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EX-32 - CEO AND CFO SECTION 906 CERTIFICATION - PREMIER FINANCIAL BANCORP INCexhibit32.htm
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2015

or

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 000-20908

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      No .

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes      No .

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  .
Accelerated filer  .
   Non-accelerated filer 
(Do not check if smaller reporting company)
Smaller reporting company 

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

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, – 8,167,806 shares outstanding at July 31, 2015
PREMIER FINANCIAL BANCORP, INC.
JUNE 30, 2015
INDEX TO REPORT


   
     
     
     
     
     
     
     
     
   
     
     
     
     


PREMIER FINANCIAL BANCORP, INC.
JUNE 30, 2015
 

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

The accompanying information has not been audited by an independent registered public accounting firm; 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 registered public accounting firm.

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, 2014 for further information in this regard.

Index to consolidated financial statements:

     
     
     
     
     








PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2015 AND DECEMBER 31, 2014
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


   
June 30,
   
December 31,
 
   
2015
   
2014
 
ASSETS
       
Cash and due from banks
 
$
33,440
   
$
35,147
 
Interest bearing bank balances
   
35,437
     
35,251
 
Federal funds sold
   
3,265
     
4,986
 
Cash and cash equivalents
   
72,142
     
75,384
 
Securities available for sale
   
226,077
     
229,750
 
Loans held for sale
   
-
     
226
 
Loans
   
883,873
     
879,711
 
Allowance for loan losses
   
(10,694
)
   
(10,347
)
Net loans
   
873,179
     
869,364
 
Federal Home Loan Bank stock, at cost
   
3,072
     
2,996
 
Premises and equipment, net
   
20,127
     
21,384
 
Real estate and other property acquired through foreclosure
   
11,349
     
12,208
 
Interest receivable
   
3,271
     
3,219
 
Goodwill
   
33,796
     
33,796
 
Other intangible assets
   
2,599
     
3,033
 
Other assets
   
1,394
     
1,464
 
Total assets
 
$
1,247,006
   
$
1,252,824
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Deposits
               
Non-interest bearing
 
$
253,094
   
$
252,828
 
Time deposits, $250,000 and over
   
67,532
     
66,216
 
Other interest bearing
   
749,905
     
756,199
 
Total deposits
   
1,070,531
     
1,075,243
 
Securities sold under agreements to repurchase
   
15,307
     
15,580
 
Other borrowed funds
   
12,507
     
11,722
 
Interest payable
   
387
     
434
 
Other liabilities
   
3,836
     
4,063
 
Total liabilities
   
1,102,568
     
1,107,042
 
                 
Stockholders' equity
               
Common stock, no par value; 20,000,000 shares authorized; 8,167,806 shares issued and outstanding at June 30, 2015, and 8,142,056 shares issued and outstanding at December 31, 2014
   
69,257
     
74,568
 
Retained earnings
   
73,868
     
69,719
 
Accumulated other comprehensive income (loss)
   
1,313
     
1,495
 
Total stockholders' equity
   
144,438
     
145,782
 
Total liabilities and stockholders' equity
 
$
1,247,006
   
$
1,252,824
 
                 
 
 
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2015
   
2014
   
2015
   
2014
 
Interest income
               
Loans, including fees
 
$
11,641
   
$
11,262
   
$
23,306
   
$
22,925
 
Securities available for sale
                               
Taxable
   
1,206
     
1,400
     
2,463
     
2,715
 
Tax-exempt
   
56
     
63
     
111
     
98
 
Federal funds sold and other
   
52
     
64
     
88
     
96
 
Total interest income
   
12,955
     
12,789
     
25,968
     
25,834
 
                                 
Interest expense
                               
Deposits
   
887
     
960
     
1,803
     
1,847
 
Repurchase agreements and other
   
9
     
9
     
19
     
16
 
Other borrowings
   
136
     
144
     
259
     
288
 
Total interest expense
   
1,032
     
1,113
     
2,081
     
2,151
 
                                 
Net interest income
   
11,923
     
11,676
     
23,887
     
23,683
 
Provision (credit) for loan losses
   
(146
)
   
(79
)
   
(77
)
   
