pfbi10q03312014.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2014
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ___________ to ___________
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Commission file number 000-20908
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PREMIER FINANCIAL BANCORP, INC.
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(Exact name of registrant as specified in its charter)
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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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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)
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Registrant’s telephone number (304) 525-1600
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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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer, ”and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
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Large accelerated filer o.
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Accelerated filer þ.
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Non-accelerated filer o
(Do not check if smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). Yeso No þ.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
Common stock, no par value, – 8,074,779 shares outstanding at April 20, 2014
PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2014
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3
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41
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51
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51
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52
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52
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52
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52
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52
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52
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52
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52
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53
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MARCH 31, 2014
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying information has not been audited by an independent registered public accounting firm; however, in the opinion of management such information reflects all adjustments necessary for a fair presentation of the results for the interim period. All such adjustments are of a normal and recurring nature. Premier Financial Bancorp, Inc.’s (“Premier’s”) accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America. Certain accounting principles used by Premier involve a significant amount of judgment about future events and require the use of estimates in their application. The following policies are particularly sensitive in terms of judgments and the extent to which estimates are used: allowance for loan losses, the identification and evaluation of impaired loans, the impairment of goodwill, the realization of deferred tax assets and stock based compensation disclosures. These estimates are based on assumptions that may involve significant uncertainty at the time of their use. However, the policies, the estimates and the estimation process as well as the resulting disclosures are periodically reviewed by the Audit Committee of the Board of Directors and material estimates are subject to review as part of the external audit by the independent public accountants.
The accompanying financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the registrant’s annual report on Form 10-K. Accordingly, the reader of the Form 10-Q may wish to refer to the registrant’s Form 10-K for the year ended December 31, 2013 for further information in this regard.
Index to consolidated financial statements:
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2014 AND DECEMBER 31, 2013
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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(UNAUDITED)
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2014
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2013
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ASSETS
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Cash and due from banks
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$ |
27,886 |
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$ |
27,378 |
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Interest bearing bank balances
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58,039 |
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36,606 |
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Federal funds sold
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7,866 |
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12,777 |
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Cash and cash equivalents
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93,791 |
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76,761 |
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Securities available for sale
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224,011 |
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218,066 |
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Loans held for sale
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921 |
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77 |
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Loans
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738,441 |
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740,770 |
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Allowance for loan losses
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(10,344 |
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(11,027 |
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Net loans
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728,097 |
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729,743 |
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Federal Home Loan Bank stock, at cost
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3,983 |
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4,183 |
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Premises and equipment, net
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17,493 |
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17,798 |
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Real estate and other property acquired through foreclosure
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13,258 |
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13,524 |
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Interest receivable
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2,911 |
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3,132 |
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Goodwill
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29,875 |
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29,875 |
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Other intangible assets
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1,978 |
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2,121 |
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Deferred taxes
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2,852 |
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4,439 |
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Other assets
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612 |
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460 |
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Total assets
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$ |
1,119,782 |
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$ |
1,100,179 |
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Deposits
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Non-interest bearing
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$ |
211,881 |
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$ |
210,193 |
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Time deposits, $100,000 and over
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147,272 |
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146,905 |
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Other interest bearing
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580,696 |
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566,925 |
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Total deposits
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939,849 |
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924,023 |
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Securities sold under agreements to repurchase
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10,490 |
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11,319 |
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Other borrowed funds
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13,200 |
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13,800 |
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Interest payable
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334 |
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383 |
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Other liabilities
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5,400 |
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3,714 |
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Total liabilities
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969,273 |
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953,239 |
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Stockholders' equity
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Preferred stock, no par value; $12,000 liquidation preference,
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5% cumulative, 1,000,000 shares authorized;
12,000 shares issued and outstanding
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11,970 |
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11,955 |
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Common stock, no par value; 20,000,000 shares authorized;
8,047,046 shares issued and outstanding at March 31, 2014, and
8,038,345 shares issued and outstanding at December 31, 2013
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73,694 |
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73,589 |
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Retained earnings
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63,676 |
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62,021 |
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Accumulated other comprehensive income (loss)
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1,169 |
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(625 |
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Total stockholders' equity
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150,509 |
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146,940 |
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Total liabilities and stockholders' equity
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$ |
1,119,782 |
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$ |
1,100,179 |
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CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2014 AND 2013
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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Three Months Ended
March 31,
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2014
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2013
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Interest income
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Loans, including fees
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$ |
11,663 |
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$ |
9,760 |
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Securities available for sale
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Taxable
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1,315 |
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1,582 |
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Tax-exempt
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35 |
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43 |
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Federal funds sold and other
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32 |
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30 |
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Total interest income
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13,045 |
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11,415 |
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Interest expense
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Deposits
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887 |
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1,091 |
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Repurchase agreements and other
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7 |
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12 |
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Other borrowings
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144 |
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172 |
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Total interest expense
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1,038 |
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1,275 |
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Net interest income
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12,007 |
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10,140 |
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Provision for loan losses
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(310 |
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570 |
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Net interest income after provision for loan losses
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12,317 |
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9,570 |
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Non-interest income
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Service charges on deposit accounts
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739 |
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789 |
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Electronic banking income
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495 |
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470 |
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Secondary market mortgage income
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19 |
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94 |
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Gain on disposition of securities
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- |
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148 |
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Other
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128 |
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144 |
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1,381 |
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1,645 |
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Non-interest expenses
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Salaries and employee benefits
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3,984 |
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3,592 |
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Occupancy and equipment expenses
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1,153 |
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1,079 |
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Outside data processing
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869 |
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820 |
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Professional fees
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536 |
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156 |
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Taxes, other than payroll, property and income
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152 |
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212 |
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Write-downs, expenses, sales of other real estate owned, net
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94 |
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324 |
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Amortization of intangibles
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144 |
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152 |
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FDIC insurance
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201 |
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212 |
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Loan collection expenses
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67 |
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137 |
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Other expenses
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829 |
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703 |
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8,029 |
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7,387 |
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Income before income taxes
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5,669 |
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3,828 |
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Provision for income taxes
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1,999 |
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1,324 |
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Net income
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$ |
3,670 |
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$ |
2,504 |
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Preferred stock dividends and accretion
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(165 |
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(165 |
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Net income available to common stockholders
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$ |
3,505 |
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$ |
2,339 |
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Net income per share:
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Basic
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$ |
0.44 |
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$ |
0.29 |
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Diluted
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0.41 |
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0.28 |
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2014 AND 2013
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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Three Months Ended
March 31,
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2014
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2013
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Net income
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$ |
3,670 |
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$ |
2,504 |
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Other comprehensive income (loss):
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Unrealized gains (losses) arising during the period
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2,718 |
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(579 |
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Reclassification of realized amount
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- |
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(148 |
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Net change in unrealized gain (loss) on securities
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2,718 |
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(727 |
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Less tax impact
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(924 |
) |
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247 |
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Other comprehensive income (loss)
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1,794 |
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(480 |
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Comprehensive income
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$ |
5,464 |
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$ |
2,024 |
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CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2014 AND 2013
(UNAUDITED, DOLLARS IN THOUSANDS)
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2014
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2013
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Cash flows from operating activities
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Net income
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$ |
3,670 |
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$ |
2,504 |
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Adjustments to reconcile net income to net cash from
operating activities
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Depreciation
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321 |
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337 |
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Provision for loan losses
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(310 |
) |
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570 |
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Amortization (accretion), net
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78 |
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359 |
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OREO writedowns (gains on sales), net
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(54 |
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(64 |
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Stock compensation expense
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42 |
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46 |
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Loans originated for sale
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(1,631 |
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(4,991 |
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Secondary market loans sold
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|
806 |
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4,795 |
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Secondary market income
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(19 |
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(94 |
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Gain on disposition of securities
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- |
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(148 |
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Changes in :
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Interest receivable
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221 |
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245 |
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Other assets
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510 |
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1,244 |
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Interest payable
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(49 |
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(43 |
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Other liabilities
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1,686 |
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216 |
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Net cash from operating activities
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5,271 |
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4,976 |
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Cash flows from investing activities
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Purchases of securities available for sale
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(12,268 |
) |
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(19,070 |
) |
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Proceeds from maturities and calls of securities available for sale
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8,818 |
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26,640 |
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Redemption of FHLB stock
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200 |
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- |
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Net change in loans
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1,437 |
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|
3,777 |
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Purchases of premises and equipment, net
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(16 |
) |
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(191 |
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Improvements to OREO property
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(242 |
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(219 |
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Proceeds from sales of other real estate acquired through foreclosure
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1,366 |
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1,346 |
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Net cash from investing activities
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(705 |
) |
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12,283 |
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| |
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Cash flows from financing activities
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Net change in deposits
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15,830 |
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|
5,851 |
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Net change in agreements to repurchase securities
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(829 |
) |
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(15,563 |
) |
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Repayment of other borrowed funds
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(600 |
) |
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(527 |
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Proceeds from stock option exercises
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63 |
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|
- |
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Common stock dividends paid
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(1,850 |
) |
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(876 |
) |
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Preferred stock dividends paid
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(150 |
) |
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(150 |
) |
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Net cash from financing activities
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12,464 |
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|
(11,265 |
) |
| |
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Net change in cash and cash equivalents
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|
|
17,030 |
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|
5,994 |
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| |
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Cash and cash equivalents at beginning of period
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|
76,761 |
|
|
|
70,245 |
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| |
|
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|
|
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Cash and cash equivalents at end of period
|
|
$ |
93,791 |
|
|
$ |
76,239 |
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PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
THREE MONTHS ENDED MARCH 31, 2014 AND 2013
(UNAUDITED, DOLLARS IN THOUSANDS)
| |
|
2014
|
|
|
2013
|
|
|
Supplemental disclosures of cash flow information:
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|
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|
|
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|
Cash paid during period for interest
|
|
$ |
1,088 |
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$ |
1,317 |
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| |
|
|
|
|
|
|
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Cash paid during period for income taxes
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|
|
260 |
|
|
|
503 |
|
| |
|
|
|
|
|
|
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Loans transferred to real estate acquired through foreclosure
|
|
|
804 |
|
|
|
792 |
|
| |
|
|
|
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Premier Financial Bancorp, Inc. (the Company) and its wholly owned subsidiaries (the “Banks”):
| |
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|
March 31, 2014
|
|
| |
|
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|
Year
|
|
Total
|
|
|
Net Income
|
|
|
Subsidiary
|
|
Location
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|
Acquired
|
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Assets
|
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|
Qtr
|
|
|
Citizens Deposit Bank & Trust
|
|
Vanceburg, Kentucky
|
|
1991
|
|
$ |
370,604 |
|
|
$ |
1,305 |
|
|
Premier Bank, Inc.
|
|
Huntington, West Virginia
|
|
1998
|
|
|
741,950 |
|
|
|
2,894 |
|
|
Parent and Intercompany Eliminations
|
|
|
|
|
|
|
7,228 |
|
|
|
(529 |
) |
|
Consolidated Total
|
|
|
|
|
|
$ |
1,119,782 |
|
|
$ |
3,670 |
|
All significant intercompany transactions and balances have been eliminated.
