Attached files

file filename
EX-31.1 - CEO SECTION 302 CERTIFICATION - PREMIER FINANCIAL BANCORP INCexhibit31-1.htm
EX-31.2 - CFO SECTION 302 CERTIFICATION - PREMIER FINANCIAL BANCORP INCexhibit31-2.htm
EX-32 - CEO AND CFO SECTION 906 CERTIFICATION - PREMIER FINANCIAL BANCORP INCexhibit32.htm


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 September 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, – 8,175,021 shares outstanding at October 31, 2015
 

PREMIER FINANCIAL BANCORP, INC.
SEPTEMBER 30, 2015
INDEX TO REPORT


   
     
     
     
     
     
     
     
     
     
     
     
     
     


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


   
September 30,
   
December 31,
 
   
2015
   
2014
 
ASSETS
       
Cash and due from banks
 
$
33,073
   
$
35,147
 
Interest bearing bank balances
   
74,585
     
35,251
 
Federal funds sold
   
4,193
     
4,986
 
Cash and cash equivalents
   
111,851
     
75,384
 
Securities available for sale
   
228,610
     
229,750
 
Loans held for sale
   
-
     
226
 
Loans
   
855,062
     
879,711
 
Allowance for loan losses
   
(9,825
)
   
(10,347
)
Net loans
   
845,237
     
869,364
 
Federal Home Loan Bank stock, at cost
   
3,072
     
2,996
 
Premises and equipment, net
   
19,958
     
21,384
 
Real estate and other property acquired through foreclosure
   
13,674
     
12,208
 
Interest receivable
   
3,407
     
3,219
 
Goodwill
   
33,796
     
33,796
 
Other intangible assets
   
2,390
     
3,033
 
Other assets
   
1,249
     
1,464
 
Total assets
 
$
1,263,244
   
$
1,252,824
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Deposits
               
Non-interest bearing
 
$
269,544
   
$
252,828
 
Time deposits, $250,000 and over
   
65,577
     
66,216
 
Other interest bearing
   
743,631
     
756,199
 
Total deposits
   
1,078,752
     
1,075,243
 
Securities sold under agreements to repurchase
   
20,532
     
15,580
 
Other borrowed funds
   
11,999
     
11,722
 
Interest payable
   
339
     
434
 
Other liabilities
   
4,560
     
4,063
 
Total liabilities
   
1,116,182
     
1,107,042
 
                 
Stockholders' equity
               
Common stock, no par value; 20,000,000 shares authorized; 8,175,021 shares issued and outstanding at September 30, 2015, and 8,142,056 shares issued and outstanding at December 31, 2014
   
69,299
     
74,568
 
Retained earnings
   
75,967
     
69,719
 
Accumulated other comprehensive income (loss)
   
1,796
     
1,495
 
Total stockholders' equity
   
147,062
     
145,782
 
Total liabilities and stockholders' equity
 
$
1,263,244
   
$
1,252,824
 
                 