(389
)
Net interest income after provision for loan losses
   
12,069
     
11,755
     
23,964
     
24,072
 
                                 
Non-interest income
                               
Service charges on deposit accounts
   
914
     
899
     
1,792
     
1,638
 
Electronic banking income
   
702
     
655
     
1,346
     
1,150
 
Secondary market mortgage income
   
22
     
50
     
60
     
69
 
Other
   
124
     
179
     
269
     
307
 
     
1,762
     
1,783
     
3,467
     
3,164
 
Non-interest expenses
                               
Salaries and employee benefits
   
4,475
     
4,873
     
8,816
     
8,857
 
Occupancy and equipment expenses
   
1,263
     
1,307
     
2,590
     
2,460
 
Outside data processing
   
1,075
     
1,029
     
2,171
     
1,898
 
Professional fees
   
179
     
209
     
308
     
745
 
Taxes, other than payroll, property and income
   
145
     
152
     
341
     
304
 
Write-downs, expenses, sales of other real estate owned, net
   
340
     
(488
)
   
682
     
(394
)
Amortization of intangibles
   
209
     
224
     
434
     
368
 
FDIC insurance
   
206
     
260
     
421
     
461
 
Other expenses
   
1,037
     
1,148
     
1,958
     
2,044
 
     
8,929
     
8,714
     
17,721
     
16,743
 
Income before income taxes
   
4,902
     
4,824
     
9,710
     
10,493
 
Provision for income taxes
   
1,775
     
1,724
     
3,441
     
3,723
 
                                 
Net income
 
$
3,127
   
$
3,100
   
$
6,269
   
$
6,770
 
                                 
Preferred stock dividends and accretion
   
-
     
(165
)
   
-
     
(330
)
Net income available to common stockholders
 
$
3,127
   
$
2,935
   
$
6,269
   
$
6,440
 
                                 
Net income per share:
                               
Basic
 
$
0.38
   
$
0.36
   
$
0.77
   
$
0.80
 
Diluted
   
0.37
     
0.34
     
0.74
     
0.75
 
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2015
   
2014
   
2015
   
2014
 
Net income
 
$
3,127
   
$
3,100
   
$
6,269
   
$
6,770
 
                                 
Other comprehensive income (loss):
                               
Unrealized gains (losses) arising during the period
   
(1,582
)
   
741
     
(276
)
   
3,459
 
Reclassification of realized amount
   
-
     
-
     
-
     
-
 
Net change in unrealized gain on securities
   
(1,582
)
   
741
     
(276
)
   
3,459
 
Less tax impact
   
538
     
(252
)
   
94
     
(1,176
)
Other comprehensive income (loss)
   
(1,044
)
   
489
     
(182
)
   
2,283
 
                                 
Comprehensive income
 
$
2,083
   
$
3,589
   
$
6,087
   
$
9,053
 
                               
 
 
 
 
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED, DOLLARS IN THOUSANDS)


   
2015
   
2014
 
Cash flows from operating activities
       
Net income
 
$
6,269
   
$
6,770
 
Adjustments to reconcile net income to net cash from
operating activities
               
Depreciation
   
874
     
735
 
Provision (credit) for loan losses
   
(77
)
   
(389
)
Amortization (accretion), net
   
307
     
484
 
OREO writedowns (gains on sales), net
   
254
     
(800
)
Stock compensation expense
   
163
     
170
 
Loans originated for sale
   
(1,679
)
   
(3,192
)
Secondary market loans sold
   
1,941
     
2,851
 
Secondary market income
   
(38
)
   
(69
)
Changes in :
               
Interest receivable
   
(52
)
   
417
 
Other assets
   
166
     
1,066
 
Interest payable
   
(47
)
   
(56
)
Other liabilities
   
(227
)
   
174
 
Net cash from operating activities
   
7,854
     
8,161
 
                 
Cash flows from investing activities
               
Purchases of securities available for sale
   
(30,705
)
   
(34,453
)
Proceeds from maturities and calls of securities available for sale
   
33,557
     
24,298
 
Purchase of FHLB stock
   
(76
)
   
-
 
Redemption of FHLB stock
   
-
     
408
 
Net change in loans
   
(4,415
)
   
1,605
 
Acquisition of subsidiary, net of cash received
   
-
     
40,973
 
Purchases of premises and equipment, net
   
(377
)
   
(290
)
Improvements to OREO property
   
(29
)
   
(242
)
Proceeds from sales of other real estate acquired through foreclosure
   
2,649
     
2,803
 
Net cash from investing activities
   
604
     
35,102
 
                 
Cash flows from financing activities
               
Net change in deposits
   
(4,618
)
   
(18,903
)
Net change in agreements to repurchase securities
   
(273
)
   
(316
)
Repayment of other borrowed funds
   
(3,215
)
   
