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EX-32 - CEO AND CFO SECTION 906 CERTIFICATION - PREMIER FINANCIAL BANCORP INCexhibit32.htm
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


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 March 31, 2016

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, – 9,650,830 shares outstanding at April 29, 2016

PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2016
INDEX TO REPORT

 
PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2016


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 public accountants.

The accompanying financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the registrant’s annual report on Form 10-K.  Accordingly, the reader of the Form 10-Q may wish to refer to the registrant’s Form 10-K for the year ended December 31, 2015 for further information in this regard.

Index to consolidated financial statements:
 
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2016 AND DECEMBER 31, 2015
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


   
(UNAUDITED)
     
   
2016
   
2015
 
ASSETS
       
Cash and due from banks
 
$
35,641
   
$
33,888
 
Interest bearing bank balances
   
80,838
     
32,816
 
Federal funds sold
   
8,052
     
5,835
 
Cash and cash equivalents
   
124,531
     
72,539
 
Securities available for sale
   
315,698
     
255,466
 
Loans
   
986,643
     
849,746
 
Allowance for loan losses
   
(9,915
)
   
(9,647
)
Net loans
   
976,728
     
840,099
 
Federal Home Loan Bank stock, at cost
   
3,267
     
3,072
 
Premises and equipment, net
   
24,029
     
19,841
 
Real estate and other property acquired through foreclosure
   
13,426
     
13,040
 
Interest receivable
   
3,715
     
3,162
 
Goodwill
   
37,117
     
33,796
 
Other intangible assets
   
3,768
     
2,180
 
Other assets
   
1,203
     
1,498
 
Total assets
 
$
1,503,482
   
$
1,244,693
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Deposits
               
Non-interest bearing
 
$
305,512
   
$
271,194
 
Time deposits, $250,000 and over
   
70,427
     
64,062
 
Other interest bearing
   
908,237
     
724,940
 
Total deposits
   
1,284,176
     
1,060,196
 
Securities sold under agreements to repurchase
   
24,533
     
21,694
 
FHLB advances
   
1,289
     
-
 
Other borrowed funds
   
10,684
     
11,292
 
Subordinated debentures
   
5,313
     
-
 
Interest payable
   
371
     
321
 
Other liabilities
   
4,385
     
3,958
 
Total liabilities
   
1,330,751
     
1,097,461
 
                 
Stockholders' equity
               
Common stock, no par value; 20,000,000 shares authorized; 9,605,830 shares issued and
outstanding at March 31, 2016, and 8,179,731 shares issued and outstanding at December 31, 2015
   
91,561
     
69,319
 
Retained earnings
   
79,132
     
77,592
 
Accumulated other comprehensive income
   
2,038
     
321
 
Total stockholders' equity
   
172,731
     
147,232
 
Total liabilities and stockholders' equity
 
$
1,503,482
   
$
1,244,693
 
                 

PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


   
Three Months Ended
March 31,
 
   
2016
   
2015
 
Interest income
       
Loans, including fees
 
$
12,601
   
$
11,665
 
Securities available for sale
               
Taxable
   
1,428
     
1,257
 
Tax-exempt
   
84
     
55
 
Federal funds sold and other
   
97
     
36
 
Total interest income
   
14,210
     
13,013
 
                 
Interest expense
               
Deposits
   
977
     
916
 
Repurchase agreements and other
   
7
     
10
 
FHLB advances and other borrowings
   
120
     
123
 
Subordinated debentures
   
51
     
-
 
Total interest expense
   
1,155
     
1,049
 
                 
Net interest income
   
13,055
     
11,964
 
Provision for loan losses
   
312
     
69
 
Net interest income after provision for loan losses
   
12,743
     
11,895
 
                 
Non-interest income
               
Service charges on deposit accounts
   
961
     
878
 
Electronic banking income
   
762
     
644
 
Secondary market mortgage income
   
40
     
38
 
Other
   
174
     
145
 
     
1,937
     
1,705
 
Non-interest expenses
               
Salaries and employee benefits
   
4,991
     
4,341
 
Occupancy and equipment expenses
   
1,512
     
1,327
 
Outside data processing
   
1,321
     
1,096
 
Professional fees
   
150
     
129
 
Taxes, other than payroll, property and income
   
158
     
196
 
Write-downs, expenses, sales of other real estate owned, net
   
239
     
342
 
Amortization of intangibles
   
267
     
225
 
FDIC insurance
   
260
     
215
 
Conversion expenses
   
146
     
-
 
Other expenses
   
1,031
     
921
 
     
10,075
     
8,792
 
Income before income taxes
   
4,605
     
4,808
 
Provision for income taxes
   
1,626
     
1,666
 
                 
Net income
 
$
2,979
   
$
3,142
 
                 
Net income per share:
               
