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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 September 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, – 9,665,128 shares outstanding at  November 1, 2016


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


 
3
44
58
58
59
59
59
59
59
59
59
59
60

 

PREMIER FINANCIAL BANCORP, INC.
SEPTEMBER 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
6
7
9




 

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


   
(UNAUDITED)
       
   
September 30,
   
December 31,
 
   
2016
   
2015
 
ASSETS
           
Cash and due from banks
 
$
40,250
   
$
33,888
 
Interest bearing bank balances
   
47,577
     
32,816
 
Federal funds sold
   
6,861
     
5,835
 
Cash and cash equivalents
   
94,688
     
72,539
 
Securities available for sale
   
295,211
     
255,466
 
Loans
   
1,033,945
     
849,746
 
Allowance for loan losses
   
(10,863
)
   
(9,647
)
Net loans
   
1,023,082
     
840,099
 
Federal Home Loan Bank stock, at cost
   
3,220
     
3,072
 
Premises and equipment, net
   
24,632
     
19,841
 
Real estate and other property acquired through foreclosure
   
12,293
     
13,040
 
Interest receivable
   
4,019
     
3,162
 
Goodwill
   
35,371
     
33,796
 
Other intangible assets
   
4,626
     
2,180
 
Other assets
   
978
     
1,498
 
Total assets
 
$
1,498,120
   
$
1,244,693
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Deposits
               
Non-interest bearing
 
$
314,348
   
$
271,194
 
Time deposits, $250,000 and over
   
66,171
     
64,062
 
Other interest bearing
   
893,066
     
724,940
 
Total deposits
   
1,273,585
     
1,060,196
 
Securities sold under agreements to repurchase
   
27,145
     
21,694
 
FHLB advances
   
531
     
-
 
Other borrowed funds
   
9,467
     
11,292
 
Subordinated debt
   
5,333
     
-
 
Interest payable
   
332
     
321
 
Other liabilities
   
4,296
     
3,958
 
Total liabilities
   
1,320,689
     
1,097,461
 
                 
Stockholders' equity
               
Common stock, no par value; 20,000,000 shares authorized; 9,665,128 shares issued and outstanding at September 30, 2016, and 8,179,731 shares issued and outstanding at December 31, 2015
   
92,165
     
69,319
 
Retained earnings
   
82,021
     
77,592
 
Accumulated other comprehensive income
   
3,245
     
321
 
Total stockholders' equity
   
177,431
     
147,232
 
Total liabilities and stockholders' equity
 
$
1,498,120
   
$
1,244,693
 
                 