See Accompanying Notes to Consolidated Financial Statements
4

PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
Interest income
               
Loans, including fees
 
$
12,506
   
$
12,056
   
$
35,812
   
$
34,981
 
Securities available for sale
                               
Taxable
   
1,176
     
1,365
     
3,639
     
4,080
 
Tax-exempt
   
51
     
59
     
162
     
157
 
Federal funds sold and other
   
49
     
46
     
137
     
142
 
Total interest income
   
13,782
     
13,526
     
39,750
     
39,360
 
                                 
Interest expense
                               
Deposits
   
858
     
953
     
2,661
     
2,800
 
Repurchase agreements and other
   
9
     
8
     
28
     
24
 
Other borrowings
   
132
     
139
     
391
     
427
 
Total interest expense
   
999
     
1,100
     
3,080
     
3,251
 
                                 
Net interest income
   
12,783
     
12,426
     
36,670
     
36,109
 
Provision for loan losses
   
309
     
536
     
232
     
147
 
Net interest income after provision for loan losses
   
12,474
     
11,890
     
36,438
     
35,962
 
                                 
Non-interest income
                               
Service charges on deposit accounts
   
948
     
924
     
2,740
     
2,562
 
Electronic banking income
   
670
     
647
     
2,016
     
1,797
 
Secondary market mortgage income
   
38
     
73
     
98
     
142
 
Gain on disposition of securities
   
-
     
28
     
-
     
28
 
Other
   
146
     
186
     
415
     
493
 
     
1,802
     
1,858
     
5,269
     
5,022
 
Non-interest expenses
                               
Salaries and employee benefits
   
4,149
     
4,400
     
12,965
     
13,257
 
Occupancy and equipment expenses
   
1,328
     
1,281
     
3,918
     
3,741
 
Outside data processing
   
1,104
     
1,079
     
3,275
     
2,977
 
Professional fees
   
189
     
(104
)
   
497
     
641
 
Taxes, other than payroll, property and income
   
135
     
203
     
476
     
507
 
Write-downs, expenses, sales of other real estate owned, net
   
669
     
450
     
1,351
     
56
 
Amortization of intangibles
   
210
     
225
     
644
     
593
 
FDIC insurance
   
232
     
247
     
653
     
708
 
Other expenses
   
1,070
     
1,047
     
3,028
     
3,091
 
     
9,086
     
8,828
     
26,807
     
25,571
 
Income before income taxes
   
5,190
     
4,920
     
14,900
     
15,413
 
Provision for income taxes
   
1,865
     
1,769
     
5,306
     
5,492
 
                                 
Net income
 
$
3,325
   
$
3,151
   
$
9,594
   
$
9,921
 
                                 
Preferred stock dividends and accretion
   
-
     
(205
)
   
-
     
(535
)
Net income available to common stockholders
 
$
3,325
   
$
2,946
   
$
9,594
   
$
9,386
 
                                 
Net income per share:
                               
Basic
 
$
0.41
   
$
0.36
   
$
1.18
   
$
1.16
 
Diluted
   
0.40
     
0.34
     
1.14
     
1.09
 
Dividends per share
   
0.15
     
0.12
     
0.41
     
0.47
 
See Accompanying Notes to Consolidated Financial Statements
5

PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
Net income
 
$
3,325
   
$
3,151
   
$
9,594
   
$
9,921
 
                                 
Other comprehensive income (loss):
                               
Unrealized gains (losses) arising during the period
   
732
     
(577
)
   
456
     
2,882
 
Reclassification of realized amount
   
-
     
(28
)
   
-
     
(28
)
Net change in unrealized gain on securities
   
732
     
(605
)
   
456
     
2,854
 
Less tax impact
   
(249
)
   
206
     
(155
)
   
(970
)
Other comprehensive income (loss)
   
483
     
(399
)
   
301
     
1,884
 
                                 
Comprehensive income
 
$
3,808
   
$
2,752
   
$
9,895
   
$
11,805
 
                               
 
 
 
 
 
 
 
 
 
 
 
See Accompanying Notes to Consolidated Financial Statements
6

PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(UNAUDITED, DOLLARS IN THOUSANDS)


   
2015
   
2014
 
Cash flows from operating activities
       
Net income
 
$
9,594
   
$
9,921
 
Adjustments to reconcile net income to net cash from operating activities
               
Depreciation
   
1,290
     
1,151
 
Provision for loan losses
   
232
     
147
 
Amortization (accretion), net
   
154
     
627
 
OREO writedowns (gains on sales), net
   
625
     
(679
)
Stock compensation expense
   
188
     
208
 
Loans originated for sale
   
(1,679
)
   
(5,167
)
Secondary market loans sold
   
1,941
     
4,991
 
Secondary market income
   
(38
)
   
(142
)
Gain on disposition of securities
   
-
     
(28
)
Changes in :
               
Interest receivable
   
(188
)
   
461
 
Other assets
   
221
     
1,180
 
Interest payable
   
(95
)
   
(74
)
Other liabilities
   
337
     
981
 
Net cash from operating activities
   
12,582
     
13,577
 
                 
Cash flows from investing activities
               
Purchases of securities available for sale
   
(51,610
)
   
