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, 2000
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 - 5,232,230 shares outstanding at November 10, 2000.
<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, 1999 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>
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(IN THOUSANDS EXCEPT SHARE DATA)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 21,659 $ 28,227
Interest earning balances with banks 737 1,634
------------- --------------
Cash and cash equivalents 22,396 29,861
Federal funds sold 17,111 25,197
Investment securities
Available for sale 161,433 151,787
Held to maturity 18,338 18,633
Loans 602,447 570,753
Unearned interest (484) (647)
Allowance for loan losses (8,577) (6,812)
------------- --------------
Net loans 593,386 563,294
Federal Home Loan Bank and Federal Reserve Bank stock 4,389 4,123
Premises and equipment, net 15,126 14,935
Real estate and other property acquired through foreclosure 3,710 3,019
Interest receivable 10,049 9,814
Goodwill and other intangibles 23,249 24,339
Other assets 7,687 7,466
------------- --------------
Total assets $ 876,874 $ 852,468
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 69,850 $ 68,490
Time deposits, $100,000 and over 108,112 99,292
Other interest bearing 531,621 525,061
------------- --------------
Total deposits 709,583 692,843
Securities sold under agreements to repurchase 27,529 21,282
Federal Home Loan Bank advances 31,898 32,647
Other borrowed funds 20,000 20,000
Interest payable 3,836 3,265
Other liabilities 1,782 1,554
------------- --------------
Total liabilities 794,628 771,591
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;
5,232,230 shares issued and outstanding 1,103 1,103
Surplus 43,445 43,445
Retained earnings 11,896 11,601
Accumulated other comprehensive income (2,948) (4,022)
------------- --------------
Total stockholders' equity 53,496 52,127
------------- --------------
Total liabilities and stockholders' equity $ 876,874 $ 852,468
============= ==============
</TABLE>
--------------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
3.
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS EXCEPT EARNINGS PER SHARE DATA)
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $ 14,399 $ 13,046 $ 41,580 $ 37,215
Investment securities
Taxable 2,520 2,285 7,522 7,188
Tax-exempt 343 358 1,063 1,060
Federal funds sold and other 343 247 1,084 930
----------- ----------- ----------- -----------
Total interest income 17,605 15,936 51,249 46,393
Interest expense
Deposits 8,321 6,977 23,753 20,434
Debt and other borrowings 2,153 1,564 6,038 4,601
----------- ----------- ----------- -----------
Total interest expense 10,474 8,541 29,791 25,035
Net interest income 7,131 7,395 21,458 21,358
Provision for loan losses 1,125 1,648 4,015 2,743
----------- ----------- ----------- -----------
Net interest income after provision for
loan losses 6,006 5,747 17,443 18,615
Non-interest income
Service charges 583 510 1,648 1,460
Insurance commissions 147 153 385 450
Investment securities gains(losses) 1 2 (279) 7
Other 300 235 1,236 886
----------- ----------- ----------- -----------
1,031 900 2,990 2,803
Non-interest expenses
Salaries and employee benefits 3,551 2,730 10,101 8,644
Occupancy and equipment expenses 827 743 2,365 2,237
Amortization of intangibles 393 392 1,178 1,232
Other expenses 1,823 1,659 5,460 4,659
----------- ----------- ----------- -----------
6,594 5,524 19,104 16,772
----------- ----------- ----------- -----------
Income before income taxes 443 1,123 1,329 4,646
Provision for income taxes 72 352 249 1,346
----------- ----------- ------------- -----------
Net income $ 371 $ 771 $ 1,080 $ 3,300
=========== =========== =========== ===========
Other comprehensive income (loss), net of tax:
Unrealized gains and (losses) arising during
the period $ 1,178 $ (256) $ 890 $ (2,680)
Reclassification of realized amount (1) (1) 184 (5)
----------- ------------ ----------- -----------
Net change in unrealized gain (loss) on
securities 1,177 (257) 1,074 (2,685)
----------- ----------- ----------- -----------
Comprehensive income $ 1,548 $ 514 $ 2,154 $ 615
=========== =========== =========== ===========
Earnings per share $ .07 $ .15 $ .21 $ .63
Earnings per share assuming dilution $ .07 $ .15 $ .21 $ .63
Weighted average shares outstanding 5,232 5,232 5,232 5,232
</TABLE>
--------------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
4.