See Accompanying Notes to Consolidated Financial Statements
- 4 -

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


   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2016
   
2015
   
2016
   
2015
 
Interest income
                       
Loans, including fees
 
$
13,375
   
$
12,506
   
$
39,084
   
$
35,812
 
Securities available for sale
                               
Taxable
   
1,285
     
1,176
     
4,075
     
3,639
 
Tax-exempt
   
82
     
51
     
254
     
162
 
Federal funds sold and other
   
123
     
49
     
328
     
137
 
Total interest income
   
14,865
     
13,782
     
43,741
     
39,750
 
                                 
Interest expense
                               
Deposits
   
965
     
858
     
2,917
     
2,661
 
Repurchase agreements and other
   
10
     
9
     
28
     
28
 
FHLB advances
   
10
     
-
     
32
     
-
 
Other borrowings
   
101
     
132
     
321
     
391
 
Subordinated debt
   
63
     
-
     
181
     
-
 
Total interest expense
   
1,149
     
999
     
3,479
     
3,080
 
                                 
Net interest income
   
13,716
     
12,783
     
40,262
     
36,670
 
Provision for loan losses
   
312
     
309
     
1,436
     
232
 
Net interest income after provision for loan losses
   
13,404
     
12,474
     
38,826
     
36,438
 
                                 
Non-interest income
                               
Service charges on deposit accounts
   
1,031
     
948
     
2,975
     
2,740
 
Electronic banking income
   
791
     
670
     
2,355
     
2,016
 
Secondary market mortgage income
   
64
     
38
     
163
     
98
 
Other
   
176
     
146
     
571
     
415
 
     
2,062
     
1,802
     
6,064
     
5,269
 
Non-interest expenses
                               
Salaries and employee benefits
   
4,817
     
4,149
     
15,025
     
12,965
 
Occupancy and equipment expenses
   
1,635
     
1,328
     
4,697
     
3,918
 
Outside data processing
   
1,300
     
1,104
     
3,935
     
3,275
 
Professional fees
   
167
     
189
     
500
     
497
 
Taxes, other than payroll, property and income
   
156
     
135
     
473
     
476
 
Write-downs, expenses, sales of other real estate owned, net
   
765
     
669
     
1,402
     
1,351
 
Amortization of intangibles
   
278
     
210
     
862
     
644
 
FDIC insurance
   
278
     
232
     
752
     
653
 
Conversion expense
   
1
     
-
     
196
     
-
 
Other expenses
   
1,211
     
1,070
     
3,478
     
3,028
 
     
10,608
     
9,086
     
31,320
     
26,807
 
Income before income taxes
   
4,858
     
5,190
     
13,570
     
14,900
 
Provision for income taxes
   
1,694
     
1,865
     
4,803
     
5,306
 
                                 
Net income
 
$
3,164
   
$
3,325
   
$
8,767
   
$
9,594
 
                                 
Net income per share:
                               
Basic
 
$
0.33
   
$
0.41
   
$
0.92
   
$
1.18
 
Diluted
   
0.33
     
0.40
     
0.91
     
1.14
 
See Accompanying Notes to Consolidated Financial Statements
- 5 -

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


   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2016
   
2015
   
2016
   
2015
 
Net income
 
$
3,164
   
$
3,325
   
$
8,767
   
$
9,594
 
                                 
Other comprehensive income (loss):
                               
Unrealized gains (losses) arising during the period
   
15
     
732
     
4,504
     
456
 
Reclassification of realized amount
   
-
     
-
     
(4
)
   
-
 
Net change in unrealized gain on securities
   
15
     
732
     
4,500
     
456
 
Less tax impact
   
(5
)
   
(249
)
   
(1,576
)
   
(155
)
Other comprehensive income (loss)
   
10
     
483
     
2,924
     
301
 
                                 
Comprehensive income
 
$
3,174
   
$
3,808
   
$
11,691
   
$
9,895
 
                                 
                                 



PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
NINE MONTHS ENDED SEPTEMBER 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
   
-
     
8,767
     
-
     
8,767
 
Other comprehensive income
   
-
     
-
     
2,924
     
2,924
 
Cash dividends paid ($0.45 per share)
   
-
     
(4,338
)
   
-
     
(4,338
)
Stock issued to acquire subsidiary
   
22,041
     
-
     
-
     
22,041
 
Stock based compensation expense
   
160
     
-
     
-
     
160
 
Stock options exercised
   
645
     
-
     
-
     
645
 
Balances, September 30, 2016
 
$
92,165
   
$
82,021
   
$
3,245
   
$
177,431
 

See Accompanying Notes to Consolidated Financial Statements
- 6 -

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


   
2016
   
2015
 
Cash flows from operating activities
           
Net income
 
$
8,767
   
$
9,594
 
Adjustments to reconcile net income to net cash from operating activities
               
Depreciation
   
1,461
     
1,290
 
Provision for loan losses
   
1,436
     
232
 
Amortization (accretion), net
   
2,010
     
154
 
OREO writedowns, net
   
508
     
625
 
Stock compensation expense
   
160
     
188
 
Loans originated for sale
   
-
     
(1,679
)
Secondary market loans sold
   
-
     
1,941
 
Secondary market income
   
-
     
(38
)
Changes in :
               
Interest receivable
   
(259
)
   
(188
)
Other assets
   
(140
)
   
221
 
Interest payable
   
(76
)
   
(95
)
Other liabilities
   
(2,071
)
   
337
 
Net cash from operating activities
   
11,796
     
12,582
 
                 
Cash flows from investing activities
               
Purchases of securities available for sale
   
(22,512
)
   
(51,610
)
Proceeds from maturities and calls of securities available for sale
   
62,011
     
52,396
 
Purchase of FHLB stock
   
-
     
(76
)
Redemption of FRB and FHLB stock
   
190
     
-
 
Net change in loans
   
(51,417
)
   