(36,435
)
Proceeds from the sale of securities available for sale
   
-
     
4,842
 
Proceeds from maturities and calls of securities available for sale
   
52,396
     
36,654
 
Purchase of FHLB stock
   
(76
)
   
-
 
Redemption of FHLB stock
   
-
     
408
 
Net change in loans
   
19,330
     
(20,249
)
Acquisition of subsidiary, net of cash received
   
-
     
40,973
 
Purchases of premises and equipment, net
   
(624
)
   
(725
)
Improvements to OREO property
   
(29
)
   
(189
)
Proceeds from sales of other real estate acquired through foreclosure
   
4,424
     
3,370
 
Net cash from investing activities
   
23,811
     
28,649
 
                 
Cash flows from financing activities
               
Net change in deposits
   
3,648
     
(31,373
)
Net change in agreements to repurchase securities
   
4,952
     
1,836
 
Net change in short-term Federal Home Loan Bank advances
   
-
     
5,000
 
Redemption of Preferred Stock
   
-
     
(7,000
)
Repayment of other borrowed funds
   
(15,669
)
   
(1,814
)
Proceeds from other borrowings
   
15,946
     
-
 
Proceeds from stock option exercises
   
218
     
567
 
Purchase of warrant
   
(5,675
)
   
-
 
Common stock dividends paid
   
(3,346
)
   
(3,796
)
Preferred stock dividends paid
   
-
     
(490
)
Net cash from financing activities
   
74
     
(37,070
)
                 
Net change in cash and cash equivalents
   
36,467
     
5,156
 
                 
Cash and cash equivalents at beginning of period
   
75,384
     
76,761
 
                 
Cash and cash equivalents at end of period
 
$
111,851
   
$
81,917
 
See Accompanying Notes to Consolidated Financial Statements
7

PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(UNAUDITED, DOLLARS IN THOUSANDS)


   
2015
   
2014
 
Supplemental disclosures of cash flow information:
       
Cash paid during period for interest
 
$
3,175
   
$
3,325
 
                 
Cash paid during period for income taxes
   
4,686
     
4,179
 
                 
Loans transferred to real estate acquired through foreclosure
   
5,726
     
1,552
 
                 
Premises transferred to other real estate owned
   
760
     
-
 
                 
 
 
 
 
 
 

 

See Accompanying Notes to Consolidated Financial Statements
8

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"):

               
September 30, 2015
 
        Year   Total     Net Income  
Subsidiary                                      
 
Location                          
 
Acquired
 
Assets
   
Qtr
   
YTD
 
Citizens Deposit Bank & Trust
 
Vanceburg, Kentucky
 
1991
 
$
384,262
   
$
1,067
   
$
3,012
 
Premier Bank, Inc.
 
Huntington, West Virginia
 
1998
   
877,056
     
2,704
     
7,979
 
Parent and Intercompany Eliminations
           
1,926
     
(446
)
   
(1,397
)
  Consolidated Total
          
$
1,263,244
   
$
3,325
   
$
9,594
 

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 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.
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 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 September 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
 
$
93,376
   
$
1,022
   
$
(54
)
 
$
94,344
 
U. S. sponsored agency CMO's - residential
   
112,974
     
1,995
     
(506
)
   
114,463
 
Total mortgage-backed securities of government sponsored agencies
   
206,350
     
3,017
     
(560
)
   
208,807
 
U. S. government sponsored agency securities
   
10,445
     
76
     
-
     
10,521
 
Obligations of states and political subdivisions
   
9,094
     
197
     
(9
)
   
9,282
 
Total available for sale
 
$
225,889
   
$
3,290
   
$
(569
)
 
$
228,610
 

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
   
22,533
     
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 September 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
 
$
5,776
   
$
5,793
 
Due after one year through five years
   
11,264
     
11,453
 
Due after five years through ten years
   
2,252
     
2,308
 
Due after ten years
   
247
     
249
 
Mortgage-backed securities of government sponsored agencies
   
206,350
     
208,807
 
Total available for sale
 
$
225,889
   
$
228,610
 
                 

There were no sales of securities during the first nine months of 2015.  Proceeds from the sale of securities were $4,842,000 during the first nine months of 2014, while a $28,000 gain was recognized on the sale of those securities.