Basic
 
$
0.32
   
$
0.39
 
Diluted
   
0.32
     
0.36
 
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


   
Three Months Ended
March 31,
 
   
2016
   
2015
 
Net income
 
$
2,979
   
$
3,142
 
                 
Other comprehensive income:
               
Unrealized gains arising during the period
   
2,632
     
1,306
 
Reclassification of realized amount
   
(4
)
   
-
 
Net change in unrealized gain on securities
   
2,628
     
1,306
 
Less tax impact
   
(911
)
   
(444
)
Other comprehensive income
   
1,717
     
862
 
                 
Comprehensive income
 
$
4,696
   
$
4,004
 
                 



PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED MARCH 31, 2016
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)



   
Common
Stock
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income
   
Total
 
Balances, January 1, 2016
 
$
69,319
   
$
77,592
   
$
321
   
$
147,232
 
Net income
   
-
     
2,979
     
-
     
2,979
 
Other comprehensive income
   
-
     
-
     
1,717
     
1,717
 
Cash dividends paid ($0.15 per share)
   
-
     
(1,439
)
   
-
     
(1,439
)
Stock issued to acquire subsidiary, net
   
22,041
     
-
     
-
     
22,041
 
Stock options exercised
   
81
     
-
     
-
     
81
 
Stock based compensation expense
   
120
     
-
     
-
     
120
 
Balances, March 31, 2016
 
$
91,561
   
$
79,132
   
$
2,038
   
$
172,731
 

PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(UNAUDITED, DOLLARS IN THOUSANDS)


   
2016
   
2015
 
Cash flows from operating activities
       
Net income
 
$
2,979
   
$
3,142
 
Adjustments to reconcile net income to net cash from operating activities
               
Depreciation
   
472
     
420
 
Provision  for loan losses
   
312
     
69
 
Amortization (accretion), net
   
577
     
58
 
OREO writedowns (gains on sales), net
   
(11
)
   
177
 
Stock compensation expense
   
120
     
139
 
Loans originated for sale
   
-
     
(1,679
)
Secondary market loans sold
   
-
     
1,308
 
Secondary market income
   
-
     
(38
)
Gain on disposition of securities
   
(4
)
   
-
 
Changes in :
               
Interest receivable
   
45
     
114
 
Other assets
   
859
     
544
 
Interest payable
   
(37
)
   
(48
)
Other liabilities
   
(1,567
)
   
523
 
Net cash from operating activities
   
3,745
     
4,729
 
                 
Cash flows from investing activities
               
Purchases of securities available for sale
   
-
     
(8,757
)
Proceeds from maturities and calls of securities available for sale
   
18,389
     
15,350
 
Redemption of FRB stock
   
143
     
-
 
Purchase of subsidiaries, net of cash received
   
16,385
     
-
 
Net change in loans
   
(4,132
)
   
6,587
 
Purchases of premises and equipment, net
   
(54
)
   
(180
)
Improvements to OREO property
   
(30
)
   
-
 
Proceeds from sales of other real estate acquired through foreclosure
   
71
     
1,652
 
Net cash from investing activities
   
30,772
     
14,652
 
                 
Cash flows from financing activities
               
Net change in deposits
   
18,823
     
14,603
 
Net change in agreements to repurchase securities
   
671
     
2,519
 
Repayment of FHLB Advances
   
(53
)
   
-
 
Repayment of other borrowed funds
   
(608
)
   
(607
)
Proceeds from stock option exercises
   
81
     
11
 
Common stock dividends paid
   
(1,439
)
   
(1,058
)
Net cash from financing activities
   
17,475
     
15,468
 
                 
Net change in cash and cash equivalents
   
51,992
     
34,849
 
                 
Cash and cash equivalents at beginning of period
   
72,539
     
75,384
 
                 
Cash and cash equivalents at end of period
 
$
124,531
   
$
110,233
 
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(UNAUDITED, DOLLARS IN THOUSANDS)


   
2016
   
2015
 
Supplemental disclosures of cash flow information:
       
Cash paid during period for interest
 
$
1,196
   
$
1,097
 
                 
Cash paid during period for income taxes
   
205
     
-
 
                 
Loans transferred to real estate acquired through foreclosure
   
416
     
1,140
 
                 
 
Additional information regarding the assets acquired and liabilities assumed in the acquisition of First National Bankshares Corporation on January 15, 2016 can be found in Note 10 below.


