UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
|
þ
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the fiscal year ended December
31, 2006
or
|
o
|
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
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61-1206757
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|
|
(State
or other jurisdiction of incorporation organization)
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(I.R.S.
Employer Identification No.)
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|
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2883
Fifth Avenue
Huntington,
West Virginia
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25702
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|
|
(Address
of principal executive offices)
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(Zip
Code)
|
|
|
Registrant’s
telephone number (304)
525-1600
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||
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of exchange on which registered
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|
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Common
Stock without par value
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NASDAQ:GMS
|
Securities
registered pursuant to Section 12(g) of the Act: NONE
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes o No þ.
Indicate
by check mark if the registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Exchange Act Yes o No þ.
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
þ
No
o.
Indicate
by check mark if 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 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. o
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
|
Large
accelerated filer o.
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Accelerated
filer o.
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Non-accelerated
filer þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ.
As
of
June 30, 2006, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was $66,213,790 based on the closing
sale
price as reported on the National Association of Securities Dealers Automated
Quotation System National Market System.
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
|
Title
of each class
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Outstanding
at March 15, 2007
|
|
|
Common
Stock without par value
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5,236,899
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DOCUMENTS
INCORPORATED BY REFERENCE
|
Document
|
Parts
Into Which Incorporated
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|
|
Proxy
Statement for the Annual Meeting of Shareholders to be held on
June 20,
2007.
|
Part
III
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PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
|
PART
I
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||||
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PART
II
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||||
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PART
III
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||||
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PART
IV
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||||
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
PART
I
THE
COMPANY
Premier
Financial Bancorp, Inc. (the "Company" or "Premier") is a multi-bank holding
company that, as of March 15, 2007, operates ten banking offices in Kentucky,
three banking offices in Ohio, and six banking offices in West Virginia.
At
December 31, 2006, Premier had total consolidated assets of $535.5 million,
total consolidated deposits of $439.0 million and total consolidated
shareholders' equity of $61.0 million. The banking subsidiaries (the "Banks"
or
"Affiliate Banks") consist of Citizens Deposit Bank & Trust, Vanceburg,
Kentucky; Farmers Deposit Bank, Eminence, Kentucky; Ohio River Bank, Ironton,
Ohio; First Central Bank, Inc., Philippi, West Virginia; and Boone County
Bank,
Inc., Madison, West Virginia.
In
2000
Premier suspended its acquisition strategy in order to focus on improving
operations, strengthening capital and management oversight and improving
the
profitability of the banks previously acquired. While Premier remains committed
to its core strategy of rural banking with community oriented and locally
named
institutions, the Company may dispose of additional corporate assets that
no
longer meet Premier's geographic or operational performance goals. Effective
January 3, 2005, Premier merged two of its subsidiary banks, Citizens Deposit
Bank & Trust in Vanceburg, Kentucky and Bank of Germantown, in Germantown,
Kentucky. Bank of Germantown was merged into Citizens Deposit Bank, with
its
facilities continuing to operate as branches of Citizens Deposit
Bank.
In
the fourth quarter of 2003, the Company adopted and began to implement a
plan to
sell its subsidiary Citizens Bank (Kentucky), Inc. ("Citizens Bank") located
in
Georgetown, Kentucky. On February 13, 2004, the Company announced that it
had
signed a definitive agreement to sell Citizens Bank in a cash transaction
valued
at approximately $14,500,000, and on July 1, 2004 the sale transaction closed.
In accordance with Financial Accounting Standard 144, "Accounting for the
Impairment or Disposal of Long-lived Assets", which became effective for
the
Company on January 1, 2002, the financial position and results of operations
of
Citizens Bank are removed from the detail line items in the Company's financial
statements and presented separately as "discontinued operations." See Note 2 to the consolidated financial statements included
later in this report for a more detailed discussion of discontinued
operations.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
Beginning
in April 2005 and concluding in July 2005, the Company converted each of
its
Affiliate Banks from an in-house system administered by a wholly-owned
subsidiary to an outsourced system administered by FiServ for their data
and
item processing functions. Subsequent to the conversion, the operations of
the
Company’s data processing subsidiary, Premier Data Services, Inc. were suspended
and the subsidiary was merged into the Company on June 27, 2006.
Premier
is a legal entity separate and distinct from its Affiliate Banks and non-bank
subsidiaries. Accordingly, the right of Premier, and thus the right of Premier's
creditors and shareholders, to participate in any distribution of the assets
or
earnings of any of the Affiliate Banks or non-bank subsidiaries is necessarily
subject to the prior claims of creditors of such subsidiaries, except to
the
extent that claims of Premier, in its capacity as a creditor, may be recognized.
The principal source of Premier's revenue is dividends from its Affiliate
Banks
and non-bank subsidiary. See "REGULATORY MATTERS -- Dividend Restrictions"
for
discussion of the restrictions on the Affiliate Banks' ability to pay dividends
to Premier.
Premier
was
incorporated as a Kentucky corporation in 1991 and has functioned as a bank
holding company since its formation. During 2002, Premier moved its principal
executive offices from Georgetown, Kentucky to its present location at 2883
5th
Avenue, Huntington, West Virginia, 25702. The purpose of the move was to
be more
centrally located among Premier's Affiliate Banks and its directorship.
Premier's telephone number is (304) 525-1600.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
BUSINESS
General
Through
the
Banks 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. Each
Bank
retains its local management structure which offers customers direct access
to
the Bank's president and other officers in an environment conducive to friendly,
informed and courteous service. This 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. See
additional discussion under "Regulatory Matters" below.
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.
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 accounting, loan review, operations
and network support, human resources, 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 services needed by its customers
and
desirable changes to existing products and services.
Prior
to the conversions in mid 2005, the Company's data processing subsidiary,
Premier Data Services, Inc., provided centralized data processing services
to
four of the Banks. Beginning in late 2004 and continuing through the middle
of
2005, the Company converted its data processing system to an external
third-party provider. Through the conversion process, Company senior management
along with each Bank's management reviewed and standardized their offering
of
products and services, although pricing decisions will remain at the local
Bank
level. Furthermore, as a result of conversion, the Company through the Banks
is
able offer more modern products, such as internet banking and check imaging,
and
will be well positioned to take advantage of emerging technologies such as
image
exchange to clear items.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
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
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. Commercial
lending activities include loans to small businesses located primarily in
the
communities in which the Banks are located and surrounding areas. Commercial
loans are secured by business assets including real estate, equipment,
inventory, and accounts receivable. Some commercial loans are unsecured.
The
Banks' range of deposit services includes checking accounts, NOW accounts,
savings accounts, money market accounts, club accounts, individual retirement
accounts, certificates of deposit and overdraft protection. Customers can
access
their accounts via traditional bank branch locations as well as Automated
Teller
Machines (ATM’s) and the internet. The Banks’ also offer bill payment and
telephone banking services. Deposits of the Banks are insured by the Bank
Insurance Fund administered by the FDIC.
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 have 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 which have substantially greater financial
and
managerial resources. While the Banks are smaller financial institutions,
each
of the Banks' competitors include large bank holding companies having
substantially greater resources and offering certain services that Premier
Banks
may 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.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
Management
believes that each Bank is positioned to compete successfully in its respective
primary market area, although no assurances as to ongoing competitiveness
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.
Regulatory
Matters
The
following discussion sets forth certain elements of the regulatory framework
applicable to bank holding companies and their subsidiaries and provides
certain
specific information relevant to Premier. This regulatory framework is intended
primarily for the protection of depositors and the federal deposit insurance
funds and not for the protection of the holders of securities, including
Premier
common shares. To the extent that the following information describes statutory
or regulatory provisions, it is qualified in its entirety by reference to
those
provisions. A change in the statutes, regulations or regulatory policies
applicable to Premier or its subsidiaries may have a material effect on the
business of Premier.
General
- As
a bank holding company, Premier is subject to regulation under the Bank Holding
Company Act ("BHC Act"), and to inspection, examination and supervision by
the
Board of Governors of the Federal Reserve System ("Federal Reserve"). Under
the
BHC Act, bank holding companies generally may not acquire ownership or control
of more than 5% of the voting shares or substantially all the assets of any
company, including a bank, without the Federal Reserve's prior approval.
Similarly, bank holding companies generally may not acquire ownership or
control
of a savings association without the prior approval of the Federal Reserve.
Further, branching by the Affiliate Banks is subject to the jurisdiction,
and
requires the approval of each Affiliate Bank's primary federal banking regulator
and, if the Affiliate Bank is a state-chartered bank, the appropriate state
banking regulator.
Under
the BHC Act, the Federal Reserve has the authority to require a bank holding
company to terminate any activity or relinquish control of the nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a risk
to the
financial soundness and stability of any bank subsidiary of the bank holding
company. Premier and the Affiliate Banks are subject to the Federal Reserve
Act,
which limits borrowings by Premier and its nonbank subsidiaries from the
Affiliate Banks and also limits various other transactions between Premier
and
its nonbank subsidiaries with the Affiliate Banks.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
The
two Affiliate Banks chartered in Kentucky are supervised, regulated and examined
by the Kentucky Department of Financial Institutions, the Affiliate Bank
chartered in Ohio is supervised, regulated and examined by the Ohio Division
of
Financial Institutions, and the two Affiliate Banks chartered in West Virginia
are supervised, regulated and examined by the West Virginia Division of Banking.
In addition, those Affiliate Banks that are members of the Federal Reserve
System are supervised and regulated by the Federal Reserve, and those banks
that
are not members of the Federal Reserve System are supervised and regulated
by
the Federal Deposit Insurance Corporation ("FDIC"). Each banking regulator
has
the authority to issue cease-and-desist orders if it determines that the
activities of a bank regularly represent an unsafe and unsound banking practice
or a violation of law.
Both
federal and state law extensively regulates various aspects of the banking
business, such as reserve and capital requirements, truth-in-lending and
truth-in-savings disclosure, equal credit opportunity, fair credit reporting,
trading in securities and other aspects of banking operations. Premier, the
Affiliate Banks and Premier's nonbank subsidiary are also affected by the
fiscal
and monetary policies of the federal government and the Federal Reserve and
by
various other governmental laws, regulations and requirements. Further, the
earnings of Premier and Affiliate Banks are affected by general economic
conditions and prevailing interest rates. Legislation and administrative
actions
affecting the banking industry are frequently considered by the United States
Congress, state legislatures and various regulatory agencies. It is not possible
to predict with certainty whether such legislation or administrative actions
will be enacted or the extent to which the banking industry, in general,
or
Premier and the Affiliate Banks, in particular, would be affected.
Liability
for Bank Subsidiaries
-
The Federal Reserve has a policy to the effect that a bank holding company
is
expected to act as a source of financial and managerial strength to each
of its
subsidiary banks and to maintain resources adequate to support each such
subsidiary bank. This support may be required at times when Premier may not
have
the resources to provide it. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank would be assumed
by the bankruptcy trustee and entitled to priority of payment.
Any
depository institution insured by the FDIC may be held liable for any loss
incurred, or reasonably expected to be incurred, by the FDIC in connection
with
(i) the default of a commonly controlled FDIC-insured depository institution,
or
(ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured
depository institution in danger of default. "Default" is defined generally
as
the appointment of a conservator or receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating that
a
"default" is likely to occur in the absence of regulatory assistance. In
the
event that such a default occurred with respect to a bank, any loans to the
bank
from its parent holding company will be subordinate in right of payment of
the
bank's depositors and certain of its other obligations.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
Capital
Requirements
-
Premier is subject to capital ratios, requirements and guidelines imposed
by the
Federal Reserve, which are substantially similar to the ratios, requirements
and
guidelines imposed by the Federal Reserve and the FDIC on the Banks within
their
respective jurisdictions. These capital requirements establish higher capital
standards for banks and bank holding companies that assume greater credit
risks.
For this purpose, a bank's or holding company's assets and certain specified
off-balance sheet commitments are assigned to four risk categories, each
weighted differently based on the level of credit risk that is ascribed to
such
assets or commitments. A bank's or holding company's capital is divided into
two
tiers: "Tier I" capital and "Tier II" capital. "Tier I" capital includes
common
shareholders' equity, non-cumulative perpetual preferred stock, and related
surplus (excluding auction rate issues), minority interests in equity accounts
of consolidated subsidiaries and Trust Preferred Securities (subject to certain
limitations.) Goodwill, certain identifiable intangible assets and certain
other
assets are subtracted from these sources of capital to calculate Tier I capital.
"Tier 2" capital includes, among other items, perpetual preferred stock not
meeting the Tier I definition, mandatory convertible securities, subordinated
debt and allowances for loan and lease losses, subject to certain limitations,
less certain required deductions.
Bank
holding companies currently are required to maintain Tier I and total capital
(the sum of Tier 1 and Tier 2 capital) equal to at least 4% and 8% of total
risk-weighted assets, respectively. At December 31, 2006, Premier met both
requirements, with Tier I and total capital equal to 14.7% and 16.0% of its
total risk-weighted assets, respectively.
In
addition to the risk-based capital guidelines, the Federal Reserve requires
bank
holding companies to maintain a minimum "leverage ratio" (Tier I capital
to
adjusted total assets) of 3%, if the holding company has the highest regulatory
ratings for risk-based capital purposes. All other bank holding companies
are
required to maintain a leverage ratio of 3% plus at least 100 to 200 basis
points. At December 31, 2006, Premier's leverage ratio was 8.9%.
On
June 9, 1997, PFBI Capital Trust (Trust), a statutory business trust created
under Delaware law, issued $28,750,000 of 9.750% Preferred Securities
("Preferred Securities" or "Trust Preferred Securities") with a stated value
and
liquidation preference of $25 per share. Prior to their redemption in November
2006, a portion of the Preferred Securities issued by the Trust qualified
as
Tier 1 capital for the Company under the Federal Reserve Board's regulatory
framework. See Note 12 to the consolidated financial
statements for additional details regarding the Company's Trust Preferred
Securities.
The
foregoing capital requirements are minimum requirements. The Federal Reserve
may
set capital requirements higher than the minimums described above for holding
companies whose circumstances warrant it. For example, holding companies
experiencing or anticipating significant growth may be expected to maintain
capital ratios, including tangible capital positions, well above the minimum
levels.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
Additionally,
the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
among other things, identifies five capital categories for insured depository
institutions (well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized) and requires
the
respective federal regulatory agencies to implement systems for "prompt
corrective action" for insured depository institutions that do not meet minimum
capital requirements within such categories. FDICIA imposes progressively
more
restrictive constraints on operations, management and capital distributions,
depending on the category in which an institution is classified. Failure
to meet
the capital guidelines could also subject a banking institution to capital
raising requirements.
An
"undercapitalized" bank must develop a capital restoration plan and its parent
holding company must guarantee the bank's compliance with the plan. The
liability of the parent holding company under any such guarantee is limited
to
the lesser of 5% of the Bank's assets at the time it became "undercapitalized"
or the amount needed to comply with the plan. Furthermore, in the event of
the
bankruptcy of the parent holding company, such guarantee would take priority
over the parent's general unsecured creditors. In addition, FDICIA requires
the
various regulatory agencies to prescribe certain non-capital standards for
safety and executive compensation and permits regulatory action against a
financial institution that does not meet such standards.
Regulatory
Agreements
- On
September 29, 2000, the Company entered into an agreement with the Federal
Reserve Bank of Cleveland (FRB) that prohibited the Company from paying
dividends or incurring any additional debt without the prior written approval
of
the FRB. Additionally, the agreement required the Company to develop and
monitor
compliance with certain operational policies designed to strengthen Board
of
Director oversight including credit administration, liquidity, internal audit
and loan review.
On
January 29, 2003, the Company entered into a written agreement with the FRB
which superseded and rescinded a previous agreement between the Company and
the
Federal Reserve Bank. In, 2006, the Federal Reserve Bank determined that
Premier
had fully satisfied all of the provisions of the Written Agreement and,
accordingly, the FRB terminated the agreement effective April 18, 2006. Among
other provisions, the agreement required the Company to retain an independent
consultant to review its management, directorate and organizational structure,
adopt a management plan responsive to such consultant's report, update its
management succession plan in accordance with any recommendations in such
consultant's report, monitor its subsidiary banks' compliance with bank policies
and loan review programs, conduct formal quarterly reviews of its subsidiary
Banks' allowances for loan losses, maintain sufficient capital, submit a
plan to
the FRB for improving consolidated earnings over a three-year period, and
submit
to the FRB annual projections of planned sources and uses of the Company's
cash,
including a plan to service its outstanding debt and then outstanding trust
preferred securities. The Company’s compliance with the written agreement was
monitored by a committee consisting of three of its outside directors.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
As
previously disclosed in earlier reports, some of the subsidary Banks have,
in
the past, been subject to regulatory agreements. Before they were merged
together into one entity, two of the Company's subsidiaries, Citizens Deposit
Bank & Trust and the Bank of Germantown, entered into similar agreements
with their respective primary regulators which, among other things, prohibited
the payment of dividends without prior written approval and required significant
changes in their credit administration policies. The banks fully complied
with
the terms of the agreements in 2004 and the agreements were accordingly
rescinded by their regulators.
As
a
result of a 2003 investigation into the conduct of the former president of
Farmers Deposit Bank by Premier and the FDIC, Premier charged-off over $17.2
million of loans. The resulting depletion of the allowance for loan losses
together with the analysis of additional risk in the loan portfolio warranted
significant additional provisions for loan losses at the Bank. In addition
to
the provision for loan losses, interest income reversals and other non-interest
expenses, including bad check write-offs and loan review expenses, were
recorded. On December 24, 2003, Premier announced that Farmers Deposit Bank
had
reached an agreement with the FDIC and the Kentucky Department of Financial
Institutions ("KDFI") [collectively referred to as "Supervisory Authorities"]
to
consent to the issuance of a cease & desist order ("Order") from its
Supervisory Authorities. The Order also outlined a number of steps to be
taken
by Farmers Deposit which were designed to remedy and/or prevent the reoccurrence
of events that gave rise to the investigation during the latter half of 2003.
Having found that Farmers Deposit had fully complied with the Order, the
Supervisory Authorities rescinded the Order on December 13, 2005.
Dividend
Restrictions
-
Premier is dependent on dividends from its Affiliate Banks for its revenues.
Various federal and state regulatory provisions limit the amount of dividends
the Affiliate Banks can pay to Premier without regulatory approval. At December
31, 2006, approximately $3.2 million of the total shareholders' equity of
the
Affiliate Banks was available for payment of dividends to Premier without
approval by the applicable regulatory authority.
In
addition, federal bank regulatory authorities have authority to prohibit
Premier's Affiliate Banks from engaging in an unsafe or unsound practice
in
conducting their business. The payment of dividends, depending upon the
financial condition of the bank in question, could be deemed to constitute
such
an unsafe or unsound practice. The ability of the Affiliate Banks to pay
dividends in the future is presently, and could be further, influenced by
bank
regulatory policies and capital guidelines as well as each Affiliate Bank's
earnings and financial condition. Additional information regarding dividend
limitations can be found in Note 21 of the
accompanying audited consolidated financial statements.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
Interstate
Banking
-
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994
(the "Riegle-Neal Act"), subject to certain concentration limits, (i) bank
holding companies, such as Premier, are permitted to acquire banks and bank
holding companies located in any state of the United States, subject to certain
restrictions, and (ii) banks are permitted to acquire branch offices outside
their home state by merging with out-of-state banks, purchasing branches
in
other states or establishing de novo branch offices in other states; provided
that, in the case of any such purchase or opening of individual branches,
the
host state has adopted legislation "opting in" to the relevant provisions
of the
Riegle-Neal Act; and provided further, that, in the case of a merger with
a bank
located in another state, the host state has not adopted legislation "opting
out" of the relevant provisions of the Riegle-Neal Act.
Gramm-Leach-Bliley
Act
- On
November 12, 1999, the Gramm-Leach-Bliley Act (the "Act") was signed into
law,
eliminating many of the remaining barriers to full convergence of the banking,
securities, and insurance industries. The major provisions of the Act took
effect March 12, 2000.
The
Act enables a broad-scale consolidation among banks, securities firms, and
insurance companies by creating a new type of financial services company
called
a "financial holding company," a bank holding company with dramatically expanded
powers. Financial holding companies can offer virtually any type of financial
service, including banking, securities underwriting, insurance (both agency
and
underwriting), and merchant banking. In addition, the Act permits the Federal
Reserve and the Treasury Department to authorize additional activities for
financial holding companies, but only if they jointly determine that such
activities are "financial in nature" or "complementary to financial activities."
Premier does not presently qualify to elect financial holding company
status.
The
Federal Reserve serves as the primary "umbrella" regulator of financial holding
companies, with jurisdiction over the parent company and more limited oversight
over its subsidiaries. The primary regulator of each subsidiary of a financial
holding company depends on the activities conducted by the subsidiary. A
financial holding company need not obtain Federal Reserve approval prior
to
engaging, either de novo or through acquisitions, in financial activities
previously determined to be permissible by the Federal Reserve. Instead,
a
financial holding company need only provide notice to the Federal Reserve
within
30 days after commencing the new activity or consummating the
acquisition.
Number
of Employees
The
Company and its subsidiaries collectively had approximately 225 full-time
equivalent employees as of December 31, 2006. Its executive offices are located
at 2883 5th Avenue, Huntington, West Virginia 25702, telephone number (304)
525-1600 (facsimile number (304) 525-9701).
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
Like
all financial companies, the Company’s business and results of operations are
subject to a number of risks, many of which are outside of the Company’s
control. In addition to the other information in this report, readers should
carefully consider that the following important factors, among others, could
materially impact the Company’s business and future results of operations.
Changes
in Interest Rates Could Negatively Impact the Company’s Results of
Operations
The
earnings of the Company are primarily dependent on net interest income, which
is
the difference between interest earned on loans and investments, and interest
paid on interest-bearing liabilities such as deposits and borrowings. Interest
rates are highly sensitive to many factors, including government monetary
and
fiscal policies; domestic and international economic and political conditions;
and, in particular, changes in the discount rate by the Board of Governors
of
the Federal Reserve System. Conditions such as inflation, recession,
unemployment, money supply, government borrowing and other factors beyond
management’s control may also affect interest rates. If the Company’s
interest-earning assets mature, reprice or prepay more quickly than
interest-bearing liabilities in a given period, a decrease in market interest
rates could adversely affect net interest income. Likewise, if interest-bearing
liabilities mature or reprice, or, in the case of deposits, are withdrawn
by the
accountholder, more quickly than interest-earning assets in a given period,
an
increase in market interest rates could adversely affect net interest income.
Given the Company’s current mix of assets and liabilities, a declining interest
rate environment would negatively impact the Company’s results of operations.
Fixed
rate loans increase the Company’s exposure to interest rate risk in a rising
rate environment because interest-bearing liabilities would be subject to
repricing before assets become subject to repricing. Adjustable rate loans
decrease the risks to a lender associated with changes in interest rates
but
involve other risks. As interest rates rise, the periodic payment by the
borrower rises to the extent permitted by the terms of the loan, and the
increased periodic payment increases the potential for default. At the same
time, for secured loans, the marketability of the underlying collateral may
be
adversely affected by higher interest rates. In a declining interest rate
environment, there is likely to be an increase in prepayment activity on
loans
as the borrowers refinance their loans at lower interest rates. Under these
circumstances, the Company’s results of operations could be negatively impacted.
Changes
in interest rates also can affect the value of loans, investments and other
interest-rate sensitive assets and the Company’s ability to realize gains on the
sale or resolution of assets. This type of income can vary significantly
from
quarter-to-quarter and year-to-year based on a number of different factors,
including the interest rate environment. An increase in interest rates that
adversely affects the ability of borrowers to pay the principal or interest
on
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
loans
may lead to an increase in non-performing assets and increased loan loss
reserve
requirements that could have a material adverse effect on the Company’s results
of operations.
Regional
Economic Changes in the Company’s Markets Could Adversely Impact Results From
Operations
Like
all banks, the Company is subject to the effects of any economic downturn,
and
in particular a significant decline in home values or reduced commercial
development in the Company’s markets could have a negative effect on results of
operations. The Company’s success depends primarily on the general economic
conditions in the counties in which the Company conducts business, and in
the
West Virginia, southern Ohio and northern Kentucky areas in general. Unlike
larger banks that are more geographically diversified, the Company provides
banking and financial services to customers primarily in the West Virginia
counties of Barbour, Boone, Harrison, Lewis, Lincoln, Logan, Kanawha and
Upshur,
as well as the southern Ohio counties of Gallia, Lawrence and Scioto and
the
northern Kentucky counties of Bracken, Fleming, Greenup, Lewis, Mason, and
Robertson. The local economic conditions in these market areas have a
significant impact on the Company’s ability to originate loans, the ability of
the borrowers to repay these loans and the value of the collateral securing
these loans. A significant decline in the general economic conditions caused
by
inflation, recession, unemployment or other factors beyond the Company’s control
would affect these local economic conditions and could adversely affect the
Company’s financial condition and results of operations. Additionally, a
significant decline in home values would likely lead to increased delinquencies
and defaults in both the consumer home equity loan and residential real estate
loan portfolios and result in increased losses in these portfolios.
New
or Revised Tax, Accounting and Other Laws, Regulations, Rules and Standards
Could Significantly Impact Strategic Initiatives, Results of Operations and
Financial Condition
The
financial services industry is highly regulated and laws and regulations
may
sometimes impose significant limitations on operations. These limitations,
and
sources of potential liability for the violation of such laws and regulations,
are described in Item 1 of Part I of this report under the heading “Business —
Regulatory Matters.” These regulations, along with the currently existing tax
and accounting laws, regulations, rules and standards, control the methods
by
which financial institutions conduct business; implement strategic initiatives,
as well as past, present, and contemplated tax planning; and govern financial
disclosures. These laws, regulations, rules, and standards are constantly
evolving and may change significantly over time. The nature, extent, and
timing
of the adoption of significant new laws, changes in existing laws, or repeal
of
existing laws may have a material impact on the Company’s results of operations
and financial condition, the effects of which are impossible to predict at
this
time.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
The
Extended Disruption of Vital Infrastructure Could Negatively Impact the
Company’s Results of Operations and Financial Condition
The
Company’s operations depend upon, among other things, its technological and
physical infrastructure, including its equipment and facilities. While disaster
recovery procedures are in place, an extended disruption of its vital
infrastructure by fire, power loss, natural disaster, telecommunications
failure, computer hacking and viruses, terrorist activity or the domestic
and
foreign response to such activity, or other events outside of the Company’s
control, could have a material adverse impact either on the financial services
industry as a whole, or on the Company’s business, results of operations, and
financial condition.
Strong
Competition Within the Company’s Market Area May Limit
Profitability
The
Company faces significant competition both in attracting deposits and in
the
origination of loans, as described under the heading “Business — Competition.”
Mortgage bankers, commercial banks, credit unions and other savings
institutions, which have offices in the Bank’s market area have historically
provided most of the Company’s competition for deposits; however, the Company
also competes with financial institutions that operate through Internet banking
operations throughout the continental United States. In addition, and
particularly in times of high interest rates, the Company faces additional
and
significant competition for funds from money market and mutual funds, securities
firms, commercial banks, credit unions and other savings institutions located
in
the same communities and those that operate through Internet banking operations
throughout the continental United States. Many competitors have substantially
greater financial and other resources than the Company. Moreover, credit
unions
do not pay federal or state income taxes and are subject to fewer regulatory
constraints than community banks and as a result, they may enjoy a competitive
advantage over the Company. The Banks compete for loans principally on the
basis
of the interest rates and loan fees they charge, the types of loans they
originate and the quality of services they provide to borrowers. This advantage
places significant competitive pressure on the prices of loans and
deposits.
Loss
of Large Checking and Money Market Deposit Customers Could Increase Cost
of
Funds and Have a Negative Effect on Results of Operations
The
Company has a number of large deposit customers that maintain balances in
checking, money market and repurchase agreement accounts at the Affiliate
Banks.
The ability to attract these types of deposits has a positive effect on the
Company’s net interest margin as they provide a relatively low cost of funds to
the Company compared to certificates of deposits or advances. If these
depositors were to withdraw these funds and the Affiliate Banks were not
able to
replace them with similar types of deposits, the cost of funds would increase
and the Company’s results of operation would be negatively
impacted.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
Extensive
Regulation and Supervision
The
Company, primarily through its Affiliate Banks, is subject to extensive federal
and state regulation and supervision. Banking regulations are primarily intended
to protect depositors’ funds, federal deposit insurance funds and the banking
system as a whole, not shareholders. These regulations affect Premier’s lending
practices, capital structure, investment practices, dividend policy and growth,
among other things. The Company is also subject to a number of federal laws,
which, among other things, require it to lend to various sectors of the economy
and population, and establish and maintain comprehensive programs relating
to
anti-money laundering and customer identification. Congress and federal
regulatory agencies continually review banking laws, regulations and policies
for possible changes. Changes to statutes, regulations or regulatory policies,
including changes in interpretation or implementation of statutes, regulations
or policies, could affect Premier in substantial and unpredictable ways.
Such
changes could subject the Company to additional costs, limit the types of
financial services and products it may offer and/or increase the ability
of
non-banks to offer competing financial services and products, among other
things. Failure to comply with laws, regulations or policies could result
in
sanctions by regulatory agencies, civil money penalties and/or reputation
damage, along with corrective action plans required by regulatory agencies,
any
of which could have a material adverse effect on the Company’s business,
financial condition and results of operations. Premier and certain of its
Affiliate Banks have in the past been subject to such corrective action plans,
and therefore there may be some residual reputation damage within the regulatory
agencies. While Premier has policies and procedures designed to prevent any
such
violations, there can be no assurance that such violations will not occur.
See
the “Regulatory Matters” section in Item 1, “Business” and Note 3 to consolidated financial statements included
elsewhere in this report.
Dividend
payments by subsidiaries to Premier and by Premier to its shareholders can
be
restricted.