Recently Issued Accounting Pronouncements
In January 2014, FASB issued Accounting Standards Update 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force). The ASU clarifies when an insubstance repossession or foreclosure occurs and a creditor is considered to have received physical possession of real estate property collateralizing a consumer mortgage loan. Specifically, the new ASU requires a creditor to reclassify a collateralized consumer mortgage loan to real estate property upon obtaining legal title to the real estate collateral, or the borrower voluntarily conveying all interest in the real estate property to the lender to satisfy the loan through a deed in lieu of foreclosure or similar legal agreement. Additional disclosures are required detailing the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgages collateralized by real estate property that are in the process of foreclosure. The new guidance is effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2014. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements, but will result in additional disclosures.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2 –SECURITIES
Amortized cost and fair value of investment securities, by category, at March 31, 2014 are summarized as follows:
|
2014
|
|
Amortized Cost
|
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. sponsored agency MBS - residential
|
|
$ |
38,680 |
|
|
$ |
513 |
|
|
$ |
(174 |
) |
|
$ |
39,019 |
|
|
U. S. sponsored agency CMO’s - residential
|
|
|
170,243 |
|
|
|
2,586 |
|
|
|
(1,371 |
) |
|
|
171,458 |
|
|
Total mortgage-backed securities of government sponsored agencies
|
|
|
208,923 |
|
|
|
3,099 |
|
|
|
(1,545 |
) |
|
|
210,477 |
|
|
U. S. government sponsored agency securities
|
|
|
7,051 |
|
|
|
33 |
|
|
|
(70 |
) |
|
|
7,014 |
|
|
Obligations of states and political subdivisions
|
|
|
6,266 |
|
|
|
254 |
|
|
|
- |
|
|
|
6,520 |
|
|
Total available for sale
|
|
$ |
222,240 |
|
|
$ |
3,386 |
|
|
$ |
(1,615 |
) |
|
$ |
224,011 |
|
Amortized cost and fair value of investment securities, by category, at December 31, 2013 are summarized as follows:
|
2013
|
|
Amortized Cost
|
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. sponsored agency MBS - residential
|
|
$ |
27,681 |
|
|
$ |
463 |
|
|
$ |
(321 |
) |
|
$ |
27,823 |
|
|
U. S. sponsored agency CMO’s - residential
|
|
|
178,000 |
|
|
|
1,167 |
|
|
|
(2,445 |
) |
|
|
176,722 |
|
|
Total mortgage-backed securities of government sponsored agencies
|
|
|
205,681 |
|
|
|
1,630 |
|
|
|
(2,766 |
) |
|
|
204,545 |
|
|
U. S. government sponsored agency securities
|
|
|
7,058 |
|
|
|
30 |
|
|
|
(107 |
) |
|
|
6,981 |
|
|
Obligations of states and political subdivisions
|
|
|
6,275 |
|
|
|
265 |
|
|
|
- |
|
|
|
6,540 |
|
|
Total available for sale
|
|
$ |
219,014 |
|
|
$ |
1,925 |
|
|
$ |
(2,873 |
) |
|
$ |
218,066 |
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2–SECURITIES - continued
The amortized cost and fair value of securities at March 31, 2014 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
|
|
$ |
1,155 |
|
|
$ |
1,159 |
|
|
Due after one year through five years
|
|
|
8,165 |
|
|
|
8,448 |
|
|
Due after five years through ten years
|
|
|
3,997 |
|
|
|
3,927 |
|
|
Mortgage-backed securities of government sponsored agencies
|
|
|
208,923 |
|
|
|
210,477 |
|
|
Total available for sale
|
|
$ |
222,240 |
|
|
$ |
224,011 |
|
| |
|
|
|
|
|
|
|
|
A $148,000 gain was recognized from calls of securities during the first three months of 2013. There were no sales of securities during the first three months of 2014 nor the first three months of 2013.
Securities with unrealized losses at March 31, 2014 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. government sponsored agency securities
|
|
$ |
3,927 |
|
|
$ |
(70 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,927 |
|
|
$ |
(70 |
) |
|
U.S government sponsored agency MBS – residential
|
|
|
23,901 |
|
|
|
(174 |
) |
|
|
- |
|
|
|
- |
|
|
|
23,901 |
|
|
|
(174 |
) |
|
U.S government sponsored agency CMO – residential
|
|
|
43,845 |
|
|
|
(1,267 |
) |
|
|
2,661 |
|
|
|
(104 |
) |
|
|
46,506 |
|
|
|
(1,371 |
) |
|
Total temporarily impaired
|
|
$ |
71,673 |
|
|
$ |
(1,511 |
) |
|
$ |
2,661 |
|
|
$ |
(104 |
) |
|
$ |
74,334 |
|
|
$ |
(1,615 |
) |
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2–SECURITIES - continued
Securities with unrealized losses at December 31, 2013 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 government sponsored agency securities
|
|
$ |
3,890 |
|
|
$ |
(107 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,890 |
|
|
$ |
(107 |
) |
|
U.S government sponsored agency MBS’s – residential
|
|
|
13,797 |
|
|
|
(321 |
) |
|
|
- |
|
|
|
- |
|
|
|
13,797 |
|
|
|
(321 |
) |
|
U.S government sponsored agency CMO’s – residential
|
|
|
102,341 |
|
|
|
(2,445 |
) |
|
|
- |
|
|
|
- |
|
|
|
102,341 |
|
|
|
(2,445 |
) |
|
Total temporarily impaired
|
|
$ |
120,028 |
|
|
$ |
(2,873 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
120,028 |
|
|
$ |
(2,873 |
) |
The investment portfolio is predominately high quality interest-bearing debt securities with defined maturity dates backed by the U.S. Government or Government sponsored entities. The unrealized losses at March 31, 2014 and December 31, 2013 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.
Major classifications of loans at March 31, 2014 and December 31, 2013 are summarized as follows:
| |
|
2014
|
|
|
2013
|
|
|
Residential real estate
|
|
$ |
216,595 |
|
|
$ |
216,081 |
|
|
Multifamily real estate
|
|
|
31,691 |
|
|
|
38,456 |
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
94,498 |
|
|
|
90,539 |
|
|
Non owner occupied
|
|
|
212,316 |
|
|
|
208,756 |
|
|
Commercial and industrial
|
|
|
77,135 |
|
|
|
85,301 |
|
|
Consumer
|
|
|
24,451 |
|
|
|
25,113 |
|
|
All other
|
|
|
81,755 |
|
|
|
76,524 |
|
| |
|
$ |
738,441 |
|
|
$ |
740,770 |
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
Activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2014 was as follows:
|
Loan Class
|
|
Balance
Dec 31, 2013
|
|
|
Provision for loan losses
|
|
|
Loans charged-off
|
|
|
Recoveries
|
|
|
Balance
March 31, 2014
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
2,694 |
|
|
$ |
(427 |
) |
|
$ |
19 |
|
|
$ |
2 |
|
|
$ |
2,250 |
|
|
Multifamily real estate
|
|
|
417 |
|
|
|
(120 |
) |
|
|
- |
|
|
|
- |
|
|
|
297 |
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,407 |
|
|
|
71 |
|
|
|
1 |
|
|
|
- |
|
|
|
1,477 |
|
|
Non owner occupied
|
|
|
2,037 |
|
|
|
648 |
|
|
|
300 |
|
|
|
- |
|
|
|
2,385 |
|
|
Commercial and industrial
|
|
|
2,184 |
|
|
|
(596 |
) |
|
|
63 |
|
|
|
2 |
|
|
|
1,527 |
|
|
Consumer
|
|
|
297 |
|
|
|
(70 |
) |
|
|
26 |
|
|
|
19 |
|
|
|
220 |
|
|
All other
|
|
|
1,991 |
|
|
|
184 |
|
|
|
37 |
|
|
|
50 |
|
|
|
2,188 |
|
|
Total
|
|
$ |
11,027 |
|
|
$ |
(310 |
) |
|
$ |
446 |
|
|
$ |
73 |
|
|
$ |
10,344 |
|
Activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2013 was as follows:
|
Loan Class
|
|
Balance
Dec 31, 2012
|
|
|
Provision for loan losses
|
|
|
Loans charged-off
|
|
|
Recoveries
|
|
|
Balance
March 31, 2013
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
2,163 |
|
|
$ |
(28 |
) |
|
$ |
71 |
|
|
$ |
2 |
|
|
$ |
2,066 |
|
|
Multifamily real estate
|
|
|
331 |
|
|
|
16 |
|
|
|
- |
|
|
|
- |
|
|
|
347 |
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,117 |
|
|
|
(158 |
) |
|
|
67 |
|
|
|
299 |
|
|
|
1,191 |
|
|
Non owner occupied
|
|
|
1,888 |
|
|
|
79 |
|
|
|
- |
|
|
|
- |
|
|
|
1,967 |
|
|
Commercial and industrial
|
|
|
3,046 |
|
|
|
1,010 |
|
|
|
10 |
|
|
|
50 |
|
|
|
4,096 |
|
|
Consumer
|
|
|
244 |
|
|
|
(39 |
) |
|
|
47 |
|
|
|
16 |
|
|
|
174 |
|
|
All other
|
|
|
2,699 |
|
|
|
(310 |
) |
|
|
56 |
|
|
|
168 |
|
|
|
2,501 |
|
|
Total
|
|
$ |
11,488 |
|
|
$ |
570 |
|
|
$ |
251 |
|
|
$ |
535 |
|
|
$ |
12,342 |
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
Purchased Impaired Loans
The Company holds purchased loans for which there was, at their acquisition date, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows at March 31, 2014 and December 31, 2013.
| |
|
2014
|
|
|
2013
|
|
|
Residential real estate
|
|
$ |
178 |
|
|
$ |
183 |
|
|
Multifamily real estate
|
|
|
552 |
|
|
|
1,229 |
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
248 |
|
|
|
250 |
|
|
Non owner occupied
|
|
|
5,787 |
|
|
|
6,782 |
|
|
Commercial and industrial
|
|
|
496 |
|
|
|
496 |
|
|
All other
|
|
|
4,648 |
|
|
|
4,623 |
|
|
Total carrying amount
|
|
$ |
11,909 |
|
|
$ |
13,563 |
|
| |
|
|
|
|
|
|
|
|
|
Carrying amount, net of allowance
|
|
$ |
11,277 |
|
|
$ |
12,931 |
|
For those purchased loans disclosed above, the Company did not increase the allowance for loan losses for the three-months ended March 31, 2014, nor did it increase the allowance for loan losses for purchased impaired loans during the three-months ended March 31, 2013.
For the majority of these loans, the Company cannot reasonably estimate the cash flows expected to be collected on the loans and therefore has continued to account for those loans using the cost recovery method of income recognition. As such, no portion of a purchase discount adjustment has been determined to meet the definition of an accretable yield adjustment on those loans accounted for using the cost recovery method. If, in the future, cash flows from the borrower(s) can be reasonably estimated, a portion of the purchase discount would be allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion would be recognized as interest income over the remaining life of the loan. Until such accretable yield can be calculated, under the cost recovery method of income recognition, all payments will be used to reduce the carrying value of the loan and no income will be recognized on the loan until the carrying value is reduced to zero. Any loan accounted for under the cost recovery method is also still included as a non-accrual loan in the amounts presented in the tables below.
The Company has determined that the cash flows from borrowers on a limited number of purchased loans can be reasonably estimated. As such, a portion of the non-accretable difference was reclassified to accretable yield and is being recognized as interest income over the remaining life of the loan(s).