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”):

               
March 31, 2016
 
         Year   Total     Net Income  
Subsidiary                                      
 
Location                          
 
Acquired
 
Assets
   
Qtr
 
Citizens Deposit Bank & Trust
 
Vanceburg, Kentucky
 
1991
 
$
393,226
   
$
1,074
 
Premier Bank, Inc.
 
Huntington, West Virginia
 
1998
   
1,103,194
     
2,422
 
Parent and Intercompany Eliminations
           
7,062
     
(517
)
  Consolidated Total
          
$
1,503,482
   
$
2,979
 


All significant intercompany transactions and balances have been eliminated.

Recently Issued Accounting Pronouncements

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.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.  The ASU makes several modifications to Subtopic 825-10 including the elimination of the available-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income.  This ASU will become effective for the Company for interim and annual periods beginning after December 15, 2017. The adoption of ASU No. 2016-01 is not expected to 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 1 - BASIS OF PRESENTATION - continued

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires organizations to recognizing lease assets and lease liabilities on the balance sheet and disclose key information about leasing requirements for leases that were historically classified as operating leases under previous generally accepted accounting principles. This ASU will become effective for the Company for interim and annual periods beginning after December 15, 2018. Management is currently evaluating the impact of the adoption of this guidance on the Company’s financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting. This ASU will require recognition of the income tax effects of share-based awards in the income statement when the awards vest or are settled (i.e., Additional Paid-in-Capital pools will be eliminated). The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted.  The adoption of ASU No. 2016-09 is not expected to 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 March 31, 2016 are summarized as follows:

2016
 
Amortized Cost
   
Unrealized Gains
   
Unrealized Losses
   
Fair Value
 
Available for sale
               
Mortgage-backed securities
               
U. S. sponsored agency MBS - residential
 
$
161,274
   
$
1,512
   
$
(52
)
 
$
162,734
 
U. S. sponsored agency CMO’s - residential
   
97,904
     
1,634
     
(327
)
   
99,211
 
Total mortgage-backed securities of  government sponsored agencies
   
259,178
     
3,146
     
(379
)
   
261,945
 
U. S. government sponsored agency securities
   
31,311
     
87
     
(8
)
   
31,390
 
Obligations of states and political subdivisions
   
22,121
     
264
     
(22
)
   
22,363
 
Total available for sale
 
$
312,610
   
$
3,497
   
$
(409
)
 
$
315,698
 

Amortized cost and fair value of investment securities, by category, at December 31, 2015 are summarized as follows:

2015
 
Amortized Cost
   
Unrealized Gains
   
Unrealized Losses
   
Fair Value
 
Available for sale
               
Mortgage-backed securities
               
U. S. sponsored agency MBS - residential
 
$
132,661
   
$
540
   
$
(854
)
 
$
132,347
 
U. S. sponsored agency CMO’s - residential
   
104,530
     
1,330
     
(738
)
   
105,122
 
  Total mortgage-backed securities of government sponsored agencies
   
237,191
     
1,870
     
(1,592
)
   
237,469
 
U. S. government sponsored agency securities
   
10,401
     
29
     
(1
)
   
10,429
 
Obligations of states and political subdivisions
   
7,387
     
184
     
(3
)
   
7,568
 
Total available for sale
 
$
254,979
   
$
2,083
   
$
(1,596
)
 
$
255,466
 

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 March 31, 2016 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
 
$
5,689
   
$
5,698
 
Due after one year through five years
   
38,141
     
38,319
 
Due after five years through ten years
   
8,447
     
8,576
 
Due after ten years
   
1,155
     
1,160
 
Mortgage-backed securities of government sponsored agencies
   
259,178
     
261,945
 
Total available for sale
 
$
312,610
   
$
315,698
 
                 

During the first three months of 2016 the Company sold $47,000 of securities and realized a gain of $4,000.  There were no sales of securities during the first three months of 2015.