(1,207
)
Proceeds from other borrowings
   
4,000
     
-
 
Proceeds from stock option exercises
   
201
     
449
 
Purchase of warrant
   
(5,675
)
   
-
 
Common stock dividends paid
   
(2,120
)
   
(2,822
)
Preferred stock dividends paid
   
-
     
(300
)
Net cash from financing activities
   
(11,700
)
   
(23,099
)
                 
Net change in cash and cash equivalents
   
(3,242
)
   
20,164
 
                 
Cash and cash equivalents at beginning of period
   
75,384
     
76,761
 
                 
Cash and cash equivalents at end of period
 
$
72,142
   
$
96,925
 
 
 
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED, DOLLARS IN THOUSANDS)


   
2015
   
2014
 
Supplemental disclosures of cash flow information:
       
Cash paid during period for interest
 
$
2,128
   
$
2,207
 
                 
Cash paid during period for income taxes
   
2,866
     
2,299
 
                 
Loans transferred to real estate acquired through foreclosure
   
1,255
     
1,079
 
                 
Premises transferred to other real estate owned
   
760
     
-
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

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) and its wholly owned subsidiaries (the "Banks"):
 
  June 30, 2015
  Year Total Net Income
Subsidiary                                      
Location                          
Acquired
 
Assets
   
Qtr
   
YTD
 
Citizens Deposit Bank & Trust
Vanceburg, Kentucky
1991
 
$
387,663
   
$
931
   
$
1,945
 
Premier Bank, Inc.
Huntington, West Virginia
1998
   
853,078
     
2,702
     
5,275
 
Parent and Intercompany Eliminations
       
6,265
     
(506
)
   
(951
)
  Consolidated Total
      
$
1,247,006
   
$
3,127
   
$
6,269
 


All significant intercompany transactions and balances have been eliminated.

Recently Issued Accounting Pronouncements

In January 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force). The ASU clarifies when an insubstance repossession or foreclosure occurs and a creditor is considered to have received physical possession of real estate property collateralizing a consumer mortgage loan. Specifically, the new ASU requires a creditor to reclassify a collateralized consumer mortgage loan to real estate property upon obtaining legal title to the real estate collateral, or the borrower voluntarily conveying all interest in the real estate property to the lender to satisfy the loan through a deed in lieu of foreclosure or similar legal agreement. Additional disclosures are required detailing the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgages collateralized by real estate property that are in the process of foreclosure. The new guidance is effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2014. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

In May 2014, FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU creates a new topic, Topic 606, to provide guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2016. However, in April 2015, the FASB voted to defer the effective date of ASU 2014-09 by one year making the amendments effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within those
 
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

reporting periods.  Companies have the option to apply ASU 2014-09 as of the original effective date. Early adoption is not permitted. Management is currently evaluating the impact of the adoption of this guidance on the Company's financial statements.

In June 2014, FASB issued Accounting Standards Update 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this update require two accounting changes. First, the amendments in this update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. Second, for repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counter-party, which will result in secured borrowing accounting for the repurchase agreement. This update also requires certain disclosures for these types of transactions. This ASU became effective for the Company on January 1, 2015. The adoption of ASU 2014-11 did not have a material impact on the Company's financial statements.
 
 
 
 
 
 
 
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 June 30, 2015 are summarized as follows:

 
 
Amortized Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
 
               
Available for sale
               
Mortgage-backed securities
               
U. S. sponsored agency MBS - residential
 
$
76,141
   
$
674
   
$
(399
)
 
$
76,416
 
U. S. sponsored agency CMO's - residential
   
123,441
     
2,140
     
(704
)
   
124,877
 
Total mortgage-backed securities of government sponsored agencies
   
199,582
     
2,814
     
(1,103
)
   
201,293
 
U. S. government sponsored agency securities
   
14,463
     
98
     
-
     
14,561
 
Obligations of states and political subdivisions
   
10,044
     
197
     
(18
)
   
10,223
 
Total available for sale
 
$
224,089
   
$
3,109
   
$
(1,121
)
 
$
226,077
 

Amortized cost and fair value of investment securities, by category, at December 31, 2014 are summarized as follows:

 
Amortized Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
 
               
Available for sale
               
Mortgage-backed securities
               
U. S. sponsored agency MBS - residential
 
$
52,006
   
$
774
   
$
-
   
$
52,780
 
U. S. sponsored agency CMO's - residential
   
142,932
     
2,167
     
(911
)
   