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
The accretable yield, or income expected to be collected, on the purchased loans above is as follows at March 31, 2014 and March 31, 2013.
| |
|
2014
|
|
|
2013
|
|
|
Balance at January 1
|
|
$ |
217 |
|
|
$ |
635 |
|
|
New loans purchased
|
|
|
- |
|
|
|
- |
|
|
Accretion of income
|
|
|
(3 |
) |
|
|
(9 |
) |
|
Reclassifications from non-accretable difference
|
|
|
- |
|
|
|
- |
|
|
Disposals
|
|
|
- |
|
|
|
- |
|
|
Balance at December 31
|
|
$ |
214 |
|
|
$ |
626 |
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
Past Due and Non-performing Loans
The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2014 and December 31 2013. The recorded investment in non-accrual loans is less than the principal owed on non-accrual loans due to discounts applied to the carrying value of the loan at time of their acquisition and interest payments made by the borrower which have been used to reduce the recorded investment in the loan rather than recognized as interest income.
|
March 31, 2014
|
|
Principal Owed on Non-accrual Loans
|
|
|
Recorded Investment in Non-accrual Loans
|
|
|
Loans Past Due Over 90 Days, still accruing
|
|
| |
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
2,119 |
|
|
$ |
1,786 |
|
|
$ |
1,307 |
|
|
Multifamily real estate
|
|
|
1,946 |
|
|
|
1,215 |
|
|
|
1,377 |
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,558 |
|
|
|
1,329 |
|
|
|
1,495 |
|
|
Non owner occupied
|
|
|
293 |
|
|
|
220 |
|
|
|
1,994 |
|
|
Commercial and industrial
|
|
|
2,961 |
|
|
|
1,576 |
|
|
|
123 |
|
|
Consumer
|
|
|
139 |
|
|
|
120 |
|
|
|
16 |
|
|
All other
|
|
|
12,229 |
|
|
|
4,814 |
|
|
|
146 |
|
|
Total
|
|
$ |
21,245 |
|
|
$ |
11,060 |
|
|
$ |
6,458 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
Principal Owed on Non-accrual Loans
|
|
|
Recorded Investment in Non-accrual Loans
|
|
|
Loans Past Due Over 90 Days, still accruing
|
|
| |
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
2,021 |
|
|
$ |
1,725 |
|
|
$ |
1,737 |
|
|
Multifamily real estate
|
|
|
3,282 |
|
|
|
1,889 |
|
|
|
1,369 |
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,364 |
|
|
|
1,147 |
|
|
|
1,387 |
|
|
Non owner occupied
|
|
|
2,683 |
|
|
|
1,973 |
|
|
|
3,739 |
|
|
Commercial and industrial
|
|
|
6,838 |
|
|
|
4,961 |
|
|
|
84 |
|
|
Consumer
|
|
|
167 |
|
|
|
148 |
|
|
|
16 |
|
|
All other
|
|
|
12,212 |
|
|
|
4,798 |
|
|
|
146 |
|
|
Total
|
|
$ |
28,567 |
|
|
$ |
16,641 |
|
|
$ |
8,478 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans and impaired loans are defined differently. Some loans may be included in both categories, and some may only be included in one category. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
The following table presents the aging of the recorded investment in past due loans as of March 31, 2014 by class of loans:
|
Loan Class
|
|
Total Loans
|
|
|
30-89 Days Past Due
|
|
|
Greater than 90 days past due
|
|
|
Total Past Due
|
|
|
Loans Not Past Due
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
216,595 |
|
|
$ |
3,661 |
|
|
$ |
2,188 |
|
|
$ |
5,849 |
|
|
$ |
210,746 |
|
|
Multifamily real estate
|
|
|
31,691 |
|
|
|
- |
|
|
|
2,040 |
|
|
|
2,040 |
|
|
|
29,651 |
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
94,498 |
|
|
|
928 |
|
|
|
2,111 |
|
|
|
3,039 |
|
|
|
91,459 |
|
|
Non owner occupied
|
|
|
212,316 |
|
|
|
4,122 |
|
|
|
1,994 |
|
|
|
6,116 |
|
|
|
206,200 |
|
|
Commercial and industrial
|
|
|
77,135 |
|
|
|
399 |
|
|
|
1,556 |
|
|
|
1,955 |
|
|
|
75,180 |
|
|
Consumer
|
|
|
24,451 |
|
|
|
345 |
|
|
|
56 |
|
|
|
401 |
|
|
|
24,050 |
|
|
All other
|
|
|
81,755 |
|
|
|
3,632 |
|
|
|
4,960 |
|
|
|
8,592 |
|
|
|
73,163 |
|
|
Total
|
|
$ |
738,441 |
|
|
$ |
13,087 |
|
|
$ |
14,905 |
|
|
$ |
27,992 |
|
|
$ |
710,449 |
|
The following table presents the aging of the recorded investment in past due loans as of December 31, 2013 by class of loans:
|
Loan Class
|
|
Total Loans
|
|
|
30-89 Days Past Due
|
|
|
Greater than 90 days past due
|
|
|
Total Past Due
|
|
|
Loans Not Past Due
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
216,081 |
|
|
$ |
4,770 |
|
|
$ |
2,431 |
|
|
$ |
7,201 |
|
|
$ |
208,880 |
|
|
Multifamily real estate
|
|
|
38,456 |
|
|
|
367 |
|
|
|
2,688 |
|
|
|
3,055 |
|
|
|
35,401 |
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
90,539 |
|
|
|
516 |
|
|
|
2,073 |
|
|
|
2,589 |
|
|
|
87,950 |
|
|
Non owner occupied
|
|
|
208,756 |
|
|
|
278 |
|
|
|
5,478 |
|
|
|
5,756 |
|
|
|
203,000 |
|
|
Commercial and industrial
|
|
|
85,301 |
|
|
|
1,433 |
|
|
|
1,438 |
|
|
|
2,871 |
|
|
|
82,430 |
|
|
Consumer
|
|
|
25,113 |
|
|
|
421 |
|
|
|
82 |
|
|
|
503 |
|
|
|
24,610 |
|
|
All other
|
|
|
76,524 |
|
|
|
2,510 |
|
|
|
4,881 |
|
|
|
7,391 |
|
|
|
69,133 |
|
|
Total
|
|
$ |
740,770 |
|
|
$ |
10,295 |
|
|
$ |
19,071 |
|
|
$ |
29,366 |
|
|
$ |
711,404 |
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2014:
| |
|
Allowance for Loan Losses
|
|
|
Loan Balances
|
|
|
Loan Class
|
|
Individually Evaluated for Impairment
|
|
|
Collectively Evaluated for Impairment
|
|
|
Acquired with Deteriorated Credit Quality
|
|
|
Total
|
|
|
Individually Evaluated for Impairment
|
|
|
Collectively Evaluated for Impairment
|
|
|
Acquired with Deteriorated Credit Quality
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
105 |
|
|
$ |
2,145 |
|
|
$ |
- |
|
|
$ |
2,250 |
|
|
$ |
2,204 |
|
|
$ |
214,213 |
|
|
$ |
178 |
|
|
$ |
216,595 |
|
|
Multifamily real estate
|
|
|
- |
|
|
|
297 |
|
|
|
- |
|
|
|
297 |
|
|
|
1,813 |
|
|
|
29,326 |
|
|
|
552 |
|
|
|
31,691 |
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
201 |
|
|
|
1,276 |
|
|
|
- |
|
|
|
1,477 |
|
|
|
1,909 |
|
|
|
92,341 |
|
|
|
248 |
|
|
|
94,498 |
|
|
Non-owner occupied
|
|
|
- |
|
|
|
2,385 |
|
|
|
- |
|
|
|
2,385 |
|
|
|
220 |
|
|
|
206,309 |
|
|
|
5,787 |
|
|
|
212,316 |
|
|
Commercial and industrial
|
|
|
370 |
|
|
|
1,025 |
|
|
|
132 |
|
|
|
1,527 |
|
|
|
897 |
|
|
|
75,742 |
|
|
|
496 |
|
|
|
77,135 |
|
|
Consumer
|
|
|
- |
|
|
|
220 |
|
|
|
- |
|
|
|
220 |
|
|
|
- |
|
|
|
24,451 |
|
|
|
- |
|
|
|
24,451 |
|
|
All other
|
|
|
94 |
|
|
|
1,594 |
|
|
|
500 |
|
|
|
2,188 |
|
|
|
2,998 |
|
|
|
74,109 |
|
|
|
4,648 |
|
|
|
81,755 |
|
|
Total
|
|
$ |
770 |
|
|
$ |
8,942 |
|
|
$ |
632 |
|
|
$ |
10,344 |
|
|
$ |
10,041 |
|
|
$ |
716,491 |
|
|
$ |
11,909 |
|
|
$ |
738,441 |
|
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2013:
| |
|
Allowance for Loan Losses
|
|
|
Loan Balances
|
|
|
Loan Class
|
|
Individually Evaluated for Impairment
|
|
|
Collectively Evaluated for Impairment
|
|
|
Acquired with Deteriorated Credit Quality
|
|
|
Total
|
|
|
Individually Evaluated for Impairment
|
|
|
Collectively Evaluated for Impairment
|
|
|
Acquired with Deteriorated Credit Quality
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
138 |
|
|
$ |
2,556 |
|
|
$ |
- |
|
|
$ |
2,694 |
|
|
$ |
2,787 |
|
|
$ |
213,111 |
|
|
$ |
183 |
|
|
$ |
216,081 |
|
|
Multifamily real estate
|
|
|
- |
|
|
|
417 |
|
|
|
- |
|
|
|
417 |
|
|
|
1,822 |
|
|
|
35,405 |
|
|
|
1,229 |
|
|
|
38,456 |
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
170 |
|
|
|
1,237 |
|
|
|
- |
|
|
|
1,407 |
|
|
|
2,386 |
|
|
|
87,903 |
|
|
|
250 |
|
|
|
90,539 |
|
|
Non-owner occupied
|
|
|
362 |
|
|
|
1,675 |
|
|
|
- |
|
|
|
2,037 |
|
|
|
1,024 |
|
|
|
200,950 |
|
|
|
6,782 |
|
|
|
208,756 |
|
|
Commercial and industrial
|
|
|
1,088 |
|
|
|
964 |
|
|
|
132 |
|
|
|
2,184 |
|
|
|
4,270 |
|
|
|
80,535 |
|
|
|
496 |
|
|
|
85,301 |
|
|
Consumer
|
|
|
- |
|
|
|
297 |
|
|
|
- |
|
|
|
297 |
|
|
|
- |
|
|
|
25,113 |
|
|
|
- |
|
|
|
25,113 |
|
|
All other
|
|
|
102 |
|
|
|
1,389 |
|
|
|
500 |
|
|
|
1,991 |
|
|
|
3,279 |
|
|
|
68,622 |
|
|
|
4,623 |
|
|
|
76,524 |
|
|
Total
|
|
$ |
1,860 |
|
|
$ |
8,535 |
|
|
$ |
632 |
|
|
$ |
11,027 |
|
|
$ |
15,568 |
|
|
$ |
711,639 |
|
|
$ |
13,563 |
|
|
$ |
740,770 |
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
In the tables below, total individually evaluated impaired loans include certain purchased loans that were acquired with deteriorated credit quality that are still individually evaluated for impairment.
The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2014. The table includes $5,875 of loans acquired with deteriorated credit quality that the Company cannot reasonably estimate cash flows such that they are accounted for on the cost recovery method and are still individually evaluated for impairment.
| |
|
Unpaid Principal Balance
|
|
|
Recorded Investment
|
|
|
Allowance for Loan Losses Allocated
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
1,409 |
|
|
$ |
1,192 |
|
|
$ |
- |
|
|
Multifamily real estate
|
|
|
3,102 |
|
|
|
2,365 |
|
|
|
- |
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
1,459 |
|
|
|
1,276 |
|
|
|
- |
|
|
Non owner occupied
|
|
|
285 |
|
|
|
220 |
|
|
|
- |
|
|
Commercial and industrial
|
|
|
793 |
|
|
|
33 |
|
|
|
- |
|
|
All other
|
|
|
2,914 |
|
|
|
2,896 |
|
|
|
- |
|
| |
|
|
9,962 |
|
|
|
7,982 |
|
|
|
- |
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
1,201 |
|
|
$ |
1,190 |
|
|
$ |
105 |
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
747 |
|
|
|
747 |
|
|
|
201 |
|
|
Commercial and industrial
|
|
|
1,670 |
|
|
|
1,247 |
|
|
|
502 |
|
|
All other
|
|
|
12,148 |
|
|
|
4,750 |
|
|
|
594 |
|
| |
|
|
15,766 |
|
|
|
7,934 |
|
|
|
1,402 |
|
|
Total
|
|
$ |
25,728 |
|
|
$ |
15,916 |
|
|
$ |
1,402 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2013. The table includes $7,483 of loans acquired with deteriorated credit quality that the Company cannot reasonably estimate cash flows such that they are accounted for on the cost recovery method and are still individually evaluated for impairment.