Securities with unrealized losses at March 31, 2016 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
 
$
5,335
   
$
(8
)
 
$
-
   
$
-
   
$
5,335
   
$
(8
)
U.S government sponsored agency MBS – residential
   
27,723
     
(52
)
   
-
     
-
     
27,723
     
(52
)
U.S government sponsored agency CMO – residential
   
5,419
     
(33
)
   
17,249
     
(294
)
   
22,668
     
(327
)
Obligations of states and political subdivisions
   
5,496
     
(22
)
   
-
     
-
     
5,496
     
(22
)
Total temporarily impaired
 
$
43,973
   
$
(115
)
 
$
17,249
   
$
(294
)
 
$
61,222
   
$
(409
)
                                                 

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, 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 securities
 
$
2,016
   
$
(1
)
 
$
-
   
$
-
   
$
2,016
   
$
(1
)
U.S government sponsored agency MBS – residential
   
94,311
     
(854
)
   
-
     
-
     
94,311
     
(854
)
U.S government sponsored agency CMO’s – residential
   
11,604
     
(161
)
   
19,755
     
(577
)
   
31,359
     
(738
)
Obligations of states and political subdivisions
   
571
     
(3
)
   
-
     
-
     
571
     
(3
)
Total temporarily impaired
 
$
108,502
   
$
(1,019
)
 
$
19,755
   
$
(577
)
 
$
128,257
   
$
(1,596
)

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 March 31, 2016 and December 31, 2015 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 March 31, 2016 and December 31, 2015 are summarized as follows:

   
2016
   
2015
 
Residential real estate
 
$
339,969
   
$
285,826
 
Multifamily real estate
   
56,316
     
50,452
 
Commercial real estate:
               
Owner occupied
   
149,137
     
119,265
 
Non owner occupied
   
197,274
     
188,918
 
Commercial and industrial
   
77,801
     
68,339
 
Consumer
   
32,783
     
31,445
 
All other
   
133,363
     
105,501
 
   
$
986,643
   
$
849,746
 

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


NOTE 3–LOANS - continued

As more fully discussed under Note 10 below, the table above includes loans purchased in the acquisition of First National Bankshares Corporation (“Bankshares”). The composition of the major classifications of the loans acquired from Bankshares at March 31, 2016 are summarized as follows:

   
2016
 
Residential real estate
 
$
52,379
 
Multifamily real estate
   
3,414
 
Commercial real estate:
       
Owner occupied
   
22,616
 
Non owner occupied
   
10,809
 
Commercial and industrial
   
18,261
 
Consumer
   
3,040
 
All other
   
20,503
 
   
$
131,022
 

Activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2016 was as follows:

Loan Class
 
Balance
Dec 31, 2015
   
Provision (credit) or loan losses
   
Loans charged-off
   
Recoveries
   
Balance
March 31, 2016
 
                     
Residential real estate
 
$
2,501
   
$
78
   
$
49
   
$
9
   
$
2,539
 
Multifamily real estate
   
821
     
(76
)
   
-
     
-
     
745
 
Commercial real estate:
                                       
Owner occupied
   
1,509
     
21
     
-
     
1
     
1,531
 
Non owner occupied
   
2,070
     
267
     
-
     
-
     
2,337
 
Commercial and industrial
   
1,033
     
(136
)
   
-
     
36
     
933
 
Consumer
   
307
     
(11
)
   
44
     
36
     
288
 
All other
   
1,406
     
169
     
60
     
27
     
1,542
 
Total
 
$
9,647
   
$
312
   
$
153
   
$
109
   
$
9,915
 

Activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2015 was as follows:

Loan Class
 
Balance
Dec 31, 2014
   
Provision (credit) for loan losses
   
Loans charged-off
   
Recoveries
   
Balance
March 31, 2015
 
                     
Residential real estate
 
$
2,093
   
$
154
   
$
74
   
$
23
   
$
2,196
 
Multifamily real estate
   
304
     
(17
)
   
-
     
-
     
287
 
Commercial real estate:
                                       
Owner occupied
   
1,501
     
(11
)
   
2
     
1
     
1,489
 
Non owner occupied
   
2,316
     
8
     
-
     
-
     
2,324
 
Commercial and industrial
   
1,444
     
165
     
161
     
2
     
1,450
 
Consumer
   
243
     
18
     
54
     
34
     
241
 
All other
   
2,446
     
(248
)
   
59
     
44
     
2,183
 
Total
 
$
10,347
   
$
69
   
$
350
   
$
104
   
$
10,170
 
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 March 31, 2016 and December 31, 2015.

