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EX-32 - CEO AND CFO SECTION 906 CERTIFICATION - PREMIER FINANCIAL BANCORP INC | exhibit32.htm |
EX-31.2 - CFO SECTION 302 CERTIFICATION - PREMIER FINANCIAL BANCORP INC | exhibit31-2.htm |
EX-31.1 - CEO SECTION 302 CERTIFICATION - PREMIER FINANCIAL BANCORP INC | exhibit31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended March 31, 2017
or
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from ___________ to ___________
Commission file number 000-20908
PREMIER FINANCIAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky
|
61-1206757
|
|
(State or other jurisdiction of incorporation organization)
|
(I.R.S. Employer Identification No.)
|
|
2883 Fifth Avenue
Huntington, West Virginia
|
25702
|
|
(Address of principal executive offices)
|
(Zip Code)
|
|
Registrant's telephone number (304) 525-1600
|
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 ☑ No ☐.
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 (§230.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer ☐
|
Accelerated filer ☑
|
|
Non-accelerated filer ☐
(Do not check if smaller reporting company)
|
Smaller reporting company ☐
|
Emerging growth company ☐
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). Yes☐ No ☑.
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.
Common stock, no par value, – 10,657,699 shares outstanding at April 28, 2017
MARCH 31, 2017
INDEX TO REPORT
3
|
|
39
|
|
49
|
|
49
|
|
50
|
|
50
|
|
50
|
|
50
|
|
50
|
|
50
|
|
50
|
|
50
|
|
51
|
PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2017
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, 2016 for further information in this regard.
Index to consolidated financial statements:
PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2017 AND DECEMBER 31, 2016
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
|
||||||||
2017
|
2016
|
|||||||
ASSETS
|
||||||||
Cash and due from banks
|
$
|
40,433
|
$
|
41,443
|
||||
Interest bearing bank balances
|
48,956
|
55,720
|
||||||
Federal funds sold
|
6,721
|
7,555
|
||||||
Cash and cash equivalents
|
96,110
|
104,718
|
||||||
Time deposits with other banks
|
2,582
|
2,332
|
||||||
Securities available for sale
|
305,873
|
288,607
|
||||||
Loans
|
1,039,514
|
1,024,823
|
||||||
Allowance for loan losses
|
(10,894
|
)
|
(10,836
|
)
|
||||
Net loans
|
1,028,620
|
1,013,987
|
||||||
Federal Home Loan Bank stock, at cost
|
3,200
|
3,200
|
||||||
Premises and equipment, net
|
23,855
|
24,224
|
||||||
Real estate and other property acquired through foreclosure
|
12,455
|
12,665
|
||||||
Interest receivable
|
3,838
|
3,862
|
||||||
Goodwill
|
35,371
|
35,371
|
||||||
Other intangible assets
|
4,084
|
4,349
|
||||||
Other assets
|
1,231
|
2,878
|
||||||
Total assets
|
$
|
1,517,219
|
$
|
1,496,193
|
||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
Deposits
|
||||||||
Non-interest bearing
|
$
|
321,648
|
$
|
319,618
|
||||
Time deposits, $250,000 and over
|
64,977
|
66,378
|
||||||
Other interest bearing
|
911,684
|
893,390
|
||||||
Total deposits
|
1,298,309
|
1,279,386
|
||||||
Securities sold under agreements to repurchase
|
22,864
|
23,820
|
||||||
Other borrowed funds
|
8,251
|
8,859
|
||||||
Subordinated debt
|
5,352
|
5,343
|
||||||
Interest payable
|
352
|
364
|
||||||
Other liabilities
|
4,241
|
4,237
|
||||||
Total liabilities
|
1,339,369
|
1,322,009
|
||||||
Stockholders' equity
|
||||||||
Common stock, no par value; 20,000,000 shares authorized; 10,650,024 shares issued and outstanding at March 31, 2017, and 10,640,735 shares issued and outstanding at December 31, 2016
|
110,032
|
109,911
|
||||||
Retained earnings
|
68,262
|
66,195
|
||||||
Accumulated other comprehensive income (loss)
|
(444
|
)
|
(1,922
|
)
|
||||
Total stockholders' equity
|
177,850
|
174,184
|
||||||
Total liabilities and stockholders' equity
|
$
|
1,517,219
|
$
|
1,496,193
|
PREMIER FINANCIAL BANCORP, INC.
THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
March 31,
|
||||||||
2017
|
2016
|
|||||||
Interest income
|
||||||||
Loans, including fees
|
$
|
13,535
|
$
|
12,601
|
||||
Securities available for sale
|
||||||||
Taxable
|
1,345
|
1,428
|
||||||
Tax-exempt
|
72
|
84
|
||||||
Federal funds sold and other
|
157
|
97
|
||||||
Total interest income
|
15,109
|
14,210
|
||||||
Interest expense
|
||||||||
Deposits
|
949
|
977
|
||||||
Repurchase agreements and other
|
7
|
7
|
||||||
FHLB advances and other borrowings
|
87
|
120
|
||||||
Subordinated debt
|
70
|
51
|
||||||
Total interest expense
|
1,113
|
1,155
|
||||||
Net interest income
|
13,996
|
13,055
|
||||||
Provision for loan losses
|
366
|
312
|
||||||
Net interest income after provision for loan losses
|
13,630
|
12,743
|
||||||
Non-interest income
|
||||||||
Service charges on deposit accounts
|
976
|
961
|
||||||
Electronic banking income
|
780
|
762
|
||||||
Secondary market mortgage income
|
67
|
40
|
||||||
Other
|
194
|
174
|
||||||
2,017
|
1,937
|
|||||||
Non-interest expenses
|
||||||||
Salaries and employee benefits
|
4,970
|
4,991
|
||||||
Occupancy and equipment expenses
|
1,521
|
1,512
|
||||||
Outside data processing
|
1,320
|
1,321
|
||||||
Professional fees
|
248
|
150
|
||||||
Taxes, other than payroll, property and income
|
189
|
158
|
||||||
Write-downs, expenses, sales of other real estate owned, net
|
240
|
239
|
||||||
Amortization of intangibles
|
265
|
267
|
||||||
FDIC insurance
|
193
|
260
|
||||||
Conversion expenses
|
24
|
146
|
||||||
Other expenses
|
1,028
|
1,031
|
||||||
9,998
|
10,075
|
|||||||
Income before income taxes
|
5,649
|
4,605
|
||||||
Provision for income taxes
|
1,985
|
1,626
|
||||||
Net income
|
$
|
3,664
|
$
|
2,979
|
||||
Net income per share:
|
||||||||
Basic
|
$
|
0.34
|
$
|
0.29
|
||||
Diluted
|
0.34
|
0.29
|
PREMIER FINANCIAL BANCORP, INC.
THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
March 31,
|
||||||||
2017
|
2016
|
|||||||
Net income
|
$
|
3,664
|
$
|
2,979
|
||||
Other comprehensive income:
|
||||||||
Unrealized gains arising during the period
|
2,276
|
2,632
|
||||||
Reclassification of realized amount
|
-
|
(4
|
)
|
|||||
Net change in unrealized gain on securities
|
2,276
|
2,628
|
||||||
Less tax impact
|
(798
|
)
|
(911
|
)
|
||||
Other comprehensive income
|
1,478
|
1,717
|
||||||
Comprehensive income
|
$
|
5,142
|
$
|
4,696
|
PREMIER FINANCIAL BANCORP, INC.
THREE MONTHS ENDED MARCH 31, 2017
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Common
Stock
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income (loss)
|
Total
|
|||||||||||||
Balances, January 1, 2017
|
$
|
109,911
|
$
|
66,195
|
$
|
(1,922
|
)
|
$
|
174,184
|
|||||||
Net income
|
-
|
3,664
|
-
|
3,664
|
||||||||||||
Other comprehensive income
|
-
|
-
|
1,478
|
1,478
|
||||||||||||
Cash dividends paid ($0.15 per share)
|
-
|
(1,597
|
)
|
-
|
(1,597
|
)
|
||||||||||
Stock options exercised
|
101
|
-
|
-
|
101
|
||||||||||||
Stock based compensation expense
|
20
|
-
|
-
|
20
|
||||||||||||
Balances, March 31, 2017
|
$
|
110,032
|
$
|
68,262
|
$
|
(444
|
)
|
$
|
177,850
|
PREMIER FINANCIAL BANCORP, INC.
THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED, DOLLARS IN THOUSANDS)
2017
|
2016
|
|||||||
Cash flows from operating activities
|
||||||||
Net income
|
$
|
3,664
|
$
|
2,979
|
||||
Adjustments to reconcile net income to net cash from operating activities
|
||||||||
Depreciation
|
445
|
472
|
||||||
Provision for loan losses
|
366
|
312
|
||||||
Amortization (accretion), net
|
388
|
577
|
||||||
Writedowns (gains) on other real estate owned, net
|
19
|
(11
|
)
|
|||||
Stock compensation expense
|
20
|
120
|
||||||
Gain on the disposition of securities available for sale
|
-
|
(4
|
)
|
|||||
Changes in :
|
||||||||
Interest receivable
|
24
|
45
|
||||||
Other assets
|
849
|
859
|
||||||
Interest payable
|
(12
|
)
|
(37
|
)
|
||||
Other liabilities
|
4
|
(1,567
|
)
|
|||||
Net cash from operating activities
|
5,767
|
3,745
|
||||||
Cash flows from investing activities
|
||||||||
Net change on time deposits with other banks
|
(250
|
)
|
-
|
|||||
Purchases of securities available for sale
|
(31,087
|
)
|
-
|
|||||
Proceeds from maturities and calls of securities available for sale
|
15,573
|
18,389
|
||||||
Redemption of FRB stock
|
-
|
143
|
||||||
Acquisition of subsidiaries, net of cash received
|
-
|
16,385
|
||||||
Net change in loans
|
(14,936
|
)
|
(4,132
|
)
|
||||
Purchases of premises and equipment, net
|
(76
|
)
|
(54
|
)
|
||||
Improvements to OREO property
|
-
|
(30
|
)
|
|||||
Proceeds from sales of other real estate acquired through foreclosure
|
544
|
71
|
||||||
Net cash from (used in) investing activities
|
(30,232
|
)
|
30,772
|
|||||
Cash flows from financing activities
|
||||||||
Net change in deposits
|
18,917
|
18,823
|
||||||
Net change in agreements to repurchase securities
|
(956
|
)
|
671
|
|||||
Repayment of FHLB advances
|
-
|
(53
|
)
|
|||||
Repayment of other borrowed funds
|
(608
|
)
|
(608
|
)
|
||||
Proceeds from stock option exercises
|
101
|
81
|
||||||
Common stock dividends paid
|
(1,597
|
)
|
(1,439
|
)
|
||||
Net cash from financing activities
|
15,857
|
17,475
|
||||||
Net change in cash and cash equivalents
|
(8,608
|
)
|
51,992
|
|||||
Cash and cash equivalents at beginning of period
|
104,718
|
72,539
|
||||||
Cash and cash equivalents at end of period
|
$
|
96,110
|
$
|
124,531
|
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED, DOLLARS IN THOUSANDS)
2017
|
2016
|
|||||||
Supplemental disclosures of cash flow information:
|
||||||||
Cash paid during period for interest
|
$
|
1,125
|
$
|
1,196
|
||||
Cash paid during period for income taxes
|
-
|
205
|
||||||
Loans transferred to real estate acquired through foreclosure
|
353
|
416
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
The consolidated financial statements include the accounts of Premier Financial Bancorp, Inc. (the Company) and its wholly owned subsidiaries (the "Banks"):
March 31, 2017
|
||||||||||||
Year | Total | Net Income | ||||||||||
Subsidiary
|
Location
|
Acquired
|
Assets
|
Qtr
|
||||||||
Citizens Deposit Bank & Trust
|
Vanceburg, Kentucky
|
1991
|
$
|
420,413
|
$
|
1,197
|
||||||
Premier Bank, Inc.
|
Huntington, West Virginia
|
1998
|
1,089,968
|
3,085
|
||||||||
Parent and Intercompany Eliminations
|
6,838
|
(618
|
)
|
|||||||||
Consolidated Total
|
$
|
1,517,219
|
$
|
3,664
|
|
All significant intercompany transactions and balances have been eliminated.
Recently Issued Accounting Pronouncements
In May 2014, FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU creates a new topic, Topic 606, to provide guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance was effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2016. However, in April 2015, the FASB voted to defer the effective date of ASU 2014-09 by one year making, the amendments effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Companies have the option to apply ASU 2014-09 as of the original effective date. Early adoption is not permitted. The Bank plans to adopt these amendments during the first quarter of 2018. Management is continuing to evaluate the impact ASU 2014-09 will have on the Bank's consolidated financial statements as well as the most appropriate transition method of application. Based on this evaluation to date, Management has determined that the majority of the revenues earned by the Bank are not within the scope of ASU 2014-09. Management also believes that for most revenue streams within the scope of ASU 2014-09, the amendments will not change the timing of when the revenue is recognized. Management will continue to evaluate the impact the adoption of ASU 2014-09 will have on the Bank's consolidated financial statements, focusing on noninterest income sources within the scope of ASU 2014-09 as well as new disclosures required by these amendments; however, the adoption of ASU 2014-09 is not expected to have a material impact on the Bank's consolidated financial statements.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - BASIS OF PRESENTATION - continued
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU makes several modifications to Subtopic 825-10 including the elimination of the available-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. This ASU will become effective for the Company for interim and annual periods beginning after December 15, 2017. The adoption of ASU No. 2016-01 is not expected to have a material impact on the Company's financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires organizations to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing requirements for leases that were historically classified as operating leases under previous generally accepted accounting principles. This ASU will become effective for the Company for interim and annual periods beginning after December 15, 2018. The Company leases some of its branch locations. Upon adoption of this standard, an asset will be recorded to recognize the right of the Company to use the leased facilities and a liability will be recorded representing the obligation to make all future lease payments on those facilities. Management is currently evaluating the amounts to be recognized upon the adoption of this guidance in the Company's financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting. This ASU will require recognition of the income tax effects of share-based awards in the income statement when the awards vest or are settled (i.e., Additional Paid-in-Capital pools will be eliminated). The guidance in this ASU was adopted by the Company beginning January 1, 2017. The adoption of ASU No. 2016-09 did not have a material impact on the Company's financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU replaces the measurement for credit losses from a probable incurred estimate with an expected future loss estimate, which is referred to as the "current expected credit loss" or "CECL". The standard pertains to financial assets measured at amortized cost such as loans, debt securities classified as held-to-maturity, and certain other contracts. The largest impact will be on the allowance for loan and lease losses. This ASU will become effective for the Company for interim and annual periods beginning after December 15, 2019. Management is currently evaluating the impact of the adoption of this guidance on the Company's financial statements. Upon adoption, an initial increase in the allowance for loan losses is currently anticipated by management along with a corresponding decrease in capital as permitted by the standard.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
Amortized cost and fair value of investment securities, by category, at March 31, 2017 are summarized as follows:
2017
|
Amortized Cost
|
Unrealized Gains
|
Unrealized Losses
|
Fair Value
|
||||||||||||
Available for sale
|
||||||||||||||||
Mortgage-backed securities
|
||||||||||||||||
U. S. sponsored agency MBS - residential
|
$
|
199,976
|
$
|
495
|
$
|
(1,403
|
)
|
$
|
199,068
|
|||||||
U. S. sponsored agency CMO's - residential
|
67,091
|
747
|
(518
|
)
|
67,320
|
|||||||||||
Total mortgage-backed securities of government sponsored agencies
|
267,067
|
1,242
|
(1,921
|
)
|
266,388
|
|||||||||||
U. S. government sponsored agency securities
|
24,108
|
15
|
(110
|
)
|
24,013
|
|||||||||||
Obligations of states and political subdivisions
|
15,380
|
124
|
(32
|
)
|
15,472
|
|||||||||||
Total available for sale
|
$
|
306,555
|
$
|
1,381
|
$
|
(2,063
|
)
|
$
|
305,873
|
Amortized cost and fair value of investment securities, by category, at December 31, 2016 are summarized as follows:
2016
|
Amortized Cost
|
Unrealized Gains
|
Unrealized Losses
|
Fair Value
|
||||||||||||
Available for sale
|
||||||||||||||||
Mortgage-backed securities
|
||||||||||||||||
U. S. sponsored agency MBS - residential
|
$
|
177,105
|
$
|
245
|
$
|
(3,173
|
)
|
$
|
174,177
|
|||||||
U. S. sponsored agency CMO's - residential
|
73,163
|
761
|
(657
|
)
|
73,267
|
|||||||||||
Total mortgage-backed securities of government sponsored agencies
|
250,268
|
1,006
|
(3,830
|
)
|
247,444
|
|||||||||||
U. S. government sponsored agency securities
|
24,652
|
23
|
(174
|
)
|
24,501
|
|||||||||||
Obligations of states and political subdivisions
|
16,645
|
111
|
(94
|
)
|
16,662
|
|||||||||||
Total available for sale
|
$
|
291,565
|
$
|
1,140
|
$
|
(4,098
|
)
|
$
|
288,607
|
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, 2017 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
|
$
|
8,659
|
$
|
8,681
|
||||
Due after one year through five years
|
24,100
|
24,085
|
||||||
Due after five years through ten years
|
6,168
|
6,165
|
||||||
Due after ten years
|
561
|
554
|
||||||
Mortgage-backed securities of government sponsored agencies
|
267,067
|
266,388
|
||||||
Total available for sale
|
$
|
306,555
|
$
|
305,873
|
There were no sales of securities during the first three months of 2017. During the first three months of 2016 the Company sold $47,000 of securities and realized a gain of $4,000.