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000
(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
========== =========== =========== ============ =========
Balances, January 1, 2000 $ 1,103 $ 43,445 $ 11,601 $ (4,022) $ 52,127
Net change in unrealized gains/(losses) on
securities available for sale - - - 1,074 1,074
Net income - - 1,080 - 1,080
Dividends paid - Company
($.15 per share) - - (785) - (785)
---------- ----------- ----------- ------------ ---------
Balances, September 30, 2000 $ 1,103 $ 43,445 $ 11,896 $ (2,948) $ 53,496
========== =========== =========== ============ =========
</TABLE>
--------------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
5.
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(IN THOUSANDS)
(UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,080 $ 3,300
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 1,075 957
Provision for loan losses 4,015 2,743
Amortization, net 904 1,387
FHLB stock dividends (224) (201)
Investment securities losses (gains), net 279 (7)
Changes in
Interest Receivable (235) (263)
Other assets (774) (237)
Interest Payable 571 611
Other liabilities 228 501
------------- -------------
Net cash from operating activities 6,919 8,791
Cash flows from investing activities
Purchases of securities available for sale (37,080) (81,215)
Proceeds from sales of securities available for sale 13,845 39,901
Proceeds from maturities and calls of securities available
for sale 15,126 48,090
Purchases of securities held to maturity (1,321) (1,918)
Proceeds from maturities and calls of securities held
to maturity 1,614 2,976
Purchases of FHLB stock (42) (44)
Net change in federal funds sold 8,086 16,913
Net change in loans (35,393) (63,181)
Purchases of premises and equipment, net (1,266) (1,869)
Proceeds from sale of other real estate acquired
through foreclosure 594 256
Net cash received (paid) related to acquisitions - (8,579)
------------- ----------
Net cash from investing activities (35,837) (48,670)
Cash flows from financing activities
Net change in deposits 16,740 24,940
Advances from Federal Home Loan Bank 38,475 11,045
Repayment of Federal Home Loan Bank advances (39,224) (10,168)
Proceeds from other borrowed funds - 12,000
Net change in agreements to repurchase securities 6,247 8,714
Dividends paid (785) (2,355)
------------- -------------
Net cash from financing activities 21,453 44,176
------------- -------------
Net change in cash and cash equivalents (7,465) 4,297
Cash and cash equivalents at beginning of period 29,861 20,171
------------- -------------
Cash and cash equivalents at end of period $ 22,396 $ 24,468
============= =============
</TABLE>
--------------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
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:
<TABLE>
<CAPTION>
Year September 30, 2000
Acquired Assets
-------- ------
(In Thousands)
<S> <C> <C> <C>
Citizens Deposit Bank & Trust Vanceburg, Kentucky 1991 $ 118,547
Bank of Germantown Germantown, Kentucky 1992 28,474
Georgetown Bank & Trust Co. Georgetown, Kentucky 1995 61,792
Citizens Bank Sharpsburg, Kentucky 1995 49,765
Farmers Deposit Bank Eminence, Kentucky 1996 142,769
The Sabina Bank Sabina, Ohio 1997 59,022
Ohio River Bank Ironton, Ohio 1998 53,580
The Bank of Philippi, Inc. Philippi, West Virginia 1998 81,564
Boone County Bank, Inc. Madison, West Virginia 1998 149,447
The Bank of Mt. Vernon Mt. Vernon, Kentucky 1999 137,055
</TABLE>
The Company also has a data processing subsidiary, Premier Data Services, Inc.,
and PFBI Capital Trust subsidiary as discussed in Note 6. All intercompany
transactions and balances have been eliminated.
NOTE 2 - PURCHASE AND ASSUMPTION AGREEMENT
On November 9, 2000, the Company entered into a Purchase and Assumption
Agreement with Community Trust Bank, National Association, Pikeville, Kentucky,
regarding the Company's subsidiary, Bank of Mt. Vernon (Mt. Vernon), Mt. Vernon,
Kentucky. Under the terms of the agreement, Mt. Vernon has agreed to sell
substantially all loans, deposits, and fixed assets to Community Trust Bank. At
September 30, 2000 Mt. Vernon had approximately $102 million in loans, $115
million in deposits, and $2 million in fixed assets. The transaction is
anticipated to be completed in January 2001.