   
2016
   
2015
 
Residential real estate
 
$
2,189
   
$
-
 
Commercial real estate
               
Owner occupied
   
2,466
     
131
 
Non owner occupied
   
5,511
     
5,549
 
Commercial and industrial
   
385
     
80
 
All other
   
2,430
     
-
 
Total carrying amount
 
$
12,981
   
$
5,760
 
Contractual principal balance
 
$
17,102
   
$
7,251
 
                 
Carrying amount, net of allowance
 
$
12,916
   
$
5,680
 

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses for the three-months ended March 31, 2016, nor did it increase the allowance for loan losses for purchased impaired loans during the three-months ended March 31, 2015.

For those purchased loans disclosed 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 March 31, 2016 and March 31, 2015.

   
2016
   
2015
 
Balance at January 1
 
$
185
   
$
204
 
New loans purchased
   
1,506
     
-
 
Accretion of income
   
(40
)
   
(5
)
Reclassifications from non-accretable difference
   
-
     
-
 
Disposals
   
-
     
-
 
Balance at March 31
 
$
1,651
   
$
199
 

As part of the Bankshares acquisition on January 15, 2016, the Company purchased credit impaired loans for which it was probable at acquisition that all contractually required payments would not be collected.  The contractually required payments of such loans totaled $10,040,000, while the cash flow expected to be collected at acquisition totaled $9,028,000 and the fair value of the acquired loans totaled $7,522,000.
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 March 31, 2016 and December 31 2015. 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.

March 31, 2016
 
Principal Owed on Non-accrual Loans
   
Recorded Investment in Non-accrual Loans
   
Loans Past Due Over 90 Days, still accruing
 
             
Residential real estate
 
$
2,581
   
$
2,260
   
$
1,166
 
Multifamily real estate
   
422
     
81
     
306
 
Commercial real estate
                       
Owner occupied
   
1,356
     
1,317
     
166
 
Non owner occupied
   
2,104
     
1,997
     
-
 
Commercial and industrial
   
2,291
     
1,174
     
382
 
Consumer
   
300
     
275
     
-
 
All other
   
1,057
     
996
     
-
 
Total
 
$
10,111
   
$
8,100
   
$
2,020
 
Loans included in totals above acquired from Bankshares
 
$
-
   
$
-
   
$
1,219
 
                         

December 31, 2015
 
Principal Owed on Non-accrual Loans
   
Recorded Investment in Non-accrual Loans
   
Loans Past Due Over 90 Days, still accruing
 
             
Residential real estate
 
$
2,367
   
$
2,091
   
$
867
 
Multifamily real estate
   
416
     
75
     
-
 
Commercial real estate
                       
Owner occupied
   
791
     
773
     
558
 
Non owner occupied
   
3,732
     
3,400
     
-
 
Commercial and industrial
   
1,460
     
337
     
870
 
Consumer
   
257
     
234
     
-
 
All other
   
287
     
231
     
737
 
Total
 
$
9,310
   
$
7,141
   
$
3,032
 
                         

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 March 31, 2016 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
 
$
339,969
   
$
4,836
   
$
2,006
   
$
6,842
   
$
333,127
 
Multifamily real estate
   
56,316
     
1,101
     
387
     
1,488
     
54,828
 
Commercial real estate:
                                       
Owner occupied
   
149,137
     
1,356
     
1,265
     
2,621
     
146,516
 
Non owner occupied
   
197,274
     
1,383
     
1,969
     
3,352
     
193,922
 
Commercial and industrial
   
77,801
     
353
     
1,374
     
1,727
     
76,074
 
Consumer
   
32,783
     
292
     
105
     
397
     
32,386
 
All other
   
133,363
     
3,303
     
974
     
4,277
     
129,086
 
Total
 
$
986,643
   
$
12,624
   
$
8,080
   
$
20,704
   
$
965,939
 
Loans included in totals above acquired from Bankshares
 
$
131,022
   
$
788
   
$
1,219
   
$
2,007
   
$
129,015
 

The following table presents the aging of the recorded investment in past due loans as of December 31, 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
 
$
285,826
   
$
6,298
   
$
1,681
   
$
7,979
   
$
277,847
 
Multifamily real estate
   
50,452
     
1,415
     
75
     
1,490
     
48,962
 
Commercial real estate:
                                       
