SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-20908
PREMIER FINANCIAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-1206757
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
115 N. Hamilton Street
Georgetown, Kentucky 40324
(address of principal executive officer) (Zip Code)
Registrant's telephone number (502) 863-1955
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common stock - 5,232,257 shares outstanding at November 12, 1999
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying information has not been audited by independent public
accountants; however, in the opinion of management such information reflects all
adjustments necessary for a fair presentation of the results for the interim
period. All such adjustments are of a normal and recurring nature.
The accompanying financial statements are presented in accordance with the
requirements of Form 10-Q and consequently do not include all of the disclosures
normally required by generally accepted accounting principles or those normally
made in the registrant's annual Form 10-K filing. Accordingly, the reader of the
Form 10-Q may wish to refer to the registrant's Form 10-K for the year ended
December 31, 1998 for further information in this regard.
Index to consolidated financial statements:
<TABLE>
<S> <C>
Consolidated Balance Sheets...................................................................... 3
Consolidated Statements of Income and Comprehensive Income....................................... 4
Consolidated Statements of Changes in Stockholders' Equity ...................................... 5
Consolidated Statements of Cash Flows............................................................ 6
Notes to Consolidated Financial Statements....................................................... 7
</TABLE>
2.
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
---- ----
ASSETS
Cash and due from banks $ 24,468 $ 20,171
Federal funds sold 15,217 19,406
Investment securities
Available for sale 157,146 157,140
Held to maturity 18,993 20,052
Loans 554,954 398,728
Less: Unearned interest (1,642) (3,108)
Allowance for loan losses (6,841) (4,363)
------------- --------------
Net loans 546,471 391,257
FHLB and Federal Reserve Bank stock 4,053 3,416
Premises and equipment, net 14,665 11,764
Real estate and other property acquired through foreclosure 1,379 992
Interest receivable 9,667 8,053
Goodwill and other intangibles 24,701 21,555
Other assets 6,859 3,938
------------- --------------
Total assets $ 823,619 $ 657,744
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 64,697 $ 62,813
Time deposits, $100,000 and over 95,865 61,190
Other interest bearing 506,239 399,190
------------- --------------
Total deposits 666,801 523,193
Securities sold under agreements to repurchase 17,086 7,772
Federal Home Loan Bank advances 32,775 31,898
Other borrowed funds 20,000 8,000
Interest payable 3,620 2,384
Other liabilities 1,928 1,348
------------- --------------
Total liabilities 742,210 574,595
Guaranteed preferred beneficial interests in Company's debentures 28,750 28,750
Stockholders' equity
Preferred stock, no par value; 1,000,000 shares authorized;
none issued or outstanding - -
Common stock, no par value; 10,000,000 shares authorized;
5,232,257 shares at September 30, 1999 and
December 31, 1998, issued and outstanding 1,103 1,103
Surplus 43,445 43,445
Retained earnings 11,096 10,151
Accumulated other comprehensive income (2,985) (300)
------------- --------------
Total stockholders' equity 52,659 54,399
------------- --------------
Total liabilities and stockholders' equity $ 823,619 $ 657,744
============= ==============
</TABLE>
(continued) 3.
