Yet, the lack of predictable cash flows from the borrowers remains. As a result, accounting guidance requires these loans to continue to be accounted for under cost recovery methods of income recognition, even though the estimated collateral value may exceed the discounted net carrying value.

Premier continues to make a significant effort to reduce its past due and non-performing loans by reviewing loan files, using the courts to bring borrowers current with the terms of their loan agreements and/or the foreclosure and sale of OREO properties. As in the past, when these plans are executed, Premier may experience increases in non-performing loans and non-performing assets. Furthermore, any resulting increases in loans placed on non-accrual status will have a negative impact on future loan interest income. Also, as these plans are executed, other loans may be identified that would necessitate additional charge-offs and potentially additional provisions for loan losses.

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2010

During the third quarter of 2010, the Company recorded $761,000 of provisions for loan losses, largely due to estimated increases in the credit risk of impaired loans; but also as a result of increases in the estimated overall credit risk in the loan portfolio. The continuing level of non-performing loans plus the increase in net charge-offs are evidence of the increasing credit risk in the loan portfolio. The longer the downturn in the national and local economy continues, the greater the risk that one or more of Premier’s loan customers may be affected in a negative way and therefore struggle to meet their commitment to repay their loan. The $761,000 third quarter 2010 provision for loan losses compares to $127,000 of provisions for loan losses recorded during the third quarter of 2009. For the first nine months of 2010, total provisions for loan losses equaled $2.7 million. This compares to $339,000 of provisions for loan losses recorded during the first nine months of 2009. The provisions for loan losses were made in accordance with Premier’s policies regarding management’s estimation of probable incurred losses in the loan portfolio and the adequacy of the allowance for loan losses, which are in accordance with accounting principles generally accepted in the United States of America. In the coming months, Premier will continue to monitor the impact that national housing market price declines may have on its local markets and collateral valuations as management evaluates the adequacy of the allowance for loan losses. While some price deterioration is expected, it is not currently anticipated that Premier’s markets will be impacted as severely as other areas of the country due to the historically modest increases in real estate values in the Company’s Appalachian markets. However, as local and national unemployment rates remain at elevated levels and the downturn in housing prices extends further into the future, there is an increasing risk of price deterioration in real estate values in the Company’s markets. Future provisions to the allowance for loan losses, positive or negative, will depend on future improvement or deterioration in estimated credit risk in the loan portfolio as well as whether additional payments are received on loans having significant credit risk.

Gross charge-offs totaled $1.1 million during the first nine months of 2010. Any collections on these loans would be presented in future financial statements as recoveries of the amounts charged against the allowance. Recoveries recorded during the first nine months of 2010 totaled $339,000 resulting in net charge-offs for the first nine months of 2010 of $770,000. This compares to $1.0 million of net charge-offs recorded in the first nine months of 2009. The allowance for loan losses at September 30, 2010 was 1.28% of total loans compared to 1.08% at December 31, 2009. The increase in the ratio is largely due to the $2,741,000 of additional provisions for loan losses exceeding the $770,000 of net charge-offs recorded in the first nine months of 2010.

The ratio of the allowance for loan losses to total loans decreased significantly as a result of the acquisition of Abigail Adams when compared to ratios calculated prior to the acquisition. Also, the purchase of the Integra branches has slightly decreased the ratio due to the addition of $60.4 million in total loans acquired by Citizens. As discussed earlier, the loans acquired from Abigail Adams were recorded at their estimated fair value. Since the estimated fair value of these loans was believed to have accounted for the reasonably estimable credit risk in the loans, consistent with new accounting guidance for acquisitions after 2008, no allowance for loan losses for these loans was recorded at the date of acquisition. In the twelve months since the acquisition, the Acquired Banks have recorded an allowance for loan losses of approximately $1,799,000, largely due to identified additional risks of loss on impaired loans. Excluding the net loan portfolios of the Acquired Banks, Premier’s remaining operations have a collective allowance for loan losses of approximately 1.45% of total loans at September 30, 2010. This compares to an approximately 1.60% collective ratio for these same entities at December 31, 2009.

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2010

C. Critical Accounting Policies

The Company follows financial accounting and reporting policies that are in accordance with generally accepted accounting principles in the United States of America. These policies are presented in Note 1 to the consolidated audited financial statements in the Company's annual report on Form 10-K for the year ended December 31, 2009. Some of these accounting policies, as discussed below, are considered to be critical accounting policies. Critical accounting policies are those policies that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company has identified four accounting policies that are critical accounting policies, and an understanding of these policies is necessary to understand the financial statements. These policies relate to determining the adequacy of the allowance for loan losses, the identification and evaluation of impaired loans, the impairment of goodwill and the realization of deferred tax assets. A detailed description of these accounting policies is contained in the Company’s annual report on Form 10-K for the year ended December 31, 2009. There have been no significant changes in the application of these accounting policies since December 31, 2009.

