<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
_____TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 offices) (Zip Code)
Registrants' telephone number: (502) 863-7500
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK
(Title of Class)
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 by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this 10-K or any amendment
to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 24, 1997 was $62,610,213. The number of shares
outstanding of the Registrant's Common Stock as of March 24, 1997 was
4,209,090.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the Form
10-K part indicated:
Document Form 10-K
(1) Proxy statement for the annual meeting of Part III
shareholders to be held May 6, 1997
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
Premier Financial Bancorp, Inc. (the Company) was incorporated in 1991
under the laws of Kentucky and is registered under the Bank Holding Company
Act of 1956, as amended. The Company only conducts business through the
Banks and other direct or indirect subsidiaries. The Company was organized
in connection with the reorganization of Citizens Deposit Bank and Trust
Company, Vanceburg, Kentucky (the "Vanceburg Bank") into a holding company
structure. The Vanceburg Bank is a banking corporation organized under the
laws of Kentucky, resulting from the merger in 1930 of Deposit Bank,
chartered in 1894, with Citizens Bank, chartered in 1903. In 1992, the
Company acquired Bank of Germantown, Germantown, Kentucky (the "Germantown
Bank"), a banking corporation organized under the laws of Kentucky in 1900.
The Company in March, 1995 acquired Georgetown Bank and Trust Company,
Georgetown, Kentucky (the "Georgetown Bank"), a banking corporation organized
under the laws of Kentucky in 1988, and in October, 1995, Citizens Bank,
Sharpsburg, Kentucky (the Sharpsburg Bank"), a banking corporation organized
under the laws of Kentucky in 1903. On July 1, 1996, the company acquired
Farmers Deposit Bancorp, Eminence, Kentucky ("Eminence") and indirectly, its
commercial bank subsidiary, Farmers Deposit Bank, (the "Eminence Bank"),
pursuant to an Agreement and Plan of Share Exchange dated March 4, 1996. At
December 31, 1996, the Company had consolidated total assets of $292.6
million, total deposits of $235.6 million and shareholders' equity of $39.9
million. The Vanceburg Bank, the Germantown Bank, the Georgetown Bank, the
Sharpsburg Bank and the Eminence Bank are herein referred to individually as
a "Bank" and collectively as the "Banks".
The Company has one non-banking subsidiary, Premier Data Services, Inc.,
a Kentucky corporation that provides data processing services to three of the
Banks and two non-affiliated banks. The Company also has an indirect
subsidiary, County Finance, Inc., that is a Kentucky consumer loan company.
County Finance, Inc., a subsidiary of the Vanceburg Bank, provides consumer
loan services to clientele within the Lewis County, Kentucky market that, due
to credit experience or other factors, may not be able to obtain loans from
commercial bank lenders.
BUSINESS
GENERAL
Through the Banks and its data processing subsidiary, the Company
focuses on providing quality, community banking services to individuals and
small-to medium sized businesses primarily in non-urban areas. By seeking to
provide such banking services in non-urban areas, the Company believes that
it can minimize the competitive effect of larger financial institutions that
typically are focused on large metropolitan areas. Through its experiences in
acquiring its Banks, the Company has successfully developed and implemented a
strategy of joining together community banks that retain their commitment to
local orientation and direction, while having the benefit of the Company's
capital for growth and staff assistance to promote safety, soundness and
regulatory compliance. Each Bank is managed on a decentralized basis that
offers customers direct access to the Bank's president and other officers in
an environment conducive to friendly, informed and courteous service. This
decentralized approach also enables each Bank to offer local and timely
decision-making, and flexible and reasonable operating procedures and credit
policies limited only by a framework of centralized risk controls provided by
the Company to promote prudent banking practices. Each Bank maintains its
community orientation by, among other things, having selected members of its
community as members of its board of directors, who assist in the
introduction of prospective customers to the Bank and in the development or
modification of products and services to meet customer needs. As a result of
the development of personal banking relationships with its customers and the
convenience and service offered by the Banks, the Banks' lending and
investing activities are funded primarily by core deposits.
<PAGE>
When appropriate and economically advantageous, the Company centralizes
certain of the Banks' back office, support and investment functions in order
to achieve consistency and cost efficiency in the delivery of products and
services. The Company centrally provides services such as data processing,
operations support, accounting, loan review and compliance and internal
auditing to the Banks to enhance their ability to compete effectively. The
Company also provides overall direction in the areas of credit policy and
administration, strategic planning, marketing, investment portfolio
management and other financial and administrative services. Each Bank
participates in product development by advising management of new products
and service needed by their customers and desirable changes to existing
products and services.
Each of the Banks provides a wide range of retail and commercial banking
services, including commercial, real estate, agricultural and consumer
lending; depository and funds transfer services; collections; safe deposit
boxes; cash management services; and other services tailored for both
individuals and businesses. The Georgetown Bank, the Eminence Bank, and the
Vanceburg Bank also offer limited trust services and act as executor,
administrator, trustee and in various other fiduciary capacities. Through
Premier Data Services, Inc., the Company's data processing subsidiary, the
Company currently provides centralized data processing services to three of
the Banks as well as two non-affiliated banks.
The Banks' residential mortgage lending activities consist primarily of
loans for purchasing personal residences, or loans for commercial or consumer
purposes secured by residential mortgages. Consumer lending activities
consist of traditional forms of financing for automobile and personal loans.
The Banks' range of deposit services include checking accounts, NOW
accounts, savings accounts, money market accounts, club accounts, individual
retirement accounts, certificates of deposit and overdraft protection.
Deposits of the Banks are insured by the Bank Insurance Fund administered by
the FDIC.
County Finance, Inc., a subsidiary of the Vanceburg Bank, is a consumer
loan company that provides secured and unsecured loans to customers who would
generally not qualify, due to credit experience or other factors, for loans
at that Bank. The Company anticipates expanding the business of this
consumer loan company, both in markets served by the Company's other Banks as
well as potentially in other as yet unidentified markets in Kentucky where
business prospects appear favorable.
COMPETITION
The Banks encounter strong competition both in making loans and
attracting deposits. The deregulation of the banking industry and the
widespread enactment of state laws that permit multi-bank holding companies
as well as the availability of nationwide interstate banking has created a
highly competitive environment for financial services providers. In one or
more aspects of its business, each Bank competes with other commercial banks,
savings and loan associations, credit unions, finance companies, mutual
funds, insurance companies, brokerage and investment banking companies and
other financial intermediaries operating in its market and elsewhere, many of
whom has substantially greater financial and managerial resources. With
respect to the Georgetown Bank and the Germantown Bank, primary competitors
include large bank holding companies having substantially greater resources
that offer certain services that these two Banks do not currently provide.
Each Bank seeks to minimize the competitive effect of larger financial
institutions through a community banking approach that emphasizes direct
customer access to the Bank's president and other officers in an environment
conducive to friendly, informed and courteous service.
Management believes that each Bank is well positioned to compete
successfully in its respective primary market area, although no assurances
can be given. Competition among financial institutions is based upon
interest rates offered on deposit accounts, interest rates charged on loans
and other credit and service charges, the quality and scope of the services
rendered, the convenience of the banking facilities and, in the case of loans
to commercial borrowers, relative lending limits. Management believes that
the commitment of its Banks to personal service, innovation and involvement
in their respective communities and primary market areas, as well as their
commitment to quality community banking service, are factors that contribute
to their competitiveness.
<PAGE>
NUMBER OF EMPLOYEES
The Company and its subsidiaries collectively had approximately 129
full-time equivalent employees as of March 24, 1997. Its executive offices
are located at 120 N. Hamilton Street, Georgetown, Kentucky, telephone number
(502) 863-7500 (facsimile number (502) 863-7503).
ITEM 2. PROPERTIES
The Company owns the banking office of the Georgetown Bank at 120 N.
Hamilton Street, Georgetown, Kentucky, at which the Company's executive
offices are located. Each of the Banks owns the real property and
improvements on their respective main offices and branches.
The Vanceburg Bank, in addition to its main office at 400 Second Street,
Vanceburg, Kentucky, has four branch offices in Lewis County, Kentucky. The
Germantown Bank, with its main office on Highway 10, Germantown, Kentucky,
has no other offices in Bracken County, Kentucky. The Georgetown Bank, in
addition to its main office, has one branch in Scott County, Kentucky. The
Sharpsburg Bank, with its main office on Main Street, Sharpsburg, Kentucky,
has no other offices in Bath County, Kentucky. The Eminence Bank has its
main office on Main Street, Eminence, Kentucky and has one branch located in
Henry County, Kentucky.
ITEM 3. LEGAL PROCEEDINGS
The Banks are respectively parties to legal actions that are ordinary
routine litigation incidental to a commercial banking business. In
management's opinion, the outcome of these matters, individually or in the
aggregate, will not have a material adverse impact on the results of
operations or financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to the Company's public offering in May, 1996, there had been no
established public trading market for the common shares of the Company, with
trading in common shares being limited and infrequent. During the 120 days
prior to the offering, the Company was aware of certain trading transactions
involving common shares at a sales price of $12.50 per share. Sales of
common shares may have occurred in private transactions at prices that are
not known to the Company. Further, these sale prices may not have been
representative of prices that might have been realized in trading
transactions in common shares following the offering. The Company's common
stock is listed on the NASDAQ under the symbol PFBI. At March 24, 1997, the
Company had approximately 501 record holders of its common shares.
<PAGE>
The following table sets forth on a quarterly basis cash dividends paid
and the range of high and low sales prices on a per share basis during the
quarters indicated. Cash dividends paid per share shown below have been
adjusted retroactively to reflect prior stock splits effected in the form of
share dividends.
CASH SALES PRICE
DIVIDENDS PAID HIGH LOW
-------------- ---- ---
1995:
First Quarter $ 0.10 $ * $ *
Second Quarter 0.10 * *
Third Quarter 0.125 * *
Fourth Quarter 0.125 * *
--------
$ 0.45
--------
--------
1996:
First Quarter $ 0.125 $ * $ *
Second Quarter 0.125 14.25 13.50
Third Quarter 0.125 14.00 12.25
Fourth Quarter 0.125 14.12 12.00
--------
$ 0.50
--------
--------
1997:
First Quarter **$ 0.125 $15.62 $13.50
* No established public trading market.
** Dividend declared March 12, 1997 to shareholders of record as of March
24, 1997, payable March 31, 1997.
The Company has paid consecutive quarterly cash dividends since its
organization. The Company's annual cash dividend has increased 6 consecutive
years, from $0.12 per share in 1991 to $0.50 per share in 1996. While the
Company currently expects to declare comparable cash dividends in the future,
there can be no assurance that it will do so. The determination whether to
pay cash dividends and the amount of such dividends is at the discretion of
the Company's Board of Directors.
The payment of dividends by the Company depends largely upon the ability
of the Banks to declare and pay dividends to the Company because the
principal source of the Company's revenue will be dividends paid by the
Banks. At March 1, 1997, approximately $3,459,000 was available for payment
as dividends from the Banks to the Company without the need for approval from
the FDIC or the Kentucky Department of Financial Institutions. In considering
the payment of dividends, the Board of Directors will take into account the
Company's financial condition, results of operations, tax considerations,
costs of expansion, industry standards, economic conditions and need for
funds, as well as governmental policies and regulations applicable to the
Company and the Banks.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents consolidated selected financial data for
the Company, it does not purport to be complete and is qualified in its
entirety by more detailed financial information and the audited consolidated
financial statements contained elsewhere in this Prospectus. The consolidated
selected financial data presented below has been retroactively adjusted to
reflect all prior stock splits effected in the form of share dividends,
including the 2-for-1 stock split effected in the form of a 100% share
dividend on March 29, 1996.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
(In Thousands Except Share Data and Ratios)
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Net interest income $10,837 $6,023 $5,524 $4,938 $4,203
Provision for possible loan
losses 575 86 207 170 325
Non-interest income 1,484 825 684 733 592
Non-interest expense 6,793 4,493 4,005 3,640 3,375
--------- --------- --------- --------- --------
Income taxes 1,517 113 483 510 366
--------- --------- --------- --------- --------
Net income $3,436 $2,156 $1,513 $1,351 $729
--------- --------- --------- --------- --------
--------- --------- --------- --------- --------
FINANCIAL POSITION
Total assets $292,565 $155,475 $115,443 $108,774 $100,364
Loans, net of unearned
income 217,587 113,064 81,276 74,450 65,159
Allowance for loan losses 2,523 1,735 886 884 938
Securities 44,363 24,929 19,688 21,864 18,965
Deposits 235,574 136,246 102,839 98,846 91,704
Debt 0 5,000 1,500 0 0
Shareholders equity 39,863 11,215 9,453 8,868 7,617
SHARE DATA
Net income $ 1.05 $ 1.13 $ 0.80 $ 0.72 $ 0.39
Book value 9.47 5.87 5.02 4.72 4.05
Cash dividend 0.50 0.45 0.36 0.28 0.20
Common shares outstanding
(year-end) 4,209,090 1,909,090 1,883,410 1,880,200 1,880,200
Average common shares
outstanding 3,287,505 1,903,260 1,881,818 1,880,200 1,880,200
RATIOS
Return on average assets 1.53% 1.69% 1.36% 1.23% 0.88%
Return on average equity 12.2% 20.5% 16.4% 15.4% 9.97%
Dividend payout 52.9% 39.8% 45.0% 38.9% 51.3%
Stockholders' equity to total
assets at period-end 13.63% 7.21% 8.19% 8.15% 7.59%
Average stockholders' equity
to average total assets 12.52% 8.25% 8.27% 8.04% 8.80%
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion presents Management's analysis of the primary factors
affecting Premier Financial Bancorp, Inc.'s (the "Company" or "Premier")
performance and financial condition. It should be read in conjunction with
the accompanying audited consolidated financial statements beginning on page
29 of this report. Unless otherwise noted, all dollar amounts (except per
share data) are presented in thousands.
OVERVIEW
In 1996, Premier continued to pursue its strategic plan to build a network of
independently managed community banks into a strongly capitalized, risk
controlled bank holding company with high quality earnings and shareholder
liquidity. Premier posted record results in three key financial areas:
earnings, total assets and shareholders' equity. For 1996, net income rose
59.3% to $3,436 from $2,156 in 1995; total assets nearly doubled to $292,565
from $155,475 in 1995, and shareholders' equity of $39,863 was over 3.5 times
the $11,215 at year end 1995. Higher earnings were reported at each
subsidiary bank while the increase in total assets was split between internal
growth of 6.4%, the acquisition of Farmers Deposit Bancorp 84.4% and net
public offering proceeds 9.2%. The growth in shareholders' equity was 94.5%
from the public offering proceeds and 5.5% from growth in retained earnings.
