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 ~~September 30, 2017~~March 31, 2018

	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~~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~~"large accelerated filer,~~” “accelerated~~" "accelerated filer,~~” “smaller~~" "smaller reporting company,”" and ~~“emerging~~"emerging growth ~~company”~~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~~issuer's classes of common stock, as of the latest practical date.

Common stock, no par value, – ~~10,668,589~~10,683,528 shares outstanding at ~~November 1, 2017~~April 28, 2018

PREMIER FINANCIAL BANCORP, INC.

~~SEPTEMBER 30, 2017~~MARCH 31, 2018

INDEX TO REPORT

Part I - Financial Information
Item 1 – Financial Statements		3
Item 2 – Management's Discussion and Analysis	40	42
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	53	51
Item 4 – Controls and Procedures	53	51
Part II - Other Information	54	52
Item 1 – Legal Proceedings	54	52
Item 1A – Risk Factors	54	52
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	54	52
Item 3 – Defaults Upon Senior Securities	54	52
Item 4 – Mine Safety Disclosures	54	52
Item 5 – Other Information	54	52
Item 6 – Exhibits	54	52
Signatures	55	53

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PREMIER FINANCIAL BANCORP, INC.

~~SEPTEMBER 30, 2017~~MARCH 31, 2018

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

The accompanying information has not been audited by an independent registered public accounting firm; however, in the opinion of management such information reflects all adjustments necessary for a fair presentation of the results for the interim period. All such adjustments are of a normal and recurring nature. Premier Financial Bancorp, Inc.~~’s (“Premier’s”~~'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, and the impairment of goodwill. 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 registered public accounting firm.

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~~ registrant's annual report on Form ~~10-K~~.10-K. Accordingly, the reader of the Form 10-Q may wish to refer to the ~~registrant’s~~registrant's Form 10-K for the year ended December 31, ~~2016~~2017 for further information in this regard.

Index to consolidated financial statements:

Consolidated Balance Sheets		4
Consolidated Statements of Income		5
Consolidated Statements of Comprehensive Income		6
Consolidated Statement of Changes in Stockholders' Equity		6
Consolidated Statements of Cash Flows		7
Notes to Consolidated Financial Statements	9	8

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

~~SEPTEMBER 30, 2017~~MARCH 31, 2018 AND DECEMBER 31, ~~2016~~2017

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	(UNAUDITED)
	September 30,			December 31,			(UNAUDITED)
	2017			2016			Mar 31, 2018			Dec 31, 2017
ASSETS
Cash and due from banks	$	41,831		$	41,443		$	19,845		$	40,814
Interest bearing bank balances		21,681			55,720			104,968			37,191
Federal funds sold		11,632			7,555			15,348			4,658
Cash and cash equivalents		75,144			104,718			140,161			82,663
Time deposits with other banks		2,582			2,332			2,582			2,582
Securities available for sale		289,203			288,607			281,088			278,466
Loans		1,055,324			1,024,823			1,028,758			1,049,052
Allowance for loan losses		(12,359	)		(10,836	)		(12,840	)		(12,104	)
Net loans		1,042,965			1,013,987			1,015,918			1,036,948
Federal Home Loan Bank stock, at cost		3,185			3,200			3,185			3,185
Premises and equipment, net		23,504			24,224			23,728			23,815
Real estate and other property acquired through foreclosure		11,458			12,665
Real estate acquired through foreclosure								14,185			19,966
Interest receivable		4,060			3,862			3,701			4,043
Goodwill		35,371			35,371			35,371			35,371
Other intangible assets		3,581			4,349			3,180			3,375
Other assets		1,622			2,878			2,684			3,010
Total assets	$	1,492,675		$	1,496,193		$	1,525,783		$	1,493,424

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing	$	327,965		$	319,618		$	353,008		$	332,588
Time deposits, $250,000 and over		64,919			66,378			62,773			63,905
Other interest bearing		876,500			893,390			887,414			876,182
Total deposits		1,269,384			1,279,386			1,303,195			1,272,675
Securities sold under agreements to repurchase		25,116			23,820			20,793			23,310
Other borrowed funds		6,000			8,859			4,250			5,000
Subordinated debt		5,368			5,343			5,383			5,376
Interest payable		358			364			407			393
Other liabilities		3,192			4,237			7,879			3,315
Total liabilities		1,309,418			1,322,009			1,341,907			1,310,069

Stockholders' equity
Common stock, no par value; 20,000,000 shares authorized; 10,668,589 shares issued and outstanding at September 30, 2017, and 10,640,735 shares issued and outstanding at December 31, 2016		110,353			109,911
Common stock, no par value; 20,000,000 shares authorized; 10,677,528 shares issued and outstanding at March 31, 2018, and 10,676,428 shares issued and outstanding at December 31, 2017								110,485			110,445
Retained earnings		72,449			66,195			78,515			74,983
Accumulated other comprehensive income (loss)		455			(1,922	)		(5,124	)		(2,073	)
Total stockholders' equity		183,257			174,184			183,876			183,355
Total liabilities and stockholders' equity	$	1,492,675		$	1,496,193		$	1,525,783		$	1,493,424

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2018 AND 2017 ~~AND 2016~~

(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2018			2017
Interest income
Loans, including fees	$	13,469	$	13,375	$	41,667	$	39,084	$	14,034		$	13,535
Securities available for sale
Taxable		1,427		1,285		4,236		4,075		1,408			1,345
Tax-exempt		62		82		198		254		59			72
Federal funds sold and other		176		123		515		328		298			157
Total interest income		15,134		14,865		46,616		43,741		15,799			15,109

Interest expense
Deposits		954		965		2,854		2,917		1,031			949
Repurchase agreements and other		7		10		21		28		8			7
FHLB advances		-		10		-		32
Other borrowings		68		101		234		321		47			87
Subordinated debt		74		63		218		181		78			70
Total interest expense		1,103		1,149		3,327		3,479		1,164			1,113

Net interest income		14,031		13,716		43,289		40,262		14,635			13,996
Provision for loan losses		891		312		2,033		1,436		1,115			366
Net interest income after provision for loan losses		13,140		13,404		41,256		38,826		13,520			13,630

Non-interest income
Service charges on deposit accounts		1,136		1,031		3,201		2,975		1,094			976
Electronic banking income		811		791		2,424		2,355		817			780
Secondary market mortgage income		67		64		173		163		32			67
Other		163		176		530		571		123			194
		2,177		2,062		6,328		6,064		2,066			2,017
Non-interest expenses
Salaries and employee benefits		4,760		4,817		14,703		15,025		4,778			4,970
Occupancy and equipment expenses		1,511		1,635		4,481		4,697		1,610			1,521
Outside data processing		1,344		1,300		4,019		3,935		1,249			1,320
Professional fees		196		167		721		500		336			248
Taxes, other than payroll, property and income		189		156		589		473		240			189
Write-downs, expenses, sales of other real estate owned, net		346		765		1,139		1,402		(886	)		240
Amortization of intangibles		252		278		768		862		195			265
FDIC insurance		159		278		506		752		148			193
Loan collection expense										360			99
Other expenses		1,168		1,212		3,401		3,674		959			953
		9,925		10,608		30,327		31,320		8,989			9,998
Income before income taxes		5,392		4,858		17,257		13,570		6,597			5,649
Provision for income taxes		1,925		1,694		6,207		4,803		1,464			1,985