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
---- ---- ---- ----
Interest Income
Loans, including fees $ 13,046 $ 8,602 $ 37,215 $ 24,516
Investment securities
Taxable 2,285 3,067 7,188 5,898
Tax-Exempt 358 283 1,060 859
Federal funds sold and other 247 504 930 1,623
-------------- -------------- -------------- --------------
Total interest income 15,936 12,456 46,393 32,896
Interest Expense
Deposits 6,977 5,318 20,434 13,826
Debt and other borrowings 1,564 1,865 4,601 4,523
-------------- -------------- -------------- --------------
Total interest expense 8,541 7,183 25,035 18,349
Net interest income 7,395 5,273 21,358 14,547
Provision for possible loan losses 1,648 299 2,743 1,295
-------------- -------------- -------------- --------------
Net interest income after provision for
possible loan losses 5,747 4,974 18,615 13,252
Non-interest income
Service charges 510 486 1,460 1,122
Insurance commissions 153 124 450 324
Investment securities gains 2 8 7 151
Other 235 219 886 2,024
-------------- -------------- -------------- --------------
900 837 2,803 3,621
Non-interest expenses
Salaries and employee benefits 2,730 2,141 8,644 5,579
Occupancy and equipment expenses 743 651 2,237 1,615
Amortization of intangibles 392 334 1,232 644
Other expenses 1,659 889 4,659 3,196
-------------- -------------- -------------- --------------
5,524 4,015 16,772 11,034
-------------- -------------- -------------- --------------
Income before income taxes 1,123 1,796 4,646 5,839
Provision for income taxes 352 505 1,346 1,526
-------------- -------------- -------------- --------------
Net income $ 771 $ 1,291 $ 3,300 $ 4,313
============== ============== ============== ==============
Other comprehensive income(loss) net of tax
Change in net unrealized losses on
securities $ (256) $ 392 $ (2,680) $ 628
Reclassification of realized amount (1) (5) (5) (100)
-------------- -------------- -------------- --------------
Net unrealized gain (loss)recognized
in comprehensive income (257) 387 (2,685) 528
-------------- -------------- -------------- --------------
Comprehensive income $ 514 $ 1,678 $ 615 $ 4,841
============== ============== ============== ==============
Earnings per share $.15 $.25 $.63 $.82
Earnings per share assuming dilution $.15 $.25 $.63 $.82
Weighted average shares outstanding 5,232 5,232 5,232 5,232
</TABLE>
(Continued) 4.
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Stock Surplus Earnings Income (Loss) Total
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1999 $ 1,103 $ 43,445 $ 10,151 $ (300) $ 54,399
Net change in unrealized gains/(losses) on
securities available for sale - - - (2,685) (2,685)
Net income - - 3,300 - 3,300
Dividends paid - Company ($.45 per
share) - - (2,355) - (2,355)
---------- ----------- ----------- ------------ ------------
Balances, September 30, 1999 $ 1,103 $ 43,445 $ 11,096 $ (2,985) $ 52,659
========== =========== =========== ============ ============
</TABLE>
(Continued) 5.
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 3,300 $ 4,313
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 2,344 668
Provision for loan losses 2,743 1,295
Investment securities losses (gains), net (7) (151)
Federal Home Loan Bank Stock Dividends (201) (135)
Changes in
Other assets (500) (1,308)
Other liabilities 1,112 (91)
------------- --------------
Net cash from operating activities 8,791 4,591
Cash flows from investing activities
Purchases of investment securities available for sale (81,215) (614,756)
Proceeds from sales of investment securities available
for sale 39,901 109,284
Proceeds from maturities of investment securities available
for sale 48,090 363,636
Purchases of investment securities held to maturity (1,918) (3,993)
Proceeds from maturities of investment securities held
to maturity 2,976 4,341
Purchase of FHLB and Federal Reserve Bank stock (44) (95)
Net change in federal funds sold 16,913 30,018
Net change in loans (62,925) (41,613)
Net purchases of bank premises and equipment (1,869) (2,316)
Cash acquired(paid) in acquisitions (8,579) 125,010
------------- -------------
Net cash used in investing activities (48,670) (30,484)
Cash flows from financing activities
Net change in deposits 24,940 5,355
Net change in agreements to repurchase securities 8,714 1,624
Advances from Federal Home Loan Bank, net 877 18,255
Net change in other borrowed funds 12,000 8,000
Dividends paid (2,355) (2,283)
------------- -------------
Net cash from financing activities 44,176 30,951
------------- -------------
Net change in cash and cash equivalents 4,297 5,058
Cash and cash equivalents at beginning of period 20,171 13,051
------------- -------------
Cash and cash equivalents at end of period $ 24,468 $ 18,109
============= =============
</TABLE>
(Continued) 6.
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - 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; Farmers Deposit Bancorp, Eminence, Kentucky; The Sabina Bank, Sabina,
Ohio; Ohio River Bank, Ironton, Ohio; The Bank of Philippi, Inc., Philippi, West
Virginia; Boone County Bank, Inc., Madison, West Virginia; and Mt. Vernon
Bancshares, Mt. Vernon, Kentucky. 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 amounts have been reclassified in the prior financial statements to
conform with the current period classifications. The reclassifications had no
effect on net income or stockholders' equity as previously reported.
NOTE 2 - BUSINESS COMBINATIONS
On January 20, 1999, the Company completed the purchase of Mt. Vernon Bancshares
Inc., the holding company for The Bank of Mt. Vernon (Mt. Vernon), in a cash
transaction. Mt. Vernon offers full service banking in the central Kentucky
counties of Rockcastle, Pulaski, and Madison. Total acquisition cost was $13.5
million which exceeded the net assets acquired by $4.5 million. At date of
acquisition, Mt. Vernon had total assets of $120.1 million, total loans of $96.8
million, and total deposits of $118.7 million.