Securities with unrealized losses at March 31, 2017 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
|
$
|
15,724
|
$
|
(110
|
)
|
$
|
-
|
$
|
-
|
$
|
15,724
|
$
|
(110
|
)
|
||||||||||
U.S government sponsored agency MBS – residential
|
135,403
|
(1,403
|
)
|
-
|
-
|
135,403
|
(1,403
|
)
|
||||||||||||||||
U.S government sponsored agency CMO – residential
|
16,821
|
(273
|
)
|
8,309
|
(245
|
)
|
25,130
|
(518
|
)
|
|||||||||||||||
Obligations of states and political subdivisions
|
4,903
|
(26
|
)
|
600
|
(6
|
)
|
5,503
|
(32
|
)
|
|||||||||||||||
Total temporarily impaired
|
$
|
172,851
|
$
|
(1,813
|
)
|
$
|
8,909
|
$
|
(250
|
)
|
$
|
181,760
|
$
|
(2,063
|
)
|
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, 2016 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
|
$
|
17,207
|
$
|
(174
|
)
|
$
|
-
|
$
|
-
|
$
|
17,207
|
$
|
(174
|
)
|
||||||||||
U.S government sponsored agency MBS – residential
|
157,022
|
(3,173
|
)
|
-
|
-
|
157,022
|
(3,173
|
)
|
||||||||||||||||
U.S government sponsored agency CMO's – residential
|
18,374
|
(373
|
)
|
8,750
|
(284
|
)
|
27,124
|
(657
|
)
|
|||||||||||||||
Obligations of states and political subdivisions
|
7,961
|
(94
|
)
|
-
|
-
|
7,961
|
(94
|
)
|
||||||||||||||||
Total temporarily impaired
|
$
|
200,564
|
$
|
(3,814
|
)
|
$
|
8,750
|
$
|
(284
|
)
|
$
|
209,314
|
$
|
(4,098
|
)
|
The investment portfolio is predominately high credit quality interest-bearing bonds with defined maturity dates backed by the U.S. Government or Government sponsored entities. The unrealized losses at March 31, 2017 and December 31, 2016 are price changes resulting from changes in the interest rate environment and are considered to be temporary declines in the value of the securities. Management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery. 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, 2017 and December 31, 2016 are summarized as follows:
2017
|
2016
|
|||||||
Residential real estate
|
$
|
343,877
|
$
|
342,294
|
||||
Multifamily real estate
|
74,941
|
74,165
|
||||||
Commercial real estate:
|
||||||||
Owner occupied
|
135,490
|
129,370
|
||||||
Non owner occupied
|
235,630
|
220,836
|
||||||
Commercial and industrial
|
76,058
|
76,736
|
||||||
Consumer
|
30,001
|
30,916
|
||||||
All other
|
143,517
|
150,506
|
||||||
$
|
1,039,514
|
$
|
1,024,823
|
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, 2017 was as follows:
Loan Class
|
Balance
Dec 31, 2016
|
Provision (credit) for loan losses
|
Loans
charged-off
|
Recoveries
|
Balance
March 31, 2017
|
|||||||||||||||
Residential real estate
|
$
|
2,948
|
$
|
129
|
$
|
(105
|
)
|
$
|
5
|
$
|
2,977
|
|||||||||
Multifamily real estate
|
785
|
(15
|
)
|
-
|
-
|
770
|
||||||||||||||
Commercial real estate:
|
||||||||||||||||||||
Owner occupied
|
1,543
|
32
|
-
|
1
|
1,576
|
|||||||||||||||
Non owner occupied
|
2,350
|
77
|
(5
|
)
|
-
|
2,422
|
||||||||||||||
Commercial and industrial
|
1,140
|
(34
|
)
|
-
|
23
|
1,129
|
||||||||||||||
Consumer
|
347
|
116
|
(117
|
)
|
24
|
370
|
||||||||||||||
All other
|
1,723
|
61
|
(182
|
)
|
48
|
1,650
|
||||||||||||||
Total
|
$
|
10,836
|
$
|
366
|
$
|
(409
|
)
|
$
|
101
|
$
|
10,894
|
Activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2016 was as follows:
Loan Class
|
Balance
Dec 31, 2015
|
Provision (credit) for loan losses
|
Loans
charged-off
|
Recoveries
|
Balance
March 31, 2016
|
|||||||||||||||
Residential real estate
|
$
|
2,501
|
$
|
78
|
$
|
(49
|
)
|
$
|
9
|
$
|
2,539
|
|||||||||
Multifamily real estate
|
821
|
(76
|
)
|
-
|
-
|
745
|
||||||||||||||
Commercial real estate:
|
||||||||||||||||||||
Owner occupied
|
1,509
|
21
|
-
|
1
|
1,531
|
|||||||||||||||
Non owner occupied
|
2,070
|
267
|
-
|
-
|
2,337
|
|||||||||||||||
Commercial and industrial
|
1,033
|
(136
|
)
|
-
|
36
|
933
|
||||||||||||||
Consumer
|
307
|
(11
|
)
|
(44
|
)
|
36
|
288
|
|||||||||||||
All other
|
1,406
|
169
|
(60
|
)
|
27
|
1,542
|
||||||||||||||
Total
|
$
|
9,647
|
$
|
312
|
$
|
(153
|
)
|
$
|
109
|
$
|
9,915
|
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, 2017 and December 31, 2016.
2017
|
2016
|
|||||||
Residential real estate
|
$
|
1,528
|
$
|
1,619
|
||||
Commercial real estate
|
||||||||
Owner occupied
|
1,642
|
2,013
|
||||||
Non owner occupied
|
5,356
|
5,396
|
||||||
Commercial and industrial
|
221
|
232
|
||||||
All other
|
2,019
|
2,061
|
||||||
Total carrying amount
|
$
|
10,766
|
$
|
11,321
|
||||
Contractual principal balance
|
$
|
13,977
|
$
|
14,784
|
||||
Carrying amount, net of allowance
|
$
|
10,766
|
$
|
11,311
|
For those purchased loans disclosed above, the Company did not increase the allowance for loan losses for the three-months ended March 31, 2017, nor did it increase the allowance for loan losses for purchased impaired loans during the three-months ended March 31, 2016.
For those purchased loans disclosed above, where the Company can reasonably estimate the cash flows expected to be collected on the loans, a portion of the purchase discount is 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 is being recognized as interest income over the remaining life of the loan.
Where the Company cannot reasonably estimate the cash flows expected to be collected on the loans, it 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.
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, 2017 and March 31, 2016.
2017
|
2016
|
|||||||
Balance at January 1
|
$
|
1,208
|
$
|
185
|
||||
New loans purchased
|
-
|
1,506
|
||||||
Accretion of income
|
(123
|
)
|
(40
|
)
|
||||
Reclassifications from non-accretable difference
|
-
|
-
|
||||||
Disposals
|
-
|
-
|
||||||
Balance at March 31
|
$
|
1,085
|
$
|
1,651
|
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, 2017 and December 31, 2016. 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, 2017
|
Principal Owed on Non-accrual Loans
|
Recorded Investment in Non-accrual Loans
|
Loans Past Due Over 90 Days, still accruing
|
|||||||||
Residential real estate
|
$
|
3,858
|
$
|
2,955
|
$
|
848
|
||||||
Multifamily real estate
|
11,102
|
11,095
|
333
|
|||||||||
Commercial real estate
|
||||||||||||
Owner occupied
|
2,340
|
2,253
|
23
|
|||||||||
Non owner occupied
|
294
|
196
|
-
|
|||||||||
Commercial and industrial
|
2,063
|
1,046
|
1,000
|
|||||||||
Consumer
|
347
|
324
|
-
|
|||||||||
All other
|
2,572
|
2,450
|
-
|
|||||||||
Total
|
$
|
22,576
|
$
|
20,319
|
$
|
2,204
|
December 31, 2016
|
Principal Owed on Non-accrual Loans
|
Recorded Investment in Non-accrual Loans
|
Loans Past Due Over 90 Days, still accruing
|
|||||||||
Residential real estate
|
$
|
3,467
|
$
|
2,794
|
$
|
606
|
||||||
Multifamily real estate
|
11,157
|
11,106
|
334
|
|||||||||
Commercial real estate
|
||||||||||||
Owner occupied
|
1,769
|
1,704
|
15
|
|||||||||
Non owner occupied
|
294
|
196
|
36
|
|||||||||
Commercial and industrial
|
2,537
|
1,209
|
1,008
|
|||||||||
Consumer
|
366
|
347
|
-
|
|||||||||
All other
|
8,408
|
8,391
|
-
|
|||||||||
Total
|
$
|
27,998
|
$
|
25,747
|
$
|
1,999
|
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, 2017 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
|
$
|
343,877
|
$
|
3,679
|
$
|
2,074
|
$
|
5,753
|
$
|
338,124
|
||||||||||
Multifamily real estate
|
74,941
|
110
|
11,428
|
11,538
|
63,403
|
|||||||||||||||
Commercial real estate:
|
||||||||||||||||||||
Owner occupied
|
135,490
|
161
|
2,050
|
2,211
|
133,279
|
|||||||||||||||
Non owner occupied
|
235,630
|
312
|
147
|
459
|
235,171
|
|||||||||||||||
Commercial and industrial
|
76,058
|
742
|
1,915
|
2,657
|
73,401
|
|||||||||||||||
Consumer
|
30,001
|
170
|
168
|
338
|
29,663
|
|||||||||||||||
All other
|
143,517
|
1,633
|
2,447
|
4,080
|
139,437
|
|||||||||||||||
Total
|
$
|
1,039,514
|
$
|
6,807
|
$
|
20,229
|
$
|
27,036
|
$
|
1,012,478
|
The following table presents the aging of the recorded investment in past due loans as of December 31, 2016 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
|
$
|
342,294
|
$
|
6,113
|
$
|
1,596
|
$
|
7,709
|
$
|
334,585
|
||||||||||
Multifamily real estate
|
74,165
|
-
|
11,440
|
11,440
|
62,725
|
|||||||||||||||
Commercial real estate:
|
||||||||||||||||||||
Owner occupied
|
129,370
|
1,746
|
1,474
|
3,220
|
126,150
|
|||||||||||||||
Non owner occupied
|
220,836
|
1,803
|
159
|
1,962
|
218,874
|
|||||||||||||||
Commercial and industrial
|
76,736
|
330
|
2,120
|
2,450
|
74,286
|
|||||||||||||||
Consumer
|
30,916
|
403
|
223
|
626
|
30,290
|
|||||||||||||||
All other
|
150,506
|
577
|
8,187
|
8,764
|
141,742
|
|||||||||||||||
Total
|
$
|
1,024,823
|
$
|
10,972
|
$
|
25,199
|
$
|
36,171
|
$
|
988,652
|
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, 2017:
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
|
$
|
-
|
$
|
2,977
|
$
|
-
|
$
|
2,977
|
$
|
332
|
$
|
342,017
|
$
|
1,528
|
$
|
343,877
|
||||||||||||||||
Multifamily real estate
|
-
|
770
|
-
|
770
|
13,598
|
61,343
|
-
|
74,941
|
||||||||||||||||||||||||
Commercial real estate:
|
||||||||||||||||||||||||||||||||
Owner occupied
|
227
|
1,349
|
-
|
1,576
|
2,739
|
131,109
|
1,642
|
135,490
|
||||||||||||||||||||||||
Non-owner occupied
|
-
|
2,422
|
-
|
2,422
|
1,949
|
228,325
|
5,356
|
235,630
|
||||||||||||||||||||||||
Commercial and industrial
|
262
|
867
|
-
|
1,129
|
1,292
|
74,545
|
221
|
76,058
|
||||||||||||||||||||||||
Consumer
|
-
|
370
|
-
|
370
|
-
|
30,001
|
-
|
30,001
|
||||||||||||||||||||||||
All other
|
8
|
1,642
|
-
|
1,650
|
7,221
|
134,277
|
2,019
|
143,517
|
||||||||||||||||||||||||
Total
|
$
|
497
|
$
|
10,397
|
$
|
-
|
$
|
10,894
|
$
|
27,131
|
$
|
1,001,617
|
$
|
10,766
|
$
|
1,039,514
|
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, 2016:
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
|
$
|
-
|
$
|
2,948
|
$
|
-
|
$
|
2,948
|
$
|
379
|
$
|
340,296
|
$
|
1,619
|
$
|
342,294
|
||||||||||||||||
Multifamily real estate
|
-
|
785
|
-
|
785
|
13,641
|
60,524
|
-
|
74,165
|
||||||||||||||||||||||||
Commercial real estate:
|
||||||||||||||||||||||||||||||||
Owner occupied
|
244
|
1,299
|
-
|
1,543
|
2,801
|
124,556
|
2,013
|
129,370
|
||||||||||||||||||||||||
Non-owner occupied
|
-
|
2,350
|
-
|
2,350
|
2,373
|
213,067
|
5,396
|
220,836
|
||||||||||||||||||||||||
Commercial and industrial
|
266
|
864
|
10
|
1,140
|
1,418
|
75,086
|
232
|
76,736
|
||||||||||||||||||||||||
Consumer
|
-
|
347
|
-
|
347
|
-
|
30,916
|
-
|
30,916
|
||||||||||||||||||||||||
All other
|
86
|
1,637
|
-
|
1,723
|
12,976
|
135,469
|
2,061
|
150,506
|
||||||||||||||||||||||||
Total
|
$
|
596
|
$
|
10,230
|
$
|
10
|
$
|
10,836
|
$
|
33,588
|
$
|
979,914
|
$
|
11,321
|
$
|
1,024,823
|
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, 2017. The table includes $199,000 of loans acquired with deteriorated credit quality for which 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
|
$
|
372
|
$
|
332
|
$
|
-
|
||||||
Multifamily real estate
|
13,605
|
13,598
|
-
|
|||||||||
Commercial real estate
|
||||||||||||
Owner occupied
|
1,771
|
1,720
|
-
|
|||||||||
Non owner occupied
|
2,041
|
1,949
|
-
|
|||||||||
Commercial and industrial
|
2,312
|
1,217
|
-
|
|||||||||
All other
|
7,258
|
7,138
|
-
|
|||||||||
27,359
|
25,954
|
-
|
||||||||||
With an allowance recorded:
|
||||||||||||
Commercial real estate
|
||||||||||||
Owner occupied
|
1,047
|
1,019
|
227
|
|||||||||
Commercial and industrial
|
285
|
274
|
262
|
|||||||||
All other
|
88
|
83
|
8
|
|||||||||
1,420
|
1,376
|
497
|
||||||||||
Total
|
$
|
28,779
|
$
|
27,330
|
$
|
497
|
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, 2016. The table includes $208,000 of loans acquired with deteriorated credit quality for which 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
|
$
|
743
|
$
|
379
|
$
|
-
|
||||||
Multifamily real estate
|
13,692
|
13,641
|
-
|
|||||||||
Commercial real estate
|
||||||||||||
Owner occupied
|
1,803
|
1,766
|
-
|
|||||||||
Non owner occupied
|
2,465
|
2,373
|
-
|
|||||||||
Commercial and industrial
|
2,429
|
1,338
|
-
|
|||||||||
All other
|
9,868
|
9,853
|
-
|
|||||||||
31,000
|
29,350
|
-
|
||||||||||
With an allowance recorded:
|
||||||||||||
Commercial real estate
|
||||||||||||
Owner occupied
|
|
1,055
|
|
1,035
|
|
244
|
||||||
Commercial and industrial
|
431
|
288
|
276
|
|||||||||
All other
|
3,124
|
3,123
|
86
|
|||||||||
4,610
|
4,446
|
606
|
||||||||||
Total
|
$
|
35,610
|
$
|
33,796
|
$
|
606
|
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, 2017 and March 31, 2016. The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.
Three months ended March 31, 2017
|
Three months ended March 31, 2016
|
|||||||||||||||||||||||
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
|
$
|
356
|
$
|
1
|
$
|
1
|
$
|
558
|
$
|
5
|
$
|
4
|
||||||||||||
Multifamily real estate
|
13,620
|
65
|
61
|
566
|
13
|
12
|
||||||||||||||||||
Commercial real estate:
|
||||||||||||||||||||||||
Owner occupied
|
2,770
|
6
|
6
|
441
|
-
|
-
|
||||||||||||||||||
Non-owner occupied
|
2,161
|
32
|
32
|
5,892
|
50
|
41
|
||||||||||||||||||
Commercial and industrial
|
1,558
|
7
|
7
|
500
|
3
|
3
|
||||||||||||||||||
All other
|
10,098
|
54
|
54
|
750
|
-
|
-
|
||||||||||||||||||
Total
|
$
|
30,563
|
$
|
165
|
$
|
161
|
$
|
8,707
|
$
|
71
|
$
|
60
|
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, 2017 and December 31, 2016:
March 31, 2017
|
TDR's on
Non-accrual
|
Other TDR's
|
Total TDR's
|
|||||||||
Residential real estate
|
$
|
331
|
$
|
243
|
$
|
574
|
||||||
Multifamily real estate
|
-
|
2,170
|
2,170
|
|||||||||
Commercial real estate
|
||||||||||||
Owner occupied
|
604
|
248
|
852
|
|||||||||
Commercial and industrial
|
60
|
340
|
400
|
|||||||||
All other
|
751
|
4,369
|
5,120
|
|||||||||
Total
|
$
|
1,746
|
$
|
7,370
|
$
|
9,116
|
December 31, 2016
|
TDR's on
Non-accrual
|
Other TDR's
|
Total TDR's
|
|||||||||
Residential real estate
|
$
|
129
|
$
|
464
|
$
|
593
|
||||||
Multifamily real estate
|
-
|
2,201
|
2,201
|
|||||||||
Commercial real estate
|
||||||||||||
Non owner occupied
|
-
|
856
|
856
|
|||||||||
Commercial and industrial
|
62
|
352
|
414
|
|||||||||
All other
|
751
|
4,395
|
5,146
|
|||||||||
Total
|
$
|
942
|
$
|
8,268
|
$
|
9,210
|
At March 31, 2017 and December 31, 2016, $43,000 in specific reserves was allocated to loans that had restructured terms. As of March 31, 2017 and December 31, 2016, there were no commitments to lend additional amounts to these borrowers.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
There were no TDR's that occurred during the three months ended March 31, 2017. The following table presents TDR's that occurred during the three months ended March 31, 2016.
Three months ended March 31, 2016
|
||||||||||||
Loan Class
|
Number of Loans
|
Pre-Modification Outstanding Recorded Investment
|
Post-Modification Outstanding Recorded Investment
|
|||||||||
Residential real estate
|
2
|
$
|
299
|
$
|
299
|
|||||||
Commercial real estate
|
||||||||||||
Owner occupied
|
2
|
610
|
610
|
|||||||||
Non owner occupied
|
1
|
100
|
100
|
|||||||||
Commercial and industrial
|
1
|
20
|
20
|
|||||||||
Total
|
6
|
$
|
1,029
|
$
|
1,029
|
The modifications reported above for the three months ended March 31, 2016 involve one borrowing relationship that did not include any permanent reduction of the recorded investment in the loans nor change in the interest rate on the loans. The Company has modified the terms of the loans by extending payment terms and requiring interest only payments during a period of loan rehabilitation. These periods have exceeded normal extension and interest only periods customarily offered by the Company. During the three month ended March 31, 2016, the Company increased the allowance for loan losses by $145,000 related to these loans.
During the three months ended March 31, 2017 and the three months ended March 31, 2016, 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 by 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, 2017, 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
|
$
|
331,368
|
$
|
3,144
|
$
|
9,364
|
$
|
1
|
$
|
343,877
|
||||||||||
Multifamily real estate
|
60,203
|
77
|
14,661
|
-
|
74,941
|
|||||||||||||||
Commercial real estate:
|
||||||||||||||||||||
Owner occupied
|
124,622
|
6,382
|
4,486
|
-
|
135,490
|
|||||||||||||||
Non-owner occupied
|
229,079
|
4,224
|
2,327
|
-
|
235,630
|
|||||||||||||||
Commercial and industrial
|
70,574
|
3,340
|
2,114
|
30
|
76,058
|
|||||||||||||||
Consumer
|
29,484
|
221
|
296
|
-
|
30,001
|
|||||||||||||||
All other
|
133,915
|
1,754
|
7,848
|
-
|
143,517
|
|||||||||||||||
Total
|
$
|
979,245
|
$
|
19,142
|
$
|
41,096
|
$
|
31
|
$
|
1,039,514
|
As of December 31, 2016, 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
|
$
|
328,905
|
$
|
4,880
|
$
|
8,507
|
$
|
2
|
$
|
342,294
|
||||||||||
Multifamily real estate
|
59,375
|
78
|
14,712
|
-
|
74,165
|
|||||||||||||||
Commercial real estate:
|
||||||||||||||||||||
Owner occupied
|
118,134
|
6,720
|
4,516
|
-
|
129,370
|
|||||||||||||||
Non-owner occupied
|
213,641
|
4,391
|
2,804
|
-
|
220,836
|
|||||||||||||||
Commercial and industrial
|
72,094
|
2,337
|
2,275
|
30
|
76,736
|
|||||||||||||||
Consumer
|
30,369
|
242
|
305
|
-
|
30,916
|
|||||||||||||||
All other
|
134,945
|
1,958
|
13,603
|
-
|
150,506
|
|||||||||||||||
Total
|
$
|
957,463
|
$
|
20,606
|
$
|
46,722
|
$
|
32
|
$
|
1,024,823
|
PREMIER FINANCIAL BANCORP, INC.