| |
|
Unpaid Principal Balance
|
|
|
Recorded Investment
|
|
|
Allowance for Loan Losses Allocated
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
1,513 |
|
|
$ |
1,314 |
|
|
$ |
- |
|
|
Multifamily real estate
|
|
|
4,449 |
|
|
|
3,051 |
|
|
|
- |
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
2,601 |
|
|
|
1,986 |
|
|
|
- |
|
|
Non owner occupied
|
|
|
1,861 |
|
|
|
1,184 |
|
|
|
- |
|
|
Commercial and industrial
|
|
|
809 |
|
|
|
49 |
|
|
|
- |
|
|
All other
|
|
|
3,185 |
|
|
|
3,167 |
|
|
|
- |
|
| |
|
|
14,418 |
|
|
|
10,751 |
|
|
|
- |
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
1,668 |
|
|
$ |
1,656 |
|
|
$ |
138 |
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
515 |
|
|
|
515 |
|
|
|
170 |
|
|
Non owner occupied
|
|
|
810 |
|
|
|
790 |
|
|
|
362 |
|
|
Commercial and industrial
|
|
|
5,543 |
|
|
|
4,604 |
|
|
|
1,220 |
|
|
All other
|
|
|
12,132 |
|
|
|
4,735 |
|
|
|
602 |
|
| |
|
|
20,668 |
|
|
|
12,300 |
|
|
|
2,492 |
|
|
Total
|
|
$ |
35,086 |
|
|
$ |
23,051 |
|
|
$ |
2,492 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
The following table presents the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the three months ended March 31, 2014 and March 31, 2013. The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.
| |
|
Three months ended March 31, 2014
|
|
|
Three months ended March 31, 2013
|
|
|
Loan Class
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
|
Cash Basis Interest Recognized
|
|
|
Average Recorded Investment
|
|
|
Interest Income Recognized
|
|
|
Cash Basis Interest Recognized
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
2,676 |
|
|
$ |
34 |
|
|
$ |
34 |
|
|
$ |
4,686 |
|
|
$ |
50 |
|
|
$ |
50 |
|
|
Multifamily real estate
|
|
|
2,708 |
|
|
|
708 |
|
|
|
708 |
|
|
|
4,513 |
|
|
|
30 |
|
|
|
30 |
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
2,262 |
|
|
|
16 |
|
|
|
11 |
|
|
|
2,696 |
|
|
|
38 |
|
|
|
29 |
|
|
Non-owner occupied
|
|
|
1,097 |
|
|
|
627 |
|
|
|
627 |
|
|
|
3,041 |
|
|
|
2 |
|
|
|
2 |
|
|
Commercial and industrial
|
|
|
2,967 |
|
|
|
335 |
|
|
|
335 |
|
|
|
11,144 |
|
|
|
4 |
|
|
|
4 |
|
|
All other
|
|
|
7,774 |
|
|
|
44 |
|
|
|
44 |
|
|
|
9,339 |
|
|
|
82 |
|
|
|
82 |
|
|
Total
|
|
$ |
19,484 |
|
|
$ |
1,765 |
|
|
$ |
1,759 |
|
|
$ |
35,419 |
|
|
$ |
206 |
|
|
$ |
197 |
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
Troubled Debt Restructurings
A loan is classified as a troubled debt restructuring ("TDR") when loan terms are modified due to a borrower's financial difficulties and a concession is granted to a borrower that would not have otherwise been considered. Most of the Company’s loan modifications involve a restructuring of loan terms prior to maturity to temporarily reduce the payment amount and/or to require only interest for a temporary period, usually up to six months. These modifications generally do not meet the definition of a TDR because the modifications are considered to be an insignificant delay in payment. The determination of an insignificant delay in payment is evaluated based on the facts and circumstances of the individual borrower(s).
The following table presents TDR’s as of March 31, 2014 and December 31, 2013:
|
March 31, 2014
|
|
TDR’s on Non-accrual
|
|
|
Other TDR’s
|
|
|
Total TDR’s
|
|
| |
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
22 |
|
|
$ |
205 |
|
|
$ |
227 |
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner occupied
|
|
|
- |
|
|
|
500 |
|
|
|
500 |
|
|
Commercial and industrial
|
|
|
- |
|
|
|
814 |
|
|
|
814 |
|
|
Consumer
|
|
|
- |
|
|
|
4 |
|
|
|
4 |
|
|
All other
|
|
|
- |
|
|
|
2,017 |
|
|
|
2,017 |
|
|
Total
|
|
$ |
22 |
|
|
$ |
3,540 |
|
|
$ |
3,562 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
TDR’s on Non-accrual
|
|
|
Other TDR’s
|
|
|
Total TDR’s
|
|
| |
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
23 |
|
|
$ |
296 |
|
|
$ |
319 |
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non owner occupied
|
|
|
- |
|
|
|
506 |
|
|
|
506 |
|
|
Commercial and industrial
|
|
|
- |
|
|
|
831 |
|
|
|
831 |
|
|
Consumer
|
|
|
- |
|
|
|
5 |
|
|
|
5 |
|
|
All other
|
|
|
- |
|
|
|
2,017 |
|
|
|
2,017 |
|
|
Total
|
|
$ |
23 |
|
|
$ |
3,655 |
|
|
$ |
3,678 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2014 and December 31, 2013 there were no specific reserves allocated to loans that had restructured terms.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
The following table presents TDR’s that occurred during the three months ended March 31, 2014 and March 31, 2013:
| |
|
Three months ended March 31, 2014
|
|
|
Three months ended March 31, 2013
|
|
|
Loan Class
|
|
Number of Loans
|
|
|
Pre-Modification Outstanding Recorded Investment
|
|
|
Post-Modification Outstanding Recorded Investment
|
|
|
Number of Loans
|
|
|
Pre-Modification Outstanding Recorded Investment
|
|
|
Post-Modification Outstanding Recorded Investment
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
$ |
16 |
|
|
$ |
16 |
|
|
Total
|
|
|
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
1 |
|
|
$ |
16 |
|
|
$ |
16 |
|
The troubled debt restructurings described above did not increase the allowance for loan losses during the period ended March 31, 2014 and did not increase the allowance for loan losses during the period ended March 31, 2013.
During the three months ended March 31, 2014 and the three months ended March 31, 2013, there were no TDR’s for which there as a payment default within twelve months following the modification.
A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
Credit Quality Indicators:
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes non-homogeneous loans, such as commercial, commercial real estate, multifamily residential and commercial purpose loans secured residential real estate, on a monthly basis. For consumer loans, including consumer loans secured by residential real estate, the analysis involves monitoring the performing status of the loan. At the time such loans become past due by 30 days or more, the Company evaluates the loan to determine if a change in risk category is warranted. The Company uses the following definitions for risk ratings:
Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
As of March 31, 2014 and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
|
Loan Class
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total Loans
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
203,960 |
|
|
$ |
5,925 |
|
|
$ |
6,688 |
|
|
$ |
22 |
|
|
$ |
216,595 |
|
|
Multifamily real estate
|
|
|
28,419 |
|
|
|
907 |
|
|
|
2,365 |
|
|
|
- |
|
|
|
31,691 |
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
83,778 |
|
|
|
7,830 |
|
|
|
2,890 |
|
|
|
- |
|
|
|
94,498 |
|
|
Non-owner occupied
|
|
|
202,220 |
|
|
|
8,002 |
|
|
|
2,094 |
|
|
|
- |
|
|
|
212,316 |
|
|
Commercial and industrial
|
|
|
73,680 |
|
|
|
2,030 |
|
|
|
1,391 |
|
|
|
34 |
|
|
|
77,135 |
|
|
Consumer
|
|
|
24,127 |
|
|
|
197 |
|
|
|
127 |
|
|
|
- |
|
|
|
24,451 |
|
|
All other
|
|
|
67,863 |
|
|
|
5,753 |
|
|
|
8,036 |
|
|
|
103 |
|
|
|
81,755 |
|
|
Total
|
|
$ |
684,047 |
|
|
$ |
30,644 |
|
|
$ |
23,591 |
|
|
$ |
159 |
|
|
$ |
738,441 |
|
As of December 31, 2013, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
|
Loan Class
|
|
Pass
|
|
|
Special Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total Loans
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate
|
|
$ |
202,789 |
|
|
$ |
6,204 |
|
|
$ |
7,065 |
|
|
$ |
23 |
|
|
$ |
216,081 |
|
|
Multifamily real estate
|
|
|
34,487 |
|
|
|
918 |
|
|
|
3,051 |
|
|
|
- |
|
|
|
38,456 |
|
|
Commercial real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
79,694 |
|
|
|
7,431 |
|
|
|
3,348 |
|
|
|
66 |
|
|
|
90,539 |
|
|
Non-owner occupied
|
|
|
196,338 |
|
|
|
8,569 |
|
|
|
3,849 |
|
|
|
- |
|
|
|
208,756 |
|
|
Commercial and industrial
|
|
|
78,205 |
|
|
|
2,269 |
|
|
|
4,753 |
|
|
|
74 |
|
|
|
85,301 |
|
|
Consumer
|
|
|
24,772 |
|
|
|
204 |
|
|
|
137 |
|
|
|
- |
|
|
|
25,113 |
|
|
All other
|
|
|
62,180 |
|
|
|
5,947 |
|
|
|
8,285 |
|
|
|
112 |
|
|
|
76,524 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
678,465 |
|
|
$ |
31,542 |
|
|
$ |
30,488 |
|
|
$ |
275 |
|
|
$ |
740,770 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4- STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS
The Company’s principal source of funds for dividend payments to shareholders 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 2014 the Banks could, without prior approval, declare dividends to Premier of approximately $3.8 million plus any 2014 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 March 31, 2014 the Company and the Banks meet all quantitative capital adequacy requirements to which they are subject.
Shown below is a summary of regulatory capital ratios for the Company:
| |
|
Mar 31,
2014
|
|
|
December 31,
2013
|
|
|
Regulatory
Minimum
Requirements
|
|
|
To Be Considered
Well Capitalized
|
|
|
Tier I Capital (to Risk-Weighted Assets)
|
|
|
17.1 |
% |
|
|
16.9 |
% |
|
|
4.0 |
% |
|
|
6.0 |
% |
|
Total Capital (to Risk-Weighted Assets)
|
|
|
18.4 |
% |
|
|
18.2 |
% |
|
|
8.0 |
% |
|
|
10.0 |
% |
|
Tier I Capital (to Average Assets)
|
|
|
11.3 |
% |
|
|
11.0 |
% |
|
|
4.0 |
% |
|
|
5.0 |
% |
As of March 31, 2014, the most recent notification from each of the Banks’ primary Federal regulators categorized the subsidiary Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Banks must maintain minimum Total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the preceding table. There are no conditions or events since that notification that management believes have changed the Banks’ categories.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5 – PREFERRED STOCK
On October 2, 2009, as part of the Troubled Asset Relief Program (“TARP”) Capital Purchase Program, the Company entered into a Letter Agreement and Securities Purchase Agreement (collectively, the “Purchase Agreement”) with the United States Department of the Treasury (“U.S. Treasury”). Pursuant to the Purchase Agreement, the Company issued and sold to the U.S. Treasury 22,252 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, no par value, with a liquidation preference of one thousand dollars per share (the “Series A Preferred Stock”) and a ten-year warrant (the “Warrant”) to purchase 628,588 shares of the Company’s common stock, no par value, at an exercise price of $5.31 per share, for an aggregate purchase price of $22,252 in cash.
Under standardized TARP Capital Purchase Program terms, cumulative dividends on the Series A Preferred Stock will accrue on the liquidation preference at a rate of 5% per annum until November 14, 2014, and at a rate of 9% per annum thereafter. These dividends will be paid only if, as and when declared by Premier’s Board of Directors. The Series A Preferred Stock has no maturity date and ranks senior to the Company’s common stock with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of Premier. Subject to the approval of the Appropriate Federal Banking Agency (as defined in the Securities Purchase Agreement, which for Premier is the Board of Governors of the Federal Reserve System), the Series A Preferred Stock is redeemable at the option of Premier at 100% of its liquidation preference plus accrued and unpaid dividends, without penalty, delay or the need to raise additional replacement capital.
Premier sought and obtained regulatory permission to participate in the U.S. Treasury’s auction to sell its investment in Premier’s Series A Preferred Stock. In the auction, Premier successfully bid to repurchase 10,252 shares of the 22,252 outstanding shares and on August 10, 2012 the 10,252 shares repurchased at the auction closing price of $901.03.