Highlights of Premier's 1996 performance and financial condition include:
Return on Average Assets of 1.53%
Return on Average Equity of 12.19%
Net Interest Margin 5.32%
Efficiency Ratio 57.8%
Allowance for Loan Losses to Non-Performing Loans 265%
ACQUISITIONS
Premier's acquisition philosophy is to seek community bank candidates in
primarily non-urban areas that can become a part of Premier on a non-dilutive
basis within a two year timeframe. In evaluating acquisition opportunities,
Premier conducts a due diligence review to determine both risks and earnings
potential. Desirable candidates have an established base of community
involvement, strong local directors, a history of earnings and readily
identifiable asset risks. Acquisition transactions are structured to make a
fair return on investment while meeting the needs of the shareholders of
banks joining Premier.
In 1996, Premier completed one acquisition. On July 1, 1996, Farmers Deposit
Bancorp of Eminence, Kentucky, and its wholly owned subsidiary, Farmers
Deposit Bank, were acquired in a cash transaction that was accounted for as a
purchase.
In 1995, Premier completed two acquisitions. On March 24, 1995, the Company
acquired Georgetown Bancorp, Inc. and its wholly owned subsidiary, Georgetown
Bank & Trust, Georgetown, Kentucky, in a business combination accounted for
as a pooling of interests.
On October 31, 1995, Premier acquired all of the outstanding shares of
Citizens Bank of Sharpsburg, Kentucky, for cash. This combination was
accounted for as a purchase.
The significant financial data relative to the 1995 and 1996 acquisitions is
set forth in Note 2 to the financial statements.
<PAGE>
RESULTS OF OPERATIONS
Earnings Summary
Premier recorded net income for 1996 of $3,436, an increase of 59.3% over the
$2,156 for 1995, and almost 2.3 times net income of $1,513 for 1994. Major
factors contributing to the higher net income were an increase of 79.9% in
net interest income from $6,023 in 1995 to $10,837 in 1996, and an increase
of $659 in noninterest income to $1,484 that was up 79.9% from the $825 for
1995. Offsetting these increases were increases in loan loss provision of
$489, up from $86 in 1995, noninterest expense which rose $2,301 to $6,793 or
51.2% from $4,492 in 1995 and an increase in income taxes of $1,405 to $1,518
from $112 recorded in 1995. In 1995, income taxes were substantially reduced
as a result of the elimination of a $504 valuation allowance with respect to
the deferred tax assets related to the acquisition of Georgetown Bancorp,
Inc. Per share earnings in 1996 of $1.05 were down $0.08 or 7.1% from the
$1.13 recorded in 1995. The reduced level of per share earnings was
attributable to the increase in outstanding shares of $2,300,000 as a result
of the initial public offering of shares in May and June of 1996.
For the year ended December 31, 1995, net income of $2,156 was $643 or 42.5%
above net income of $1,513 for 1994. The increase in net income in 1995 was
primarily attributable to a $499 increase in net interest income and
reductions of $370 in income taxes and $121 in loan loss provision that was
partially offset by an increase of $488 in noninterest expenses.
NET INTEREST INCOME
Premier's primary source of revenue is its net interest income, which is the
difference between the interest received on its earning assets and the
interest paid on the funds acquired to support those assets. Loans made to
businesses and individuals are the primary interest earning assets, followed
by investment securities and federal funds sold in the inter-bank market.
Deposits are the primary interest bearing liabilities used to support the
interest earning assets. The level of net interest income is affected by both
the balances and mix of interest earning assets and interest bearing
liabilities, the changes in their corresponding yields and costs, by the
volume of interest earning assets funded by noninterest bearing deposits, and
the level of capital. Premier's long term objective is to manage this income
to provide the largest possible amount of income while balancing interest
rate, credit and liquidity risks.
Nontaxable income from loans and investment securities is presented on a
tax-equivalent basis whereby income exempt from tax has been adjusted upward
by an amount equivalent to the prevailing federal income taxes that would
have been paid if the income had been fully taxable. The discussion of
factors influencing net interest income that follows is based on taxable
equivalent data. In each of the three years, this adjustment is based on an
assumed federal income tax rate of 34%.
SUMMARY OF NET INTEREST INCOME.
(Dollars in thousands on a taxable equivalent basis)
1996 1995 1994
Interest income . . . . . . . . . . . $19,674 $11,103 $8,962
Tax equivalent adjustment . . . . . . 346 202 141
------- ------- -------
Interest income . . . . . . . . . . 20,020 11,305 9,103
Interest expense. . . . . . . . . . . 8,837 5,081 3,438
------- ------- -------
Net interest income . . . . . . . $11,183 $6,224 $5,665
------- ------- -------
------- ------- -------
<PAGE>
The table below shows, for the three year period ended December 31, 1996, the
average distribution of assets, liabilities and the interest earned or paid
on those items, together with the level of shareholders' equity, as well as
Premier's net yield on interest earning assets (net interest income divided
by average earning assets). In 1996, tax equivalent net interest income
increased to $11,183 from $6,224 in 1995, an increase of $4,959 or 79.7%.
This increase was due to an increase of $91,346 or 76.7% in average earning
assets and an increase of $71,158 or 68.9% in average interest bearing
liabilities. This growth is primarily attributable to the acquisition of
Farmers Deposit Bancorp in mid year and the net proceeds in excess of the
issuance costs from the Company's initial public stock offering in May and
June. Yield on earning assets for 1996 of 9.52% was essentially equivalent to
the 9.50% yield in 1995 while the cost of interest bearing liabilities
increased from 4.92% in 1995 to 5.07% in 1996. The increased cost of interest
bearing liabilities reflected higher rates paid on large money market
deposits by the Farmers Deposit Bank. The net interest spread for 1996
declined .13% from 4.58% in 1995 to 4.45% while the net interest margin,
which measures net interest income as a percent of average earning assets,
increased from 5.23% in 1995 to 5.32% in 1996. The increase in net interest
margin is attributable to the higher levels of noninterest bearing deposits
and capital supporting interest earning assets which rose from 19.6% of
average interest-earning assets in 1995 to 23.1% in 1996. In 1995, net
interest income was up $559 to $6,224 from $5,665 in 1994 due principally to
an increase in average interest earning assets of $14,407. The favorable
impact of the increase in net interest earning assets was partially offset by
a decrease of .18% in the net interest margin to 5.23%.
<PAGE>
The following table presents average balances and interest rates for the
three year period ended December 31, 1996.
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST
ANALYSIS
(Dollars in thousands.)
<TABLE>
<CAPTION>
1996 1995 1994
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest earning assets
U.S. Treasury and federal agency
securities $ 24,823 $1,449 5.84% $ 14,122 $786 5.57% $15,012 $ 736 4.90%
States and municipal
obligations(1) 10,119 800 7.91 5,495 440 8.01 4,823 391 8.11
Other securities (1) 3,573 385 10.78 2,499 277 11.08 1,400 116 8.29
-------- ------ ------ -------- ----- ------ ------- ---- -----
Total investment securities $ 38,515 $2,634 6.84 $22,116 $1,503 6.80 $21,235 $1,243 5.85
Federal funds sold 7,163 388 5.42 4,966 279 5.62 3,696 145 3.92
Interest-bearing deposits with
banks 376 19 5.05 436 35 8.03 396 15 3.79
Loans, net of unearned income
(3) (4)
Commercial 83,163 8,405 10.11 55,040 5,624 10.22 48,590 4,627 9.52
Real estate mortgage 62,892 6,340 10.08 26,229 2,642 10.07 22,393 2,140 9.56
Installment 18,266 2,234 12.23 10,242 1,222 11.93 8,312 933 11.22
-------- ------ ------ -------- ----- ------ ------- ---- -----
Total loans $164,321 $16,979 10.33 $91,511 $9,488 10.37 $79,295 $7,700 9.71
Total interest-earning assets $210,375 $20,020 9.52% $119,029 $11,305 9.50% $104,622 $9,103 8.70%
Allowance for loan losses (2,164) (1,049) (963)
Cash and due from banks 5,834 4,073 4,295
Premises and equipment 2,813 1,689 1,309
Other assets 8,101 3,820 2,000
-------- ---------- --------
Total assets $ 224,959 $127,562 $111,263
LIABILITIES:
Interest bearing deposits:
NOW and money market $28,439 $966 3.40% $15,175 $381 2.51% $15,299 $390 2.55%
Savings 19,286 574 2.98 15,009 434 2.89 17,796 524 2.95
Certificates of deposit and
other time deposits 117,390 6,737 5.74 69,040 3,953 5.73 55,932 2,470 4.42
-------- ------ ------ -------- ----- ------ ------- ---- -----
Total interest-bearing
deposits $165,115 $8,277 5.01 $99,224 $4,768 4.81 $ 89,027 $3,384 3.80
Other borrowings 3,582 184 5.14 400 16 4.00 302 16 5.30
FHLB advances 3,660 208 5.68 713 44 6.17 179 10 5.58
Debt 2,029 168 8.28 2,891 253 8.75 311 28 9.00
-------- ------ ------ --------- ----- ------ ------- ---- -----
Total interest-bearing $174,386 $8,837 5.07% $103,228 $5,081 4.92% $ 89,819 $3,438 3.83%
liabilities
Non-interest bearing demand
deposits 20,335 12,841 11,414
Other liabilities 2,064 974 828
--------- --------- -------
Total liabilities $ 196,785 $ 117,043 $ 102,061
SHAREHOLDERS' EQUITY: 28,174 10,519 9,202
TOTAL LIABILITIES AND --------- --------- -------
SHAREHOLDERS' EQUITY $ 224,959 $ 127,562 $ 111,263
NET INTEREST INCOME (1) $11,183 $6,224 $5,665
NET INTEREST SPREAD (1) 4.45% 4.58% 4.87%
NET INTEREST MARGIN (1) 5.32% 5.23% 5.41%
</TABLE>
(1) Taxable - equivalent yields are calculated assuming a 34% federal income
tax rate.
(2) Yields are calculated on historical cost except for yields on marketable
equity securities which are calculated using fair value.
(3) Includes loan fees, immaterial in amount, in both interest income and the
calculation of yield on loans.
(4) Includes loans on nonaccrual status.
<PAGE>
The accompanying analysis of changes in net interest income in the following
table shows the relationship of the volume and rate portions of these changes
in 1996 and 1995.
ANALYSIS OF CHANGES IN NET
INTEREST INCOME
(Dollars in thousands on a taxable equivalent basis)
<TABLE>
<CAPTION>
1996 VS. 1995 1995 VS. 1994
INCREASE (DECREASE) DUE TO CHANGE IN INCREASE (DECREASE) DUE TO CHANGE IN
VOLUME RATE NET CHANGE VOLUME RATE NET CHANGE
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $ 7,526 $ (35) $ 7,491 $ 1,241 $ 547 $ 1,788
Investment securities 1,121 10 1,131 53 207 260
Federal funds sold 119 (10) 109 59 75 134
Deposits with banks (4) (12) (16) 2 18 20
-------- ------- -------- ------- ------ --------
Total interest income $ 8,762 $ (47) $ 8,715 $ 1,355 $ 847 $ 2,202
Interest Expense:
Deposits -
NOW and money market $ 416 $ 169 $ 585 (3) (6) (9)
Savings 127 13 140 (80) (10) (90)
Negotiable certificates
of deposit 2,774 10 2,784 651 832 1,483
Other borrowings 162 6 168 12 (1) 11
FHLB borrowings 169 (5) 164 21 2 23
Debt (72) (13) (85) 226 (1) 225
-------- ------- -------- ------- ------ --------
Total interest expense
$ 3,576 $ 180 $ 3,756 $ 827 $ 816 $ 1,643
Net interest income
$ 5,186 $ (227) $ 4,959 $ 528 $ 31 $ 559
</TABLE>
<PAGE>
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The company maintains its allowance for possible loan losses (allowance) at a
level that is considered sufficient to absorb potential losses in the loan
portfolio. The allowance is increased by the provision for possible loan
losses as well as recoveries of previously charged-off loans, and is
decreased by loan charge-offs. The provision is the necessary charge to
expense to provide for current loan losses and to maintain the allowance at
an adequate level commensurate with management's evaluation of the risks
inherent in the loan portfolio. Various factors are taken into consideration
when the Company determines the amount of the provision and the adequacy of
the allowance. Some of the factors include:
- Past due and nonperforming assets;
- Specific internal analyses of loans requiring special attention;
- The current level of regulatory classified and criticized assets
and the associated risk factors with each;
- Examinations and reviews by the Company's independent accountants
and internal loan review personnel; and
- Examinations of the loan portfolio by federal and state regulatory
agencies.
The data collected from these sources is evaluated with regard to current
national and local economic trends, prior loss history, underlying collateral
values, credit concentrations, and industry risks. An estimate of potential
future loss on specific loans is developed in conjunction with an overall
risk evaluation of the total loan portfolio.
<PAGE>
The following table is a summary of the Company's loan loss experience for
each of the past five years.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 1,735 $ 886 $ 884 $ 938 $ 874
Balance of allowance for loan losses of
acquired subsidiaries at acquisition date 812 803 0 0 20
Amounts charged off:
Commercial 177 28 270 275 223
Real estate mortgage 68 19 5 21 33
Consumer 514 44 35 38 96
--------- ---------- -------- --------- -------
Total loans charged off $ 759 $ 91 $ 310 $ 334 $ 352
Recoveries on amounts previously charged off:
Commercial 78 28 89 60 53
Real estate mortgage 4 2 5 38 0
Consumer 78 21 11 12 18
--------- ---------- -------- --------- -------
Total recoveries 160 51 105 110 71
Net charge-offs 599 40 205 224 281
Provision for loan losses 575 86 207 170 325
--------- ---------- -------- --------- -------
Balance at end of year $ 2,523 $ 1,735 $ 886 $ 884 $ 938
Total loans, net of unearned income:
Average $ 164,321 $ 91,511 $ 79,295 $74,477 $59,916
At December 31 $ 217,587 $113,064 $ 81,276 $74,450 $65,159
As a percentage of average loans:
Net charge-offs .36% .04% .26% .30% .47%
Provision for possible loan losses .35% .09% .26% .23% .54%
Allowance as a percentage of year-end net loans 1.16% 1.53% 1.09% 1.19% 1.44%
Allowance as a multiple of net charge-offs 4 43 4 4 3
</TABLE>
The provision for possible loan losses for 1996 was $575 compared to $86 in
1995, an increase of $489. This increase resulted from loan growth including
the acquisition of Farmers Deposit Bancorp and provisions made for possible
loan losses in connection with the establishment of a consumer finance
subsidiary by Citizens Deposit Bank. In 1996, net charge-offs were $599
compared to $40 in 1995, an increase of $559. This increase was primarily
attributable to the charge-off of loans acquired in the Citizens Bank
acquisition on October 31, 1995 that had been fully reserved at December 31,
1995 and the acquisition of Farmers Deposit Bancorp. At December 31, 1996,
Premier's allowance for possible loan losses was 1.16% of period-end loans
compared to 1.53% at December 31, 1995.