Net income	$	3,467	$	3,164	$	11,050	$	8,767	$	5,133		$	3,664

Net income per share:
Basic	$	0.33	$	0.30	$	1.04	$	0.83	$	0.48		$	0.34
Diluted		0.32		0.30		1.03		0.83		0.48			0.34

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2018 AND 2017 ~~AND 2016~~

(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017
Net income	$	3,467		$	3,164		$	11,050		$	8,767		$	5,133		$	3,664

Other comprehensive income (loss):
Unrealized gains (losses) arising during the period		(68	)		15			3,658			4,504			(3,862	)		2,276
Reclassification of realized amount		-			-			-			(4	)		-			-
Net change in unrealized gain on securities		(68	)		15			3,658			4,500
Net change in unrealized gain (loss) on securities														(3,862	)		2,276
Less tax impact		24			(5	)		(1,281	)		(1,576	)		811			(798	)
Other comprehensive income (loss)		(44	)		10			2,377			2,924			(3,051	)		1,478

Comprehensive income	$	3,423		$	3,174		$	13,427		$	11,691		$	2,082		$	5,142

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN ~~STOCKHOLDERS’~~STOCKHOLDERS' EQUITY

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2018

(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	Common Stock		Retained Earnings			Accumulated Other Comprehensive Income			Total			Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (loss)			Total
Balances, January 1, 2017	$	109,911	$	66,195		$	(1,922	)	$	174,184
Balances, January 1, 2018												$	110,445	$	74,983		$	(2,073	)	$	183,355
Net income		-		11,050			-			11,050			-		5,133			-			5,133
Other comprehensive income		-		-			2,377			2,377			-		-			(3,051	)		(3,051	)
Cash dividends paid ($0.45 per share)		-		(4,796	)		-			(4,796	)
Cash dividends paid ($0.15 per share)													-		(1,601	)		-			(1,601	)
Stock options exercised													13		-			-			13
Stock based compensation expense		194		-			-			194			27		-			-			27
Stock options exercised		248		-			-			248
Balances, September 30, 2017	$	110,353	$	72,449		$	455		$	183,257
Balances, March 31, 2018												$	110,485	$	78,515		$	(5,124	)	$	183,876

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2018 AND 2017 ~~AND 2016~~

(UNAUDITED, DOLLARS IN THOUSANDS)

	2017			2016			2018			2017
Cash flows from operating activities
Net income	$	11,050		$	8,767		$	5,133		$	3,664
Adjustments to reconcile net income to net cash from operating activities
Depreciation		1,303			1,461			433			445
Provision for loan losses		2,033			1,436			1,115			366
Amortization (accretion), net		1,166			2,010			386			388
OREO writedowns, net		434			508
Writedowns (gains on the sale) of other real estate owned, net								(1,080	)		19
Stock compensation expense		194			160			27			20
Changes in :
Changes in:
Interest receivable		(198	)		(259	)		342			24
Other assets		(24	)		(140	)		1,137			849
Interest payable		(6	)		(76	)		14			(12	)
Other liabilities		(1,045	)		(2,071	)		(495	)		4
Net cash from operating activities		14,907			11,796			7,012			5,767

Cash flows from investing activities
Net change in time deposits with other banks		(250	)		-
Net change on time deposits with other banks								-			(250	)
Purchases of securities available for sale		(49,210	)		(22,512	)		(15,527	)		(31,087	)
Proceeds from maturities and calls of securities available for sale		50,787			62,011			13,717			15,573
Redemption of FRB and FHLB stock		15			190
Net change in loans		(30,865	)		(51,417	)		19,838			(14,936	)
Acquisition of subsidiary, net of cash received		-			16,385
Purchases of premises and equipment, net		(654	)		(413	)		(346	)		(76	)
Proceeds from sales of other real estate acquired through foreclosure		1,827			870			7,145			544
Net cash from (used in) investing activities		(28,350	)		5,114			24,827			(30,232	)

Cash flows from financing activities
Net change in deposits		(10,020	)		8,246			30,514			18,917
Net change in agreements to repurchase securities		1,296			3,282			(2,517	)		(956	)
Repayment of other borrowed funds		(2,859	)		(1,824	)		(750	)		(608	)
Proceeds from stock option exercises		248			645			13			101
Repayment of FHLB advances, net		-			(772	)
Common stock dividends paid		(4,796	)		(4,338	)		(1,601	)		(1,597	)
Net cash from (used in) financing activities		(16,131	)		5,239
Net cash from financing activities								25,659			15,857

Net change in cash and cash equivalents		(29,574	)		22,149			57,498			(8,608	)

Cash and cash equivalents at beginning of period		104,718			72,539			82,663			104,718

Cash and cash equivalents at end of period	$	75,144		$	94,688		$	140,161		$	96,110

Supplemental disclosures of cash flow information:
Cash paid during period for interest	$	1,150	$	1,125

Loans transferred to real estate acquired through foreclosure		284		353

Securities purchased not yet settled		5,059		-

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~~PREMIER FINANCIAL BANCORP, INC.~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)~~

~~NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016~~

~~(UNAUDITED, DOLLARS IN THOUSANDS)~~

2017 2016
Supplemental disclosures of cash flow information:
Cash paid during period for interest $ 3,333 $ 3,555

Cash paid during period for income taxes 6,395 5,122

Loans transferred to real estate acquired through foreclosure 983 631

Stock issued to acquire subsidiary - 22,041

Premises transferred to other real estate owned 71 -

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 1 - BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Premier Financial Bancorp, Inc. (the Company) and its wholly owned subsidiaries (the ~~“Banks”~~"Banks"):

September 30, 2017
Year Total Net Income
Subsidiary

Location
Acquired Assets Qtr YTD
Citizens Deposit Bank & Trust Vanceburg, Kentucky 1991 $ 425,115 $ 1,209 $ 3,509
Premier Bank, Inc. Huntington, West Virginia 1998 1,060,991 2,734 9,007
Parent and Intercompany Eliminations 6,569 (476 ) (1,466 )
Consolidated Total $ 1,492,675 $ 3,467 $ 11,050

					March 31, 2018
		Year	Total		Net Income
Subsidiary	Location	Acquired	Assets		Qtr
Citizens Deposit Bank & Trust	Vanceburg, Kentucky	1991	$	427,514	$	1,290
Premier Bank, Inc.	Huntington, West Virginia	1998		1,091,144		4,486
Parent and Intercompany Eliminations				7,125		(643	)
Consolidated Total			$	1,525,783	$	5,133

All significant intercompany transactions and balances have been eliminated.

