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EX-32 - CEO AND CFO SECTION 906 CERTIFICATION - PREMIER FINANCIAL BANCORP INCexhibit32.htm
EX-31.2 - CFO SECTION 302 CERTIFICATION - PREMIER FINANCIAL BANCORP INCexhibit31-2.htm
EX-31.1 - CEO SECTION 302 CERTIFICATION - PREMIER FINANCIAL BANCORP INCexhibit31-1.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 June 30, 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, – 9,657,910 shares outstanding at July 28, 2016

PREMIER FINANCIAL BANCORP, INC.
JUNE 30, 2016
INDEX TO REPORT


     
   
3
 
   
44
 
   
57
 
   
57
 
   
58
 
   
58
 
   
58
 
   
58
 
   
58
 
   
58
 
   
58
 
   
58
 
   
59
 

 

PREMIER FINANCIAL BANCORP, INC.
JUNE 30, 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 and the impairment of goodwill.  These estimates are based on assumptions that may involve significant uncertainty at the time of their use.  However, the policies, the estimates and the estimation process as well as the resulting disclosures are periodically reviewed by the Audit Committee of the Board of Directors and material estimates are subject to review as part of the external audit by the independent registered public accounting firm.

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

Index to consolidated financial statements:

   
4
 
   
5
 
   
6
 
   
7
 
   
9
 








PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2016 AND DECEMBER 31, 2015
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


     (UNAUDITED)        
   
June 30,
   
December 31,
 
   
2016
   
2015
 
ASSETS
           
Cash and due from banks
 
$
42,312
   
$
33,888
 
Interest bearing bank balances
   
43,667
     
32,816
 
Federal funds sold
   
588
     
5,835
 
Cash and cash equivalents
   
86,567
     
72,539
 
Securities available for sale
   
309,718
     
255,466
 
Loans
   
1,028,108
     
849,746
 
Allowance for loan losses
   
(10,804
)
   
(9,647
)
Net loans
   
1,017,304
     
840,099
 
Federal Home Loan Bank stock, at cost
   
3,220
     
3,072
 
Premises and equipment, net
   
24,888
     
19,841
 
Real estate and other property acquired through foreclosure
   
13,026
     
13,040
 
Interest receivable
   
3,810
     
3,162
 
Goodwill
   
35,371
     
33,796
 
Other intangible assets
   
4,904
     
2,180
 
Other assets
   
1,856
     
1,498
 
Total assets
 
$
1,500,664
   
$
1,244,693
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Deposits
               
Non-interest bearing
 
$
305,245
   
$
271,194
 
Time deposits, $250,000 and over
   
66,933
     
64,062
 
Other interest bearing
   
894,948
     
724,940
 
Total deposits
   
1,267,126
     
1,060,196
 
Federal funds purchased
   
4,248
     
-
 
Securities sold under agreements to repurchase
   
27,689
     
21,694
 
FHLB advances
   
5,546
     
-
 
Other borrowed funds
   
10,075
     
11,292
 
Subordinated debt
   
5,323
     
-
 
Interest payable
   
351
     
321
 
Other liabilities
   
4,741
     
3,958
 
Total liabilities
   
1,325,099
     
1,097,461
 
                 
Stockholders' equity
               
Common stock, no par value; 20,000,000 shares authorized; 9,653,910 shares issued and outstanding at June 30, 2016, and 8,179,731 shares issued and outstanding at December 31, 2015
   
92,022
     
69,319
 
Retained earnings
   
80,308
     
77,592
 
Accumulated other comprehensive income
   
3,235
     
321
 
Total stockholders' equity
   
175,565
     
147,232
 
Total liabilities and stockholders' equity
 
$
1,500,664
   
$
1,244,693
 
                 

PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2016
   
2015
   
2016
   
2015
 
Interest income
                       
Loans, including fees
 
$
13,108
   
$
11,641
   
$
25,709
   
$
23,306
 
Securities available for sale
                               
Taxable
   
1,362
     
1,206
     
2,790
     
2,463
 
Tax-exempt
   
88
     
56
     
172
     
111
 
Federal funds sold and other
   
108
     
52
     
205
     
88
 
Total interest income
   
14,666
     
12,955
     
28,876
     
25,968
 
                                 
Interest expense
                               
Deposits
   
975
     
887
     
1,952
     
1,803
 
Repurchase agreements and other
   
11
     
9
     
18
     
19
 
FHLB advances
   
15
     
-
     
22
     
-
 
Other borrowings
   
107
     
136
     
220
     
259
 
Subordinated debt
   
67
     
-
     
118
     
-
 
Total interest expense
   
1,175
     
1,032
     
2,330
     
2,081
 
                                 
Net interest income
   
13,491
     
11,923
     
26,546
     
23,887
 
Provision (credit) for loan losses
   
812
     
(146
)
   
1,124
     
(77
)
Net interest income after provision for loan losses
   
12,679
     
12,069
     
25,422
     
23,964
 
                                 
Non-interest income
                               
Service charges on deposit accounts
   
983
     
914
     
1,944
     
1,792
 
Electronic banking income
   
802
     
702
     
1,564
     
1,346
 
Secondary market mortgage income
   
59
     
22
     
99
     
60
 
Other
   
221
     
124
     
395
     
269
 
     
2,065
     
1,762
     
4,002
     
3,467
 
Non-interest expenses
                               
Salaries and employee benefits
   
5,217
     
4,475
     
10,208
     
8,816
 
Occupancy and equipment expenses
   
1,550
     
1,263
     
3,062
     
2,590
 
Outside data processing
   
1,314
     
1,075
     
2,635
     
2,171
 
Professional fees
   
183
     
179
     
333
     
308
 
Taxes, other than payroll, property and income
   
159
     
145
     
317
     
341
 
Write-downs, expenses, sales of other real estate owned, net
   
398
     
340
     
637
     
682
 
Amortization of intangibles
   
317
     
209
     
584
     
434
 
FDIC insurance
   
214
     
206
     
474
     
421
 
Conversion expense
   
49
     
-
     
195
     
-
 
Other expenses
   
1,236
     
1,037
     
2,267
     
1,958
 
     
10,637
     
8,929
     
20,712
     
17,721
 
Income before income taxes
   
4,107
     
4,902
     
8,712
     
9,710
 
Provision for income taxes
   
1,483
     
1,775
     
3,109
     
3,441
 
                                 
Net income
 
$
2,624
   
$
3,127
   
$
5,603
   
$
6,269
 
                                 
Net income per share:
                               
Basic
 
$
0.27
   
$
0.38
   
$
0.59
   
$
0.77
 
Diluted
   
0.27
     
0.37
     
0.59
     
0.74
 
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2016
   
2015
   
2016
   
2015
 
Net income
 
$
2,624
   
$
3,127
   
$
5,603
   
$
6,269
 
                                 
Other comprehensive income (loss):
                               
Unrealized gains (losses) arising during the period
   
1,862
     
(1,582
)
   
4,494
     
(276
)
Reclassification of realized amount
   
-
     
-
     
(4
)
   
-
 
Net change in unrealized gain on securities
   
1,862
     
(1,582
)
   
4,490
     
(276
)
Less tax impact
   
(665
)
   
538
     
(1,576
)
   
94
 
Other comprehensive income (loss)
   
1,197
     
(1,044
)
   
2,914
     
(182
)
                                 
Comprehensive income
 
$
3,821
   
$
2,083
   
$
8,517
   
$
6,087
 
                                 
                                 



PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
SIX MONTHS ENDED JUNE 30, 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
   
-
     
5,603
     
-
     
5,603
 
Other comprehensive income
   
-
     
-
     
2,914
     
2,914
 
Cash dividends paid ($0.30 per share)
   
-
     
(2,887
)
   