Securities with unrealized losses at September 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
 
$
17,479
   
$
(54
)
 
$
-
   
$
-
   
$
17,479
   
$
(54
)
U.S government sponsored agency CMO – residential
   
3,908
     
(72
)
   
20,894
     
(434
)
   
24,802
     
(506
)
Obligations of states and political subdivisions
   
920
     
(9
)
   
-
     
-
     
920
     
(9
)
Total temporarily impaired
 
$
22,307
   
$
(135
)
 
$
20,894
   
$
(434
)
 
$
43,201
   
$
(569
)

 
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 September 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 September 30, 2015 and December 31, 2014 are summarized as follows:

   
2015
   
2014
 
Residential real estate
 
$
284,052
   
$
278,212
 
Multifamily real estate
   
37,202
     
30,310
 
Commercial real estate:
               
Owner occupied
   
117,125
     
120,861
 
Non owner occupied
   
208,101
     
230,750
 
Commercial and industrial
   
76,314
     
85,943
 
Consumer
   
31,894
     
32,745
 
All other
   
100,374
     
100,890
 
   
$
855,062
   
$
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 nine months ended September 30, 2015 was as follows:

Loan Class
 
Balance
Dec 31, 2014
   
Provision (Credit)
for loan losses
   
Loans charged-off
   
Recoveries
   
Balance
Sept 30, 2015
 
                     
Residential real estate
 
$
2,093
   
$
557
   
$
102
   
$
74
   
$
2,622
 
Multifamily real estate
   
304
     
291
     
-
     
-
     
595
 
Commercial real estate:
                                       
Owner occupied
   
1,501
     
(3
)
   
2
     
2
     
1,498
 
Non owner occupied
   
2,316
     
(599
)
   
-
     
659
     
2,376
 
Commercial and industrial
   
1,444
     
71
     
403
     
7
     
1,119
 
Consumer
   
243
     
128
     
167
     
82
     
286
 
All other
   
2,446
     
(213
)
   
1,058
     
154
     
1,329
 
Total
 
$
10,347
   
$
232
   
$
1,732
   
$
978
   
$
9,825
 

Activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2014 was as follows:

Loan Class
 
Balance
Dec 31, 2013
   
Provision (Creidt)
for loan losses
   
Loans charged-off
   
Recoveries
   
Balance
Sept 30, 2014
 
                     
Residential real estate
 
$
2,694
   
$
(419
)
 
$
308
   
$
55
   
$
2,022
 
Multifamily real estate
   
417
     
(137
)
   
-
     
-
     
280
 
Commercial real estate:
                                       
Owner occupied
   
1,407
     
112
     
207
     
-
     
1,312
 
Non owner occupied
   
2,037
     
310
     
323
     
-
     
2,024
 
Commercial and industrial
   
2,184
     
(335
)
   
111
     
11
     
1,749
 
Consumer
   
297
     
(12
)
   
105
     
45
     
225
 
All other
   
1,991
     
628
     
267
     
216
     
2,568
 
Total
 
$
11,027
   
$
147
   
$
1,321
   
$
327
   
$
10,180
 

 
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 September 30, 2015 was as follows:

Loan Class
 
Balance
June 30, 2015
   
Provision (Credit)
for loan losses
   
Loans charged-off
   
Recoveries
   
Balance
Sept. 30, 2015
 
                     
Residential real estate
 
$
2,466
   
$
185
   
$
35
   
$
6
   
$
2,622
 
Multifamily real estate
   
512
     
83
     
-
     
-
     
595
 
Commercial real estate:
                                       
Owner occupied
   
1,476
     
21
     
-
     
1
     
1,498
 
Non owner occupied
   
2,332
     
44
     
-
     
-
     
2,376
 
Commercial and industrial
   
1,139
     
211
     
234
     
3
     
1,119
 
Consumer
   
274
     
23
     
35
     
24
     
286
 
All other
   
2,495
     
(258
)
   