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 2017 the Banks could, without prior approval, declare dividends to the Company of approximately $4.1 million plus any 2017 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 tables). The final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. Banks (Basel III rules) became effective for the Company and Banks on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule by January 1, 2019. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes, as of March 31, 2017, that the Company and the Banks meet all quantitative capital adequacy requirements to which they are subject.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4- STOCKHOLDERS' EQUITY AND REGULATORY MATTERS - continued
Shown below is a summary of regulatory capital ratios, exclusive of the capital conservation buffer, for the Company:
Mar 31,
2017
|
December 31,
2016
|
Regulatory
Minimum
Requirements
|
To Be Considered
Well Capitalized
|
|||||||||||||
Common Equity Tier 1 Capital (to Risk-Weighted Assets)
|
13.6
|
%
|
13.4
|
%
|
4.5
|
%
|
6.5
|
%
|
||||||||
Tier 1 Capital (to Risk-Weighted Assets)
|
14.1
|
%
|
13.9
|
%
|
6.0
|
%
|
8.0
|
%
|
||||||||
Total Capital (to Risk-Weighted Assets)
|
15.2
|
%
|
15.0
|
%
|
8.0
|
%
|
10.0
|
%
|
||||||||
Tier 1 Capital (to Average Assets)
|
10.3
|
%
|
10.1
|
%
|
4.0
|
%
|
5.0
|
%
|
Beginning on January 1, 2016 an additional capital conservation buffer has been added to the minimum regulatory capital ratios under the regulatory framework for prompt corrective action. The capital conservation buffer will be measured as a percentage of risk weighted assets and will be phased-in over a four year period from 2016 thru 2019, resulting in a required capital conservation buffer of 0.625% in 2016 amd 1.25% in 2017. When fully implemented, the capital conservation buffer will be 2.50% of risk weighted assets over and above the regulatory minimum capital ratios for Common Equity Tier 1 Capital (CET1) to risk weighted assets, Tier 1 Capital to risk weighted assets, and Total Capital to risk weighted assets. The consequences of not meeting the capital conservation buffer thresholds include restrictions on the payment of dividends, restrictions on the payment of discretionary bonuses, and restrictions on the repurchasing of common shares by the Company. The capital ratios of the Affiliate Banks and the Company already exceed the new minimum capital ratios plus the fully phased-in 2.50% capital buffer requiring a CET1 Capital to risk weighted assets ratio of at least 7.00%, a Tier 1 Capital to risk weighted assets ratio of at least 8.50% and a Total Capital to risk weighted assets ratio of at least 10.50%. The Company's capital conservation buffer was 7.16% at March 31, 2017 and 6.95% at December 31, 2016, well in excess of the fully phased-in 2.50% required by December 31, 2019.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
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 15, 2017, 55,500 incentive stock options were granted under the 2012 Long Term Incentive Plan at an exercise price of $19.01, the closing market price of Premier's common stock on the grant date. These options vest in three equal annual installments ending on March 15, 2020. On March 16, 2016, 55,990 incentive stock options were granted under the 2012 Long Term Incentive Plan at an exercise price of $13.55, the closing market price of Premier's common stock on the grant date. These options vest in three equal annual installments ending on March 16, 2019.
On March 16, 2016, 7,700 shares of Premier's common stock were granted to President and CEO, Robert W. Walker as stock-based bonus compensation under the 2012 Long-term Incentive Plan. The fair value of the stock at the time of the grant was $13.55 per share based upon the closing price of Premier's stock on the date of grant and $104,000 of stock-based compensation was recorded as a result.
Compensation expense of $20,000 was recorded for the first three months of 2017 while $120,000 was recorded for the first three months of 2016, including the compensation expense related to the stock grant to Mr. Walker. Stock-based compensation expense related to incentive stock option grants is recognized ratably over the requisite vesting period for all awards. Unrecognized stock-based compensation expense related to stock options totaled $150,000 at March 31, 2017. This unrecognized expense is expected to be recognized over the next 35 months based on the vesting periods of the options.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
A reconciliation of the numerators and denominators of the earnings per common share and earnings per common share assuming dilution computations for the three months ended March 31, 2017 and 2016 is presented below:
Three Months Ended
March 31,
|
||||||||
2017
|
2016
|
|||||||
Basic earnings per share
|
||||||||
Income available to common stockholders
|
$
|
3,664
|
$
|
2,979
|
||||
Weighted average common shares outstanding
|
10,643,078
|
10,311,743
|
||||||
Earnings per share
|
$
|
0.34
|
$
|
0.29
|
||||
Diluted earnings per share
|
||||||||
Income available to common stockholders
|
$
|
3,664
|
$
|
2,979
|
||||
Weighted average common shares outstanding
|
10,643,078
|
10,311,743
|
||||||
Add dilutive effects of potential additional common stock
|
78,390
|
66,972
|
||||||
Weighted average common and dilutive potential common shares outstanding
|
10,721,468
|
10,378,715
|
||||||
Earnings per share assuming dilution
|
$
|
0.34
|
$
|
0.29
|
Stock options for 22,000 shares of common stock were not considered in computing diluted earnings per share for the three months ended March 31, 2016 because they were antidilutive. There were no stock options considered antidilutive for the three months ended 2017.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
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. Fair values of time deposits with other banks are based on current rates for similar time deposits using the remaining time to maturity. 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 7 – FAIR VALUE - continued
The carrying amounts and estimated fair values of financial instruments at March 31, 2017 were as follows:
Fair Value Measurements at March 31, 2017 Using
|
||||||||||||||||||||
Carrying
Amount
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||||||
Financial assets
|
||||||||||||||||||||
Cash and due from banks
|
$
|
89,389
|
$
|
89,389
|
$
|
-
|
$
|
-
|
$
|
89,389
|
||||||||||
Federal funds sold
|
6,721
|
6,721 | - | - | 6,721 | |||||||||||||||
Time deposits with other banks
|
2,582
|
-
|
2,598
|
-
|
2,598
|
|||||||||||||||
Securities available for sale
|
305,873
|
-
|
305,873
|
-
|
305,873
|
|||||||||||||||
Loans, net
|
1,028,620
|
-
|
-
|
1,013,351
|
1,013,351
|
|||||||||||||||
Federal Home Loan Bank stock
|
3,200
|
n/a
|
n/a
|
n/a
|
n/a
|
|||||||||||||||
Interest receivable
|
3,838
|
-
|
897
|
2,941
|
3,838
|
|||||||||||||||
Financial liabilities
|
||||||||||||||||||||
Deposits
|
$
|
(1,298,309
|
)
|
$
|
(945,518
|
)
|
$
|
(349,161
|
)
|
$
|
-
|
$
|
(1,294,679
|
)
|
||||||
Securities sold under agreements to repurchase
|
(22,864
|
)
|
-
|
(22,864
|
)
|
-
|
(22,864
|
)
|
||||||||||||
Other borrowed funds
|
(8,251
|
)
|
-
|
(8,338
|
)
|
-
|
(8,338
|
)
|
||||||||||||
Subordinated debt
|
(5,352
|
)
|
-
|
(5,364
|
)
|
-
|
(5,364
|
)
|
||||||||||||
Interest payable
|
(352
|
)
|
(7
|
)
|
(345
|
)
|
-
|
(352
|
)
|
The carrying amounts and estimated fair values of financial instruments at December 31, 2016 were as follows:
Fair Value Measurements at December 31, 2016 Using
|
||||||||||||||||||||
Carrying
Amount
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||||||
Financial assets
|
||||||||||||||||||||
Cash and due from banks
|
$
|
97,163
|
$
|
97,163
|
$
|
-
|
$
|
-
|
$
|
97,163
|
||||||||||
Federal funds sold
|
7,555 | 7,555 | - | - | 7,555 | |||||||||||||||
Time deposits with other banks
|
2,332
|
-
|
2,352
|
-
|
2,352
|
|||||||||||||||
Securities available for sale
|
288,607
|
-
|
288,607
|
-
|
288,607
|
|||||||||||||||
Loans, net
|
1,013,987
|
-
|
-
|
1,004,388
|
1,004,388
|
|||||||||||||||
Federal Home Loan Bank stock
|
3,200
|
n/a
|
n/a
|
n/a
|
n/a
|
|||||||||||||||
Interest receivable
|
3,862
|
-
|
771
|
3,091
|
3,862
|
|||||||||||||||
Financial liabilities
|
||||||||||||||||||||
Deposits
|
$
|
(1,279,386
|
)
|
$
|
(920,745
|
)
|
$
|
(354,885
|
)
|
$
|
-
|
$
|
(1,275,630
|
)
|
||||||
Securities sold under agreements to repurchase
|
(23,820
|
)
|
-
|
(23,820
|
)
|
-
|
(23,820
|
)
|
||||||||||||
Other borrowed funds
|
(8,859
|
)
|
-
|
(8,906
|
)
|
-
|
(8,906
|
)
|
||||||||||||
Subordinated debt
|
(5,343
|
)
|
-
|
(5,341
|
)
|
-
|
(5,341
|
)
|
||||||||||||
Interest payable
|
(364
|
)
|
(7
|
)
|
(357
|
)
|
-
|
(364
|
)