The
Company’s principal source of funds for dividend payments and its debt service
obligations 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 and additional restrictions as
discussed in Note 21 to the consolidated financial
statements. During 2007 the Banks could, without prior approval, declare
dividends of approximately $3.2 million plus any 2007 net profits retained
to
the date of the dividend declaration.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
Allowance
for Loan Losses May Be Insufficient
Premier,
through the Affiliate Banks, maintains an allowance for loan losses based
on,
among other things, national and regional economic conditions, historical
loss
experience, evaluations of potential losses on identified problem loans and
delinquency trends. Premier believes that its allowance for loan losses is
maintained at a level adequate to absorb any probable losses in its loan
portfolio given the current information known to Management. These
determinations are based upon estimates that are inherently subjective, and
their accuracy depends on the outcome of future events. Therefore, Premier
cannot predict loan losses with certainty and ultimate losses may differ
from
current estimates. Depending on changes in economic, operating and other
conditions, including changes in interest rates, which are generally beyond
its
control, Premier’s actual losses could exceed its current allowance estimates.
Premier can provide no assurance that its allowance is sufficient to cover
all
charge-offs in future periods. If charge-offs exceed Premier’s allowance, its
earnings would decrease. In addition, regulatory agencies review Premier’s
allowance for loan losses and may require additions to the allowance based
upon
their judgment about information available to them at the time of their
examination. A required increase in Premier’s allowance for loan losses could
reduce its earnings.
Claims
and Litigation Pertaining to Fiduciary Responsibility
From
time to time, customers make claims and take legal action pertaining to the
Company’s and Affiliate Banks’ performance of their fiduciary responsibilities.
If such claims and legal actions are not resolved in a manner favorable to
the
Banks they may result in financial liability and/or adversely affect the
market
perception of the Banks and their products and services as well as impact
customer demand for those products and services. Any financial liability
or
reputation damage could have a material adverse effect on the Company’s
business, which, in turn, could have a material adverse effect on its financial
condition and results of operations
Inability
to Hire and Retain Qualified Employees
The
Company’s performance is largely dependent on the talents and efforts of highly
skilled individuals and their ability to attract and retain customer
relationships in a community bank environment. There is intense competition
in
the financial services industry for qualified employees. In addition, the
Company faces increasing competition with businesses outside the financial
services industry for the most highly skilled individuals. The Company’s
business could be adversely affected if it were unable to retain and motivate
its existing key employees and management team. Furthermore, the Company’s
success may be impacted if it were unable to recruit replacement management
and
key employees in a reasonable amount of time.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
None.
The
Company leases its principal executive offices located in Huntington, West
Virginia. The Company also owns property located at 104 Jefferson Street,
Brooksville, Kentucky, which serves as a branch for Citizen's Deposit Bank.
Except as noted, each of the Banks owns the real property and improvements
on
which their banking activities are conducted.
Citizens
Deposit Bank & Trust, in addition to its main office at 400 Second Street in
Vanceburg, Kentucky, has four branch offices in Lewis County, Kentucky,
(including one leased facility), one leased branch office in Mason County,
Kentucky, one branch located on Highway 10 in Germantown, Kentucky, and one
branch located in Bracken County, Kentucky. Farmers Deposit Bank, in addition
to
its main office at 5230 South Main Street in Eminence, Kentucky, has two
branches in Henry County, Kentucky. Ohio River Bank, in addition to its main
office at 221 Railroad Street in Ironton, Ohio, has two branches, one leased
facility in Lawrence County, Ohio and one in Scioto County, Ohio. First Central
Bank, in addition to its main office at 2 South Main Street in Philippi,
West
Virginia, has a branch located in Buckhannon, West Virginia. Boone County
Bank,
in addition to its main office at 300 State Street, Madison, West Virginia,
has
one leased branch located in Lincoln County, West Virginia and two other
branches, one each located in Boone and Logan Counties, West
Virginia.
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.
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.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
PART
II
The
Company's common stock is listed on the NASDAQ Global Market System under
the
symbol PFBI. At December 31, 2006, the Company had approximately 623 record
holders of its common shares.
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
|
Sales
Price
|
|||||||||
|
Dividends
Paid
|
High
|
Low
|
||||||||
|
2005
|
||||||||||
|
First
Quarter
|
$
|
-
|
$
|
12.75
|
$
|
10.78
|
||||
|
Second
Quarter
|
-
|
13.00
|
10.00
|
|||||||
|
Third
Quarter
|
-
|
14.93
|
11.90
|
|||||||
|
Fourth
Quarter
|
-
|
15.98
|
12.66
|
|||||||
|
2006
|
||||||||||
|
First
Quarter
|
$
|
-
|
$
|
16.44
|
$
|
14.01
|
||||
|
Second
Quarter
|
-
|
16.50
|
13.25
|
|||||||
|
Third
Quarter
|
0.05
|
15.40
|
13.90
|
|||||||
|
Fourth
Quarter
|
0.05
|
14.90
|
13.40
|
|||||||
|
0.10
|
||||||||||
|
2007
|
||||||||||
|
First
Quarter (through March 15, 2007)
|
$
|
0.10
|
$
|
16.47
|
$
|
13.36
|
||||
The
payment of dividends by the Company depends 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 December 31, 2006
approximately $3.2 million was available for payment as dividends from the
Banks
to the Company without the need for regulatory approval. 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. See "REGULATORY MATTERS - Capital Requirements" for discussion on
capital
guidelines.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
Stock
Performance Graph
The
following Stock Performance Graph and related information shall not be deemed
“soliciting material” or to be “filed” with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into
any
future filing under the Securities Act of 1933 or Securities Exchange Act
of
1934, each as amended, except to the extent that Premier specifically
incorporates it by reference into such filing.
The
following graph shows a comparison of cumulative total stockholder return
on the
Common Stock since December 31, 2001 with the cumulative total returns of
both a
broad equity market index and a published industry index. The broad equity
market index chosen was the Russell 3000 and the published industry index
chosen
was the SNL ($500M-$1B) Bank Asset-Size Index. The graph reflects historical
performance only, which is not indicative of possible future performance
of the
Common Stock.
|
|
Period
Ending
|
|
|||||||||||||||||
|
Index
|
|
|
12/31/01
|
|
|
12/31/02
|
|
|
12/31/03
|
|
|
12/31/04
|
|
|
12/31/05
|
|
|
12/31/06
|
|
|
Premier
Financial Bancorp, Inc.
|
|
|
100.00
|
|
|
92.77
|
|
|
102.29
|
|
|
148.80
|
|
|
192.53
|
|
|
170.70
|
|
|
Russell
3000
|
|
|
100.00
|
|
|
78.46
|
|
|
102.83
|
|
|
115.11
|
|
|
122.16
|
|
|
141.35
|
|
|
SNL
$500M-$1B Bank Index
|
|
|
100.00
|
|
|
127.67
|
|
|
184.09
|
|
|
208.62
|
|
|
217.57
|
|
|
247.44
|
|
|
*Source:
SNL Financial LC, Charlottesville, VA
|
|||||||||||||||||||
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
Equity
Compensation Plan Information
The
following table gives information about the Company’s common stock that may be
issued upon the exercise of options, warrants and rights under its two equity
compensation plans, the 1996 Stock Option Plan and the 2002 Stock Option
Plan,
as of December 31, 2006.
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
(a)
|
Weighted-average
exercise price of outstanding options, warrants and rights
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans (Excluding securities reflected in column
(a))
(c)
|
||||||
|
Equity
compensation plans approved by shareholders
|
|||||||||
|
1996
Stock Option Plan
|
11,000
|
$
|
16.50
|
0
|
|||||
|
2002
Stock Option
Plan
|
109,248
|
11.82
|
386,083
|
||||||
|
Equity
compensation plans not approved by shareholders
|
|||||||||
|
None
|
|||||||||
|
Total
|
120,248
|
$
|
12.25
|
386,083
|
|||||
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
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 annual report. The data presented below reflects
separately the impact of discontinued operations as more fully described
in Note 2 to the consolidated financial
statements.
|
(Dollars
in thousands, except per share amounts)
|
At
or for the Year Ended December 31
|
|||||||||||||||
|
2006
|
2005
|
2004
|
2003(4)
|
2002
|
||||||||||||
|
Earnings
|
||||||||||||||||
|
Net
interest income
|
$
|
21,395
|
$
|
19,852
|
$
|
18,064
|
$
|
19,182
|
$
|
20,838
|
||||||
|
Provision
for loan losses
|
(1,161
|
)
|
4
|
1,026
|
20,513
|
9,453
|
||||||||||
|
Non-interest
income
|
4,165
|
3,920
|
3,606
|
4,064
|
2,717
|
|||||||||||
|
Non-interest
expense
|
16,937
|
17,305
|
17,782
|
17,632
|
17,831
|
|||||||||||
|
Income
taxes (benefit)
|
3,283
|
2,029
|
899
|
(5,282
|
)
|
(1,522
|
)
|
|||||||||
|
Income
(loss) from continuing
operations
|
6,501
|
4,434
|
1,963
|
(9,617
|
)
|
(2,207
|
)
|
|||||||||
|
Income
(loss) from discontinued
operations
|
-
|
-
|
4,734
|
(80
|
)
|
(1,130
|
)
|
|||||||||
|
Net
income (loss)
|
$
|
6,501
|
$
|
4,434
|
$
|
6,697
|
$
|
(9,697
|
)
|
$
|
(3,337
|
)
|
||||
|
Financial
Position
|
||||||||||||||||
|
Total
assets of continuing operations
|
$
|
535,452
|
$
|
528,324
|
$
|
537,255
|
$
|
543,229
|
$
|
590,868
|
||||||
|
Total
assets of discontinued operations
|
-
|
-
|
-
|
79,163
|
84,406
|
|||||||||||
|
Loans,
net of unearned income
|
343,797
|
328,717
|
324,937
|
331,794
|
373,099
|
|||||||||||
|
Allowance
for loan losses
|
6,661
|
7,892
|
9,384
|
14,300
|
9,698
|
|||||||||||
|
Goodwill
and other intangibles
|
15,816
|
15,816
|
15,816
|
15,816
|
15,816
|
|||||||||||
|
Securities
|
121,367
|
137,419
|
153,892
|
147,646
|
144,698
|
|||||||||||
|
Deposits
|
438,950
|
435,843
|
437,798
|
455,474
|
477,724
|
|||||||||||
|
Other
borrowings
|
33,091
|
19,053
|
20,536
|
18,307
|
32,600
|
|||||||||||
|
Subordinated
debentures
|
-
|
15,722
|
20,876
|
26,546
|
29,639
|
|||||||||||
|
Stockholders’
equity
|
61,002
|
54,287
|
51,029
|
45,540
|
56,124
|
|||||||||||
|
Share
Data
|
||||||||||||||||
|
Income
(loss) from continuing operations
- basic
|
$
|
1.24
|
$
|
0.85
|
$
|
0.37
|
$
|
(1.84
|
)
|
$
|
(0.42
|
)
|
||||
|
Income
(loss) from continuing operations
- diluted
|
1.24
|
0.84
|
0.37
|
(1.84
|
)
|
(0.42
|
)
|
|||||||||
|
Net
income - basic
|
1.24
|
0.85
|
1.28
|
(1.85
|
)
|
(0.64
|
)
|
|||||||||
|
Net
income - diluted
|
1.24
|
0.84
|
1.28
|
(1.85
|
)
|
(0.64
|
)
|
|||||||||
|
Book
value
|
11.65
|
10.37
|
9.75
|
8.70
|
10.73
|
|||||||||||
|
Cash
dividends
|
0.10
|
0.00
|
0.00
|
0.00
|
0.00
|
|||||||||||
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
Item
6. Selected Financial Data (continued)
|
(Dollars
in thousands, except per share amounts)
|
At
or for the Year Ended December 31
|
|||||||||||||||
|
2006
|
2005
|
2004
|
2003(4)
|
2002
|
||||||||||||
|
Return
on average assets (1), (2)
|
1.21
|
%
|
0.82
|
%
|
0.36
|
%
|
(1.66
|
)%
|
(0.37
|
)%
|
||||||
|
Return
on average equity (2)
|
11.31
|
%
|
8.42
|
%
|
4.06
|
%
|
(18.46
|
)%
|
(3.77
|
)%
|
||||||
|
Dividend
payout (2)
|
8.06
|
%
|
0.00
|
%
|
0.00
|
%
|
0.00
|
%
|
0.00
|
%
|
||||||
|
Stockholders’
equity to total assets
at period-end (3)
|
11.39
|
%
|
10.28
|
%
|
9.50
|
%
|
8.38
|
%
|
9.50
|
%
|
||||||
|
Average
stockholders’ equity
to
average total assets (1)
|
10.74
|
%
|
9.77
|
%
|
8.23
|
%
|
7.88
|
%
|
8.44
|
%
|
||||||
|
(1)
Computed based on average assets from continuing operations
(2)
Computed based on income (loss) from continuing operations
(3)
Shareholders’ equity at period-end divided by assets from continuing
operations
|
||||||||||||||||
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
of
Operations.
INTRODUCTION
Premier
Financial Bancorp, Inc. ("Premier") is a multi-bank holding company
headquartered in Huntington, West Virginia. It operates five community bank
subsidiaries ranging in size from $77 million to $151 million, each with
a local
community name and orientation. On July 1, 2004, Premier sold one bank
subsidiary, Citizens Bank (Kentucky), Inc. ("Citizens Bank"). As such, and
in
accordance with Financial Accounting Standard 144, "Accounting for the
Impairment or Disposal of Long-lived Assets", the financial position and
results
of operations of Citizens Bank are removed from the detail line items in
the
Company's consolidated financial statements and this Management's Discussion
and
Analysis, and are presented separately as "discontinued operations." Premier
realized a net profit on the sale of Citizens Bank of $4.7 million which
is
included in the income from discontinued operations. See Note
2 to the consolidated financial statements presented separately in this
annual report for additional information concerning discontinued operations.
The
remaining banks operate in twenty communities within the states of West
Virginia, Ohio and Kentucky and provide their customers with a full range
of
banking services. On January 3, 2005, Premier merged two of its banks, Citizen's
Deposit Bank and Bank of Germantown. On June 27, 2006, Premier merged its
inactive data processing subsidiary into the parent company. Prior to Premier’s
conversion to an outsourced data services provider in the second quarter
of
2005, the data processing subsidiary provided the data processing and management
services for four of Premier's affiliate banks and one other non-affiliated
bank. As of December 31, 2006, Premier had approximately $535 million in
total
assets, $344 million in total loans, $439 million in total deposits and $13
million in customer repurchase agreements.
The
accompanying consolidated financial statements have been prepared by the
management of Premier in conformity with accounting principles generally
accepted in the United States of America. The audit committee of the Board
of
Directors engaged Crowe Chizek and Company LLC (Crowe) as independent auditors
to audit the consolidated financial statements, and their report is included
elsewhere herein. Financial information appearing throughout this annual
report
is consistent with that reported in the consolidated financial statements.
The
following discussion is designed to assist readers of the consolidated financial
statements in understanding significant changes in Premier's financial condition
and results of operations.
Management's
objective of a fair presentation of financial information is achieved through
a
system of internal accounting controls. The financial control system of Premier
is designed to provide reasonable assurance that assets are safeguarded from
loss and that transactions are properly authorized and recorded in the financial
records. As an integral part of that financial control system, the audit
committee of the Board of Directors engaged an audit
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
firm
other than Crowe to perform internal audits of the financial records of each
of
the subsidiaries on a periodic basis in 2004. Their findings and recommendations
were reported to Premier’s audit committee as well as the audit committees of
the subsidiaries. In 2005, Premier reduced its reliance on third-party internal
audit and loan review providers and expanded its internal audit staff at
the
holding company level. Likewise, their findings and recommendations are reported
to Premier's audit committee as well as the audit committees of the
subsidiaries. Also, on a regular periodic basis, the subsidiary banks are
examined by Federal and State banking authorities for safety and soundness
as
well as compliance with applicable banking laws and regulations. The activities
of both the internal and external audit functions are reviewed by the audit
committee of the Board of Directors.
FORWARD-LOOKING
STATEMENTS
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, collect delinquent loans and attract and retain
deposits, the impact of Premier's growth or lack thereof, 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. The words “may,”
“could,” “should,” “would,” “will,” “believe,” “anticipate,” “estimate,”
“expect,” “intend,” “plan,” “project,” “predict,” “continue” and similar
expressions are intended to identify forward-looking statements.
CRITICAL
ACCOUNTING POLICIES
General
The
financial
condition and results of operations presented in the Consolidated Financial Statements, accompanying
Notes to the Consolidated
Financial Statements and
management's discussion and analysis are, to a large degree, dependent upon
our
accounting policies. The selection and application of these accounting policies
involve judgments, estimates, and uncertainties that are susceptible to
change.
Presented
below is a discussion of those accounting policies that management believes
are
the most important to the presentation and understanding of our financial
condition and results of operations. These critical accounting policies require
management's most difficult, subjective and complex judgments about matters
that
are inherently uncertain. In the event that
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
different
assumptions or conditions were to prevail, and depending upon the severity
of
such changes, the possibility of materially different financial condition
or
results of operations is a reasonable likelihood. See also Note 1 of the accompanying consolidated financial statements
presented elsewhere in this annual report.
Allowance
for Loan Losses
The
Company
monitors and maintains an allowance for loan losses to absorb an estimate
of
probable incurred losses inherent in the loan portfolio. The Company maintains
policies and procedures that address the systems of control over the following
areas of maintenance of the allowance: the systematic methodology used to
determine the appropriate level of the allowance to provide assurance that
the
allowance for loan losses is maintained in accordance with accounting principles
generally accepted in the United States of America; the accounting policies
for
loan charge-offs and recoveries; the assessment and measurement of impairment
in
the loan portfolio; and the loan grading system.
The
Company evaluates various loans individually for impairment as required by
Statement of Financial Accounting Standard (SFAS) No. 114, Accounting by
Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures. Loans evaluated
individually for impairment include non-performing loans, such as loans on
non-accrual, loans past due 90 days or more, restructured loans and other
loans
selected by management including loans graded as substandard or doubtful
by the
internal credit review process. The evaluations are based upon discounted
expected cash flows or collateral valuations. If the evaluation shows that
a
loan is individually impaired, then a specific reserve is established for
the
amount of impairment. If a loan evaluated individually is not impaired, then
the
loan is assessed for impairment under SFAS No. 5, Accounting for Contingencies
(SFAS 5), with a group of loans that have similar characteristics.
For
loans without individual measures of impairment, the Company makes estimates
of
losses for groups of loans as required by SFAS 5. Loans are grouped by similar
characteristics, including the type of loan, the assigned loan grade and
the
general collateral type. A loss rate reflecting the expected loss inherent
in a
group of loans is derived based upon estimates of default rates for a given
loan
grade, the predominant collateral type for the group and the terms of the
loan.
The resulting estimate of losses for groups of loans is adjusted for relevant
environmental factors and other conditions of the portfolio of loans, including:
borrower and industry concentrations; levels and trends in delinquencies,
charge-offs and recoveries; changes in underwriting standards and risk
selection; level of experience, ability and depth of lending management;
and
national and local economic conditions.
The
amount of estimated impairment for individually evaluated loans and groups
of
loans is added together for a total estimate of probable incurred loan losses.
This estimate of
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
losses
is compared to the allowance for loan losses of the Company as of the evaluation
date and, if the estimate of losses exceeds the allowance, an additional
provision to the allowance would be made. If the estimate of losses is less
than
the allowance, the degree to which the allowance exceeds the estimate is
evaluated to determine whether the allowance falls outside a range of estimates.
If the estimate of losses were below the range of reasonable estimates, the
allowance would be reduced by way of a credit to the provision for loan losses.
The Company recognizes the inherent imprecision in estimates of losses due
to
various uncertainties and variability related to the factors used, and therefore
a reasonable range around the estimate of losses is derived and used to
ascertain whether the allowance is too high. If different assumptions or
conditions were to prevail and it is determined that the allowance is not
adequate to absorb the new estimate of probable incurred losses, an additional
provision for loan losses would be made, which amount may be material to
the
Consolidated Financial Statements.
Impairment
of Goodwill
As
required
by applicable accounting guidance, goodwill is evaluated at least annually
to
determine if the amount recorded on the Company's balance sheet is impaired.
If
goodwill is determined to be impaired, the recorded amount would be reduced
to
estimated fair value by a charge to expense in the period in which impairment
is
determined. Impairment is evaluated in the aggregate for all of the Company's
banking operations. Operating characteristics of the aggregate banking
operations are derived and compared to a database of peer group banks that
have
been sold. Pricing valuation factors that are considered in estimating the
fair
value of the Company's aggregate banking operations include price-to-total
assets, price-to-total book value, price-to-deposits and price-to-earnings.
Unusual events that have impacted the operating characteristics of the Company's
aggregate banking operations are considered to assess the likelihood of
recurrence and adjustments to historical performance may be made. Changes
in
assumptions regarding the likelihood of unusual historical events recurring
or
the use of different pricing valuation factors could have a material impact
on
management's impairment analysis.
Realization
of Deferred Tax Assets
Deferred
tax assets and liabilities are the expected future tax amounts for the temporary
differences between carrying amounts and tax bases of assets and liabilities,
computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized. Deferred tax assets
for the Company primarily relate to the allowance for loan losses, and
unrealized losses in the investment portfolio. In considering the need for
a
valuation allowance to reduce deferred tax assets to the amount expected
to be
realized, management considers the amount of previously paid taxes that may
be
recoverable and the likelihood of generating sufficient future taxable income
to
fully utilize expected future tax deductions. Changes in these assumptions
could
impact the carrying value of deferred tax assets and require a charge to
tax
expense.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
SUMMARY
FINANCIAL RESULTS
Premier
had net income from continuing operations of $6.501 million in 2006 compared
to
a $4.434 million of net income from continuing operations reported for the
year
2005. Net income increased in 2006 as a result of an increase in interest
income
due to a greater volume of loans outstanding; higher yields on all earning
assets; a negative provision for loan losses; and a reduction in the net
operating costs of the company. Net income from continuing operations in
2004
was $1.963 million. The increase in 2005 over 2004 was the result of an increase
in interest income due to higher yields on earning assets; a decrease in
interest expense due to the early retirement of Trust Preferred Securities;
a
significant decrease in the provision for loan losses; and a reduction in
the
net operating costs of the company. Net income in 2004 was primarily the
result
of the continued earnings of Premier's profitable banks partially offset
by
expenses associated with rehabilitating its subsidiary, Farmers Deposit Bank,
conducting Premier's own investigation, cooperating with the SEC investigation,
and reducing debt at the holding company. Basic earnings per share from
continuing operations were $1.24 in 2006 compared to $0.85 in 2005 and to
$0.37
in 2004.
The
following
table comparatively illustrates the components of ROA and ROE over the previous
five years. Return on average assets (ROA) measures how effectively Premier
utilizes its assets to produce net income. Premier's net income in 2006 resulted
in an ROA of 1.21%, an increase over the 0.82% ROA in 2005 and the 0.36%
ROA
reported in 2004. As shown in the table, fully taxable equivalent net interest
income (as a percent of average earning assets) again reached its highest
level
in five years in 2006 at 4.32%. The previous five year high was earned in
2005
at 4.00%. The net losses in 2003 and 2002 were primarily the result of an
increase in the provision for loan losses, resulting in a significantly reduced
net credit income in 2002 and negative net credit income in 2003. In 2004,
net
credit income was once again positive and continued to increase in both 2005
and
again in 2006. In 2005, minimal provisions for loan losses were recorded
and
thus there was little reduction from net interest income. In 2006, negative
provisions for loan losses were recorded which served to increase net credit
income to 4.56%. This increase in net credit income (as a percent of average
earning assets) was complemented by the highest level of non-interest income
(as
a percent of average earning assets) over the past five years and a reduction
in
non-interest expenses (as a percent of average earning assets) when compared
to
the previous two years. As illustrated in the table, Premier's 2006 fully
taxable net interest income as a percent of average earning assets was up
to
4.32% from the 4.00% recorded in 2005 as the yield on loans and investments
increased in 2006 at a faster rate than the rates paid on interest bearing
liabilities. The curtailment of interest expense growth was partially due
to the
early extinguishment of Premier’s junior subordinated debentures and other
borrowed funds late in 2004 and throughout 2005 and 2006.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
|
ANALYSIS
of RETURN ON ASSETS and EQUITY
|
||||||||||||||||
|
from
continuing operations
|
||||||||||||||||
|
2006
|
2005
|
2004
|
2003(1)
|
2002
|
||||||||||||
|
As
a percent of average earning assets
|
||||||||||||||||
|
Fully
taxable-equivalent net interest income
|
4.32
|
%
|
4.00
|
%
|
3.61
|
%
|
3.63
|
%
|
3.84
|
%
|
||||||
|
Provision
for loan losses
|
0.23
|
(0.00
|
)
|
(0.20
|
)
|
(3.81
|
)
|
(1.70
|
)
|
|||||||
|
Net
credit income
|
4.55
|
4.00
|
3.41
|
(0.18
|
)
|
2.14
|
||||||||||
|
Gains
on the sales of assets & subsidiaries
|
0.00
|
0.00
|
0.02
|
0.11
|
(0.01
|
)
|
||||||||||
|
Non-interest
income
|
0.84
|
0.78
|
0.69
|
0.62
|
0.50
|
|||||||||||
|
Non-interest
expense
|
(3.40
|
)
|
(3.46
|
)
|
(3.52
|
)
|
(3.26
|
)
|
(3.21
|
)
|
||||||
|
Tax
equivalent adjustment
|
(0.03
|
)
|
(0.03
|
)
|
(0.03
|
)
|
(0.07
|
)
|
(0.08
|
)
|
||||||
|
Applicable
income taxes
|
(0.66
|
)
|
(0.41
|
)
|
(0.18
|
)
|
0.98
|
0.27
|
||||||||
|
Return
on average earning assets
|
1.30
|
0.88
|
0.39
|
(1.79
|
)
|
(0.40
|
)
|
|||||||||
|
Multiplied
by average earning assets to
average
total assets
|
93.07
|
92.84
|
92.39
|
92.86
|
92.34
|
|||||||||||
|
Return
on average assets
|
1.21
|
%
|
0.82
|
%
|
0.36
|
%
|
(1.66
|
)%
|
(0.37
|
)%
|
||||||
|
Multiplied
by average assets to
average
equity
|
9.31X
|
10.23X
|
11.33X
|
11.13X
|
10.26X
|
|||||||||||
|
Return
on average equity
|
11.31
|
%
|
8.42
|
%
|
4.06
|
%
|
(18.46
|
)%
|
(3.77
|
)%
|
||||||
The
net
overhead ratio (non-interest expense less non-interest income as a percent
of
average earning assets) decreased in 2006 to 2.56%, the lowest ratio reported
in
the last five years. This ratio compares to 2.68% in 2005, 2.83% in 2004
and
2.64% in 2003. The decrease in 2006 net overhead was the result of increases
in
Premier’s non-interest income related to service charges on deposit accounts,
electronic banking income and secondary market mortgage commissions, plus
decreases in non-interest expenses related to occupancy and equipment costs,
net
OREO expenses, recoveries of bad check losses, and conversion costs incurred
in
2005. The decrease in 2005 net overhead was similarly the result of increases
in
Premier’s non-interest income related to service charges on deposit accounts,
electronic banking income and secondary market mortgage commissions plus
a
significant decrease in professional fee expense.
