<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
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 0-20908
PREMIER FINANCIAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
KENTUCKY 61-1206757
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 N. HAMILTON STREET
GEORGETOWN, KENTUCKY 40324
(address of principal executive officer) (Zip Code)
Registrant's telephone number (502) 863-7500
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 X 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 - 4,209,090 shares outstanding at November 12, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying information has not been audited by independent public
accountants; 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.
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 generally accepted accounting principles or those normally
made in the registrant's annual Form 10-K filing. 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, 1996 for further information in this regard.
<TABLE>
<CAPTION>
Index to consolidated financial statements:
<S> <C>
Consolidated Balance Sheets . . . . . . . . . . . 3
Consolidated Statements of Income . . . . . . . . 4
Consolidated Statements of Cash Flows . . . . . . 5
Notes to Consolidated Financial Statements. . . . 6
</TABLE>
Page 2
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
(Unaudited) (*)
<S> <C> <C>
ASSETS
Cash and due from banks $ 9,045 $ 7,134
Federal funds sold 4,619 10,635
Investment securities:
Available for sale 163,977 21,827
Held to maturity 21,301 20,993
Loans $250,059 $219,632
Less: Unearned interest (2,252) (2,045)
Allowance for loan losses (2,842) (2,523)
-------- --------
Net loans $244,965 $215,064
FHLB and Federal Reserve stock 2,707 1,543
Premises and equipment, net 5,116 3,800
Goodwill 5,218 5,490
Other assets 11,504 6,079
-------- --------
TOTAL ASSETS $468,452 $292,565
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 25,959 $ 25,031
Time deposits, $100,000 and over 36,896 33,651
Other interest bearing 191,132 176,892
-------- --------
Total deposits $253,987 $235,574
Agreements to repurchase securities 116,023 5,599
Federal Home Loan Bank advances 21,056 9,377
Other liabilities 6,430 2,151
-------- --------
Total liabilities $397,496 $252,701
Mandatorily redeemable capital securities of subsidiary trust $ 28,750 $ 0
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 1,000,000 shares
authorized; none issued or outstanding $ 0 $ 0
Common stock, no par value; 10,000,000 shares
authorized; 4,209,090 shares at September 30, 1997
and December 31, 1996, issued and outstanding 978 978
Surplus 32,941 32,941
Retained earnings 8,082 6,112
Net unrealized gains (losses) on securities 205 (167)
available for sale
-------- --------
Total stockholders' equity $ 42,206 $ 39,864
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $468,452 $292,565
</TABLE>
See accompanying notes to the consolidated financial statements.
*Derived from audited financial statements.
Page 3
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $6,070 $5,292 $17,410 $11,421
Investment securities -
Taxable 2,748 526 4,154 1,280
Tax-exempt 264 174 767 341
Federal funds sold and other 38 117 369 297
------ ------ ------- -------
Total interest income $9,120 $6,109 $22,700 $13,339
INTEREST EXPENSE:
Deposits $2,943 $2,574 $8,378 $5,656
Debt and other borrowings 1,881 187 2,699 354
Capital Trust securities 714 0 898 0
------ ------ ------- -------
Total interest expense $5,538 $2,761 $11,975 $6,010
Net interest income $3,582 $3,348 $10,725 $7,329
Provision for possible loan losses (492) (159) (949) (347)
------ ------ ------- -------
Net interest income after provision
for possible loan losses $3,090 $3,189 $9,776 $6,982
NON-INTEREST INCOME:
Service charges $ 273 $ 219 $ 747 $ 543
Insurance commissions 105 83 340 216
Investment securities gains (losses) 1,164 2 1,172 2
Other 97 90 529 285
------ ------ ------- -------
$1,639 $394 $2,788 $1,046
NON-INTEREST EXPENSES:
Salaries and employee benefits $1,207 $1,093 $3,634 $2,585
Occupancy and equipment expenses 383 255 1,007 539
Other expenses 1,303 676 2,666 1,608
------ ------ ------- -------
$2,893 $2,024 $7,307 $4,732
Income before income taxes $1,836 $1,559 $5,257 $3,296
Provision for income taxes 571 506 1,602 998
------ ------ ------- -------
NET INCOME $1,265 $1,053 $3,655 $2,298
Primary earnings per share $ .30 $ 0.25 $ .87 $ 0.77
Fully diluted earnings per share $ .30 $ 0.25 $ .87 $ 0.77
Weighted average shares outstanding 4,209 4,209 4,209 2,974
</TABLE>
See accompanying notes to the consolidated financial statements.