Net charge-offs to average loans were .36% for the year 1996 compared to .04%
for the year 1995. At December 31, 1996, Premier's allowance for possible
loan losses totaled $2,523, representing an increase of $788 over the amount
reported at December 31, 1995. The allowance for possible loan losses was
265.3% of nonperforming loans on December 31, 1996, compared to 147.0% at
December 31, 1995. At year end 1996, nonperforming loans represented .44% of
total outstanding loans, down from .93% on December 31, 1995.
<PAGE>
The provision for possible loan losses for 1995 was $86, down from $207 in
1994. Net charge-offs in 1995 were $40, down $165 from the $205 charged-off
in 1994.
The following table sets forth an allocation for the allowance for possible
loan losses by category of loan and a percentage distribution of the
allowance allocation. In making the allocation, consideration was given to
such factors as management's evaluation of risk in each category, current
economic conditions and charge-off experience. An allocation for the
allowance for possible loan losses is an estimate of the portion of the
allowance that will be used to cover future charge-offs in each major loan
category, but it does not preclude any portion of the allowance allocated to
one type of loan being used to absorb losses of another loan type.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
<TABLE>
<CAPTION>
At December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
Amount % Amount % Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 948 37.6% $ 653 37.6% $ 537 60.6% $ 535 60.5% $ 581 61.9%
Real estate mortgage 1,082 42.9 563 32.5 160 18.1 126 14.3 131 14.0
Consumer 464 18.4 396 22.8 99 11.2 120 13.6 118 12.6
Unallocated 29 1.1 123 7.1 90 10.1 103 11.6 108 11.5
------ ------ ------ ------ ------ ----- ------ ------ ------ ------
Total $2,523 100.0% $1,735 100.0% $ 886 100.0% $ 884 100.0% $ 938 100.0%
</TABLE>
<PAGE>
NONINTEREST INCOME AND EXPENSES
Noninterest income is a significant component of the Company's total income.
The Company continues to develop and enhance existing products and to create
new products in order to augment fee income as trends in the financial
services industry and the economic environment continue to put pressure on
the Company's ability to increase its net interest income. Noninterest income
includes deposit service charges, fees from data processing and trust services,
and fees and commissions from many other corporate and retail products.
Noninterest income was $1,484 in 1996, an increase of $659 or 79.9% over
1995. Excluding Farmers Deposit Bancorp, noninterest income would have been
$1,216 in 1996, an increase of $391, or 47.4% over 1995. Service charges on
deposit accounts rose $287 or 54% to $817 and insurance commissions were up
$153, nearly double the $156 for 1995. Other income was up $212 to $357 and
included fees received by Premier Data Services, Inc. for data processing
services to non-affiliated banks.
Noninterest income in 1995 of $825 was 20.6% above the 1994 level of $684 as
growth in service charge income of $134 or 33.8% and insurance commissions of
$64 or 70% more than offset a $76 reduction in investment securities gains.
Noninterest expenses increased $2,301 from $4,492 in 1995 to $6,793 in 1996
or 51.2%. In 1995, noninterest expense was 12.2% or $487 higher than the
1994 level of $4,005. The significant increase in noninterest expense in 1996
is primarily related to the inclusion of Farmers Deposit Bancorp ($1,163) for
half of the year and Citizens Bank Sharpsburg for the full year ($493) vs.
two months in 1995.
Salaries and employee benefits, the largest component of noninterest expense,
of $3,765 in 1996 were $1,456 or 63.1% higher than 1995 and represented 55.4%
of total noninterest expense. This increase reflects the inclusion of Farmers
Deposit Bancorp for half of the year and a full year of Citizens Bank
Sharpsburg and the 34.4% increase in full time equivalent employees which
grew from 96 at year end 1995 to 129 at year end 1996, as well as from normal
increases in salary and benefit costs. The increase in full time equivalent
employees included 29 employees of the Farmers Deposit Bank. Salaries and
employee benefits for 1995 increased $327 or 16.5% compared to $1,982 in 1994.
Net occupancy and equipment expense for 1996 of $1,068 was $211 or 24.6% higher
than the $857 for 1995. The increase in net occupancy and equipment expense
included $111 related to the Farmers Deposit Bank. In 1995, net occupancy and
equipment expense increased $197 or 29.8% for the 1994 amount of $660.
Other noninterest expense, which is the second largest category of
noninterest expense, of $1,314 for 1996 was $510 or 63.4% above the 1995
level of $804. This increase reflects the addition of Farmers Deposit Bancorp
which had other operating expenses of $347, the full year inclusion of
Citizens Bank Sharpsburg, growth of the Company and inflationary increases,
and expenses in connection with the listing of Premier's common stock on the
NASDAQ stock market. Other noninterest expense for 1995 was $44 or 5.8%
higher than the $760 recorded in 1994.
FDIC insurance expense decreased $92 to $32 in 1996 and had decreased $98 in
1995. These decreases resulted from changes in the FDIC insurance fund which
substantially reduced insurance premiums for well capitalized profitable
commercial banks.
Legal and professional fees for 1996 totaled $189, an increase of $49 or
35.0% from 1995 and a decrease of $95 or 40.4% between 1994 and 1995. The
level of legal and professional fees generally varies with the level and type
of acquisitions completed during any year.
<PAGE>
Amortization of goodwill was $197 in 1996 compared to $2 in 1995 and $0 in
1994. The increase in 1996 reflects the amortization of goodwill generated in
the acquisition of Farmers Deposit Bancorp on July 1, 1996.
No acquisition expenses in 1996 were charged in 1996, while acquisition
expenses of $110 were charged in 1995 and $37 in 1994. Expenses related to
acquisitions are charged in connection with acquisitions accounted for as
pooling of interests while expenses related to acquisitions where purchase
accounting is used are added to goodwill and amortized over 15 years.
The Company continually seeks to develop fees and other income for services
provided while holding operating expenses to the minimum amount required to
provide quality service. In 1996, total net noninterest expenses as a percent
of average total assets were reduced to 2.36% from 2.87% in 1995 and 2.98% in
1994.
The following table is a summary of non-interest income and expense for the
three year period indicated.
NON-INTEREST INCOME AND EXPENSE
(Dollars in thousands)
<TABLE>
<CAPTION>
INCREASE INCREASE
(DECREASE) (DECREASE)
1996 VS. 1995 VS.
1996 1995 1995 1995 1994 1994
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-Interest Income:
Service charges on deposit accounts $ 817 $ 530 $ 287 $ 530 $ 396 $ 134
Insurance income 309 156 153 156 92 64
Investment securities gain (losses) 1 (6) 7 (6) 70 (76)
Other 357 145 212 145 126 19
------ ------ ------ ------ ------ ------
Total non-interest income $1,484 $ 825 $ 659 $ 825 $ 684 $ 141
Non-Interest Expense:
Salaries and employee benefits 3,765 2,309 1,456 2,309 1,982 $ 327
Net occupancy and equipment 1,068 857 211 857 660 197
FDIC insurance 32 124 (92) 124 222 (98)
Legal and professional 189 140 49 140 235 (95)
Taxes, other than payroll, property
and income 228 146 82 146 109 37
Acquisition expenses 0 110 (110) 110 37 73
Amortization of goodwill 197 2 195 2 0 2
Other 1,314 804 510 804 760 44
------ ------ ------ ------ ------ ------
Total non-interest expenses $6,793 $4,492 $2,301 $4,492 $4,005 $ 487
Net non-interest expenses as a percent
of average assets 2.36% 2.87% 2.87% 2.98%
</TABLE>
INCOME TAXES
Premier recorded income tax expense for 1996 of $1,518, which represented
30.6% of pre-tax income substantially above the $113 or 5.0% of pre-tax
income recorded in 1995. The lower 1995 income tax expense was attributable
primarily to the elimination of the valuation allowance of $504 for deferred
tax assets at Georgetown Bank & Trust. In 1994, tax expense of $483 or 24.2%
of pre-tax income was recorded. No changes in the valuation allowance for
deferred tax assets were made in 1996.
<PAGE>
FINANCIAL CONDITION
LENDING ACTIVITIES
Loans are the Company's primary use of financial resources and represent the
largest component of earning assets. The Company's loans are made
predominantly within the Banks' market areas and the portfolio is
diversified. Credit risk is inherent in each financial institution's loan and
investment portfolio. In an effort to minimize credit risk, the Company
utilizes a credit administration network, including specific lending
authorities for each loan officer, a system of loan committees to review and
approve loans, and a loan review and credit quality rating system. This
network assists in the evaluation of the quality of new loans and in the
identification of problem or potential problem credits and provides
information to aid management in determining the adequacy of the allowance
for possible loan losses.
Total loans, net of unearned income, averaged $164,321 in 1996 compared with
$91,511 in 1995. At year end 1996, loans net of unearned income totaled
$217,587 compared to $113,064 at December 31, 1995, an increase of $104,523.
Of this $104,523 increase, $87,308 is attributable to the acquisition of
Farmers Deposit Bank and the remaining $17,215 increase is due to a 15.2%
growth in loans at the other Banks.
The following table presents a summary of the Company's loan portfolio by
category for each of the last five years. Other than the categories noted,
there is no concentration of loans in any industry greater than 5% in the
portfolio. The Company has no foreign loans or highly leveraged transactions
in its loan portfolio.
LOAN PORTFOLIO COMPOSITION
LOANS OUTSTANDING
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
1996 % 1995 % 1994 % 1993 % 1992 %
-------- ---- -------- ---- ------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, secured by real
estate $ 59,834 27.2% $ 39,357 34.6% $30,191 37.1% $28,808 38.5% $22,313 34.0%
Commercial, other 33,908 15.4 17,889 15.7 16,782 20.6 14,404 19.2 15,585 23.7
Real estate construction 4,138 1.9 2,119 1.9 1,822 2.2 881 1.2 708 1.1
Real estate mortgage 76,600 34.9 32,678 28.7 21,700 26.6 20,259 27.1 16,340 24.9
Agricultural 10,050 4.6 5,216 4.6 1,073 1.3 992 1.3 1,217 1.9
Consumer 33,751 15.4 16,087 14.1 9,647 11.9 9,252 12.4 9,167 13.9
Other 1,351 0.6 429 0.4 274 0.3 247 0.3 316 0.5
-------- ---- -------- ---- ------- ---- ------- ---- ------- ----
Total loans $219,632 100% $113,775 100% $81,489 100% $74,843 100% $65,646 100%
Less unearned income 2,045 711 213 393 487
-------- -------- ------- ------- -------
Total loans net of unearned
income $217,587 $113,064 $81,276 $74,450 $65,159
</TABLE>
<PAGE>
Commercial loans generally are made to small-to-medium size businesses
located within a Bank's defined market area and typically are generally
secured by business assets and guarantees of the principal owners. Real
estate mortgage loans include residential properties and generally do not
exceed 80% of the value of the real property securing the loan, based on
recent independent appraisals. The Company's real estate mortgage loan
portfolio primarily consists of adjustable rate residential mortgage loans.
The origination of these mortgage loans can be more difficult in a low
interest rate environment where there is a significant demand for fixed rate
mortgages. Consumer loans generally are made to individuals living in a
Bank's defined market area who are known to the Bank's staff. Consumer loans
are made for terms of up to seven years on a secured or unsecured basis.
While consumer loans generally provide the Company with increased interest
income, consumer loans may involve a greater risk of default. Loss experience
in all categories has remained low over the past five years, with net charge
offs being .36% of loans in 1996 and .04% in 1995. With respect to consumer
loans in particular, net charge offs for the year ended December 31, 1996
were $436, or 1.38% of total consumer loans outstanding at December 31, 1996,
and $23 in 1995, or .14% of total consumer loans outstanding at December 31,
1995.
The following table sets forth the maturity distribution and interest
sensitivity of selected loan categories at December 31, 1996. Maturities are
based upon contractual terms. The Company's policy is to specifically review
and approve any loan renewed; no loans are automatically rolled over.
LOAN MATURITIES AND INTEREST SENSITIVITY
DECEMBER 31, 1996
(Dollars in thousands)
One Over
One Year Through Five Total
or Less Five Years Years Loans
Commercial, secured by real estate $16,763 $10,347 $32,724 $ 59,834
Commercial, other 22,679 8,183 3,046 33,908
Real estate construction 4,107 0 31 4,138
Agricultural 6,641 1,783 1,626 10,050
------- ------- ------- --------
Total $50,190 $20,313 $37,427 $107,930
Fixed rate loans $21,311 $11,782 $12,931 $ 46,024
Floating rate loans 26,992 9,234 25,680 61,906
------- ------- ------- --------
Total $48,303 $21,016 $38,611 $107,930
<PAGE>
NONPERFORMING ASSETS
Nonperforming assets consist of loans on which interest is no longer accrued,
certain restructured loans where interest rate or other terms have been
renegotiated, accruing loans past due 90 days or more and real estate
acquired through foreclosure.
The Company discontinues the accrual of interest on loans that become 90 days
past due as to principal or interest unless they are adequately secured and
in the process of collection. A loan remains in a nonaccrual status until
doubts concerning the collectibility no longer exist. A loan is classified as
a restructured loan when the interest rate is materially reduced or the term
is extended beyond the original maturity date because of the inability of the
borrower to service the loan under the original terms. Other real estate is
recorded at the lower of cost or fair value less estimated costs to sell.
A summary of the components of nonperforming assets, including several ratios
using period-end data, is shown below:
NONPERFORMING ASSETS
(Dollars in thousands)
DECEMBER 31
----------------------------------------
1996 1995 1994 1993 1992
Nonaccrual loans $ 423 $ 592 $ 46 $ 749 $ 473
Accruing loans which are contractually
past due 90 days or more 528 456 219 407 291
Restructured loans 0 0 0 0 0
------ ------ ---- ------ ------
Total nonperforming and
restructured loans $ 951 $1,048 $265 $1,156 $ 764
Other real estate and in-substance
foreclosures 485 132 393 51 328
------ ------ ---- ------ ------
Total nonperforming and
restructured loans and
other real estate $1,436 $1,180 $658 $1,207 $1,092
Nonperforming and restructured loans
as a percentage of net loans .44% .93% .32% 1.55% 1.17%
Nonperforming and restructured loans
and other real estate as a
percentage of total assets .49% .76% .57% 1.11% 1.09%
Nonaccrual loans at December 31, 1996, were $423 compared to $592 at December
31, 1995 and $46 at December 31, 1994. The increase from 1994 is due to the
acquisition of Citizens Bank of Sharpsburg on October 31, 1995, which
accounted for all of the nonaccrual loans at December 31, 1996, and $539,000
of the total at December 31, 1995. Total nonperforming assets at December
31, 1996 were $1,436, an increase of $256 from the $1,180 reported at
December 31, 1995. Of the $1,436 total nonperforming assets at December 31,
1996, $329 relates to Farmers Deposit Bank. Excluding Farmers Deposit Bank,
total nonperforming assets decreased $73 from December 31, 1995, to December
31, 1996. Total nonperforming assets at December 31, 1995, were $522 more
than the year-end 1994 amount of $658.