144,188
 
Total mortgage-backed securities of government sponsored agencies
   
194,938
     
2,941
     
(911
)
   
196,968
 
U. S. government sponsored agency securities
   
22,553
     
30
     
(57
)
   
22,506
 
Obligations of states and political subdivisions
   
10,015
     
261
     
-
     
10,276
 
Total available for sale
 
$
227,486
   
$
3,232
   
$
(968
)
 
$
229,750
 
 
 
 
 

 
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 June 30, 2015 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
 
$
3,472
   
$
3,489
 
Due after one year through five years
   
17,732
     
17,952
 
Due after five years through ten years
   
3,054
     
3,093
 
Due after ten years
   
249
     
250
 
Mortgage-backed securities of government sponsored agencies
   
199,582
     
201,293
 
Total available for sale
 
$
224,089
   
$
226,077
 
                 

There were no sales of securities during the first six months of 2015 nor the first six months of 2014.

Securities with unrealized losses at June 30, 2015 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 agency MBS – residential
 
$
30,728
   
$
(399
)
 
$
-
   
$
-
   
$
30,728
   
$
(399
)
U.S government sponsored agency CMO – residential
   
7,204
     
(91
)
   
19,292
     
(613
)
   
26,496
     
(704
)
Obligations of states and political subdivisions
   
911
     
(18
)
   
-
     
-
     
911
     
(18
)
Total temporarily impaired
 
$
38,843
   
$
(508
)
 
$
19,292
   
$
(613
)
 
$
58,135
   
$
(1,121
)
 
 
 
 

 
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, 2014 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 agency securities
 
$
9,971
   
$
(57
)
 
$
-
   
$
-
   
$
9,971
   
$
(57
)
U.S government sponsored agency CMO's – residential
   
5,194
     
(52
)
   
26,471
     
(859
)
   
31,665
     
(911
)
Total temporarily impaired
 
$
15,165
   
$
(109
)
 
$
26,471
   
$
(859
)
 
$
41,636
   
$
(968
)

The investment portfolio is predominately high credit quality interest-bearing bonds with defined maturity dates backed by the U.S. Government or Government sponsored entities.  The unrealized losses at June 30, 2015 and December 31, 2014 are price changes resulting from changes in the interest rate environment and are considered to be temporary declines in the value of the securities.  Management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery.  Their fair value is expected to recover as the bonds approach their maturity date and/or market conditions improve.


NOTE  3 - LOANS

Major classifications of loans at June 30, 2015 and December 31, 2014 are summarized as follows:

   
2015
   
2014
 
Residential real estate
 
$
282,923
   
$
278,212
 
Multifamily real estate
   
37,112
     
30,310
 
Commercial real estate:
               
Owner occupied
   
122,879
     
120,861
 
Non owner occupied
   
217,881
     
230,750
 
Commercial and industrial
   
76,193
     
85,943
 
Consumer
   
31,561
     
32,745
 
All other
   
115,324
     
100,890
 
   
$
883,873
   
$
879,711
 
 
 
 

 
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE  3–LOANS - continued

Activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2015 was as follows:

Loan Class
 
Balance
Dec 31, 2014
   
Provision (credit)
for loan losses
   
Loans charged-off
   
Recoveries
   
Balance
June 30, 2015
 
                     
Residential real estate
 
$
2,093
   
$
372
   
$
78
   
$
79
   
$
2,466
 
Multifamily real estate
   
304
     
208
     
-
     
-
     
512
 
Commercial real estate:
                                       
Owner occupied
   
1,501
     
(24
)
   
2
     
1
     
1,476
 
Non owner occupied
   
2,316
     
(643
)
   
-
     
659
     
2,332
 
Commercial and industrial
   
1,444
     
(140
)
   
169
     
4
     
1,139
 
Consumer
   
243
     
105
     
132
     
58
     
274
 
All other
   
2,446
     
45
     
112
     
116
     
2,495
 
Total
 
$
10,347
   
$
(77
)
 
$
493
   
$
917
   
$
10,694
 

Activity in the allowance for loan losses by portfolio segment for the six months ending June 30, 2014 was as follows:

Loan Class
 
Balance
Dec 31, 2013
   
Provision (credit)
for loan losses
   
Loans charged-off
   
Recoveries
   
Balance
June 30, 2014
 
                     
Residential real estate
 
$
2,694
   
$
(391
)
 
$
171
   
$
8
   
$
2,140
 
Multifamily real estate
   
417
     
(106
)
   