Page 4
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30 September 30
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,655 $ 2,298
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 567 169
Provision for loan losses 949 347
Investment securities losses (gains), net ( 1,172) (2)
Federal Home Loan Bank stock dividends (91) 0
Changes in:
Other assets (5,558) (45)
Other liabilities 4,279 862
--------- --------
Net cash provided by operating activities $ 2,629 $ 3,629
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale $(286,390) $(22,214)
Proceeds from sales of securities available for sale 141,483 12,593
Proceeds from maturities of securities available for sale 4,407 6,050
Purchases of investment securities held to maturity (3,555) (1,221)
Proceeds from maturities of securities held to maturity 3,232 2,077
Purchase of Federal Home Loan Bank stock (1,073) 0
Net change in federal funds sold 6,016 40
Net change in loans (30,850) (17,510)
Purchases of bank premises and equipment, net (1,569) (571)
Cash paid to purchase subsidiary, net of cash received 0 (12,427)
--------- --------
Net cash used in investing activities $(168,299) $(33,183)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits $ 18,413 $ 11,010
Net change in agreements to repurchase securities
and federal funds purchased 110,424 (1,242)
Net change in Federal Home Loan Bank advances 11,679 (26)
Proceeds from issuance of Capital Trust preferred
certificates 28,750 0
Repayment of debt 0 (5,000)
Net proceeds from issuance of common stock 0 27,077
Dividends paid (1,685) (1,291)
--------- --------
Net cash provided by financing activities $ 167,581 $ 30,528
Net increase in cash and cash equivalents $ 1,911 $ 974
Cash and cash equivalents at beginning of period 7,134 6,340
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,045 $ 7,314
</TABLE>
See accompanying notes to the consolidated financial statements.
Page 5
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Premier
Financial Bancorp, Inc. (the Corporation) and its wholly-owned subsidiaries,
Georgetown Bancorp, Inc., Georgetown, Kentucky, Citizens Deposit Bank & Trust,
Vanceburg, Kentucky, Bank of Germantown, Germantown, Kentucky, Citizens Bank,
Sharpsburg, Kentucky and Farmers Deposit Bank, Eminence, Kentucky. In addition,
the Company has a data processing service subsidiary, Premier Data Services,
Inc., Vanceburg, Kentucky and the newly formed PFBI Capital Trust subsidiary
discussed in Note 5. All material intercompany transactions and balances have
been eliminated.
2. PENDING BUSINESS COMBINATION
On May 28, 1997, the Corporation entered into an Agreement and Plan of
Merger with The Sabina Bank ("Sabina"), Sabina, Ohio, whereby the Corporation
will exchange 476,300 common shares for all the issued and outstanding shares of
Sabina in a business combination anticipated to be accounted for as a pooling of
interests. At September 30, 1997, Sabina had total assets of $36.1 million and
total shareholders' equity of $4.6 million. The share exchange is expected to be
completed in November 1997.
On October 31, 1997, the Corporation entered into an Agreement and Plan
of Merger with Ohio River Bank ("Ohio River"), Ironton, Ohio, whereby the
Corporation will exchange 300,000 common shares for all the issued and
outstanding shares of Ohio River in a business combination anticipated to be
accounted for as a pooling of interests. At September 30, 1997, Ohio River
had total assets of $39.6 million and total shareholders' equity of $4.2
million. The share exchange is expected to be completed in the first quarter
of 1998.