The Series A Preferred Stock is non-voting, but has class voting rights on (i) any authorization or issuance of shares ranking senior to the Series A Preferred Stock; (ii) any amendment to the rights of the Series A Preferred Stock; or (iii) any merger, consolidation, share exchange, reclassification or similar transaction which would adversely affect the rights of the Series A Preferred Stock. In the event that the cumulative dividends described above are not paid in full for an aggregate of six dividend periods or more, whether or not consecutive, the authorized number of directors of Premier would automatically be increased by two and the holders of the Series A Preferred Stock would have the right to elect two directors. The right to elect directors would end when dividends have been paid in full for four consecutive dividend periods. As previously disclosed, Premier has already deferred two dividend payments on the Series A Preferred Stock as a result of the Federal Reserve Board’s refusal to initially approve the November 15, 2010 and February 15, 2011 dividends under the Written Agreement dated July 29, 2010, among CB&T, a wholly owned subsidiary of Premier; the FRB, and the Virginia Bureau. These deferred dividends were paid along with the regularly scheduled May 15, 2011 Series A Preferred Stock quarterly dividend.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5 – PREFERRED STOCK - continued
The U.S. Treasury has agreed not to exercise voting power with respect to any common stock issued to it upon exercise of the Warrant. The common stock will be issued from authorized but unissued common stock and thus will dilute the interests of existing Premier common shareholders. As of March 31, 2014, the Warrant has not yet been exercised. Since the Series A Preferred Stock was disposed of by the U.S. Treasury, Premier has the right to repurchase the Warrant at its appraised value. If Premier chooses not to repurchase the Warrant, the U.S. Treasury may liquidate the Warrant at its current market price.
From time to time the Company grants stock options to its employees. The Company estimates the fair value of the options at the time they are granted to employees and expenses that fair value over the vesting period of the option grant.
On March 19, 2014, 46,300 incentive stock options were granted out of the 2012 Long Term Incentive Plan at an exercise price of $14.43, the closing market price of Premier’s common stock on the grant date. These options vest in three equal annual installments ending on March 19, 2017. On March 20, 2013, 52,900 incentive stock options were granted out of the 2012 Long Term Incentive Plan at an exercise price of $11.39, the closing market price of Premier’s common stock on the grant date. These options vest in three equal annual installments ending on March 20, 2016.
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
| |
|
2014
|
|
|
2013
|
|
|
Risk-free interest rate
|
|
|
2.78 |
% |
|
|
1.96 |
% |
|
Expected option life (yrs)
|
|
|
10.00 |
|
|
|
10.00 |
|
|
Expected stock price volatility
|
|
|
31.19 |
% |
|
|
35.24 |
% |
|
Dividend yield
|
|
|
3.33 |
% |
|
|
3.86 |
% |
|
Weighted average fair value of options granted during the year
|
|
$ |
3.74 |
|
|
$ |
2.85 |
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6 – STOCK COMPENSATION EXPENSE - continued
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 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 dividend yield was estimated using historical dividends and dividend yields since at the time of the option grant the Company is restricted from paying dividends by its primary regulator.
Compensation expense of $42,000 was recorded for the first three months of 2014 while $46,000 was recorded for the first three months of 2013. Stock-based compensation expense is recognized ratably over the requisite vesting period for all awards. Unrecognized stock-based compensation expense related to stock options totaled $240,000 at March 31, 2014. This unrecognized expense is expected to be recognized over the next 35 months based on the vesting periods of the options.
A summary of the Company’s stock option activity and related information is presented below for the three months ended March 31:
| |
|
- - - - - - 2014 - - - - - -
|
|
- - - - - - 2013 - - - - - -
|
|
| |
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding at beginning of year
|
|
|
354,281 |
|
|
$ |
9.84 |
|
|
392,366 |
|
|
$ |
9.24 |
|
|
Grants
|
|
|
46,300 |
|
|
|
14.43 |
|
|
52,900 |
|
|
|
11.39 |
|
|
Exercises
|
|
|
(8,701 |
) |
|
|
7.24 |
|
|
- |
|
|
|
- |
|
|
Forfeitures or expired
|
|
|
(2,001 |
) |
|
|
9.30 |
|
|
- |
|
|
|
- |
|
|
Outstanding at March 31,
|
|
|
389,879 |
|
|
$ |
10.45 |
|
|
445,266 |
|
|
$ |
9.50 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31,
|
|
|
278,228 |
|
|
|
|
|
|
296,017 |
|
|
|
|
|
|
Weighted average remaining life of options outstanding
|
|
|
6.4 |
|
|
|
|
|
|
6.8 |
|
|
|
|
|
|
Weighted average fair value of options granted during the year
|
|
$ |
3.74 |
|
|
|
|
|
$ |
2.85 |
|
|
|
|
|
Options outstanding at period-end are expected to fully vest.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6 – STOCK COMPENSATION EXPENSE - continued
Additional information regarding stock options outstanding and exercisable at March 31, 2014, 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
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $6.50 to $10.00 |
|
|
186,546 |
|
$ |
7.39 |
|
$ |
1,297 |
|
|
|
155,355 |
|
6.8 |
|
$ |
7.37 |
|
$ |
1,082 |
|
| $10.01 to $12.50 |
|
|
72,933 |
|
|
11.46 |
|
|
210 |
|
|
|
38,873 |
|
4.4 |
|
|
11.52 |
|
|
110 |
|
| $12.51 to $15.00 |
|
|
106,900 |
|
|
13.88 |
|
|
54 |
|
|
|
60,600 |
|
3.4 |
|
|
13.46 |
|
|
54 |
|
| $15.01 to $17.50 |
|
|
23,500 |
|
|
16.00 |
|
|
- |
|
|
|
23,500 |
|
1.9 |
|
|
16.00 |
|
|
- |
|
|
Outstanding - Mar 31, 2014
|
|
|
389,879 |
|
|
10.45 |
|
$ |
1,561 |
|
|
|
278,328 |
|
5.3 |
|
|
10.00 |
|
$ |
1,246 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the numerators and denominators of the earnings per common share and earnings per common share assuming dilution computations for the three months ended March 31, 2014 and 2013 is presented below:
| |
|
Three Months Ended
March 31,
|
|
| |
|
2014
|
|
|
2013
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$ |
3,505 |
|
|
$ |
2,339 |
|
|
Weighted average common shares outstanding
|
|
|
8,043,213 |
|
|
|
7,962,693 |
|
|
Earnings per share
|
|
$ |
0.44 |
|
|
$ |
0.29 |
|
| |
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$ |
3,505 |
|
|
$ |
2,339 |
|
|
Weighted average common shares outstanding
|
|
|
8,043,213 |
|
|
|
7,962,693 |
|
|
Add dilutive effects of potential additional common stock
|
|
|
506,963 |
|
|
|
432,207 |
|
|
Weighted average common and dilutive potential common shares outstanding
|
|
|
8,550,156 |
|
|
|
8,394,900 |
|
|
Earnings per share assuming dilution
|
|
$ |
0.41 |
|
|
$ |
0.28 |
|
Stock options for 69,800 and 111,933 shares of common stock were not considered in computing diluted earnings per share for the three months ended March 31, 2014 and 2013 because they were antidilutive.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8 – FAIR VALUE
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and the Company must use other valuation methods to develop a fair value.
Carrying amount is the estimated fair value for cash and due from banks, Federal funds sold, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. It was not practicable to determine the fair value of Federal Home Loan Bank stock due to the restrictions placed on its transferability. 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 material.
The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument measured on a recurring basis:
Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8 – FAIR VALUE - continued
The carrying amounts and estimated fair values of financial instruments at March 31, 2014 were as follows:
| |
|
|
|
|
Fair Value Measurements at March 31, 2014 Using
|
|
| |
|
Carrying
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$ |
85,925 |
|
|
$ |
85,925 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
85,925 |
|
|
Federal funds sold
|
|
|
7,866 |
|
|
|
7,866 |
|
|
|
- |
|
|
|
- |
|
|
|
7,866 |
|
|
Securities available for sale
|
|
|
224,011 |
|
|
|
- |
|
|
|
223,871 |
|
|
|
140 |
|
|
|
224,011 |
|
|
Loans held for sale
|
|
|
921 |
|
|
|
- |
|
|
|
- |
|
|
|
921 |
|
|
|
921 |
|
|
Loans, net
|
|
|
728,097 |
|
|
|
- |
|
|
|
- |
|
|
|
723,333 |
|
|
|
723,333 |
|
|
Federal Home Loan Bank stock
|
|
|
3,983 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
Interest receivable
|
|
|
2,911 |
|
|
|
- |
|
|
|
610 |
|
|
|
2,301 |
|
|
|
2,911 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$ |
(939,849 |
) |
|
$ |
(613,457 |
) |
|
$ |
(327,247 |
) |
|
$ |
- |
|
|
$ |
(940,704 |
) |
|
Securities sold under agreements
to repurchase
|
|
|
(10,490 |
) |
|
|
- |
|
|
|
(10,490 |
) |
|
|
- |
|
|
|
(10,490 |
) |
|
Other borrowed funds
|
|
|
(13,200 |
) |
|
|
- |
|
|
|
(13,211 |
) |
|
|
- |
|
|
|
(13,211 |
) |
|
Interest payable
|
|
|
(334 |
) |
|
|
(6 |
) |
|
|
(328 |
) |
|
|
- |
|
|
|
(334 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying amounts and estimated fair values of financial instruments at December 31, 2013 were as follows:
| |
|
|
|
|
Fair Value Measurements at December 31, 2013 Using
|
|
| |
|
Carrying
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$ |
63,984 |
|
|
$ |
63,984 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
63,984 |
|
|
Federal funds sold
|
|
|
12,777 |
|
|
|
12,777 |
|
|
|
- |
|
|
|
- |
|
|
|
12,777 |
|
|
Securities available for sale
|
|
|
218,066 |
|
|
|
- |
|
|
|
217,926 |
|
|
|
140 |
|
|
|
218,066 |
|
|
Loans held for sale
|
|
|
77 |
|
|
|
- |
|
|
|
- |
|
|
|
77 |
|
|
|
77 |
|
|
Loans, net
|
|
|
729,743 |
|
|
|
- |
|
|
|
- |
|
|
|
725,588 |
|
|
|
725,588 |
|
|
Federal Home Loan Bank stock
|
|
|
4,183 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
Interest receivable
|
|
|
3,132 |
|
|
|
- |
|
|
|
593 |
|
|
|
2,539 |
|
|
|
3,132 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$ |
(924,023 |
) |
|
$ |
(592,664 |
) |
|
$ |
(332,475 |
) |
|
$ |
- |
|
|
$ |
(925,139 |
) |
|
Securities sold under agreements
to repurchase
|
|
|
(11,319 |
) |
|
|
- |
|
|
|
(11,319 |
) |
|
|
- |
|
|
|
(11,319 |
) |
|
Other borrowed funds
|
|
|
(13,800 |
) |
|
|
- |
|
|
|
(13,811 |
) |
|
|
- |
|
|
|
(13,811 |
) |
|
Interest payable
|
|
|
(383 |
) |
|
|
(5 |
) |
|
|
(378 |
) |
|
|
- |
|
|
|
(383 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8 – FAIR VALUE - continued
Assets and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below:
| |
|
|
|
Fair Value Measurements at
March 31, 2014 Using:
|
|
| |
|
Carrying Value
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. agency MBS - residential
|
|
$ |
39,019 |
|
$ |
- |
|
|
$ |
39,019 |
|
|
$ |
- |
|
|
U. S. agency CMO’s - residential
|
|
|
171,458 |
|
|
- |
|
|
|
171,458 |
|
|
|
- |
|
|
Total mortgage-backed securities of government sponsored agencies
|
|
|
210,477 |
|
|
- |
|
|
|
210,477 |
|
|
|
- |
|
|
U. S. government sponsored agency securities
|
|
|
7,014 |
|
|
- |
|
|
|
7,014 |
|
|
|
- |
|
|
Obligations of states and political subdivisions
|
|
|
6,520 |
|
|
- |
|
|
|
6,380 |
|
|
|
140 |
|
|
Total available for sale
|
|
$ |
224,011 |
|
$ |
- |
|
|
$ |
223,871 |
|
|
$ |
140 |
|
| |
|
|
|
Fair Value Measurements at
December 31, 2013 Using:
|
|
| |
|
Carrying Value
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. agency MBS - residential
|
|
$ |
27,823 |
|
$ |
- |
|
|
$ |
27,823 |
|
|
$ |
- |
|
|
U. S. agency CMO’s
|
|
|
176,722 |
|
|
- |
|
|
|
176,722 |
|
|
|
- |
|
|
Total mortgage-backed securities of government sponsored agencies
|
|
|
204,545 |
|
|
- |
|
|
|
204,545 |
|
|
|
- |
|
|
U. S. government sponsored agency securities
|
|
|
6,981 |
|
|
- |
|
|
|
6,981 |
|
|
|
- |
|
|
Obligations of states and political subdivisions
|
|
|
6,540 |
|
|
- |
|
|
|
6,400 |
|
|
|
140 |
|
|
Total securities available for sale
|
|
$ |
218,066 |
|
$ |
- |
|
|
$ |
217,926 |
|
|
$ |
140 |
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between Level 1 and Level 2 during 2014 or 2013.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8 – FAIR VALUE - continued
Assets and Liabilities Measured on a Non-Recurring Basis
The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument measured on a non-recurring basis:
Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and unique to each property and result in a Level 3 classification of the inputs for determining fair value. Management periodically evaluates the appraised values and will discount a property’s appraised value to account for a number of factors including but not limited to the cost of liquidating the collateral, the age of the appraisal, observable deterioration since the appraisal, or other factors unique to the property. To the extent an adjusted appraised value is lower than the carrying value of an impaired loan, a specific allocation of the allowance for loan losses is assigned to the loan.