The Company continues to follow its long-standing policy of not engaging in
international lending and not concentrating lending activity in any one
industry.
<PAGE>
The following table reflects interest income on nonaccrual and restructured
loans for the five years ended December 31, 1996.
INTEREST INCOME ON NON-ACCRUAL AND RESTRUCTURED LOANS
YEAR ENDED DECEMBER 31
(Dollars in thousands)
1996 1995 1994 1993 1992
Contractual interest 64 227 9 21 50
Interest recognized 2 22 0 6 3
INVESTMENT ACTIVITIES
The securities portfolio consists of debt and equity securities which provide
the Company with a long-term, relatively stable source of income.
Additionally, the investment portfolio provides a balance to interest rate
and credit risks in other categories of the balance sheet. The securities
portfolio is also used as a secondary source of liquidity by the Company. The
Company has classified all municipal securities and certain U. S. Treasury
and Agency securities as held to maturity based on management's positive
intent and ability to hold such securities to maturity. These municipal
securities provide tax-free income and are within management's guidelines
with respect to credit risk and market risk. The municipal securities have
been issued principally by Kentucky municipalities. The U. S. Treasury and
Agency securities are held as a source of stable, long-term income which can
be used as collateral to secure municipal deposits and repurchase agreements.
All other investment securities are classified as available for sale. The
securities portfolio does not contain significant holdings in mortgage-backed
securities, collateralized mortgage obligations or other mortgage-related
derivative products and/or structured notes.
Securities as a percentage of average interest-earning assets decreased from
20.3% in 1994 to 18.6% in 1995 and 18.3% in 1996. At December 31, 1996,
investment securities represented 15.7% of interest-earning assets. These
decreases in securities reflect management's emphasis on originating higher
yielding loans and placing a lesser reliance on the securities portfolio for
sources of income.
At December 31, 1996 and 1995, the Company had an investment in noncumulative
perpetual preferred stock of First Guaranty Bank, Hammond, Louisiana. The
market value of this investment approximated its book value which totaled
$2,000 at December 31, 1996 and 1995. The dividend rate on the preferred
stock is 2% in excess of the prime rate as in effect from time to time.
<PAGE>
The following tables present the carrying values and maturity distribution
of investment securities.
CARRYING VALUE OF SECURITIES
(Dollars in thousands)
DECEMBER 31
1996 1995 1994
U.S. Treasury and Federal agencies:
Available for sale $17,418 $13,153 $ 8,698
Held to maturity 8,387 2,300 4,221
State and municipal obligations:
Available for sale 1,621 0 0
Held to maturity 12,190 6,347 4,965
Equity securities:
Available for sale 2,788 2,819 1,806
Held to maturity 0 0 0
Other securities:
Available for sale 0 0 0
Held to maturity 416 18 0
Total securities:
Available for sale 21,827 15,972 10,504
Held to maturity 20,993 8,665 9,186
------- ------- -------
Total $42,820 $24,637 $19,690
MATURITY DISTRIBUTION OF SECURITIES
December 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
ONE FIVE
YEAR THROUGH THROUGH OVER
OR FIVE TEN TEN OTHER MARKET
LESS YEARS YEARS YEARS SECURITIES TOTAL VALUE
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and Federal agencies:
Available for sale $5,604 $ 9,139 $2,795 $ 0 $ 0 $17,538 $17,418
Held to maturity 2,109 5,680 598 0 0 8,387 8,376
State and municipal obligations:
Available for sale 380 1,204 0 0 0 1,584 1,621
Held to maturity 872 3,935 5,255 2,128 0 12,190 12,380
Other securities:
Available for sale 0 0 0 0 2,900 2,900 2,788
Held to maturity 0 0 0 0 416 416 416
Total securities:
Available for sale 5,984 10,343 2,795 0 2,900 22,022 21,827
Held to maturity 2,981 9,615 5,853 2,128 416 20,993 21,172
------ ------- ------ ------ ------ ------- -------
Total $8,965 $19,958 $8,648 $2,128 $3,316 $43,015 $42,999
------ ------- ------ ------ ------ ------- -------
------ ------- ------ ------ ------ ------- -------
Percent of total 20.84% 46.40% 20.10% 4.95% 7.71% 100.00% 99.96%
Weighted average yield* 5.68% 5.68% 5.79% 5.63% 9.38% 5.99% 6.00%
*The weighted average yields are calculated on historical cost on a non tax-equivalent basis.
</TABLE>
<PAGE>
DEPOSIT ACTIVITIES
Managing the mix and repricing of deposit liabilities is an important factor
affecting the Company's ability to maximize its net interest margin. The
strategies used to manage interest-bearing deposit liabilities are designed
to adjust as the interest rate environment changes. In this regard,
management of the Company regularly assesses its funding needs, deposit
pricing, and interest rate outlooks.
Total deposits averaged $185,450 in 1996, a 65.5% increase over 1995. Total
deposits averaged $112,065 in 1995, an increase of $11,624 or 11.57% over
1994. Noninterest bearing deposits averaged 10.97% of total deposits in 1996,
compared to 11.5% in 1995 and 11.4% in 1994.
At December 31, 1996, deposits totaled $235,574, compared to $136,246 at
December 31, 1995, an increase of $99,328, or 72.9%. Of this $99,328
increase, $89,629 is attributable to the acquisition of Farmers Deposit
Bancorp. Excluding Farmers Deposit Bancorp, deposits increased $9,699 from
December 31, 1995, to December 31, 1996, representing a 7.1% increase.
The table below provides information on the maturities of time deposits of
$100,000 or more at December 31, 1996.
MATURITY OF TIME
DEPOSITS OF $100,000 OR MORE
December 31, 1996
-----------------
(in thousands)
Maturing 3 months or less $ 9,891
Maturing over 3 months through 6 months 3,791
Maturing over 6 months through 12 months 11,061
Maturing over 12 months 8,907
--------
Total $ 33,650
--------
--------
The following table sets forth the average amount of and average rate paid on
selected deposit categories during the past three full years.
<TABLE>
<CAPTION>
1996 1995 1994
CATEGORY AMOUNT RATE (%) AMOUNT RATE (%) AMOUNT RATE (%)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand $20,335 0% $12,841 0% $11,414 0%
NOW and money
market accounts 28,439 3.40 15,175 2.51 15,299 2.55
Savings 19,286 2.98 15,009 2.89 17,796 2.95
Certificates of deposit
and other time 117,390 5.74 69,040 5.73 55,932 4.42
-------- ------ --------- ------ -------- ------
Total $185,450 4.46% $112,065 4.25% $100,441 3.37%
</TABLE>
<PAGE>
CAPITAL
On May 22, 1996, the Company completed its initial public offering by selling
2,000,000 common shares at an offering price of $13.00 per share and on June
19, 1996, the Company completed the sale of an additional 300,000 common
shares (which represented the Underwriters' over-allotment option) at a price
of $13.00 per share. Total proceeds to the Company, net of the underwriting
discount and issuance costs, were $27,066. The net proceeds were used to
retire existing debt, $5,000, purchase Farmers Deposit Bancorp, $12,588, and
retire Farmers Deposit Bancorp's existing debt of $1,850. The remaining
$7,628 will be used to fund the future growth of the Company, including
additional acquisitions.
The Company's principal source of funds for dividend payments to stockholders
is dividends received from the subsidiary Banks. Banking regulations limit
the amount of dividends that may be paid without prior approval of regulatory
agencies. Under these regulations, the amount of dividends that may be paid
without prior approval of regulatory agencies in any calendar year is limited
to the current year's net profits, as defined, combined with the retained net
profits of the preceding two years, subject to the capital requirement
limitations. During 1997, the Banks could, without prior approval, declare
dividends to the Company of approximately $2,764 plus any 1997 net profits
retained to the date of the dividend declaration.
The various regulatory agencies having supervisory authority over financial
institutions have adopted risk-based capital guidelines which define the
adequacy of the capital levels of regulated institutions. These risk-based
capital guidelines require minimum levels of capital based upon the risk
rating of assets and certain off-balance-sheet items. Assets and
off-balance-sheet items are assigned regulatory-risk weights ranging from 0%
to 100% depending on their level of credit risk. The guidelines classify
capital in two tiers, Tier I and Tier II, the sum of which is total capital.
Tier I capital is essentially common equity, less intangible assets. Tier II
capital is essentially qualifying long-term debt and a portion of the
allowance for possible loan losses.
The Company's capital ratios at December 31, 1996 and 1995, were as follows:
SELECTED CAPITAL INFORMATION
(Dollars in thousands)
DECEMBER 31
1996 1995 CHANGE
Shareholders' Equity $39,863 $11,215 $28,648
Less disallowed amounts of goodwill
and other intangibles (5,554) (325) (5,229)
Less disallowed amounts of deferred
tax assets 0 (210) 210
Add unrealized loss on securities
available for sale 55 50 5
--------- ------- ---------
Tier I capital $34,364 $10,730 $23,634
Tier II capital adjustments:
Allowance for loan losses 2,522 1,416 1,106
--------- ------- ---------
Total capital $36,886 $12,146 $24,740
Total risk-weighted assets $215,438 $113,280 $102,158
Ratios
Tier I capital to risk-weighted assets 15.95% 9.47%
Total capital to risk-weighted assets 17.12% 10.72%
Leverage at year-end 12.04% 6.92%
<PAGE>
The Company believes that its capital, together with existing credit
facilities and its ability to obtain future credit facilities, provides funds
sufficient to support the Company's current operations.
On September 12, 1995, the Board of Directors approved a 5-for-4 stock split
effective September 30, 1995, in the form of a dividend of the Company's
common stock to shareholders of record on September 15, 1995.
On January 19, 1996, the Board of Directors approved a 2-for-1 stock split
effective March 29, 1996, in the form of a share dividend to stockholders of
record on February 22, 1996. Additionally, on March 15, 1996, the
stockholders approved an amendment to the Company's articles of incorporation
that increased the number of Common Shares authorized from 1,800,000 to
10,000,000, eliminated the $1.00 par value per share relating to Common
Shares and authorized 1,000,000 preferred shares, without par value.
On January 19, 1996, the Board of Directors adopted, and on March 15, 1996,
the stockholders approved the Premier Financial Bancorp, Inc. 1996 Employee
Stock Ownership Incentive Plan, whereby certain employees of the Company are
eligible to receive stock options under the Plan. A maximum of 100,000 shares
of the Company's common stock (adjusted for the 2-for-1 stock split effected
March 29, 1996) may be issued through exercise of these stock options. The
option price is the fair market value of the Company's shares at the date of
the grant.
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. Liquidity
is maintained through the Company's ability to convert assets into cash,
manage the maturities of liabilities and generate funds through the
attraction of local deposits.
As part of its liquidity management, the Company maintains funding
relationships with the Federal Home Loan Bank and other financial
institutions, including approval for a two year $20 million revolving line of
credit available for both general corporate purposes and future acquisitions.
The Company prefers to manage its liquidity requirements generally through
the matching of maturities of assets and liabilities.
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. A discussion of the cash flow statements for 1996, 1995
and 1994 follows.
Net cash provided from operating activities was $5,181, $1,813 and $1,051 for
the years ended December 31, 1996, 1995 and 1994, respectively. The
increases in net cash provided from operating activities was primarily due to
higher net income and increases in non-cash expenses over the three year
period.
Cash used in investing activities was $38,258, $19,062 and $6,631 for the
years ended December 31, 1996, 1995 and 1994, respectively. Cash was used to
fund net loan growth, the acquisition of the Farmers Deposit Bancorp, and the
acquisition of additional premises and equipment. The Company's policy is to
reinvest the proceeds from the sale, maturity and call of investment
securities into similar type investment securities if such proceeds are not
required to fund loans. In 1996, the Company received $10,599 and $2,241 from
sales, calls and maturities of securities available for sale and securities
held to maturity, respectively, and purchased $10,887 and $2,742 of
securities available for sale and securities held to maturity, respectively.
In 1995, the Company received proceeds of $11,903 and $2,213 from sales,
calls and maturity of securities available for sale and securities held to
maturity and purchased $13,083 and $1,674, respectively.
<PAGE>
Cash provided from financing activities was $33,871, $18,647 and $5,590 for
the years ended December 31, 1996, 1995 and 1994, respectively. The cash
provided from financing activities in 1996 included $27,066 from the issuance
of common stock - see CAPITAL. In 1995 and 1994, the cash provided from
financing activities was primarily attributable to deposit growth and
proceeds from debt and other borrowings.
Liquidity risk is the possibility that the Company may not be able to meet
its cash requirements. Management of liquidity risk includes maintenance of
adequate cash and sources of cash to fund operations and meet the needs of
borrowers, depositors and creditors. Liquidity must be maintained at a level
which is adequate but not excessive. Excess liquidity has a negative impact
on earnings resulting from the lower yields on short-term assets.
In addition to cash, cash equivalents and Federal funds sold, the securities
portfolio provides an important source of liquidity. The total of securities
maturing within one year along with cash, due from banks and Federal funds
sold totaled $26,734 as of December 31, 1996. Additionally, securities
available-for-sale with maturities greater than one year and equity
securities totaled $15,844 at December 31, 1996. These securities are
available to meet liquidity needs on a continuing basis.
To maintain a desired level of liquidity, the Company has several sources of
funds available. One is the cash flow generated daily from the Banks'
various loan portfolios in the form of principal and interest payments.
Another source is its deposit base. The Company maintains a relatively stable
base of customer deposits which has historically exhibited steady growth.
This growth, when combined with other sources, is expected to be adequate to
meet its demand for funds. Due to the nature of the markets served by the
Company's subsidiary banks, management believes that the majority of
certificates of deposit of $100,000 or more are no more volatile than its
core deposits. During a period of relatively stable interest rates, these
balances have remained relatively the same for 1996 and 1995. Certificates
of deposits and other time deposits of $100,000 or more represented
approximately 14% and 15% of total deposits for 1996 and 1995, respectively.
A number of techniques are used to measure the liquidity position, including
the utilization of several ratios that are presented below. These ratios are
calculated based on annual averages for each year.
LIQUIDITY RATIOS
1996 1995 1994
Total loans/total deposits. . . . . . . . . .88.61% 81.66% 78.95%
Total loans/total deposits less float . . . .90.06% 83.30% 83.44%
Net short-term borrowings/total assets. . . . 3.22% 0.87% 0.43%
This analysis shows that the Company's loan to deposit ratios increased in
1996 and 1995 compared to the prior year due to an increase in loan demand
that exceeded the increase in deposit activity.