Management believes that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time.

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2010

D. Liquidity

Liquidity objectives for the Company 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 while attempting to maximize profitability. In order to provide for funds on a current and long-term basis, the Company’s subsidiary banks rely primarily on the following sources:

Core deposits consisting of both consumer and commercial deposits and certificates of deposit of $100,000 or more. Management believes that the majority of its $100,000 or more certificates of deposit are no more volatile than its other deposits. This is due to the nature of the markets in which the subsidiaries operate.

Cash flow generated by repayment of loans and interest.

Arrangements with correspondent banks for purchase of unsecured federal funds.

The sale of securities under repurchase agreements and borrowing from the Federal Home Loan Bank.

Maintenance of an adequate available-for-sale security portfolio. The Company owns $241.0 million of securities at fair value as of September 30, 2010.

The cash flow statements 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.

E. Capital

At September 30, 2010, total shareholders’ equity of $134.4 million was 11.46% of total assets. This compares to total shareholders’ equity of $128.6 million or 11.7% of total assets on December 31, 2009.

Tier I capital totaled $96.2 million at September 30, 2010, which represents a Tier I leverage ratio of 8.9%. This ratio is unchanged from the 8.9% at December 31, 2009.

Book value per common share was $14.18 at September 30, 2010, and $13.46 at December 31, 2009. The increase in book value per share was the result of the $0.72 per share earned during the quarter less the $0.22 per share common dividend and the $943,000 of preferred stock dividends and accretion. Also increasing the book value per share was $1,712,000 of other comprehensive income for the first nine months of 2010 related to the after tax increase in the market value of securities available for sale.

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PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, 2010

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company currently does not engage in any derivative or hedging activity. Refer to the Company’s 2009 10-K for analysis of the interest rate sensitivity. The Company believes there have been no significant changes in the interest rate sensitivity since previously reported on the Company’s 2009 10-K.

Item 4(T). Controls and Procedures

A. Disclosure Controls & Procedures

Premier management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to the Securities and Exchange Act of 1934 Rule 13a-15c as of the end of the period covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion.

B. Changes in Internal Controls over Financial Reporting

There were no changes in internal controls over financial reporting during the third fiscal quarter that have materially affected or are reasonably likely to materially affect Premier's internal controls over financial reporting.

C. Inherent Limitations on Internal Control

"Internal controls" are procedures, which are designed with the objective of providing reasonable assurance that (1) transactions are properly authorized; (2) assets are safeguarded against unauthorized or improper use; and (3) transactions are properly recorded and reported, all so as to permit the preparation of reports and financial statements in conformity with generally accepted accounting principles. However, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their cost. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is also based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Finally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

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PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, 2010

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	None

Item 1A.	Risk Factors

Please refer to Premier’s Annual Report on Form 10-K for the year ended December 31, 2009 for disclosures with respect to Premier’s risk factors at December 31, 2009. There have been no material changes since year-end 2009 in the specified risk factors disclosed in the Annual Report on Form 10-K.

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	None

Item 3.	Defaults Upon Senior Securities	None

Item 4.	Submission of Matters to a vote of Security Holders	None

Item 5.	Other Information	None

Item 6.	Exhibits

(a) The following exhibits are furnished in accordance with the provisions of Item 601 of Regulation S-K.

10.1 Written Agreement by and among Premier Financial Bancorp, Inc., Huntington, West Virginia, Abigail Adams National Bancorp, Inc., Washington, D.C., Consolidated Bank and Trust Company, Richmond, Virginia, the Federal Reserve Bank of Richmond, Richmond, Virginia, and State Corporation Commission Bureau of Financial Institutions, Richmond Virginia dated July 29, 2010 filed as Exhibit 10.1 to Premier’s Form 8-K dated July 29, 2010 is incorporated herein by reference.

31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32 Certification Pursuant to 18 U.S.C §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, 2010

SIGNATURES

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

PREMIER FINANCIAL BANCORP, INC.

Date: November 15, 2010 /s/ Robert W. Walker

Robert W. Walker

President & Chief Executive Officer

Date: November 15, 2010 /s/ Brien M. Chase

Brien M. Chase

Senior Vice President & Chief Financial Officer

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