19,330
 
Acquisition of subsidiary, net of cash received
   
16,385
     
-
 
Purchases of premises and equipment, net
   
(413
)
   
(624
)
Improvements to OREO property
   
-
     
(29
)
Proceeds from sales of other real estate acquired through foreclosure
   
870
     
4,424
 
Net cash from investing activities
   
5,114
     
23,811
 
                 
Cash flows from financing activities
               
Net change in deposits
   
8,246
     
3,648
 
Net change in agreements to repurchase securities
   
3,282
     
4,952
 
Repayment of other borrowed funds
   
(1,824
)
   
(15,669
)
Proceeds from other borrowings
   
-
     
15,946
 
Proceeds from stock option exercises
   
645
     
218
 
Purchase of warrant
   
-
     
(5,675
)
Repayment of FHLB advances, net
   
(772
)
   
-
 
Common stock dividends paid
   
(4,338
)
   
(3,346
)
Net cash from financing activities
   
5,239
     
74
 
                 
Net change in cash and cash equivalents
   
22,149
     
36,467
 
                 
Cash and cash equivalents at beginning of period
   
72,539
     
75,384
 
                 
Cash and cash equivalents at end of period
 
$
94,688
   
$
111,851
 
See Accompanying Notes to Consolidated Financial Statements
- 7 -

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


   
2016
   
2015
 
Supplemental disclosures of cash flow information:
           
Cash paid during period for interest
 
$
3,555
   
$
3,175
 
                 
Cash paid during period for income taxes
   
5,122
     
4,686
 
                 
Loans transferred to real estate acquired through foreclosure
   
631
     
5,726
 
                 
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.
 
 
 
 
 
 
 

 
See Accompanying Notes to Consolidated Financial Statements
- 8 -

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


NOTE  1 - BASIS OF PRESENTATION

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

               
September 30, 2016
 
 
      Year  
Total
 
Net Income
 
Subsidiary
 
Location 
 
Acquired
 
Assets
 
Qtr
 
YTD
 
Citizens Deposit Bank & Trust
 
Vanceburg, Kentucky
 
1991
   
$
403,077
   
$
1,035
   
$
3,277
 
Premier Bank, Inc.
 
Huntington, West Virginia
 
1998
     
1,093,654
     
2,566
     
6,933
 
Parent and Intercompany Eliminations
             
1,389
     
(437
)
   
(1,443
)
  Consolidated Total
             
$
1,498,120
   
$
3,164
   
$
8,767
 


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.
 
 
 
 
 
 

 
- 10 -

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


NOTE  2 –SECURITIES

Amortized cost and fair value of investment securities, by category, at September 30, 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
 
$
164,992
   
$
3,148
   
$
(12
)
 
$
168,128
 
U. S. sponsored agency CMO’s - residential
   
81,114
     
1,482
     
(74
)
   
82,522
 
Total mortgage-backed securities of government sponsored agencies
   
246,106
     
4,630
     
(86
)
   
250,650
 
U. S. government sponsored agency securities
   
25,700
     
167
     
-
     
25,867
 
Obligations of states and political subdivisions
   
18,414
     
286
     
(6
)
   
18,694
 
Total available for sale
 
$
290,220
   
$
5,083
   
$
(92
)
 
$
295,211
 

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
 
 

 
- 11 -

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


NOTE  2–SECURITIES - continued

The amortized cost and fair value of securities at September 30, 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
 
$
7,179
   
$
7,208
 
Due after one year through five years
   
28,038
     
28,272
 
Due after five years through ten years
   
8,089
     
8,264
 
Due after ten years
   
808
     
817
 
Mortgage-backed securities of government sponsored agencies
   
246,106
     
250,650
 
Total available for sale
 
$
290,220
   
$
295,211
 
                 

Securities with unrealized losses at September 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 MBS – residential
 
$
10,494
   
$
(12
)
 
$
-
   
$
-
   
$
10,494
   
$
(12
)
U.S government sponsored agency CMO’s – residential
   
6,833
     
(3
)
   
9,543
     
(71
)
   