-
     
-
     
311
 
Commercial real estate:
                                       
Owner occupied
   
1,407
     
39
     
82
     
-
     
1,364
 
Non owner occupied
   
2,037
     
556
     
323
     
-
     
2,270
 
Commercial and industrial
   
2,184
     
(616
)
   
84
     
5
     
1,489
 
Consumer
   
297
     
(33
)
   
59
     
27
     
232
 
All other
   
1,991
     
162
     
204
     
122
     
2,071
 
Total
 
$
11,027
   
$
(389
)
 
$
923
   
$
162
   
$
9,877
 

PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE  3–LOANS - continued

Activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2015 was as follows:

Loan Class
 
Balance
March 31, 2015
   
Provision (credit)
for loan losses
   
Loans charged-off
   
Recoveries
   
Balance
June 30, 2015
 
                     
Residential real estate
 
$
2,196
   
$
218
   
$
4
   
$
56
   
$
2,466
 
Multifamily real estate
   
287
     
225
     
-
     
-
     
512
 
Commercial real estate:
                                       
Owner occupied
   
1,489
     
(13
)
   
-
     
-
     
1,476
 
Non owner occupied
   
2,324
     
(651
)
   
-
     
659
     
2,332
 
Commercial and industrial
   
1,450
     
(305
)
   
8
     
2
     
1,139
 
Consumer
   
241
     
87
     
78
     
24
     
274
 
All other
   
2,183
     
293
     
53
     
72
     
2,495
 
Total
 
$
10,170
   
$
(146
)
 
$
143
   
$
813
   
$
10,694
 

Activity in the allowance for loan losses by portfolio segment for the three months ending June 30, 2014 was as follows:

Loan Class
 
Balance
March 31, 2014
   
Provision (credit)
for loan losses
   
Loans charged-off
   
Recoveries
   
Balance
June 30, 2014
 
                     
Residential real estate
 
$
2,250
   
$
36
   
$
152
   
$
6
   
$
2,140
 
Multifamily real estate
   
297
     
14
     
-
     
-
     
311
 
Commercial real estate:
                                       
Owner occupied
   
1,477
     
(32
)
   
81
     
-
     
1,364
 
Non owner occupied
   
2,385
     
(92
)
   
23
     
-
     
2,270
 
Commercial and industrial
   
1,527
     
(20
)
   
21
     
3
     
1,489
 
Consumer
   
220
     
37
     
33
     
8
     
232
 
All other
   
2,188
     
(22
)
   
167
     
72
     
2,071
 
Total
 
$
10,344
   
$
(79
)
 
$
477
   
$
89
   
$
9,877
 

PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE  3–LOANS - continued

Purchased Impaired Loans

The Company holds purchased loans for which there was, at their acquisition date, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected.  The carrying amount of those loans is as follows at June 30, 2015 and December 31, 2014.

   
2015
   
2014
 
Multifamily real estate
 
$
460
   
$
497
 
Commercial real estate
               
Owner occupied
   
131
     
131
 
Non owner occupied
   
5,623
     
5,695
 
Commercial and industrial
   
126
     
136
 
All other
   
5,149
     
5,128
 
Total carrying amount
 
$
11,489
   
$
11,587
 
Contractual principal balance
 
$
21,159
   
$
21,250
 
                 
Carrying amount, net of allowance
 
$
10,463
   
$
10,639
 

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses for the six months ended June 30, 2015, nor did it increase the allowance for loan losses for purchased impaired loans during the six months ended June 30, 2014.

For the majority of these loans, the Company cannot reasonably estimate the cash flows expected to be collected on the loans and therefore has continued to account for those loans using the cost recovery method of income recognition.  As such, no portion of a purchase discount adjustment has been determined to meet the definition of an accretable yield adjustment on those loans accounted for using the cost recovery method.  If, in the future, cash flows from the borrower(s) can be reasonably estimated, a portion of the purchase discount would be allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion would be recognized as interest income over the remaining life of the loan.  Until such accretable yield can be calculated, under the cost recovery method of income recognition, all payments will be used to reduce the carrying value of the loan and no income will be recognized on the loan until the carrying value is reduced to zero.  Any loan accounted for under the cost recovery method is also still included as a non-accrual loan in the amounts presented in the tables below.

PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE  3–LOANS - continued

The accretable yield, or income expected to be collected, on the purchased loans above is as follows at June 30, 2015 and June 30, 2014.