Summarized results of operations of the separate companies and on a
proforma basis for the nine months ended September 30, 1997 and for the year
ended December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
Premier Ohio
Financial The Sabina River
Bancorp Bank Bank Proforma
(In Thousands)
<S> <C> <C> <C> <C>
Net interest income after provision
for loan losses $9,776 $1,132 $877 $11,785
Noninterest income 2,788 160 108 3,056
Noninterest expenses 7,307 1,047 891 9,245
Net income $3,655 $ 201 $ 94 $ 3,950
</TABLE>
Page 6
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. PENDING BUSINESS COMBINATION (CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
Premier Ohio
Financial The Sabina River
Bancorp Bank Bank Proforma
(In Thousands)
<S> <C> <C> <C> <C>
Net interest income after provision
for loan losses $10,262 $1,404 $ 852 $12,518
Noninterest income 1,484 237 97 1,818
Noninterest expenses 6,793 1,282 1,155 9,230
Net income (loss) $ 3,436 $ 288 $ (206) $3,518
</TABLE>
3. INVESTMENT SECURITIES
Amortized cost and fair value of investment securities, by category, at
September 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities $ 138,368 $466 $ (1) $138,833
U.S. agency securities 21,272 27 (74) 21,225
Obligations of states and political
subdivisions 1,128 0 (5) 1,123
Preferred stock 2,000 0 0 2,000
Other equity securities 900 0 (104) 796
---------- ---- ----- --------
Total available for sale $ 163,668 $493 $(184) $163,977
Held to maturity:
U.S. Treasury securities $ 1,651 $ 3 $ 0 $ 1,654
U.S. agency securities 4,729 13 (2) 4,740
Obligations of states and political
subdivisions 14,715 358 (5) 15,068
Asset-backed securities 206 2 0 208
---------- ---- ----- --------
Total held to maturity $ 21,301 $376 $ (7) $ 21,670
</TABLE>
Page 7
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. INVESTMENT SECURITIES (CONTINUED)
Amortized cost and fair value of investment securities, by category, at
December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities $ 4,098 $ 5 $ (9) $ 4,094
U.S. agency securities 13,440 40 (157) 13,323
Obligations of states and political
subdivisions 1,584 40 (2) 1,622
Preferred stock 2,000 0 0 2,000
Other equity securities 900 0 (112) 788
-------- ------ ------- -------
Total available for sale $ 22,022 $ 85 $ (280) $21,827
Held to maturity:
U.S. Treasury securities $ 2,058 $ 6 $ (9) $ 2,055
U.S. agency securities 6,329 18 (26) 6,321
Obligations of states and political
subdivisions 12,190 250 (60) 12,380
Asset-backed securities 416 4 (4) 416
-------- ------ ------- -------
Total held to maturity $ 20,993 $ 278 $ (99) $21,172
</TABLE>
4. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Balance, beginning of period $ 2,607 $ 1,871 $ 2,523 $ 1,735
Reserve acquired through purchase
of subsidiary 0 812 0 812
Net charge-offs (257) (249) (630) (301)
Provision for loan losses 492 159 949 347
Balance, end of period $ 2,842 $ 2,593 $ 2,842 $ 2,593
-------- -------- -------- --------
</TABLE>
Page 8
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. CAPITAL SECURITIES OF SUBSIDIARY TRUST
Mandatorily Redeemable Capital Securities of Subsidiary Trust ("Capital
Securities") represent preferred beneficial interests in the assets of PFBI
Capital Trust ("Trust"). The Trust holds certain 9.75% junior subordinated
debentures due June 30, 2027 issued by the Corporation on June 9, 1997.
Distributions on the Capital Securities will be payable at an annual rate of
9.75% of the stated liquidation amount of $25 per Capital Security, payable
quarterly. Cash distributions on the Capital Securities are made to the
extent interest on the debentures is received by the Trust. In the event of
certain changes or amendments to regulatory requirements or federal tax
rules, the Capital Securities are redeemable in whole. Otherwise, the Capital
Securities are generally redeemable in whole or in part on or after June 30,
2002 at 100% of the liquidation amount.
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) 128, "Earnings Per Share".
SFAS 128 simplifies the standards for computing earnings per share (EPS)
previously found in APB No. 15, "Earnings Per Share", and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the financial statements
for all entities with complex capital structures. Basic EPS excludes dilution
and is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted
EPS is computed similarly to fully diluted EPS under APB Opinion No. 15.