Return
on average equity (ROE), another measure of earnings performance, indicates
the
amount of net income earned in relation to the total equity invested. Premier's
2006 ROE was 11.31% compared to 8.42% in 2005 and 4.06% realized in 2004.
ROE
increased primarily due to the increase in net income reported in 2006 versus
2005 and 2004.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
A
breakdown of Premier's financial results by quarter for the years ended December
31, 2006 and 2005 is summarized below.
|
QUARTERLY
FINANCIAL INFORMATION
|
||||||||||||||||
|
(Dollars
in thousands, except per share amounts)
|
||||||||||||||||
|
First
|
Second
|
Third
|
Fourth
|
Full
Year
|
||||||||||||
|
2006
|
||||||||||||||||
|
Interest
income
|
$
|
7,676
|
$
|
8,014
|
$
|
8,248
|
$
|
8,462
|
$
|
32,400
|
||||||
|
Interest
expense
|
2,472
|
2,654
|
2,871
|
3,008
|
11,005
|
|||||||||||
|
Net
interest income
|
5,204
|
5,360
|
5,377
|
5,454
|
21,395
|
|||||||||||
|
Provision
for loan losses
|
(194
|
)
|
(819
|
)
|
(38
|
)
|
(110
|
)
|
(1,161
|
)
|
||||||
|
Securities
gains
|
0
|
0
|
0
|
0
|
0
|
|||||||||||
|
Net
overhead
|
3,348
|
3,161
|
3,196
|
3,067
|
12,772
|
|||||||||||
|
Income
before income taxes
|
2,050
|
3,018
|
2,219
|
2,497
|
9,784
|
|||||||||||
|
Net
income
|
1,367
|
2,000
|
1,475
|
1,659
|
6,501
|
|||||||||||
|
Basic
net income per share
|
0.26
|
0.38
|
0.28
|
0.32
|
1.24
|
|||||||||||
|
Diluted
net income per share
|
0.26
|
0.38
|
0.28
|
0.32
|
1.24
|
|||||||||||
|
Dividends
paid per share
|
0.00
|
0.00
|
0.05
|
0.05
|
0.10
|
|||||||||||
|
2005
|
||||||||||||||||
|
Interest
income
|
$
|
7,045
|
$
|
7,172
|
$
|
7,465
|
$
|
7,717
|
$
|
29,399
|
||||||
|
Interest
expense
|
2,318
|
2,279
|
2,410
|
2,540
|
9,547
|
|||||||||||
|
Net
interest income
|
4,727
|
4,893
|
5,055
|
5,177
|
19,852
|
|||||||||||
|
Provision
for loan losses
|
243
|
191
|
(140
|
)
|
(290
|
)
|
4
|
|||||||||
|
Securities
gains
|
0
|
0
|
0
|
0
|
0
|
|||||||||||
|
Net
overhead
|
3,327
|
3,660
|
3,189
|
3,209
|
13,385
|
|||||||||||
|
Income
before income taxes
|
1,157
|
1,042
|
2,006
|
2,258
|
6,463
|
|||||||||||
|
Net
income
|
803
|
727
|
1,367
|
1,537
|
4,434
|
|||||||||||
|
Basic
net income per share
|
0.15
|
0.14
|
0.26
|
0.29
|
0.85
|
|||||||||||
|
Diluted
net income per share
|
0.15
|
0.14
|
0.26
|
0.29
|
0.84
|
|||||||||||
|
Dividends
paid per share
|
0.00
|
0.00
|
0.00
|
0.00
|
0.00
|
|||||||||||
SALE
OF SUBSIDIARIES
In
the fourth quarter of 2003, Premier adopted and began to implement a plan
to
sell its subsidiary Citizens Bank (Kentucky), Inc. ("Citizens Bank") located
in
Georgetown, Kentucky. On February 13, 2004, the Company announced that it
had
signed a definitive agreement to sell Citizens Bank in a cash transaction
valued
at approximately $14,500,000, which was completed on July 1, 2004. The sale
of
this subsidiary helped to restore the financial position of Premier after
the
impact of the losses sustained at Farmers Deposit Bank during the second
and
third quarters of 2003. As a result of the sale, regulatory capital ratios
of
Premier were restored to the stronger levels management wishes to maintain;
cash
reserves of the holding company were replenished; a portion of the cash reserves
were used to reduce outstanding debt by $9.4 million; and the profit from
the
sale allowed Premier to utilize a substantial portion of its Federal income
tax
net operating loss carryforward.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
BALANCE
SHEET ANALYSIS
Summary
A
financial institution's primary sources of revenue are generated by its earning
assets, while its major expenses are produced by the funding of these assets
with interest bearing liabilities. Effective management of these sources
and
uses of funds is essential in attaining a financial institution's optimal
profitability while maintaining a minimum amount of interest rate risk and
credit risk. Information on rate-related sources and uses of funds for each
of
the three years in the period ended December 31, 2006, is provided in the
table
below.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
|
AVERAGE
CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME
ANALYSIS
|
||||||||||||||||||||||||||||
|
(Dollars
in thousands)
|
||||||||||||||||||||||||||||
|
2006
|
2005
|
2004
|
||||||||||||||||||||||||||
|
Average
Balance
|
Interest
(2)
|
Yield/
Rate
(3)
|
Average
Balance
|
Interest
(2)
|
Yield/
Rate
(3)
|
Average
Balance
|
Interest
(2)
|
Yield/
Rate
(3)
|
||||||||||||||||||||
|
Assets:
|
||||||||||||||||||||||||||||
|
Interest
earning assets
|
||||||||||||||||||||||||||||
|
U.S.
Treasury and federal agency
securities
|
$
|
95,705
|
$
|
3,398
|
3.55
|
%
|
$
|
107,177
|
$
|
3,278
|
3.06
|
%
|
$
|
112,260
|
$
|
3,117
|
2.78
|
%
|
||||||||||
|
States
and municipal obligations
(1)
|
2,342
|
138
|
5.89
|
2,666
|
153
|
5.74
|
4,941
|
338
|
6.84
|
|||||||||||||||||||
|
Mortgage
backed securities
|
33,953
|
1,564
|
4.61
|
37,050
|
1,583
|
4.27
|
29,803
|
1,183
|
3.97
|
|||||||||||||||||||
|
Other
securities
|
3,179
|
182
|
5.73
|
3,089
|
148
|
4.79
|
3,216
|
138
|
4.29
|
|||||||||||||||||||
|
Total
investment securities
|
135,179
|
5,282
|
3.91
|
149,982
|
5,162
|
3.44
|
150,220
|
4,776
|
3.18
|
|||||||||||||||||||
|
Federal
funds sold
|
24,365
|
1,215
|
4.99
|
23,083
|
745
|
3.23
|
29,369
|
380
|
1.29
|
|||||||||||||||||||
|
Interest-bearing
deposits with
banks
|
486
|
24
|
4.94
|
436
|
12
|
2.75
|
256
|
6
|
2.57
|
|||||||||||||||||||
|
Loans,
net of unearned income
(4)(5)
|
||||||||||||||||||||||||||||
|
Commercial
|
161,898
|
12,424
|
7.67
|
147,398
|
10,291
|
6.98
|
132,785
|
8,913
|
6.71
|
|||||||||||||||||||
|
Real
estate mortgage
|
129,944
|
9,271
|
7.13
|
132,527
|
9,236
|
6.97
|
145,387
|
10,182
|
7.00
|
|||||||||||||||||||
|
Installment
|
46,494
|
4,334
|
9.32
|
46,690
|
4,083
|
8.74
|
47,438
|
4,029
|
8.49
|
|||||||||||||||||||
|
Total
loans
|
338,336
|
26,029
|
7.69
|
326,615
|
23,610
|
7.23
|
325,610
|
23,124
|
7.10
|
|||||||||||||||||||
|
Total
interest earning assets
|
498,366
|
32,550
|
6.53
|
500,116
|
29,529
|
5.90
|
505,455
|
28,286
|
5.60
|
|||||||||||||||||||
|
Allowance
for loan losses
|
(7,465
|
)
|
(8,998
|
)
|
(11,413
|
)
|
||||||||||||||||||||||
|
Cash
and due from banks
|
13,824
|
13,619
|
13,837
|
|||||||||||||||||||||||||
|
Premises
and equipment
|
7,055
|
7,256
|
7,738
|
|||||||||||||||||||||||||
|
Other
assets
|
23,688
|
26,697
|
31,490
|
|||||||||||||||||||||||||
|
Assets
of discontinued operations
|
-
|
-
|
39,762
|
|||||||||||||||||||||||||
|
Total
assets
|
$
|
535,468
|
$
|
538,690
|
$
|
586,869
|
||||||||||||||||||||||
|
Liabilities
and Equity:
|
||||||||||||||||||||||||||||
|
Interest
bearing liabilities
|
||||||||||||||||||||||||||||
|
NOW
and money market
|
$
|
129,080
|
1,766
|
1.37
|
%
|
$
|
142,501
|
1,409
|
0.99
|
%
|
$
|
158,169
|
1,290
|
0.82
|
%
|
|||||||||||||
|
Savings
deposits
|
52,295
|
321
|
0.61
|
59,365
|
412
|
0.69
|
62,518
|
521
|
0.83
|
|||||||||||||||||||
|
Certificates
of deposit and other
time deposits
|
188,044
|
6,896
|
3.67
|
174,057
|
4,904
|
2.82
|
164,932
|
4,455
|
2.70
|
|||||||||||||||||||
|
Total
interest bearing deposits
|
369,419
|
8,983
|
2.43
|
375,923
|
6,725
|
1.79
|
385,619
|
6,266
|
1.62
|
|||||||||||||||||||
|
Short-term
borrowings
|
9,591
|
234
|
2.44
|
8,422
|
180
|
2.14
|
6,539
|
118
|
1.80
|
|||||||||||||||||||
|
Other
borrowings
|
7,765
|
574
|
7.39
|
1,586
|
14
|
0.88
|
5,306
|
248
|
4.67
|
|||||||||||||||||||
|
FHLB
advances
|
7,815
|
453
|
5.80
|
8,775
|
499
|
5.69
|
9,955
|
556
|
5.59
|
|||||||||||||||||||
|
Debentures
|
7,887
|
760
|
9.64
|
20,480
|
2,129
|
10.40
|
25,397
|
2,869
|
11.30
|
|||||||||||||||||||
|
Total
interest-bearing liabilities
|
402,477
|
11,004
|
2.73
|
%
|
415,186
|
9,547
|
2.30
|
%
|
432,816
|
10,057
|
2.32
|
%
|
||||||||||||||||
|
Non-interest
bearing deposits
|
72,781
|
66,848
|
62,486
|
|||||||||||||||||||||||||
|
Other
liabilities
|
2,721
|
4,007
|
7,393
|
|||||||||||||||||||||||||
|
Liabilities
of discontinued operations
|
-
|
-
|
35,876
|
|||||||||||||||||||||||||
|
Shareholders’
equity
|
57,489
|
52,649
|
48,298
|
|||||||||||||||||||||||||
|
Total
liabilities and equity
|
$
|
535,468
|
$
|
538,690
|
$
|
586,869
|
||||||||||||||||||||||
|
Net
interest earnings
(1)
|
$
|
21,546
|
$
|
19,982
|
$
|
18,229
|
||||||||||||||||||||||
|
Net
interest spread
(1)
|
3.80
|
%
|
3.60
|
%
|
3.28
|
%
|
||||||||||||||||||||||
|
Net
interest margin
(1)
|
4.32
|
%
|
4.00
|
%
|
3.61
|
%
|
||||||||||||||||||||||
|
(1)
Taxable - equivalent yields are calculated assuming a 34% federal
income
tax rate
(2)
Excludes the interest income and interest expense of discontinued
operations
(3)
Yields are calculated on historical cost except for yields on marketable
equity securities that are calculated used fair value
(4)
Includes loan fees, immaterial in amount, in both interest income
and the
calculation of yield on loans
(5)
Includes loans on non-accrual
status
|
||||||||||||||||||||||||||||
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
In
2006, average earning assets declined by 0.3% or $1.8 million from 2005,
following a 1.0% or $5.3 million decline in 2005 from 2004. Average interest
bearing liabilities, the primary source of funds supporting the earning assets,
decreased 3.1% or $12.8 million in 2006 from 2005, which follows a 4.1% or
$17.6
million decline in 2005 from 2004. The 2006 decline in average earning assets
was primarily the result of a $14.8 million decline in average total investment
securities as some maturing funds were used to fund loans or to continue
the
company’s debt reduction strategy. The decline in 2006 average interest bearing
liabilities was due to a $6.5 million decrease in average interest bearing
deposits and a $5.8 million decrease in average high cost debt and Federal
Home
Loan Bank (FHLB) advances. A portion of the decline in average interest bearing
deposits was due to the $1.2 million increase in short-term borrowings,
primarily customer repurchase agreements. Furthermore, nearly all of the
decrease in average interest bearing deposits was offset by a $5.9 million
increase in non-interest bearing deposits. The decline in 2005 average earning
assets was primarily the result of a decline in federal funds sold as those
funds were either used to fund loans or to continue the company’s debt reduction
strategy. The decline in 2005 average interest bearing liabilities was due
to a
$9.7 million decrease in average interest bearing deposits and a $6.1 million
decrease in average high cost debt and FHLB advances. Nearly half of the
decrease in average interest bearing deposit was offset by a $4.4 million
increase in non-interest bearing deposits. Additional information on each
of the
components of earning assets and interest bearing liabilities is contained
in
the following sections of this report.
Loan
Portfolio
Premier's
loan portfolio is its largest and highest yielding component of average earning
assets, totaling 67.9% of average earning assets during 2006. After several
declining years, average loans increased in 2005 by $1.0 million or 0.3%
followed by a $11.7 million or 3.6% increase in 2006. The 2006 increase is
largely attributable to loan growth in Premier’s West Virginia and Ohio markets.
In 2006, Premier realized a $10.0 million or 6.5% increase in its West Virginia
markets and a $2.1 million or 4.6% increase in average outstanding loans
in its
Ohio markets, while average loans in its Kentucky markets remained virtually
unchanged. This follows an $11.2 million or 7.7% increase in average loans
in
its West Virginia markets in 2005, and a $2.1 million or 4.7% increase in
loans
in its Ohio markets in 2005. In 2005, the high level of charge-offs and loan
collections at Farmers Deposit Bank in Kentucky nearly offset the increase
in
loans in Premier’s other markets. The average loans outstanding at Farmers
Deposit declined by $14.8 million in 2005. However, in 2006, average loans
outstanding at Farmers Deposit decreased by only $571,000 or 1.3% as loan
charge-offs and payoffs were nearly offset by new loans.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
Total
loans at December 31, 2006 increased by $15.1 million or 4.6% from the total
at
December 31, 2005. This increase follows a $3.8 million or 1.2% increase
in 2005
from total loans at December 31, 2004. The increase in 2006 was the result
of a
significant increase in loan demand in Premier’s markets which more than offset
the $1.4 million of loan charge-offs recorded during the year, (nearly half
at
Farmers Deposit). The increase in 2005 was the result of increased loan demand
in Premier’s markets which offset $2.2 million of loan charge-offs recorded
during the year, (half at Farmers Deposit) and $4.2 million of net loan
collections at Farmers Deposit.
Loans
secured by real estate, which in total constituted approximately 73% of
Premier's loan portfolio at December 31, 2006, consist of a diverse portfolio
of
predominantly single family residential loans and loans for commercial purposes
where real estate is part of the collateral, not the primary source of
repayment. Residential real estate mortgage loans generally do not exceed
80% of
the value of the real property securing the loan. The residential 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. Premier also participates in the solicitation of loans for
the
secondary market and recognizes the referral fees in non-interest income.
Commercial loans are generally made to small-to-medium size businesses located
within a defined market area and typically are secured by business assets
and
guarantees of the principal owners. Additional risks of loss are associated
with
commercial lending such as the potential for adverse changes in economic
conditions or the borrowers' ability to successfully execute their business
plan. Consumer loans generally are made to individuals living in Premier's
defined market area who are known to the local bank's staff. Consumer loans
are
generally made for terms of up to seven years on a secured or unsecured basis;
however longer terms may be approved in certain circumstances and for revolving
credit lines. While consumer loans generally provide the Company with increased
interest income, consumer loans may involve a greater risk of default.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
The
following table presents a five year comparison of loans by type. With the
exception of those categories included in the comparison, there are no loan
concentrations which exceed 10% of total loans. Additionally, Premier's loan
portfolio contains no loans to foreign borrowers nor does it have a material
volume of highly leveraged transaction lending.
|
LOAN
SUMMARY
|
|||||||||||||||||||||||||||||||
|
(Dollars
in thousands)
|
|||||||||||||||||||||||||||||||
|
As
of December 31,
|
|||||||||||||||||||||||||||||||
|
2006
|
%
|
2005
|
%
|
2004
|
%
|
2003(2)
|
%
|
2002
|
%
|
||||||||||||||||||||||
|
Summary
of Loans by Type
|
|||||||||||||||||||||||||||||||
|
Commercial,
secured by real estate
|
$
|
101,786
|
29.6
|
%
|
$
|
85,989
|
26.2
|
%
|
$
|
101,567
|
31.3
|
%
|
$
|
101,325
|
30.5
|
%
|
$
|
109,571
|
29.3
|
%
|
|||||||||||
|
Commercial,
other
|
43,981
|
12.8
|
49,362
|
15.0
|
40,923
|
12.6
|
38,063
|
11.5
|
51,347
|
13.8
|
|||||||||||||||||||||
|
Real
estate construction
|
11,303
|
3.3
|
11,070
|
3.4
|
5,906
|
1.8
|
5,414
|
1.6
|
7,318
|
2.0
|
|||||||||||||||||||||
|
Real
estate mortgage
|
138,795
|
40.4
|
134,570
|
40.9
|
128,243
|
39.5
|
126,134
|
38.0
|
134,271
|
36.0
|
|||||||||||||||||||||
|
Agricultural
|
1,930
|
0.5
|
1,670
|
0.5
|
2,380
|
0.7
|
3,032
|
0.9
|
4,381
|
1.2
|
|||||||||||||||||||||
|
Consumer
|
42,188
|
12.3
|
42,096
|
12.8
|
44,470
|
13.7
|
56,216
|
17.0
|
63,534
|
17.0
|
|||||||||||||||||||||
|
Other
|
3,814
|
1.1
|
3,960
|
1.2
|
1,438
|
0.4
|
1,610
|
0.5
|
2,677
|
0.7
|
|||||||||||||||||||||
|
Total
loans
|
$
|
343,797
|
100.0
|
%
|
$
|
328,717
|
100.0
|
%
|
$
|
324,927
|
100.0
|
%
|
$
|
331,794
|
100.0
|
%
|
$
|
373,099
|
100.0
|
%
|
|||||||||||
|
Non-performing
Assets
|
|||||||||||||||||||||||||||||||
|
Non-accrual
loans
|
$
|
4,698
|
$
|
3,751
|
$
|
6,847
|
$
|
11,958
|
$
|
8,197
|
|||||||||||||||||||||
|
Accruing
loans which are contractually
past
due
90
days
or more
|
992
|
853
|
739
|
4,137
|
1,238
|
||||||||||||||||||||||||||
|
Restructured loans
|
1,268
|
1,540
|
238
|
104
|
129
|
||||||||||||||||||||||||||
|
Total
non-performing and restructured
loans
|
6,958
|
6,144
|
7,824
|
16,199
|
9,564
|
||||||||||||||||||||||||||
|
Other
real estate acquired through
foreclosures
|
495
|
2,049
|
2,247
|
3,187
|
3,505
|
||||||||||||||||||||||||||
|
Total
non-performing and restructured
loans
and
other
real estate
|
$
|
7,453
|
$
|
8,193
|
$
|
10,071
|
$
|
19,386
|
$
|
13,069
|
|||||||||||||||||||||
|
Non-performing
and restructured
loans
as
a
% of total
loans
|
2.02%
|
1.87%
|
2.41%
|
4.88%
|
2.56%
|
||||||||||||||||||||||||||
|
Non-performing
and restructured
loans and
other
real
estate as a % of total assets
(1)
|
1.39%
|
1.55%
|
1.87%
|
3.57%
|
2.21%
|
||||||||||||||||||||||||||
|
Allocation
of Allowance for Loan Losses
|
|||||||||||||||||||||||||||||||
|
Commercial, other
|
$
|
839
|
14.4
|
%
|
$
|
1,071
|
16.7
|
%
|
$
|
1,734
|
13.7
|
%
|
$
|
4,166
|
12.9
|
%
|
$
|
2,294
|
15.7
|
%
|
|||||||||||
|
Real estate, construction
|
117
|
3.3
|
134
|
3.4
|
83
|
1.8
|
662
|
1.6
|
632
|
2.0
|
|||||||||||||||||||||
|
Real estate, other
|
3,395
|
70.0
|
3,810
|
67.1
|
4,276
|
70.8
|
4,886
|
68.5
|
4,341
|
65.3
|
|||||||||||||||||||||
|
Consumer installment
|
521
|
12.3
|
772
|
12.8
|
1,255
|
13.7
|
2,478
|
17.0
|
977
|
17.0
|
|||||||||||||||||||||
|
Unallocated
|
1,789
|
2,105
|
2,036
|
2,108
|
1,454
|
||||||||||||||||||||||||||
|
Total
|
$
|
6,661
|
100.0
|
%
|
$
|
7,892
|
100.0
|
%
|
$
|
9,384
|
100.0
|
%
|
$
|
14,300
|
100.0
|
%
|
$
|
9,698
|
100.0
|
%
|
|||||||||||
|
(1)
From continuing operations
|
|||||||||||||||||||||||||||||||
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
In
addition to the loans presented in the loan summary table, Premier also offers
certain off-balance sheet products such as letters of credit, revolving credit
agreements, and other loan commitments. These products are offered under
the
same credit standards as the loan portfolio and are included in the risk-based
capital ratios used by the Federal Reserve to evaluate capital adequacy.
Additional information on off-balance sheet commitments is contained in Note 19 to the consolidated financial
statements.
Total
non-performing assets, which consist of past-due loans on which interest
is not
being accrued ("non accrual loans"), foreclosed properties in the process
of
liquidation ("OREO"), loans with restructured terms to enable a delinquent
borrower to repay and accruing loans past due 90 days or more, were $7.5
million
or 1.39% of total assets of continuing operations at year-end 2006. The amount
continues to decline from the $8.2 million, or 1.55% of total assets of
continuing operations at year-end 2005, and is down significantly from the
$10.1
million of non-performing assets (1.87% of total assets of continuing
operations) at year-end 2004. The decrease in 2006 was largely due to the
$1.6
million reduction in OREO property, which was partially offset by an increase
in
non-accrual loans. As the collection or rehabilitation of previously delinquent
loans and charge-offs of loans determined to be uncollectible continued in
2006,
these efforts were offset by other loans newly placed on non-accrual status.
Management believes the estimated potential losses related to these newly
delinquent loans to be adequately provided for in the allowance for loan
losses.
These losses were also included in the analyses that supported the recording
of
negative loan loss provisions during 2006. The decrease in non-performing
assets
in 2005 was due to the collection or rehabilitation of previously delinquent
loans, the charge-offs of loans determined to be uncollectible and the sale
of
$1.7 million of OREO property. As management's efforts to collect these loans
upon maturity continue, loans are only renewed using Premier's strengthened
credit policies. Otherwise, loans may be placed on non-accrual status and
foreclosure proceedings begun to obtain and liquidate any collateral securing
the past due or matured loans. Premier is committed to continuing to reduce
its
high level of non-performing assets and implementing strong underwriting
standards to help maintain a lower level of non-performing assets in the
future.
This effort is revealed in the decline in non-performing assets from the
end of
2002 to the end of 2006, primarily related to the sale of OREO properties
and
the decline in non-accrual loans and loans 90+ days past due. Premier's efforts
at its other affiliate banks in 2003 and 2004 are masked by the high level
of
non-performing assets at Farmers Deposit Bank, which alone totaled $12.5
million
at December 31, 2003. At December 31, 2004, the non-performing assets at
Farmers
Deposit Bank had declined to $6.8 million, leaving $3.3 million of total
non-performing assets at the other Affiliate Banks combined. At December
31,
2005, the non-performing assets at Farmers Deposit Bank had declined even
further to $4.7 million. And by December 31, 2006, the non-performing assets
at
Farmers Deposit bank totaled $3.6 million.
The
Loan Summary table presents five years of comparative non-performing asset
information. Other than these loans and the impaired loans discussed in Note 6 to the consolidated financial statements, Premier
does not have a significant volume of loans whereby management
has serious doubts about the borrowers ability to comply with the present
repayment terms of the loan.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
It
is
Premier's policy to place loans that are past due over 90 days on non-accrual
status, unless the loans are adequately secured and in the process of
collection. Premier had no commitments to provide additional funds on
non-accrual loans at December 31, 2006. For real estate loans, upon
repossession, the balance of the loan is transferred to "Other Real Estate
Owned" (OREO) and carried at the lower of the outstanding loan balance or
the
fair value of the property based on current appraisals and other current
market
trends less estimated disposal costs. If a writedown of the OREO property
is
necessary at the time of foreclosure, the amount is charged against the
allowance for loan losses. A periodic review of the recorded property value
is
performed in conjunction with normal loan reviews, and if market conditions
indicate that the recorded value exceeds the fair market value less estimated
disposal costs, additional writedowns of the property value are charged directly
to operations.
During
2006 Premier recognized a $105,000 net profit on the disposition of OREO
properties, net of writedowns, while in 2005 Premier realized $17,000 net
profit
on the disposition of OREO properties. During 2004, Premier realized a $123,000
net profit on the disposition of OREO properties. Although loans may be
classified as non-performing, some continue to pay interest irregularly or
at
less than original contracted terms. During 2006, approximately $151,000
of
interest was recognized on non-accrual and restructured loans, while
approximately $348,000 would have been recognized in accordance with their
original terms.
The
allowance
for loan losses is maintained to absorb probable incurred losses associated
with
lending activities. Actual losses are charged against the allowance
("charge-offs") while collections on loans previously charged off ("recoveries")
are added back to the allowance. Since actual losses within a given loan
portfolio are difficult to predict, management uses a significant amount
of
estimation and judgment to determine the adequacy of the allowance for loan
losses. Factors considered in determining the adequacy of the allowance include
an individual assessment of risk on certain loans and total creditor
relationships, historical charge-off experience, the type of loan, levels
of
non-performing and past due loans, and an evaluation of current economic
conditions. Loans are evaluated for credit risk and assigned a risk grade.
Premier's risk grading criteria are based upon Federal Reserve guidelines
and
definitions. In evaluating the adequacy of the allowance for loan losses,
loans
that are assigned passing grades are grouped together and multiplied by
historical charge-off percentages to determine an estimated amount of potential
losses and a corresponding amount of allowance. Loans that are assigned
marginally passing grades are grouped together and allocated slightly higher
percentages to determine the estimated amount of potential losses due to
the
identification of increased risk(s). Loans that are assigned a grade of
"substandard" or "doubtful" are usually determined to be impaired.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
A
loan is categorized and reported as impaired when it is probable that the
creditor will be unable to pay all of the principal and interest amounts
according to the contractual terms of the loan agreement. In determining
whether
a loan is impaired, management considers such factors as past payment history,
recent economic events, current and projected financial condition and other
relevant information that is available at the time. Impairment is evaluated
in
total for smaller-balance loans of similar nature such as residential mortgage,
consumer, and credit card loans, and on an individual basis for other loans.
If
a loan is deemed to be impaired an evaluation of the amount of estimated
loss is
performed assessing the present value of estimated future cashflows using
the
loan's existing rate or assessing the fair and realizable value of the loan
collateral if repayment is expected solely from the collateral. The estimation
of loss is assigned to the impaired loan and is used in determining the adequacy
of the allowance for loan losses. For impaired loans, this estimation of
loss is
reevaluated quarterly and, if necessary, adjusted based upon the current
known
facts and circumstances related to the loan and the borrower. Additional
information on Premier's impaired loans is contained in Note
6 to the consolidated financial statements. The sum of the calculations
and
estimations of the risk of loss in a given loan portfolio is compared to
the
recorded balance of the allowance for loan losses. If the total allowance
is
deemed to be inadequate a charge to earnings is recorded to increase the
allowance. Conversely, should an evaluation of the allowance result in a
lower
estimate of the risk of loss in the loan portfolio and the allowance is deemed
to be more than adequate, a reversal of previous charges to earnings ("a
negative provision") may be warranted in the current period. Events that
may
lead to negative provisions included greater than anticipated recoveries,
a
reduction in the historical loss ratios, securing more collateral on an impaired
loan during the collection process, or receiving payment in full on an impaired
loan. All of these events occurred in varying degrees during 2006 and resulted
in $1,161,000 of negative provisions during the year.
At
December
31, 2006, the allowance for loan losses was $6.7 million or 1.94% of total
year-end loans. This ratio is a decrease from the prior year’s 2.40% and the
2.89% at the end of 2004. The decrease in the allowance in 2006 was primarily
the result of the $1.2 million of negative provisions for loan losses recorded
during the year, as charge-offs in 2006 were nearly offset by recoveries.
The
decrease in 2005 was the result of the charge-off of $2.2 million of loans
previously identified as impaired partially offset by $719,000 of recoveries.
Only $4,000 of provision expense was recorded in 2005. In management's opinion,
the allowance for loan losses is adequate to absorb the current estimated
risk
of loss in the existing loan portfolio. The summary of the allowance for
loan
losses allocated by loan type is presented in the Loan Summary Table
above.
The
following
table provides a detailed history of the allowance for loan losses, illustrating
charge-offs and recoveries by loan type, and the annual provision for loan
losses over the past five years. In 2006, negative provisions were recorded
in
each of the four quarters of the year as Premier realized collections of
previously impaired loans whereby estimated losses were previously assigned
to
the loan as well as recoveries of previously charged-off
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
loans.
These positive events as well as the ongoing reduction in Premier’s historical
loss ratios resulted in a lower estimate of the risk of loss in the loan
portfolio and, thus, negative provisions were warranted. The negative provision
for loan losses totaled $1.2 million in 2006.
|
SUMMARY
OF LOAN LOSS EXPERIENCE
|
||||||||||||||||
|
(Dollars
in thousands)
|
||||||||||||||||
|
For
the Year Ended December 31
|
||||||||||||||||
|
2006
|
2005
|
2004
|
2003(1)
|
2002
|
||||||||||||
|
Allowance
for loan losses beginning
of period
|
$
|
7,892
|
$
|
9,384
|
$
|
14,300
|
$
|
9,698
|
$
|
7,371
|
||||||
|
Amounts
charged off:
|
||||||||||||||||
|
Commercial,
financial and agricultural loans
|
154
|
736
|
1,520
|
4,417
|
4,080
|
|||||||||||
|
Real
estate construction loans
|
0
|
0
|
5
|
0
|
833
|
|||||||||||
|
Real
estate loans - other
|
863
|
549
|
2,413
|
6,427
|
1,072
|
|||||||||||
|
Consumer
installment loans
|
393
|
930
|
3,054
|
5,669
|
1,904
|
|||||||||||
|
Total
charge-offs
|
1,410
|
2,215
|
6,992
|
16,513
|
7,889
|
|||||||||||
|
Recoveries
on amounts previously charged-off:
|
||||||||||||||||
|
Commercial,
financial and agricultural loans
|
266
|
91
|
264
|
145
|
138
|
|||||||||||
|
Real
estate construction loans
|
8
|
1
|
1
|
37
|
16
|
|||||||||||
|
Real
estate loans - other
|
340
|
84
|
87
|
74
|
163
|
|||||||||||
|
Consumer
installment loans
|
726
|
543
|
698
|
346
|
446
|
|||||||||||
|
Total
recoveries
|
1,340
|
719
|
1,050
|
602
|
763
|
|||||||||||
|
Net
charge-offs
|
70
|
1,496
|
5,942
|
15,911
|
7,126
|
|||||||||||
|
Provision
for loan losses
|
(1,161
|
)
|
4
|
1,026
|
20,513
|
9,453
|
||||||||||
|
Allowance
for loan losses, end of period
|
$
|
6,661
|
$
|
7,892
|
$
|
9,384
|
$
|
14,300
|
$
|
9,698
|
||||||
|
Average
total loans
|
$
|
338,336
|
$
|
326,615
|
$
|
325,610
|
$
|
352,156
|
$
|
382,763
|
||||||
|
Total
loans at year-end
|
343,797
|
328,717
|
324,927
|
331,794
|
373,099
|
|||||||||||
|
As
a percent of average loans
|
||||||||||||||||
|
Net
charge-offs
|
0.02
|
%
|
0.46
|
%
|
1.82
|
%
|
4.52
|
%
|
1.86
|
%
|
||||||
|
Provision
for loan losses
|
(0.34
|
)%
|
0.00
|
%
|
0.32
|
%
|
5.83
|
%
|
2.47
|
%
|
||||||
|
Allowance
for loan losses
|
1.97
|
%
|
2.42
|
%
|
2.88
|
%
|
4.06
|
%
|
2.53
|
%
|
||||||
|
As
a percent of total loans at year-end
|
||||||||||||||||
|
Allowance
for loan losses
|
1.94
|
%
|
2.40
|
%
|
2.89
|
%
|
4.31
|
%
|
2.60
|
%
|
||||||
|
As
a multiple of net charge-offs
|
||||||||||||||||
|
Allowance
for loan losses
|
95.16X
|
5.28X
|
1.58X
|
0.90X
|
1.36X
|
|||||||||||
|
Income
before tax and provision for loan losses
|
123.19X
|
4.32X
|
0.65X
|
0.35X
|
0.80X
|
|||||||||||
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
Future
provisions to the allowance for loan losses, positive or negative, will depend
on future improvement or deterioration in estimated credit risk in the loan
portfolio as well as whether additional payments are received on loans having
significant credit risk. The
provision for loan losses in 2005 was only $4,000. During the third and fourth
quarters of 2005, negative provisions were recorded substantially offsetting
the
provisions recorded during the first half of the year. During the latter
half of
2005, Premier realized collections of previously impaired loans whereby
estimated losses were previously assigned to the loan as well as recoveries
of
previously charged-off loans. The provision for loan losses in 2004 was $1.0
million and was the result of newly identified impaired loans and increases
in
the volume of loans outstanding at the banks located in West Virginia. Premier
continually evaluates the adequacy of its allowance for loan losses, and
changes
in the provision are based on the estimated probable incurred losses in the
loan
portfolio.