During the first quarter of 2018, management updated its policies regarding estimation of probable incurred losses. The updates included incorporating a common estimated loss ratio for all pass credits within a given loan classification, adding an additional qualitative factor for document exceptions on collectively impaired loans, and reallocating the qualitative portion of the allowance to align more closely to the inputs used to determine the qualitative portion. The previous methodology allocated a higher loss ratio to loans graded "Watch" to estimate a higher credit risk on these loans due to risk downgrades resulting from document exceptions. Loans graded "Watch" are considered pass credits. These changes did not have a material impact on the overall allowance for loan losses or the provision for loan losses in the first three months of 2018.

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. The guidance provides the following steps to achieve the core principle (1) Identify the contract(s) with the customer, (2) Identify the performance obligations in the contract, (3) Determine the transaction price, (4) Allocate the transaction price to the performance obligations in the contract, and (5) Recognize revenue when (or as) the entity satisfies a performance obligation. 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 originally~~as amended, is 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~~Management's assessment on revenue recognition by following the ~~option to apply ASU 2014-09 as of~~five steps resulted in no material changes from the original effective date. Early adoption is not permitted. The Company plans to adopt the guidance during the first quarter of 2018. Management continues to evaluate the impact ASU 2014-09 will have on the Company’s consolidated financial statements as well as the most appropriate transition method of application. Based on this evaluation to date, management has determined thatcurrent revenue recognition because the majority of ~~the~~ revenues earned by the Company are not within the scope of ASU ~~2014-09 because they~~2014-09. Interest income on loans and securities are ~~already governed by other accounting standards. For those revenue streams management has determined to be within~~both excluded from Topic 606, the ~~scope of ASU 2014-09, namely elements of non-interest income such as service charges on deposit accounts that are governed by deposit account agreements with customers and the timing~~majority of revenue ~~from~~earned are not subject to the sale of real estate acquired through foreclosure, the guidance or any of its amendments is not anticipated to result in any material change in 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 consolidated financial statements as new interpretations and guidance are issued, such as the applicability of Topic 606 to interchange revenues included in the Company’s electronic banking income, focusing on the new disclosures required by the adoption of ASU 2014-09.

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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

guidance. Service charges on deposit accounts, debit card interchange fees, and ATM fees are services provided that fall within the scope of Topic 606 and are presented within non-interest income as revenue when the obligation to the customer is satisfied. Gains on the sale of OREO fall with scope of Topic 606 and are recognized as a credit to non-interest expense as an offset to writedowns of carrying value and losses on the of OREO as permitted. The Company adopted Topic 606 as of January 1, 2018 with no material change in how revenues are recognized in the Company's financial statements. Significant items of non-interest income are described below.

Service charges on deposit accounts – ~~continued~~ Fees are earned from our deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees and overdraft fees are recognized at a point in time, since the customer generally has a right to cancel the depository arrangement at any time. The arrangement is considered a day-to-day contract with ongoing renewals and optional purchases, so the duration of the contract does not extend beyond the services already performed. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which we satisfy our performance obligation.

Debit card interchange fees - Revenue earned from a portion of the fee charged to merchants for the immediate approval of credit for funds (whether debit or credit card usage) is recognized on a daily cash basis and the commission is paid through Premier's third-party processor. The revenue is earned on a transaction basis determined by customer activity. Premier records this revenue on a gross revenue basis and expenses the processing charges incurred as a non-interest expense.

Non-customer ATM fees – Fees charged to non-deposit customers for using bank owned automated teller machines is charged on a transaction basis and withdrawn from the users' deposit account at another financial institution upon completion of the transaction.

Gain on sale of OREO – A gain is recognized upon the sale of OREO when a contract exists between the seller and purchaser and the control of the asset is transferred to the buyer. The gain is then reported as a reduction of non-interest expense under the heading "Write-downs, expenses, sales of other real estate owned, net."

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.~~ Liabilities. The ASU makes several targeted improvement modifications to Subtopic 825-10 ~~including~~(1) Require equity investments (except those accounted for under the ~~elimination~~equity method of accounting or those that result in consolidation of the ~~available-for-sale classification of equity investments, requiring equity investments with readily determinable fair values~~investee) to be measured at fair value with changes in fair value recognized in net income, (2) Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment and ~~using~~when an impairment exists, an entity is required to measure the investment at fair value, (3) Eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is

- 9 -

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

required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (4) Use the exit price notion when measuring the fair value of financial instruments for disclosure ~~purposes. This ASU will become effective for~~purposes, (5) Present separately in other comprehensive income the ~~Company for interim~~portion of the total changes in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option of financial instruments, (6) Require separate presentation of financial assets and ~~annual periods beginning after December 15, 2017. The adoption~~financial liabilities by measurement category and form of ~~ASU No. 2016-01~~financial asset (that is, ~~not expected to have a material impact~~securities or loans and receivables) on the ~~Company's~~balance sheet or the accompanying notes to the financial ~~statements.~~instruments, and (7) Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. The Company adopted subtopic 825-10 on January 1, 2018 and resulted in the use of an exit price rather than an entrance price to determine the fair value of loans not measured at fair value on a non-recurring basis. See footnote 7 for additional information on fair value.

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. ~~At September 30, 2017, the Company had $5,045,000 of future lease obligations excluding optional renewal periods.~~ 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 requires 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~~"current expected credit ~~loss”~~loss" or ~~“CECL”~~"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.~~contracts, in which organizations will now use forward-looking information to enhance their credit loss estimates on these assets. 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~~2019, although early adoption is permitted beginning after December 15, 2018. The company has formed a ~~steering~~ committee ~~that~~to oversee the steps required in the adoption of the new current expected credit loss method. The committee has selected a third-party vendor to assist in data analysis and modeling as well as the required disclosures. Management is currently evaluating the ~~data gathering requirements, available economic forecasting and loss estimation models and potential software that would be employed by the Company to facilitate~~impact of the adoption of this guidance ~~and its required disclosures~~ on the ~~Company’s~~Company's financial statements. Upon adoption, ~~management anticipates~~ an initial ~~one-time~~cumulative increase in the allowance for loan losses ~~which will be offset~~is currently anticipated by management along with a corresponding decrease in capital as permitted by the ~~standard.~~standard but cannot yet determine the one-time adjustment.

- 10 -

~~Table~~

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 February 2018, the FASB issued ASU No. 2018-02, Reclassification of ~~Contents~~Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU amends Topic 220, Income Statement – Reporting Comprehensive Income to permit the reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act and any future change in corporate income tax rates. The update does not affect the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations. The Company adopted ASU 2018-02 retroactively to December 31, 2017 as permitted by the guidance.