SFAS 128 is effective for the Corporation's year ending December 31, 1997 and
is not expected to have a material impact on the financial statements.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 129, "Disclosure of Information about Capital Structure". SFAS No. 129
establishes standards for disclosing information about an entity's capital
structure. SFAS 129 is effective for financial statements for the periods
ending after December 15, 1997. The Corporation will adopt SFAS 129 in the
year ending December 31, 1997 and has not yet determined the effect of the
adoption.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income". SFAS 130 establishes standards for
the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. Comprehensive income is
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. The
adoption of SFAS No. 130 is effective for the Corporation in 1999.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information".
SFAS No. 131 requires publicly-held companies to report financial and other
information about key revenue-producing segments of the entity for which such
information is available and it utilized by the chief operation decision
maker. Specific information to be reported for individual segments includes
profit or loss, certain revenue and expense items and total assets. A
reconciliation of segment financial information to amounts reported in the
financial statements is also to be provided. SFAS No. 131 is effective for
the Corporation in 1999.
Page 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
A. Financial Condition and Results of Operations
Net income for the nine months ended September 30, 1997 of $3,655,000 or
$.87 per share was 59% higher than the $2,298,000 or $.77 per share recorded
for the same period in 1996. This increase was due largely to the increase of
$2,794,000 in net interest income reflecting the growth in the average assets
of the Corporation of approximately $164.8 million to $364.8 million compared
to $200.0 million for the same period in 1996. The growth in average assets
was the result of the acquisition of Farmers Deposit Bank of Eminence,
Kentucky in July, 1996, the issuance of Trust Preferred Securities and
repurchase agreements near the end of the second quarter of 1997, and the
continued growth of the Corporation's other banks. For the three months
ended September 30, 1997, net income totaled $1,265,000 or $.30 per share
compared to $1,053,000 or $.25 per share for the same period in 1996.
Total assets were $468.5 million at September 30, 1997 compared to
$292.6 million at December 31, 1996, an increase of $175.9 million. The
increase is primarily attributed to the issuance of Trust Preferred
Securities ($28.8 million), an increase in repurchase agreements ($110
million) and the growth of the Corporation's subsidiary banks ($31 million).
In an effort to minimize the adverse impact on net interest income until
a permanent investment is made of the funds from the issuance of the Trust
Preferred Securities, the Corporation initiated an investment strategy at the
end of the second quarter of 1997 of selling approximately $110 million of
short term (60 days) repurchase agreements and investing the proceeds in 2 to
5 year U.S. Treasury and agency securities with a weighted average interest
rate of approximately 1% higher than the weighted average rate paid on the
repurchase agreements. The Corporation's policy is to unwind its position
when the spread between the weighted average interest rate of the repurchase
agreements and the weighted average rate on the underlying securities falls
below 50 basis points. During the third quarter of 1997, the spread fell
below 50 basis points, the Corporation unwound its position and recognized a
net gain of $1,164,000 on the sale of the underlying securities in the
arbitrage portfolio. The spread subsequently increased to more than 50 basis
points and the Corporation reestablished its position.
Although the Corporation's investment strategy to minimize the adverse
impact on net interest income has been successful, the Corporation's net
interest margin and return on average assets have been significantly reduced
by its implementation. The net interest margin for the nine months ended
September 30, 1997 was 4.32% compared to 5.43% for the first nine months of
1996 and 5.32% for all of 1996. The return on average shareholders' equity
and return on average assets were 11.9% and 1.34%, respectively, for the nine
months ended September 30, 1997, compared to 12.7% and 1.50%, respectively
for the same period in 1996.
Page 10
<PAGE>
Non-interest income increased $1,742,000 to $2,788,000 for the first
nine months of 1997 compared to $1,046,000 for the first nine months of 1996.
Non-interest income increased $1,245,000 to $1,639,000 for the three months
ended September 30, 1997 compared to $394,000 for the same period in 1996.