<PAGE>
Information regarding short-term borrowings for the past three years is
presented in the following table.
SHORT-TERM BORROWINGS
(Dollars in thousands)
1996 1995 1994
Federal funds purchased and repurchase
agreements:
Balance at year end $5,599 $747 $0
Weighted average rate at year end 5.05% 3.25% 0%
Average balance during the year $3,582 $400 $302
Weighted average rate during the year 5.14% 3.85% 5.30%
Maximum month-end balance $6,496 $747 $650
Other short-term borrowings:
Balance at year end $7,055 $755 $755
Weighted average rate at year end 5.57% 6.05% 5.53%
Average balance during the year $3,660 $713 $179
Weighted average rate during the year 5.68% 6.17% 5.58%
Maximum month-end balance $8,555 $755 $755
Total short-term borrowings:
Balance at year end $12,710 $1,502 $755
Weighted average rate at year end 5.34% 4.88% 5.53%
Average balance during the year $7,242 $1,113 $481
Weighted average rate during the year 5.41% 5.34% 5.40%
Maximum month-end balance $15,051 $1,502 $1,405
Substantially all federal funds purchased and repurchase agreements mature in
one business day. Other short-term borrowings principally represent Federal
Home Loan Bank (FHLB) advances to Georgetown Bank (with varying maturity
dates), which are funding residential mortgage and commercial loans.
<PAGE>
INTEREST RATE SENSITIVITY
The interest spread and liability funding discussed above are directly
related to changes in asset and liability mixes, volumes, maturities and
repricing opportunities of interest-earning assets and interest-bearing
liabilities. Interest-sensitive assets and liabilities are those which are
subject to being repriced in the near term, including both floating or
adjustable rate instruments and instruments approaching maturity. The
interest sensitivity gap is the difference between total interest-sensitive
assets and total interest-sensitive liabilities. Interest rates on the
Company's various asset and liability categories do not respond uniformly to
changing market conditions. Interest rate risk is the degree to which
interest rate fluctuations in the marketplace can affect net interest income.
The need for interest sensitivity gap management is most critical in times of
a significant change in overall interest rates. Management generally seeks to
limit the exposure of the Company to interest rate fluctuations by
maintaining a relatively balanced mix of rate sensitive assets and
liabilities on a one-year time horizon. This mix is altered periodically
depending upon management's assessment of current business conditions and the
interest rate outlook.
One tool which is used to monitor interest rate risk is the interest
sensitivity analysis as shown in the table below. This analysis reflects the
repricing characteristics of assets and liabilities over various time
periods. The gap indicates the level of assets and liabilities that are
subject to repricing over a given time period.
As shown by the interest rate sensitivity analysis as of December 31, 1996,
the total amount of the Company's interest earning assets repricing during
the first year is less than the total amount of its interest bearing
liabilities repricing during this period. This position, which is normally
termed a negative interest sensitivity gap, generally allows for enhanced net
interest income during periods of decreasing interest rates. This negative
gap is within the Company's internal policy guidelines and is not expected to
impact significantly the Company's net interest income during a period of
rising interest rates.
The following table provides an analysis of the Company's interest rate
sensitivity at December 31, 1996.
INTEREST RATE SENSITIVITY ANALYSIS
(Dollars in Thousands)
<TABLE>
<CAPTION>
0 - 90 91 DAYS - 1 - 5 OVER 5
DAYS 1 YEAR YEARS YEARS TOTAL
<S> <C> <C> <C> <C> <C>
Assets
Loans, net of unearned income $62,890 $61,146 $52,292 $41,259 $217,587
Investment securities 6,606 6,637 18,203 11,374 42,820
Federal funds sold 10,635 0 0 0 10,635
------- ------- ------- ------- --------
Total earning assets $80,131 $67,783 $70,495 $52,633 $271,042
Sources of Funds
NOW, money market and
savings $28,979 $16,561 $17,192 $ 0 $62,732
Time deposits 36,984 64,164 46,241 422 147,811
Short-term borrowings 9,611 0 100 5,322 15,033
-------- -------- -------- -------- --------
Total interest bearing
deposits $75,574 $80,725 $63,533 $5,744 $225,576
Interest Sensitivity Gap
For the period $4,557 $(12,942) $6,962 $46,889 $45,466
Cumulative 4,557 (8,385) (1,423) 45,466
Cumulative as a percent of
earning assets 1.68% (3.09%) (.53%) 16.77%
</TABLE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Financial Statements and related Independent Auditors'
Report are presented in the following pages. The financial statements filed
in this Item 8 are as follows:
Independent Auditors' Report
Financial Statements:
Balance Sheets - December 31, 1996 and 1995
Statements of Income - Years Ended December 31, 1996, 1995 and 1994
Statements of Changes in Stockholders' Equity - Years ended December
31, 1996, 1995 and 1994
Statements of Cash Flows - Years ended December 31, 1996, 1995 and
1994
Notes to Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters.
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
AND SUBSIDIARIES
CONTENTS
Pages
INDEPENDENT AUDITORS' REPORT. . . . . . . . . . . 1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets. . . . . . . . . . 2
Consolidated Statements of Income. . . . . . . 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows. . . . . 5 - 6
Notes to Consolidated Financial Statements . . 7 - 29
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Premier Financial Bancorp, Inc.
Georgetown, Kentucky
We have audited the accompanying consolidated balance sheets of Premier
Financial Bancorp, Inc. and Subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
consolidated financial statements of Premier Financial Bancorp, Inc. and
Subsidiaries for the year ended December 31, 1994 were audited by other
auditors whose report dated February 10, 1995 expressed an unqualified
opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Premier
Financial Bancorp, Inc. and Subsidiaries as of December 31, 1996 and 1995 and
the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles.
/s/ Eskew & Gresham, PSC
------------------------------------
Eskew & Gresham, PSC
Lexington, Kentucky
February 20, 1997
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31
1996 1995
ASSETS
Cash and due from banks $ 7,134,025 $ 6,339,777
Federal funds sold 10,635,000 6,340,000
Investment securities:
Available for sale 21,827,049 15,972,018
Held to maturity 20,993,089 8,665,217
Loans $219,631,723 $113,775,359
Unearned income (2,045,219) (710,653)
Allowance for loan losses (2,522,502) (1,735,482)
------------ ------------
Net loans $215,064,002 $111,329,224
Federal Home Loan Bank stock 1,542,900 291,300
Premises and equipment, net 3,800,331 2,129,049
Interest receivable 4,059,812 1,622,774
Real estate and other property
acquired through foreclosure 485,003 131,661
Income taxes refundable 12,346 152,938
Deferred income taxes 495,580 648,763
Goodwill 5,490,210 247,799
Other assets 1,025,337 1,604,119
------------ ------------
TOTAL ASSETS $292,564,684 $155,474,639
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 25,031,198 $ 16,000,676
Time deposits, $100,000 and over 33,650,498 20,237,290
Other interest bearing 176,892,272 100,008,471
------------ ------------
Total deposits $235,573,968 $136,246,437
Securities sold under agreements
to repurchase 5,599,420 747,118
Federal Home Loan Bank advances 9,377,456 755,000
Interest payable 1,333,601 1,147,986
Other liabilities 816,853 362,786
Debt 0 5,000,000
------------ ------------
Total liabilities $252,701,298 $144,259,327
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 in 1996 (954,545
shares in 1995) issued and
outstanding 977,545 954,545
Surplus 32,940,927 5,897,585
Retained earnings 6,111,715 4,493,184
Net unrealized losses on securities
available for sale (166,801) (130,002)
------------ ------------
Total stockholders' equity $ 39,863,386 $ 11,215,312
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $292,564,684 $155,474,639
See notes to consolidated financial statements.
Page 2
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1996 1995 1994
INTEREST INCOME:
Loans, including fees $16,968,515 $ 9,487,756 $ 7,700,113
Investment securities -
Taxable 1,620,651 903,515 827,449
Tax-exempt 672,405 397,404 274,612
Federal funds sold 387,605 279,673 144,515
Other interest income 24,711 34,896 15,486
----------- ----------- -----------
Total interest income $19,673,887 $11,103,244 $ 8,962,175
INTEREST EXPENSE:
Deposits $ 8,249,084 $ 4,767,554 $ 3,384,338
Other borrowings 420,527 60,030 26,066
Debt 167,413 252,999 28,006
----------- ----------- -----------
Total interest expense $ 8,837,024 $ 5,080,583 $ 3,438,410
Net interest income $10,836,863 $ 6,022,661 $ 5,523,765
Provision for loan losses 574,831 85,950 207,000
----------- ----------- -----------
Net interest income after provision
for loan losses $10,262,032 $ 5,936,711 $ 5,316,765
NON-INTEREST INCOME:
Service charges $ 816,594 $ 530,178 $ 395,835
Insurance commissions 308,690 155,968 92,051
Investment securities gains (losses) 1,459 (6,026) 69,716
Other 357,447 145,108 126,820
----------- ----------- -----------
$ 1,484,190 $ 825,228 $ 684,422
NON-INTEREST EXPENSES:
Salaries and employee benefits $ 3,764,716 $ 2,309,307 $ 1,982,111
Occupancy and equipment expenses 1,068,272 857,039 659,264
FDIC insurance 31,558 123,965 222,142
Professional fees 188,758 139,593 234,769
Taxes, other than payroll,
property and income 228,086 145,619 109,100
Acquisition expenses 0 110,296 37,139
Amortization of goodwill 197,357 2,553 0
Other expenses 1,314,185 804,093 760,002
----------- ----------- -----------
$ 6,792,932 $ 4,492,465 $ 4,004,527
Income before income taxes $ 4,953,290 $ 2,269,474 $ 1,996,660
Provision for income taxes 1,517,714 112,992 483,213
----------- ----------- -----------
NET INCOME $ 3,435,576 $ 2,156,482 $ 1,513,447
Primary earnings per share $ 1.05 $ 1.13 $ 0.80
See notes to consolidated financial statements.
Page 3
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Net
Unrealized Unrealized
Loss on Gain (Loss)
Marketable on Securities
Common Stock Retained Equity Available
Shares Amount Surplus Earnings Securities for Sale Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994 752,080 $752,080 $5,959,425 $2,222,346 $(65,388) $0 $8,868,463
Issuance of 125 shares of Georgetown
Bancorp, Inc. common stock 1,284 1,284 14,341 15,625
Cumulative effect of change in the
method of accounting for investment
securities 175,595 175,595
Decrease in unrealized loss on
marketable equity securities 65,388 65,388
Net change in unrealized losses on
securities available for sale (645,881) (645,881)
Net income 1,513,447 1,513,447
Dividends ($.36 per share) (540,000) (540,000)
--------- --------- ---------- ----------- --------- ---------
Balances, December 31, 1994 753,364 $753,364 $5,973,766 $3,195,793 $ 0 $(470,286) $9,452,637
Issuance of 1,000 shares of
Georgetown Bancorp, Inc.
common stock 10,272 10,272 114,728 125,000
Net change in unrealized losses on
securities available for sale 340,284 340,284
5-for-4 common stock split 190,909 190,909 (190,909)
Net income 2,156,482 2,156,482
Dividends ($.45 per share) (859,091) (859,091)
--------- --------- ---------- ----------- --------- ---------
Balances, December 31, 1995 954,545 $954,545 $5,897,585 $4,493,184 $ 0 $(130,002) $11,215,312
2-for-1 common stock split 954,545
Issuance of 2,300,000 shares of
Premier Financial Bancorp, Inc.
common stock 2,300,000 23,000 27,043,342 27,066,342
Net change in unrealized losses on
securities available for sale (36,799) (36,799)
Net income 3,435,576 3,435,576
Dividends ($.50 per share) (1,817,045) (1,817,045)
--------- --------- ---------- ----------- -------- --------- -----------
BALANCES, DECEMBER 31, 1996 4,209,090 $977,545 $32,940,927 $6,111,715 $ 0 $(166,801) $39,863,386
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,435,576 $ 2,156,482 $ 1,513,447
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 264,362 218,178 164,796
Amortization, net 188,367 24,338 6,681
Provision for loan losses 574,831 85,950 207,000
Deferred income taxes 5,361 (221,516) (85,323)
FHLB stock dividends (38,900) (4,100) (900)
Investment securities losses (gains), net (1,459) 6,026 (69,716)
Changes in:
Interest receivable (381,446) (120,900) 45,907
Other assets 732,955 (397,836) (685,872)
Interest payable (200,975) 273,338 47,072
Other liabilities 391,015 54,384 (129,491)
Income taxes refundable 211,407 (261,102) 37,230
------------- ---------------- ---------------
Net cash provided by operating activities $ 5,181,094 $ 1,813,242 $ 1,050,831
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of deposits held in other banks $ 0 $ 0 $ (523,609)
Proceeds from maturity of deposits held in other
banks 523,609 0
Purchases of securities available for sale (10,886,829) (13,082,611) (5,637,170)
Proceeds from sales of securities available
for sale 2,499,125 7,553,462 4,452,459
Proceeds from maturities and calls of securities
available for sale 8,100,125 4,350,000 3,300,000
Purchases of investment securities held to
maturity (2,741,799) (1,673,728) (1,081,135)
Proceeds from maturities and calls of securities
held to maturity 2,241,255 1,212,544 723,045
Proceeds from sales of investment securities held
to maturity 0 1,000,000 0
Purchases of FHLB stock (723,800) (227,300) (59,000)
Net change in federal funds sold (2,945,000) (395,000) (108,000)
Proceeds from sale of real estate acquired
through foreclosure 131,701 291,760 32,000
Net change in loans (22,402,722) (16,725,288) (7,411,964)
Purchases of premises and equipment (972,976) (1,327,066) (391,664)
Proceeds from sale of premises and equipment 20,085 437,132 73,685
Cash payment related to acquisition, net of
cash received (10,576,808) (999,742) 0
------------- ---------------- ------------
Net cash used in investing activities $(38,257,643) $(19,062,228) $(6,631,353)
</TABLE>
See notes to consolidated financial statements.
Page 5
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits $12,536,403 $15,134,179 $ 3,874,639
Advances from Federal Home Loan Bank 6,800,000 0 755,000
Repayment of Federal Home Loan Bank advances (2,067,206) 0 0
Debt proceeds 0 3,500,000 1,500,000
Repayment of debt (6,850,000) 0 0
Net proceeds from issuance (repayment) of
agreements to repurchase securities (1,797,697) 747,118 0
Proceeds from issuance of common stock 27,066,342 125,000 0
Dividends paid (1,817,045) (859,091) (540,000)
---------------- --------------- ----------------
Net cash provided by financing activities $33,870,797 $18,647,206 $ 5,589,639
Net increase in cash and cash equivalents $794,248 $1,398,220 $9,117
Cash and cash equivalents at beginning of year 6,339,777 4,941,557 4,932,440
---------------- --------------- ----------------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 7,134,025 $ 6,339,777 $ 4,941,557
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for -
Interest $ 9,037,999 $ 4,807,245 $ 3,391,338
Income taxes 990,000 644,234 698,027
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING ACTIVITIES:
Non-cash transfer from securities held to
maturity to securities available for sale $ 0 $ 500,000 $12,036,169
Change in unrealized loss on marketable
equity securities 0 0 65,388
Change in unrealized loss on securities
available for sale (36,799) 340,284 (470,286)
Loans transferred to real estate acquired
through foreclosure 80,849 16,000 382,675
</TABLE>
See notes to consolidated financial statements.