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7 – 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, 2017 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
|
$
|
199,068
|
$
|
-
|
$
|
199,068
|
$
|
-
|
||||||||
U. S. agency CMO's - residential
|
67,320
|
-
|
67,320
|
-
|
||||||||||||
Total mortgage-backed securities of government sponsored agencies
|
266,388
|
-
|
266,388
|
-
|
||||||||||||
U. S. government sponsored agency securities
|
24,013
|
-
|
24,013
|
-
|
||||||||||||
Obligations of states and political subdivisions
|
15,472
|
-
|
15,472
|
-
|
||||||||||||
Total securities available for sale
|
$
|
305,873
|
$
|
-
|
$
|
305,873
|
$
|
-
|
Fair Value Measurements at
December 31, 2016 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
|
$
|
174,177
|
$
|
-
|
$
|
174,177
|
$
|
-
|
||||||||
U. S. agency CMO's
|
73,267
|
-
|
73,267
|
-
|
||||||||||||
Total mortgage-backed securities of government sponsored agencies
|
247,444
|
-
|
247,444
|
-
|
||||||||||||
U. S. government sponsored agency securities
|
24,501
|
-
|
24,501
|
-
|
||||||||||||
Obligations of states and political subdivisions
|
16,662
|
-
|
16,662
|
-
|
||||||||||||
Total securities available for sale
|
$
|
288,607
|
$
|
-
|
$
|
288,607
|
$
|
-
|
There were no transfers between Level 1 and Level 2 during 2017 or 2016.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7 – 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 collateral appraisals. Real estate 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. Non-real estate collateral may be valued using an appraisal, net book value per the borrower's financial statements, or aging reports. Management periodically evaluates the appraised collateral values and will discount the collateral'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, management's expertise and knowledge of the client and client's business, or other factors unique to the collateral. To the extent an adjusted collateral 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. Management may obtain additional updated appraisals depending on the length of time since 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 7 – FAIR VALUE - continued
Assets and liabilities measured at fair value on a non-recurring basis at March 31, 2017 are summarized below:
Fair Value Measurements at March 31, 2017 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:
|
||||||||||||||||
Commercial real estate
|
||||||||||||||||
Owner occupied
|
$
|
792
|
$
|
-
|
$
|
-
|
$
|
792
|
||||||||
Commercial and industrial
|
12
|
-
|
-
|
12
|
||||||||||||
All other
|
75
|
-
|
-
|
75
|
||||||||||||
Total impaired loans
|
$
|
879
|
$
|
-
|
$
|
-
|
$
|
879
|
||||||||
Other real estate owned:
|
||||||||||||||||
Residential real estate
|
$
|
571
|
$
|
-
|
$
|
-
|
$
|
571
|
||||||||
Commercial real estate
|
||||||||||||||||
Owner occupied
|
175
|
-
|
-
|
175
|
||||||||||||
Non-owner occupied
|
2,153
|
-
|
-
|
2,153
|
||||||||||||
All other
|
3,508
|
-
|
-
|
3,508
|
||||||||||||
Total OREO
|
$
|
6,407
|
$
|
-
|
$
|
-
|
$
|
6,407
|
Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $1,376,000 at March 31, 2017 with a valuation allowance of $497,000 and a carrying amount of $4,446,000 at December 31, 2016 with a valuation allowance of $606,000 resulting in a provision for loan losses of $85,000 for the three months ended March 31, 2017, compared to a $99,000 in provision for loan losses for the three months ended March 31, 2016. 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 $6,407,000 which is made up of the outstanding balance of $9,585,000 net of a valuation allowance of $3,178,000 at March 31, 2017. There were $39,000 of write downs during the three months ended March 31, 2017, and no write downs during the three months ended March 31, 2016. At December 31, 2016, other real estate owned had a net carrying amount of $6,624,000, made up of the outstanding balance of $9,900,000, net of a valuation allowance of $3,276,000.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7 – FAIR VALUE - continued
The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at March 31, 2017 are summarized below:
March 31, 2017
|
Valuation Techniques
|
Unobservable Inputs
|
Range (Weighted Avg)
|
||||||
Impaired loans:
|
|||||||||
Commercial real estate
|
|||||||||
Owner occupied
|
$
|
792
|
sales comparison
|
adjustment for limited salability of specialized property
|
9.3%-76.4% (19.3%) | ||||
Commercial and industrial
|
12
|
sales comparison
|
adjustment for differences between the comparable sales
|
8.0%-8.0% (8.0%) | |||||
All other
|
75
|
sales comparison
|
adjustment for differences between the comparable sales
|
8.0%-8.0% (8.0%) | |||||
Total impaired loans
|
$
|
879
|
|||||||
Other real estate owned:
|
|||||||||
Residential real estate
|
$
|
571
|
sales comparison
|
adjustment for differences between the comparable sales
|
0.7%-86.8% (29.2%) | ||||
Commercial real estate
|
|||||||||
Owner occupied
|
175
|
sales comparison
|
adjustment for differences between the comparable sales
|
21.8%-21.8% (21.8%) | |||||
Non-owner occupied
|
2,153
|
sales comparison
|
adjustment for differences between the comparable sales
|
17.2%-27.6% (25.7%) | |||||
All other
|
3,508
|
sales comparison
|
adjustment for estimated realizable value
|
15.1%-40.4 (20.6%) | |||||
Total OREO
|
$
|
6,407
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7 – FAIR VALUE - continued
Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2016 are summarized below:
Fair Value Measurements at December 31, 2016 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:
|
||||||||||||||||
Commercial real estate
|
||||||||||||||||
Owner occupied
|
$
|
793
|
$
|
-
|
$
|
-
|
$
|
793
|
||||||||
Commercial and industrial
|
12
|
-
|
-
|
12
|
||||||||||||
All other
|
3,036
|
-
|
-
|
3,036
|
||||||||||||
Total impaired loans
|
$
|
3,841
|
$
|
-
|
$
|
-
|
$
|
3,841
|
||||||||
Other real estate owned:
|
||||||||||||||||
Residential real estate
|
$
|
613
|
$
|
-
|
$
|
-
|
$
|
613
|
||||||||
Commercial real estate
|
||||||||||||||||
Owner occupied
|
175
|
-
|
-
|
175
|
||||||||||||
Non-owner occupied
|
2,153
|
-
|
-
|
2,153
|
||||||||||||
All other
|
3,683
|
-
|
-
|
3,683
|
||||||||||||
Total OREO
|
$
|
6,624
|
$
|
-
|
$
|
-
|
$
|
6,624
|
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7 – FAIR VALUE - continued
The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at December 31, 2016 are summarized below:
December 31, 2016
|
Valuation Techniques
|
Unobservable Inputs
|
Range (Weighted Avg)
|
||||||
Impaired loans:
|
|||||||||
Commercial real estate
|
|||||||||
Owner occupied
|
$
|
793
|
sales comparison
|
adjustment for limited salability of specialized property
|
9.3%-76.4% (19.3%) | ||||
Commercial and industrial
|
12
|
sales comparison
|
adjustment for differences between the comparable sales
|
8.0%-8.0% (8.0%) | |||||
All other
|
3,036
|
sales comparison
|
adjustment for differences between the comparable sales
|
5.7%-9.0% (8.0%) | |||||
Total impaired loans
|
$
|
3,841
|
|||||||
Other real estate owned:
|
|||||||||
Residential real estate
|
$
|
613
|
sales comparison
|
adjustment for differences between the comparable sales
|
0.7%-86.8% (25.2%) | ||||
Commercial real estate
|
|||||||||
Owner occupied
|
175
|
sales comparison
|
adjustment for differences between the comparable sales
|
21.8%-21.8% (21.8%) | |||||
Non-owner occupied
|
2,153
|
sales comparison
|
adjustment for differences between the comparable sales
|
17.2%-27.6% (25.7%) | |||||
All other
|
3,683
|
sales comparison
|
adjustment for estimated realizable value
|
15.1%-45.4% (21.8%) | |||||
Total OREO
|
$
|
6,624
|
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2017
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, 2017 was $3,664,000, or $0.34 per diluted share, compared to net income of $2,979,000, or $0.29 per diluted share for the three months ended March 31, 2016. The increase in income in the first three months of 2017 is largely due to an increase in interest income on loans, a decrease in interest expense, an increase in non-interest income, and a decrease in non-interest expense, all of which more than offset an increase in provision for loan losses. The increase in interest income on loans in the first three months of 2017 is partially due to $446,000 of interest income collected on non-accrual loans liquidated during the first quarter of 2017. The provision for loan losses was $366,000 during the first three months of 2017, which compares to $312,000 of provision expense recorded during the first three months of 2016. The decrease in non-interest expense was largely due to $146,000 of conversion expense recorded in 2016, compared to $24,000 in 2017. The annualized returns on average common shareholders' equity and average assets were approximately 8.25% and 0.98% for the three months ended March 31, 2017 compared to 7.06% and 0.83% for the same period in 2016.