The increases are primarily due to the gains realized on the sale of
securities totaling $1,164,000 during the third quarter of 1997. Also
contributing to these increases was the growth and expansion of the
Corporation's business and its customer base, including higher insurance
commissions, income from the sale of loans and an overall increase in service
charges. Additionally, non-interest income of $415,000 was recorded at
Farmers Deposit Bank during 1996 prior to it being acquired by the
Corporation and is not included in the Corporation's consolidated statement
of income for the nine months ended September 30, 1996.
Non-interest expenses were $7,307,000 or 2.67% of average assets on an
annualized basis during the first nine months of 1997 compared to $4,732,000
or 3.15% of average assets during the same period of 1996. Non-interest
expenses increased $869,000 during the three months ended September 30, 1997
to $2,893,000 compared to $2,024,000 for the three months ended September 30,
1996. Salaries and employee benefits increased from $1,093,000 and $2,585,000
for the three and nine months ended September 30, 1996, respectively, to
$1,207,000 and $3,634,000 for the three and nine months ended September 30,
1997, respectively. Also increasing were other operating expenses from
$676,000 and $1,608,000 for the three and nine months ended September 30,
1996 to $1,303,000 and $2,666,000 for the same periods in 1997, and occupancy
expenses from $255,000 and $539,000 for the three and nine months ended
September 30, 1996 to $383,000 and $1,007,000 for the three and nine months
ended September 30, 1997. The increase in other operating expenses is
primarily attributable to the acquisition expenses incurred in connection
with the acquisition of The Sabina Bank, Sabina, Ohio. The other increases in
non-interest expenses are attributable to the expansion of the Corporation's
business and the exclusion from the Corporation's statement of income for the
nine months ended September 30, 1997 of $1,108,000 of non-interest expenses
incurred at Farmers Deposit Bank prior to it being acquired in 1996 in a
business combination accounted for as a purchase.
The following table sets forth information with respect to the
Corporation's non-performing assets at the dates indicated. No loans were
recorded as restructured loans within the meaning of SFAS No. 15 at the dates
indicated.
<TABLE>
<CAPTION>
September 30 December 31 December 31
1997 1996 1995
(In Thousands)
<S> <C> <C> <C>
Non-accrual loans $ 472 $ 423 $ 592
Accruing loans which are contractually
past due 90 days or more 1,171 528 456
-------- ------ --------
Total non-performing loans $ 1,643 $ 951 $ 1,048
Other real estate acquired through
foreclosure 1,058 485 132
-------- ------ --------
Total non-performing assets $ 2,701 $1,436 $ 1,180
Non-performing loans as a percentage
of total net loans .66% .44% .93%
Non-performing assets as a percentage
of total assets .58% .49% .76%
</TABLE>
Page 11
<PAGE>
Although the Corporation's non-performing loans as a percentage of total
net loans increased from .44% at December 31, 1996 to .66% at September 30,
1997 and non-performing assets to total assets increased from .49% at
December 31, 1996 to .58% at September 30, 1997, non-performing loans and
non-performing assets at September 30, 1997 as a percentage of total net
loans and total assets, respectively, remain below the December 31, 1995
levels of .93% and .76%, respectively.
The provision for possible loan losses increased from $159,000 for the
three months ended September 30, 1996 to $492,000 for the three months ended
September 30, 1997 and from $347,000 to $949,000 for the first nine months of
1996 compared to 1997. These increases were necessary to provide for
possible losses on the $35 million increase in net loans outstanding from
September 30, 1996 to September 30, 1997 and to replenish the allowance for
loan losses due to an increase in net charge-offs from $301,000 for the nine
months ended September 30, 1996 to $630,000 for the same period in 1997. The
allowance for loan losses at September 30, 1997 of $2,842,000 represented
1.15% of total loans outstanding.
Income tax expense was $1,602,000 for the first nine months of 1997
compared to $998,000 for the same period in 1996. Income tax expense for 1997
was higher than 1996 almost entirely due to the higher income before taxes
since the effective tax rate for 1997 of 30.5% is comparable to the 30.3% for
the same period in 1996.