Net
charge-offs in 2006 decreased to just $70,000 as a significant volume of
recoveries nearly offset the level of charge-offs recorded during the year.
In
2005 net charge-offs decreased to $1.5 million, down $4.4 million or 75%
from
the $5.9 million of net charge-offs experienced in 2004. Approximately $641,000
or 43% of the 2005 net charge-offs and $4.8 million or 81% of the 2004 net
charge-offs were at Farmers Deposit Bank. In 2006, Farmers Deposit Bank recorded
$249,000 of net recoveries and provided nearly 70% of the Company’s total
recoveries for 2006. While total charge-offs decreased in 2006, the level
of
loans secured by real estate that were charged-off increased by $314,000
or
57.2% as collection efforts on a few real estate secured borrowers came to
their
ultimate conclusion. All categories of loan charge-offs were down in 2005,
while
consumer loan charge-offs continued to exceed the other categories of loan
charge-offs. Although management believes it has identified the significant
remaining credit risk in the loan portfolio, additional charge-offs may be
recorded in the coming months due to the high level of non-performing loans
and
the resolution of collection efforts on those loans. These factors are
considered in determining the adequacy of the allowance for loan losses,
which
at December 31, 2006 was 1.94% of total loans outstanding and 96% of
non-performing loans.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
The
following table presents the maturity distribution and interest sensitivity
of
selected loan categories at December 31, 2006. Maturities are based upon
contractual terms.
|
LOAN
MATURITIES and INTEREST SENSITIVITY
|
|||||||||||||
|
December
31, 2006
|
|||||||||||||
|
(Dollars
in thousands)
|
|||||||||||||
|
Projected
Maturities*
|
|||||||||||||
|
One
Year or Less
|
One
Through Five Years
|
Over
Five
Years
|
Total
|
||||||||||
|
Commercial,
secured by real estate
|
$
|
38,310
|
$
|
51,758
|
$
|
11,718
|
$
|
101,786
|
|||||
|
Commercial,
other
|
21,357
|
19,694
|
2,930
|
43,981
|
|||||||||
|
Real
estate construction
|
6,927
|
3,114
|
1,262
|
11,303
|
|||||||||
|
Agricultural
|
592
|
794
|
544
|
1,930
|
|||||||||
|
Total
|
$
|
67,186
|
$
|
75,360
|
$
|
16,454
|
$
|
159,000
|
|||||
|
Fixed
rate loans
|
$
|
15,065
|
$
|
36,113
|
$
|
4,558
|
$
|
55,736
|
|||||
|
Floating
rate loans
|
52,121
|
39,247
|
11,896
|
103,264
|
|||||||||
|
Total
|
$
|
67,186
|
$
|
75,360
|
$
|
16,454
|
$
|
159,000
|
|||||
|
Fixed
rate loans projected to mature after one year
|
$
|
40,671
|
|||||||||||
|
Floating
rate loans projected to mature after one year
|
51,143
|
||||||||||||
|
Total
|
$
|
91,814
|
|||||||||||
|
(*)
Based on scheduled or approximate repayments
|
|||||||||||||
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
Investment
Portfolio and
Other
Earning Assets
Investment
securities averaged $135.2 million in 2006, down $14.8 million or 9.9% from
the
$150.0 million averaged in 2005. This decrease follows two years of average
investments around $150.0 million. As investments matured in 2006 and 2005
not
all funds were reinvested in the investment portfolio. Some funds were used
to
satisfy loan growth, deposit withdrawals and debt payments. Furthermore,
during
the latter part of 2006, bond reinvestment yields were not as attractive
as the
yield on highly liquid federal funds sold and funds from maturing investments
were less likely to be reinvested in bonds. At December 31, 2006, the amount
of
investments totaled $121.4 million, down $16.1 million from December 31,
2005.
This follows a $16.5 million decrease in 2005 from the balance at December
31,
2004.
The
following table presents the carrying values of investment
securities.
|
FAIR
VALUE OF SECURITIES AVAILABLE FOR SALE
|
||||||||||
|
(Dollars
in thousands)
|
||||||||||
|
As
of December 31
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
U.S.
Treasury securities
|
$
|
6,401
|
$
|
3,941
|
$
|
250
|
||||
|
U.S.
Agency securities
|
76,911
|
95,300
|
115,514
|
|||||||
|
States
and political subdivisions
|
3,413
|
2,514
|
2,751
|
|||||||
|
Mortgage-backed
securities
|
34,617
|
35,639
|
34,942
|
|||||||
|
Corporate
securities
|
25
|
25
|
435
|
|||||||
|
Total
securities
|
$
|
121,367
|
$
|
137,419
|
$
|
153,892
|
||||
As
sources of
funds (deposits, federal funds purchased, and repurchase agreements with
corporate customers) fluctuate, excess funds are initially invested in federal
funds sold and other short-term investments. Based upon analyses of
asset/liability repricing, interest rate forecasts, and liquidity requirements,
funds are periodically reinvested in high-quality debt securities, which
typically mature over a longer period of time. At the time of purchase,
management determines whether the securities will be classified as trading,
available-for-sale, or held-to-maturity. At December 31, 2006 all of Premier's
investments were classified as available-for-sale and carried on the books
at
market value.
As
shown in
the following Securities Maturity and Yield Analysis table, the average maturity
period of the securities available-for-sale at December 31, 2006 was 4 years
7
months, lengthened somewhat by the 11 year 3 month average final maturity
of the
mortgage-backed securities portfolio. The table uses a final maturity method
to
report the average maturity of mortgage-backed securities, which excludes
the
effect of monthly payments and prepayments. Approximately 69% of Premier's
investment securities are U.S. Government agency or Treasury
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
securities
that have an average maturity of 1 year 8 months. The average maturity of
the
investment portfolio is managed at a level to maintain a proper matching
with
interest rate risk guidelines. During 2004, Premier sold a portion of the
securities classified as available-for-sale as part of its management of
interest rate risk, as shown in the Statements of Cash Flows. Premier does
not
have any securities classified as trading or held-to-maturity and it has
no
plans to establish such classifications at the present time. Other information
regarding investment securities may be found in the following table and in
Note 5 to the consolidated financial statements.
|
SECURITIES
MATURITY AND YIELD ANALYSIS
|
||||||||||
|
December
31, 2006
|
||||||||||
|
(Dollars
in thousands)
|
||||||||||
|
Market
Value
|
Average
Maturity (yrs/mos)
|
Taxable
Equivalent Yield*
|
||||||||
|
U.S.
Treasury securities
|
||||||||||
|
Within
one year
|
$
|
994
|
4.44
|
%
|
||||||
|
After
one but within five years
|
5,407
|
4.36
|
||||||||
|
Total
U.S. Treasury Securities
|
6,401
|
2/5
|
4.38
|
|||||||
|
U.S.
Government Agencies securities
|
||||||||||
|
Within
one year
|
26,901
|
3.16
|
||||||||
|
After
one but within five years
|
50,010
|
4.18
|
||||||||
|
Total
U.S. Government Agencies securities
|
$
|
76,911
|
1/7
|
3.82
|
||||||
|
States
and political subdivisions
|
||||||||||
|
Within
one year
|
349
|
4.26
|
||||||||
|
After
one but within five years
|
964
|
4.93
|
||||||||
|
After
five but within ten years
|
544
|
4.65
|
||||||||
|
Over
ten years
|
1,556
|
5.84
|
||||||||
|
Total
states and political subdivisions securities
|
$
|
3,413
|
6/11
|
5.23
|
||||||
|
Mortgage-backed
securities**
|
||||||||||
|
Within
one year
|
3,681
|
3.93
|
||||||||
|
After
one but within five years
|
1,993
|
5.36
|
||||||||
|
After
five but within ten years
|
911
|
3.85
|
||||||||
|
Over
ten years
|
28,032
|
4.68
|
||||||||
|
Total
mortgage-backed securities
|
$
|
34,617
|
11/3
|
4.62
|
||||||
|
Corporate
securities
|
$
|
25
|
||||||||
|
Total
securities available-for-sale
|
$
|
121,367
|
4/7
|
4.12
|
||||||
|
(*)
Fully tax-equivalent using the rate of 34%
|
||||||||||
|
(**)
Maturities for mortgage-backed securities are based on final
maturity
|
||||||||||
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
Premier's
average investment in federal funds sold and other short-term investments
increased by 5.6% in 2006. This follows a 21.4% decrease in 2005. Averaging
$24.4 million in 2006, federal funds sold and other short-term investments
increased $1.3 million from the $23.1 million averaged in 2005 but were lower
than the $29.4 million averaged in 2004. The increase in average federal
funds
sold in 2006 was the result of retaining available funds to be used in the
short-term to fund loans or satisfy deposit withdrawals. Furthermore, during
the
latter part of 2006, bond investment yields were not as attractive as the
yield
on highly liquid federal funds sold and funds from maturing investments were
less likely to be reinvested in bonds. The decrease in average federal funds
sold in 2005 from 2004 was the result of investing more of Premier's available
funds into higher yielding investments and using a portion of the funds to
reduce outstanding debt and satisfy deposit withdrawals. Fluctuations in
federal
funds sold and other short-term investments reflect management's goal to
maximize asset yields while maintaining proper asset/liability structure,
as
discussed in greater detail above and in other sections of this report.
Funding
Sources
In
2005, Premier began raising the rates paid on it interest bearing deposits
in
response to the increase in market interest rates. Market rates continued
to
increase through 2006. As a result, the average rate paid on interest bearing
liabilities increased to 2.73% in 2006, up from the 2.30% paid in 2005. The
43
basis point increase was primarily the result of an 85 basis point increase
in
the average rate paid on certificates of deposit and other time deposits,
which
made up 46.7% of the total average interest bearing liabilities in 2006.
During
2006, Premier was able to offset some of the increase in rates paid on deposits
by reducing the interest cost on its long-term debt by refinancing the remaining
$15.5 million of its 9.75% Trust Preferred Securities as discussed in more
detail below. In 2005, Premier was able to offset the 17 basis point increase
in
the average rate paid on interest bearing deposits by reducing a portion
of its
high rate long-term borrowings. The average rate paid on interest bearing
liabilities decreased to 2.30% in 2005, down from the 2.32% paid in 2004.
The
decrease is largely due to the early redemption of $5.5 million of Premier’s
9.75% Trust Preferred Securities late in 2004 and the payment of 10 quarters
of
deferred distributions on the Trust Preferred Securities in March 2005. The
interest savings more than offset the increase in interest expense due to
the
rise in rates paid on NOW and money market transactional deposit accounts
and on
certificates of deposit. Due to alternative sources of investment and an
ever
increasing sophistication of customers in funds management techniques to
maximize return on their money, competition for funds has become more intense.
Premier's banks periodically offer special rate products to attract additional
deposits.
Premier’s
deposits, on average, remained relatively unchanged in 2006, decreasing by
$571,000 or 0.1% from 2005 average deposits. The 2006 decrease follows a
1.2% or
$5.3 million decrease in 2005 from the average in 2004. While average deposits
in 2006 remained relatively unchanged in total, the composition of those
deposits shifted toward non-interest bearing
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
deposits.
In addition, some public fund and tax-exempt organization deposits were
reestablished as repurchase agreements in 2006. Average repurchase agreements
increased by $1.3 million or 16.4% in 2006 when compared to 2005. In 2005,
$13.3
million of the decline in deposits was at Farmers Deposit Bank, partially
due to
Premier's capital restoration plan as certain deposits were not renewed as
part
of the plan to reduce the size of the Bank. In Premier’s other markets during
2005, deposits, on average, increased by 2.2% or $8.0 million. In 2006, average
deposits at Farmers Deposit Bank declined by $4.7 million, while in Premier’s
other markets, deposits, on average, increased by $4.2 million or 1.1% during
2006.
In
2006, average non-interest bearing deposits continued to increase, surpassing
2005 average non-interest bearing deposits by $5.9 million or 8.9%. In 2005,
non-interest bearing deposits increased 7.0% or $4.4 million on average when
compared to 2004. Since no interest is paid on these deposits, an increase
in
non-interest bearing deposits helps to increase Premier's net interest margin
and its profitability. Non-interest bearing deposits are more susceptible
to
withdrawal and therefore may provide challenges to maintaining adequate
liquidity. (See the additional discussion on liquidity below.) However,
Premier’s approach to community banking and friendly customer service has
resulted in increases in average non-interest bearing deposits in each of
the
past four years.
In
2006, average interest bearing deposits decreased by $6.5 million or 1.7%.
This
decrease was largely due to the stiff competition for funds in 2006 and high
rate certificate of deposits “specials” offered by some of Premier’s local
competition. Some of these “special” rates exceeded the yields that Premier
could earn by purchasing investments and therefore matching the competitions’
rates would have resulted in reducing Premier’s net interest income. Instead,
Premier continued to focus on building its base of customer relationships
by
offering more convenient electronic banking products to its non-interest
bearing
deposit customers. Premier did realize a shift in its interest bearing deposits
from lower cost savings and interest bearing transaction accounts to
certificates of deposit as customers moved their funds to take advantage
of the
rising interest rates paid on these certificates. The result was a 64 basis
point increase in the average rate paid on interest bearing deposits in 2006
versus the 17 basis point increase realized in 2005. In 2005, interest bearing
deposits decreased by 2.5% or $9.7 million on average when compared to 2004.
The
decrease was largely due to a $13.6 million decrease in average interest
bearing
deposits at Farmers Deposit Bank. The remaining increase was the result of
internal growth in Premier’s other markets.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
The
following table provides information on the maturities of time deposits of
$100,000 or more at December 31, 2006.
|
MATURITY
OF TIME DEPOSITS $100,000 OR MORE
|
||||
|
December
31, 2006
|
||||
|
(Dollars
in thousands)
|
||||
|
Maturing
3 months or less
|
$
|
11,105
|
||
|
Maturing
over 3 months
|
11,263
|
|||
|
Maturing
over 6 months
|
19,108
|
|||
|
Maturing
over 12 months
|
12,001
|
|||
|
Total
|
$
|
53,477
|
||
Other
funding
sources for Premier include short and long-term borrowings. Premier's short-term
borrowings primarily consist of securities sold under agreements to repurchase
with commercial, public entity and tax exempt organization customers. These
are
short-term non-FDIC insured deposit like products that are secured by the
pledging of investment securities in Premier’s investment portfolio. Also
included in short-term borrowings are federal funds purchased from other
banks..
These short-term borrowings fluctuate depending on near term funding needs
and
as part of Premier's management of its asset/liability mix. In 2006, short-term
borrowings averaged $9.6 million, up $1.2 million or 13.9% from the average
in
2005 primarily due to the increase in repurchase agreements discussed above.
In
2005, short-term borrowings averaged $8.4 million, up $1.9 million from the
average in 2004 due to an increase in public fund repurchase agreements.
Long-term
borrowings consist of Federal Home Loan Bank (FHLB) borrowings by Premier's
banks, other borrowings by the parent holding company and debt issued in
the
form of subordinated debentures to an unconsolidated trust subsidiary. FHLB
advances, on average, declined by 10.9% or $960,000 in 2006, following an
11.9%
or $1.2 million decrease in 2005. Premier uses fixed rate FHLB advances from
time-to-time to fund certain residential and commercial loans as well to
maximize investment opportunities as part of its interest rate risk management.
In 2006 and 2005, Premier made all of its scheduled principal payments and
took
advantage of penalty free prepayment opportunities as they became available.
At
December 31, 2006, FHLB advances totaled $7.3 million and had repayment
schedules from four to six years with $4.0 million maturing in 2010.
In
2006, Premier refinanced the remaining $15.7 million of its 9.75% Junior
Subordinated Deferrable Interest Debentures ("Subordinated Debentures") that
were due in 2027. The refinancing was accomplished using two separate bank
borrowings at the parent company and $2.2 million of cash held by the parent
in
its subsidiary banks. On January 31, 2006, Premier borrowed $7.0 million
from
First Guaranty Bank in Hammond, Louisiana under a promissory note bearing
interest floating daily at the “Wall Street Journal” prime rate (currently
8.25%) and
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
requiring
monthly principal payments of $50,000 until maturity on September 28, 2017.
The
note is secured by a pledge of Premier’s 100% interest in Boone County Bank. The
proceeds of this note were used to redeem $7.0 million of the Subordinated
Debentures as of January 31, 2006. On November 10, 2006, Premier borrowed
$6.5
million from The Bankers’ Bank of Kentucky, Inc. of Frankfort, Kentucky
(“Bankers’ Bank”) under a term note bearing interest floating daily at the “Wall
Street Journal” prime rate minus 1.00% (currently 7.25%) and requiring 83
monthly principal and interest payments of $100,000 and a final payment of
any
balance due at maturity on November 9, 2013. The note is secured by a pledge
of
Premier’s 100% interest in Citizens Deposit Bank and Trust, Inc. and Premier’s
100% interest in Farmers-Deposit Bank, Eminence, Kentucky. Also during 2006,
Premier repaid two $701,000 subordinated notes with a 0% interest rate. For
more
information on other borrowings and the subordinated debentures, see Notes 11and 12 to the
consolidated financial statements.
|
PAYMENTS
DUE ON CONTRACTUAL OBLIGATIONS
|
||||||||||||||||
|
December
31, 2006
|
||||||||||||||||
|
(Dollars
in thousands)
|
||||||||||||||||
|
|
||||||||||||||||
|
Total
|
Less
than one year
|
1-3
years
|
3-5
years
|
More
than five years
|
||||||||||||
|
Federal
Home Loan Bank advances
|
$
|
7,285
|
$
|
637
|
$
|
1,375
|
$
|
5,203
|
$
|
70
|
||||||
|
Other
borrowed funds
|
12,275
|
1,344
|
2,860
|
3,118
|
4,953
|
|||||||||||
|
Operating
lease obligations
|
206
|
138
|
62
|
4
|
2
|
|||||||||||
|
Data
and item processing contracts*
|
5,280
|
1,848
|
2,772
|
660
|
0
|
|||||||||||
|
Total
|
$
|
25,046
|
$
|
3,967
|
$
|
7,069
|
$
|
8,985
|
$
|
5,025
|
||||||
|
*
Data and item processing contractual obligations are estimated
using the
average billing for the last three months of
2006.
|
||||||||||||||||
On
December
20, 2004, Premier entered into a sixty-three month contract with Fiserv
Solutions, Inc. (Fiserv) whereby Fiserv will provide data processing and
item
processing services to Premier. Conversions by Premier's subsidiary banks
to
Fiserv systems began on April 15, 2005 and were completed by July 31, 2005.
Based upon the average billings of the last three months of 2006, the estimated
payments to Fiserv for these services will be approximately $1,316,000 per
year
beginning in 2007. Actual results may vary depending upon the number and
type of
accounts actually processed and future customer activity.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
Asset/Liability
Management and Market Risk
Asset/liability
management is a means of maximizing net interest income while minimizing
interest rate risk by planning and controlling the mix and maturities of
interest related assets and liabilities. Premier has established an
Asset/Liability Management Committee (ALCO) for the purpose of monitoring
and
managing interest rate risk and to evaluate investment portfolio strategies.
Interest rate risk is the earnings variation that could occur due to changes
in
market interest rates. The Board of Directors has established policies to
monitor and limit exposure to interest rate risk. Premier monitors its interest
rate risk through the use of an earnings simulation model prepared by an
independent third party to analyze net interest income sensitivity.
The
earnings
simulation model uses assumptions, maturity patterns, and reinvestment rates
provided by Premier and forecasts the effect of instantaneous movements in
interest rates of both 100 (1.00%) and 200 (2.00%) basis points. The most
recent
earnings simulation model projects net interest income would increase by
approximately 1.4% over the projected stable rate net interest income if
interest rates rise by 100 basis points over the next year. Conversely, the
simulation projects an approximate 0.9% decrease in net interest income if
interest rates fall by 100 basis points over the next year. Within the same
time
frame, but assuming a 200 basis point movement in interest rates, the simulation
projects that net interest income would increase by 2.6% over the projected
stable rate net interest income in a rising rate scenario and would decrease
by
2.2% in a falling rate scenario. Under both the 100 and 200 basis point
simulations, the percentage changes in net interest income are within Premier's
ALCO guidelines.
The
model
simulation calculations of present value have certain acceptable shortcomings.
The discount rates and prepayment assumptions utilized are based on estimated
market interest rate levels for similar loans and securities nationwide.
The
unique characteristics of Premier's loans and securities may not necessarily
parallel those assumed in the model simulations, and therefore, actual results
could likely result in different discount rates, prepayment experiences and
present values. The discount rates used for deposits and borrowings are based
upon available alternative types and sources of funds which may not necessarily
be indicative of the present value of Premier's deposits and borrowings.
Premier's deposits have customer relationship advantages that are difficult
to
simulate. A higher or lower interest rate environment will most likely result
in
different investment and borrowing strategies by Premier which would be designed
to further mitigate any negative effects on the value of, and the net interest
earnings generated on Premier's net assets.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
The
following table presents summary information about the simulation model's
interest rate risk measures and results.
|
Year-end
2006
|
Year-end
2005
|
ALCO
Guidelines
|
|
|
Projected
1-year net interest income
|
|||
|
-100
bp change vs. base rate
|
-0.9%
|
-0.6%
|
5%
|
|
+100
bp change vs. base rate
|
1.4%
|
0.5%
|
5%
|
|
Projected
1-year net interest income
|
|
||
|
-200
bp change vs. base rate
|
-2.2%
|
-1.3%
|
10%
|
|
+200
bp change vs. base rate
|
2.6%
|
0.9%
|
10%
|
Liquidity
Liquidity
is
the ability to satisfy demands for deposit withdrawals, lending commitments,
and
other corporate needs. Premier's liquidity is based on the stable nature
of
consumer core deposits held by the banking subsidiaries. Likewise, additional
liquidity is available from holdings of investment securities and short-term
investments which can be readily converted into cash. Furthermore, Premier's
banks continue to have the ability to attract short-term sources of funds
such
as federal funds and repurchase agreements.
Premier
generated $5.4 million of cash from operations in 2006, which compares to
$2.1
million in 2005 and $11.5 million in 2004. The increase in 2006 was primarily
the result of a return to normal cash generated from operations compared
to
2005. The decrease in 2005 was primarily the result of the payment of the
deferred distributions of the Trust Preferred Securities in March 2005, which
came out of cash from operations. The higher level of cash from operations
in
2004 was the result of deferring interest payments on the Trust Preferred
Securities and income tax refunds generated from the carry back of net operating
losses. Total cash from operations along with the proceeds from the sale
and
maturity of securities and the repayment of loans were used to purchase
securities, satisfy deposit withdrawals, fund new loans and reduce outstanding
debt during those years. Net cash provided by liquidating investing activities
totaled $7.9 million in 2005 and $7.5 million in 2004. However in 2006, $5.9
million of cash was used in investing activities primarily to fund loan growth.
In addition to the $5.4 million of cash from operations, Premier generated
$1.4
million in additional cash from financing activities, primarily due to the
increase in deposits and repurchase agreements. In 2005 and 2004, net cash
used
to satisfy deposit withdrawals and reduce debt totaled $8.4 million in 2005,
$20.9 million in 2004. Details on the sources and uses of cash can be found
in
the Consolidated Statements of Cash Flows in the consolidated financial
statements.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
At
December 31, 2006, the parent company had over $3.6 million in cash held
with
its subsidiary banks. This balance along with cash dividends expected to
be
received from its subsidiaries is sufficient to cover the operating costs
of the
parent, service its existing other debt and pay dividends to common
shareholders. During 2006, the parent company generated $5.1 million of cash
from operations and used $4.9 million to redeem a portion of the Trust Preferred
Securities outstanding, make principal payments on its outstanding other
debt
and pay dividends to shareholders. Also during 2006, the parent company borrowed
$13.5 million which was used to redeem the remainder of the Trust Preferred
Securities. During 2005, the parent company generated $1.5 million of cash
from
operations and used $5.8 million to redeem a portion of the Trust Preferred
Securities outstanding and payoff its outstanding other debt. Additional
information on parent company cash flows and financial statements is contained
in Note 22 to the consolidated financial
statements.
Capital
Resources
Premier's
consolidated average equity-to-asset ratio increased to 10.74% during 2006,
up
from 9.77% in 2005 and from 8.23% in 2004. The ratios for all three years
are
considered adequate for a company of Premier's size. The increase in 2006
was
largely due to the increase in net income with the slight decline in average
total assets. The increase in 2005 was largely due to increase in net income
in
2005 and the decline in average assets due to the sale of Citizen’s Bank
Kentucky on July 1, 2004. The Federal Reserve's risk-based capital guidelines
and leverage ratio measure the capital adequacy of banking institutions.
The
risk- based capital guidelines weight balance sheet assets and off-balance
sheet
commitments by prescribed factors relative to credit risk, thus eliminating
disincentives for holding low risk assets and requiring more capital for
holding
higher risk assets. At year-end 2006, Premier’s risk adjusted capital-to-assets
ratio was 16.0% compared to 19.1% at December 31, 2005. Both of these ratios
are
well above the minimum level of 8.0% prescribed for bank holding companies
of
Premier's size. The leverage ratio is a measure of total tangible equity
to
total tangible assets. Premier's leverage ratio at December 31, 2006 was
8.9%
compared to 10.6% at December 31, 2005. Both of these ratios are above the
recommended 4.0% to 5.0% recommended by the Federal Reserve. The decrease
in the
2006 ratios was primarily the result of redeeming the remainder of Premier’s
Trust Preferred Securities which was includable as capital in Premier’s 2005
capital ratios (see Selected Capital Information table below.) Premier's
capital
ratios are the direct result of management's desire to maintain a strong
capital
position. Additional information on Premier's capital ratios and the capital
ratios of its banks may be found in Note 21 to the
consolidated financial statements.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
The
primary source of funds for dividends paid by Premier is the dividends received
from its subsidiary banks. Banking regulations limit the amount of dividends
that may be paid without prior approval of the regulatory agencies. Under
these
regulations, the amount of dividends that may be paid without prior approval
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
regulatory capital requirements and additional restrictions more fully described
in Note 21 to the consolidated financial
statements. During 2007, Premier's banks could, without prior approval, declare
and pay to Premier dividends of approximately $3.2 million plus any 2007
net
profits retained through the date of declaration by Ohio River Bank, Boone
County Bank, First Central Bank and Farmers Deposit Bank. In 2005, Citizens
Deposit Bank requested and received approval from the Federal Reserve to
pay a
$3.0 million dividend in March 2005. This amount was substantially higher
than
the bank’s prior two years of reported net income. As such, Citizens Deposit
Bank must continue to request approval for up to two years beyond the December
31, 2005 to pay any future dividends to the parent company out of its current
earnings.