Page 6
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation - The consolidated financial statements
include the accounts of Premier Financial Bancorp, Inc. (the Company) 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 Bancorp, Eminence, Kentucky (the Banks). In addition, the Company
has a data processing service subsidiary, Premier Data Services, Inc.,
Vanceburg, Kentucky. All material intercompany transactions and balances have
been eliminated. Certain prior year amounts have been reclassified to conform
with 1996 presentations.
On March 24, 1995, the Company acquired Georgetown Bancorp, Inc. and its
wholly-owned subsidiary, Georgetown Bank & Trust Co., Georgetown, Kentucky, in
a business combination accounted for as a pooling of interests. The accompanying
consolidated financial statements for 1995 are based on the assumption that
the Companies were combined for the full year, and the financial statements
of the prior year have been restated to give effect to the combination as if
it occurred at the beginning of the earliest year presented.
B. Nature of Operations - The Banks operate under state bank charters
and provide full banking services, including trust services. As state banks,
the Banks are subject to regulation by the Kentucky Department of Financial
Institutions and the Federal Deposit Insurance Corporation (FDIC). The
Company is also subject to regulation by the Federal Reserve Bank.
C. Estimates in the Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
D. Cash and Cash Equivalents - For purposes of reporting cash flows,
cash and cash equivalents include cash on hand and amounts due from banks.
E. Investment Securities - The Company classifies its investment
securities portfolio into three categories: trading, securities available for
sale and securities held to maturity. Fair value adjustments are made to the
securities based on their classification with the exception of the held to
maturity category. The Company has no investments classified as trading.
Investment securities available for sale are carried at fair value.
Adjustments from amortized cost to fair value are recorded in stockholders'
equity, net of related income tax, under net unrealized gains (losses) on
securities available for sale. The adjustment is computed on the difference
between fair value and cost adjusted for amortization of premiums and
accretion of discounts which are recorded as adjustments to interest income
using the constant yield method.
Page 7
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment securities for which the Banks have the positive intent and
ability to hold to maturity are stated at cost, adjusted for amortization of
premiums and accretion of discounts which, are recorded as adjustments to
interest income using the constant yield method.
Gains or losses on dispositions are based on the net proceeds and
adjusted carrying amount of the securities sold using the specific
identification method.
F. Loans - Loans are stated at the amount of unpaid principal, reduced
by unearned income and an allowance for loan losses. Interest income on
loans is recognized on the accrual basis except for those loans in a
nonaccrual income status. The accrual of interest on impaired loans is
discontinued when management believes, after consideration of economic and
business conditions and collection efforts, that the borrowers' financial
condition is such that collection of interest is doubtful. When interest
accrual is discontinued, interest income is subsequently recognized only to
the extent cash payments are received.
The allowance for loan losses is established through a provision for
loan losses charged to expense. The allowance is an amount that management
believes will be adequate to absorb losses on existing loans that may become
uncollectible based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration such factors
as changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions
that may affect the borrowers' ability to pay. Loans are charged against the
allowance for loan losses when management believes that the collection of the
principal is unlikely.
The allowance for loan losses on impaired loans is determined using the
present value of estimated future cash flows of the loan, discounted at the
loan's effective interest rate or the fair value of the underlying
collateral. A loan is considered to be impaired when it is probable that all
principal and interest amounts will not be collected according to the loan
contract. The entire change in present value of expected cash flows is
reported as provision for loan losses in the same manner in which impairment
initially was recognized or as a reduction in the amount of provision for
loan losses that otherwise would be reported.
Certain loan origination fees and direct origination costs are
capitalized and recognized as an adjustment of the yield on the related loan.
G. Premises and Equipment - Premises and equipment are stated at cost
less accumulated depreciation. Depreciation is recorded principally by the
straight-line method over the estimated useful lives of the premises and
equipment.
Page 8
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. Real Estate Acquired Through Foreclosure - Real estate acquired
through foreclosure is carried at the lower of the recorded investment in the
property or its fair value. The value of the underlying loan is written down
to the fair value of the real estate to be acquired by a charge to the
allowance for loan losses, if necessary. Any subsequent write-downs are
charged to operating expenses. Certain parcels of real estate are being
leased to third parties to offset holding period costs. Operating expenses
of such properties, net of related income, and gains and losses on their
disposition are included in other expenses.
I. Purchase Method of Accounting - Net assets of subsidiaries acquired
in purchase transactions are recorded at the fair value at the date of
acquisition. The excess of cost over net assets acquired is included in
goodwill on the consolidated balance sheets and is being amortized by the
straight-line method over fifteen years.
J. Income Taxes - The Company and its subsidiaries file a consolidated
federal income tax return. The Subsidiaries are charged or credited an
amount equal to the income tax that would have been applicable on a separate
return basis.
The Company uses the liability method for computing deferred income
taxes. Under the liability method, deferred income taxes are based on the
change during the year in the deferred tax liability or asset established for
the expected future tax consequences of differences in the financial
reporting and tax bases of assets and liabilities. The differences relate
principally to premises and equipment, unrealized gains and losses on
investment securities available for sale, net operating loss carryforwards,
changes in tax methods of accounting, FHLB stock, and the allowance for loan
losses.
K. Per Share Information - Primary earnings per share is computed by
dividing net income by the weighted average number of shares of common stock
outstanding and the number of shares of common stock which would be assumed
outstanding under the treasury-stock method.
L. Effect of New Accounting Standards - The Financial Accounting
Standards Board has issued Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ", which requires the recognition of a
loss on impaired assets when the carrying value of an asset exceeds its fair
value and the carrying amount of the asset may not be recoverable. The
Statement was adopted by the Company, as required, on January 1, 1996. The
effect of adopting the new guidance was not material to the Company's
consolidated financial statements.
Page 9
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation", which defines the methods of accounting available for employee
stock compensation plans. The Statement was adopted by the Company, as
required, on January 1, 1996. The effect of adopting the new guidance was not
material to the Company's consolidated financial statements.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", which
provides accounting and reporting guidance regarding various financial
instruments and related transactions. The Statement was effective for
transactions occurring after December 31, 1996 and was adopted by the
Company, as required, on January 1, 1997. The effect of adopting the new
guidance was not material to the Company's consolidated financial statements.
M. Marketing Expense - The Company charges all marketing expenses to
operations when incurred. No amounts have been established for any future
benefits relative to these expenditures.
2. BUSINESS COMBINATIONS
On July 1, 1996, the Company acquired all of the outstanding shares of
Farmers Deposit Bancorp, Eminence, Kentucky (Farmers Deposit), a one-bank
holding company owning all of the shares of Farmers Deposit Bank, for cash.
The total acquisition cost was $12,588,000, which exceeded the fair value of
tangible net assets acquired by approximately $5,400,000. The combination was
accounted for as a purchase and the results of operations of Farmers Deposit
are included in the consolidated financial statements from July 1, 1996.
The major categories of assets acquired and liabilities assumed from
Farmers Deposit as of the acquisition date are as follows:
(In Thousands)
Assets
Cash and due from banks $ 2,011
Investment securities 19,263
Net loans 81,988
Intangibles and other assets 9,035
Deposits 86,791
Other borrowings 10,540
Debt 1,850
Other liabilities 528
---------
Total acquisition cost $ 12,588
Page 10
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
2. BUSINESS COMBINATIONS (CONTINUED)
Unaudited proforma condensed results of operations for the years ended
December 31, 1996 and 1995, as though the above subsidiary had been acquired
January 1, 1995 in a debt financed transaction are listed below. The results
are not necessarily indicative of future consolidated operations.
Year Ended
1996 1995
(In Thousands)
Net interest income after provision
for loan losses $11,062 $ 7,894
Other operating income 1,761 1,336
Other operating expenses 8,178 7,025
Net income $ 3,202 $ 2,133
Earnings per share $ 0.97 $ 1.12
On October 31, 1995, the Company acquired all of the outstanding shares
of Citizens Bank of Sharpsburg, Kentucky, for cash. The total acquisition
cost was $1,496,387, which exceeded the fair value of tangible net assets
acquired by approximately $248,000. This combination was accounted for as a
purchase and the results of operations of Citizens Bank are included in the
consolidated financial statements from November 1, 1995.
The major categories of assets acquired and liabilities assumed from
Citizens Bank as of the acquisition date are as follows:
(In Thousands)
Cash and due from banks $ 497
Investment securities 3,976
Net loans 14,316
Intangibles and other assets 1,365
Deposits 18,273
Other liabilities 385
-------
Total acquisition cost $ 1,496
On March 24, 1995, the Company acquired Georgetown Bancorp, Inc. and its
wholly-owned subsidiary, Georgetown Bank & Trust, Georgetown, Kentucky, in a
business combination accounted for as a pooling of interests. All of the
outstanding shares of Georgetown Bancorp were exchanged for 409,090 shares,
as adjusted for subsequent stock splits, of the Company's common stock. The
accompanying consolidated financial statements for 1995 are based on the
assumption that the companies were combined for the full year, and financial
statements of prior years have been restated to give effect of the
combination. Georgetown Bancorp, Inc. had consolidated total assets of
approximately $20,930,000 at the date of acquisition.
Page 11
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
Included in cash and due from banks are certain non-interest bearing
deposits that are held at the Federal Reserve or maintained in vault cash in
accordance with average balance requirements specified by the Federal Reserve
Board of Governors. The average balance requirement was $936,000 and $549,000
at December 31, 1996 and 1995, respectively.
4. INVESTMENT SECURITIES
Amortized cost and fair value of investment securities, by category, at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U. S. Treasury securities $ 4,097,702 $ 4,691 $ (8,566) $ 4,093,827
U. S. agency securities 13,440,767 40,445 (157,678) 13,323,534
Obligations of states and
political subdivisions 1,583,755 39,797 (2,165) 1,621,387
Preferred stock 2,000,000 0 0 2,000,000
Other equity securities 900,007 0 (111,706) 788,301
----------- -------- --------- -----------
Total available for sale $22,022,231 $ 84,933 $(280,115) $21,827,049
Held to maturity:
U. S. Treasury securities $ 2,058,469 $ 5,787 $ (9,366) $ 2,054,890
U. S. agency securities 6,328,804 18,482 (26,209) 6,321,077
Obligations of states and
political subdivisions 12,190,012 249,553 (59,327) 12,380,238
Asset-backed securities 415,804 3,933 (4,045) 415,692
----------- -------- --------- -----------
Total held to maturity $20,993,089 $277,755 $ (98,947) $21,171,897
</TABLE>
Page 12
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
4. INVESTMENT SECURITIES (CONTINUED)
Amortized cost and fair value of investment securities, by category, at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U. S. Treasury securities $ 2,546,872 $ 10,051 $ (1,241) $ 2,555,682
U. S. agency securities 10,680,473 17,575 (100,892) 10,597,156
Preferred stock 2,000,000 0 0 2,000,000
Other equity securities 900,000 0 (80,820) 819,180
----------- -------- --------- ----------
Total available for sale $16,127,345 $ 27,626 $(182,953) $15,972,018
Held to maturity:
U. S. agency securities $ 2,300,000 $ 0 $ (41,110) $ 2,258,890
Obligations of states and
political subdivisions 6,347,298 86,434 (45,521) 6,388,211
Asset-backed securities 17,919 560 0 18,479
----------- -------- --------- ----------
Total held to maturity $ 8,665,217 $ 86,994 $ (86,631) $ 8,665,580
</TABLE>
The amortized cost and fair value of investment securities at December
31, 1996, by category and 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 Fair
Cost Value
Available for sale:
Due in one year or less $ 5,984,146 $ 5,982,638
Due after one year through five years 10,343,229 10,281,226
Due after five years through ten years 2,794,849 2,774,884
Other securities 2,900,007 2,788,301
------------ ------------
Total available for sale $ 22,022,231 $ 21,827,049
Held to maturity:
Due in one year or less $ 2,981,261 $ 2,983,913
Due after one year through five years 9,615,010 9,665,471
Due after five years through ten years 5,852,879 5,953,674
Due after ten years 2,128,135 2,153,147
Asset-backed securities 415,804 415,692
------------ ------------
Total held to maturity $ 20,993,089 $ 21,171,897
Page 13
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
4. INVESTMENT SECURITIES (CONTINUED)
Proceeds from sales of investment securities during 1996, 1995 and 1994
were $2,499,125, $8,553,462 and $4,452,459, respectively. Gross gains of $70,
$25,650 and $73,990 and gross losses of $611, $31,676 and $4,274,
respectively, were realized on those sales. Proceeds from maturities and
calls of investment securities during 1996, 1995 and 1994 were $9,541,380,
$5,562,544 and $4,023,045, respectively. Gross gains of $2,000 and no losses
were realized on those calls during 1996. No gains or losses were realized on
calls during 1995 and 1994.
During 1995, the Company sold a security classified as held to maturity,
with an amortized cost of $1,000,000 and a fair value of $1,000,000. The
Company was notified by the issuer that the security was being called. The
Company disposed of the security approximately five months prior to the call
date in order to utilize the funds for reinvestment.
During December, 1995, the Company made a one time transfer of
investment securities from held to maturity to available for sale of
$500,000, as allowed under the Financial Accounting Series Special Report, "A
Guide to Implementation of Statement 115", issued in November, 1995. The
investments were transferred at fair value at the date of transfer. This
transfer did not have a material effect on the Company's stockholders' equity.
At December 31, 1995, the Company's investment in noncumulative
perpetual preferred stock of First Guaranty Bank, Hammond, Louisiana,
exceeded 10% of stockholders' equity. The market value of these investments
approximates their book value which totaled $2,000,000 at December 31, 1996
and 1995. The dividend rate on the preferred stock is 2% over the prevailing
prime rate.
Investment securities with an approximate carrying value of $23,836,619
and $8,015,000 at December 31, 1996 and 1995, respectively, were pledged to
secure public deposits, trust funds, securities sold under agreements to
repurchase and for other purposes as required or permitted by law.