946
     
38
     
1,329
 
Total
 
$
10,694
   
$
309
   
$
1,250
   
$
72
   
$
9,825
 

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

Loan Class
 
Balance
June 30, 2014
   
Provision (Credit)
for loan losses
   
Loans charged-off
   
Recoveries
   
Balance
Sept 30, 2014
 
                     
Residential real estate
 
$
2,140
   
$
(28
)
 
$
137
   
$
47
   
$
2,022
 
Multifamily real estate
   
311
     
(31
)
   
-
     
-
     
280
 
Commercial real estate:
                                       
Owner occupied
   
1,364
     
73
     
125
     
-
     
1,312
 
Non owner occupied
   
2,270
     
(246
)
   
-
     
-
     
2,024
 
Commercial and industrial
   
1,489
     
281
     
27
     
6
     
1,749
 
Consumer
   
232
     
21
     
46
     
18
     
225
 
All other
   
2,071
     
466
     
63
     
94
     
2,568
 
Total
 
$
9,877
   
$
536
   
$
398
   
$
165
   
$
10,180
 

 
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 September 30, 2015 and December 31, 2014.

   
2015
   
2014
 
Multifamily real estate
 
$
-
   
$
497
 
Commercial real estate
               
Owner occupied
   
131
     
131
 
Non owner occupied
   
5,587
     
5,695
 
Commercial and industrial
   
114
     
136
 
All other
   
-
     
5,128
 
Total carrying amount
 
$
5,832
   
$
11,587
 
Contractual principal balance
 
$
7,450
   
$
21,250
 
                 
Carrying amount, net of allowance
 
$
5,718
   
$
10,639
 

For those purchased loans disclosed above, the Company increased the allowance for loan losses by $66,000 for the three and nine months ended September 30, 2015. The allowance for loan losses was not increased for purchased impaired loans during the three and nine months ended September 30, 2014.

For those purchased loans discussed above,  where the Company can reasonably estimate the cash flows expected to be collected on the loans, a portion of the purchase discount is 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 is being recognized as interest income over the remaining life of the loan.

Where the Company cannot reasonably estimate the cash flows expected to be collected on the loans, it 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 September 30, 2015 and September 30, 2014.

   
2015
   
2014
 
Balance at January 1
 
$
204
   
$
217
 
New loans purchased
   
-
     
-
 
Accretion of income
   
(14
)
   
(9
)
Reclassifications from non-accretable difference
   
-
     
-
 
Disposals
   
-
     
-
 
Balance at September 30
 
$
190
   
$
208
 


 
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 September 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.

September 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
 
$
2,439
   
$
2,188
   
$
971
 
Multifamily real estate
   
411
     
70
     
-
 
Commercial real estate
                       
Owner occupied
   
879
     
806
     
1,132
 
Non owner occupied
   
1,928
     
1,628
     
1,811
 
Commercial and industrial
   
1,465
     
354
     
1,388
 
Consumer
   
211
     
198
     
-
 
All other
   
88
     
33
     
-
 
Total
 
$
7,431
   
$
5,277
   
$
5,302
 
                         

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 September 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
 
$
284,052
   
$
5,320
   
$
2,086
   
$
7,406
   
$
276,646
 
Multifamily real estate
   
37,202
     
312
     
70
     
382
     
36,820
 
Commercial real estate:
                                       
Owner occupied
   
117,125
     
2,137
     
1,674
     
3,811
     
113,314
 
Non owner occupied
   
208,101
     
4,115
     
3,439
     
7,554
     
200,547
 
Commercial and industrial
   
76,314
     
303
     
1,571
     
1,874
     
74,440
 
Consumer
   
31,894
     
442
     
91
     
533
     
31,361
 
All other
   
100,374
     
904
     
-
     
904
     
99,470
 
Total
 
$
855,062
   
$
13,533
   
$
8,931
   
$
22,464
   
$
832,598
 

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 September 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
 