-
     
(2,887
)
Stock issued to acquire subsidiary
   
22,041
     
-
     
-
     
22,041
 
Stock based compensation expense
   
142
     
-
     
-
     
142
 
Stock options exercised
   
520
     
-
     
-
     
520
 
Balances, June 30, 2016
 
$
92,022
   
$
80,308
   
$
3,235
   
$
175,565
 

PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2016 AND 2015
(UNAUDITED, DOLLARS IN THOUSANDS)


   
2016
   
2015
 
Cash flows from operating activities
           
Net income
 
$
5,603
   
$
6,269
 
Adjustments to reconcile net income to net cash from
operating activities
               
Depreciation
   
976
     
874
 
Provision (credit) for loan losses
   
1,124
     
(77
)
Amortization (accretion), net
   
1,189
     
307
 
OREO writedowns (gains on sales), net
   
(15
)
   
254
 
Stock compensation expense
   
142
     
163
 
Loans originated for sale
   
-
     
(1,679
)
Secondary market loans sold
   
-
     
1,941
 
Secondary market income
   
-
     
(38
)
Changes in :
               
Interest receivable
   
(50
)
   
(52
)
Other assets
   
158
     
166
 
Interest payable
   
(57
)
   
(47
)
Other liabilities
   
(2,798
)
   
(227
)
Net cash from operating activities
   
6,272
     
7,854
 
                 
Cash flows from investing activities
               
Purchases of securities available for sale
   
(12,010
)
   
(30,705
)
Proceeds from maturities and calls of securities available for sale
   
37,616
     
33,557
 
Purchase of FHLB stock
   
-
     
(76
)
Redemption of FHLB stock
   
190
     
-
 
Net change in loans
   
(45,301
)
   
(4,415
)
Acquisition of subsidiary, net of cash received
   
16,385
     
-
 
Purchases of premises and equipment, net
   
(184
)
   
(377
)
Improvements to OREO property
   
-
     
(29
)
Proceeds from sales of other real estate acquired through foreclosure
   
553
     
2,649
 
Net cash from investing activities
   
(2,751
)
   
604
 
                 
Cash flows from financing activities
               
Net change in deposits
   
1,776
     
(4,618
)
Net change in agreements to repurchase securities
   
8,075
     
(273
)
Repayment of other borrowed funds
   
(1,217
)
   
(3,215
)
Proceeds from other borrowings
   
-
     
4,000
 
Proceeds from stock option exercises
   
520
     
201
 
Purchase of warrant
   
-
     
(5,675
)
Advances from FHLB
   
5,000
     
-
 
Repayment of FHLB advances
   
(760
)
   
-
 
Common stock dividends paid
   
(2,887
)
   
(2,120
)
Net cash from financing activities
   
10,507
     
(11,700
)
                 
Net change in cash and cash equivalents
   
14,028
     
(3,242
)
                 
Cash and cash equivalents at beginning of period
   
72,539
     
75,384
 
                 
Cash and cash equivalents at end of period
 
$
86,567
   
$
72,142
 
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
SIX MONTHS ENDED JUNE 30, 2016 AND 2015
(UNAUDITED, DOLLARS IN THOUSANDS)


   
2016
   
2015
 
Supplemental disclosures of cash flow information:
           
Cash paid during period for interest
 
$
2,387
   
$
2,128
 
                 
Cash paid during period for income taxes
   
3,387
     
2,866
 
                 
Loans transferred to real estate acquired through foreclosure
   
524
     
1,255
 
                 
Stock issued to acquire subsidiary
   
22,041
     
-
 
                 
Premises transferred to other real estate owned
   
-
     
760
 
                 
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”):

               
June 30, 2016
 
        Year   Total  
Net Income
 
Subsidiary
 
Location
 
Acquired
 
Assets
 
Qtr
 
YTD
 
Citizens Deposit Bank & Trust
 
Vanceburg, Kentucky
 
1991
 
$
404,048
   
$
1,168
   
$
2,242
 
Premier Bank, Inc.
 