7.
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
NOTE 3 - SECURITIES
Amortized cost and fair value of investment securities, by category, at
September 30, 2000 are summarized as follows:
<TABLE>
<CAPTION>
(In Thousands)
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Available for sale
U. S. Treasury securities $ 2,841 $ 4 $ (3) $ 2,842
U. S. agency securities 143,159 7 (3,955) 139,211
Obligations of states and political
Subdivisions 7,278 24 (9) 7,293
Mortgage-backed securities 9,693 - (388) 9,305
Preferred stock 2,000 - - 2,000
Other equity securities 925 - (143) 782
-------------- ----------- ----------- ------------
Total available for sale $ 165,896 $ 35 $ (4,498) $ 161,433
============== =========== =========== ============
Held to maturity
U. S. Treasury securities $ 501 $ - $ - $ 501
U. S. agency securities 1,233 - (20) 1,213
Obligations of states and political
Subdivisions 16,586 250 (106) 16,730
Mortgage-backed securities 18 1 (1) 18
-------------- ----------- ----------- ------------
Total held to maturity $ 18,338 $ 251 $ (127) $ 18,462
============== =========== =========== ============
</TABLE>
Amortized cost and fair value of investment securities, by category, at December
31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
(In Thousands)
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Available for sale
U. S. Treasury securities $ 2,900 $ - $ (6) $ 2,894
U. S. agency securities 130,254 - (5,047) 125,207
Obligations of states and political
Subdivisions 7,468 - (114) 7,354
Mortgage-backed securities 14,333 - (776) 13,557
Preferred stock 2,000 - - 2,000
Other securities 925 - (150) 775
-------------- -------------- -------------- ------------
Total available for sale $ 157,880 $ - $ (6,093) $ 151,787
============== ============== ============== ============
Held to maturity
U. S. Treasury securities $ 500 $ - $ (1) $ 499
U. S. agency securities 1,233 - (29) 1,204
Obligations of states and political
Subdivisions 16,876 132 (150) 16,858
Mortgage-backed securities 24 - - 24
-------------- -------------- -------------- ------------
Total held to maturity $ 18,633 $ 132 $ (180) $ 18,585
============== ============== ============== ============
</TABLE>
8.
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
NOTE 4 - LOANS
Major classifications of loans at September 30, 2000 and December 31, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
(In Thousands)
<S> <C> <C>
Commercial, secured by real estate $ 153,798 $ 135,078
Commercial, other 87,566 98,543
Real estate construction 25,593 26,092
Residential real estate 210,800 192,088
Agricultural 15,840 17,525
Consumer and home equity 107,195 100,075
Other 1,655 1,352
------------ ------------
$ 602,447 $ 570,753
============ ============
</TABLE>
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Balances, beginning of period $ 8,245 $ 5,925 $ 6,812 $ 4,363
Acquired - - - 1,310
Net charge-offs (793) (732) (2,250) (1,575)
Provision for loan losses 1,125 1,648 4,015 2,743
---------- ----------- ----------- ------------
Balances, end of period $ 8,577 $ 6,841 $ 8,577 $ 6,841
========== =========== =========== ============
</TABLE>
NOTE 6 - GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S
SUBORDINATED DEBENTURES
Guaranteed preferred beneficial interests in Company's debentures (Preferred
Securities) represent preferred beneficial interests in the assets of PFBI
Capital Trust (Trust). The Trust holds certain 9.75% junior subordinated
debentures due June 30, 2027 issued by the Company on June 9, 1997.
Distributions on the Preferred Securities is payable at an annual rate of 9.75%
of the stated liquidation amount of $25 per Capital 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 by the Company 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.
9.
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
NOTE 7 - REGULATORY MATTERS
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 discussed below. During 2000, the Banks could, without prior
approval, declare dividends of approximately $4.5 million plus any 2000 net
profits retained to the date of the dividend declaration.
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 for 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.
These quantitative measures established by regulation to ensure capital adequacy
require the Company and Banks to maintain minimum amounts and ratios (set forth
in the following table) 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 September
30, 2000, the Company and the Banks meet all quantitative capital adequacy
requirements to which they are subject.