Other real estate owned (OREO): The fair value of OREO is based on appraisals less cost to sell at the date of foreclosure. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Management periodically evaluates the appraised values and will discount a property’s appraised value to account for a number of factors including but not limited to the cost of liquidating the collateral, the age of the appraisal, observable deterioration since the appraisal, or other factors unique to the property. To the extent an adjusted appraised value is lower than the carrying value of an OREO property, a direct charge to earnings is recorded as an OREO writedown.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8 – FAIR VALUE - continued
Assets and liabilities measured at fair value on a non-recurring basis at March 31, 2014 are summarized below:
| |
|
|
|
|
Fair Value Measurements at March 31, 2014 Using
|
|
| |
|
Carrying Value
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Significant Other Observable Inputs (Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
$ |
1,085 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,085 |
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied
|
|
|
546 |
|
|
|
- |
|
|
|
- |
|
|
|
546 |
|
|
Commercial and Industrial
|
|
|
745 |
|
|
|
- |
|
|
|
- |
|
|
|
745 |
|
|
All Other
|
|
|
4,156 |
|
|
|
- |
|
|
|
- |
|
|
|
4,156 |
|
|
Total impaired loans
|
|
|
6,532 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
6,532 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner Occupied
|
|
$ |
290 |
|
|
|
- |
|
|
|
- |
|
|
$ |
290 |
|
|
All Other
|
|
|
8,728 |
|
|
|
- |
|
|
|
- |
|
|
|
8,728 |
|
|
Total OREO
|
|
$ |
9,018 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
9,018 |
|
Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $7,934,000 at March 31, 2014 with a valuation allowance of $1,402,000 and a carrying amount of $12,301,000 at December 31, 2013 with a valuation allowance of $2,492,000, resulting in a negative provision for loan losses of $1,437,000 for the three months ended March 31, 2014, compared to a $845,000 provision for loan losses for the three months ended March 31, 2013. The detail of impaired loans by loan class is contained in Note 3 above.
Other real estate owned measured at fair value less costs to sell, had a net carrying amount of $9,018,000 which is made up of the outstanding balance of $11,395,000 net of a valuation allowance of $2,377,000 at March 31, 2014. There were no additional write downs during the three months ended March 31, 2014, or during the three months ended March 31, 2013. At December 31, 2013, other real estate owned had a net carrying amount of $8,786,000, made up of the outstanding balance of $11,163,000, net of a valuation allowance of $2,377,000.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8 – FAIR VALUE - continued
The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at March 31, 2014 are summarized below:
| |
|
March 31, 2014
|
|
Valuation Techniques
|
|
Unobservable Inputs
|
|
Range (Weighted Avg)
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
$ |
1,085 |
|
sales comparison
|
|
adjustment for differences between the comparable sales
|
|
0.8%-63.5%(12.8%) |
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied
|
|
|
546 |
|
sales comparison
|
|
adjustment for limited salability of specialized property
|
|
21.8%-70.0%(48.5%) |
|
Commercial and Industrial
|
|
|
745 |
|
sales comparison
|
|
adjustment for limited salability of specialized property
|
|
25.0%-41.2%(28.0%) |
|
All Other
|
|
|
4,156 |
|
sales comparison
|
|
adjustment for percentage of completion of construction
|
|
57.4%-93.4%(57.5%) |
|
Total impaired loans
|
|
|
6,532 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Other real estate owned:
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
Non-owner Occupied
|
|
|
290 |
|
sales comparison
|
|
adjustment for differences between the comparable sales
|
|
42.7%-42.7%(42.7%) |
|
All Other
|
|
|
8,728 |
|
sales comparison
|
|
adjustment for estimated realizable value
|
|
9.5%-24.6%(12.4%) |
|
Total OREO
|
|
$ |
9,018 |
|
|
|
|
|
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8 – FAIR VALUE - continued
Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2013 are summarized below:
| |
|
|
|
|
Fair Value Measurements at December 31, 2013 Using
|
|
| |
|
Carrying Value
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Significant Other Observable Inputs (Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
$ |
1,518 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,518 |
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied
|
|
|
346 |
|
|
|
- |
|
|
|
- |
|
|
|
346 |
|
|
Non-owner Occupied
|
|
|
428 |
|
|
|
- |
|
|
|
- |
|
|
|
428 |
|
|
Commercial and Industrial
|
|
|
3,384 |
|
|
|
- |
|
|
|
- |
|
|
|
3,384 |
|
|
All Other
|
|
|
4,133 |
|
|
|
- |
|
|
|
- |
|
|
|
4,133 |
|
|
Total impaired loans
|
|
|
9,809 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
9,809 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner Occupied
|
|
|
290 |
|
|
|
- |
|
|
|
- |
|
|
|
290 |
|
|
All Other
|
|
|
8,496 |
|
|
|
- |
|
|
|
- |
|
|
|
8,496 |
|
|
Total OREO
|
|
$ |
8,786 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
8,786 |
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8 – FAIR VALUE - continued
The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at December 31, 2013 are summarized below:
| |
|
December 31, 2013
|
|
Valuation Techniques
|
|
Unobservable Inputs
|
|
Range (Weighted Avg)
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
$ |
1,518 |
|
sales comparison
|
|
adjustment for differences between the comparable sales
|
|
0.8%-63.5%(11.9%) |
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied
|
|
|
346 |
|
sales comparison
|
|
adjustment for limited salability of specialized property
|
|
62.5%-70.0%(64.0%) |
|
Non-owner Occupied
|
|
|
428 |
|
sales comparison
|
|
adjustment for limited salability of specialized property
|
|
50.6%-50.6%(50.6%) |
|
Commercial and Industrial
|
|
|
3,384 |
|
sales comparison
|
|
adjustment for limited salability of specialized property
|
|
25.0%-65.5%(57.8%) |
|
All Other
|
|
|
4,133 |
|
sales comparison
|
|
adjustment for percentage of completion of construction
|
|
57.6%-99.3%(57.7%) |
|
Total impaired loans
|
|
|
9,809 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Other real estate owned:
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
Non-owner Occupied
|
|
|
290 |
|
sales comparison
|
|
adjustment for differences between the comparable sales
|
|
42.7%-42.7%(42.7%) |
|
All Other
|
|
|
8,496 |
|
sales comparison
|
|
adjustment for estimated realizable value
|
|
9.5%-24.6%(12.5%) |
|
Total OREO
|
|
$ |
8,786 |
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table details the changes in the single component of accumulated other comprehensive income for the three months ended March 31, 2014:
|
Accumulated Other Comprehensive Income
|
|
Unrealized Gain on Securities Available for Sale
|
|
|
Balance, December 31, 2013
|
|
$ |
(625 |
) |
|
Reclassification adjustments to net income:
|
|
|
|
|
|
Realized gain on disposition of securities
|
|
|
- |
|
|
Provision for income taxes
|
|
|
- |
|
|
Unrealized gains arising during the period, net of tax
|
|
|
1,794 |
|
|
Balance, March 31, 2014
|
|
$ |
1,169 |
|
| |
|
|
|
|
The following table details the changes in the single component of accumulated other comprehensive income for the three months ended March 31, 2013:
|
Accumulated Other Comprehensive Income
|
|
Unrealized Gain on Securities Available for Sale
|
|
|
Balance, December 31, 2012
|
|
$ |
6,576 |
|
|
Reclassification adjustments to net income:
|
|
|
|
|
|
Realized gain on disposition of securities
|
|
|
(148 |
) |
|
Provision for income taxes
|
|
|
50 |
|
|
Unrealized losses arising during the period, net of tax
|
|
|
(382 |
) |
|
Balance, March 31, 2013
|
|
$ |
6,096 |
|
| |
|
|
|
|
For the three months ended March 31, 2013, the reclassified realized gain on disposition of securities is reported on the income statement under the caption “Gain on disposition of securities” and the reclassified provision for income taxes is reported on the income statement under the caption “Provision for income taxes”.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 10 – SUBSEQUENT EVENT
Effective with the close of business on April 4, 2014, Premier completed its purchase of the Bank of Gassaway (“Gassaway”), a $178 million bank headquartered in Gassaway, West Virginia. Under terms of an amended and restated agreement of merger dated January 3, 2014, Premier Bank, Inc., a wholly owned subsidiary of Premier, paid $20.25 million in cash for the Bank of Gassaway and merged Gassaway’s five branch locations into its operating systems. As of March 31, 2014, Gassaway had total assets of $178 million, total loans of $96 million and total deposits of $160 million. Management has not yet completed all of the analyses needed to estimate the fair value of the assets and liabilities acquired, both tangible and intangible.
- 40 -
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2014
of Financial Condition and Results of Operations
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, 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.
A. Results of Operations
A financial institution’s primary sources of revenue are generated by interest income on loans, investments and other 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.
Net income for the three months ended March 31, 2104 was $3,670,000, or $0.41 per diluted share, compared to net income of $2,504,000, or $0.28 per diluted share for the three months ended March 31, 2013. The increase in income in the first three months of 2014 is largely due to an increase in interest income on loans, a decrease in interest expense, and a decrease in the provision for loan losses, all of which more than offset a decrease in non-interest income and an increase in non-interest expenses. The increase in interest income on loans in the first three months of 2014 is largely due to approximately $1.8 million of income recognized from purchase discounts and interest income collected on non-accrual loans liquidated during the first quarter of 2014. The annualized returns on average common shareholders’ equity and average assets were approximately 10.14% and 1.33% for the three months ended March 31, 2014 compared to 6.97% and 0.99% for the same period in 2013.
Net interest income for the three months ended March 31, 2014 totaled $12.00 million, up $1.87 million, or 18.4%, from the $10.14 million of net interest income earned in the first three months of 2013. Interest income in 2014 increased by $1.63 million, or 14.3%, largely due to a $1.90 million increase in interest income on loans. Interest income on loans in the first quarter of 2014 included approximately $1.8 million of income recognized from purchase discounts and interest income collected on non-accrual loans liquidated during the quarter. The timing of these liquidations is difficult to predict, which creates fluctuations in reported loan interest income. Interest earned on investments decreased by $275,000, or 16.9%, due to a lower average balance of
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2014
investments outstanding during the quarter compared to the first quarter of 2013, although at slightly higher average yields. Interest earned on federal funds sold and interest bearing bank balances increased by $2,000, largely due to a higher average volume of assets held in this category.