Huntington, West Virginia
 
1998
    
1,095,425
     
1,945
     
4,367
 
Parent and Intercompany Eliminations
            
1,194
     
(489
)
   
(1,006
)
  Consolidated Total
           
$
1,500,664
   
$
2,624
   
$
5,603
 


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 recognize 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.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU replaces the measurement for credit losses from a probable incurred estimate with an expected future loss estimate, which is referred to as the “current expected credit loss” or “CECL”.  The standard pertains to financial assets measured at amortized cost such as loans, debt securities classified as held-to-maturity, and certain other contracts.  The largest impact will be on the allowance for loan and lease losses.  This ASU will become effective for the Company for interim and annual periods beginning after December 15, 2019. 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 2 –SECURITIES

Amortized cost and fair value of investment securities, by category, at June 30, 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
 
$
163,894
   
$
2,635
   
$
-
   
$
166,529
 
U. S. sponsored agency CMO’s - residential
   
89,562
     
1,842
     
(79
)
   
91,325
 
Total mortgage-backed securities of government sponsored agencies
   
253,456
     
4,477
     
(79
)
   
257,854
 
U. S. government sponsored agency securities
   
30,394
     
217
     
-
     
30,611
 
Obligations of states and political subdivisions
   
20,891
     
375
     
(13
)
   
21,253
 
Total available for sale
 
$
304,741
   
$
5,069
   
$
(92
)
 
$
309,718
 

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 June 30, 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
 
$
9,221
   
$
9,238
 
Due after one year through five years
   
32,006
     
32,334
 
Due after five years through ten years
   
9,245
     
9,463
 
Due after ten years
   
813
     
829
 
Mortgage-backed securities of government sponsored agencies
   
253,456
     
257,854
 
Total available for sale
 
$
304,741
   
$
309,718
 
                 

Securities with unrealized losses at June 30, 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 CMO – residential
 
$
-
   
$
-
   
$
12,094
   
$
(79
)
 
$
12,094
   
$
(79
)
Obligations of states and political subdivisions
   
1,768
     
(13
)
   
-
     
-
     
1,768
     
(13
)
Total temporarily impaired
 
$
1,768
   
$
(13
)
 
$
12,094
   
$
(79
)
 
$
13,862
   
$
(92
)

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 June 30, 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 June 30, 2016 and December 31, 2015 are summarized as follows:

   
2016
   
2015
 
Residential real estate
 
$
343,646
   
$
285,826
 
Multifamily real estate
   
69,810
     
50,452
 
Commercial real estate:
               
Owner occupied
   
138,056
     
119,265
 
Non owner occupied
   
225,311
     
188,918
 
Commercial and industrial
   
82,676
     
68,339
 
Consumer
   
32,341
     
31,445
 
All other
   
136,268
     
105,501
 
   
$
1,028,108
   
$
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 June 30, 2016 are summarized as follows:

   
2016
 
Residential real estate
 
$
50,511
 
Multifamily real estate
   
3,385
 
Commercial real estate:
       
Owner occupied
   
20,852
 
Non owner occupied
   
9,922
 
Commercial and industrial
   
18,487
 
Consumer
   
2,512
 
All other
   
19,148
 
   
$
124,817
 

Activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2016 was as follows:

Loan Class
 
Balance
Dec 31, 2015
   
Provision (credit) for loan losses
   
Loans charged-off
   
Recoveries
   
Balance
June 30, 2016
 
                               
Residential real estate
 
$
2,501
   
$
286
   
$
56
   
$
16
   
$
2,747
 
Multifamily real estate
   
821
     
1
     
-
     
-
     
822
 
Commercial real estate:
                                       
Owner occupied
   
1,509
     
(68
)
   
-
     
1
     
1,442
 
Non owner occupied
   
2,070
     
638
     
-
     
-
     
2,708
 
Commercial and industrial
   
1,033
     
40
     
-
     
38
     
1,111
 
Consumer
   
307
     
33
     
90
     
56
     
306
 
All other
   
1,406
     
194
     
126
     
194
     
1,668
 
Total
 
$
9,647
   
$
1,124
   
$
272
   
$
305
   
$
10,804
 

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

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


NOTE 3–LOANS - continued

Activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2016 was as follows:

Loan Class
 
Balance
March 31, 2016
   
Provision (credit) for loan losses
   
Loans charged-off
   
Recoveries
   
Balance
June 30, 2016
 
                               
Residential real estate
 
$
2,539
   
$
208
   
$
7
   
$
7
   
$
2,747
 
Multifamily real estate
   
745
     
77
     
-
     
-
     
822
 
Commercial real estate:
                                       
Owner occupied
   
1,531
     
(89
)
   
-
     
-
     
1,442
 
Non owner occupied
   
2,337
     
371
     
-
     
-
     
2,708
 
Commercial and industrial
   
933
     
176
     
-
     
2
     
1,111
 
Consumer
   
288
     
44
     
46
     
20
     
306
 
All other
   
1,542
     
25
     
66
     
167
     
1,668
 
Total
 
$
9,915
   
$
812
   
$
119
   
$
196
   
$
10,804
 

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

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

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


NOTE 3–LOANS - continued

Purchased Impaired Loans

The Company holds purchased loans for which there was, at their acquisition date, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected.  The carrying amount of those loans is as follows at June 30, 2016 and December 31, 2015.

   
2016
   
2015
 
Residential real estate
 
$
2,073
   
$
-
 
Commercial real estate
               
Owner occupied
   
2,117
     
131
 
Non owner occupied
   
5,474
     
5,549
 
Commercial and industrial
   
333
     
80
 
All other
   
2,191
     
-
 
Total carrying amount
 
$
12,188
   
$
5,760
 
Contractual principal balance
 
$
16,073
   
$
7,251
 
                 
Carrying amount, net of allowance
 
$
12,174
   
$
5,680
 

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses for the six-months ended June 30, 2016, nor did it increase the allowance for loan losses for purchased impaired loans during the six-months ended June 30, 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.  The carrying value of these loans totals $651,000 at June 30, 2016, including $599,000 acquired from Bankshares.  Any loan accounted for under the cost recovery method is also still included as a non-accrual loan in the amounts presented in the Past Due and Non-performing Loans section below.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE 3–LOANS - continued

The accretable yield, or income expected to be collected, on the purchased loans above is as follows at June 30, 2016 and June 30, 2015.

   
2016
   
2015
 
Balance at January 1
 
$
185
   
$
204
 
New loans purchased
   
1,115
     
-
 
Accretion of income
   
(52
)
   
(10
)
Reclassification to non-accretable
   
-
     
-
 
Disposals
   
-
     
-
 
Balance at June 30
 
$
1,248
   
$
194
 

As part of the acquisition of First National Bankshares Corporation (“Bankshares”) 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 $8,637,000 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 June 30, 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.

June 30, 2016
 
Principal Owed on Non-accrual Loans
   
Recorded Investment in Non-accrual Loans
   
Loans Past Due Over 90 Days, still accruing
 
                   
Residential real estate
 
$
3,087
   
$
2,513
   
$
729
 
Multifamily real estate
   
422
     
81
     
665
 
Commercial real estate
                       
Owner occupied
   
1,405
     
1,375
     
687
 
Non owner occupied
   
2,098
     
1,983
     
87
 
Commercial and industrial
   
2,650
     
1,383
     
50
 
Consumer
   
330
     
308
     
-
 
All other
   
2,069
     
2,012
     
-
 
Total
 
$
12,061
   
$
9,655
   
$
2,218
 
                         

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 June 30, 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
 
$
343,646
   
$
6,084
   
$
2,092
   
$
8,176
   
$
335,470
 
Multifamily real estate
   
69,810
     
750
     
746
     
1,496
     
68,314
 
Commercial real estate:
                                       