- 11 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 2 –SECURITIES

Amortized cost and fair value of investment securities, by category, at ~~September 30, 2017~~March 31, 2018 are summarized as follows:

2017	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
2018										Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. sponsored agency MBS - residential	$	199,483	$	1,028	$	(578	)	$	199,933	$	205,671	$	67	$	(5,414	)	$	200,324
U. S. sponsored agency CMO’s - residential		56,330		553		(369	)		56,514
U. S. sponsored agency CMO's - residential											52,720		87		(969	)		51,838
Total mortgage-backed securities of government sponsored agencies		255,813		1,581		(947	)		256,447		258,391		154		(6,383	)		252,162
U. S. government sponsored agency securities		19,344		5		(74	)		19,275		17,780		-		(229	)		17,551
Obligations of states and political subdivisions		13,346		140		(5	)		13,481		11,403		37		(65	)		11,375
Total available for sale	$	288,503	$	1,726	$	(1,026	)	$	289,203	$	287,574	$	191	$	(6,677	)	$	281,088

Amortized cost and fair value of investment securities, by category, at December 31, ~~2016~~2017 are summarized as follows:

2016	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
2017										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	$	198,631	$	175	$	(2,216	)	$	196,590
U. S. sponsored agency CMO’s - residential		73,163		761		(657	)		73,267
U. S. sponsored agency CMO's - residential											51,548		241		(681	)		51,108
Total mortgage-backed securities of government sponsored agencies		250,268		1,006		(3,830	)		247,444		250,179		416		(2,897	)		247,698
U. S. government sponsored agency securities		24,652		23		(174	)		24,501		19,312		1		(179	)		19,134
Obligations of states and political subdivisions		16,645		111		(94	)		16,662		11,599		61		(26	)		11,634
Total available for sale	$	291,565	$	1,140	$	(4,098	)	$	288,607	$	281,090	$	478	$	(3,102	)	$	278,466

- 1112 -

~~Table of Contents~~

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 ~~September 30, 2017~~March 31, 2018 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		Amortized Cost		Fair Value
Available for sale
Due in one year or less	$	9,687	$	9,701	$	9,558	$	9,536
Due after one year through five years		17,073		17,070		13,954		13,798
Due after five years through ten years		5,375		5,430		5,340		5,261
Due after ten years		555		555		331		331
Mortgage-backed securities of government sponsored agencies		255,813		256,447		258,391		252,162
Total available for sale	$	288,503	$	289,203	$	287,574	$	281,088

There were no sales of securities during the first three months of 2018 and 2017.

Securities with unrealized losses at ~~September 30, 2017~~March 31, 2018 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					Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss

U.S government sponsored agency securities	$	17,242	$	(74	)	$	-	$	-		$	17,242	$	(74	)	$	7,264	$	(42	)	$	10,287	$	(187	)	$	17,551	$	(229	)
U.S government sponsored agency MBS – residential		56,820		(429	)		5,234		(149	)		62,054		(578	)		147,730		(3,461	)		45,086		(1,953	)		192,816		(5,414	)
U.S government sponsored agency CMO’s – residential		11,256		(129	)		11,184		(240	)		22,440		(369	)
U.S government sponsored agency CMO's – residential																	17,519		(184	)		16,720		(785	)		34,239		(969	)
Obligations of states and political subdivisions		619		(4	)		775		(1	)		1,394		(5	)		4,547		(55	)		471		(10	)		5,018		(65	)
Total temporarily impaired	$	85,937	$	(636	)	$	17,193	$	(390	)	$	103,130	$	(1,026	)	$	177,060	$	(3,742	)	$	72,564	$	(2,935	)	$	249,624	$	(6,677	)

- 1213 -

~~Table of Contents~~

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~~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					Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss

U.S government sponsored agency securities	$	17,207	$	(174	)	$	-	$	-		$	17,207	$	(174	)	$	6,780	$	(41	)	$	10,335	$	(138	)	$	17,115	$	(179	)
U.S government sponsored agency MBS – residential		157,022		(3,173	)		-		-			157,022		(3,173	)		134,211		(1,076	)		47,682		(1,140	)		181,893		(2,216	)
U.S government sponsored agency CMO’s – residential		18,374		(373	)		8,750		(284	)		27,124		(657	)
U.S government sponsored agency CMO's – residential																	8,306		(64	)		17,868		(617	)		26,174		(681	)
Obligations of states and political subdivisions		7,961		(94	)		-		-			7,961		(94	)		3,512		(20	)		474		(6	)		3,986		(26	)
Total temporarily impaired	$	200,564	$	(3,814	)	$	8,750	$	(284	)	$	209,314	$	(4,098	)	$	152,809	$	(1,201	)	$	76,359	$	(1,901	)	$	229,168	$	(3,102	)

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 ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 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.

NOTE 3 - LOANS

Major classifications of loans at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 are summarized as follows:

	2017		2016		2018		2017
Residential real estate	$	337,502	$	342,294	$	342,258	$	338,829
Multifamily real estate		70,698		74,165		62,500		62,151
Commercial real estate:
Owner occupied		134,773		129,370		137,215		136,048
Non owner occupied		237,655		220,836
Non-owner occupied						217,603		230,702
Commercial and industrial		82,332		76,736		76,659		78,259
Consumer		29,675		30,916		27,924		28,293
Construction and land						129,083		139,012
All other		162,689		150,506		35,516		35,758
	$	1,055,324	$	1,024,823	$	1,028,758	$	1,049,052

- 1314 -

~~Table of Contents~~

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 nine months ended September 30, 2017 was as follows:~~

Loan Class
Balance
Dec 31, 2016
Provision (credit) for loan losses
Loans
charged-off
Recoveries
Balance
Sept 30, 2017

Residential real estate $ 2,948 $ 363 $ (362 ) $ 52 $ 3,001
Multifamily real estate 785 475 - - 1,260
Commercial real estate:
Owner occupied 1,543 (161 ) (7 ) 242 1,617
Non owner occupied 2,350 265 (8 ) - 2,607
Commercial and industrial 1,140 3 (138 ) 95 1,100
Consumer 347 148 (214 ) 86 367
All other 1,723 940 (373 ) 117 2,407
Total $ 10,836 $ 2,033 $ (1,102 ) $ 592 $ 12,359

~~Activity in the allowance for loan losses by portfolio segment for the nine months ending September 30, 2016 was as follows:~~

Loan Class
Balance
Dec 31, 2015
Provision (credit) for loan losses
Loans
charged-off
Recoveries
Balance
Sept 30, 2016

Residential real estate $ 2,501 $ 377 $ (107 ) $ 19 $ 2,790
Multifamily real estate 821 92 - - 913
Commercial real estate:
Owner occupied 1,509 (140 ) - 2 1,371
Non owner occupied 2,070 645 - - 2,715
Commercial and industrial 1,033 83 (29 ) 42 1,129
Consumer 307 172 (232 ) 71 318
All other 1,406 207 (207 ) 221 1,627
Total $ 9,647 $ 1,436 $ (575 ) $ 355 $ 10,863

~~- 14 -~~

~~Table of Contents~~

~~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 ~~September 30, 2017~~March 31, 2018 was as follows:

Loan Class	Balance June 30, 2017		Provision (credit) for loan losses			Loans charged-off			Recoveries		Balance Sept 30, 2017		Balance Dec 31, 2017		Provision (credit) for loan losses			Loans charged-off			Recoveries		Balance March 31, 2018

Residential real estate	$	2,973	$	170		$	(163	)	$	21	$	3,001	$	2,986	$	(691	)	$	(49	)	$	16	$	2,262
Multifamily real estate		1,337		(77	)		-			-		1,260		978		(320	)		(11	)		-		647
Commercial real estate:
Owner occupied		1,618		5			(7	)		1		1,617		1,653		164			(2	)		1		1,816
Non owner occupied		2,334		276			(3	)		-		2,607
Non-owner occupied														2,313		(110	)		(16	)		-		2,187
Commercial and industrial		1,093		(6	)		(4	)		17		1,100		1,101		813			(267	)		4		1,651
Consumer		373		10			(49	)		33		367		328		49			(33	)		25		369
Construction and land														2,408		913			(19	)		-		3,302
All other		1,967		513			(110	)		37		2,407		337		297			(67	)		39		606
Total	$	11,695	$	891		$	(336	)	$	109	$	12,359	$	12,104	$	1,115		$	(464	)	$	85	$	12,840

Activity in the allowance for loan losses by portfolio segment for the three months ~~ending September 30, 2016~~ended March 31, 2017 was as follows:

Loan Class	Balance June 30, 2016		Provision (credit) for loan losses			Loans charged-off			Recoveries		Balance Sept 30, 2016		Balance Dec 31, 2016		Provision (credit) for loan losses			Loans charged-off			Recoveries		Balance March 31, 2017

Residential real estate	$	2,747	$	91		$	(51	)	$	3	$	2,790	$	2,948	$	129		$	(105	)	$	5	$	2,977
Multifamily real estate		822		91			-			-		913		785		(15	)		-			-		770
Commercial real estate:
Owner occupied		1,442		(72	)		-			1		1,371		1,543		32			-			1		1,576
Non owner occupied		2,708		7			-			-		2,715
Non-owner occupied														2,350		77			(5	)		-		2,422
Commercial and industrial		1,111		43			(29	)		4		1,129		1,140		(34	)		-			23		1,129
Consumer		306		139			(142	)		15		318		347		116			(117	)		24		370
Construction and land														1,397		34			(123	)		10		1,318
All other		1,668		13			(81	)		27		1,627		326		27			(59	)		38		332
Total	$	10,804	$	312		$	(303	)	$	50	$	10,863	$	10,836	$	366		$	(409	)	$	101	$	10,894

- 15 -

~~Table of Contents~~

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 ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

	2017		2016		2018		2017
Residential real estate	$	1,515	$	1,619	$	1,292	$	1,321
Commercial real estate
Owner occupied		1,564		2,013		1,459		1,508
Non owner occupied		-		5,396
Commercial and industrial		214		232		9		211
Construction and land						1,426		1,450
All other		1,828		2,061		292		286
Total carrying amount	$	5,121	$	11,321	$	4,478	$	4,776
Contractual principal balance	$	7,116	$	14,784	$	6,234	$	6,728

Carrying amount, net of allowance	$	5,071	$	11,311	$	4,478	$	4,676

For those purchased loans disclosed above, the Company ~~increased the allowance for loan losses by $50,000 for the nine-months ended September 30, 2017, but~~ did not increase the allowance for loan losses ~~for purchased impaired loans~~ during the ~~nine-months~~three-months ended ~~September 30, 2016.~~March 31, 2018 and March 31, 2017.

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.

- 16 -

~~Table of Contents~~

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 ~~September 30, 2017~~March 31, 2018 and ~~September 30, 2016.~~March 31, 2017.

	2017			2016			2018			2017
Balance at January 1	$	1,208		$	185		$	754		$	1,208
New loans purchased		-			1,151			-			-
Accretion of income		(398	)		(64	)		(69	)		(123	)
Reclassification to non-accretable		-			-
Loans placed on non-accrual								(41	)		-
Reclassifications from non-accretable difference								-			-
Disposals		-			-			-			-
Balance at September 30	$	810		$	1,272
Balance at March 31							$	644		$	1,085

- 17 -

~~Table of Contents~~

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 ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. 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.

September 30, 2017	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
March 31, 2018							Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing

Residential real estate	$	3,248	$	2,846	$	585	$	3,638	$	2,981	$	285
Multifamily real estate		11,101		11,095		334		2,074		2,061		366
Commercial real estate
Owner occupied		2,052		1,974		63		2,732		2,579		-
Non owner occupied		310		209		86
Non-owner occupied								1,685		1,643		-
Commercial and industrial		2,062		1,054		648		1,544		930		2
Consumer		331		304		-		251		223		-
Construction and land								4,805		4,712		25
All other		6,984		6,863		-		185		185		-
Total	$	26,088	$	24,345	$	1,716	$	16,914	$	15,314	$	678

December 31, 2016	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
December 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	$	3,467	$	2,794	$	606	$	2,944	$	2,422	$	869
Multifamily real estate		11,157		11,106		334		2,128		2,128		334
Commercial real estate
Owner occupied		1,769		1,704		15		2,623		2,483		134
Non owner occupied		294		196		36
Non-owner occupied								1,862		1,755		85
Commercial and industrial		2,537		1,209		1,008		1,313		544		1,139
Consumer		366		347		-		268		241		-
All other		8,408		8,391		-
Construction and land								5,824		5,673		830
Total	$	27,998	$	25,747	$	1,999	$	16,962	$	15,246	$	3,391

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.

- 18 -

~~Table of Contents~~

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 ~~September 30, 2017~~March 31, 2018 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		Total Loans		30-89 Days Past Due		Greater than 90 days past due		Total Past Due		Loans Not Past Due

Residential real estate	$	337,502	$	6,460	$	1,717	$	8,177	$	329,325	$	342,258	$	4,919	$	1,657	$	6,576	$	335,682
Multifamily real estate		70,698		-		11,429		11,429		59,269		62,500		2,061		366		2,427		60,073
Commercial real estate:
Owner occupied		134,773		172		1,979		2,151		132,622		137,215		83		1,778		1,861		135,354
Non owner occupied		237,655		374		227		601		237,054
Non-owner occupied												217,603		78		-		78		217,525
Commercial and industrial		82,332		179		1,628		1,807		80,525		76,659		1,583		865		2,448		74,211
Consumer		29,675		365		121		486		29,189		27,924		234		79		313		27,611
Construction and land												129,083		634		812		1,446		127,637
All other		162,689		1,370		6,861		8,231		154,458		35,516		6		185		191		35,325
Total	$	1,055,324	$	8,920	$	23,962	$	32,882	$	1,022,442	$	1,028,758	$	9,598	$	5,742	$	15,340	$	1,013,418