Net interest income for the quarter ended March 31, 2017 totaled $13.996 million, up $941,000, or 7.2%, from the $13.055 million of net interest income earned in the first quarter of 2016. Interest income in 2017 increased by $899,000, or 6.3%, largely due to a $934,000 increase in interest income on loans. Interest income on loans in the first quarter of 2017 included approximately $446,000 of deferred interest and discounts recognized on non-accrual loans that paid off during the quarter compared to no interest income of this kind recognized during the first quarter of 2016. Otherwise, interest income on loans increased by $488,000, or 3.9%, in the first quarter of 2017 largely due to a higher average balance of loans outstanding during the quarter. Interest income on investment securities in the first quarter of 2017 decreased by $95,000, or 6.3%, largely due to a lower average balance of investments outstanding as surplus funds and maturing investments have been used to fund the higher yielding loan portfolio. Interest income from interest-bearing bank balances and federal funds sold increased by $60,000, or 62%, largely due to an increase in the yield on these balances in 2017 resulting from the Federal Reserve Board of Governors' decisions to increase the federal funds target rate by a total of 50 basis points in the last twelve months, on a slightly lower average balance outstanding during the quarter.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2017
Net interest income for the quarter ended March 31, 2017 totaled $13.996 million, up $941,000, or 7.2%, from the $13.055 million of net interest income earned in the first quarter of 2016. Interest income in 2017 increased by $899,000, or 6.3%, largely due to a $934,000 increase in interest income on loans. Interest income on loans in the first quarter of 2017 included approximately $446,000 of deferred interest and discounts recognized on non-accrual loans that paid off during the quarter compared to no interest income of this kind recognized during the first quarter of 2016. Otherwise, interest income on loans increased by $488,000, or 3.9%, in the first quarter of 2017 largely due to a higher average balance of loans outstanding during the quarter. Interest income on investment securities in the first quarter of 2017 decreased by $95,000, or 6.3%, largely due to a lower average balance of investments outstanding as surplus funds and maturing investments have been used to fund the higher yielding loan portfolio. Interest income from interest-bearing bank balances and federal funds sold increased by $60,000, or 62%, largely due to an increase in the yield on these balances in 2017 resulting from the Federal Reserve Board of Governors' decisions to increase the federal funds target rate by a total of 50 basis points in the last twelve months, on a slightly lower average balance outstanding during the quarter.
Complementing the increase in interest income in the first quarter of 2017 was a $42,000, or 3.6%, decrease in interest expense. Interest expense on deposits decreased by $28,000, or 2.9%, in the first quarter of 2017, primarily due to a lower average rate paid on a higher average of interest-bearing deposits outstanding during the quarter. Interest expense on borrowings in the first quarter of 2017 decreased by $33,000, or 27.5%, largely due to a decrease in outstanding borrowings from principal payments, including the full repayment of bank based FHLB borrowings during 2016. Partially offsetting the decrease in interest expense on borrowings was a $19,000, or 37%, increase in interest expense on Premier's subordinated debt due to an increase in the variable rate interest rate paid in 2017. The variable interest rate is indexed to the three month London Interbank Offered Rate, which is sensitive to moves in the short-term interest rate market.
Premier's net interest margin during the first three months of 2017 was 4.12% compared to 3.93% for the same period in 2016. A portion of the interest income on loans is the result of recognizing deferred interest income on non-accrual loans that paid-off during the period. Excluding this income, Premier's net interest margin during the first three months of 2017 would have been 3.99% compared to 3.93% for the same period in 2016. As shown in the table below, Premier's yield earned on federal funds sold and interest bearing bank balances increased to 1.14% in the first three months of 2017, from the 0.67% earned in the first quarter of 2016. The average yield earned on securities available for sale and total loans outstanding also increased when compared to the first three months of 2016. However, the average rate paid on interest bearing liabilities decreased in the first three months of 2017, as decreases in the average rates paid on interest-bearing deposits, short-term borrowings and other borrowings were partially offset by a higher average rate paid on Premier's variable rate subordinated debentures. The overall effect was to increase Premier's net interest spread by 20 basis points to 4.00% and its net interest margin by 19 basis points to 4.12% in the first three months of 2017 when compared to the first three months of 2016.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2017
Additional information on Premier's net interest income for the first quarter of 2017 and first quarter of 2016 is contained in the following table.
PREMIER FINANCIAL BANCORP, INC.
|
||||||||||||||||||||||||
AVERAGE CONSOLIDATED BALANCE SHEETS
|
||||||||||||||||||||||||
AND NET INTEREST INCOME ANALYSIS
|
||||||||||||||||||||||||
Three Months Ended March 31, 2017
|
Three Months Ended March 31, 2016
|
|||||||||||||||||||||||
Balance
|
Interest
|
Yield/Rate
|
Balance
|
Interest
|
Yield/Rate
|
|||||||||||||||||||
Assets
|
||||||||||||||||||||||||
Interest Earning Assets
|
||||||||||||||||||||||||
Federal funds sold and other
|
$
|
55,628
|
$
|
157
|
1.14
|
%
|
$
|
58,597
|
$
|
97
|
0.67
|
%
|
||||||||||||
Securities available for sale
|
||||||||||||||||||||||||
Taxable
|
278,016
|
1,345
|
1.94
|
299,033
|
1,428
|
1.91
|
||||||||||||||||||
Tax-exempt
|
13,559
|
72
|
3.22
|
18,111
|
84
|
2.81
|
||||||||||||||||||
Total investment securities
|
291,575
|
1,417
|
2.00
|
317,144
|
1,512
|
1.96
|
||||||||||||||||||
Total loans
|
1,032,535
|
13,535
|
5.32
|
963,693
|
12,601
|
5.26
|
||||||||||||||||||
Total interest-earning assets
|
1,379,738
|
15,109
|
4.45
|
%
|
1,339,434
|
14,210
|
4.28
|
%
|
||||||||||||||||
Allowance for loan losses
|
(10,911
|
)
|
(9,742
|
)
|
||||||||||||||||||||
Cash and due from banks
|
39,921
|
32,994
|
||||||||||||||||||||||
Other assets
|
82,401
|
80,854
|
||||||||||||||||||||||
Total assets
|
$
|
1,491,149
|
$
|
1,443,540
|
||||||||||||||||||||
Liabilities and Equity
|
||||||||||||||||||||||||
Interest-bearing liabilities
|
||||||||||||||||||||||||
Interest-bearing deposits
|
$
|
962,909
|
949
|
0.40
|
$
|
940,630
|
977
|
0.42
|
||||||||||||||||
Short-term borrowings
|
23,508
|
7
|
0.12
|
20,328
|
7
|
0.14
|
||||||||||||||||||
FHLB advances
|
-
|
-
|
-
|
1,059
|
7
|
2.66
|
||||||||||||||||||
Other borrowings
|
8,564
|
87
|
4.12
|
11,014
|
113
|
4.13
|
||||||||||||||||||
Subordinated debt
|
5,345
|
70
|
5.31
|
4,379
|
51
|
4.68
|
||||||||||||||||||
Total interest-bearing liabilities
|
1,000,326
|
1,113
|
0.45
|
%
|
977,410
|
1,155
|
0.48
|
%
|
||||||||||||||||
Non-interest bearing deposits
|
308,172
|
292,583
|
||||||||||||||||||||||
Other liabilities
|
5,073
|
4,648
|
||||||||||||||||||||||
Stockholders' equity
|
177,578
|
168,899
|
||||||||||||||||||||||
Total liabilities and equity
|
$
|
1,491,149
|
$
|
1,443,540
|
||||||||||||||||||||
Net interest earnings
|
$
|
13,996
|
$
|
13,055
|
||||||||||||||||||||
Net interest spread
|
4.00
|
%
|
3.80
|
%
|
||||||||||||||||||||
Net interest margin
|
4.12
|
%
|
3.93
|
%
|
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2017
Non-interest income increased by $80,000, or 4.1%, to $2,017,000 for the first three months of 2017 compared to the same three months of 2016. Service charges on deposit accounts increased by $15,000, or 1.6%, electronic banking income (income from debit/credit cards, ATM fees and internet banking charges) increased by $18,000, or 2.4%, and income from other sources increased by $47,000, or 22.0%, largely due to an increase in secondary market income and wealth management services income.
Non-interest expenses for the first quarter of 2017 totaled $9,998,000, or 2.72% of average assets on an annualized basis, compared to $10,075,000, or 2.81% of average assets for the same period of 2016. The $77,000 decrease in non-interest expenses in 2017 when compared to the first quarter of 2016 is largely due to a $122,000, or 83.6%, decrease in conversion expense, a $66,000, or 25.5% decrease in FDIC insurance, and a $21,000, or 0.4% decrease in staff costs. The decrease in staff costs is primarily due to an $86,000, or 2.2%, increase in salaries and wages (net of deferred loan costs) more than offset by a $107,000, or 9.4%, decrease in benefit plan costs, namely employee medical insurance benefits and employer based payroll taxes. The decrease in conversion expense is related to costs incurred to convert First National Bank to Premier's operating systems in the first quarter of 2016. These decreases were partially offset by a $98,000, or 65.3%, increase in professional fees, including higher audit and consulting fees, and a $31,000, or 19.6%, increase in taxes not based on income.
Income tax expense was $1,985,000 for the first three months of 2017 compared to $1,626,000 for the first three months of 2016. The increase in income tax expense is largely due to the increase in pretax income described above as the effective tax rate for the three months ended March 31, 2017 was 35.1% which compares similarly to the 35.3% effective tax rate for the same period in 2016.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2017
B. Financial Position
Total assets at March 31, 2017 increased by $21.0 million to $1.517 billion from the $1.496 billion at December 31, 2016. The increase in total assets since year-end is largely due to a $17.3 million increase in securities available for sale and a $14.7 million increase in loans partially offset by a $6.8 million decrease in interest bearing bank balances and a $1.0 million decrease in cash and due from banks. Earning assets increased by $24.6 million from the $1.382 billion at year-end 2016 to end the quarter at $1.407 billion.
Cash and due from banks at March 31, 2017 was $40.4 million, a $1.0 million decrease from the $41.4 million at December 31, 2016. Interest bearing bank balances decreased by $6.8 million from the $55.7 million reported at December 31, 2016 and federal funds sold decreased by $834,000 to $6.7 million at March 31, 2017. 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 decrease in interest bearing bank balances and federal funds sold during the first three months of 2017 was largely in response to the funding of investment purchases plus an increase in total loans outstanding at the end of the quarter.