Additional
information on the capital position of Premier is included in the following
table.
|
SELECTED
CAPITAL INFORMATION
|
||||||||||
|
(Dollars
in thousands)
|
||||||||||
|
As
of December 31
|
||||||||||
|
2006
|
2005
|
Change
|
||||||||
|
Stockholders’
Equity
|
$
|
61,002
|
$
|
54,287
|
$
|
6,715
|
||||
|
Qualifying
capital securities of subsidiary trust
|
0
|
15,250
|
(15,250
|
)
|
||||||
|
Disallowed
amounts of goodwill and other intangibles
|
(15,816
|
)
|
(15,816
|
)
|
0
|
|||||
|
Disallowed
deferred tax assets
|
0
|
(628
|
)
|
628
|
||||||
|
Unrealized
loss on securities available for sale
|
1,150
|
1,718
|
(568
|
)
|
||||||
|
Tier
I capital
|
$
|
46,336
|
$
|
54,811
|
$
|
(8,475
|
)
|
|||
|
Tier
II capital adjustments
|
||||||||||
|
Qualifying
capital securities of subsidiary trust
|
0
|
0
|
||||||||
|
Allowable
amount of the allowance for loan losses
|
3,977
|
3,899
|
||||||||
|
Total
capital
|
$
|
50,313
|
$
|
58,710
|
||||||
|
Total
risk-weighted assets
|
$
|
315,485
|
$
|
307,951
|
||||||
|
Ratios
|
||||||||||
|
Tier
I capital to risk-weighted assets
|
14.69
|
%
|
17.80
|
%
|
||||||
|
Total
capital to risk-weighted assets
|
15.95
|
%
|
19.06
|
%
|
||||||
|
Leverage
at year-end
|
8.89
|
%
|
10.61
|
%
|
||||||
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
INCOME
STATEMENT ANALYSIS
Net
Interest Income
Net
interest
income, the amount by which interest generated from earning assets exceeds
the
expense associated with funding those assets, is Premier's most significant
component of earnings. Net interest income on a fully tax-equivalent basis
was
$21.5 million in 2006, up 7.8% from the 20.0 million earned in 2005 which
follows a 9.6% increase in 2005 from 2004. When net interest income is presented
on a fully tax-equivalent basis, interest income from tax-exempt earning
assets
is increased by the amount equivalent to the federal income taxes which would
have been paid if this income were taxable at the statutory federal tax rate
of
34% for companies of Premier's size. The increase in net interest income
in 2006
is largely due to an increase in interest income from loans and federal funds
sold due to higher overall yields and a greater volume of loans outstanding.
This increase in interest income more than offset the increase in interest
expense in 2006 resulting from higher rates paid on deposits and a higher
volume
of certificates of deposit. As shown in the Rate Volume Analysis table below,
increases in the yields on loans, investments and other earning assets increased
Premier’s interest income by $2.4 million. This increase was complemented by an
$867,000 increase in interest income due to an increase in loans outstanding
which was partially offset by a $324,000 reduction in interest income due
to a
lower total of investment securities outstanding. Also shown in the table
below,
interest expense on deposits increased by $2.3 million, $2.0 million due
to
higher rates paid, primarily certificates of deposit, and $0.3 million due
to a
shifting of deposits from savings and transaction based accounts to certificates
of deposit. This overall increase in interest expense was partially offset
by
net interest expense savings of $855,000 due to the refinancing and early
redemption of outstanding debt and the reduction in FHLB borrowings. Some
of
this interest expense savings was offset by higher interest paid on other
short-term borrowings. The combined effect was to increase net interest income
by $1,564,000 for the year.
The
increase in net interest income in 2005 is largely due to an increase in
interest income from loans and investments due to higher yields and a decrease
in interest expense due to a reduction in outstanding debt. As shown in the
Rate
Volume Analysis table below, increases in the yields on loans, investments
and
other earning assets increased Premier’s interest income by $1.2 million. This
increase was complemented by interest expense savings of over $1.0 million
due
to the reduction of outstanding debt, FHLB borrowings and other borrowings.
Some
of this interest expense savings was offset by higher interest paid on deposits
and other short-term borrowings due to overall higher rates paid on deposits
and
an increase in average certificates of deposit outstanding. The combined
effect
was to increase net interest income in 2005 by $1,752,000.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
|
RATE
VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME
|
|||||||||||||||||||
|
(Dollars
in thousands on a tax equivalent basis)
|
|||||||||||||||||||
|
2006
vs 2005
|
2005
vs 2004
|
||||||||||||||||||
|
Increase
(decrease) due to change in
|
Increase
(decrease) due to change in
|
||||||||||||||||||
|
Volume
|
Rate
|
Net
Change
|
Volume
|
Rate
|
Net
Change
|
||||||||||||||
|
Interest
income*:
|
|||||||||||||||||||
|
Loans
|
$
|
867
|
$
|
1,552
|
$
|
2,419
|
$
|
72
|
$
|
414
|
$
|
486
|
|||||||
|
Investment
securities
|
(324
|
)
|
444
|
120
|
(8
|
)
|
394
|
386
|
|||||||||||
|
Federal
funds sold
|
43
|
427
|
470
|
(61
|
)
|
426
|
365
|
||||||||||||
|
Deposits
with banks
|
2
|
10
|
12
|
5
|
0
|
5
|
|||||||||||||
|
Total
interest income
|
$
|
588
|
$
|
2,433
|
$
|
3,021
|
$
|
8
|
$
|
1,234
|
$
|
1,242
|
|||||||
|
Interest
expense:
|
|||||||||||||||||||
|
Deposits
|
|||||||||||||||||||
|
NOW
and money market
|
$
|
(116
|
)
|
$
|
473
|
$
|
357
|
$
|
(104
|
)
|
$
|
223
|
$
|
119
|
|||||
|
Savings
|
(46
|
)
|
(45
|
)
|
(91
|
)
|
(25
|
)
|
(84
|
)
|
(109
|
)
|
|||||||
|
Certificates
of deposit
|
419
|
1,573
|
1,992
|
252
|
197
|
449
|
|||||||||||||
|
Short-term
borrowings
|
27
|
27
|
54
|
38
|
24
|
62
|
|||||||||||||
|
Other
borrowings
|
194
|
366
|
560
|
(108
|
)
|
(126
|
)
|
(234
|
)
|
||||||||||
|
FHLB
borrowings
|
(56
|
)
|
10
|
(46
|
)
|
(67
|
)
|
10
|
(57
|
)
|
|||||||||
|
Debt
|
(1,224
|
)
|
(145
|
)
|
(1,369
|
)
|
(524
|
)
|
(216
|
)
|
(740
|
)
|
|||||||
|
Total
interest expense
|
$
|
(802
|
)
|
$
|
2,259
|
$
|
1,457
|
$
|
(538
|
)
|
$
|
28
|
$
|
(510
|
)
|
||||
|
Net
interest income*
|
$
|
1,390
|
$
|
174
|
$
|
1,564
|
$
|
546
|
$
|
1,206
|
$
|
1,752
|
|||||||
|
(*)
Fully taxable equivalent using the rate of 34%
Note
- Changes to rate/volume are allocated to both rate and volume
on a
proportional dollar basis
|
|||||||||||||||||||
As
net
interest income dollars increased in 2006, Premier’s net interest margin also
increased. In 2006, the yield earned on investment securities increased 47
basis
points to 3.91% while the average yield on the loan portfolio increased 46
basis
points to 7.69%. The yield on federal funds sold increased 176 basis points
to
4.99%. The net result on all earning assets was to increase the yield 63
basis
points to 6.53% in 2006, up from the 5.90% earned in 2005 and the 5.60% earned
in 2004. Similarly, in 2006 Premier increased the average rate paid on its
deposits by 64 basis points to keep competitive with local and national markets.
The average rate paid on certificates of deposit increased the most at 85
basis
points, while interest bearing transaction accounts increased on average
by only
38 basis points in 2006. Premier also increased the rates paid on its short-term
borrowings by 30 basis points. Rates also increased on other borrowings as
Premier refinanced its subordinated debt with floating prime rate and sub
prime
rate loans. This refinancing resulted in a corresponding decrease in the
overall
rate paid on debt outstanding. The overall result of increasing rates paid
on
deposits and rate decreases resulting from debt refinancing was to increase
the
overall cost of funds by 43 basis points to 2.73%, up from the 2.30% in 2005
and
2.32% in 2004. As a result Premier's net interest spread increased by 20
basis
points and its net interest margin increased by 32 basis points to 4.32%
in
2006, up from 4.00% in 2005 and 3.61% in 2004.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
In
2005, the yield earned on investment securities increased 26 basis points
to
3.44% while the average yield on the loan portfolio increased 13 basis points
to
7.23%. The yield on federal funds sold increased 194 basis points to 3.23%.
The
net result on all earning assets was to increase the yield 30 basis points
to
5.90% in 2005, up from the 5.60% earned in 2004. Similarly, in 2005 Premier
increased the average rate paid on its deposits by 17 basis points to keep
competitive with national and local market rates. Premier also increased
the
rates paid on its short-term borrowings by 34 basis points. However, these
rate
increases were offset by reductions in other borrowings, FHLB advances and
Premier’s subordinated debentures. Furthermore, due to the payment of the
cumulative deferred Trust Preferred distributions in March, the effective
rate
on the outstanding principal balance of the debt decreased by 90 basis points
to
10.40%. The overall effect on all interest bearing liabilities was to actually
reduce the cost of funds 2 basis points to 2.30% in 2005, down from 2.32%
in
2004. As a result Premier's net interest spread increased by 33 basis points
and
its net interest margin increased by 39 basis points to 4.00% in 2005, up
from
3.61% in 2004. Further discussion of interest income is included in the section
of this report entitled "Balance Sheet Analysis."
Non-interest
Income and Expense
Non-interest
income has been and will continue to be an important factor for improving
profitability. Recognizing this importance, management continues to evaluate
areas where non-interest income can be enhanced. As shown in the table of
Non-interest Income and Expense below, total fees and other income increased
by
$245,000 or 6.3% in 2006. The increase in 2006 was fairly evenly distributed
between increases in the volume of service charges on deposit accounts,
electronic banking income, and secondary market mortgage income. In 2006,
service charges on deposit accounts increased $72,000 or 2.6% to $2,804,000,
primarily due to increases in Premier’s non-interest bearing deposit customer
base. Electronic banking income, which consists of debit and credit card
transaction fees, ATM fees and internet banking fees, increased $95,000 or
23.6%
to $498,000 in 2006. Premier’s data processing conversion in 2005 modernized and
increased the number of methods by which customers could electronically access
their accounts and deposited funds. The increase in electronic banking income
reflects the increased number of customers utilizing these methods. Secondary
market mortgage income, which are commissions and fees earned for originating
and selling mortgage loans to third parties in the secondary market, increased
$86,000 or 39.6% to $303,000 in 2006. In 2005, Premier changed its approach
to
secondary market mortgage originations in an effort to expedite the loan
approval process. The increased income in 2006 reflects a greater number
customers taking advantage of this process. Other non-interest income was
relatively unchanged totaling $560,000 in 2006 compared to $568,000 in 2005
as
the elimination of data processing fees earned in 2005 was offset by increases
in the collection of loan extension and late payment fees in 2006.
In
2005, total fees and other income increased 11.8% or $414,000 from the amount
earned in 2004. The increase in 2005 is again largely due to an increase
in
service charges of deposit accounts, electronic banking income and secondary
market mortgage. Service charges on
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
deposit
accounts increased to $2,732,000 in 2005, an increase of 8.7% or $219,000.
The
increase was the result of changes in the way Premier charges customers for
overdrawing their checking accounts and a general increase in customers and
activity. Electronic banking income increased $153,000 or 61.2% in 2005,
largely
due to the modernization of the ways Premier’s customers can access their
deposit accounts. Secondary market mortgage income increased $146,000 or
over
200% as Premier changed its approach to secondary market mortgage originations
and increased its volume of transactions. Other income decreased 15.5% or
$104,000 in 2005 largely due to lower data processing revenue from non-affiliate
banks as Premier’s data processing subsidiary ceased providing these services in
late 2004 and early 2005.
The
following
table is a summary of non-interest income and expense for each of the years
in
the three-year period ending December 31, 2006.
|
NON-INTEREST
INCOME AND EXPENSE
|
||||||||||||||||||||||
|
(Dollars
in thousands)
|
||||||||||||||||||||||
|
Increase
(Decrease) Over Prior Year
|
||||||||||||||||||||||
|
2006
|
2005
|
|||||||||||||||||||||
|
2006
|
2005
|
2004
|
Amount
|
Percent
|
Amount
|
Percent
|
||||||||||||||||
|
Non-interest
income:
|
||||||||||||||||||||||
|
Service
charges on deposit accounts
|
$
|
2,804
|
$
|
2,732
|
$
|
2,513
|
$
|
72
|
2.64
|
$
|
219
|
8.71
|
||||||||||
|
Electronic
banking income
|
498
|
403
|
250
|
95
|
23.57
|
153
|
61.20
|
|||||||||||||||
|
Secondary
market mortgage income
|
303
|
217
|
71
|
86
|
39.63
|
146
|
205.63
|
|||||||||||||||
|
Other
|
560
|
568
|
672
|
(8
|
)
|
(1.41
|
)
|
(104
|
)
|
(15.48
|
)
|
|||||||||||
|
Total
fees and other income
|
$
|
4,165
|
$
|
3,920
|
$
|
3,506
|
245
|
6.25
|
414
|
11.81
|
||||||||||||
|
Investment
securities gains
|
0
|
0
|
100
|
0
|
(100
|
)
|
||||||||||||||||
|
Total
non-interest income
|
$
|
4,165
|
$
|
3,920
|
$
|
3,606
|
$
|
245
|
6.25
|
$
|
314
|
8.71
|
||||||||||
|
Non-interest
expense:
|
||||||||||||||||||||||
|
Salaries
and wages
|
$
|
7,540
|
$
|
7,443
|
$
|
7,103
|
$
|
97
|
1.30
|
$
|
340
|
4.79
|
||||||||||
|
Employee
benefits
|
1,590
|
1,642
|
1,633
|
(52
|
)
|
(3.17
|
)
|
9
|
0.55
|
|||||||||||||
|
Total
staff costs
|
9,130
|
9,085
|
8,736
|
45
|
0.50
|
349
|
3.99
|
|||||||||||||||
|
Occupancy
and equipment
|
1,907
|
2,262
|
2,141
|
(355
|
)
|
(15.69
|
)
|
121
|
5.65
|
|||||||||||||
|
Outside
data processing
|
2,036
|
1,505
|
1,023
|
531
|
35.28
|
482
|
47.12
|
|||||||||||||||
|
Professional
fees
|
496
|
554
|
2,271
|
(58
|
)
|
(10.47
|
)
|
(1,717
|
)
|
(75.61
|
)
|
|||||||||||
|
Taxes,
other than payroll, property
and income
|
598
|
423
|
589
|
175
|
41.37
|
(166
|
)
|
(28.18
|
)
|
|||||||||||||
|
OREO
(gains) losses and expenses, net
|
(91
|
)
|
52
|
(45
|
)
|
(143
|
)
|
(275.00
|
)
|
97
|
215.56
|
|||||||||||
|
Bad
check losses (recoveries)
|
(79
|
)
|
36
|
94
|
(115
|
)
|
(319.44
|
)
|
(58
|
)
|
(61.70
|
)
|
||||||||||
|
Supplies
|
333
|
362
|
365
|
(29
|
)
|
(8.01
|
)
|
(3
|
)
|
(0.82
|
)
|
|||||||||||
|
Accelerated
amortization of subordinated
debt issuance
costs
|
548
|
184
|
214
|
364
|
197.83
|
(30
|
)
|
(14.02
|
)
|
|||||||||||||
|
Other
expenses
|
2,059
|
2,842
|
2,394
|
(783
|
)
|
(27.55
|
)
|
448
|
18.71
|
|||||||||||||
|
Total
non-interest expenses
|
$
|
16,937
|
$
|
17,305
|
$
|
17,782
|
$
|
(368
|
)
|
(2.13
|
)
|
$
|
(477
|
)
|
(2.68
|
)
|
||||||
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
In
2006 and 2005, Premier did not execute any sales of investment securities.
In
2004, Premier realized $100,000 in net gains on securities sales. These
securities were sold as part of Premier's management of its asset/liability
position and to liquidate certain tax exempt investments in order to generate
future taxable income.
Just
as
management continues to evaluate areas where non-interest income can be
enhanced, it strives to find ways to improve the efficiency of its operations
and utilize the economies of scale of the consolidated entity to reduce its
operating costs. Premier’s 2006 net overhead ratio, or non-interest expense less
non-interest income excluding securities transactions and other similar
non-operating transactions to average earning assets was 2.56%, a decrease
from
the 2.68% realized in 2005 and the 2.82% ratio realized in 2004. The actual
dollars of net overhead declined by 4.6% or $613,000 in 2006 which reduced
the
ratio by 12 basis points. In 2005, the ratio decreased by 15 basis points,
as
the actual dollars of net overhead expense decreased by 6.2% or $891,000.
For
the year 2006, net overhead was $12.8 million, down from the $13.4 million
of
2005 net overhead. The current year decrease follows a $891,000 decrease
in 2005
from the $14.3 million of net overhead in 2004.
Total
non-interest expense in 2006 decreased by $368,000, or 2.1% from 2005 as
decreases in occupancy and equipment costs, professional fees, OREO losses,
bad
check losses and other expenses were only partially offset by higher data
processing fees, accelerated trust preferred issuance cost amortization,
and
taxes not on income. Total non-interest expense in 2005 decreased by $477,000,
or 2.7% from 2004 as decreases in professional fees, taxes not on income,
and
bad check losses were only partially offset by higher data processing fees,
staff costs, OREO expenses, occupancy and equipment expenses and other operating
expenses.
Staff
costs increased by $45,000 or 0.5% in 2006 versus 2005. Normal salary and
wage
increases and $142,000 of stock compensation expense resulting from the adoption
of FAS 123R in 2006 were substantially offset by reductions in staff count
and
correspondent benefit cost reductions resulting from the data processing
conversion in 2005. Staff costs increased by $349,000 or 4.0% in 2005 versus
2004. Normal salary and wage increases in 2005 were increased by the addition
of
full time internal audit staff at the parent company. The use of employees
to
perform the internal audits of the company helped to reduce professional
fees
paid to outside professionals which performed the function in 2004 and earlier.
Occupancy
and equipment expenses decreased by $355,000 or 15.7% in 2006 due to savings
from the disposal of equipment and facilities related to Premier’s data
processing subsidiary in 2005, lower property and casualty insurance costs,
and
the expensing of obsolete equipment as part of the data processing conversion
in
2005. Occupancy and equipment expenses increased by $121,000 or 5.7% in 2005
due
to the costs of operating an additional branch location opened in January
2005
plus an increase in equipment costs related to the write-off of old equipment
and the purchase of new technology related to Premier’s conversion to an outside
data processor in 2005.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
Outside
data processing expense increased by $531,000 or 35.3% in 2006 as 2006
represents the first full year of expense since Premier converted to an
outsourced provider in early-to-mid 2005. Outside data processing expense
increased by $482,000 or 47.1% in 2005 as Premier transitioned its internal
data
and item processing functions to an outsourced provider. Savings in other
expense areas such as staff costs, occupancy and equipment expense and other
operating expenses have been realized as a result of the conversion.
Professional
fees decreased by $58,000 or 10.5% in 2006 largely due to lower internal
audit
costs, tax preparation fees and consulting expenses. In 2005, Premier used
an
outside firm to continue to provide internal audits of Farmers Deposit Bank.
For
2006, these audits were performed by internal staff at the parent company.
Professional fees decreased by $1,717,000 or 75.6% in 2005 versus 2004 largely
due to the increased audit costs as well as legal fees and other professional
fees associated with Premier's investigation of Farmers Deposit Bank and
the
related SEC investigation in 2004 as disclosed in previous filings. Professional
fees also declined in 2005 as a result of bringing the internal audit function
in-house for all banks except Farmers Deposit.
Taxes
not on income increased by $175,000 or 41.4% in 2006 versus 2005. The increase
in 2006 is largely due to an increase in taxable equity for equity based
franchise taxes and an increase in local municipal taxes. Taxes not on income
decreased by $166,000 or 28.1% in 2005 versus 2004. The decrease in 2005
is
largely due to a decrease in the taxable equity of the two Kentucky banks
subject to the Kentucky Bank Franchise Tax.
OREO
gains, losses and expenses resulted in net gains of $91,000 in 2006 versus
$52,000 of net expenses in 2005, a $143,000 reduction of non-interest expense.
OREO expense represents the costs to operate, maintain and liquidate Other
Real
Estate acquired through foreclosure in satisfaction of unpaid loans. In 2006
as
Premier sold most its inventory of OREO properties, it realized $105,000
of net
gains on their disposition as well as a reduction in the expenses needed
to
maintain the properties. A majority of the gains on the disposition of OREO
were
on properties from which no previous writedowns had occurred. OREO writedowns
and expenses totaled $52,000 in 2005, a $97,000 increase over the net $45,000
benefit realized in 2004. The 2005 expense represents the costs to operate,
maintain and liquidate Other Real Estate. In 2004, Premier realized $123,000
of
net profit from the disposition of OREO properties. This profit more than
offset
the costs of maintaining the remaining OREO property held in 2004.
Net
recoveries on bad checks totaled $79,000 in 2006 compared to $36,000 of net
losses on bad checks in 2005. The $115,000 decrease was a largely the result
of
a $101,000 partial settlement on the recovery of bad check losses related
to
dishonored checks in 2003. In 2005 bad check losses declined for the second
year
in a row to $36,000 down from $94,000 in 2004.
Accelerated
Trust Preferred issuance costs were recognized in 2004, 2005 and 2006. At
the
time of issuance, the costs to originate the Trust Preferred Securities were
capitalized. The costs were being amortized over the 30 year life of the
securities which were scheduled to
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
mature
in 2027 and were recorded as an adjustment to interest expense. In March
2003,
Premier began redeeming its Trust Preferred Securities in accordance with
the
terms of the instrument. At time of redemption an amount of the remaining
unamortized issuance costs proportional to the size of the redemption is
expensed to non-interest expense. As a result of the $4.5 million early
redemption on October 15, 2004 and the additional $1.0 million redeemed on
December 31, 2004, Premier expensed $214,000 of the issuance costs. In 2005,
as
a result of the $5.0 million early redemption on December 31, 2005, Premier
expensed $184,000 of the issuance costs. In 2006, as a result of the $7.0
million early redemption on January 31, 2006 and the final $8.25 million
redeemed on November 10, 2006, Premier expensed the final $548,000 of the
issuance costs. Additional information on the Trust Preferred Securities
is
contained in Note 12 to the consolidated financial
statements.
Other
expenses totaled $2.1 million in 2006, a $783,000 or $27.6% decrease from
the
$2.8 million recorded in 2005. The decrease in 2006 is largely due to costs
and
fees incurred in 2005 related to Premier’s conversion to an outsource data and
item processing provider. These costs included the travel and training of
employees, fees and travel expense reimbursements paid to Fiserv to convert
Premier’s data and costs associated with upgrading Premier’s computer networks.
Other reductions in 2006 expense include lower FDIC insurance costs; recoveries
of previously expensed loan collection costs as well as lower costs incurred
in
2006; lower insurance costs and costs incurred in 2005 related the termination
of trust services. Other expenses that increased in 2006 include advertising,
employee training and development, and travel costs associated with the internal
audit function. Other expenses totaled $2.8 million in 2005, an 18.7% or
$448,000 increase from the $2.4 million recorded in 2004. Again, the increase
in
2005 is largely due to costs and fees related to Premier’s conversion to an
outsource data and item processing provider. These costs included the travel
and
training of employees, fees and travel expense reimbursements paid to Fiserv
to
convert Premier’s data and costs associated with upgrading Premier’s computer
networks.
An
analysis of the allowance for loan losses and related provision for loan
losses
is included in the Loan Portfolio section of the Balance Sheet Analysis of
this
report.
Applicable
Income Taxes
Premier
recognized $3.3 million of income tax expense related to continuing operations
in 2006. This amount compares to $2.0 million of income tax expense recorded
in
2005 and $899,000 of income tax expense recorded in 2004. Premier's effective
tax rate was 33.6% in 2006, up slightly from the 31.4% in 2005 and 2004.
Premier's effective tax rate in 2006 was increased primarily due to stock
compensation expense required by FAS 123R, most of which is a non-deductible
expense for income tax purposes since it relates primarily to qualified
incentive stock options. In addition, the tax saving benefits of holding
tax-exempt investments and other tax saving instruments helped to reduce
Premier's tax rate in 2005 and 2004 to 31.4% from the 34.0% statutory rate.
Additional information regarding income taxes is contained in Note 13 to the consolidated financial
statements.
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
Effects
of Changing Prices
The
results of operations and financial condition presented in this report are
based
on historical cost, unadjusted for the effects of inflation. Inflation affects
Premier in two ways. One is that inflation can result in increased operating
costs which must be absorbed or recovered through increased prices for services.
The second effect is on the purchasing power of the corporation. Virtually
all
of a bank's assets and liabilities are monetary in nature. Regardless of
changes
in prices, most assets and liabilities of the banking subsidiaries will be
converted into a fixed number of dollars. Non-earning assets, such as premises
and equipment, do not comprise a major portion of Premier's assets; therefore,
most assets are subject to repricing on a more frequent basis than in other
industries.
Premier's
ability to offset the effects of inflation and potential reductions in future
purchasing power depends primarily on its ability to maintain capital levels
by
adjusting prices for its services and to improve net interest income by
maintaining an effective asset/liability mix. Management's efforts to meet
these
goals are described in other sections of this report.
SUMMARY
RESULTS OF OPERATIONS
FOURTH
QUARTER 2006
Income
from continuing operations for the three months ended December 31, 2006 totaled
$1,659,000, a $122,000 or 7.9% increase from the $1,537,000 of income from
continuing operations reported for the fourth quarter of 2005. On a per share
basis, Premier's income from continuing operations for the fourth quarter
of
2006 was 32 cents per share, compared to 29 cents per share for the same
quarter
last year.
Net
interest income totaled $5,454,000 for the fourth quarter of 2006, an increase
of $277,000 or 5.4% from the net interest income earned in the same quarter
of
2005. The increase is the result of higher interest income on loans and
investments due to higher yields and an increase in interest income on loans
and
federal funds sold due to an increase in their average balance. This increase
in
interest income was partially offset by an increase in interest expense.
An
increase in interest expense on deposits as a result of higher rates paid
was
partially reduced by a decrease in interest expense on borrowings due to
lower
outstanding balances and lower borrowing rates due the refinancing of the
subordinated debt. During the fourth quarter of 2006, Premier reversed $110,000
of previously recorded provisions for loan losses (negative provisions).
This
compares to $290,000 of negative provisions in the fourth quarter of 2005.
The
negative provisions were the result of continued improvement in the estimated
credit risk at banks formerly subject to regulatory agreements and payments
on
loans previously identified as having significant credit risk at Farmers
Deposit
Bank. Future provisions to the allowance for loan losses, positive or negative,
will depend on future improvement or deterioration in estimated credit risk
in
the loan portfolio as well as whether additional payments are received
PREMIER
FINANCIAL BANCORP, INC.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
December
31, 2006
on
loans having significant credit risk. Non-interest
income excluding securities transactions totaled $1,134,000 in the fourth
quarter of 2006, an increase of $98,000 or 9.5% from the $1,036,000 in the
fourth quarter of 2005. The increase was largely due to increases in secondary
market mortgage income and electronic banking income. Non-interest expense
totaled $4,201,000 in the fourth quarter of 2006, a $44,000 or 1.0% decrease
from the $4,245,000 reported for the fourth quarter of 2005. A decrease in
occupancy and equipment expense, data processing conversion expenses and
loan
collection costs as well as gains on the disposition of OREO were nearly
offset
by increases in staff costs, advertising and accelerated amortization of
trust
preferred issuance costs. Additional quarterly financial data is provided
in Note 22 to the consolidated financial
statements.
ADOPTION
OF NEW ACCOUNTING STANDARDS
Recently
Issued Accounting Standards Not Yet Adopted
In
September 2006, the FASB issued Statement No. 157, Fair
Value Measurements.
This Statement defines fair value, establishes a framework for measuring
fair
value and expands disclosures about fair value measurements. This Statement
establishes a fair value hierarchy about the assumptions used to measure
fair
value and clarifies assumptions about risk and the effect of a restriction
on
the sale or use of an asset. The standard is effective for fiscal years
beginning after November 15, 2007. The Company has not completed its evaluation
of the impact of the adoption of this standard.
In
July 2006, the FASB issued FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No.
109
(FIN
48), which prescribes a recognition threshold and measurement attribute for
a
tax position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting
in
interim periods, disclosure and transition. FIN 48 is effective for fiscal
years
beginning after December 15, 2006. The Company has determined that the adoption
of FIN 48 will not have a material effect on the financial
statements.
New
accounting standards have also been issued that the Company does not expect
will
have a material effect on the financial statements when adopted in future
years
or for which the Company has not yet completed its evaluation of the potential
effect upon adoption. In general, these standards revise the accounting for
derivatives embedded in other financial instruments for 2007, revise the
recognition and accounting for servicing of financial assets for 2007, revise
the accrual of post-retirement benefits associated with providing life insurance
for 2008, and revise the accounting for cash surrender value for
2007.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
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:
Financial
Statements:
Consolidated
Balance Sheets - December
31, 2006 and
2005
PREMIER
FINANCIAL BANCORP, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
PUBLIC
ACCOUNTING FIRM
Board
of Directors and Shareholders
Premier
Financial Bancorp, Inc.
Huntington,
West Virginia
We
have audited the accompanying consolidated balance sheets of Premier Financial
Bancorp, Inc. as of December 31, 2006 and 2005, and the related consolidated
statements of income, comprehensive income, changes in stockholders' equity,
and
cash flows for each of the three years in the period ended December 31,
2006.
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.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit 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. as of December 31, 2006 and 2005, and the results of its
operations and its cash flows for each of the three years in the period
ended
December 31, 2006, in conformity with U.S. generally accepted accounting
principles.