Owner occupied
   
119,265
     
1,354
     
1,195
     
2,549
     
116,716
 
Non owner occupied
   
188,918
     
2,481
     
3,400
     
5,881
     
183,037
 
Commercial and industrial
   
68,339
     
220
     
1,064
     
1,284
     
67,055
 
Consumer
   
31,445
     
288
     
101
     
389
     
31,056
 
All other
   
105,501
     
3,157
     
935
     
4,092
     
101,409
 
Total
 
$
849,746
   
$
15,213
   
$
8,451
   
$
23,664
   
$
826,082
 


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 March 31, 2016:
   
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
 
$
6
   
$
2,533
   
$
-
   
$
2,539
   
$
541
   
$
337,239
   
$
2,189
   
$
339,969
 
Multifamily real estate
   
-
     
745
     
-
     
745
     
1,058
     
55,258
     
-
     
56,316
 
Commercial real estate:
                                                               
Owner occupied
   
52
     
1,479
     
-
     
1,531
     
438
     
146,233
     
2,466
     
149,137
 
Non-owner occupied
   
125
     
2,212
     
-
     
2,337
     
5,281
     
186,482
     
5,511
     
197,274
 
Commercial and industrial
   
150
     
718
     
65
     
933
     
311
     
77,105
     
385
     
77,801
 
Consumer
   
-
     
288
     
-
     
288
     
-
     
32,783
     
-
     
32,783
 
All other
   
-
     
1,542
     
-
     
1,542
     
750
     
130,183
     
2,430
     
133,363
 
Total
 
$
333
   
$
9,517
   
$
65
   
$
9,915
   
$
8,379
   
$
965,283
   
$
12,981
   
$
986,643
 

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, 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
 
$
-
   
$
2,501
   
$
-
   
$
2,501
   
$
575
   
$
285,251
   
$
-
   
$
285,826
 
Multifamily real estate
   
-
     
821
     
-
     
821
     
75
     
50,377
     
-
     
50,452
 
Commercial real estate:
                                                               
Owner occupied
   
44
     
1,465
     
-
     
1,509
     
446
     
118,688
     
131
     
119,265
 
Non-owner occupied
   
22
     
2,048
     
-
     
2,070
     
6,502
     
176,867
     
5,549
     
188,918
 
Commercial and industrial
   
153
     
800
     
80
     
1,033
     
544
     
67,715
     
80
     
68,339
 
Consumer
   
-
     
307
     
-
     
307
     
-
     
31,445
     
-
     
31,445
 
All other
   
-
     
1,406
     
-
     
1,406
     
750
     
104,751
     
-
     
105,501
 
Total
 
$
219
   
$
9,348
   
$
80
   
$
9,647
   
$
8,892
   
$
835,094
   
$
5,760
   
$
849,746
 
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 March 31, 2016.  The table includes $65 of loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

   
Unpaid Principal Balance
   
Recorded Investment
   
Allowance for Loan Losses Allocated
 
With no related allowance recorded:
           
Residential real estate
 
$
544
   
$
535
   
$
-
 
Multifamily real estate
   
1,399
     
1,058
     
-
 
Commercial real estate
                       
Owner occupied
   
82
     
76
     
-
 
Non owner occupied
   
4,677
     
4,571
     
-
 
Commercial and industrial
   
907
     
161
     
-
 
All other
   
805
     
750
     
-
 
     
8,414
     
7,151
     
-
 
With an allowance recorded:
                       
Residential real estate
   
43
     
6
     
6
 
Commercial real estate
                       
Owner occupied
   
364
     
362
     
52
 
Non-owner occupied
   
710
     
710
     
125
 
Commercial and industrial
   
518
     
215
     
215
 
     
1,635
     
1,293
     
398
 
Total
 
$
10,049
   
$
8,444
   
$
398
 
                         


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, 2015.  The table includes $80 of loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

   
Unpaid Principal Balance
   
Recorded Investment
   
Allowance for Loan Losses Allocated
 
With no related allowance recorded:
           
Residential real estate
 
$
636
   
$
575
   
$
-
 
Multifamily real estate
   
416
     
75
     
-
 
Commercial real estate
                       
Owner occupied
   
276
     
269
     
-
 
Non owner occupied
   
6,554
     
6,222
     
-
 
Commercial and industrial
   
1,160
     
391
     
-
 
All other
   
805
     
750
     
-
 
     
9,847
     
8,282
     
-
 
With an allowance recorded:
                       
Commercial real estate
                       
Owner occupied
 
$
177
   
$
177
   
$
44
 
Non owner occupied
   
280
     
280
     
22
 
Commercial and industrial
   
528
     
233
     
233
 
     
985
     
690
     
299
 
Total
 
$
10,832
   
$
8,972
   
$
299
 
                         