   
2015
   
2014
 
Balance at January 1
 
$
204
   
$
217
 
New loans purchased
   
-
     
-
 
Accretion of income
   
(10
)
   
(6
)
Reclassifications from non-accretable difference
   
-
     
-
 
Disposals
   
-
     
-
 
Balance at June 30
 
$
194
   
$
211
 


PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE  3–LOANS - continued

Past Due and Non-performing Loans

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2015 and December 31, 2014.  The recorded investment in non-accrual loans is less than the principal owed on non-accrual loans due to discounts applied to the carrying value of the loan at time of their acquisition and interest payments made by the borrower which have been used to reduce the recorded investment in the loan rather than recognized as interest income.

June 30, 2015
 
Principal Owed on Non-accrual Loans
   
Recorded Investment in Non-accrual Loans
   
Loans Past Due Over 90 Days, still accruing
 
             
Residential  real estate
 
$
2,507
   
$
2,283
   
$
378
 
Multifamily real estate
   
1,532
     
539
     
-
 
Commercial real estate
                       
Owner occupied
   
807
     
737
     
8
 
Non owner occupied
   
1,960
     
1,689
     
1,820
 
Commercial and industrial
   
1,576
     
471
     
83
 
Consumer
   
98
     
80
     
-
 
All other
   
12,635
     
5,183
     
-
 
Total
 
$
21,115
   
$
10,982
   
$
2,289
 
                         

December 31, 2014
 
Principal Owed on Non-accrual Loans
   
Recorded Investment in Non-accrual Loans
   
Loans Past Due Over 90 Days, still accruing
 
             
Residential  real estate
 
$
1,996
   
$
1,768
   
$
668
 
Multifamily real estate
   
1,803
     
1,033
     
564
 
Commercial real estate
                       
Owner occupied
   
2,115
     
1,928
     
-
 
Non owner occupied
   
2,020
     
1,819
     
26
 
Commercial and industrial
   
2,012
     
806
     
8
 
Consumer
   
213
     
185
     
-
 
All other
   
12,608
     
5,173
     
-
 
Total
 
$
22,767
   
$
12,712
   
$
1,266
 
                         

Nonaccrual loans and impaired loans are defined differently.  Some loans may be included in both categories, and some may only be included in one category. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE  3–LOANS - continued

The following table presents the aging of the recorded investment in past due loans as of June 30, 2015 by class of loans:
 
Loan Class
 
Total Loans
   
30-89 Days Past Due
   
Greater than 90 days past due
   
Total Past Due
   
Loans Not Past Due
 
                     
Residential real estate
 
$
282,923
   
$
5,862
   
$
1,658
   
$
7,520
   
$
275,403
 
Multifamily real estate
   
37,112
     
460
     
79
     
539
     
36,573
 
Commercial real estate:
                                       
Owner occupied
   
122,879
     
1,769
     
549
     
2,318
     
120,561
 
Non owner occupied
   
217,881
     
125
     
3,509
     
3,634
     
214,247
 
Commercial and industrial
   
76,193
     
1,737
     
348
     
2,085
     
74,108
 
Consumer
   
31,561
     
526
     
15
     
541
     
31,020
 
All other
   
115,324
     
13,591
     
5,149
     
18,740
     
96,584
 
Total
 
$
883,873
   
$
24,070
   
$
11,307
   
$
35,377
   
$
848,496
 

The following table presents the aging of the recorded investment in past due loans as of December 31, 2014 by class of loans:
 
Loan Class
 
Total Loans
   
30-89 Days Past Due
   
Greater than 90 days past due
   
Total Past Due
   
Loans Not Past Due
 
                     
Residential real estate
 
$
278,212
   
$
5,810
   
$
1,706
   
$
7,516
   
$
270,696
 
Multifamily real estate
   
30,310
     
177
     
1,100
     
1,277
     
29,033
 
Commercial real estate:
                                       
Owner occupied
   
120,861
     
250
     
1,530
     
1,780
     
119,081
 
Non owner occupied
   
230,750
     
2,173
     
1,670
     
3,843
     
226,907
 
Commercial and industrial
   
85,943
     
1,720
     
608
     
2,328
     
83,615
 
Consumer
   
32,745
     
497
     
71
     
568
     
32,177
 
All other
   
100,890
     
234
     
5,127
     
5,361
     
95,529
 
Total
 
$
879,711
   
$
10,861
   
$
11,812
   
$
22,673
   
$
857,038
 


PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE  3–LOANS - continued

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2015:
 