Complementing the increase in interest income in the first quarter of 2014 was $237,000 of interest expense savings. Interest expense decreased in total during the first three months of 2014 by $237,000, or 18.6%, when compared to the same three months of 2013. Interest expense on deposits decreased by $204,000, or 18.7%, largely due to a continuing decrease in the average rates paid on deposits on a 2.4% lower average balance of interest bearing deposits outstanding. Interest expense on repurchase agreements and other short-term borrowings decreased by $5,000, largely due to a lower average balance outstanding. Interest expense on other borrowings decreased by $28,000, or 16.3%, in the first three months of 2014 compared to the first three months of 2013, largely due to a decrease in the average amount of borrowings outstanding.
The Federal Reserve System Board of Governors’ policy to maintain the federal funds rate at nearly zero, coupled with the U.S. Treasury actively buying investment securities, has significantly reduced the yield on much of Premier’s earning assets, including investments, federal funds sold and variable rate loans. Premier has tried to offset the lower interest income by lowering the rates paid on its deposits and repurchase agreements with customers. With the recognition of additional loan interest income upon the liquidation of non-accrual loans in 2014, Premier’s overall net interest margin increased in the first quarter of 2014. Premier’s net interest margin during the first three months of 2014 was 4.77% compared to 3.99% for the same period in 2013. A portion of the interest income on loans is the result of recognizing into interest income the remaining fair value discounts on loans acquired via a business acquisition if that loan was paid-off during the period. These events cannot be predicted with certainty and may positively or negatively affect the comparison of interest income on loans in future periods. Excluding this income, Premier’s net interest margin during the first three months of 2014 would have been 4.03% compared to 3.99% for the same period in 2013.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2014
Additional information on Premier’s net interest income for the first quarter of 2014 and first quarter of 2013 is contained in the following table.
|
PREMIER FINANCIAL BANCORP, INC.
|
|
|
AVERAGE CONSOLIDATED BALANCE SHEETS
|
|
|
AND NET INTEREST INCOME ANALYSIS
|
|
| |
|
| |
|
Three Months Ended March 31, 2014
|
|
|
Three Months Ended March 31, 2013
|
|
| |
|
Balance
|
|
|
Interest
|
|
|
Yield/Rate
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Rate
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold and other
|
|
$ |
55,789 |
|
|
$ |
32 |
|
|
|
0.23 |
% |
|
$ |
48,607 |
|
|
$ |
30 |
|
|
|
0.25 |
% |
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
217,697 |
|
|
|
1,315 |
|
|
|
2.42 |
|
|
|
277,806 |
|
|
|
1,582 |
|
|
|
2.28 |
|
|
Tax-exempt
|
|
|
4,589 |
|
|
|
35 |
|
|
|
4.62 |
|
|
|
6,037 |
|
|
|
43 |
|
|
|
4.32 |
|
|
Total investment securities
|
|
|
222,286 |
|
|
|
1,350 |
|
|
|
2.46 |
|
|
|
283,843 |
|
|
|
1,625 |
|
|
|
2.32 |
|
|
Total loans
|
|
|
743,738 |
|
|
|
11,663 |
|
|
|
6.36 |
|
|
|
701,631 |
|
|
|
9,760 |
|
|
|
5.64 |
|
|
Total interest-earning assets
|
|
|
1,021,813 |
|
|
|
13,045 |
|
|
|
5.18 |
% |
|
|
1,034,081 |
|
|
|
11,415 |
|
|
|
4.48 |
% |
|
Allowance for loan losses
|
|
|
(10,856 |
) |
|
|
|
|
|
|
|
|
|
|
(11,836 |
) |
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
26,161 |
|
|
|
|
|
|
|
|
|
|
|
26,617 |
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
70,450 |
|
|
|
|
|
|
|
|
|
|
|
69,182 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,107,568 |
|
|
|
|
|
|
|
|
|
|
$ |
1,118,044 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
$ |
719,816 |
|
|
|
887 |
|
|
|
0.50 |
|
|
$ |
737,548 |
|
|
|
1,091 |
|
|
|
0.60 |
|
|
Short-term borrowings
|
|
|
12,363 |
|
|
|
7 |
|
|
|
0.23 |
|
|
|
19,649 |
|
|
|
12 |
|
|
|
0.25 |
|
|
FHLB advances
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Other borrowings
|
|
|
13,484 |
|
|
|
144 |
|
|
|
4.33 |
|
|
|
15,759 |
|
|
|
172 |
|
|
|
4.43 |
|
|
Total interest-bearing liabilities
|
|
|
745,663 |
|
|
|
1,038 |
|
|
|
0.56 |
% |
|
|
772,956 |
|
|
|
1,275 |
|
|
|
0.67 |
% |
|
Non-interest bearing deposits
|
|
|
207,217 |
|
|
|
|
|
|
|
|
|
|
|
195,247 |
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
4,433 |
|
|
|
|
|
|
|
|
|
|
|
3,759 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
150,255 |
|
|
|
|
|
|
|
|
|
|
|
146,082 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$ |
1,107,568 |
|
|
|
|
|
|
|
|
|
|
$ |
1,118,044 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest earnings
|
|
|
|
|
|
$ |
12,007 |
|
|
|
|
|
|
|
|
|
|
$ |
10,140 |
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
4.62 |
% |
|
|
|
|
|
|
|
|
|
|
3.81 |
% |
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
4.77 |
% |
|
|
|
|
|
|
|
|
|
|
3.99 |
% |
| |
|
|
|
|
|
|
|
|
|
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PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2014
Non-interest income decreased by $264,000, or 16.0%, to $1,381,000 for the first three months of 2014 compared to the same three months of 2013. However, this decrease includes the effect of a $148,000 gain on the disposition of an investment security that was called during the first quarter of 2013, increasing the comparative income for that period. Excluding this gain, service charges on deposit accounts decreased by $50,000, or 6.3%, income from selling mortgages in the secondary market decreased by $75,000, or 79.8%, and income from other sources decreased by $16,000 or 11.1%. The decrease in secondary market mortgage income is largely due to a decrease in customer demand for refinancing existing mortgage loans compared to one-year ago as a result of an increase in long-term mortgage rates. Partially offsetting these decreases in non-interest income, electronic banking income (income from debit/credit cards, ATM fees and internet banking charges) increased by $25,000, or 5.3%.
Non-interest expenses for the first quarter of 2014 totaled $8,029,000, or 2.94% of average assets on an annualized basis, compared to $7,387,000, or 2.68% of average assets for the same period of 2013. The $642,000 increase in non-interest expenses in 2014 when compared to the first quarter of 2013 is largely due to a $392,000, or 10.9%, increase in staff costs and a $380,000 increase in professional fees. The increase in staff costs is primarily due to a $99,000, or 3.4%, increase in salaries and wages (net of deferred loan costs) and a $276,000, or 103%, increase in benefit plan costs, namely employee medical insurance benefits. The increase in professional fees includes a $33,000 increase in legal fees related to the acquisition of the Bank of Gassaway, $275,000 accrued for the legal related matters and a $71,000 increase in external audit costs, some of which is related to the Company’s newly required internal control audit as an accelerated filer under Sarbanes-Oxley section 404. Other increases in non-interest expenses include a $74,000, or 6.9% increase in occupancy and equipment costs, a $74,000 or 96.1% increase in supplies costs, and a $49,000, or 6.0% increase in data processing costs. Occupancy costs were higher in the first quarter of 2014, largely due to higher utility and higher snow removal costs related to the harsh winter in 2014, while equipment costs were higher due to higher equipment maintenance costs. Supply costs increased as the Company prepared for the conversion of the Bank of Gassaway early in the second quarter. Data processing costs increased primarily due to higher volumes of customers using internet banking, higher ATM processing costs, and higher payroll processing costs. Decreases in non-interest expense during the first quarter of 2014 include a $230,000, or 71.0%, decrease in expenses and writedowns on other real estate owned (OREO), a $60,000, or 28.3%, decrease in taxes not based on income, and a $70,000, or 51.1%, decrease in loan collection expenses. OREO expenses decreased largely due to a decrease in the amount of expenses related to the maintenance of OREO properties that were either sold in 2013 or under construction in 2013. Taxes not on income decreased largely due to a decrease in state based franchise taxes.
Income tax expense was $1,999,000 for the first three months of 2014 compared to $1,324,000 for the first three months of 2013. The effective tax rate for the three months ended March 31, 2014 was 35.3% compared to the 34.6% effective tax rate for the same period in 2013. The increase in income tax expense can be primarily attributed to the increase in pre-tax income detailed above, while the increase in the effective income tax rate can be attributed to Premier’s improving financial performance resulting in higher levels of federal taxable income resulting in a partial phase-in of the 35% maximum federal corporate income tax rate, up from the basic 34% federal corporate income tax rate.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2014
B. Financial Position
Total assets at March 31, 2014 increased by $19.6 million to $1.120 billion from the $1.100 billion at December 31, 2013. Earnings assets increased by $19.9 million from the $1.012 billion at year-end 2013 to end the quarter at $1.032 billion. The increase in total assets was largely due to an increase in securities available for sale and an increase in interest bearing bank balances (see below).
Cash and due from banks at March 31, 2014 was $27.9 million, a $508,000 increase from the $27.4 million at December 31, 2013. Interest bearing bank balances increased by $21.4 million from the $36.6 million reported at December 31, 2013, while federal funds sold decreased by $4.9 million to $7.9 million at March 31, 2014. Changes in these highly liquid assets are generally in response to increases in deposits, the demand for deposit withdrawals or the funding of loans or investment purchases and are part of Premier’s management of its liquidity and interest rate risks. The increase in interest bearing bank balances during the first three months of 2014 was largely in response to increases in available funds from loan payoffs plus an increase in total deposits outstanding at the end of the quarter.
Securities available for sale totaled $224.0 million at March 31, 2014, a $5.9 million increase from the $218.1 million at December 31, 2013. The increase was largely due to $12.3 million of purchases of investment securities and a $2.7 million increase in the market value of the securities available for sale, which more than offset $8.8 million of proceeds from monthly principal payments on Premier’s mortgage backed securities portfolio and securities maturing during the quarter. The investment portfolio is predominately high quality residential mortgage backed securities backed by the U.S. Government or Government sponsored agencies. Any unrealized losses on securities within the portfolio at March 31, 2014 and December 31, 2013 are believed to be price changes resulting from increases in the long-term interest rate environment and management anticipates receiving all principal and interest on these investments as they come due. Additional details on investment activities can be found in the Consolidated Statements of Cash Flows.
Total loans at March 31, 2014 were $738.4 million compared to $740.8 million at December 31, 2013, a decrease of approximately $2.3 million, or 0.3%. The decrease in loans was largely due to payoffs, transfers of loans to OREO upon foreclosure and principal payments on loans which more than offset loan demand during the first quarter of 2014. Loan payoffs during the first quarter of 2014 included $4.9 million of payoffs on non-accrual loans which resulted in recognizing approximately $1.6 million of interest income deferred while the loans were on non-accrual status and $232,000 of remaining purchase discounts associated with the loans.
Deposits totaled $939.8 million as of March 31, 2014, a $15.8 million increase from the $924.0 million in deposits at December 31, 2013. The overall increase in deposits is largely due to a $10.8 million, or 6.7%, increase in interest bearing transaction accounts and a $4.4 million, or 2.0%, increase in savings and money market accounts. These increases were partially offset by a $5.0 million, or 1.5%, decrease in certificates of deposit. Repurchase agreements with corporate and public entity customers decreased in the first quarter of 2013 by $829,000, or 7.3%. Other borrowed funds decreased by $600,000 during the first quarter of 2014 due to regularly scheduled principal payments plus accelerated principal payments.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2014
The following table sets forth information with respect to the Company’s nonperforming assets at March 31, 2014 and December 31, 2013.
| |
|
(In Thousands)
|
|
| |
|
2014
|
|
|
2013
|
|
|
Non-accrual loans
|
|
$ |
11,060 |
|
|
$ |
16,641 |
|
|
Accruing loans which are contractually past due 90 days or more
|
|
|
6,458 |
|
|
|
8,478 |
|
|
Accruing restructured loans
|
|
|
3,540 |
|
|
|
3,655 |
|
|
Total non-performing loans
|
|
|
21,058 |
|
|
|
28,774 |
|
|
Other real estate acquired through foreclosure (OREO)
|
|
|
13,258 |
|
|
|
13,524 |
|
|
Total non-performing assets
|
|
$ |
34,316 |
|
|
$ |
42,298 |
|
| |
|
|
|
|
|
|
|
|
|
Non-performing loans as a percentage of total loans
|
|
|
2.85 |
% |
|
|
3.88 |
% |
| |
|
|
|
|
|
|
|
|
|
Non-performing assets as a percentage of total assets
|
|
|
3.06 |
% |
|
|
3.84 |
% |
Total non-performing loans have decreased since year-end, largely due to $4.9 million of payoffs on non-accrual loans during the first quarter of 2014. Also affecting the decrease in non-performing loans was a $2.0 million decrease in loans past due 90 days or more that were brought current and a $115,000 decrease in restructured loans that have been performing as agreed. Total non-performing assets have decreased since year-end, largely due to the reduction in non-performing loans plus a $266,000 decrease in other real estate acquired through foreclosure (OREO). The significant level of non-accrual loans and OREO is largely due to the non-performing assets that came with the acquisition of Abigail Adams and its two subsidiary banks (the “Acquired Banks”).