The following table presents the aging of the recorded investment in past due loans as of December 31, ~~2016~~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		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	$	338,829	$	5,242	$	1,835	$	7,077	$	331,752
Multifamily real estate		74,165		-		11,440		11,440		62,725		62,151		-		334		334		61,817
Commercial real estate:
Owner occupied		129,370		1,746		1,474		3,220		126,150		136,048		311		1,784		2,095		133,953
Non owner occupied		220,836		1,803		159		1,962		218,874
Non-owner occupied												230,702		12		225		237		230,465
Commercial and industrial		76,736		330		2,120		2,450		74,286		78,259		123		1,611		1,734		76,525
Consumer		30,916		403		223		626		30,290		28,293		492		87		579		27,714
Construction and land												139,012		144		2,508		2,652		136,360
All other		150,506		577		8,187		8,764		141,742		35,758		-		-		-		35,758
Total	$	1,024,823	$	10,972	$	25,199	$	36,171	$	988,652	$	1,049,052	$	6,324	$	8,384	$	14,708	$	1,034,344

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~~Table of Contents~~

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 ~~September 30, 2017:~~March 31, 2018:

	Allowance for Loan Losses								Loan Balances								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		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	$	-	$	3,001	$	-	$	3,001	$	320	$	335,667	$	1,515	$	337,502	$	-	$	2,262	$	-	$	2,262	$	299	$	340,667	$	1,292	$	342,258
Multifamily real estate		517		743		-		1,260		13,588		57,110		-		70,698		151		496		-		647		2,427		60,073		-		62,500
Commercial real estate:
Owner occupied		301		1,316		-		1,617		3,725		129,484		1,564		134,773		407		1,409		-		1,816		3,255		132,501		1,459		137,215
Non-owner occupied		88		2,519		-		2,607		5,583		232,072		-		237,655		86		2,101		-		2,187		9,463		208,140		-		217,603
Commercial and industrial		105		945		50		1,100		1,129		80,989		214		82,332		282		1,369		-		1,651		1,393		75,257		9		76,659
Consumer		19		348		-		367		19		29,656		-		29,675		-		369		-		369		-		27,924		-		27,924
Construction and land																		1,084		2,218				3,302		3,925		123,732		1,426		129,083
All other		518		1,889		-		2,407		7,177		153,684		1,828		162,689		-		606		-		606		288		34,936		292		35,516
Total	$	1,548	$	10,761	$	50	$	12,359	$	31,541	$	1,018,662	$	5,121	$	1,055,324	$	2,010	$	10,830	$	-	$	12,840	$	21,050	$	1,003,230	$	4,478	$	1,028,758

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:~~2017:

	Allowance for Loan Losses								Loan Balances								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		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	$	-	$	2,986	$	-	$	2,986	$	308	$	337,200	$	1,321	$	338,829
Multifamily real estate		-		785		-		785		13,641		60,524		-		74,165		218		760		-		978		2,462		59,689		-		62,151
Commercial real estate:
Owner occupied		244		1,299		-		1,543		2,801		124,556		2,013		129,370		307		1,346		-		1,653		3,314		131,226		1,508		136,048
Non-owner occupied		-		2,350		-		2,350		2,373		213,067		5,396		220,836		88		2,225		-		2,313		11,578		219,124		-		230,702
Commercial and industrial		266		864		10		1,140		1,418		75,086		232		76,736		104		897		100		1,101		1,304		76,744		211		78,259
Consumer		-		347		-		347		-		30,916		-		30,916		-		328		-		328		-		28,293		-		28,293
Construction and land																		685		1,723		-		2,408		5,672		131,890		1,450		139,012
All other		86		1,637		-		1,723		12,976		135,469		2,061		150,506		-		337		-		337		293		35,179		286		35,758
Total	$	596	$	10,230	$	10	$	10,836	$	33,588	$	979,914	$	11,321	$	1,024,823	$	1,402	$	10,602	$	100	$	12,104	$	24,931	$	1,019,345	$	4,776	$	1,049,052

- 20 -

~~Table of Contents~~

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 ~~September 30, 2017.~~March 31, 2018. The table ~~includes $199,000 of~~does not include any loans acquired with deteriorated credit ~~quality that the Company cannot reasonably estimate cash flows such that they are accounted for on the cost recovery method and are still individually evaluated for impairment.~~quality.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential real estate	$	360	$	320	$	-	$	435	$	299	$	-
Multifamily real estate		2,492		2,492		-		366		366		-
Commercial real estate
Owner occupied		2,916		2,855		-		2,381		2,379		-
Non owner occupied		3,604		3,512		-
Non-owner occupied								7,445		7,408		-
Commercial and industrial		1,767		1,012		-		1,654		1,099		-
All other		3,186		3,066		-		288		288		-
		14,325		13,257		-		12,569		11,839		-
With an allowance recorded:
Multifamily real estate	$	11,102	$	11,095	$	517		2,073		2,061		151
Commercial real estate
Owner occupied		888		870		301		895		876		407
Non owner occupied		2,072		2,072		88
Non-owner occupied								2,055		2,055		86
Commercial and industrial		468		316		155		306		294		282
Consumer		19		19		19
All other		4,116		4,111		518
Construction and land								4,016		3,925		1,084
		18,665		18,483		1,598		9,345		9,211		2,010
Total	$	32,990	$	31,740	$	1,598	$	21,914	$	21,050	$	2,010

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~~Table of Contents~~

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.~~2017. The table includes ~~$208,000~~$199,000 of loans acquired with deteriorated credit quality ~~that~~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		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential real estate	$	743	$	379	$	-	$	446	$	308	$	-
Multifamily real estate		13,692		13,641		-		334		334		-
Commercial real estate
Owner occupied		1,803		1,766		-		2,451		2,439		-
Non owner occupied		2,465		2,373		-
Non-owner occupied								9,602		9,506		-
Commercial and industrial		2,429		1,338		-		1,719		1,188		-
Construction and land								1,798		1,678		-
All other		9,868		9,853		-		293		293		-
		31,000		29,350		-		16,643		15,746		-
With an allowance recorded:
Multifamily real estate							$	2,128	$	2,128	$	218
Commercial real estate
Owner occupied	$	1,055	$	1,035	$	244		895		875		307
Non-owner occupied								2,072		2,072		88
Commercial and industrial		431		288		276		466		315		204
All other		3,124		3,123		86
Construction and land								4,024		3,994		685
		4,610		4,446		606		9,585		9,384		1,502
Total	$	35,610	$	33,796	$	606	$	26,228	$	25,130	$	1,502

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~~Table of Contents~~

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 ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 and ~~September 30, 2016.~~March 31, 2017. The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Nine months ended Sept 30, 2017						Nine months ended Sept 30, 2016						Three months ended March 31, 2018						Three months ended March 31, 2017
Loan Class	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized

Residential real estate	$	339	$	1	$	1	$	612	$	16	$	14	$	303	$	-	$	-	$	356	$	1	$	1
Multifamily real estate		13,605		196		181		1,580		121		121		2,444		9		-		13,620		65		61
Commercial real estate:
Owner occupied		3,340		49		49		1,144		3		3		3,284		25		25		2,770		6		6
Non-owner occupied		2,955		124		124		5,066		275		273		10,521		136		136		2,161		32		32
Commercial and industrial		1,474		114		114		1,155		26		26		1,448		8		8		1,558		7		7
Consumer		5		-		-		-		-		-
Construction and land														4,799		-		-		9,789		54		54
All other		8,641		342		341		3,011		40		6		291		4		4		309		-		-
Total	$	30,359	$	826	$	810	$	12,568	$	481	$	443	$	23,090	$	182	$	173	$	30,563	$	165	$	161

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 September 30, 2017 and September 30, 2016 The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

Three months ended Sept 30, 2017 Three months ended Sept 30, 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 $ 323 $ - $ - $ 667 $ 5 $ 5
Multifamily real estate 13,590 66 60 2,594 63 63
Commercial real estate:
Owner occupied 3,910 27 27 1,847 3 3
Non-owner occupied 3,749 63 63 4,240 175 175
Commercial and industrial 1,390 13 13 1,809 10 10
Consumer 9 - - - - -
All other 7,183 53 53 5,243 33 -
Total $ 30,154 $ 222 $ 216 $ 16,400 $ 289 $ 256

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~~Table of Contents~~

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~~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~~TDR's as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

September 30, 2017	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
March 31, 2018							TDR's on Non-accrual		Other TDR's		Total TDR's

Residential real estate	$	317	$	110	$	427	$	385	$	103	$	488
Multifamily real estate		-		2,159		2,159		2,061		-		2,061
Commercial real estate
Owner occupied		602		1,766		2,368		601		1,778		2,379
Non owner occupied		-		3,875		3,875
Non-owner occupied								-		7,861		7,861
Commercial and industrial		57		508		565		50		486		536
Consumer		-		-		-
Construction and land								3,925		-		3,925
All other		4,783		297		5,080		-		288		288
Total	$	5,759	$	8,715	$	14,474	$	7,022	$	10,516	$	17,538

December 31, 2016	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
December 31, 2017							TDR's on Non-accrual		Other TDR's		Total TDR's

Residential real estate	$	129	$	464	$	593	$	393	$	107	$	500
Multifamily real estate		-		2,201		2,201		2,128		-		2,128
Commercial real estate
Owner occupied		-		856		856		601		1,783		2,384
Non-owner occupied								-		9,904		9,904
Commercial and industrial		62		352		414		56		497		553
Construction and land								3,994		-		3,994
All other		751		4,395		5,146		-		293		293
Total	$	942	$	8,268	$	9,210	$	7,172	$	12,584	$	19,756

At ~~September 30, 2017 $640,000~~March 31, 2018, $1,408,000 in specific reserves ~~were~~was allocated to loans that had restructured terms resulting in a provision for loan losses $379,000 for the three months ended March 31, 2018, compared to no provision for loan losses on restructured loans during the three months ended March 31, 2017. At December 31, 2017, $1,029,000 in specific reserves was allocated to loans that had restructured terms. ~~At December 31, 2016 $43,000 in specific reserves were allocated to loans that had restructured terms. As of September 30, 2017 and December 31, 2016, there~~There were no commitments to lend additional amounts to these borrowers.

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~~Table of Contents~~

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 tables present TDR’s~~There were no TDR's that occurred ~~during the nine months ended September 30, 2017 and September 30, 2016, and three months ended September 30, 2017 and September 30, 2016.~~

Nine months ended Sept 30, 2017 Nine months ended Sept 30, 2016
Loan Class Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment

Residential real estate - $ - $ - 8 $ 483 $ 483
Commercial real estate
Owner occupied 2 1,525 1,525 3 865 865
Non owner occupied 2 3,875 3,875 1 100 100
Commercial and industrial 1 191 191 1 20 20
All other - - - 1 4,106 4,106
Total 5 $ 5,591 $ 5,591 14 $ 5,574 $ 5,574

Three months ended Sept 30, 2017 Three months ended Sept 30, 2016
Loan Class Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment

Residential real estate - $ - $ - 6 $ 184 $ 184
Commercial real estate
Owner occupied - - - 1 255 255
Non owner occupied 2 3,875 3,875 - - -
All other - - - 1 4,106 4,106
Total 2 $ 3,875 $ 3,875 8 $ 4,545 $ 4,545

The modifications reported above for the three and nine months ended September 30, 2017 involve reducing the borrowers’ required monthly payment by offering extended interest only periods that exceed the timeframes customarily offered by the Company and/or lengthening the amortization period for loan repayment, each in an effort to help the borrowers keep their loan current. The modifications did not include a permanent reduction of the recorded investment in the loans and did not decrease the stated interest rate on loans. The Company increased the allowance for loan losses related to these loans by $88,000 during the three and nine months ended September 30, 2017.

The modifications reported above for the three and nine months ended September 30, 2016 involve reducing the borrowers’ required monthly payment by offering extended interest only periods that exceed the timeframes customarily offered by the Company and/or lengthening the amortization period for loan repayment, each in an effort to help the borrowers keep their loan current.

~~- 25 -~~

~~Table of Contents~~

~~PREMIER FINANCIAL BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)~~

~~NOTE 3–LOANS - continued~~

The modifications did not include a permanent reduction of the recorded investment in the loans and did not decrease the stated interest rate on loans. The Company increased the allowance for loan losses related to these loans by $35,000 during the three months ended ~~September 30, 2016,~~March 31, 2018 and ~~by $181,000 during the nine months ended September 30, 2016.~~March 31, 2017.

During the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2017, there were no ~~TDR’s~~TDR's for which there ~~was~~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.

- 25 -

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, and smaller balance non-homogeneous loans, the analysis involves monitoring the performing status of the loan. At the time such loans become past due by 3090 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.