Shown below is a summary of regulatory capital ratios for the Company:
<TABLE>
<CAPTION>
Regulatory
September 30, December 31, Minimum
2000 1999 Requirements
------------ ------------ ------------
<S> <C> <C> <C>
Tier I Capital (to Risk-Weighted Assets) 8.9% 8.9% 4.0%
Total Capital (to Risk-Weighted Assets) 11.8% 11.9% 8.0%
Tier I Capital (to Average Assets) 6.1% 6.2% 4.0%
</TABLE>
The capital amounts and classifications are also subject to qualitative
judgments by the regulators. As a result of these qualitative judgements, the
Company entered into an agreement with the Federal Reserve Bank (FRB) on
September 29, 2000 restricting the Company from declaring or paying dividends
without prior approval from the FRB. An additional provision of this agreement
requires prior approval form the FRB before the Company increases its borrowings
or incurs any debt. This agreement is in effect until terminated by the FRB.
10.
<PAGE>
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
As a result of these qualitative judgments, Citizens Deposit Bank (Citizens)
entered into a Written Agreement with the FRB on September 29, 2000 restricting
Citizens from declaring or paying dividends without prior approval. This
agreement is in effect until terminated by the FRB. Citizens Tier I capital to
average assets was 8.9% at September 30, 2000.
As a result of these qualitative judgements, Bank of Germantown (Germantown)
entered into an agreement with the Kentucky Department of Financial Institutions
(KDFI) and the Federal Deposit Insurance Corporation (FDIC) on June 13, 2000
restricting Germantown from declaring or paying dividends, without prior
approval, if its Tier I capital to average assets falls below 8%. This
agreement, in effect until terminated by the KDFI and FDIC, is more restrictive
than the quantitative measures governing a bank's ability to pay dividends.
Germantown's Tier I capital to average assets was 7.4% at September 30, 2000.
Mt. Vernon Bancshares, Inc. is precluded from declaring or paying any dividends
without prior approval as the result of an existing agreement with the Federal
Reserve Bank. Mt. Vernon's Tier I capital to average assets was 8.5% at
September 30, 2000.
NOTE 8 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". This new standard requires companies to
record derivatives on the balance sheet as assets or liabilities at fair value.
Depending on the use of the derivative and whether it qualifies for hedge
accounting, gains or losses resulting from changes in the values of those
derivatives would either be recorded as a component of net income or as a change
in stockholders' equity. The Company is required to adopt this new standard
January 1, 2001 and does not anticipate the impact to be material to the
financial statements.
11.
<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, 2000 was $1,080,000
or $0.21 per share compared to net income of $3,300,000 or $0.63 per share for
the nine months ended September 30, 1999. Results for the nine months ended
September 30, 2000 reflect charges for amortization of goodwill and other
intangibles associated with cash acquisitions totaling $932,000 (after tax) as
compared to $964,000 (after tax) in the same period for 1999.
The table below, in thousands except per share data, illustrates the net of tax
impact of these expenses on earnings and earnings per share.
<TABLE>
<CAPTION>
September 30, 2000 September 30, 1999
Amount Per share Amount Per share
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Income before amortization
of intangibles $ 2,012 $ .38 $ 4,264 $ .81
Amortization of intangibles (932) (.17) (964) (.18)
---------- ----------- ----------- ------------
Net income $ 1,080 $ .21 $ 3,300 $ .63
========== =========== =========== ============
</TABLE>
For the three months ended September 30, 2000, net income totaled
$371,000 or $.07 per share compared to $711,000 or $.15 per share for the same
period in 1999.
Net interest income increased $100,000 to $21,458,000 for the nine
months ended September 30, 2000 compared to $21,358,000 for the same period in
1999. Net interest income decreased $264,000 to $7,131,000 for the three months
ended September 30, 2000 compared to the $7,395,000 reported in the three months
ended September 30, 1999. Net interest margin on a tax equivalent basis for the
nine months ending September 30, 2000 was approximately 3.72% as compared to
4.07% for the same period in 1999. The decrease in net interest margin is
primarily attributable to rising interest rates and their impact on a majority
of the Company's subsidiary banks as well as the increased cost of borrowing at
the holding company. The returns on stockholders' equity and on average assets
were approximately 2.76% and .17% for the nine months ended September 30, 2000
compared to 8.14% and .56% for the same period in 1999.