B. Liquidity
Liquidity for a financial institution can be expressed in terms of
maintaining sufficient cash flows to meet both existing and unplanned
obligations in a cost effective manner. Adequate liquidity allows the
Company to meet the demands of both the borrower and the depositor on a
timely basis, as well as pursuing other business opportunities as they arise.
Thus, liquidity management embodies both an asset and liability aspect. In
order to provide for funds on a current and long-term basis, the Company
primarily relies on the following sources:
1. Core deposits consisting of both consumer and commercial deposits
and certificates of deposit of $100,000 or more.
2. Cash flow generated by repayment of loans and interest.
3. Arrangements with correspondent banks for purchase of unsecured
federal funds.
4. The sale of securities under repurchase agreements and borrowing
from the Federal Home Loan Bank.
5. Maintenance of an adequate available-for-sale security portfolio.
The cash flow statements for the periods presented in the financial
statements provide an indication of the Company's sources and uses of cash as
well as an indication of the ability of the Company to maintain an adequate
level of liquidity.
Page 12
<PAGE>
C. Capital
At September 30, 1997, total shareholders' equity of $42.2 million
equaled 9.01% of total consolidated assets. Tier I capital totaled $49.3
million at September 30, 1997, which represents a Tier I leverage ratio of
10.65%.
In June 1997, the Corporation issued $28.8 million of 9.75% Mandatorily
Redeemable Capital Securities of Subsidiary Trust. These securities will
qualify as Tier I capital up to an amount not to exceed 25% of Tier I capital
and the portion that exceeds the 25% limitation will qualify as Tier 2 or
supplementary capital of the Corporation. The issuance of these securities
and resultant increase in capital will allow the Corporation to target larger
financial institutions as potential acquisitions.
The Company declared a first quarter dividend of $.125 per share, or
$526,136, payable March 31, 1997 to shareholders of record as of March 20,
1997, a second quarter dividend of $.125 per share, or $526,136 payable June
30, 1997 to shareholders of record as of June 20, 1997 and increased the
dividend in the third quarter to $.15 per share, or $631,363, payable
September 30, 1997 to shareholders of record as of September 23, 1997.
Page 13
<PAGE>
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a vote
of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
<S> <C>
27 Financial Data Schedules
</TABLE>
Page 14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREMIER FINANCIAL BANCORP, INC.
Date: November 13, 1997 /s/ Marshall T. Reynolds
-------------------------------
Marshall T. Reynolds
Chairman of the Board
Date: November 13, 1997 /s/ J. Howell Kelly
-------------------------------
J. Howell Kelly
President & Chief Executive Officer
Page 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,045
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,619
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 163,977
<INVESTMENTS-CARRYING> 21,301
<INVESTMENTS-MARKET> 21,670
<LOANS> 247,807
<ALLOWANCE> 2,842
<TOTAL-ASSETS> 468,452
<DEPOSITS> 253,987
<SHORT-TERM> 135,488
<LIABILITIES-OTHER> 6,430
<LONG-TERM> 30,341
0
0
<COMMON> 978
<OTHER-SE> 41,228
<TOTAL-LIABILITIES-AND-EQUITY> 468,452
<INTEREST-LOAN> 17,410
<INTEREST-INVEST> 4,921
<INTEREST-OTHER> 369
<INTEREST-TOTAL> 22,700
<INTEREST-DEPOSIT> 8,378
<INTEREST-EXPENSE> 11,975
<INTEREST-INCOME-NET> 10,725
<LOAN-LOSSES> 949
<SECURITIES-GAINS> 1,172
<EXPENSE-OTHER> 7,307
<INCOME-PRETAX> 5,257
<INCOME-PRE-EXTRAORDINARY> 5,257
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,655
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
<YIELD-ACTUAL> 4.32<F1>
<LOANS-NON> 472
<LOANS-PAST> 1,171
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,523
<CHARGE-OFFS> 795
<RECOVERIES> 165
<ALLOWANCE-CLOSE> 2,842
<ALLOWANCE-DOMESTIC> 2,842
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN> Computed on a Tax-Equivalent basis.
</FN>
</TABLE>