16,376
     
(74
)
Obligations of states and political subdivisions
   
2,350
     
(6
)
   
-
     
-
     
2,350
     
(6
)
Total temporarily impaired
 
$
19,677
   
$
(21
)
 
$
9,543
   
$
(71
)
 
$
29,220
   
$
(92
)

 
- 12 -

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

   
2016
   
2015
 
Residential real estate
 
$
345,375
   
$
285,826
 
Multifamily real estate
   
68,483
     
50,452
 
Commercial real estate:
               
Owner occupied
   
138,906
     
119,265
 
Non owner occupied
   
225,027
     
188,918
 
Commercial and industrial
   
77,617
     
68,339
 
Consumer
   
32,205
     
31,445
 
All other
   
146,332
     
105,501
 
   
$
1,033,945
   
$
849,746
 

 
- 13 -

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 September 30, 2016 are summarized as follows:

   
2016
 
Residential real estate
 
$
49,424
 
Multifamily real estate
   
3,265
 
Commercial real estate:
       
Owner occupied
   
20,024
 
Non owner occupied
   
9,650
 
Commercial and industrial
   
18,361
 
Consumer
   
2,427
 
All other
   
18,401
 
   
$
121,552
 
 

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

Loan Class
 
Balance
Dec 31, 2015
   
Provision (credit) for loan losses
   
Loans
charged-off
   
Recoveries
   
Balance
Sept. 30, 2016
 
                               
Residential real estate
 
$
2,501
   
$
377
   
$
107
   
$
19
   
$
2,790
 
Multifamily real estate
   
821
     
92
     
-
     
-
     
913
 
Commercial real estate:
                                       
Owner occupied
   
1,509
     
(140
)
   
-
     
2
     
1,371
 
Non owner occupied
   
2,070
     
645
     
-
     
-
     
2,715
 
Commercial and industrial
   
1,033
     
83
     
29
     
42
     
1,129
 
Consumer
   
307
     
172
     
232
     
71
     
318
 
All other
   
1,406
     
207
     
207
     
221
     
1,627
 
Total
 
$
9,647
   
$
1,436
   
$
575
   
$
355
   
$
10,863
 

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

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

 
 
- 14 -

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


NOTE  3–LOANS - continued

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

Loan Class
 
Balance
June 30, 2016
   
Provision (credit) for loan losses
   
Loans
charged-off
   
Recoveries
   
Balance
Sept. 30, 2016
 
                               
Residential real estate
 
$
2,747
   
$
91
   
$
51
   
$
3
   
$
2,790
 
Multifamily real estate
   
822
     
91
     
-
     
-
     
913
 
Commercial real estate:
                                       
Owner occupied
   
1,442
     
(72
)
   
-
     
1
     
1,371
 
Non owner occupied
   
2,708
     
7
     
-
     
-
     
2,715
 
Commercial and industrial
   
1,111
     
43
     
29
     
4
     
1,129
 
Consumer
   
306
     
139
     
142
     
15
     
318
 
All other
   
1,668
     
13
     
81
     
27
     
1,627
 
Total
 
$
10,804
   
$
312
   
$
303
   
$
50
   
$
10,863
 

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

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

 
- 15 -

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


NOTE  3–LOANS - continued

Purchased Impaired Loans

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

   
2016
   
2015
 
Residential real estate
 
$
1,793
   
$
-
 
Commercial real estate
               
Owner occupied
   
2,040
     
131
 
Non owner occupied
   
5,436
     
5,549
 
Commercial and industrial
   
361
     
80
 
All other
   
2,058
     
-
 
Total carrying amount
 
$
11,688
   
$
5,760
 
Contractual principal balance
 
$
15,906
   
$
7,251
 
                 
Carrying amount, net of allowance
 
$
11,676
   
$
5,680
 

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses for the nine-months ended September 30, 2016, nor did it increase the allowance for loan losses for purchased impaired loans during the nine-months ended September 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 $396,000 at September 30, 2016, including $347,000 acquired from Bankshares.  Any loan accounted for under the cost recovery method is also included as a non-accrual loan in the amounts presented in the Past Due and Non-performing Loans section below.
 