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 three months ended March 31, 2016 and March 31, 2015. The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

   
Three months ended March 31, 2016
   
Three months ended March 31, 2015
 
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
 
$
558
   
$
5
   
$
4
   
$
135
   
$
1
   
$
1
 
Multifamily real estate
   
566
     
13
     
12
     
1,796
     
-
     
-
 
Commercial real estate:
                                               
Owner occupied
   
441
     
-
     
-
     
1,457
     
9
     
8
 
Non-owner occupied
   
5,892
     
50
     
41
     
4,800
     
48
     
48
 
Commercial and industrial
   
500
     
3
     
3
     
987
     
4
     
4
 
All other
   
750
     
-
     
-
     
6,195
     
16
     
11
 
Total
 
$
8,707
   
$
71
   
$
60
   
$
15,370
   
$
78
   
$
72
 
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 March 31, 2016 and December 31, 2015:

March 31, 2016
 
TDR’s on Non-accrual
   
Other TDR’s
   
Total TDR’s
 
             
Residential real estate
 
$
50
   
$
470
   
$
520
 
Multifamily  real estate
   
-
     
2,193
     
2,193
 
Commercial real estate
                       
    Owner occupied
   
-
     
610
     
610
 
Non owner occupied
   
-
     
549
     
549
 
Commercial and industrial
   
-
     
405
     
405
 
All other
   
723
     
-
     
723
 
Total
 
$
773
   
$
4,227
   
$
5,000
 
                         

December 31, 2015
 
TDR’s on Non-accrual
   
Other TDR’s
   
Total TDR’s
 
             
Residential real estate
 
$
7
   
$
222
   
$
229
 
Multifamily  real estate
   
-
     
2,201
     
2,201
 
Commercial real estate
                       
Non owner occupied
   
-
     
454
     
454
 
Commercial and industrial
   
-
     
396
     
396
 
All other
   
-
     
723
     
723
 
Total
 
$
7
   
$
3,996
   
$
4,003
 
                         

At March 31, 2016 $151,000 in specific reserves was allocated to loans that had restructured terms.  At December 31, 2015 there were no specific reserves allocated to loans that had restructured terms.  As of March 31, 2016 and December 31, 2015, there were no commitments to lend additional amounts to these borrowers.

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 TDR’s that occurred during the three months ended March 31, 2016 and 2015.

   
Three months ended March 31, 2016
   
Three months ended March 31, 2015
 
Loan Class
 
Number of Loans
   
Pre-Modification Outstanding Recorded Investment
   
Post-Modification Outstanding Recorded Investment
   
Number of Loans
   
Pre-Modification Outstanding Recorded Investment
   
Post-Modification Outstanding Recorded Investment
 
                         
Residential real estate
   
2
   
$
299
   
$
299
     
-
   
$
-
   
$
-
 
Multifamily real estate
   
-
     
-
     
-
     
1
     
1,543
     
1,543
 
Commercial real estate
                           
-
                 
Owner occupied
   
2
     
610
     
610
     
-
     
-
     
-
 
Non owner occupied
   
1
     
100
     
100
     
-
     
-
     
-
 
Commercial and industrial
   
1
     
20
     
20
     
-
     
-
     
-
 
Total
   
6
   
$
1,029
   
$
1,029
     
1
   
$
1,543
   
$
1,543
 

The modifications reported above for the three months ended March 31, 2016 involve one borrowing relationship that did not include any permanent reduction of the recorded investment in the loans nor change in the interest rate on the loans. The Company has modified the terms of the loans by extending payment terms and requiring interest only payments during a period of loan rehabilitation. These periods have exceeded normal extension and interest only periods customarily offered by the Company. During the three month ended March 31, 2016, the Company increased the allowance for loan losses by $145,000 related to these loans.

The modification of the multifamily residential real estate loan during the three months ended March 31, 2015 did not include a permanent reduction of the recorded investment in the loan and did not increase the allowance for loan losses during the period. The modification included a lengthening of the amortization period and reduction in the stated interest rate, however the maturity date was reduced to the end of a fifteen month forbearance period with a balloon payment due at maturity. The modified loan paid in full during the three months ended June 30, 2015.