   
Allowance for Loan Losses
   
Loan Balances
 
Loan Class
 
Individually Evaluated for Impairment
   
Collectively Evaluated for Impairment
   
Acquired with Deteriorated Credit Quality
   
Total
   
Individually Evaluated for Impairment
   
Collectively Evaluated for Impairment
   
Acquired with Deteriorated Credit Quality
   
Total
 
                                 
Residential real estate
 
$
183
   
$
2,283
   
$
-
   
$
2,466
   
$
571
   
$
282,352
   
$
-
   
$
282,923
 
Multifamily real estate
   
-
     
512
     
-
     
512
     
79
     
36,573
     
460
     
37,112
 
Commercial real estate:
                                                               
Owner occupied
   
48
     
1,428
     
-
     
1,476
     
943
     
121,805
     
131
     
122,879
 
Non-owner occupied
   
29
     
2,303
     
-
     
2,332
     
4,396
     
207,862
     
5,623
     
217,881
 
Commercial and industrial
   
230
     
783
     
126
     
1,139
     
666
     
75,401
     
126
     
76,193
 
Consumer
   
-
     
274
     
-
     
274
     
-
     
31,561
     
-
     
31,561
 
All other
   
-
     
1,595
     
900
     
2,495
     
912
     
109,263
     
5,149
     
115,324
 
Total
 
$
490
   
$
9,178
   
$
1,026
   
$
10,694
   
$
7,567
   
$
864,817
   
$
11,489
   
$
883,873
 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2014:
   
Allowance for Loan Losses
   
Loan Balances
 
Loan Class
 
Individually Evaluated for Impairment
   
Collectively Evaluated for Impairment
   
Acquired with Deteriorated Credit Quality
   
Total
   
Individually Evaluated for Impairment
   
Collectively Evaluated for Impairment
   
Acquired with Deteriorated Credit Quality
   
Total
 
                                 
Residential real estate
 
$
-
   
$
2,093
   
$
-
   
$
2,093
   
$
137
   
$
278,075
   
$
-
   
$
278,212
 
Multifamily real estate
   
-
     
304
     
-
     
304
     
536
     
29,277
     
497
     
30,310
 
Commercial real estate:
                                                               
Owner occupied
   
107
     
1,394
     
-
     
1,501
     
2,011
     
118,719
     
131
     
120,861
 
Non-owner occupied
   
54
     
2,262
     
-
     
2,316
     
4,874
     
220,181
     
5,695
     
230,750
 
Commercial and industrial
   
291
     
1,105
     
48
     
1,444
     
902
     
84,905
     
136
     
85,943
 
Consumer
   
-
     
243
     
-
     
243
     
-
     
32,745
     
-
     
32,745
 
All other
   
-
     
1,546
     
900
     
2,446
     
1,109
     
94,653
     
5,128
     
100,890
 
Total
 
$
452
   
$
8,947
   
$
948
   
$
10,347
   
$
9,569
   
$
858,555
   
$
11,587
   
$
879,711
 
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE  3–LOANS - continued

In the tables below, total individually evaluated impaired loans include certain purchased loans that were acquired with deteriorated credit quality that are still individually evaluated for impairment.

The following table presents loans individually evaluated for impairment by class of loans as of    June 30, 2015.  The table includes $5,658,000 of loans acquired with deteriorated credit quality that the Company cannot reasonably estimate cash flows such that they are accounted for on the cost recovery method and are still individually evaluated for impairment.

   
Unpaid Principal Balance
   
Recorded Investment
   
Allowance for Loan Losses Allocated
 
With no related allowance recorded:
           
Residential real estate
 
$
363
   
$
325
   
$
-
 
Multifamily real estate
   
1,532
     
539
     
-
 
Commercial real estate
                       
Owner occupied
   
612
     
549
     
-
 
Non owner occupied
   
4,049
     
3,778
     
-
 
Commercial and industrial
   
1,193
     
417
     
-
 
All other
   
967
     
912
     
-
 
     
8,716
     
6,520
     
-
 
With an allowance recorded:
                       
Residential real estate
 
$
252
   
$
246
   
$
183
 
Commercial real estate
                       
Owner occupied
   
394
     
394
     
48
 
Non owner occupied
   
618
     
618
     
29
 
Commercial and industrial
   
651
     
375
     
356
 
All other
   
12,546
     
5,149
     
900
 
     
14,461
     
6,782
     
1,516
 
Total
 
$
23,177
   
$
13,302
   
$
1,516
 
                         


PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE  3–LOANS - continued

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2014.  The table includes $5,673,000 of loans acquired with deteriorated credit quality that the Company cannot reasonably estimate cash flows such that they are accounted for on the cost recovery method and are still individually evaluated for impairment.