Crowe
Chizek and Company LLC
Columbus,
Ohio
March
30, 2007
CONSOLIDATED
BALANCE SHEETS
December
31, 2006 and 2005
(Dollars
in Thousands, Except Per Share Data)
|
2006
|
2005
|
||||||
|
ASSETS
|
|||||||
|
Cash
and due from banks
|
$
|
16,974
|
$
|
16,080
|
|||
|
Federal
funds sold
|
27,583
|
18,812
|
|||||
|
Securities
available for sale
|
121,367
|
137,419
|
|||||
|
Loans
held for sale
|
1,978
|
868
|
|||||
|
Loans
|
343,797
|
328,717
|
|||||
|
Allowance
for loan losses
|
(6,661
|
)
|
(7,892
|
)
|
|||
|
Net
loans
|
337,136
|
320,825
|
|||||
|
Federal
Home Loan Bank and Federal Reserve Bank stock
|
3,265
|
3,060
|
|||||
|
Premises
and equipment, net
|
6,533
|
7,126
|
|||||
|
Real
estate and other property acquired through foreclosure
|
495
|
2,049
|
|||||
|
Interest
receivable
|
2,821
|
2,661
|
|||||
|
Goodwill
|
15,816
|
15,816
|
|||||
|
Other
assets
|
1,484
|
3,608
|
|||||
|
Total
assets
|
$
|
535,452
|
$
|
528,324
|
|||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
|
Deposits
|
|||||||
|
Non-interest
bearing
|
$
|
72,784
|
$
|
69,856
|
|||
|
Time
deposits, $100,000 and over
|
53,477
|
42,169
|
|||||
|
Other
interest bearing
|
312,689
|
323,818
|
|||||
|
Total
deposits
|
438,950
|
435,843
|
|||||
|
Federal
funds purchased
|
976
|
-
|
|||||
|
Securities
sold under agreements to repurchase
|
12,555
|
9,317
|
|||||
|
Federal
Home Loan Bank advances
|
7,285
|
8,334
|
|||||
|
Other
borrowed funds
|
12,275
|
-
|
|||||
|
Notes
payable
|
-
|
1,402
|
|||||
|
Guaranteed
junior subordinated interest debentures
|
-
|
15,722
|
|||||
|
Interest
payable
|
1,061
|
724
|
|||||
|
Other
liabilities
|
1,348
|
2,695
|
|||||
|
Total
liabilities
|
474,450
|
474,037
|
|||||
|
Commitments
and contingent liabilities
|
-
|
-
|
|||||
|
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;
|
|||||||
|
5,236,899
in 2006 and 5,233,897 in 2005 shares
issued and outstanding
|
1,108
|
1,105
|
|||||
|
Additional
paid-in capital
|
43,624
|
43,458
|
|||||
|
Retained
earnings
|
17,420
|
11,442
|
|||||
|
Accumulated
other comprehensive income (loss)
|
(1,150
|
)
|
(1,718
|
)
|
|||
|
Total
stockholders' equity
|
61,002
|
54,287
|
|||||
|
Total
liabilities and stockholders' equity
|
$
|
535,452
|
$
|
528,324
|
|||
CONSOLIDATED
STATEMENTS OF INCOME
Years
Ended December 31
(In
Thousands, Except Per Share Data)
|
2006
|
2005
|
2004
|
||||||||
|
Interest
income
|
||||||||||
|
Loans,
including fees
|
$
|
25,926
|
$
|
23,532
|
$
|
23,073
|
||||
|
Investment
securities
|
||||||||||
|
Taxable
|
5,148
|
5,014
|
4,444
|
|||||||
|
Tax-exempt
|
88
|
96
|
217
|
|||||||
|
Federal
funds sold
|
1,215
|
745
|
380
|
|||||||
|
Other
interest income
|
23
|
12
|
7
|
|||||||
|
Total
interest income
|
32,400
|
29,399
|
28,121
|
|||||||
|
Interest
expense
|
||||||||||
|
Deposits
|
8,984
|
6,725
|
6,267
|
|||||||
|
Repurchase
agreements and other
|
234
|
180
|
115
|
|||||||
|
FHLB
advances and other borrowings
|
1,027
|
513
|
807
|
|||||||
|
Debentures
|
760
|
2,129
|
2,868
|
|||||||
|
Total
interest expense
|
11,005
|
9,547
|
10,057
|
|||||||
|
Net
interest income
|
21,395
|
19,852
|
18,064
|
|||||||
|
Provision
for loan losses
|
(1,161
|
)
|
4
|
1,026
|
||||||
|
Net
interest income after provision for loan losses
|
22,556
|
19,848
|
17,038
|
|||||||
|
Non-interest
income
|
||||||||||
|
Service
charges
|
2,804
|
2,732
|
2,513
|
|||||||
|
Electronic
banking income
|
498
|
403
|
250
|
|||||||
|
Secondary
market mortgage income
|
303
|
217
|
71
|
|||||||
|
Securities
gains
|
-
|
-
|
100
|
|||||||
|
Other
|
560
|
568
|
672
|
|||||||
|
4,165
|
3,920
|
3,606
|
||||||||
|
Non-interest
expenses
|
||||||||||
|
Salaries
and employee benefits
|
9,130
|
9,085
|
8,736
|
|||||||
|
Occupancy
and equipment expenses
|
1,907
|
2,262
|
2,141
|
|||||||
|
Outside
data processing
|
2,036
|
1,505
|
1,023
|
|||||||
|
Professional
fees
|
496
|
554
|
2,271
|
|||||||
|
Taxes,
other than payroll, property and income
|
598
|
423
|
589
|
|||||||
|
Write-downs,
expenses, sales of other
real
estate owned, net of gains
|
(91
|
)
|
52
|
(45
|
)
|
|||||
|
Supplies
|
333
|
362
|
365
|
|||||||
|
Other
expenses
|
2,528
|
3,062
|
2,702
|
|||||||
|
16,937
|
17,305
|
17,782
|
||||||||
|
Income
from continuing operations before
income taxes
|
9,784
|
6,463
|
2,862
|
|||||||
|
Provision
for income taxes
|
3,283
|
2,029
|
899
|
|||||||
|
Income
from continuing operations
|
6,501
|
4,434
|
1,963
|
|||||||
|
Discontinued
operation
|
||||||||||
|
Income
from operations of discontinued component
|
-
|
-
|
4
|
|||||||
|
Gain
on sale of discontinued component
|
-
|
-
|
6,664
|
|||||||
|
Provision
for income taxes
|
-
|
-
|
1,934
|
|||||||
|
Income
from discontinued operation
|
-
|
-
|
4,734
|
|||||||
|
Net
income
|
$
|
6,501
|
$
|
4,434
|
$
|
6,697
|
||||
PREMIER
FINANCIAL BANCORP, INC.
CONSOLIDATED
STATEMENTS OF INCOME (Continued)
Years
Ended December 31
(In
Thousands, Except Per Share Data)
|
2006
|
2005
|
2004
|
||||||||
|
Weighted
average shares outstanding:
|
||||||||||
|
Basic
|
5,236
|
5,233
|
5,232
|
|||||||
|
Diluted
|
5,264
|
5,248
|
5,237
|
|||||||
|
Earnings
per share from continuing operations:
|
||||||||||
|
Basic
|
$
|
1.24
|
$
|
0.85
|
$
|
0.37
|
||||
|
Diluted
|
1.24
|
0.84
|
0.37
|
|||||||
|
Earnings
per share from discontinued operation:
|
||||||||||
|
Basic
|
$
|
-
|
$
|
-
|
$
|
0.90
|
||||
|
Diluted
|
-
|
-
|
0.90
|
|||||||
|
Net
earnings per share:
|
||||||||||
|
Basic
|
$
|
1.24
|
$
|
0.85
|
$
|
1.28
|
||||
|
Diluted
|
1.24
|
0.84
|
1.28
|
|||||||
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
Years
Ended December 31
(In
Thousands, Except Per Share Data)
|
2006
|
2005
|
2004
|
||||||||
|
Net
income
|
$
|
6,501
|
$
|
4,434
|
$
|
6,697
|
||||
|
Other
comprehensive income (loss):
|
||||||||||
|
Unrealized
gains and (losses) arising during the period
|
861
|
(1,805
|
)
|
(1,730
|
)
|
|||||
|
Reclassification
of realized amount
|
-
|
-
|
(100
|
)
|
||||||
|
Net
change in unrealized gain (loss) on securities
|
861
|
(1,805
|
)
|
(1,830
|
)
|
|||||
|
Less
tax impact
|
293
|
(614
|
)
|
(622
|
)
|
|||||
|
Other
comprehensive income (loss):
|
568
|
(1,191
|
)
|
(1,208
|
)
|
|||||
|
Comprehensive
income
|
$
|
7,069
|
$
|
3,243
|
$
|
5,489
|
||||
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years
Ended December 31, 2006, 2005 and 2004
(In
Thousands, Except Per Share Data)
|
Common
Stock
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
Total
|
||||||||||||
|
Balances,
January 1, 2004
|
$
|
1,103
|
$
|
43,445
|
$
|
311
|
$
|
681
|
$
|
45,540
|
||||||
|
Net
change in unrealized gains (losses)
on
securities available for sale
|
-
|
-
|
-
|
(1,208
|
)
|
(1,208
|
)
|
|||||||||
|
Net
income
|
-
|
-
|
6,697
|
-
|
6,697
|
|||||||||||
|
Balances,
December 31, 2004
|
1,103
|
43,445
|
7,008
|
(527
|
)
|
51,029
|
||||||||||
|
Net
change in unrealized gains (losses)
on
securities available for sale
|
-
|
-
|
-
|
(1,191
|
)
|
(1,191
|
)
|
|||||||||
|
Stock
options exercised, 1,667 shares
|
2
|
13
|
-
|
-
|
15
|
|||||||||||
|
Net
income
|
-
|
-
|
4,434
|
-
|
4,434
|
|||||||||||
|
Balances,
December 31, 2005
|
1,105
|
43,458
|
11,442
|
(1,718
|
)
|
54,287
|
||||||||||
|
Net
change in unrealized gains (losses)
on
securities available for sale
|
-
|
-
|
-
|
568
|
568
|
|||||||||||
|
Cash
dividends paid ($0.10 per share)
|
-
|
-
|
(523
|
)
|
-
|
(523
|
)
|
|||||||||
|
Stock
options exercised, 3,002 shares
|
3
|
24
|
-
|
-
|
27
|
|||||||||||
|
Stock
based compensation expense
|
-
|
142
|
-
|
-
|
142
|
|||||||||||
|
Net
income
|
-
|
-
|
6,501
|
-
|
6,501
|
|||||||||||
|
Balances,
December 31, 2006
|
$
|
1,108
|
$
|
43,624
|
$
|
17,420
|
$
|
(1,150
|
)
|
$
|
61,002
|
|||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
Ended December 31
(In
Thousands, Except Per Share Data)
|
2006
|
2005
|
2004
|
||||||||
|
Cash
flows from continuing operating activities
|
||||||||||
|
Net
income
|
$
|
6,501
|
$
|
4,434
|
$
|
6,697
|
||||
|
Adjustments
to reconcile income to net cash from
continuing
operating activities
|
||||||||||
|
Income
from discontinued operation
|
-
|
-
|
(4,734
|
)
|
||||||
|
Depreciation
and impairment of real estate
|
868
|
976
|
904
|
|||||||
|
Provision
for loan losses
|
(1,161
|
)
|
4
|
1,026
|
||||||
|
Amortization,
net
|
187
|
236
|
496
|
|||||||
|
FHLB
stock dividends
|
(145
|
)
|
(113
|
)
|
(90
|
)
|
||||
|
Gains
on other real estate owned, net
|
(105
|
)
|
(17
|
)
|
(123
|
)
|
||||
|
Stock
compensation expense
|
142
|
-
|
-
|
|||||||
|
Securities
gains
|
-
|
-
|
(100
|
)
|
||||||
|
Changes
in :
|
||||||||||
|
Interest
receivable
|
(160
|
)
|
79
|
708
|
||||||
|
Deferred
income taxes
|
1,071
|
1,119
|
3,334
|
|||||||
|
Loans
held for sale
|
(1,110
|
)
|
(868
|
)
|
-
|
|||||
|
Other
assets
|
288
|
1,069
|
1,774
|
|||||||
|
Interest
payable
|
337
|
(4,808
|
)
|
1,630
|
||||||
|
Other
liabilities
|
(1,347
|
)
|
(18
|
)
|
(20
|
)
|
||||
|
Net
cash from continuing operating activities
|
5,366
|
2,093
|
11,502
|
|||||||
|
Cash
flows from continuing investing activities
|
||||||||||
|
Purchases
of securities available for sale
|
(23,248
|
)
|
(18,486
|
)
|
(76,861
|
)
|
||||
|
Proceeds
from sales of securities available for sale
|
-
|
-
|
1,911
|
|||||||
|
Proceeds
from maturities and calls of securities
available
for sale
|
39,974
|
34,143
|
66,675
|
|||||||
|
Purchase
of FHLB stock, net of redemptions
|
(60
|
)
|
(336
|
)
|
(31
|
)
|
||||
|
Proceeds
from sale of subsidiary
|
-
|
-
|
14,311
|
|||||||
|
Net
change in federal funds sold
|
(8,771
|
)
|
(1,470
|
)
|
(291
|
)
|
||||
|
Net
change in loans
|
(20,284
|
)
|
(6,120
|
)
|
311
|
|||||
|
Purchases
of loan participations from other banks
|
(1,605
|
)
|
(1,197
|
)
|
(2,943
|
)
|
||||
|
Payments
on loan participations with other banks
|
6,067
|
589
|
10
|
|||||||
|
Purchases
of premises and equipment, net
|
(361
|
)
|
(845
|
)
|
(205
|
)
|
||||
|
Proceeds
from sale of other real estate acquired
through
foreclosure
|
2,417
|
1,658
|
4,610
|
|||||||
|
Net
cash from continuing investing activities
|
(5,871
|
)
|
7,936
|
7,497
|
||||||
PREMIER
FINANCIAL BANCORP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
Years
Ended December 31
(In
Thousands, Except Per Share Data)
|
2006
|
2005
|
2004
|
||||||||
|
Cash
flows from continuing financing activities
|
||||||||||
|
Net
change in deposits
|
3,107
|
(1,955
|
)
|
(17,676
|
)
|
|||||
|
Cash
dividends paid
|
(523
|
)
|
-
|
-
|
||||||
|
Repayment
of Federal Home Loan Bank advances
|
(1,049
|
)
|
(954
|
)
|
(1,417
|
)
|
||||
|
Early
redemption of debentures, net
|
(15,250
|
)
|
(5,000
|
)
|
(5,500
|
)
|
||||
|
Repayment
of other borrowed funds
|
(2,627
|
)
|
(800
|
)
|
(5,400
|
)
|
||||
|
Proceeds
from other borrowings
|
13,500
|
-
|
-
|
|||||||
|
Proceeds
from stock option exercises
|
27
|
15
|
-
|
|||||||
|
Net
change in federal funds purchased
|
976
|
(1,838
|
)
|
1,838
|
||||||
|
Net
change in agreements to repurchase securities
|
3,238
|
2,109
|
7,208
|
|||||||
|
Net
cash from continuing financing activities
|
1,399
|
(8,423
|
)
|
(20,947
|
)
|
|||||
|
Net
change in cash and cash equivalents
from
continuing activities
|
894
|
1,606
|
(1,948
|
)
|
||||||
|
Cash
and cash equivalents of discontinued operations
|
||||||||||
|
Net
cash from operating activities
|
-
|
-
|
432
|
|||||||
|
Net
cash from investing activities
|
-
|
-
|
(2,636
|
)
|
||||||
|
Net
cash from financing activities
|
-
|
-
|
(3,102
|
)
|
||||||
|
Cash
and cash equivalents at beginning of year
|
||||||||||
|
Continuing
operations
|
16,080
|
14,474
|
16,422
|
|||||||
|
Discontinued
operations
|
-
|
-
|
5,306
|
|||||||
|
Cash
and cash equivalents at end of year
|
$
|
16,974
|
$
|
16,080
|
$
|
14,474
|
||||
|
Supplemental
disclosures of cash flow information:
|
||||||||||
|
Cash
paid during year for -
|
||||||||||
|
Interest
|
$
|
10,667
|
$
|
14,354
|
$
|
8,428
|
||||
|
Income
taxes paid (refunded)
|
2,285
|
191
|
(3,946
|
)
|
||||||
|
Loans
transferred to real estate acquired through foreclosure
|
$
|
672
|
$
|
1,443
|
$
|
3,547
|
||||
|
Fixed
assets transferred to other real estate owned
|
141
|
-
|
-
|
|||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
The
consolidated financial statements include the accounts of Premier Financial
Bancorp, Inc. (the Company) and its wholly-owned subsidiaries:
|
Unaudited
|
|||||||||||||
|
December 31,
2006
|
|||||||||||||
|
Subsidiary
|
Location
|
Year
Acquired
|
Total
Assets
|
Net
Income
|
|||||||||
|
Citizens
Deposit Bank & Trust
|
Vanceburg,
Kentucky
|
1991
|
$
|
121,176
|
$
|
1,988
|
|||||||
|
Farmers
Deposit Bank
|
Eminence,
Kentucky
|
1996
|
77,073
|
1,320
|
|||||||||
|
Ohio
River Bank
|
Ironton,
Ohio
|
1998
|
80,121
|
933
|
|||||||||
|
First
Central Bank, Inc.
|
Philippi,
West Virginia
|
1998
|
105,446
|
1,855
|
|||||||||
|
Boone
County Bank, Inc.
|
Madison,
West Virginia
|
1998
|
151,260
|
2,218
|
|||||||||
|
Mt.
Vernon Financial Holdings, Inc.
|
Huntington,
West Virginia
|
1999
|
1,537
|
32
|
|
||||||||
All material intercompany transactions and balances have been eliminated.
Nature
of Operations:
The
subsidiary banks (Banks) operate under state bank charters and provide
traditional banking services, including trust services, to customers primarily
located in the counties and adjoining counties in Kentucky, Ohio, and West
Virginia in which the Banks operate. Chartered as state banks, the Banks
are
subject to regulation by their respective state banking regulators and
the
Federal Deposit Insurance Corporation (FDIC) or the Federal Reserve Bank
for
member banks. The Company is also subject to regulation by the Federal
Reserve
Bank.
Estimates
in the Financial Statements:
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
The
allowance for loan losses, the identification and evaluation of impaired
loans,
impairment of goodwill, realizability of deferred tax assets, and fair
values of
financial instruments are particularly subject to change.
Cash
Flows:
For
purposes of reporting cash flows, cash and cash equivalents include cash
on
hand, amounts due from banks and interest-earning balances with banks with
an
original maturity less than ninety days. Net cash flows are reported for
loans,
federal funds sold, deposits, and other borrowing transactions.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities:
The
Company classifies its securities portfolio as either securities available
for
sale or securities held to maturity. Securities held to maturity are carried
at
amortized cost.
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 accumulated other comprehensive income on securities available for
sale.
Other securities such as Federal Home Loan Bank stock are carried at
cost.
Interest
income includes amortization of purchase premium or discount computed using
the
level 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. Securities are written down to fair value when a
decline
in fair value is not temporary.
Declines
in the fair value of securities below their cost that are other than temporary
are reflected as realized losses. In estimating other-than-temporary losses,
management considers: (1) the length of time and extent that fair value
has been
less than cost, (2) the financial condition and near term prospects of
the
issuer, and (3) the Company’s ability and intent to hold the security for a
period sufficient to allow for any anticipated recovery in fair
value.
Loans
Held for Sale:
Mortgage loans originated and intended for sale in the secondary market
are
carried at the lower of aggregate cost or market, as determined by outstanding
commitments from investors. Net unrealized losses, if any, are recorded
as a
valuation allowance and charged to earnings.
Loans:
Net
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 non-accrual of 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.
All
interest accrued but not received for loans placed on non-accrual is reversed
against interest income. Interest received on such loans is accounted for
on the
cash-basis or cost-recovery method, until qualifying for return to accrual.
Loans are returned to accrual status when all the principal and interest
amounts
contractually due are brought current and future payments are reasonably
assured.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The
allowance for loan losses is a valuation allowance for probable incurred
credit
losses increased by a provision for loan losses charged to expense. The
allowance is an amount that management believes will be adequate to absorb
probable incurred losses on existing loans 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.
Allocations of the allowance may be made for specific loans, but the entire
allowance is available for any loan that, in management’s judgment, should be
charged-off. Loans
are charged against the allowance for loan losses when management believes
that
the collection of principal is unlikely. Subsequent recoveries, if any,
are
credited to the allowance.
A
loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer, and credit card loans, and accordingly,
they are not separately identified for impairment disclosures. All other
loans
are evaluated for impairment on an individual basis. If a loan is impaired,
a
portion of the allowance is allocated so that the loan is reported, net,
at the
present value of estimated future cash flows using the loan’s existing rate or
at the fair value of collateral if repayment is expected solely from the
collateral.
Premises
and Equipment:
Land is carried at cost. Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is recorded principally by the
straight-line method with useful lives ranging from 7 to 40 years for premises
and from 3 to 15 years for equipment.
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. Upon repossession, 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.
Federal
Home Loan Bank (FHLB) stock:
The
Banks are members of the FHLB system. Members are required to own a certain
amount of stock based on the level of borrowings and other factors, and
may
invest in additional amounts. FHLB stock is carried at cost, classified
as a
restricted security, and periodically evaluated for impairment based on
ultimate
recovery of par value. Both cash and stock dividends are reported as income.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-term
Assets:
Premises and equipment and other long-term assets are reviewed for impairment
when events indicate that the carrying amount may not be recoverable from
future
undiscounted cash flows. If impaired, the assets are recorded at fair
value.
Repurchase
Agreements:
Substantially all repurchase agreement liabilities represent amounts advanced
by
various customers. Securities are pledged to cover these liabilities, which
are
not covered by federal deposit insurance.
Goodwill:
Goodwill results from business acquisitions and represents the excess of
the
purchase price over the fair value of acquired tangible assets and liabilities
and identifiable intangible assets. Goodwill is assessed at least annually
for
impairment and any such impairment will be recognized in the period identified.
Impairment is evaluated using the aggregate of all banking operations.
To
evaluate impairment, management uses pricing valuation factors such as
price-to-total assets and price-to-total deposits from databases of actual
peer
group bank sales. These valuation factors are applied to the comparable
factors
of the Company’s aggregate banking operations to arrive at estimated fair value.
The Company does not have any identifiable intangible assets such as core
deposit intangibles.
Stock
Based Compensation:
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards (“SFAS”) No. 123(R), Share-based
Payment,
using the modified prospective transition method. Accordingly, the Company
has
recorded stock-based employee compensation cost using the fair value method
starting in 2006. For 2006, adopting this standard resulted in a reduction
of
income before income taxes of $142, a reduction in net income of $140,
and a
decrease in basic and diluted earnings per share of $0.03.
Prior
to January 1, 2006, employee compensation expense under stock options was
reported using the intrinsic value method; therefore, no stock-based
compensation cost is reflected in net income for the years ending December
31,
2005 and 2004, as all options granted had an exercise price equal to or
greater
than the market price of the underlying common stock at date of grant.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The
following table illustrates the effect on net income and earnings per share
if
expense was measured using the fair value recognition provisions of FASB
Statement No. 123, Accounting
for Stock-Based Compensation, for
the years ending December 31.
|
2005
|
2004
|
||||||
|
Income
from continuing operations
|
$
|
4,434
|
$
|
1,963
|
|||
|
Deduct:
Stock based compensation expense determined under
fair
value based method
|
(93
|
)
|
(63
|
)
|
|||
|
Pro
forma income
|
$
|
4,341
|
$
|
1,900
|
|||
|
Basic
earnings per share from continuing operations
|
$
|
0.85
|
$
|
0.37
|
|||
|
Pro
forma basic earnings per share
|
0.83
|
0.36
|
|||||
|
Diluted
earnings per share from continuing operations
|
$
|
0.84
|
$
|
0.37
|
|||
|
Pro
forma basic earnings per share
|
0.82
|
0.36
|
|||||
Income
Taxes:
Income tax expense is the total of the current year income tax due or refundable
and the change in deferred tax assets and liabilities. Deferred tax assets
and
liabilities are the expected future tax amounts for the temporary differences
between carrying amounts and tax bases of assets and liabilities, computed
using
enacted tax rates. A valuation allowance, if needed, reduces deferred tax
assets
to the amount expected to be realized.
Off
Balance Sheet Financial Instruments:
Financial instruments include off-balance sheet credit instruments, such
as
commitments to make loans and commercial letters of credit, issued to meet
customer financing needs. The face amount for these items represents the
exposure to loss, before considering customer collateral or ability to
repay.
Such financial instruments are recorded when they are funded.
Earnings
Per Common Share:
Basic earnings per common share is net income divided by the weighted average
number of common shares outstanding during the period. Diluted earnings
per
common share includes the dilutive effect of additional potential common
shares
issuable under stock options. Earnings and dividends per share are restated
for
all stock splits and dividends through the date of issuance of the financial
statements.
Comprehensive
Income:
Comprehensive income consists of net income and other comprehensive income.
Other comprehensive income includes unrealized gains and losses on securities
available for sale which are also recognized as a separate component of
equity.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair
Value of Financial Instruments:
Fair values of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed in a separate
note.
Fair value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments, and other factors,
especially in the absence of broad markets for particular items. Changes
in
assumptions or in market conditions could significantly affect the
estimates.
Operating
Segments:
All
of the Company’s operations are considered by management to be aggregated into
one reportable operating segment. While the chief decision-makers monitor
the
revenue streams of the various products and services, the identifiable
segments
are not material. Operations are managed and financial performance is evaluated
on a Company-wide basis.
Reclassifications:
Some items in the prior year financial statements were reclassified to
conform
to the current presentation.
Adoption
of New Accounting Standards:
Effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards (“SFAS”) No. 123(R), Share-based
Payment.
See
“Stock Compensation” above for further discussion of the effect of adopting this
standard.
In
September 2006, the Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements
in
Current Year Financial Statements (SAB 108), which
is effective for fiscal years ending on or after November 15, 2006. SAB
108
provides guidance on how the effects of prior-year uncorrected financial
statement misstatements should be considered in quantifying a current year
misstatement. SAB 108 requires public companies to quantify misstatements
using
both an income statement (rollover) and balance sheet (iron curtain) approach
and evaluate whether either approach results in a misstatement that, when
all
relevant quantitative and qualitative factors are considered, is material.
If
prior year errors that had been previously considered immaterial now are
considered material based on either approach, no restatement is required
so long
as management properly applied its previous approach and all relevant facts
and
circumstances were considered. Adjustments considered immaterial in prior
years
under the method previously used, but now considered material under the
dual
approach required by SAB 108, are to be recorded upon initial adoption
of SAB
108. The adoption of SAB 108 had no effect on the Company’s financial statements
for the year ending December 31, 2006.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently
Issued Accounting Standards Not Yet Adopted:
In
September 2006, the FASB issued Statement No. 157, Fair
Value Measurements.
This Statement defines fair value, establishes a framework for measuring
fair
value and expands disclosures about fair value measurements. This Statement
establishes a fair value hierarchy about the assumptions used to measure
fair
value and clarifies assumptions about risk and the effect of a restriction
on
the sale or use of an asset. The standard is effective for fiscal years
beginning after November 15, 2007. The Company has not completed its evaluation
of the impact of the adoption of this standard.
In
July 2006, the FASB issued FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No.
109
(FIN
48), which prescribes a recognition threshold and measurement attribute
for a
tax position taken or expected to be taken in a tax return. FIN 48 also
provides
guidance on derecognition, classification, interest and penalties, accounting
in
interim periods, disclosure and transition. FIN 48 is effective for fiscal
years
beginning after December 15, 2006. The Company has determined that the
adoption
of FIN 48 will not have a material effect on the financial
statements.
New
accounting standards have also been issued that the Company does not expect
will
have a material effect on the financial statements when adopted in future
years
or for which the Company has not yet completed its evaluation of the potential
effect upon adoption. In general, these standards revise the accounting
for
derivatives embedded in other financial instruments for 2007, revise the
recognition and accounting for servicing of financial assets for 2007,
revise
the accrual of post-retirement benefits associated with providing life
insurance
for 2008, and revise the accounting for cash surrender value for
2007.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
In
the fourth quarter of 2003, the Company adopted and began to implement
a plan to
sell its subsidiary Citizens Bank (Kentucky), Inc. (“Citizens Bank”) located in
Georgetown, Kentucky. On February 13, 2004, the Company announced that
it had
signed a definitive agreement to sell Citizens Bank in a cash transaction
valued
at approximately $14,500. The sale was completed on July 1, 2004. In accordance
with Financial Accounting Standard 144, “Accounting for the Impairment or
Disposal of Long-lived Assets”, which became effective for the Company on
January 1, 2002, the financial position and results of operations of Citizens
Bank are removed from the detail line items in the Company’s financial
statements and presented separately as “discontinued operations.”
A
condensed statement of operations for Citizens Bank follows:
|
For
the six months
ended
June 30, 2004
|
||||
|
Interest
income
|
$
|
2,021
|
||
|
Interest
expense
|
732
|
|||
|
Net
interest income
|
1,289
|
|||
|
Provision
for loan losses
|
-
|
|||
|
Non-interest
income
|
434
|
|||
|
Non-interest
expense
|
1,718
|
|||
|
Income
tax (benefit)
|
(1
|
)
|
||
|
Net
income
|
$
|
4
|
||
Activity
in the allowance for loan losses for Citizens Bank follows (in
thousands):
|
2004
|
||||
|
Balance,
beginning of year
|
$
|
2,164
|
||
|
Loans
charged-off
|
(283
|
)
|
||
|
Recoveries
|
124
|
|||
|
Provision
for loan losses
|
-
|
|||
|
Sale
of subsidiary
|
(2,005
|
)
|
||
|
Balance,
end of year
|
$
|
-
|
||
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
On
January 29, 2003, the Company entered into a written agreement with the
Federal
Reserve Bank (FRB) which superseded and rescinded a previous agreement
between
the Company and the FRB. In 2006, the Federal Reserve Bank determined that
Premier fully satisfied all of the provisions of the Written Agreement
and,
accordingly, the FRB terminated the agreement effective April 18, 2006.