Owner occupied
   
138,056
     
1,968
     
1,761
     
3,729
     
134,327
 
Non owner occupied
   
225,311
     
-
     
2,046
     
2,046
     
223,265
 
Commercial and industrial
   
82,676
     
944
     
919
     
1,863
     
80,813
 
Consumer
   
32,341
     
451
     
347
     
798
     
31,543
 
All other
   
136,268
     
400
     
1,992
     
2,392
     
133,876
 
Total
 
$
1,028,108
   
$
10,597
   
$
9,903
   
$
20,500
   
$
1,007,608
 

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 June 30, 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
 
$
3
   
$
2,744
   
$
-
   
$
2,747
   
$
397
   
$
341,176
   
$
2,073
   
$
343,646
 
Multifamily real estate
   
-
     
822
     
-
     
822
     
2,589
     
67,221
     
-
     
69,810
 
Commercial real estate:
                                                               
Owner occupied
   
44
     
1,398
     
-
     
1,442
     
1,152
     
134,787
     
2,117
     
138,056
 
Non-owner occupied
   
161
     
2,547
     
-
     
2,708
     
5,334
     
214,503
     
5,474
     
225,311
 
Commercial and industrial
   
303
     
794
     
14
     
1,111
     
1,656
     
80,687
     
333
     
82,676
 
Consumer
   
-
     
306
     
-
     
306
     
-
     
32,341
     
-
     
32,341
 
All other
   
13
     
1,655
     
-
     
1,668
     
864
     
133,213
     
2,191
     
136,268
 
Total
 
$
524
   
$
10,266
   
$
14
   
$
10,804
   
$
11,992
   
$
1,003,928
   
$
12,188
   
$
1,028,108
 

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 June 30, 2016.  The table includes $651,000 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
 
$
1,046
   
$
794
   
$
-
 
Multifamily real estate
   
2,931
     
2,589
     
-
 
Commercial real estate
                       
Owner occupied
   
811
     
799
     
-
 
Non owner occupied
   
4,915
     
4,803
     
-
 
Commercial and industrial
   
2,648
     
1,578
     
-
 
All other
   
832
     
777
     
-
 
     
13,183
     
11,340
     
-
 
With an allowance recorded:
                       
Residential real estate
 
$
42
   
$
3
   
$
3
 
Commercial real estate
                       
Owner occupied
   
358
     
353
     
44
 
Non owner occupied
   
531
     
531
     
161
 
Commercial and industrial
   
469
     
329
     
317
 
All other
   
93
     
87
     
13
 
     
1,493
     
1,303
     
538
 
Total
 
$
14,676
   
$
12,643
   
$
538
 
 
 
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 $80,000 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
 
$
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
 
All other
   
-
     
-
     
-
 
     
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 six months ended June 30, 2016 and June 30, 2015. The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

   
Six months ended June 30, 2016
   
Six months ended June 30, 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
 
$
638
   
$
11
   
$
9
   
$
281
   
$
2
   
$
2
 
Multifamily real estate
   
1,241
     
58
     
58
     
1,377
     
14
     
14
 
Commercial real estate:
                                               
Owner occupied
   
678
     
-
     
-
     
1,286
     
18
     
13
 
Non-owner occupied
   
5,706
     
100
     
97
     
4,665
     
94
     
82
 
Commercial and industrial
   
969
     
16
     
16
     
922
     
14
     
14
 
All other
   
802
     
7
     
6
     
6,150
     
30
     
28
 
Total
 
$
10,034
   
$
192
   
$
186
   
$
14,681
   
$
172
   
$
153
 

The following table presents the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the three months ended June 30, 2016 and June 30, 2015  The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

   
Three months ended June 30, 2016
   
Three months ended June 30, 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
 
$
669
   
$
5
   
$
5
   
$
352
   
$
1
   
$
1
 
Multifamily real estate
   
1,824
     
45
     
45
     
1,550
     
14
     
14
 
Commercial real estate:
                                               
Owner occupied
   
795
     
-
     
-
     
922
     
9
     
5
 
Non-owner occupied
   
5,308
     
51
     
51
     
4,561