5. LOANS
Major classifications of loans are summarized as follows:
December 31
1996 1995
(In Thousands)
Commercial, secured by real estate $59,834 $39,357
Commercial, other 33,908 17,889
Real estate construction 4,138 2,119
Real estate mortgage 76,600 32,678
Agricultural 10,050 5,216
Page 14
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
5. LOANS (CONTINUED)
December 31
1996 1995
(In Thousands)
Consumer 33,751 16,087
Other 1,351 429
-------- --------
$219,632 $113,775
Unearned interest (2,045) (711)
Allowance for loan losses (2,523) (1,735)
-------- --------
$215,064 $111,329
Certain directors and executive officers of the Banks, including their
immediate families and companies in which they have beneficial ownership,
were loan customers of the Banks during 1996 and 1995. Total loans to these
persons at December 31, 1996 and 1995 amounted to $3,726,218 and $4,067,191,
respectively. Such loans were made in the ordinary course of business at the
Banks' normal credit terms and interest rates. An analysis of the 1996
activity with respect to all director and executive officer loans is as
follows:
Balance, December 31, 1995 $ 4,067,191
Additions, including loans now
meeting disclosure requirements 1,821,817
Amounts collected, including loans
no longer meeting disclosure requirements (2,162,790)
------------
Balance, December 31, 1996 $ 3,726,218
Changes in the allowance for loan losses were as follows:
1996 1995 1994
Balance, beginning of year $1,735,482 $ 886,175 $ 884,079
Allowance related to acquired
subsidiaries 812,000 803,177 0
Loans charged off (759,453) (91,212) (309,874)
Recoveries 159,642 51,392 104,970
Provision for loan losses 574,831 85,950 207,000
---------- ---------- ---------
Balance, end of year $2,522,502 $1,735,482 $ 886,175
Page 15
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
5. LOANS (CONTINUED)
The Company's recorded investment in impaired loans was approximately
$565,305 and $886,000 at December 31, 1996 and 1995, respectively, as
measured using the value of the underlying collateral. Of those amounts,
$272,799 and $401,000 represent loans for which an allowance for loan losses,
in the amount of $180,159 and $101,000, respectively, has been established.
The average recorded investment of impaired loans was approximately $489,500
and $424,000 for the years ended December 31, 1996 and 1995, respectively.
Interest income recognized on impaired loans totaled approximately $2,000 and
$26,000 for the years ended December 31, 1996 and 1995, respectively, which
represented actual cash payments received on impaired loans.
6. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
December 31
1996 1995
Land $ 1,073,750 $ 223,118
Buildings and leasehold improvements 2,594,185 1,939,142
Furniture and equipment 2,823,491 2,424,905
----------- ------------
$ 6,491,426 $ 4,587,165
Less: accumulated depreciation (2,691,095) (2,458,116)
----------- ------------
$ 3,800,331 $ 2,129,049
Depreciation expense was $264,362, $218,178 and $164,796 in 1996, 1995
and 1994, respectively.
7. DEPOSITS
At December 31, 1996, the scheduled maturities of time deposits are as
follows:
1997 $101,148,226
1998 30,938,967
1999 11,479,698
2000 3,306,873
2001 and thereafter 937,611
-------------
$147,811,375
Certain directors and executive officers of the Banks and companies in
which they have beneficial ownership are deposit customers of the Banks. The
amount of these deposits was approximately $7,902,000 at December 31, 1996.
Page 16
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase generally mature within
one to ninety days from the transaction date. Information concerning
securities sold under agreements to repurchase is summarized as follows:
December 31
1996 1995
Average balance during the year $3,582,000 $400,000
Average interest rate during the year 5.14% 3.85%
Maximum month-end balance during the year $6,495,743 $747,118
U. S. Treasury and agency securities underlying the agreements are as
follows:
December 31
1996 1995
Carrying value $6,221,104 $861,377
Estimated fair value $6,216,000 $862,000
9. FEDERAL HOME LOAN BANK ADVANCES
The Banks own stock of the Federal Home Loan Bank (FHLB) of Cincinnati,
Ohio. This stock allows the Banks to borrow advances from the FHLB which the
Banks use to fund long-term fixed rate mortgages.
At December 31, 1996 and 1995, $9,377,456 and $755,000, respectively,
represented the balance due on the above advances from the FHLB. All advances
are paid either on a monthly basis or at maturity, over remaining terms of one
to nineteen years, with interest rates ranging from 4.65% to 8.45%. Advances
are secured by the FHLB stock with a cost of $1,452,900, and all single family
first mortgage loans of the participating Banks. Scheduled principal payments
due on advances during the five years subsequent to December 31, 1996 are as
follows: 1997 - $7,785,997; 1998 - $174,259; 1999 - $480,367; 2000 - $105,050;
2001 and years thereafter - $831,783.
10. DEBT
Debt consists of the following:
December 31
1996 1995
Revolving note, $5,000,000 maximum limit,
secured by 100% of the common stock of the
subsidiary Banks, interest at prime rate,
payable monthly, principal due at
maturity, June 30, 1996. $ 0 $5,000,000
Page 17
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
10. DEBT (CONTINUED)
The revolving note described above was paid off from proceeds of the
Company's initial public offering in May 1996.
11. LINE OF CREDIT
In February 1997, the Company received approval for a two year, $20
million revolving line of credit from a financial institution. The line of
credit is available for general corporate purposes, including acquisitions.
The credit agreement contains certain covenants and performance terms. The
common stock of the subsidiary banks is pledged to secure the revolving line
of credit.
12. INCOME TAXES
The components of the provision for income taxes are as follows:
1996 1995 1994
Current $1,512,353 $334,508 $568,536
Deferred 5,361 282,659 (92,463)
Change in valuation allowance 0 (504,175) 7,140
---------- -------- --------
$1,517,714 $112,992 $483,213
The Company's deferred tax assets and liabilities at December 31, 1996 and
1995 are shown below. Based upon the level of historical taxable income over
the three years prior to December 31, 1995 and projections for future taxable
income over the three years subsequent to December 31, 1995 in which deferred
tax assets were expected to become deductible, management believed it more
likely than not that the Company would realize the benefits of these deductible
differences; therefore, no valuation allowance for the realization of deferred
tax assets was considered necessary at December 31, 1995. Additionally, no
valuation allowance is considered necessary at December 31, 1996.
1996 1995
Deferred tax assets:
Allowance for loan losses $337,871 $287,852
NOL carryforwards 330,426 435,116
Unrealized loss on investment securities 28,382 25,325
Other 19,093 0
-------- --------
Total deferred tax assets $715,772 $748,293
Page 18
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
12. INCOME TAXES (CONTINUED)
1996 1995
Deferred tax liabilities:
Change in accounting method $ (12,874) $(22,461)
Depreciation (127,755) (44,820)
Federal Home Loan Bank dividends (43,520) (1,020)
Other (36,043) (31,229)
--------- --------
Total deferred tax liabilities $(220,192) $(99,530)
Net deferred tax asset $ 495,580 $648,763
At December 31, 1996, two of the subsidiary Banks had net operating loss
carryforwards totaling approximately $972,000, which begin expiring in 2005.
The utilization of these net operating loss carryforwards is subject to
limitations imposed by Section 382 of the Internal Revenue Code.
An analysis of the differences between the effective tax rates and the
statutory U.S. federal income tax rate is as follows:
<TABLE>
<CAPTION>
(In Thousands)
1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
U. S. federal income tax rate $1,684 34.0% $ 772 34.0% $ 679 34.0%
Changes from the statutory rate:
Tax-exempt investment income (240) (4.8) (141) (6.2) (100) (5.0)
Non-deductible interest expense
related to carrying tax-exempt
investments 28 0.5 15 0.7 12 0.6
Tax credits (70) (1.4) (69) (3.0) (18) (0.9)
Change in valuation allowance 0 0.0 (504) (22.2) 7 0.3
Goodwill amortization 67 1.3 1 0.0 0 0.0
Other 49 1.0 39 1.7 (97) (4.8)
------ ---- ----- ---- ----- ----
$1,518 30.6% $ 113 5.0% $ 483 24.2%
</TABLE>
Income taxes (benefits) applicable to investment securities gains
(losses) were $496, $(2,049) and $23,703 for 1996, 1995 and 1994,
respectively.
Page 19
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
13. OPERATING LEASE COMMITMENTS
The Company has entered into lease agreements for certain premises and
equipment.
Future minimum lease payments under the leases during the five years
subsequent to December 31, 1996 are as follows:
1997 $ 149,179
1998 145,496
1999 142,865
2000 138,600
2001 0
Total rental expense incurred amounted to approximately $156,091,
$19,000 and $80,000 in 1996, 1995 and 1994, respectively.
14. EMPLOYEE BENEFIT PLANS
The Company has qualified profit sharing plans which cover substantially
all employees. Profit sharing contributions are at the discretion of the
Company's Board of Directors. Profit sharing contributions were $171,500,
$103,744 and $88,730 in 1996, 1995 and 1994, respectively.
On March 15, 1996, the shareholders approved adoption of the Premier
Financial Bancorp, Inc. 1996 Employee Stock Ownership Incentive Plan (the
Plan), whereby certain employees of the Company are eligible to receive
incentive stock options under the Plan. The Plan is accounted for in
accordance with Accounting Principles Board Opinion (APB) No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. Under the Plan,
a maximum of 100,000 shares, as adjusted for the 2-for-1 stock split
effective March 29, 1996, of the Company's common stock may be issued through
the exercise of these incentive stock options. The option price is the fair
market value of the Company's shares at the date of the grant. The options
are exercisable ten years from the date of grant. At December 31, 1996, the
Company had granted options to certain key employees to purchase 40,000
shares at an option price of $13.00 per share, of which 14,000 are currently
eligible for exercise.
Although the Company has elected to follow APB No. 25, Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based
Compensation" requires pro forma disclosure of net income and earnings per
share as if the Company had accounted for its employee stock options under
that Statement. The fair value of each option grant was estimated on the
grant date using an option-pricing model.
Page 20
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
14. EMPLOYEE BENEFIT PLANS (CONTINUED)
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the
options' vesting period. The pro forma effect on 1996 net income and earnings
per share of this statement are as follows:
Net income
As reported $3,435,576
Pro forma $3,410,628
Primary earnings per share
As reported $ 1.05
Pro forma $ 1.04
15. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1996, 1995 and 1994, the Company
paid approximately $241,000, $65,000 and $53,000, respectively, for printing
and supplies from a company affiliated by common ownership. The Company also
paid this affiliate approximately $317,000, $223,000 and $185,000 in 1996,
1995 and 1994, respectively, to permit the Company's employees to participate
in its employee medical benefit plan.
The Company has purchased and currently holds noncumulative perpetual
preferred stock with a carrying value of $2,000,000 in a bank in Louisiana
controlled by the Company's largest shareholder. The dividend rate on the
preferred stock is 2% over the prevailing prime rate.
16. DIVIDEND LIMITATIONS
The Company's principal source of funds for dividend payments is
dividends received from the subsidiary Banks. Banking regulations limit the
amount of dividends that may be paid without prior approval of regulatory
agencies. Under these regulations, the amount of dividends that may be paid
in any calendar year is limited to the current year's net profits, as
defined, combined with the retained net profits of the preceding two years,
subject to the capital requirements as defined below. During 1997, the Banks
could, without prior approval, declare dividends of approximately $2,764,000
plus any 1997 net profits retained to the date of the dividend declaration.
17. STOCKHOLDERS' EQUITY
On May 22, 1996, the Company completed its initial public offering by
selling 2,000,000 common shares at an offering price of $13.00 per share and
on June 19, 1996, the Company completed the sale of an additional 300,000
common shares (which represented the Underwriters' over-allotment option) at
a price of $13.00 per share. Total proceeds to the Company, net of the
underwriting discount and issuance costs, were $27,066,342.
Page 21
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
17. STOCKHOLDERS' EQUITY (CONTINUED)
On March 15, 1996, the shareholders approved a 2-for-1 stock split
effective March 29, 1996, in the form of a dividend of the Company's common
stock to shareholders of record on February 22, 1996. Additionally, the
shareholders approved an increase in the number of common stock shares
authorized from 1,800,000 to 10,000,000, approved a change in the par value
of the common shares from $1 to no par value and approved the authorization
of 1,000,000 preferred shares, without par value.
On September 12, 1995, the Board of Directors approved a 5-for-4 stock
split effective September 30, 1995, in the form of a dividend of the
Company's common stock to shareholders of record on September 15, 1995. All
references in the accompanying financial statements to the number of average
shares and per share data have been restated to reflect the stock splits
except for the number of shares issued and outstanding at December 31, 1995,
as reflected on the consolidated balance sheets.
18. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents - For these short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Federal Funds Sold - For these short-term instruments, the carrying amount
is a reasonable estimate of fair value.
Investment Securities - For investment securities, fair values are based on
quoted market prices or dealer quotes.
Loans - Fair value is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Federal Home Loan Bank Stock - For FHLB stock, carrying value is a
reasonable estimate of fair value.
Deposit Liabilities - The fair value of demand deposits, savings accounts,
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit
is estimated by discounting future cash flows using the rates currently
offered for deposits of similar remaining maturities.
Page 22
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
18. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
Securities Sold Under Agreements to Repurchase - For these short-term
instruments, the carrying amount is a reasonable estimate of fair value.
Federal Home Loan Bank Advances - Rates currently available to the Company
for advances with similar terms and remaining maturities are used to
estimate fair value of existing debt.
Debt - The carrying value of variable rate borrowed funds is a reasonable
estimate of fair value.
Commitments to Extend Credit and Standby Letters of Credit - Commitments to
extend credit and standby letters of credit represent agreements to lend to
a customer at the market rate when the loan is extended, thus the
commitments and letters of credit are not considered to have a fair value.
The fair values of the Company's financial instruments at December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 7,134,025 $ 7,134,000 $ 6,339,777 $ 6,340,000
Federal funds sold 10,635,000 10,635,000 6,340,000 6,340,000
Investment securities 42,820,138 42,704,000 24,637,235 24,638,000
Federal Home Loan Bank
stock 1,542,900 1,543,000 291,300 291,000
Loans 217,586,504 217,618,000 113,064,706 114,631,000
Less: allowance for loan
losses (2,522,502) (2,523,000) (1,735,482) (1,735,000)
------------ ------------ ------------ -------------
$277,196,065 $277,111,000 $148,937,536 $150,505,000
Financial liabilities:
Deposits $235,573,968 $237,354,000 $136,246,437 $137,729,000
Securities sold under
agreements to repurchase 5,599,420 5,604,000 747,118 747,000
Federal Home Loan Bank
advances 9,377,456 9,412,000 755,000 755,000
Debt 0 0 5,000,000 5,000,000
------------ ------------ ------------ ------------
$250,550,844 $252,370,000 $142,748,555 $144,231,000
</TABLE>
Page 23
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
19. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Banks are parties to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of their
customers. These financial instruments include standby letters of credit and
commitments to extend credit in the form of unused lines of credit. The
Banks use the same credit policies in making commitments and conditional
obligations as they do for on-balance sheet instruments.