On June 26, 1998, the Company chartered Boone County Bank, Inc. in Madison, West
Virginia, and The Bank of Philippi, Inc. in Philippi, West Virginia, for the
purpose of acquiring three branch offices of Banc One Corporation located in
Madison, Philippi and Van, West Virginia. Included in the purchase were $150
million in deposits, $9 million in loans and $1.5 million in premises and
equipment.
On March 20, 1998, the Company acquired Ohio River Bank (Ohio River) whereby the
Company exchanged 297,840 shares of its common stock for all the issued and
outstanding shares of Ohio River in a business combination accounted for as a
pooling of interests. The accompanying financial statements for 1998 are based
on the assumption that the companies were combined for the full year. At the
date of acquisition, Ohio River had $40.9 million in total assets, $28.0 million
in net loans, $35.2 million in deposits, and $4.3 million in stockholders'
equity.
NOTE 3 - STOCK DIVIDEND
The Company paid a 5% stock dividend on September 30, 1998. For comparability,
prior per share information has been restated to reflect the 249,027 shares
issued as a result.
(Continued) 7.
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 4 - SECURITIES
Amortized cost and fair value of investment securities, by category, at
September 30, 1999 are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale (In Thousands)
U. S. Treasury securities $ 2,754 $ 4 $ (2) $ 2,756
U. S. agency securities 133,709 - (3,806) 129,903
Obligations of states and political
Subdivisions 7,609 41 (6) 7,644
Asset-backed securities 14,678 - (619) 14,059
Preferred stock 2,000 - - 2,000
Other equity securities 925 - (141) 784
-------------- -------------- -------------- ---------------
Total available for sale $ 161,675 $ 45 $ (4,574) $ 157,146
============== ============== ============== ===============
Held to maturity
U. S. Treasury securities $ 851 $ 2 $ - $ 853
U. S. agency securities 891 - (16) 875
Obligations of states and political
Subdivisions 17,225 258 (123) 17,360
Asset-backed securities 26 - (1) 25
-------------- -------------- -------------- ---------------
Total held to maturity $ 18,993 $ 260 $ (140) $ 19,113
============== ============== ============== ===============
</TABLE>
Amortized cost and fair value of investment securities, by category, at
December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale (In Thousands)
U. S. Treasury securities $ 7,185 $ 44 $ - $ 7,229
U. S. agency securities 125,372 45 (540) 124,877
Obligations of states and political
Subdivisions 3,691 142 (2) 3,831
Asset-backed securities 18,452 20 (67) 18,405
Preferred stock 2,000 - - 2,000
Other equity securities 900 - (102) 798
-------------- -------------- -------------- ---------------
Total available for sale $ 157,600 $ 251 $ (711) $ 157,140
============== ============== ============== ===============
Held to maturity
U. S. Treasury securities $ 899 $ 16 $ - $ 915
U. S. agency securities 2,631 - (73) 2,558
Obligations of states and political
Subdivisions 16,474 770 (1) 17,243
Asset-backed securities 48 - - 48
-------------- -------------- -------------- ---------------
Total held to maturity $ 20,052 $ 786 $ (74) $ 20,764
============== ============== ============== ===============
</TABLE>
(Continued) 8.