- 16 -

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


NOTE  3–LOANS - continued

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

   
2016
   
2015
 
Balance at January 1
 
$
185
   
$
204
 
New loans purchased
   
1,151
     
-
 
Accretion of income
   
(64
)
   
(14
)
Reclassification to non-accretable
   
-
     
-
 
Disposals
   
-
     
-
 
Balance at September 30
 
$
1,272
   
$
190
 

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 $8,437,000 and the fair value of the acquired loans totaled $7,286,000.

 

 
- 17 -

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


NOTE  3–LOANS - continued

Past Due and Non-performing Loans

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of September 30, 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.

September 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
 
$
4,030
   
$
2,893
   
$
951
 
Multifamily real estate
   
71
     
26
     
-
 
Commercial real estate
                       
Owner occupied
   
2,103
     
2,044
     
-
 
Non owner occupied
   
244
     
148
     
-
 
Commercial and industrial
   
2,449
     
1,167
     
26
 
Consumer
   
362
     
342
     
48
 
All other
   
1,884
     
1,814
     
5,747
 
Total
 
$
11,143
   
$
8,434
   
$
6,772
 
                         

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.
 
- 18 -

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


NOTE  3–LOANS - continued

The following table presents the aging of the recorded investment in past due loans as of September 30, 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
 
$
345,375
   
$
6,659
   
$
2,478
   
$
9,137
   
$
336,238
 
Multifamily real estate
   
68,483
     
12,503
     
26
     
12,529
     
55,954
 
Commercial real estate:
                                       
Owner occupied
   
138,906
     
361
     
1,752
     
2,113
     
136,793
 
Non owner occupied
   
225,027
     
89
     
125
     
214
     
224,813
 
Commercial and industrial
   
77,617
     
1,557
     
1,097
     
2,654
     
74,963
 
Consumer
   
32,205
     
410
     
143
     
553
     
31,652
 
All other
   
146,332
     
2,005
     
7,339
     
9,344
     
136,988
 
Total
 
$
1,033,945
   
$
23,584
   
$
12,960
   
$
36,544
   
$
997,401
 
 
 
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
 


 
- 19 -

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


NOTE  3–LOANS - continued

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 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
   
$
2,787
   
$
-
   
$
2,790
   
$
389
   
$
343,193
   
$
1,793
   
$
345,375
 
Multifamily real estate
   
-
     
913
     
-
     
913
     
2,598
     
65,885
     
-
     
68,483
 
Commercial real estate:
                                                               
Owner occupied
   
41
     
1,330
     
-
     
1,371
     
2,541
     
134,325
     
2,040
     
138,906
 
Non-owner occupied
   
161
     
2,554
     
-
     
2,715
     
3,146
     
216,445
     
5,436
     
225,027
 
Commercial and industrial
   
294
     
823
     
12
     
1,129
     
1,463
     
75,793
     
361
     
77,617
 
Consumer
   
-
     
318
     
-
     
318
     
-
     
32,205
     
-
     
32,205
 
All other
   
12
     
1,615
     
-
     
1,627
     
9,622
     
134,652
     
2,058
     
146,332
 
Total
 
$
511
   
$
10,340
   
$
12
   
$
10,863
   
$
19,759
   
$
1,002,498
   
$
11,688
   
$
1,033,945
 

 
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
 
 
- 20 -

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


NOTE  3–LOANS - continued

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

The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2016.  The table includes $396,000 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
 
$
1,034
   
$
534
   
$
-
 
Multifamily real estate
   
2,940
     
2,598
     
-
 
Commercial real estate
                       
Owner occupied
   
2,236
     
2,190
     
-
 
Non owner occupied
   
2,707
     
2,615
     
-
 
Commercial and industrial
   
2,472
     
1,393
     
-
 
All other
   
9,603
     
9,536
     
-
 
     
20,992
     
18,866
     
-
 
With an allowance recorded:
                       
Residential real estate
 
$
41
   
$
3
   
$
3
 
Commercial real estate
                       
Owner occupied
   
357
     
351
     
41
 
Non owner occupied
   
531
     
531
     
161
 
Commercial and industrial
   
460
     
318
     
306
 
All other
   
92
     
86
     
12
 
     
1,481