$
177
   
$
2,445
   
$
-
   
$
2,622
   
$
475
   
$
283,577
   
$
-
   
$
284,052
 
Multifamily real estate
   
-
     
595
     
-
     
595
     
71
     
37,131
     
-
     
37,202
 
Commercial real estate:
                                                               
Owner occupied
   
33
     
1,465
     
-
     
1,498
     
772
     
116,222
     
131
     
117,125
 
Non-owner occupied
   
-
     
2,376
     
-
     
2,376
     
4,212
     
198,302
     
5,587
     
208,101
 
Commercial and industrial
   
139
     
866
     
114
     
1,119
     
546
     
75,654
     
114
     
76,314
 
Consumer
   
-
     
286
     
-
     
286
     
-
     
31,894
     
-
     
31,894
 
All other
   
-
     
1,329
     
-
     
1,329
     
912
     
99,462
     
-
     
100,374
 
Total
 
$
349
   
$
9,362
   
$
114
   
$
9,825
   
$
6,988
   
$
842,242
   
$
5,832
   
$
855,062
 

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 September 30, 2015.  The table includes $114,000 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
 
$
295
   
$
254
   
$
-
 
Multifamily real estate
   
412
     
71
     
-
 
Commercial real estate
                       
Owner occupied
   
457
     
392
     
-
 
Non owner occupied
   
4,512
     
4,212
     
-
 
Commercial and industrial
   
1,180
     
407
     
-
 
All other
   
967
     
912
     
-
 
     
7,823
     
6,248
     
-
 
With an allowance recorded:
                       
Residential real estate
 
$
227
   
$
221
   
$
177
 
Commercial real estate
                       
Owner occupied
   
380
     
380
     
33
 
Commercial and industrial
   
536
     
253
     
253
 
     
1,143
     
854
     
463
 
Total
 
$
8,966
   
$
7,102
   
$
463
 
                         


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 nine months ended September 30, 2015 and September 30, 2014. The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

   
Nine months ended Sept. 30, 2015
   
Nine months ended Sept. 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
 
$
329
   
$
5
   
$
5
   
$
2,421
   
$
209
   
$
209
 
Multifamily real estate
   
1,051
     
685
     
685
     
2,518
     
746
     
746
 
Commercial real estate:
                                               
Owner occupied
   
1,157
     
25
     
25
     
2,171
     
39
     
30
 
Non-owner occupied
   
4,552
     
137
     
115
     
1,388
     
644
     
634
 
Commercial and industrial
   
856
     
20
     
20
     
2,152
     
546
     
546
 
All other
   
4,841
     
43
     
28
     
7,624
     
126
     
126
 
Total
 
$
12,786
   
$
915
   
$
878
   
$
18,274
   
$
2,310
   
$
2,291
 

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 September 30, 2015 and September 30, 2014. The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

   
Three months ended Sept. 30, 2015
   
Three months ended Sept. 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
 
$
523
   
$
3
   
$
3
   
$
2,166
   
$
148
   
$
148
 
Multifamily real estate
   
305
     
671
     
671
     
2,328
     
19
     
19
 
Commercial real estate:
                                               
Owner occupied
   
857
     
7
     
7
     
2,080
     
10
     
9
 
Non-owner occupied
   
4,304
     
43
     
34
     
1,679
     
17
     
7
 
Commercial and industrial
   
726
     
6
     
6
     
1,337
     
4
     
4
 
All other
   
3,487
     
14
     
-
     
7,475
     
45
     
45
 
Total
 
$
10,202
   
$
744
   
$
721
   
$
17,065
   
$
243
   
$
232
 
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 September 30, 2015 and December 31, 2014:

September 30, 2015
 
TDR's on Non-accrual
   
Other TDR's
   
Total TDR's
 
             
Residential real estate
 
$
8
   
$
176
   
$
184
 
Commercial real estate
                       
Non owner occupied
   
-
     
459
     
459
 
Commercial and industrial
   
-
     
406
     
406
 
All other
   
-
     
886
     
886
 
Total
 
$
8
   
$
1,927