At December 31, 2013, the Acquired Banks accounted for $27.2 million, or 64.4%, of Premier’s non-performing assets while at March 31, 2014 the Acquired Banks accounted for $22.7 million, or 66.2% of Premier’s non-performing assets. However, since these assets were recorded at an estimated fair value on the date of acquisition, the amount of credit risk assumed by Premier is not nearly as great as the volume of non-performing assets suggests taken at face value. The estimate of fair value on all loans, but particularly on non-performing assets, included factors for the measurement of credit risk, interest rate risk and re-salability in the most advantageous market for the loans in an orderly transaction between market participants. These estimates included significant discounts on the non-accrual loans. The following table illustrates the face value of the non-performing assets of the Acquired Banks as of March 31, 2014 and December 31, 2013 and the discounted net carrying value of those non-performing assets.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2014
|
NON-PERFORMING ASSETS AT ACQUIRED SUBSIDIARY BANKS
|
|
|
(Dollars in thousands)
|
|
| |
|
March 31, 2014
|
|
|
December 31, 2013
|
|
| |
|
Face Value
|
|
|
Discounted Net Carrying Value
|
|
|
Face Value
|
|
|
Discounted Net Carrying
Value
|
|
|
Non-performing Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans
|
|
$ |
16,257 |
|
|
$ |
7,427 |
|
|
$ |
18,159 |
|
|
$ |
9,097 |
|
|
Loans 90+ days past due
|
|
|
5,023 |
|
|
|
4,973 |
|
|
|
7,165 |
|
|
|
7,085 |
|
|
Restructured loans
|
|
|
489 |
|
|
|
489 |
|
|
|
494 |
|
|
|
494 |
|
|
Other real estate owned
|
|
|
10,261 |
|
|
|
9,821 |
|
|
|
11,095 |
|
|
|
10,545 |
|
|
Total non-performing assets
|
|
$ |
32,030 |
|
|
$ |
22,710 |
|
|
$ |
36,913 |
|
|
$ |
27,221 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Face value includes reductions for interest payments received on loans while on non-accrual status in accordance with the cost recovery method of accounting for non-accrual loans.
|
|
Many of the non-accrual loans obtained from the Acquired Banks are continuing to be accounted for under cost recovery methods of income recognition as permitted by the guidance for accounting for non-accrual loans acquired in a business combination. Most of the non-accrual loans at the Acquired Banks were placed in that status due to a lack of predictable cash flows from the borrower. At acquisition by Premier, these loans were recorded at their estimated fair value. These estimates included significant discounts on the non-accrual loans. Yet, the lack of predictable cash flows from the borrowers remains. As a result, accounting guidance requires these loans to continue to be accounted for under cost recovery methods of income recognition, even though the estimated collateral value may exceed the discounted net carrying value.
Premier continues to make a significant effort to reduce its past due and non-performing loans by reviewing loan files, using the courts to bring borrowers current with the terms of their loan agreements and/or the foreclosure and sale of OREO properties. As in the past, when these plans are executed, Premier may experience increases in non-performing loans and non-performing assets. Furthermore, any resulting increases in loans placed on non-accrual status will have a negative impact on future loan interest income. Also, as these plans are executed, other loans may be identified that would necessitate additional charge-offs and potentially additional provisions for loan losses.
Gross charge-offs totaled $446,000 during the first three months of 2014, largely due to the partial charge-off of a previously identified impaired loan that was foreclosed upon and placed into OREO during the quarter. Any collections on charged-off loans, or partially charged-off loans, would be presented in future financial statements as recoveries of the amounts charged against the allowance. Recoveries recorded during the first three months of 2014 totaled $73,000 resulting in net charge-offs for the first quarter of 2014 of $373,000. This compares to $284,000 of net recoveries recorded in the first quarter of 2013. The allowance for loan losses at March 31, 2014 was 1.40% of total loans compared to 1.49% at December 31, 2013. The decrease in the ratio is largely due to the decrease in the amount of allowance allocated to loans individually evaluated for impairment due to payoffs received or recording a partial charge-off upon foreclosure and transfer of the remaining loan balance to OREO.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2014
During the first quarter of 2014, Premier reversed a portion of its allowance for loans losses into income by recording a $310,000 negative provision for loan losses. This negative provision compares to $570,000 of provision expense recorded during the same quarter of 2013. The negative provision for loan losses was the result of specific reserves allocated to impaired loans that ultimately paid in full during the first quarter of 2014. As a result, the specific reserves were no longer needed and were reversed into income. The reversal more than offset additional provision expense recorded during the quarter resulting from new loans recorded and increases in the estimated credit risk in the loan portfolio related to loans collectively allocated for impairment. The allowance for loan losses allocated to loans individually evaluated for impairment decreased from $1.9 million at December 31, 2013 to $770,000 at March 31, 2014, which included the partial charge-off of a previously identified impaired loan that was foreclosed upon and placed into OREO during the quarter.
During the first quarter of 2013, Premier recorded $570,000 of provision for loan losses. In the first quarter of 2013, Premier received $535,000 of payments on loans previously charged off (loan recoveries) which added to the balance of the allowance for loan losses. The recoveries partially offset the estimated increase in the overall credit risk in the loan portfolio resulting largely from specific reserve allocations on impaired loans. The allowance for loan losses allocated to loans individually evaluated for impairment increased from $3.3 million at December 31, 2012 to $4.2 million at March 31, 2013.
The provisions for loan losses recorded in 2014 and 2013 were made in accordance with Premier’s policies regarding management’s estimation of probable incurred losses in the loan portfolio and the adequacy of the allowance for loan losses, which are in accordance with accounting principles generally accepted in the United States of America. 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. Premier continues to monitor and evaluate the impact that national housing market price declines may have on its local markets and collateral valuations as management evaluates the adequacy of the allowance for loan losses. While some price deterioration has occurred, it is not currently anticipated that Premier’s markets will be impacted as severely as other areas of the country due to the historically modest increases in real estate values in the Company’s markets in West Virginia, Ohio and Kentucky. With the concentrations of commercial real estate loans acquired in the Washington, DC and Richmond, Virginia markets, fluctuations in commercial real estate values will also be monitored. For additional details on the activity in the allowance for loan losses, impaired loans, past due and non-accrual loans and restructured loans, see Note 3 to the consolidated financial statements.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2014
C. Critical Accounting Policies
The Company follows financial accounting and reporting policies that are in accordance with generally accepted accounting principles in the United States of America. These policies are presented in Note 1 to the consolidated audited financial statements in the Company's annual report on Form 10-K for the year ended December 31, 2013. Some of these accounting policies, as discussed below, are considered to be critical accounting policies. Critical accounting policies are those policies that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company has identified four accounting policies that are critical accounting policies, and an understanding of these policies is necessary to understand the financial statements. These policies relate to determining the adequacy of the allowance for loan losses, the identification and evaluation of impaired loans, the impairment of goodwill and the realization of deferred tax assets. A detailed description of these accounting policies is contained in the Company’s annual report on Form 10-K for the year ended December 31, 2013. There have been no significant changes in the application of these accounting policies since December 31, 2013.
Management believes that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time.
D. Liquidity
Liquidity objectives for the Company can be expressed in terms of maintaining sufficient cash flows to meet both existing and unplanned obligations in a cost effective manner. Adequate liquidity allows the Company to meet the demands of both the borrower and the depositor on a timely basis, as well as pursuing other business opportunities as they arise. Thus, liquidity management embodies both an asset and liability aspect while attempting to maximize profitability. In order to provide for funds on a current and long-term basis, the Company’s subsidiary banks rely primarily on the following sources:
|
|
1.
|
Core deposits consisting of both consumer and commercial deposits and certificates of deposit of $100,000 or more. Management believes that the majority of its $100,000 or more certificates of deposit are no more volatile than its other deposits. This is due to the nature of the markets in which the subsidiaries operate.
|
|
|
2.
|
Cash flow generated by repayment of loans and interest.
|
|
|
3.
|
Arrangements with correspondent banks for purchase of unsecured federal funds.
|
|
|
4.
|
The sale of securities under repurchase agreements and borrowing from the Federal Home Loan Bank.
|
|
|
5.
|
Maintenance of an adequate available-for-sale security portfolio. The Company owns $224.0 million of securities at fair value as of March 31, 2014.
|
The cash flow statements for the periods presented in the financial statements provide an indication of the Company’s sources and uses of cash as well as an indication of the ability of the Company to maintain an adequate level of liquidity.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2014
E. Capital
At March 31, 2014, total shareholders’ equity of $150.5 million was 13.4% of total assets. This compares to total shareholders’ equity of $146.9 million, or 13.4% of total assets on December 31, 2013.
Tier I capital totaled $122.2 million at March 31, 2014, which represents a Tier I leverage ratio of 11.3%. This ratio is up slightly $119.9 million of Tier I capital and related 11.0% leverage ratio at December 31, 2013 as the growth in Tier I capital was divided by a slightly lower base of average total assets at March 31, 2014.
Book value per common share was $17.22 at March 31, 2014, and $16.79 at December 31, 2013. The increase in book value per share was the result of the $0.41 per share earned during the quarter, including an approximate $0.02 per share reduction for the $150,000 of preferred stock dividends and related accretion. This increase was partially offset by the $0.11 per share special cash dividend to common shareholders declared and paid during January 2014 and by the $0.12 per share quarterly cash dividend to common shareholders declared and paid during the first quarter of 2014. Also increasing book value per share was the $1,794,000 of other comprehensive income for the first three months of 2014 related to the after tax increase in the market value of investment securities available for sale, which increased book value by approximately $0.22 per share.
PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2014
The Company currently does not engage in any derivative or hedging activity. Refer to the Company’s 2013 10-K for analysis of the interest rate sensitivity. The Company believes there have been no significant changes in the interest rate sensitivity since previously reported on the Company’s 2013 10-K.
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 the Securities and Exchange Act of 1934 Rule 13a-15c as of the end of the period covered by this quarterly 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 quarterly report has been made known to them in a timely fashion.
B. Changes in Internal Controls over Financial Reporting
There were no changes in internal controls over financial reporting during the first fiscal quarter that have materially affected or are reasonably likely to materially affect Premier's internal controls over financial reporting.
C. Inherent Limitations on Internal Control
"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. 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.
MARCH 31, 2014
Item 1. Legal Proceedings None
Item 1A. Risk Factors
Please refer to Premier’s Annual Report on Form 10-K for the year ended December 31, 2013 for disclosures with respect to Premier’s risk factors at December 31, 2013. There have been no material changes since year-end 2013 in the specified risk factors disclosed in the Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None
Item 3. Defaults Upon Senior Securities None
Item 4. Mine Safety Disclosures Not Applicable
Item 5. Other Information None
Item 6. Exhibits
(a) The following exhibits are furnished in accordance with the provisions of Item 601 of Regulation S-K.
PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PREMIER FINANCIAL BANCORP, INC.
Date: May 8, 2014 /s/ Robert W. Walker
Robert W. Walker
President & Chief Executive Officer
Date: May 8, 2014 /s/ Brien M. Chase
Brien M. Chase
Senior Vice President & Chief Financial Officer
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