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 5 - LOANS
Major classifications of loans at September 30, 1999 and December 31, 1998 are
summarized as follows:
1999 1998
---- ----
(In Thousands)
Commercial, secured by real estate $ 128,640 $ 86,010
Commercial, other 97,496 77,684
Real estate construction 26,073 13,374
Real estate mortgage 183,609 131,212
Agricultural 18,738 15,433
Consumer and home equity 99,679 74,215
Other 719 800
------------ ------------
$ 554,954 $ 398,728
============ ============
NOTE 6 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept 30 Sept 30 Sept 30 Sept 30
1999 1998 1999 1998
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Balances, beginning of period $ 5,925 $ 4,208 $ 4,363 $ 3,479
Acquired - - 1,310 115
Net charge-offs (732) (297) (1,575) (679)
Provision for loan losses 1,648 299 2,743 1,295
---------- ----------- ----------- ------------
Balances, end of period $ 6,841 $ 4,210 $ 6,841 $ 4,210
========== =========== =========== ============
</TABLE>
NOTE 7 - GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S
SUBORDINATED DEBENTURES
Guaranteed preferred beneficial interests in the Company's subordinated
debentures (Preferred Securities) represent preferred beneficial interests in
the assets of PFBI Capital Trust (Trust), a wholly-owned subsidiary of the
Company. The Trust's sole assets are 9.75% junior subordinated debentures due
June 30, 2027 issued by the Company on June 9, 1997. Distributions on the
Preferred Securities will be payable at an annual rate of 9.75% of the stated
liquidation amount of $25 per Preferred Security, payable quarterly. Cash
distributions on the Preferred Securities are made to the extent interest on the
debentures is received by the Trust. In the event of certain changes or
amendments to regulatory requirements or federal tax rules, the Preferred
Securities are redeemable in whole. Otherwise, the Preferred Securities are
generally redeemable in whole or in part on or after June 30, 2002 at 100% of
the liquidation amount. The Trust's obligations under the Preferred Securities
are fully and unconditionally guaranteed by the Company.
(Continued) 9.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
A. Results of Operations
Net income for the nine months ended September 30, 1999 was $3,300,000
or $0.63 per share compared to net income of $4,313,000 or $0.82 per share for
the nine months ended September 30, 1998. Results for the nine months ended
September 30, 1999 reflect charges for amortization of goodwill and other
intangibles associated with cash acquisitions totaling $964,000 (after tax) as
compared to $541,000 (after tax) in the same period for 1998. Not including
these charges, net income for the first nine months in 1999 would have been
$4,264,000 or $0.81 per share versus $4,854,000 or $0.93 per share in 1998.
Contributing to the 1998 period was a one-time fee in the amount of $858,000
(after tax) earned in connection with the sale of branch offices in West
Virginia and $235,000 in the form of a tax credit of an acquired subsidiary.
Excluding these non-recurring items, the results for the nine month period ended
September 30, 1998, before charges for amortization of goodwill and other
intangibles, was $3,761,000 or $0.72 per share.
For the three months ended September 30, 1999, net income totaled
$771,000 or $.15 per share compared to $1,291,000 or $.25 per share for the same
period in 1998. This $520,000 decrease is the result of a $1,349,000 increase in
the provision for loan loss and a $1,509,000 increase in non interest expenses
which were partially offset by an increase of $2,122,000 in net interest income.
The increases in net interest income and non-interest expense are primarily the
result of volume increases due to acquisitions. The increase in the provision
for loan loss is reflective of an additional provision in the amount of $950,000
which increased the consolidated loan loss reserve to 1.24% of total loans as
compared to 1.10% of total loans on December 31, 1998.
Net interest income increased $6,811,000 to $21,358,000 for the nine
months ended September 30, 1999 compared to $14,547,000 for the same period in
1998. Net interest income increased $2,122,000 to $7,395,000 for the three
months ended September 30, 1999 compared to the $5,273,000 reported in the three
months ended September 30, 1998. Net interest margin on a tax equivalent basis
for the nine months ending September 30, 1999 was approximately 4.07% as
compared to 3.88% for the same period in 1998. The returns on stockholders'
equity and on average assets were approximately 8.14% and .56% for the nine
months ended September 30, 1999 compared to 10.8% and 1.05% for the same period
in 1998. Not including the charges for amortization of goodwill and other
intangibles and the non-recurring items discussed above, the returns on
stockholders' equity and on average assets would have been approximately 10.51%
and .72% for the nine months ended September 30, 1999, compared to 9.42% and
.92% for the same period in 1998. The decrease in return on average assets can
be primarily attributed to the increase in assets as a result of the West
Virginia and Mt. Vernon Bancshares acquisitions and associated goodwill.
Non-interest income decreased $818,000 to $2,803,000 for the first nine
months of 1999 compared to the first nine months of 1998. The decrease is
primarily attributable to the one-time fee in the amount of approximately
$1,300,000 that was recognized in the second quarter of 1998 in connection with
the West Virginia acquisitions. Exclusive of this fee, non-interest income for
the first nine months of 1999 increased $482,000 or 20.8% compared to the same
period for 1998. Non-interest income increased $63,000 to $900,000 for the three
months ended September 30, 1999 compared to $837,000 for the same period in
1998.