At December 31, 1996 and 1995, the Banks had the following financial
instruments whose approximate contract amounts represent credit risk:
1996 1995
Standby letters of credit $1,081,875 $ 953,900
Commitments to extend credit $9,667,341 $ 4,571,904
Standby letters of credit represent conditional commitments issued by
the Banks to guarantee the performance of a third party. The credit risk
involved in issuing these letters of credit is essentially the same as the
risk involved in extending loans to customers.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The Banks evaluate each customer's
creditworthiness on a case-by-case basis. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. Collateral held varies
but may include accounts receivable, inventory, property and equipment, and
income producing properties.
20. CONCENTRATION OF CREDIT RISK
The Banks grant residential, commercial and consumer related loans to
customers primarily located in Lewis, Bracken, Scott, Bath, Henry and
adjoining counties in Kentucky. Although they have diverse loan portfolios, a
substantial portion of their debtors' ability to perform is somewhat
dependent on the economic conditions of the counties in which they operate.
21. LEGAL PROCEEDINGS
Legal proceedings involving the Company and its subsidiaries
periodically arise in the ordinary course of business, including claims by
debtors and their related interests against the Company's subsidiaries
following initial collection proceedings. These legal proceedings sometimes
can involve claims for substantial damages. At December 31, 1996, management
is unaware of any legal proceedings, of which the ultimate result would have
a material adverse effect upon the consolidated financial statements of the
Company.
Page 24
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
22. REGULATORY MATTERS
The Company and the subsidiary Banks are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework from prompt
corrective action, the Company and the Banks must meet specific guidelines
that involve quantitative measures of their assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and Banks to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1996, the Company and the Banks meet all capital adequacy requirements to
which they are subject.
As of December 31, 1996, the most recent notification from the Federal
Reserve Bank categorized the Company as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the Company must maintain minimum total risk-based, Tier I
risk-based and Tier I leverage ratios as set forth in the following table.
There are no conditions or events since that notification that management
believes have changed the Company's category.
The Company's and the Banks' capital amounts and ratios as of December
31, 1996 are presented in the table below.
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk-Weighted Assets):
Consolidated $36,887,000 17.12% $17,235,000 8.0% $21,544,000 10.0%
Citizens Deposit Bank 8,085,000 11.75 5,505,000 8.0 6,882,000 10.0
Farmers Deposit Bank 10,878,000 13.20 7,012,000 8.0 8,765,000 10.0
Georgetown Bancorp 4,007,000 15.38 2,084,000 8.0 2,605,000 10.0
Citizens Bank 2,335,000 14.64 1,276,000 8.0 1,596,000 10.0
Bank of Germantown 2,102,000 15.75 1,068,000 8.0 1,334,000 10.0
</TABLE>
Page 25
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
22. REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Tier I Capital (to Risk-Weighted Assets):
Consolidated $34,364,000 15.95% $ 8,618,000 4.0% $12,926,000 6.0%
Citizens Deposit Bank 7,375,000 10.72 2,753,000 4.0 4,129,000 6.0
Farmers Deposit Bank 10,003,000 12.14 3,506,000 4.0 5,259,000 6.0
Georgetown Bancorp 3,724,000 14.29 1,042,000 4.0 1,563,000 6.0
Citizens Bank 2,136,000 13.39 638,000 4.0 957,000 6.0
Bank of Germantown 1,940,000 14.54 534,000 4.0 801,000 6.0
Tier I Capital (to Average Assets):
Consolidated $34,364,000 12.04% $11,704,000 4.0% $14,631,000 5.0%
Citizens Deposit Bank 7,375,000 8.73 3,379,000 4.0 4,223,000 5.0
Farmers Deposit Bank 10,003,000 8.95 4,685,000 4.0 5,857,000 5.0
Georgetown Bancorp 3,724,000 10.51 1,417,000 4.0 1,771,000 5.0
Citizens Bank 2,136,000 8.88 937,000 4.0 1,216,000 5.0
Bank of Germantown 1,940,000 9.86 787,000 4.0 984,000 5.0
</TABLE>
Page 26
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
23. PARENT COMPANY FINANCIAL STATEMENTS
Condensed Balance Sheets
December 31
1996 1995
ASSETS
Cash $ 1,653,723 $ 361,651
Interest bearing deposits in subsidiary banks 4,047,000 0
------------ ----------
Total cash and cash equivalents $ 5,700,723 $ 361,651
Investment in subsidiaries 30,988,028 12,952,170
Other investments 2,000,000 2,000,000
Premises and equipment 1,186,609 596,639
Other assets 114,219 400,133
------------ -----------
TOTAL ASSETS $ 39,989,579 $ 16,310,593
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt $ 0 $ 5,000,000
Other liabilities 126,193 95,281
------------ -----------
Total liabilities $ 126,193 $ 5,095,281
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 in 1996 (954,545
shares in 1995) issued and outstanding 977,545 954,545
Surplus 32,940,927 5,897,585
Retained earnings 6,111,715 4,493,184
Net unrealized losses on securities
available for sale (166,801) (130,002)
------------ ----------
Total stockholders' equity $ 39,863,386 $ 11,215,312
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 39,989,579 $ 16,310,593
Page 27
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
23. PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
Condensed Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
<S> <C> <C> <C>
Income:
Dividends from subsidiary banks $ 596,745 $ 1,825,000 $ 553,002
Other income 433,674 176,794 28,671
---------- ------------- ----------
Total income $1,030,419 $ 2,001,794 $ 581,673
Expenses:
Interest expense $ 167,413 $ 252,999 $ 28,006
Other expenses 472,558 341,627 127,315
---------- ------------- ----------
Total expenses $ 639,971 $ 594,626 $ 155,321
Income before income taxes and
equity in undistributed income of
subsidiaries $ 390,448 $ 1,407,168 $ 426,352
Applicable income tax benefits 95,222 178,065 30,157
---------- ------------- ----------
Income before equity in undistributed
income of subsidiaries $ 485,670 $ 1,585,233 $ 456,509
Equity in undistributed income of
subsidiaries 2,949,906 571,249 1,056,938
---------- ------------- ----------
NET INCOME $3,435,576 $ 2,156,482 $1,513,447
</TABLE>
Page 28
<PAGE>
PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(CONTINUED)
23. PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,435,576 $ 2,156,482 $ 1,513,447
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 27,704 10,632 0
Equity in undistributed income of
subsidiaries (2,949,906) (571,249) (1,056,938)
Change in other assets 285,914 (258,633) (16,866)
Change in other liabilities 30,912 88,681 6,600
------------ ------------ -----------
Net cash provided by operating activities $ 830,200 $ 1,425,913 $ 446,243
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiary banks $(12,622,751) $ (1,496,387) $ 0
Capital contributed to subsidiaries (2,500,000) (1,401,000) 0
Purchase of other investments 0 (500,000) (1,500,000)
Purchase of premises and equipment (617,674) (607,341) 0
------------ ------------ -----------
Net cash used in investing activities $(15,740,425) $ (4,004,728) $(1,500,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid $ (1,817,045) $ (859,091) $ (540,000)
Proceeds from issuance of common stock 27,066,342 0 0
Proceeds from debt 0 3,500,000 1,500,000
Repayment of debt (5,000,000) 0 0
------------ ------------ -----------
Net cash provided by financing activities $ 20,249,297 $ 2,640,909 $ 960,000
Net increase (decrease) in cash and cash equivalents $ 5,339,072 $ 62,094 $ (93,757)
Cash and cash equivalents at beginning of year 361,651 299,557 393,314
------------ ------------ -----------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 5,700,723 $ 361,651 $ 299,557
</TABLE>
Page 29
<PAGE>
PART III
ITEM 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by these Items is omitted because the
Corporation is filing a definitive proxy statement pursuant to Regulation 14A
not later than 120 days after the end of the fiscal year covered by this
report which includes the required information. The required information
contained in the Corporation's proxy statement is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
Independent Auditors' Report
Balance Sheets - December 31, 1996 and 1995
Statements of Income - Years Ended December 31, 1996, 1995 and 1994
Statements of Changes in Stockholders' Equity - Years Ended December 31,
1996, 1995 and 1994
Statements of Cash Flows - Years Ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
2. Financial Statement Schedules:
No financial statement schedules have been included as part of this
report because they are either not required or the information is
otherwise included.
3. List of Exhibits:
The following is a list of exhibits required by Item 601 of Regulation S-
K and by paragraph (c) of this Item 14.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- ------------------------
3.1 Form of Articles of Incorporation of registrant (included as
Exhibit 3.1 to registrant's Registration Statement on Form S-
1, Registration No. 333-1702, filed on February 28, 1996 with
the Commission and incorporated herein by reference).
3.2 Form of Articles of Amendment to Articles of Incorporation
effective March 15, 1996 re: amendment to Article IV
(included as Exhibit 3.2 to registrant's Amendment No. 1 to
Registration Statement on Form S-1, Registration No. 333-
1702, filed on March 25, 1996 with the Commission and
incorporated herein by reference).
<PAGE>
3.3 Bylaws of registrant (included as Exhibit 3.2 to registrant's
Registration Statement on Form S-1, Registration No. 333-
1702, filed on February 28, 1996 with the Commission and
incorporated herein by reference).
10.1 Amended and Restated Preferred Stock Purchase Agreement dated
as of September 29, 1994 between First Guaranty Bank,
Hammond, Louisiana, and registrant (included as Exhibit 10.3
to registrant's Registration Statement on Form S-1,
Registration No. 333-1702, filed on February 28, 1996 with
the Commission and incorporated herein by reference).
10.2 Employment Agreement dated March 16, 1992, between Georgetown
Bank & Trust Company and Gardner E. Daniel (included as
Exhibit 10.4 to registrant's Registration Statement on Form
S-1, Registration No. 333-1702, filed on February 28, 1996
with the Commission and incorporated herein by reference).
10.3 Deferred Compensation Agreement dated December 17, 1992,
between Georgetown Bank & Trust Company and Gardner E. Daniel
(included as Exhibit 10.5 to registrant's Registration
Statement on Form S-1, Registration No. 333-1702, filed on
February 28, 1996 with the Commission and incorporated herein
by reference).
10.4 Premier Financial Bancorp, Inc. 1996 Employee Stock Ownership
Incentive Plan (included as Exhibit 10.6 to registrant's
Registration Statement on Form S-1, Registration No. 333-
1702, filed on February 28, 1996 with the Commission and
incorporated herein by reference).
16 Letter of McNeal, Williamson & Co. regarding change in
certifying accountant (included as Exhibit 16 to registrant's
Amendment No. 1 to Registration Statement on Form S-1,
Registration No. 333-1702, filed on March 25, 1996 with the
Commission and incorporated herein by reference).
21 Subsidiaries of registrant
23.1 Consent of Eskew & Gresham, P.S.C.
23.2 Consent of McNeal, Williamson & Co.
<PAGE>
(b REPORTS ON FORM 8-K
No reports on Form 8-K were filed the last quarter of the period covered by
this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
registrant has duly caused this Annual Report on Form 10-K to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Georgetown,
Commonwealth of Kentucky, on the 26th day of March, 1997.
PREMIER FINANCIAL BANCORP, INC.
By:/s/ J. Howell Kelly, President
-----------------------------------
J. Howell Kelly, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the registrant in the capacities and on the dates indicated.
Principal Executive, Financial and
March 26, 1997 /s/ J. Howell Kelly Accounting Officer, Director
------------------------
J. Howell Kelly
March 26, 1997 /s/ Toney K. Adkins Director
------------------------
Toney K. Adkins
March 26, 1997 /s/ Gardner E. Daniel Director
------------------------
Gardner E. Daniel
March 26, 1997 /s/ Helen S. Fisher Director
------------------------
Helen S. Fisher
March 26, 1997 /s/ E. V. Holder Director
------------------------
E. V. Holder, Jr.
March 26, 1997 /s/ Wilbur M. Jenkins Director
------------------------
Wilbur M. Jenkins
<PAGE>
March 26, 1997 /s/ Benjamin T. Pugh Director
------------------------
Benjamin T. Pugh
March 26, 1997 /s/ Marshall T. Reynolds Director
------------------------
Marshall T. Reynolds
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of all subsidiaries of Premier Financial
Bancorp, Inc. and their state of incorporation.
Subsidiary State of Incorporation
------------ ------------------------
Citizens Deposit Bank and Trust Company Kentucky
Bank of Germantown Kentucky
Georgetown Bancorp, Inc. Kentucky
(Georgetown Bank and Trust Company)
Citizens Bank Kentucky
Premier Data Services, Inc. Kentucky
Farmers Deposit Bancorp, Inc. Kentucky
(Farmers Deposit Bank)
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated February 20, 1997
in the annual report on Form 10-K of Premier Financial Bancorp, Inc. for the
years ended December 31, 1996 and 1995.
/s/ Eskew & Gresham, PSC
--------------------------
Eskew & Gresham, PSC
Lexington, Kentucky
March 26, 1997
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the inclusion in the Annual Report on Form 10-K of
Premier Financial Bancorp, Inc. of our report dated February 10, 1995 on the
financial statemens of Premier Financial Bancorp, Inc. and Subsidiaries as of
December 31, 1994 and for the year then ended.
/s/ McNeal, Williamson & Co.
- ------------------------------
McNeal, Williamson & Co.
Certified Public Accountants
Logan, West Virginia
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,134
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,635
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,827
<INVESTMENTS-CARRYING> 20,993
<INVESTMENTS-MARKET> 21,172
<LOANS> 217,587
<ALLOWANCE> 2,523
<TOTAL-ASSETS> 292,565
<DEPOSITS> 235,574
<SHORT-TERM> 14,977
<LIABILITIES-OTHER> 2,150
<LONG-TERM> 0
0
0
<COMMON> 978
<OTHER-SE> 38,885
<TOTAL-LIABILITIES-AND-EQUITY> 292,565
<INTEREST-LOAN> 16,969
<INTEREST-INVEST> 2,293
<INTEREST-OTHER> 412
<INTEREST-TOTAL> 19,674
<INTEREST-DEPOSIT> 8,249
<INTEREST-EXPENSE> 8,837
<INTEREST-INCOME-NET> 10,837
<LOAN-LOSSES> 575
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 6,793
<INCOME-PRETAX> 4,953
<INCOME-PRE-EXTRAORDINARY> 4,953
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,436
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
<YIELD-ACTUAL> 5.32<F1>
<LOANS-NON> 423
<LOANS-PAST> 528
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,735
<CHARGE-OFFS> 759
<RECOVERIES> 160
<ALLOWANCE-CLOSE> 2,523<F2>
<ALLOWANCE-DOMESTIC> 2,523
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Computed on a tax-equivalent basis.
<F2>Includes allowance of acquired subsidiaries.
</FN>
</TABLE>