During the three months ended March 31, 2016 and the three months ended March 31, 2015, there were no TDR’s for which there as a payment default within twelve months following the modification.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE 3–LOANS - continued

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes non-homogeneous loans, such as commercial, commercial real estate, multifamily residential and commercial purpose loans secured by residential real estate, on a monthly basis. For consumer loans, including consumer loans secured by residential real estate, the analysis involves monitoring the performing status of the loan. At the time such loans become past due by 30 days or more, the Company evaluates the loan to determine if a change in risk category is warranted. The Company uses the following definitions for risk ratings:

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

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

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE 3–LOANS - continued

As of March 31, 2016, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Loan Class
 
Pass
   
Special Mention
   
Substandard
   
Doubtful
   
Total Loans
 
                     
Residential real estate
 
$
324,652
   
$
6,164
   
$
9,147
   
$
6
   
$
339,969
 
Multifamily real estate
   
52,858
     
1,184
     
2,274
     
-
     
56,316
 
Commercial real estate:
                                       
Owner occupied
   
137,121
     
6,917
     
5,099
     
-
     
149,137
 
Non-owner occupied
   
187,493
     
4,039
     
5,742
     
-
     
197,274
 
Commercial and industrial
   
74,363
     
1,795
     
1,602
     
41
     
77,801
 
Consumer
   
31,909
     
221
     
653
     
-
     
32,783
 
All other
   
124,317
     
6,882
     
2,164
     
-
     
133,363
 
Total
 
$
932,713
   
$
27,202
   
$
26,681
   
$
47
   
$
986,643
 
Loans included in totals above acquired from Bankshares
 
$
123,006
   
$
2,361
   
$
5,655
   
$
-
   
$
131,022
 

As of December 31, 2015, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Loan Class
 
Pass
   
Special Mention
   
Substandard
   
Doubtful
   
Total Loans
 
                     
Residential real estate
 
$
273,741
   
$
5,389
   
$
6,689
   
$
7
   
$
285,826
 
Multifamily real estate
   
46,135
     
2,041
     
2,276
     
-
     
50,452
 
Commercial real estate:
                                       
Owner occupied
   
112,989
     
3,964
     
2,312
     
-
     
119,265
 
Non-owner occupied
   
179,179
     
2,891
     
6,848
     
-
     
188,918
 
Commercial and industrial
   
64,563
     
2,859
     
873
     
44
     
68,339
 
Consumer
   
31,000
     
269
     
176
     
-
     
31,445
 
All other
   
101,839
     
2,490
     
1,172
     
-
     
105,501
 
Total
 
$
809,446
   
$
19,903
   
$
20,346
   
$
51
   
$
849,746
 

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


NOTE  4- STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS

The Company’s principal source of funds for dividend payments to shareholders is dividends received from the subsidiary Banks. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, as defined, combined with the retained net profits of the preceding two years, subject to the capital requirements and additional restrictions as discussed below. During 2016 the Banks could, without prior approval, declare dividends to the Company of approximately $1.1 million plus any 2016 net profits retained to the date of the dividend declaration.

The Company and the subsidiary Banks are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet specific guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

These quantitative measures established by regulation to ensure capital adequacy require the Company and Banks to maintain minimum amounts and ratios (set forth in the following table) of Common Equity Tier 1 Capital, Tier 1 Capital and Total Capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 Capital (as defined) to average assets (as defined). Management believes, as of March 31, 2016 the Company and the Banks meet all quantitative capital adequacy requirements to which they are subject.
 
Beginning in 2016, a new capital buffer computation is being phased-in over the next three-years as a component of regulatory capital.  By maintaining Premier’s regulatory capital ratios in excess of the phased-in capital buffer, the Company will avoid regulatorily imposed limitations on dividends and discretionary bonus payments to management.  The capital buffer percentage required in 2016 is an additional 0.625% added to the minimum capital ratios.  By maintaining well capitalized ratios, Premier’s subsidiary banks will meet the capital buffer requirement through the end of 2018.
 
 
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

Shown below is a summary of regulatory capital ratios for the Company:
   
Mar 31,
2016
   
December 31,
2015
   
Regulatory
Minimum
Requirements
   
To Be Considered
Well Capitalized
 
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
   
13.3
%
   
13.6
%
   
4.5
%
   
6.5
%
Tier 1 Capital (to Risk-Weighted Assets)
   
13.9
%
   
13.6
%
   
6.0
%
   
8.0
%
Total Capital (to Risk-Weighted Assets)
   
14.9
%
   
14.7
%
   
8.0
%
   
10.0
%
Tier 1 Capital (to Average Assets)
   
10.0
%
   
9.4
%