(Continued) 10.
<PAGE>
Non-interest expenses for the first nine months of 1999 totaled
$16,772,000 or 2.8% of average assets on an annualized basis compared to
$11,034,000 or 2.7% of average assets for the same period of 1998. Non-interest
expenses increased $1,509,000 for the three months ended September 30, 1999 to
$5,524,000 compared to $4,015,000 for the three months ended September 30, 1998.
This increase in non-interest expense can be primarily attributed to the start
up of the new West Virginia banks and their inclusion in the entire nine month
period ending September 30, 1999 along with the Mt. Vernon acquisition.
Income tax expense was $1,346,000 for the first nine months of 1999
compared to $1,526,000 for the first nine months of 1998. For the three month
period ended September 30, 1999, income tax expense decreased $153,000 to
$352,000 compared to $505,000 for the three months ended September 30, 1998. The
decrease in income tax expense can be attributed to the decrease in income
before taxes, primarily as a result of the inclusion of the approximately $1.3
million one-time fee in the nine month period ended September 30, 1998. The
effective tax rate through September 30, 1999 was approximately 29%, compared to
the 26% effective tax rate for the same period in 1998. Included in the 1998
period is a reduction in income tax expense in the amount of $235,000 as the
result of a reversal of a valuation allowance for deferred tax assets of an
acquired subsidiary bank.
B. Financial Position
Total assets increased $165.9 million or 25.2% to $823.6 million from
December 31, 1998. Excluding the Mt. Vernon acquisition, assets grew
approximately $45.8 million or 6.9% since December 31, 1998.
Cash and cash equivalents at September 30, 1999 were $24.5 million or a
$4.3 million increase over the $20.2 million on December 31, 1998. Fed funds
sold decreased to $15.2 million from $19.4 million during the same period, a
decrease of $4.2 million. Total earning assets increased $154.8 million, or
26.0%, to $750.4 million from $595.6 million on December 31, 1998.
Total loans at September 30, 1999 were $553.3 million compared to
$395.6 million at December 31, 1998. Of this $157.7 million increase,
approximately $96.8 million is a result of the Mt. Vernon acquisition. Excluding
this event, the increase would be $60.9 million, or 15.4%.
Deposits totaled $666.8 million as of September 30, 1999, an increase
of $143.6 million over the December 31, 1998 amount of $523.2 million. Excluding
the approximately $118.7 million acquired with the Mt. Vernon acquisition, the
increase is $24.9 million. Noninterest bearing deposits increased $1.9 million,
or 3.0%, and interest bearing deposits increased $141.7 million, or 30.8%,
during the period December 31, 1998 to September 30, 1999.
(Continued) 11.
<PAGE>
The following table sets forth information with respect to the
Company's nonperforming assets at September 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
1999 1998
---- ----
(In Thousands)
<S> <C> <C>
Non-accrual loans $ 5,583 $ 3,500
Accruing loans which are contractually
past due 90 days or more 1,289 1,322
Restructured 770 105
-------------- ------------
Total non-performing loans 7,642 4,927
Other real estate acquired through
Foreclosure 1,369 961
-------------- ------------
Total non-performing assets $ 9,011 $ 5,888
Non-performing loans as a percentage
of total loans 1.38% 1.25%
Non-performing assets as a percentage
of total assets 1.09% .90%
</TABLE>
The provision for possible loan losses increased from $299,000 for the
three months ended September 30, 1998 to $1,648,000 for the three months ended
September 30, 1999. The provision for possible loan losses and net chargeoffs
was $2,743,000 and $1,575,000 for the first nine months of 1999 compared to
$1,295,000 and $679,000, respectively, for the nine months period ended
September 30, 1998. The increases in these amounts primarily relate to the
increase in average loans between the two periods and the additional provision
of $950,000 recorded in the quarter ended September 30, 1999. This additional
provision was deemed prudent after revision of loan loss reserve adequacy
measurement methods. The allowance for loan losses at September 30, 1999 was
1.24% of total loans as compared to 1.10% at December 31, 1998.
C. Liquidity
Liquidity objectives for the Company 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 while attempting to
maximize profitability. In order to provide for funds on a current and long-term
basis, the Company's subsidiary banks rely primarily on the following sources:
1. Core deposits consisting of both consumer and commercial
deposits and certificates of deposit of $100,000 or more.