Among
other provisions, the agreement required the Company to retain an independent
consultant to review its management, directorate and organizational structure,
adopt a management plan responsive to such consultant's report, update
its
management succession plan in accordance with any recommendations in such
consultant's report, monitor its subsidiary banks' compliance with bank
policies
and loan review programs, conduct formal quarterly reviews of its subsidiary
Banks' allowances for loan losses, maintain sufficient capital, submit
a plan to
the FRB for improving consolidated earnings over a three-year period, and
submit
to the FRB annual projections of planned sources and uses of the Company's
cash,
including a plan to service its outstanding debt and then outstanding trust
preferred securities. The Company’s compliance with the written agreement was
monitored by a committee consisting of three of its outside directors.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
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 balance requirement at December 31, 2006 and 2005 was
approximately $3,300 and $3,100.
Amortized
cost and fair value of securities available for sale and the related gross
unrealized gains and losses recognized in accumulated other comprehensive
income
(loss) were as follows:
|
2006
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair
Value
|
|||||||||
|
Available
for sale
|
|||||||||||||
|
U.
S. Treasury securities
|
$
|
6,454
|
$
|
-
|
$
|
(53
|
)
|
$
|
6,401
|
||||
|
U.
S. agency securities
|
77,885
|
43
|
(1,017
|
)
|
76,911
|
||||||||
|
Obligations
of states and political
subdivisions
|
3,413
|
15
|
(15
|
)
|
3,413
|
||||||||
|
Mortgage-backed
securities
|
35,332
|
40
|
(755
|
)
|
34,617
|
||||||||
|
Corporate
securities
|
25
|
-
|
-
|
25
|
|||||||||
|
Total
available for sale
|
$
|
123,109
|
$
|
98
|
$
|
(1,840
|
)
|
$
|
121,367
|
||||
|
2005
|
Amortized
Cost
|
Unrealized
Gains
|
Unrealized
Losses
|
Fair
Value
|
|||||||||
|
Available
for sale
|
|||||||||||||
|
U.
S. Treasury securities
|
$
|
3,952
|
$
|
3
|
$
|
(14
|
)
|
$
|
3,941
|
||||
|
U.
S. agency securities
|
97,209
|
-
|
(1,909
|
)
|
95,300
|
||||||||
|
Obligations
of states and political
subdivisions
|
2,487
|
31
|
(4
|
)
|
2,514
|
||||||||
|
Mortgage-backed
securities
|
36,349
|
2
|
(712
|
)
|
35,639
|
||||||||
|
Corporate
securities
|
25
|
-
|
-
|
25
|
|||||||||
|
Total
available for sale
|
$
|
140,022
|
$
|
36
|
$
|
(2,639
|
)
|
$
|
137,419
|
||||
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
5 -SECURITIES
(Continued)
The
amortized cost and fair value of securities at December 31, 2006 by contractual
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
|
Amortized
Cost
|
Fair
Value
|
||||||
|
Available
for sale
|
|||||||
|
Due
in one year or less
|
$
|
28,491
|
$
|
28,244
|
|||
|
Due
after one year through five years
|
57,154
|
56,382
|
|||||
|
Due
after five years through ten years
|
539
|
544
|
|||||
|
Due
after ten years
|
1,593
|
1,580
|
|||||
|
Mortgage-backed
securities
|
35,332
|
34,617
|
|||||
|
Total
available for sale
|
$
|
123,109
|
$
|
121,367
|
|||
There
were no sales of securities in 2006 or 2005. Proceeds from sales of securities
during 2004 were $1,911. Gross gains of $101 and
gross losses of $1 were realized on those sales.
Securities
with an approximate carrying value of $76,845 and $75,396 at December 31,
2006
and 2005 were pledged to secure public deposits, trust funds, securities
sold
under agreements to repur-chase and for other purposes as required or permitted
by law.
Securities
with unrealized losses at year-end 2006 aggregated by investment category
and
length of time that individual securities have been in a continuous unrealized
loss position are as follows:
|
Less
than 12 Months
|
12
Months or More
|
Total
|
|||||||||||||||||
|
Description
of Securities
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
|||||||||||||
|
U.S.
treasury securities
|
$
|
5,435
|
$
|
(32
|
)
|
$
|
966
|
$
|
(21
|
)
|
$
|
6,401
|
$
|
(53
|
)
|
||||
|
U.S.
agency securities
|
3,735
|
(12
|
)
|
63,145
|
(1,005
|
)
|
66,880
|
(1,017
|
)
|
||||||||||
|
Obligations
of states and
political
subdivisions
|
1,581
|
(12
|
)
|
322
|
(3
|
)
|
1,903
|
(15
|
)
|
||||||||||
|
Gov’t
guaranteed mortgage-
backed
securities
|
-
|
-
|
13,121
|
(381
|
)
|
13,121
|
(381
|
)
|
|||||||||||
|
Mortgage-backed
securities
|
943
|
(3
|
)
|
14,720
|
(371
|
)
|
15,663
|
(374
|
)
|
||||||||||
|
Total
temporarily impaired
|
$
|
11,694
|
$
|
(59
|
)
|
$
|
92,274
|
$
|
(1,781
|
)
|
$
|
103,968
|
$
|
(1,840
|
)
|
||||
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
5 -SECURITIES
(Continued)
Securities
with unrealized losses at year-end 2005 aggregated by investment category
and
length of time that individual securities have been in a continuous unrealized
loss position, are as follows:
|
Less
than 12 Months
|
12
Months or More
|
Total
|
|||||||||||||||||
|
Description
of Securities
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
|||||||||||||
|
U.S.
treasury securities
|
$
|
968
|
$
|
(14
|
)
|
$
|
-
|
$
|
-
|
$
|
968
|
$
|
(14
|
)
|
|||||
|
U.S.
agency securities
|
22,096
|
(332
|
)
|
73,204
|
(1,577
|
)
|
95,300
|
(1,909
|
)
|
||||||||||
|
Obligations
of states and
political
subdivisions
|
397
|
(4
|
)
|
-
|
-
|
397
|
(4
|
)
|
|||||||||||
|
Mortgage-backed
securities
|
22,328
|
(341
|
)
|
11,968
|
(371
|
)
|
34,297
|
(712
|
)
|
||||||||||
|
Total
temporarily impaired
|
$
|
45,789
|
$
|
(691
|
)
|
$
|
85,172
|
$
|
(1,948
|
)
|
$
|
130,962
|
$
|
(2,639
|
)
|
||||
The
investment portfolio is predominately high quality interest-bearing bonds
with
defined maturity dates backed by the U.S. Government or Government sponsored
entities.
The
unrealized losses at December
31,
2006 and December 31, 2005 are price changes resulting from changes in
the
interest rate environment and
are considered to be temporary declines in the value of the
securities. Their
fair value is expected to recover as the bonds approach their maturity
date
and/or market conditions improve.
Loans
at year-end were as follows:
|
2006
|
2005
|
||||||
|
Commercial,
secured by real estate
|
$
|
101,786
|
$
|
85,989
|
|||
|
Commercial,
other
|
43,981
|
49,362
|
|||||
|
Real
estate construction
|
11,303
|
11,070
|
|||||
|
Residential
real estate
|
138,795
|
134,570
|
|||||
|
Agricultural
|
1,930
|
1,670
|
|||||
|
Consumer
and home equity
|
42,188
|
42,092
|
|||||
|
Other
|
3,814
|
3,964
|
|||||
|
$
|
343,797
|
$
|
328,717
|
||||
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
6 - LOANS
(Continued)
Certain
directors and executive officers of the Banks and companies in which they
have
beneficial ownership, were loan customers of the Banks during 2006 and
2005.
Such
related party loans are governed by federal banking regulations which require
such loans to be made in the ordinary course of business at the
Banks’ normal credit terms and interest rates.
An
analysis of the 2006 activity with respect to all director and executive
officer
loans is as follows (in thousands):
|
Balance,
December 31, 2005
|
$
|
14,668
|
||
|
Additions,
including loans now meeting disclosure requirements
|
8,198
|
|||
|
Amounts
collected and loans no longer meeting disclosure
requirements
|
(8,535
|
)
|
||
|
Balance,
December 31, 2006
|
$
|
14,331
|
Activity
in
the allowance for loan losses was as follows:
|
2006
|
2005
|
2004
|
||||||||
|
Balance,
beginning of year
|
$
|
7,892
|
$
|
9,384
|
$
|
14,300
|
||||
|
Loans
charged off
|
(1,410
|
)
|
(2,215
|
)
|
(6,992
|
)
|
||||
|
Recoveries
|
1,340
|
719
|
1,050
|
|||||||
|
Provision
for loan losses
|
(1,161
|
)
|
4
|
1,026
|
||||||
|
Balance,
end of year
|
$
|
6,661
|
$
|
7,892
|
$
|
9,384
|
||||
Impaired
loans were as follows:
|
2006
|
2005
|
2004
|
||||||||
|
Impaired
loans at year-end with an allowance
|
$
|
7,766
|
$
|
7,926
|
$
|
12,918
|
||||
|
Impaired
loans at year-end with no allowance
|
0
|
291
|
263
|
|||||||
|
Amount
of the allowance for loan losses allocated
|
1,774
|
1,921
|
2,915
|
|||||||
|
Average
of impaired loans during the year
|
8,258
|
10,819
|
16,069
|
|||||||
|
Interest
income recognized during impairment
|
480
|
583
|
640
|
|||||||
|
Cash-basis
interest income recognized
|
480
|
499
|
620
|
|||||||
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
6 - LOANS
(Continued)
Nonperforming
loans at year end were as follows:
|
2006
|
2005
|
2004
|
||||||||
|
Loans
past due over 90 days still on accrual
|
$
|
992
|
$
|
853
|
$
|
739
|
||||
|
Non-accrual
loans
|
4,698
|
3,751
|
6,847
|
|||||||
|
Restructured
loans
|
1,268
|
1,540
|
238
|
|||||||
Nonperforming
loans include some impaired loans and smaller balance homogeneous loans,
such as
residential mortgage and consumer loans, that are collectively evaluated
for
impairment. Loan impairment is reported when full payment under the loan
terms
is not anticipated, which can include loans that are current or less than
90
days past due.
Year-end
premises and equipment were as follows:
|
2006
|
2005
|
||||||
|
Land
and improvements
|
$
|
1,522
|
$
|
1,618
|
|||
|
Buildings
and leasehold improvements
|
5,659
|
6,218
|
|||||
|
Furniture
and equipment
|
7,431
|
7,039
|
|||||
|
14,612
|
14,875
|
||||||
|
Less:
accumulated depreciation
|
(8,079
|
)
|
(7,749
|
)
|
|||
|
$
|
6,533
|
$
|
7,126
|
||||
Operating
Leases:
The
Company leases certain branch and other properties as well as some equipment
under operating leases. Rent expense, net of rental income, was $204, $188,
and
$234 for 2006, 2005, and 2004. Rent commitments, before considering renewal
options that generally are present, were as follows:
|
2007
|
$
|
138
|
||
|
2008
|
47
|
|||
|
2009
|
15
|
|||
|
2010
|
2
|
|||
|
2011
and thereafter
|
4
|
|||
|
$
|
206
|
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
At
December 31, 2006 the
scheduled maturities of time deposits are as follows:
|
2007
|
$
|
154,155
|
||
|
2008
|
26,853
|
|||
|
2009
|
7,739
|
|||
|
2010
|
7,248
|
|||
|
2011
and thereafter
|
3,037
|
|||
|
$
|
199,032
|
Certain
directors and executive officers of the Banks and companies in which they
have
beneficial
ownership were deposit customers of the Banks during 2006 and 2005. The
balance
of such deposits at December 31, 2006 and 2005 were approximately $11,295
and
$8,090.
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:
|
2006
|
2005
|
||||||
|
Year-end
balance
|
$
|
12,555
|
$
|
9,317
|
|||
|
Average
balance during the year
|
$
|
9,542
|
$
|
8,201
|
|||
|
Average
interest rate during the year
|
2.43
|
%
|
2.10
|
%
|
|||
|
Maximum
month-end balance during the year
|
$
|
12,555
|
$
|
9,378
|
|||
|
Weighted
average interest rate at year-end
|
2.34
|
%
|
2.39
|
%
|
|||
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
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.
All
advances are paid either on a monthly basis or at maturity, over remaining
terms
of four to six years, with fixed interest rates ranging from 4.10% to 6.64%,
averaging 5.82%. Advances are secured by the FHLB stock, certain pledged
investment securities and substantially all single family first mortgage
loans
of the participating Banks. Scheduled principal payments due on advances
during
the five years subsequent to December 31, 2006 are as follows:
|
2007
|
$
|
637
|
||
|
2008
|
670
|
|||
|
2009
|
705
|
|||
|
2010
|
4,742
|
|||
|
2011
|
461
|
|||
|
Thereafter
|
70
|
|||
|
$
|
7,285
|
|||
On
January 31, 2006, the Company executed and delivered to First Guaranty
Bank of
Hammond, Louisiana a Promissory Note and Business Loan Agreement dated
January
31, 2006 for the principal amount of $7,000,000, bearing interest floating
daily
at the “Wall Street Journal” prime rate (currently 8.25%) and requiring monthly
principal payments of $50,000 until maturity on September 28, 2017. The
note is
secured by a pledge of Premier’s 100% interest in Boone County Bank (a wholly
owned subsidiary) under Commercial Pledge Agreement dated January 31, 2006.
The
proceeds of this note were used to redeem $7,000,000 (280,000 shares) of
Premier’s 9.75% Trust Preferred Securities as of January 31, 2006. Premier’s
chairman owns approximately 27.6% of the voting stock of First Guaranty
Bank.
Premier’s
board of directors reviewed the loan and authorized the Company to enter
into
the loan transaction .
On
November
10, 2006, Premier Financial Bancorp, Inc. (“Premier”) executed and delivered to
The Bankers’ Bank of Kentucky, Inc. of Frankfort, Kentucky (“Bankers’ Bank”) a
Term Note and Business Loan Agreement dated November 10, 2006 in the principal
amount of $6,500,000, bearing interest floating daily at the “Wall Street
Journal” prime rate minus 1.00% (initially 7.25%) and requiring 83 monthly
principal and interest payments of $100,000 and a final
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
11 - NOTES PAYABLE AND OTHER BORROWED FUNDS (Continued)
payment
of
any balance due at maturity on November 9, 2013. The note is secured by
a pledge
of Premier’s 100% interest in Citizens Deposit Bank and Trust, Inc. (a wholly
owned subsidiary) and Premier’s 100% interest in Farmers-Deposit Bank, Eminence,
Kentucky (a wholly owned subsidiary) under a Stock Pledge and Security
Agreement
dated November 10, 2006. The proceeds of this note were used in conjunction
with
$1,750,000 of the Company’s own cash to redeem the final $8,250,000 (330,000
shares) of Premier’s 9.75% Trust Preferred Securities on November 10,
2006.
Scheduled
principal payments due on the two bank borrowings subsequent to December
31,
2006 are as follows:
|
2007
|
$
|
1,344
|
||
|
2008
|
1,400
|
|||
|
2009
|
1,460
|
|||
|
2010
|
1,524
|
|||
|
2011
|
1,594
|
|||
|
Thereafter
|
4,953
|
|||
|
$
|
12,275
|
|||
In
addition to the $6,500,000 Term Note, Premier executed and delivered to
the
Bankers’ Bank a Promissory Note whereby Premier may request and receive monies
from Bankers’ Bank from time to time, but the aggregate outstanding principal
balance under the Promissory Note at any time shall not exceed $3,500,000,
and
the right to request and receive monies from Bankers’ Bank hereunder shall cease
and terminate on November 9, 2007. The outstanding principal balance under
this
Promissory Note shall bear annual interest floating daily at the “Wall Street
Journal” prime rate minus 1.00% (initially 7.25%). Interest on this Promissory
Note shall be due and payable on the 5th day of each, January, April, July
and
October during the term of this Promissory Note, and at the maturity date
hereof. Any outstanding principal amount loaned to Premier under this Promissory
Note, and not previously repaid, shall be due on November 9, 2007. The
Promissory Note is secured by the same collateral as the $6,500,000 Term
Note.
In
June 2006, the Company fully repaid the non-interest bearing $701,000 note
payable to Mr. Reynolds, Chairman of the Board, and the non-interest bearing
$701,000 note payable to Mr. Walker, President and CEO of the Company.
In an
agreement reached with the Federal Reserve Bank of Cleveland, Mr. Reynolds
loaned the Company the proceeds to make the June 2002 distribution on the
Trust
Preferred Securities. Similarly, Mr. Walker loaned the Company the proceeds
to
make the September 2002 distribution of the Trust Preferred
Securities.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
On
June 9, 1997, PFBI Capital Trust (Trust), a statutory business trust created
under Delaware law, issued $28,750 of 9.750% Preferred Securities (“Preferred
Securities” or “Trust Preferred Securities”) with a stated value and liquidation
preference of $25 per share. The Trust’s obligations under the Preferred
Securities issued were fully and unconditionally guaranteed by the Company.
The
proceeds from the sale of the Preferred Securities of the Trust, as well
as the
proceeds from the issuance of common securities to the Company, were utilized
by
the Trust to invest in $29,639 of 9.750% Junior Subordinated Deferrable
Interest
Debentures (the “Debentures”) of the Company. The Debentures, which were
scheduled to mature on June 30, 2027, were unsecured obligations and ranked
subordinate and junior to the right of payment to all senior indebtedness,
liabilities and obligations of the Company. The Debentures represented
the sole
assets of the Trust. Distributions on the Preferred Securities were payable
at
an annual rate of 9.750% of the stated liquidation amount of $25 per Preferred
Security, payable quarterly. Cash distributions on the Preferred Securities
were
made to the extent interest on the Debentures was received by the Trust.
Debt
issuance costs of $1,478 were capitalized by the Trust and were amortized
over
the life of the debenture.
The
Company determined that the Trust met the definition of a variable interest
entity and that the Company was not the primary beneficiary of the Trust’s
activities. Accordingly, the Trust was not consolidated with the Company
and the
Company did
not report the Preferred Securities issued by the Trust as liabilities.
Instead
the Company reported as liabilities the Debentures issued by the Company
and
held by the Trust, as these were no longer eliminated in consolidation.
The
amounts were reported as “Guaranteed
junior subordinated interest debentures”
and
continued to be presented in liabilities on the balance sheet.
The
Debentures were generally redeemable by the Company in whole or in part
on or
after June 30, 2002 at 100% of the liquidation amount. Proceeds from any
redemption of the Debentures caused a mandatory redemption of the Preferred
Securities and the common securities having an aggregate liquidation amount
equal to the principal amount of the Debentures redeemed. Beginning in
March
2003 and ending with a final redemption on November 10, 2006, the Company
has
redeemed all of the $28,750 of the outstanding Trust Preferred Securities.
The
following table details the redemptions by date and amount.
|
March
31, 2003
|
$
|
3,000
|
||
|
October
15, 2004
|
4,500
|
|||
|
December
31, 2004
|
1,000
|
|||
|
December
31, 2005
|
5,000
|
|||
|
January
31, 2006
|
7,000
|
|||
|
November
10, 2006
|
8,250
|
|||
|
$
|
28,750
|
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
The
components of the provision (benefit) for income taxes are as
follows:
|
2006
|
2005
|
2004
|
||||||||
|
Current
|
$
|
2,212
|
$
|
910
|
$
|
(2,435
|
)
|
|||
|
Deferred
|
1,071
|
1,119
|
3,334
|
|||||||
|
Provision
for income taxes
|
$
|
3,283
|
$
|
2,029
|
$
|
899
|
||||
The
Company’s deferred tax assets and liabilities at December 31 are shown below. No
valuation allowance for the realization of deferred tax assets is considered
necessary.
|
2006
|
2005
|
||||||
|
Deferred
tax assets
|
|||||||
|
Allowance
for loan losses
|
$
|
2,265
|
$
|
2,683
|
|||
|
AMT
and other credit carryforwards
|
0
|
359
|
|||||
|
Write-downs
of other real estate owned
|
80
|
9
|
|||||
|
Taxable
income on non-accrual loans
|
153
|
54
|
|||||
|
Unrealized
loss on investment securities
|
592
|
885
|
|||||
|
Other
|
40
|
59
|
|||||
|
Total
deferred tax assets
|
3,130
|
4,049
|
|||||
|
Deferred
tax liabilities
|
|||||||
|
Amortization
of intangibles
|
$
|
2,001
|
$
|
1,660
|
|||
|
Depreciation
|
105
|
101
|
|||||
|
Federal
Home Loan Bank dividends
|
318
|
270
|
|||||
|
Other
|
157
|
105
|
|||||
|
Total
deferred tax liabilities
|
2,581
|
2,136
|
|||||
|
Net
deferred tax assets, included in other assets
|
$
|
549
|
$
|
1,913
|
|||
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
13 - INCOME TAXES
(Continued)
An
analysis of the differences between the effective tax rates and the statutory
U.S. federal income tax rate is as follows:
|
2006
|
2005
|
2004
|
|||||||||||||||||
|
U.S.
federal income tax rate
|
$
|
3,327
|
34.0
|
%
|
$
|
2,197
|
34.0
|
%
|
$
|
973
|
34.0
|
%
|
|||||||
|
Changes
from the statutory rate
|
|||||||||||||||||||
|
Tax-exempt
interest income
|
(97
|
)
|
(1.0
|
)
|
(81
|
)
|
(1.3
|
)
|
(131
|
)
|
(4.6
|
)
|
|||||||
|
Non-deductible
interest expense
related
to carrying tax-exempt
interest
earning assets
|
8
|
0.1
|
5
|
0.1
|
5
|
0.2
|
|||||||||||||
|
Non-deductible
stock compensation
expense
|
46
|
0.5
|
-
|
0.0
|
-
|
0.0
|
|||||||||||||
|
Tax
credits
|
(10
|
)
|
(0.1
|
)
|
(10
|
)
|
(0.2
|
)
|
-
|
0.0
|
|||||||||
|
Other
|
9
|
0.1
|
(82
|
)
|
(1.2
|
)
|
52
|
1.8
|
|||||||||||
|
$
|
3,283
|
33.6
|
%
|
$
|
2,029
|
31.4
|
%
|
$
|
899
|
31.4
|
%
|
||||||||
The
Company has qualified profit sharing plans that cover substantially all
employees. Contributions
to the plans consist of a Company match and additional amounts at the discretion
of the Company’s Board of Directors. Total contributions to the plans were $236,
$229 and $197 in 2006, 2005 and 2004.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
On
January 1, 2006, the Company adopted SFAS No. 123R, “Share-Based Payment,” which
is a revision of SFAS No. 123, “Accounting for Stock Issued for Employees.” SFAS
No. 123R establishes accounting requirements for share-based compensation
to
employees and carries forward prior guidance on accounting for awards to
non-employees. Prior to the adoption of SFAS No. 123R, the Company reported
employee compensation expense under stock option plans only if options
were
granted below market prices at grant date in accordance with the intrinsic
value
method of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for
Stock Issued to Employees,” and related interpretations. In accordance with APB
No. 25, the Company reported no compensation expense on options granted
as the
exercise price of the options granted always equaled the market price of
the
underlying stock on the date of grant. SFAS No. 123R eliminates the ability
to
account for stock-based compensation using APB No. 25 and requires that
such
transactions be recognized as compensation cost in the income statement
based on
their fair values on the measurement date, which is generally the date
of the
grant.
The
Company transitioned to SFAS No. 123R using the modified prospective application
method ("modified prospective application"). As permitted under modified
prospective application, as it is applicable to the Company, SFAS No. 123R
applies to new awards and to awards modified, repurchased, or cancelled
after
January 1, 2006. Additionally, compensation cost for non-vested awards
that were
outstanding as of January 1, 2006 will be recognized as the remaining requisite
service is rendered during the period of and/or the periods after the adoption
of SFAS No. 123R, adjusted for forfeitures. The recognition of compensation
cost
for those earlier awards is based on the same method and on the same grant-date
fair values previously determined for the pro forma disclosures reported
by the
Company for periods prior to January 1, 2006.
On
February 15, 2006, 35,250 incentive stock options were granted out of the
2002
Plan at an exercise price of $16.00. These options vest in three equal
annual
installments ending on February 15, 2009. On January 19, 2005, 35,000 incentive
stock options were granted out of the 2002 Plan at an exercise price of
$11.62.
These options vest in three equal annual installments ending on January
19,
2008. On February 18, 2004, 28,200 incentive stock options were granted
out of
the 2002 Plan at an exercise price of $9.30. These options vest in three
equal
annual installments ending on February 18, 2007. On January 15, 2003, 28,650
incentive stock options were granted out of the 2002 Plan at an exercise
price
of $7.96. These options vested in three equal annual installments and were
fully
vested on January 15, 2006.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
15- STOCK COMPENSATION EXPENSE (Continued)
The
fair value of the Company's employee stock options granted is estimated
at the
date of grant using the Black-Scholes option-pricing model. This model
requires
the input of highly subjective assumptions, changes to which can materially
affect the fair value estimate. Additionally, there may be other factors
that
would otherwise have a significant effect on the value of employee stock
options
granted but are not considered by the model. The assumptions used in the
Black-Scholes option-pricing model are as follows:
|
2006
|
2005
|
2004
|
||||||||
|
Risk-free
interest rate
|
4.62
|
%
|
3.70
|
%
|
3.15
|
%
|
||||
|
Expected
option life (yrs)
|
5.00
|
5.00
|
5.00
|
|||||||
|
Expected
stock price volatility
|
0.26
|
0.25
|
0.25
|
|||||||
|
Dividend
yield
|
0.00
|
%
|
0.00
|
%
|
0.00
|
%
|
||||
|
Weighted
average fair value of
options
granted during the year
|
$
|
5.21
|
$
|
3.48
|
$
|
2.64
|
||||
The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield in effect at the time of the grant. The expected option life was estimated at half the total option term since there has been little option exercise history. The expected stock price volatility is based on historical volatilities of the Company’s common stock. The estimated dividend yield is the dividend yield at the time of the option grant.
Stock-based
compensation expense is recognized ratably over the requisite service period
for
all awards. Unrecognized stock-based compensation expense related to stock
options totaled $85 at December 31, 2006. This unrecognized expense is
expected
to be recognized over the next 27 months based on the vesting periods of
the
options.
Information
related to the stock option plan during each year follows:
|
2006
|
2005
|
2004
|
||||||||
|
Intrinsic
value of options exercised
|
$
|
9
|
$
|
5
|
$
|
-
|
||||
|
Cash
received from option exercises
|
27
|
15
|
-
|
|||||||
|
Tax
benefit realized from option exercises
|
2
|
-
|
-
|
|||||||
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
15 STOCK COMPENSATION EXPENSE - continued
A
summary of the Company’s stock option activity is as follows:
|
----------2006----------
|
----------2005----------
|
----------2004----------
|
|||||||||||||||||
|
Weighted
Average
Exercise
|
Weighted
Average
Exercise
|
Weighted
Average
Exercise
|
|||||||||||||||||
|
Options
|
Price
|
Options
|
Price
|
Options
|
Price
|
||||||||||||||
|
Outstanding
at beginning of year
|
111,750
|
$
|
11.05
|
83,650
|
$
|
10.65
|
55,450
|
$
|
11.33
|
||||||||||
|
Grants
|
35,250
|
16.00
|
35,000
|
11.62
|
28,200
|
9.30
|
|||||||||||||
|
Exercises
|
(3,002
|
)
|
9.02
|
(1,667
|
)
|
8.50
|
|||||||||||||
|
Forfeitures
or expired
|
(23,750
|
)
|
13.11
|
(5,233
|
)
|
9.31
|
-
|
0.00
|
|||||||||||
|
Outstanding
at year-end
|
120,248
|
$
|
12.25
|
111,750
|
$
|
11.05
|
83,650
|
$
|
10.65
|
||||||||||
|
Exercisable
at year-end
|
55,931
|
$
|
10.68
|
54,180
|
$
|
11.61
|
39,821
|
$
|
12.65
|
||||||||||
|
Weighted
average remaining life
|
7.3
|
6.2
|
6.2
|
||||||||||||||||
|
Weighted
average fair value of
options
granted during the year
|
$
|
5.21
|
$
|
3.48
|
$
|
2.64
|
|||||||||||||
Additional
information regarding stock options outstanding and exercisable at December
31,
2006, is provided in the following table:
|
-
- - - - - - - Outstanding - - - - - - - -
|
-
- - - - - - - Currently Exercisable - - - - - - - -
|
|||||||||||||||||||||
|
Range
of Exercise Prices
|
Number
|
Weighted
Average Exercise Price
|
Aggregate
Intrinsic Value
|
Number
|
Weighted
Average Remaining Contractual Life
|
Weighted
Average Exercise Price
|
Aggregate
Intrinsic Value
|
|||||||||||||||
|
$7.50
to $10.00
|
42,749
|
$
|
8.70
|
$
|
230
|
34,590
|
6.5
|
$
|
8.55
|
$
|
191
|
|||||||||||
|
$10.01
to $12.50
|
32,999
|
11.62
|
81
|
10,341
|
8.0
|
11.62
|
25
|
|||||||||||||||
|
$15.01
to $17.50
|
44,500
|
16.12
|
0
|
11,000
|
2.0
|
16.50
|
0
|
|||||||||||||||
|
Outstanding
at Dec 31, 2006
|
120,248
|
12.25
|
$
|
311
|
55,931
|
5.9
|
10.68
|
$
|
216
|
|||||||||||||
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
During
2006, 2005, and 2004, the Company paid approximately $228, $191, and $358
for
printing, supplies, furniture, and equipment to a company affiliated by
common
ownership.
The Company also paid another affiliate approximately $468, $499, and $489
in
2006, 2005, and 2004 to permit the Company’s employees to participate in that
entity’s employee medical benefit plan.