The provision for loan losses increased $1,272,000 to $4,015,000 for
the nine months ended September 30, 2000 compared to $2,743,000 for the same
period in 1999. This increase is primarily attributable to the replenishment and
required additions to the reserve for loan losses at a majority of the Company's
subsidiary banks. For the three months ended September 30, 2000, the provision
for loan losses was $1,125,000 compared to the $1,648,000 reported in the three
months ended September 30, 1999, a decrease of $523,000. Additional information
concerning the level of and the activity within the reserve for loan losses can
be found in the Financial Position section.
Non-interest income increased $187,000 to $2,990,000 for the first nine
months of 2000 compared to $2,803,000 for the first nine months of 1999.
Non-interest income increased $131,000 to $1,031,000 for the three months ended
September 30, 2000 compared to $900,000 for the same period in 1999. This
increase in non-interest income can be primarily attributed to increases in
service charge income and other income for both the nine-month and three-month
periods ended September 30, 2000.
12.
<PAGE>
Non-interest expenses for the first nine months of 2000 totaled
$19,104,000 or 3.0% of average assets on an annualized basis compared to
$16,772,000 or 2.8% of average assets for the same period of 1999. Non-interest
expenses increased $1,070,000 for the three months ended September 30, 2000 to
$6,594,000 compared to $5,524,000 for the three months ended September 30, 1999.
This increase in non-interest expense can be primarily attributed to the
branching activities of four of the Company's subsidiary banks in the 2000 time
periods compared to the same periods for 1999, in addition to general operating
increases and the expensing of severance costs.
Income tax expense was $249,000 for the first nine months of 2000
compared to $1,346,000 for the first nine months of 1999. For the three-month
period ended September 30, 2000, income tax expense decreased $280,000 to
$72,000 compared to $352,000 for the three months ended September 30, 1999. The
decrease in income tax expense can be attributed to the decrease in income
before taxes, primarily as a result of the increase in the provision for loan
loss for the nine-month period ended September 30, 2000. The effective tax rate
through September 30, 2000 was approximately 19%, compared to the 29% effective
tax rate for the same period in 1999. Also contributing to this decrease in the
effective tax rate for both the three month and nine month periods ended
September 30, 2000 is a consistent level of tax exempt interest income and
recurring tax credits.
B. Financial Position
Total assets increased $24.4 million or 2.9% to $876.9 million from the
$852.5 million on December 31, 1999. The increase in total assets can be
primarily attributed to general and normal increases in the business activity of
the Company at its various locations. Earning assets increased to $804.0 million
on September 30, 2000 from $771.5 million on December 31, 1999, an increase of
$32.5 million or 4.2%. This is primarily due to the placement of funds into
outstanding loans from cash equivalents.
Cash and cash equivalents at September 30, 2000 were $22.4 million or a
$7.5 million decrease from the $29.9 million on December 31, 1999. Fed funds
sold decreased to $17.1 million from $25.2 million during the same period, a
decrease of $8.1 million. The decrease in cash equivalents and fed funds sold is
primarily attributed to the placement of those funds in higher yielding loans.
Total loans at September 30, 2000 were $602.0 million compared to
$570.1 million at December 31, 1999, an increase of $31.9 million or 5.6%. This
increase is primarily due to the increase in loans secured by real estate.
Additional information concerning the level of and current mix of outstanding
loan balances compared to December 31, 1999 can be found in Note 4 of the Notes
to Consolidated Financial Statements.
Deposits totaled $709.6 million as of September 30, 2000, an increase
of $16.8 million, or 2.4%, over the December 31, 1999 amount of $692.8 million.
Noninterest bearing deposits increased $1.4 million, or 2.0%, and interest
bearing deposits increased $15.4 million, or 2.5%, during the period December
31, 1999 to September 30, 2000. These increases are primarily due to increases
in normal business activity at the Company's various locations.
In order to increase the Company's capital ratio and reduce the Company's
outstanding debt, the Board of Directors approved a Purchase and Assumption
Agreement with Community Trust Bank, National Association, Pikeville, Kentucky,
regarding the Company's subsidiary, Bank of Mt. Vernon, Mt. Vernon, Kentucky.