Securities available for sale totaled $305.9 million at March 31, 2017, a $17.3 million increase from the $288.6 million at December 31, 2016. The increase was largely due to the purchase of $31.1 million of investment securities and a $2.3 million increase in the market value of the securities available for sale, which more than offset $15.6 million of proceeds from monthly principal payments on Premier's mortgage backed securities portfolio and securities that matured or were called 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, 2017 and December 31, 2016 are believed to be price changes resulting from changes 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, 2017 were $1.040 billion compared to $1.025 billion at December 31, 2016, an increase of approximately $14.7 million, or 1.4%. The increase is largely due to internal loan growth partially offset by regular principal payments, loan payoffs and transfers of loans to OREO upon foreclosure. Loan payoffs during the first quarter of 2017 included payoffs on $5.6 million of non-accrual loans which resulted in recognizing approximately $436,000 of interest income deferred while the loans were on non-accrual status and $10,000 of remaining purchase discounts associated with the loans.
Premises and equipment decreased by $369,000 largely due to normal quarterly depreciation of fixed assets. Goodwill and other intangible assets decreased by $265,000, due to the amortization of core deposit intangibles.
Deposits totaled $1.298 billion as of March 31, 2017, an $18.9 million, or 1.5%, increase from the $1.279 billion in deposits at December 31, 2016. The overall increase in deposits is largely due to a $19.1 million, or 8.0%, increase in interest bearing transaction accounts, a $3.6 million, or 1.0%, increase in savings and money market accounts, and a $2.0 million, or 0.6%, increase in non-interest bearing deposits. The increases were partially offset by a $5.9 million, or 1.6%, decrease in certificates of deposit. Repurchase agreements with corporate and public entity customers decreased in the first quarter of 2017 by $956,000, or 4.0%. Other borrowings decreased by $608,000 since year-end 2016 due to scheduled principal payments plus additional principal payments on Premier's existing borrowings. Subordinated debentures increased $9,000, due to the continuing monthly amortization of the fair value adjustment recorded in 2016 as part of the acquisition of First National Bankshares Corporation.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2017
The following table sets forth information with respect to the Company's nonperforming assets at March 31, 2017 and December 31, 2016.
(In Thousands)
|
||||||||
2017
|
2016
|
|||||||
Non-accrual loans
|
$
|
20,319
|
$
|
25,747
|
||||
Accruing loans which are contractually past due 90 days or more
|
2,204
|
1,999
|
||||||
Accruing restructured loans
|
7,370
|
8,268
|
||||||
Total non-performing loans
|
29,893
|
36,014
|
||||||
Other real estate acquired through foreclosure (OREO)
|
12,455
|
12,665
|
||||||
Total non-performing assets
|
$
|
42,348
|
$
|
48,679
|
||||
Non-performing loans as a percentage of total loans
|
2.88
|
%
|
3.51
|
%
|
||||
Non-performing assets as a percentage of total assets
|
2.79
|
%
|
3.25
|
%
|
Total non-performing loans have decreased since year-end largely due to a $5.4 million decrease in non-accrual loans and an $898,000 decrease in accruing restructured loans. These decreases in non-performing loans were partially offset by a $205,000 increase in loans past due 90 days or more. Total non-performing assets have decreased since year-end, largely due to the reduction in non-performing loans plus a $210,000 decrease in other real estate acquired through foreclosure ("OREO"). Other real estate owned decreased as sales of OREO and additional writedowns on existing properties in the first three months of 2017 exceeded new foreclosures.
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.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2017
Gross charge-offs totaled $409,000 during the first three months of 2017, largely due to consumer lending based charge-offs and the partial charge-off of loans upon foreclosure and placement 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 2017 totaled $101,000, resulting in net charge-offs for the first quarter of 2017 of $308,000. This compares to $44,000 of net charge-offs recorded in the first quarter of 2016. The allowance for loan losses at March 31, 2017 was 1.05% of total loans compared to 1.06% at December 31, 2016. The slight decrease in the ratio is largely due to an increase in total loans outstanding and a decrease in the amount of allowance allocated to loans individually evaluated for impairment.
During the first quarter of 2017, Premier recorded $366,000 of provision for loan losses. This provision compares to $312,000 of provision for loan losses recorded during the same quarter of 2016. The provision for loan losses recorded during the first quarter of 2017 was primarily to provide for new loans recorded and additional identified credit risk in Premier's commercial and residential real estate loan portfolios. The level of provision expense is determined under Premier's internal analyses of evaluating credit risk. The provisions for loan losses recorded in 2016 and 2017 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. With the concentrations of commercial real estate loans in the Washington, DC, Richmond, Virginia, and Cincinnati, Ohio markets, fluctuations in commercial real estate values will be monitored. Premier also continues to monitor the impact of the declining coal mining industry that may have a larger impact in the southern area of West Virginia and the decrease in the level of drilling activity in the oil & gas industry which may have a larger impact in the central area of West Virginia. A declining market and resulting decline in employment could increase non-performing assets. In each of the last five years, Premier sold some OREO properties at a gain while other OREO properties have required subsequent write-downs to net realizable values. These factors are considered in determining the adequacy of the allowance for loan losses. 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, 2017
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, 2016. 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, 2016. There have been no significant changes in the application of these accounting policies since December 31, 2016.
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 $250,000 or more. Management believes that the majority of its $250,000 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 $305.9 million of securities at fair value as of March 31, 2017.
|
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2017
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.
E. Capital
At March 31, 2017, total stockholders' equity of $177.9 million was 11.7% of total assets. This compares to total stockholders' equity of $174.2 million, or 11.6% of total assets on December 31, 2016. The increase in stockholders' equity was largely due to $3.7 million of first quarter net income as well as a $1.5 million, net of tax, increase in the market value of the investment portfolio available for sale. These increases were partially offset by a $0.15 per share common stock dividend declared and paid during the first quarter of 2017.
Tier 1 capital totaled $149.6 million at March 31, 2017, which represents a Tier 1 leverage ratio of 10.3%. This ratio is up from the 10.2% Tier 1 leverage ratio and $147.6 million of Tier 1 capital at December 31, 2016. The slight increase in the Tier 1 leverage ratio is largely due to the growth in Tier 1 capital exceeding the proportional growth in average total assets at March 31, 2017.
The regulatory authorities introduced a new capital measure in the first quarter of 2015 for financial institutions of Premier's size, Common Equity Tier 1 Capital. The Common Equity Tier 1 capital measure seeks to determine how much of the traditional Tier 1 capital is attributable to equity contributed by common shareholders by excluding Tier 1 capital from other sources such as preferred stockholders' equity and subordinated debt. As of March 31, 2017, Premier's Common Equity Tier 1 capital is $6.0 million lower than its total Tier 1 capital due to the additional Tier 1 capital included from the subordinated debentures. Since the subordinated debentures are held by the parent company, the Common Equity Tier 1 capital of the subsidiary banks is identical to their total Tier 1 capital, as none of the subsidiary banks have issued any preferred stock or subordinated debentures. Beginning January 1, 2016 an additional capital conservation buffer has been added to the minimum regulatory capital ratios under the regulatory framework for prompt corrective action. The capital conservation buffer will be measured as a percentage of risk weighted assets and will be phased-in over a four year period from 2016 thru 2019. When fully implemented, the capital conservation buffer requirement will be 2.50% of risk weighted assets over and above the regulatory minimum capital ratios for Tier 1 Capital to risk weighted assets, Total Capital to risk weighted assets and Common Equity Tier 1 Capital (CET1) to risk weighted assets. The consequences of not meeting the capital conservation buffer thresholds include restrictions on the payment of dividends, restrictions on the payment of discretionary bonuses, and restrictions on the repurchase of common shares by the Company. The capital ratios of the Affiliate Banks and the Company already exceed the new minimum capital ratios plus the fully phased-in 2.50% capital buffer requiring a CET1 Capital to risk-weighted asset ratio of at least 7.00%, a Tier 1 Capital to risk weighted assets ratio of at least 8.50% and a Total Capital to risk weighted assets ratio of at least 10.50%. At March 31, 2017, the Company's capital conservation buffer was 7.16%, well in excess of the 1.250% required.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
MARCH 31, 2017
Book value per common share was $16.70 at March 31, 2017 and $16.37 at December 31, 2016. The increase in book value per share was largely due to the $0.34 per share earned during the first quarter partially offset by the $0.15 per share quarterly cash dividend to common shareholders declared and paid during the first quarter of 2017. Also adding to Premier's book value per share at March 31, 2017 was the $1.5 million of other comprehensive income for the first three months of 2017 related to the increase in the market value of investment securities available for sale, which increased book value by approximately $0.14 per share.
PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2017
The Company currently does not engage in any derivative or hedging activity. Refer to the Company's 2016 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 2016 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, 2017
Item 1.
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Legal Proceedings
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None
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Item 1A.
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Risk Factors
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Please refer to Premier's Annual Report on Form 10-K for the year ended December 31, 2016 for disclosures with respect to Premier's risk factors at December 31, 2016. There have been no material changes since year-end 2016 in the specified risk factors disclosed in the Annual Report on Form 10-K.
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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None
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Item 3.
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Defaults Upon Senior Securities
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None
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Item 4.
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Mine Safety Disclosures
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Not Applicable
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Item 5.
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Other Information
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None
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Item 6.
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Exhibits
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(a) The following exhibits are furnished in accordance with the provisions of Item 601 of Regulation S-K.
32 Certification Pursuant to 18 U.S.C §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2017
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 9, 2017 /s/ Robert W. Walker
Robert W. Walker
President & Chief Executive Officer
Date: May 9, 2017 /s/ Brien M. Chase
Brien M. Chase
Senior Vice President & Chief Financial Officer
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