   
Unpaid Principal Balance
   
Recorded Investment
   
Allowance for Loan Losses Allocated
 
With no related allowance recorded:
           
Residential  real estate
 
$
179
   
$
137
   
$
-
 
Multifamily real estate
   
1,803
     
1,033
     
-
 
Commercial real estate
                       
Owner occupied
   
1,404
     
1,304
     
-
 
Non owner occupied
   
4,398
     
4,190
     
-
 
Commercial and industrial
   
1,030
     
270
     
-
 
All other
   
1,144
     
1,108
     
-
 
     
9,958
     
8,042
     
-
 
With an allowance recorded:
                       
Commercial real estate
                       
Owner occupied
 
$
707
   
$
707
   
$
107
 
Non owner occupied
   
684
     
684
     
54
 
Commercial and industrial
   
929
     
680
     
339
 
All other
   
12,525
     
5,129
     
900
 
     
14,845
     
7,200
     
1,400
 
Total
 
$
24,803
   
$
15,242
   
$
1,400
 
                         


PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE  3–LOANS - continued

The following table presents the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the six months ended June 30, 2015 and June 30, 2014.   The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

   
Six months ended June 30, 2015
   
Six months ended June 30, 2014
 
Loan Class
 
Average Recorded Investment
   
Interest Income Recognized
   
Cash Basis Interest Recognized
   
Average Recorded Investment
   
Interest Income Recognized
   
Cash Basis Interest Recognized
 
 
Residential real estate
 
$
281
   
$
2
   
$
2
   
$
2,536
   
$
61
   
$
61
 
Multifamily real estate
   
1,377
     
14
     
14
     
2,586
     
727
     
727
 
Commercial real estate:
                                               
Owner occupied
   
1,286
     
18
     
13
     
2,155
     
29
     
21
 
Non-owner occupied
   
4,665
     
94
     
82
     
800
     
627
     
627
 
Commercial and industrial
   
922
     
14
     
14
     
2,395
     
542
     
542
 
All other
   
6,150
     
30
     
28
     
7,603
     
81
     
81
 
Total
 
$
14,681
   
$
172
   
$
153
   
$
18,075
   
$
2,067
   
$
2,059
 

The following table presents the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the three months ended June 30, 2015 and June 30, 2014.  The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

   
Three months ended June 30, 2015
   
Three months ended June 30, 2014
 
Loan Class
 
Average Recorded Investment
   
Interest Income Recognized
   
Cash Basis Interest Recognized
   
Average Recorded Investment
   
Interest Income Recognized
   
Cash Basis Interest Recognized
 
                         
Residential real estate
 
$
352
   
$
1
   
$
1
   
$
2,318
   
$
27
   
$
27
 
Multifamily real estate
   
1,550
     
14
     
14
     
2,353
     
19
     
19
 
Commercial real estate:
                                               
Owner occupied
   
922
     
9
     
5
     
1,983
     
14
     
10
 
Non-owner occupied
   
4,561
     
46
     
34
     
214
     
-
     
-
 
Commercial and industrial
   
908
     
10
     
10
     
1,265
     
9
     
9
 
All other
   
6,108
     
14
     
14
     
7,453
     
38
     
38
 
Total
 
$
14,401
   
$
94
   
$
78
   
$
15,586
   
$
107
   
$
103
 
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE  3–LOANS - continued

Troubled Debt Restructurings

A loan is classified as a troubled debt restructuring ("TDR") when loan terms are modified due to a borrower's financial difficulties and a concession is granted to a borrower that would not have otherwise been considered. Most of the Company's loan modifications involve a restructuring of loan terms prior to maturity to temporarily reduce the payment amount and/or to require only interest for a temporary period, usually up to six months.  These modifications generally do not meet the definition of a TDR because the modifications are considered to be an insignificant delay in payment.  The determination of an insignificant delay in payment is evaluated based on the facts and circumstances of the individual borrower(s).

The following table presents TDR's as of June 30, 2015 and December 31, 2014:

June 30, 2015
 
TDR's on Non-accrual
   
Other TDR's
   
Total TDR's
 
             
Residential  real estate
 
$
9
   
$