Under the terms of the agreement, Mt. Vernon has agreed to sell substantially
all loans, deposits, and fixed assets to Community Trust Bank. At September 30,
2000 Mt. Vernon had approximately $102 million in loans, $115 million in
deposits, and $2 million in fixed assets. The transaction is anticipated to be
completed in January 2001. The actual net cash received by the Company as a
result of this transaction is contingent upon certain provisions of the
agreement which can only be completely ascertained on the settlement date. The
actual net cash received should enable the Company to reduce borrowing costs in
excess of the subsidiary's current earnings. While the complete extent of the
transaction is not immediately determinable, the Company expects to recognize a
gain on the sale. A significant benefit to the Company will be the strengthening
of internal capital on a reduced asset base and the reduction of consolidated
leverage positions.
13.
<PAGE>
The following table sets forth information with respect to the
Company's nonperforming assets at September 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
2000 1999
---- ----
(In Thousands)
<S> <C> <C>
Non-accrual loans $ 7,016 $ 4,540
Accruing loans which are contractually
past due 90 days or more 2,425 1,721
Restructured 346 666
-------------- ------------
Total non-performing loans 9,787 6,927
Other real estate acquired through
foreclosure 3,710 3,009
-------------- ------------
Total non-performing assets $ 13,497 $ 9,936
Non-performing loans as a percentage
of total loans 1.63% 1.22%
Non-performing assets as a percentage
of total assets 1.54% 1.17%
</TABLE>
The provision for loan losses decreased from $1,648,000 for the three
months ended September 30, 1999 to $1,125,000 for the three months ended
September 30, 2000. The provision for loan losses and net chargeoffs was
$4,015,000 and $2,250,000 for the first nine months of 2000 compared to
$2,743,000 and $1,575,000, respectively, for the nine months period ended
September 30, 1999. The increases in these amounts were prompted by the increase
in average loans between the two periods, changes in the economy both locally
and nationally and an increase in non-performing loans since December 31, 1999.
The allowance for loan losses at September 30, 2000 was 1.42% of total loans as
compared to 1.19% at December 31, 1999.
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.
2. Cash flow generated by repayment of loans and interest.
14.
<PAGE>
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 $161.4 million of securities at
market value as of September 30, 2000. This is an increase of
$9.6 million or approximately 6.3% from the December 31, 1999
balance of $151.8 million.
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
Total shareholders' equity of $53.5 million was 6.1% of total
consolidated assets at September 30, 2000. This compares to total shareholders'
equity of $52.1 million on December 31, 1999, also 6.1% of total consolidated
assets.
Tier I capital totaled $51.9 million at September 30, 2000, which
represents a Tier I leverage ratio of 6.1%.
Book value per share was $10.22 at September 30, 2000 and $9.96 at
December 31, 1999. A decrease in unrealized loss on securities available for
sale was primarily responsible for the increase in accumulated other
comprehensive income and corresponding increase in book value per share.
The Company declared a first quarter dividend of $0.15 per share, or
$784,835 payable March 31, 2000 to shareholders of record as of March 20, 2000.
The Company did not declare a dividend in either the second or third quarter of
2000.
Management's discussion and analysis contains forward-looking statements
that are provided to assist in the understanding of anticipated future financial
performance. However, such performance involves risks and uncertainties, and
there are certain important factors that may cause actual results to differ
materially from those anticipated. These important factors include, but are not
limited to, economic conditions (both generally and more specifically in the
markets in which Premier operates), competition for Premier's customers from
other providers of financial services, government legislation and regulation
(which changes from time to time), changes in interest rates, Premier's ability
to originate quality loans and attract and retain deposits, the impact of
Premier's growth, Premier's ability to control costs, and new accounting
pronouncements, all of which are difficult to predict and many of which are
beyond the control of Premier.
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 1999 10-K for analysis of the interest rate
sensitivity. The Company believes there have been no significant changes in the
interest rate sensitivity since previously reported 10-K.
15.
<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.
16.
<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 10, 2000 /s/ Marshall T. Reynolds
-------------------------------
Marshall T. Reynolds
Chairman of the Board
Date: November 10, 2000 /s/ Gardner E. Daniel
-------------------------------
Gardner E. Daniel
President & Chief Executive
Officer
17.