During
2006, 2005 and 2004, the Company paid approximately $52, $52, and $52 to
lease
its headquarters facility at 2883 Fifth Avenue, Huntington, West Virginia
from
River City Properties, LLC, an entity 12.5% owned by the Company’s Chairman of
the Board.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
A
reconciliation of the numerators and denominators of the earnings per common
share and earnings
per common share assuming dilution computations for 2006, 2005 and 2004
is
presented below:
|
2006
|
2005
|
2004
|
||||||||
|
Basic
earnings per share from continuing operations
|
||||||||||
|
Income
available to common stockholders
|
$
|
6,501
|
$
|
4,434
|
$
|
1,963
|
||||
|
Weighted
average common shares outstanding
|
5,236
|
5,233
|
5,232
|
|||||||
|
Earnings
per share
|
$
|
1.24
|
$
|
0.85
|
$
|
0.37
|
||||
|
Diluted
earnings per share from continuing operations
|
||||||||||
|
Income
available to common stockholders
|
$
|
6,501
|
$
|
4,434
|
$
|
1,963
|
||||
|
Weighted
average common shares outstanding
|
5,236
|
5,233
|
5,232
|
|||||||
|
Add
dilutive effects of assumed exercise of stock options
|
28
|
15
|
5
|
|||||||
|
Weighted
average common and dilutive potential
common
shares outstanding
|
5,264
|
5,248
|
5,237
|
|||||||
|
Earnings
per share assuming dilution
|
$
|
1.24
|
$
|
0.84
|
$
|
0.37
|
||||
|
Basic
earnings per share
|
||||||||||
|
Income
available to common stockholders
|
$
|
6,501
|
$
|
4,434
|
$
|
6,697
|
||||
|
Weighted
average common shares outstanding
|
5,236
|
5,233
|
5,232
|
|||||||
|
Earnings
per share
|
$
|
1.24
|
$
|
0.85
|
$
|
1.28
|
||||
|
Diluted
earnings per share
|
||||||||||
|
Income
available to common stockholders
|
$
|
6,501
|
$
|
4,434
|
$
|
6,697
|
||||
|
Weighted
average common shares outstanding
|
5,236
|
5,233
|
5,232
|
|||||||
|
Add
dilutive effects of assumed exercise of stock options
|
28
|
15
|
5
|
|||||||
|
Weighted
average common and dilutive potential
common
shares outstanding
|
5,264
|
5,248
|
5,237
|
|||||||
|
Earnings
per share assuming dilution
|
$
|
1.24
|
$
|
0.84
|
$
|
1.28
|
||||
Stock
options for 46,250, 32,000 and 32,000 shares of common stock were not considered
in computing diluted earnings per share for 2006, 2005 and 2004 because
they
were antidilutive.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
The
fair values of the Company’s financial instruments at year-end are as
follows:
|
2006
|
2005
|
||||||||||||
|
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
||||||||||
|
Financial
assets
|
|||||||||||||
|
Cash
and due from banks
|
$
|
16,974
|
$
|
16,974
|
$
|
16,080
|
$
|
16,080
|
|||||
|
Federal
funds sold
|
27,583
|
27,583
|
18,812
|
18,812
|
|||||||||
|
Securities
available for sale
|
121,367
|
121,367
|
137,419
|
137,419
|
|||||||||
|
Loans
held for sale
|
1,978
|
1,978
|
868
|
868
|
|||||||||
|
Loans,
net
|
337,136
|
337,730
|
320,825
|
304,589
|
|||||||||
|
Federal
Home Loan Bank and
Federal
Reserve Bank stock
|
3,265
|
3,265
|
3,060
|
3,060
|
|||||||||
|
Interest
receivable
|
2,821
|
2,821
|
2,661
|
2,661
|
|||||||||
|
Financial
liabilities
|
|||||||||||||
|
Deposits
|
$
|
(438,950
|
)
|
$
|
(437,280
|
)
|
$
|
(435,843
|
)
|
$
|
(434,459
|
)
|
|
|
Federal
funds purchased
|
(976
|
)
|
(976
|
)
|
-
|
-
|
|||||||
|
Securities
sold under agreements
to
repurchase
|
(12,555
|
)
|
(12,555
|
)
|
(9,317
|
)
|
(9,317
|
)
|
|||||
|
Federal
Home Loan Bank advances
|
(7,285
|
)
|
(7,506
|
)
|
(8,334
|
)
|
(7,355
|
)
|
|||||
|
Other
borrowed funds
|
(12,275
|
)
|
(12,303
|
)
|
-
|
-
|
|||||||
|
Notes
payable
|
-
|
-
|
(1,402
|
)
|
(1,319
|
)
|
|||||||
|
Guaranteed
junior subordinated
interest
debentures
|
-
|
-
|
(15,722
|
)
|
(14,997
|
)
|
|||||||
|
Interest
payable
|
(1,061
|
)
|
(1,061
|
)
|
(724
|
)
|
(724
|
)
|
|||||
Carrying
amount is the estimated fair value for cash and due from banks,
Federal funds sold, Federal Home Loan Bank and Federal Reserve Bank stock,
accrued interest receivable and payable, demand deposits, short-term debt,
and
variable rate loans or deposits that reprice frequently and fully. Security
fair
values are based on market prices or dealer quotes, and if no such information
is available, on the rate and term of the security and information about
the
issuer. For fixed rate loans or deposits and for variable rate loans or
deposits
with infrequent repricing or repricing limits, fair value is based on discounted
cash flows using current market rates applied to the estimated life and
credit
risk. Fair values for impaired loans are estimated using discounted cash
flow
analysis or underlying collateral values. Fair value of debt is based on
current
rates for similar financing. The fair value of commitments to extend credit
and
standby letters of credit is not considered material.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
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 obliga-tions as they
do
for on-balance sheet instruments. In addition, the Banks offer a service
whereby
deposit customers for a fee are permitted to overdraw their accounts up
to a
certain deminimus amount, also known as “bounce protection” or “overdraft
protection”. The aggregate unused portion of “bounce protection” was $5,226 at
December 31, 2006.
At
December 31, 2006 and 2005, the Banks had the following financial instruments
whose approximate contract amounts represent credit risk:
|
2006
|
2005
|
||||||
|
Standby
letters of credit
|
$
|
678
|
$
|
949
|
|||
|
Commitments
to extend credit
|
|||||||
|
Fixed
|
$
|
5,498
|
$
|
8,303
|
|||
|
Variable
|
32,988
|
24,158
|
|||||
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. Collateral held varies but primarily includes
real
estate and certificates of deposit. Some letters of credit are
unsecured.
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. Outstanding commitments
are at current market rates. Fixed rate loan commitments have interest
rates
ranging from 5.0% to 18.0%. 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.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
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, 2006 management is unaware of any
legal
proceedings for which the expected outcome would have a material adverse
effect
upon the consolidated financial statements of the Company.
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 and additional restrictions
as
discussed below. During 2007 the Banks could, without prior approval, declare
dividends of approximately $3.2 million plus any 2007 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 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 December 31, 2006 the Company and
the Banks
meet all quantitative capital adequacy requirements to which they are
subject.
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
21 - STOCKHOLDERS’ EQUITY
(Continued)
The
Company’s and the subsidiary Banks’ capital amounts and ratios as of December
31, 2006 are presented in the table below. As of December 31, 2006, the
most
recent notification from the Federal Reserve Bank categorized the Company
and
its subsidiary banks 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.
|
To
Be Well Capitalized
|
|||||||||||||||||||
|
For
Capital
|
Under
Prompt Corrective
|
||||||||||||||||||
|
Actual
|
Adequacy
Purposes
|
Action
Provisions
|
|||||||||||||||||
|
2006
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||
|
Total
Capital (to Risk-Weighted Assets):
|
|||||||||||||||||||
|
Consolidated
(1)
|
$
|
50,313
|
16.0
|
%
|
$
|
25,239
|
8
|
%
|
$
|
31,549
|
10
|
%
|
|||||||
|
Boone
County Bank
|
16,488
|
20.7
|
6,372
|
8
|
7,965
|
10
|
|||||||||||||
|
Citizens
Deposit Bank
|
12,819
|
17.4
|
5,893
|
8
|
7,366
|
10
|
|||||||||||||
|
Farmers
Deposit Bank
|
10,441
|
23.2
|
3,606
|
8
|
4,507
|
10
|
|||||||||||||
|
Ohio
River Bank
|
7,233
|
16.3
|
3,557
|
8
|
4,447
|
10
|
|||||||||||||
|
First
Central Bank
|
9,291
|
12.6
|
5,904
|
8
|
7,380
|
10
|
|||||||||||||
|
Tier
I Capital (to Risk-Weighted Assets):
|
|||||||||||||||||||
|
Consolidated
(1)
|
$
|
46,336
|
14.7
|
%
|
$
|
12,619
|
4
|
%
|
$
|
18,929
|
6
|
%
|
|||||||
|
Boone
County Bank
|
15,490
|
19.5
|
3,186
|
4
|
4,779
|
6
|
|||||||||||||
|
Citizens
Deposit Bank
|
11,893
|
16.2
|
2,946
|
4
|
4,419
|
6
|
|||||||||||||
|
Farmers
Deposit Bank
|
9,854
|
21.9
|
1,803
|
4
|
2,704
|
6
|
|||||||||||||
|
Ohio
River Bank
|
6,721
|
15.1
|
1,779
|
4
|
2,668
|
6
|
|||||||||||||
|
First
Central Bank
|
8,475
|
11.5
|
2,952
|
4
|
4,428
|
6
|
|||||||||||||
|
Tier
I Capital (to Average Assets):
|
|||||||||||||||||||
|
Consolidated
(1)
|
$
|
46,336
|
8.9
|
%
|
$
|
20,855
|
4
|
%
|
$
|
26,068
|
5
|
%
|
|||||||
|
Boone
County Bank
|
15,490
|
10.6
|
5,824
|
4
|
7,280
|
5
|
|||||||||||||
|
Citizens
Deposit Bank
|
11,893
|
10.0
|
4,779
|
4
|
5,974
|
5
|
|||||||||||||
|
Farmers
Deposit Bank
|
9,854
|
13.4
|
2,949
|
4
|
3,686
|
5
|
|||||||||||||
|
Ohio
River Bank
|
6,721
|
8.4
|
3,211
|
4
|
4,013
|
5
|
|||||||||||||
|
First
Central Bank
|
8,475
|
8.5
|
3,981
|
4
|
4,976
|
5
|
|||||||||||||
|
(1)
Consolidated company is not subject to Prompt Corrective Action
Provisions
|
|||||||||||||||||||
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
21 - STOCKHOLDERS’ EQUITY
(Continued)
The
Company’s and the subsidiary Banks’ capital amounts and ratios as of December
31, 2005 are presented in the table below:
|
To
Be Well Capitalized
|
|||||||||||||||||||
|
For
Capital
|
Under
Prompt Corrective
|
||||||||||||||||||
|
Actual
|
Adequacy
Purposes
|
Action
Provisions
|
|||||||||||||||||
|
2005
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||
|
Total
Capital (to Risk-Weighted Assets):
|
|||||||||||||||||||
|
Consolidated
(1)
|
$
|
58,710
|
19.1
|
%
|
$
|
24,636
|
8
|
%
|
$
|
30,795
|
10
|
%
|
|||||||
|
Boone
County Bank
|
15,778
|
20.8
|
6,073
|
8
|
7,591
|
10
|
|||||||||||||
|
Citizens
Deposit Bank
|
12,318
|
17.0
|
5,801
|
8
|
7,251
|
10
|
|||||||||||||
|
Farmers
Deposit Bank
|
9,398
|
12.7
|
3,470
|
8
|
4,337
|
10
|
|||||||||||||
|
Ohio
River Bank
|
6,978
|
16.3
|
3,434
|
8
|
4,292
|
10
|
|||||||||||||
|
First
Central Bank
|
8,584
|
12.1
|
5,658
|
8
|
7,073
|
10
|
|||||||||||||
|
Tier
I Capital (to Risk-Weighted Assets):
|
|||||||||||||||||||
|
Consolidated
(1)
|
$
|
54,811
|
17.8
|
%
|
$
|
12,318
|
4
|
%
|
$
|
18,477
|
6
|
%
|
|||||||
|
Boone
County Bank
|
14,927
|
19.7
|
3,036
|
4
|
4,555
|
6
|
|||||||||||||
|
Citizens
Deposit Bank
|
11,396
|
15.7
|
2,900
|
4
|
4,351
|
6
|
|||||||||||||
|
Farmers
Deposit Bank
|
8,823
|
20.3
|
1,735
|
4
|
2,602
|
6
|
|||||||||||||
|
Ohio
River Bank
|
6,482
|
15.1
|
1,717
|
4
|
2,575
|
6
|
|||||||||||||
|
First
Central Bank
|
7,690
|
10.9
|
2,829
|
4
|
4,244
|
6
|
|||||||||||||
|
Tier
I Capital (to Average Assets):
|
|||||||||||||||||||
|
Consolidated
(1)
|
$
|
54,811
|
10.6
|
%
|
$
|
20,660
|
4
|
%
|
$
|
25,826
|
5
|
%
|
|||||||
|
Boone
County Bank
|
14,927
|
10.3
|
5,772
|
4
|
7,216
|
5
|
|||||||||||||
|
Citizens
Deposit Bank
|
11,396
|
9.7
|
4,699
|
4
|
5,873
|
5
|
|||||||||||||
|
Farmers
Deposit Bank
|
8,823
|
11.4
|
3,096
|
4
|
3,870
|
5
|
|||||||||||||
|
Ohio
River Bank
|
11,303
|
12.5
|
3,606
|
4
|
4,507
|
5
|
|||||||||||||
|
First
Central Bank
|
7,690
|
8.2
|
3,771
|
4
|
4,713
|
5
|
|||||||||||||
|
(1)
Consolidated company is not subject to Prompt Corrective Action
Provisions
|
|||||||||||||||||||
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
|
CONDENSED
BALANCE SHEETS
|
|||||||
|
December
31
|
|||||||
|
2006
|
2005
|
||||||
|
ASSETS
|
|||||||
|
Cash
|
$
|
3,562
|
$
|
3,248
|
|||
|
Investment
in subsidiaries
|
69,218
|
66,936
|
|||||
|
Premises
and equipment
|
560
|
541
|
|||||
|
Other
assets
|
375
|
1,106
|
|||||
|
Total
assets
|
$
|
73,715
|
$
|
71,831
|
|||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
|
Other
liabilities
|
$
|
438
|
$
|
420
|
|||
|
Notes
payable
|
-
|
1,402
|
|||||
|
Subordinated
debentures issued to trust
|
-
|
15,722
|
|||||
|
Other
borrowed funds
|
12,275
|
-
|
|||||
|
Total
liabilities
|
12,713
|
17,544
|
|||||
|
Stockholders’
equity
|
|||||||
|
Preferred
stock
|
-
|
-
|
|||||
|
Common
stock
|
1,108
|
1,105
|
|||||
|
Additional
paid-in capital
|
43,624
|
43,458
|
|||||
|
Retained
earnings
|
17,420
|
11,442
|
|||||
|
Accumulated
other comprehensive income
|
(1,150
|
)
|
(1,718
|
)
|
|||
|
Total
stockholders’ equity
|
61,002
|
54,287
|
|||||
|
Total
liabilities and stockholders’ equity
|
$
|
73,715
|
$
|
71,831
|
|||
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
22 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
|
Condensed
Statement of Operations
|
||||||||||
|
Years
Ended December 31
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Income
|
||||||||||
|
Dividends
from continuing subsidiaries
|
$
|
6,440
|
$
|
8,405
|
$
|
5,800
|
||||
|
Interest
and dividend income
|
37
|
45
|
46
|
|||||||
|
Other
income
|
615
|
484
|
367
|
|||||||
|
Total
income
|
7,092
|
8,934
|
6,213
|
|||||||
|
Expenses
|
||||||||||
|
Interest
expense
|
1,334
|
2,142
|
3,117
|
|||||||
|
Salaries
and employee benefits
|
1,199
|
1,180
|
726
|
|||||||
|
Professional
fees
|
165
|
37
|
1,607
|
|||||||
|
Accelerated
subordinated debenture issuance costs
|
548
|
184
|
214
|
|||||||
|
Other
expenses
|
420
|
341
|
514
|
|||||||
|
Total
expenses
|
3,666
|
3,884
|
6,178
|
|||||||
|
Income
from continuing operations before income
taxes and
equity
in undistributed
income
of subsidiaries
|
3,426
|
5,050
|
35
|
|||||||
|
Income
tax (benefit)
|
(1,160
|
)
|
(1,314
|
)
|
(2,071
|
)
|
||||
|
Income
from continuing operations before
equity
in undistributed income of subsidiaries
|
4,586
|
6,364
|
2,106
|
|||||||
|
Equity
in undistributed income (excess distributions) of
subsidiaries
continuing in operation
|
1,915
|
(1,930
|
)
|
(143
|
)
|
|||||
|
Net
income from continuing operations
|
6,501
|
4,434
|
1,963
|
|||||||
|
Net
income from discontinued operations
|
-
|
-
|
4,734
|
|||||||
|
Net
income
|
$
|
6,501
|
$
|
4,434
|
$
|
6,697
|
||||
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
NOTE
22 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
|
Condensed
Statement of Cash Flows
|
||||||||||
|
Years
Ended December 31
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Cash
flows from operating activities
|
||||||||||
|
Net
income
|
$
|
6,501
|
$
|
4,434
|
$
|
6,697
|
||||
|
Adjustments
to reconcile net income to
net
cash from operating activities
|
||||||||||
|
Income
from discontinued operation
|
-
|
-
|
(4,734
|
)
|
||||||
|
Depreciation
|
101
|
83
|
91
|
|||||||
|
Stock
compensation expense
|
142
|
-
|
-
|
|||||||
|
(Gain)
loss from sales of assets
|
(4
|
)
|
(3
|
)
|
159
|
|||||
|
Dividends
in excess of net income of
subsidiaries
continuing in operation
|
-
|
1,930
|
143
|
|||||||
|
Equity
in undistributed earnings of subsidiaries
|
(1,915
|
)
|
-
|
-
|
||||||
|
Change
in other assets
|
258
|
(35
|
)
|
(1,436
|
)
|
|||||
|
Change
in other liabilities
|
17
|
(4,934
|
)
|
1,406
|
||||||
|
Net
cash from operating activities
|
5,100
|
1,475
|
2,326
|
|||||||
|
Cash
flows from investing activities
|
||||||||||
|
Capital
contributed to subsidiaries continuing in operation
|
-
|
-
|
(1,831
|
)
|
||||||
|
Proceeds
from liquidation of subsidiary
|
203
|
-
|
14,311
|
|||||||
|
Proceeds
from sales of assets, net of purchases
|
(116
|
)
|
(108
|
)
|
192
|
|||||
|
Net
cash from investing activities
|
87
|
(108
|
)
|
12,672
|
||||||
|
Cash
flows from financing activities
|
||||||||||
|
Early
redemption of subordinated note
|
(15,250
|
)
|
(5,000
|
)
|
(5,500
|
)
|
||||
|
Cash
dividends paid to shareholders
|
(523
|
)
|
-
|
-
|
||||||
|
Issuance
of common stock
|
27
|
15
|
-
|
|||||||
|
Proceeds
from borrowings
|
13,500
|
-
|
-
|
|||||||
|
Payments
on other borrowed funds
|
(2,627
|
)
|
(800
|
)
|
(5,400
|
)
|
||||
|
Net
cash from financing activities
|
(4,873
|
)
|
(5,785
|
)
|
(10,900
|
)
|
||||
|
Net
change in cash and cash equivalents
|
314
|
(4,418
|
)
|
4,098
|
||||||
|
Cash
and cash equivalents at beginning of year
|
3,248
|
7,666
|
3,568
|
|||||||
|
Cash
and cash equivalents at end of year
|
$
|
3,562
|
$
|
3,248
|
$
|
7,666
|
||||
PREMIER
FINANCIAL BANCORP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005, and 2004
(Dollars
in Thousands, Except Per Share Data)
|
Earnings
per Share
|
||||||||||||||||
|
|
Interest
Income
|
Net
Interest Income
|
Net
Income
|
Basic
|
Fully
Diluted
|
|||||||||||
|
2006
|
||||||||||||||||
|
First
Quarter
|
$
|
7,676
|
$
|
5,204
|
$
|
1,367
|
$
|
0.26
|
$
|
0.26
|
||||||
|
Second
Quarter
|
8,014
|
5,360
|
2,000
|
0.38
|
0.38
|
|||||||||||
|
Third
Quarter
|
8,248
|
5,377
|
1,475
|
0.28
|
0.28
|
|||||||||||
|
Fourth
Quarter
|
8,462
|
5,454
|
1,659
|
0.32
|
0.32
|
|||||||||||
|
2005
|
||||||||||||||||
|
First
Quarter
|
$
|
7,045
|
$
|
4,727
|
$
|
803
|
$
|
0.15
|
$
|
0.15
|
||||||
|
Second
Quarter
|
7,172
|
4,893
|
727
|
0.14
|
0.14
|
|||||||||||
|
Third
Quarter
|
7,465
|
5,055
|
1,367
|
0.26
|
0.26
|
|||||||||||
|
Fourth
Quarter
|
7,717
|
5,177
|
1,537
|
0.29
|
0.29
|
|||||||||||
In
2006, interest income improved each quarter as yields on earning assets
rose and
loan balances outstanding increased. The improvement in interest income
drove
the improvement in net interest income, but was tempered by rising interest
costs on deposits. Net income was also impacted positively in each of the
four
quarters by reversals of the provision for loan losses (negative provisions)
especially the second quarter when $819,000 of negative provisions were
recorded. The negative provisions were due to improvements in the Company’s
historical loan loss ratios, recoveries of previously charged-off loans
and the
collection of impaired loans with previous allocations of the allowance
for loan
losses that were no longer needed.
Similarly
in 2005, interest income improved each quarter as yields on investments
and
federal funds sold rose and loan balances outstanding increased. The improvement
in interest income drove the improvement in net interest income. Net income
was
also impacted positively in the third and fourth quarters by the recording
of
reversals of the provision for loan losses due to improvements in the Company’s
historical loan loss ratios and the collection of impaired loans with previous
allocations of the allowance for loan losses that were no longer needed.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
PART
III
There
have been no changes in or disagreements with accountants on accounting or
financial disclosure matters.
| A. |
Disclosure
Controls & Procedures
|
Premier
management, including the Chief Executive Officer and Chief Financial Officer,
has conducted an evaluation of the effectiveness of disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15c as of the end of the period
covered by this annual report. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the disclosure controls
and
procedures are effective in ensuring that all material information required
to
be filed in this annual report has been made known to them in a timely
fashion.
"Internal
controls" are procedures, which are designed with the objective of providing
reasonable assurance that (1) transactions are properly authorized; (2) assets
are safeguarded against unauthorized or improper use; and (3) transactions
are
properly recorded and reported, all so as to permit the preparation of reports
and financial statements in conformity with generally accepted accounting
principles. Premier management uses the financial reports of its subsidiaries
to
make decisions about the allocation of the Company's resources, to implement
strategies to improve the Company's performance, and to prepare the consolidated
financial statements of the Company for its shareholders and regulatory
authorities. However, a control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their cost. Because of
the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud,
if
any, within a company have been detected. These inherent limitations include
the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. The design of any system of
controls is also based, in part, upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed
in
achieving its stated goals under all potential future conditions. Over time,
a
control may become inadequate because of changes in conditions, or the degree
of
compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due
to
error or fraud may occur and not be detected. Finally, controls can be
circumvented by the individual acts of some persons, by collusion of two
or more
people, or by management override of the control.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
| B. |
Changes
in Internal Controls over Financial
Reporting
|
None
The
information required by these Items is omitted because the Company 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 Company's
proxy
statement is incorporated herein by reference.
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
PART
IV
(a) The
following documents are filed as part of this report:
1. 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
|
|
2.1
|
Stock
Purchase Agreement dated February 13, 2004 among Citizens Bank
(Kentucky),
Inc., Premier Financial Bancorp, Inc. and Farmers Capital Bank
Corporation
is incorporated herein by reference to Form 8-K filed by Registrant
on
February 19, 2004.
|
|
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).
|
|
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).
|
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
|
Exhibit
Number
|
Description
of Document
|
|
4.1
|
Form
of Junior Subordinated Indenture dated as of June 6, 1997 between
Registrant and Bankers Trust Company, as Trustee, with respect
to 9.75%
Junior Subordinated Deferrable Interest Debentures due June 30,
2027
(incorporated by reference to Exhibit 4.1 to the Registration Statement
on
Form S-1 of Registrant filed May 28, 1997 with the Commission
(Registration No. 333-27943)).
|
|
4.2
|
Form
of 9.75% Junior Subordinated Deferrable Interest Debenture Certificate
(incorporated by reference to Exhibit 4.2 to the Registration Statement
on
Form S-1 of Registrant filed May 28, 1997 with the Commission
(Registration No. 333-27943)).
|
|
4.3
|
Form
of Amended and Restated Trust Agreement dated as of June 6, 1997
among
registrant, as Depositor, Bankers Trust Company, as Property Trustee,
and
Bankers Trust (Delaware), as Delaware Trustee (incorporated by
reference
to Exhibit 4.4 to the Registration Statement on Form S-1 of Registrant
filed May 28, 1997 with the Commission (Registration No.
333-27943)).
|
|
4.4
|
Form
of Guarantee Agreement dated as of June 6, 1997 between Registrant
and
Bankers Trust Company (incorporated by reference to Exhibit 4.6
to the
Registration Statement on Form S-1 of Registrant filed May 28,
1997 with
the Commission (Registration No. 333-27943)).
|
|
***
10.1
|
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).
|
|
***
10.2
|
Premier
Financial Bancorp, Inc.'s 2002 Employee Stock Ownership Incentive
Plan,
filed as Annex A to definitive proxy statement dated May 17, 2002,
filed
on April 30, 2002 with the Commission, is incorporated herein by
reference.
|
|
***
10.3
|
Form
of Stock Option Agreement pursuant to 2002 Employee Stock Ownership
Incentive Plan, filed as Exhibit 10.1 to form 8-K filed January
24, 2005,
is incorporated herein by reference.
|
|
10.4
|
Premier
Financial Bancorp, Inc. written agreement with the Federal Reserve
Bank of
Cleveland dated January 29, 2003, filed as Exhibit 10.4 to form
10-K filed
on March 27, 2003, is incorporated herein by reference.
|
|
10.5
|
Premier
Financial Bancorp, Inc. contract with Fiserv Solutions, Inc. dated
December 20, 2004, filed as Exhibit 10 to form 8-K filed December
23,
2004, is incorporated herein by reference.
|
|
10.6
|
Loan
Agreement between Premier Financial Bancorp, Inc. and First Guaranty
Bank,
Hammond, Louisana
|
|
10.7
|
Promissory
Note to First Guaranty Bank, Hammond, Louisana
|
|
10.8
|
Collateral
Agreement with First Guaranty Bank, Hammond
Louisana
|
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
|
Exhibit
Number
|
Description
of Document
|
|
10.9
|
Loan
Agreement between Premier Financial Bancorp, Inc. and The Kentucky
Bankers’ Bank, Inc.
|
|
10.10
|
Term
Note to The Kentucky Bankers’ Bank, Inc.
|
|
10.11
|
Promissory
Note to The Kentucky Bankers’ Bank, Inc.
|
|
10.12
|
Stock
Pledge and Security Agreement between Premier Financial Bancorp,
Inc. and
The Kentucky Bankers’ Bank, Inc.
|
|
14.1
|
Premier
Financial Bancorp, Inc. Code of Ethics for the Chief Executive
Officer,
Chief Financial Officer and Chief Accounting Officer, filed as
Exhibit
14.1 to form 10-K filed on April 14, 2004, is incorporated herein
by
reference.
|
|
14.2
|
Premier
Financial Bancorp, Inc. Code of Business Conduct and Ethics, filed
as
Exhibit 14.2 to form 10-K filed on April 14, 2004, is incorporated
herein
by reference.
|
|
***
Denotes executive compensation plans and
arrangements.
|
|
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
Pursuant
to
the requirements of the Section 13 or 15(d) of the Securities Exchange Act
of
1934, registrant has duly caused this report to be signed on its behalf by
the
undersigned thereunto duly authorized.
|
PREMIER
FINANCIAL BANCORP, INC.
|
|
|
By:
/s/ Robert W. Walker, President
|
|
|
Robert
W. Walker, President
|
|
|
Date:
March 30, 2007
|
|
PREMIER
FINANCIAL BANCORP, INC.
FORM
10-K
December
31, 2006
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
|
/s/
Robert W. Walker
|
Principal
Executive and Director
|
March
30, 2007
|
|
Robert
W. Walker
|
||
|
/s/
Brien M. Chase
|
Principal
Financial and Accounting
|
March
30, 2007
|
|
Brien
M. Chase
|
Officer
|
|
|
/s/
Toney K. Adkins
|
Director
|
March
21, 2007
|
|
Toney
K. Adkins
|
||
|
/s/
Hosmer A. Brown, III
|
Director
|
March
21, 2007
|
|
Hosmer
A. Brown, III
|
||
|
/s/
Edsel Burns
|
Director
|
March
21, 2007
|
|
Edsel
Burns
|
||
|
/s/
E. V. Holder, Jr.
|
Director
|
March
21, 2007
|
|
E.
V. Holder, Jr.
|
||
|
/s/
Keith F. Molihan
|
Director
|
March
21, 2007
|
|
Keith
F. Molihan
|
||
|
/s/
Marshall T. Reynolds
|
Chairman
of the Board
|
March
21, 2007
|
|
Marshall
T. Reynolds
|
||
|
/s/
Neal Scaggs
|
Director
|
March
21, 2007
|
|
Neal
Scaggs
|
||
|
/s/
Thomas W. Wright
|
Director
|
March
21, 2007
|
|
Thomas
W. Wright
|
||
112