Management believes that the majority of its $100,000 or more
certificates of deposit are no more volatile than its other
deposits. This is due to the nature of the markets in which the
subsidiaries operate.
(Continued) 12.
<PAGE>
2. Cash flow generated by repayment of loans and interest.
3. Arrangements with correspondent banks for purchase of unsecured
federal funds.
4. The sale of securities under repurchase agreements and borrowing
from the Federal Home Loan Bank.
5. Maintenance of an adequate available-for-sale security portfolio.
The Company owns $157.1 million of securities at market value as
of September 30, 1999.
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.
D. Capital
At September 30, 1999, total shareholders' equity of $52.7 million was
6.4% of total consolidated assets. This compares to total shareholders' equity
of $54.4 million or 8.3% of total consolidated assets on December 31, 1998. This
decrease in equity to assets ratio is reflective of the increase in asset size
as a result of the Mt. Vernon acquisition.
Tier I capital totaled $49.4 million at September 30, 1999, which
represents a Tier I leverage ratio of 6.4%.
Shown below is a summary of regulatory capital ratios:
<TABLE>
<CAPTION>
Regulatory
September 30 December 31 Minimum
1999 1998 Requirements
- ------------------------------------------ ------------------- -------------------------- ----------------------------
<S> <C> <C> <C>
Tier I Risk Based Capital Ratio 9.0% 12.6% 4.0%
Total Risk Based Capital Ratio 12.1% 16.2% 8.0%
Leverage Ratio 6.4% 8.1% 4.0%
</TABLE>
Book value per share was $10.06 at September 30, 1999, and $10.40 at
December 31, 1998. An increase in unrealized loss on securities available for
sale was largely responsible for the decrease in comprehensive income and
corresponding decrease in book value per share.
The Company declared a third quarter dividend of $0.15 per share payable
September 30, 1999 to shareholders of record as of September 21, 1999.
(Continued) 13.
<PAGE>
E. Year 2000
Management has assessed the operational and financial implications of
its Year 2000 needs and developed a plan to ensure that data processing systems
can properly handle the change. This formal program is comprised of five phases:
(1) Awareness; (2) Assessment; (3) Renovation; (4) Validation and (5)
Implementation. The Company and its subsidiaries have been subject to
examination with respect to their Year 2000 compliance by various state and
federal agencies including the Federal Reserve Board, the Federal Deposit
Insurance Corporation, and State banking agencies. Management has determined
that if a business interruption as a result of the Year 2000 issue occurred,
such an interruption could be material.
The primary effort required to prevent a potential business
interruption was the installation of the most current software release from the
Company's third party provider and replacement of certain system hardware. The
third party software provider has warranted that Year 2000 remediation and
testing efforts to become compliant have been successfully completed.
Non-compliant hardware has already been replaced through routine hardware
upgrades. Management locally installed and tested the current software release
before the end of 1998, which completed the Year 2000 plan for mission critical
systems. Non-mission critical systems, including systems other than data
processing with embedded technology, will continue to be evaluated and if
necessary, will be upgraded or replaced.
Premier must also rely on the Year 2000 readiness of additional third
parties such as public utilities and governmental units that provide important
ongoing services to the Company. Management has therefore developed and
implemented contingency plans in the event these third party services are
disrupted and need to be resumed.
The cost of Year 2000 readiness was approximately $100,000, which was
expensed as incurred. Management projects additional Year 2000 expenses to be
minimal, however Year 2000 expenses are subject to change and could vary from
current estimates if the final requirements for Year 2000 readiness exceed
management's expectations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company currently does not engage in any derivative or hedging
activity. Refer to the Company's 1998 10-K for analysis of the interest rate
sensitivity.
14.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Document
----------- -----------------------
27 Financial Data Schedules
(b) Reports on Form 8-K No reports on Form 8-K have been
filed during the quarter for which
the report is filed.
15.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREMIER FINANCIAL BANCORP, INC.
Date: November 12, 1999 /s/ Marshall T. Reynolds
-----------------------------------
Marshall T. Reynolds
Chairman of the Board
Date: November 12, 1999 /s/ J. Howell Kelly
-----------------------------------
J. Howell Kelly
President & Chief Executive Officer
16.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
Article 9 Ex-27FDS
</LEGEND>
<CIK> 0000887919
<NAME> Premier Financial Bancorp, Inc.
<MULTIPLIER> 1,000
<S> <C>
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<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
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0
0
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</TABLE>