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~~Table of Contents~~

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 ~~September 30,~~March 31, 2018, 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	$	331,733	$	1,043	$	9,481	$	1	$	342,258
Multifamily real estate		56,527		3,546		2,427		-		62,500
Commercial real estate:
Owner occupied		125,500		5,121		6,594		-		137,215
Non-owner occupied		205,528		1,943		10,132		-		217,603
Commercial and industrial		68,237		4,598		3,824		-		76,659
Consumer		27,563		-		361		-		27,924
Construction and land		117,514		5,310		6,259		-		129,083
All other		34,170		872		474		-		35,516
Total	$	966,772	$	22,433	$	39,552	$	1	$	1,028,758

As of December 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		Pass		Special Mention		Substandard		Doubtful		Total Loans

Residential real estate	$	324,121	$	3,502	$	9,878	$	1	$	337,502	$	327,185	$	667	$	10,976	$	1	$	338,829
Multifamily real estate		52,472		3,590		12,024		2,612		70,698		55,084		4,605		2,462		-		62,151
Commercial real estate:
Owner occupied		122,983		4,305		7,485		-		134,773		124,244		4,937		6,867		-		136,048
Non-owner occupied		220,173		11,243		6,239		-		237,655		216,079		2,428		12,195		-		230,702
Commercial and industrial		71,850		7,400		3,082		-		82,332		70,078		5,851		2,330		-		78,259
Consumer		29,145		136		375		19		29,675		27,889		-		404		-		28,293
Construction and land												126,323		5,460		7,229				139,012
All other		148,216		5,479		8,994		-		162,689		34,468		795		495		-		35,758
Total	$	968,960	$	35,655	$	48,077	$	2,632	$	1,055,324	$	981,350	$	24,743	$	42,958	$	1	$	1,049,052

~~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

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~~Table of Contents~~

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 4- ~~STOCKHOLDERS’~~STOCKHOLDERS' EQUITY AND REGULATORY MATTERS

The ~~Company’s~~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~~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~~2018 the Banks could, without prior approval, declare dividends to the Company of approximately ~~$4.1~~$7.7 million plus any ~~2017~~2018 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~~Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet specific guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

These quantitative measures established by regulation to ensure capital adequacy require the Company and Banks to maintain minimum amounts and ratios (set forth in the following ~~table)~~tables). The final rules implementing the Basel Committee on Banking ~~Supervision’s~~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 ~~September 30, 2017,~~March 31, 2018, that the Company and the Banks meet all quantitative capital adequacy requirements to which they are subject.

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~~Table of Contents~~

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 4- ~~STOCKHOLDERS’~~STOCKHOLDERS' EQUITY AND REGULATORY MATTERS - continued

Shown below is a summary of regulatory capital ratios, exclusive of the capital conservation buffer, for the Company:

	September 30, 2017			December 31, 2016			Regulatory Minimum Requirements			To Be Considered Well Capitalized			Mar 31, 2018			December 31, 2017			Regulatory Minimum Requirements			To Be Considered Well Capitalized
Common Equity Tier 1 Capital (to Risk-Weighted Assets)		13.8	%		13.4	%		4.5	%		6.5	%		14.6	%		13.9	%		4.5	%		6.5	%
Tier 1 Capital (to Risk-Weighted Assets)		14.4	%		13.9	%		6.0	%		8.0	%		15.2	%		14.4	%		6.0	%		8.0	%
Total Capital (to Risk-Weighted Assets)		15.5	%		15.0	%		8.0	%		10.0	%		16.4	%		15.6	%		8.0	%		10.0	%
Tier 1 Capital (to Average Assets)		10.7	%		10.1	%		4.0	%		5.0	%		10.9	%		10.7	%		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~~2019. The required capital conservation buffer ~~of 0.625% in 2016 and~~was 1.25% in ~~2017.~~2017, and is 1.875% in 2018. 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~~risk weighted assets, Tier 1 Capital to ~~risk-weighted~~risk weighted assets, and Total Capital to ~~risk-weighted~~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~~risk weighted assets ratio of at least 7.00%, a Tier 1 Capital to ~~risk-weighted~~risk weighted assets ratio of at least 8.50%, and a Total Capital to ~~risk-weighted~~risk weighted assets ratio of at least 10.50%. The ~~Company’s~~Company's capital conservation buffer was ~~7.50%~~8.44% at ~~September 30, 2017~~March 31, 2018 and ~~6.95%~~7.56% at December 31, ~~2016,~~2017, well in excess of the fully phased-in 2.50% required by ~~December~~March 31, 2019.

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~~Table of Contents~~

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 5 – STOCK COMPENSATION EXPENSE

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. ~~From time to time~~

On March 21, 2018, 54,300 incentive stock options were granted under the ~~Company also grants shares~~2012 Long Term Incentive Plan at an exercise price of ~~stock to its employees. The Company uses~~$18.90, the closing market price of ~~the~~Premier's common stock on the ~~date of~~ grant ~~to determine the amount of compensation expense to record as a result of the stock grant.~~

date. These options vest in three equal annual installments ending on March 21, 2021. 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~~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 April 19, 2017, 6,000 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 $20.70 per share based upon the closing price of Premier’s stock on the date of grant and $124,000 of stock-based compensation was recorded as a result. 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 ~~$194,000~~$27,000 was recorded for the first ~~nine~~three months of ~~2017~~2018 while ~~$160,000~~$20,000 was recorded for the first ~~nine~~three months of ~~2016, including the compensation expense related to the stock grants to Mr. Walker.~~2017. 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 ~~$92,000~~$210,000 at ~~September 30, 2017.~~March 31, 2018. This unrecognized expense is expected to be recognized over the next 2935 months based on the vesting periods of the options.

- 30 -

~~Table of Contents~~

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 6 – EARNINGS PER SHARE

A reconciliation of the numerators and denominators of the earnings per common share and earnings per common share assuming dilution computations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ is presented below:

	Three Months Ended Sept 30,				Nine Months Ended Sept 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2018		2017
Basic earnings per share
Income available to common stockholders	$	3,467	$	3,164	$	11,050	$	8,767	$	5,133	$	3,664
Weighted average common shares outstanding		10,661,157		10,626,185		10,653,594		10,508,809		10,677,100		10,643,0787
Earnings per share	$	0.33	$	0.30	$	1.04	$	0.83	$	0.48	$	0.34

Diluted earnings per share
Income available to common stockholders	$	3,467	$	3,164	$	11,050	$	8,767	$	5,133	$	3,664
Weighted average common shares outstanding		10,661,157		10,626,185		10,653,594		10,508,809		10,677,100		10,643,078
Add dilutive effects of potential additional common stock		77,794		60,742		80,418		60,372		62,260		78,390
Weighted average common and dilutive potential common shares outstanding		10,738,951		10,686,927		10,734,012		10,569,181		10,739,360		10,721,468
Earnings per share assuming dilution	$	0.32	$	0.30	$	1.03	$	0.83	$	0.48	$	0.34

Stock options for 106,050 shares of common stock were not considered in computing diluted earnings per share for the three months ended March 31, 2018 because they were antidilutive. There were no stock options considered antidilutive for the three ~~or nine~~ months ended ~~September 30, 2017 and 2016.~~

On December 9, 2016, Premier paid a 10% stock dividend (1 share for every 10 shares owned on record date) to shareholders of record on December 2, 2016. Outstanding shares and per share amounts prior to the payment date have been restated to reflect the additional shares issued as a result of the stock dividend to aid in the comparison to current period results.2017.

- 31 -

~~Table of Contents~~

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 7 – FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a ~~company’s~~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 iswas 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.~~life. The methodology for the fair value valuation of loans held for investment has been impacted by the adoption of ASU 2016-01. Fair values for ~~impaired~~ loans ~~are estimated~~had been previously based upon the measured at the entry price notion by using the discounted cash flow ~~analysis~~ or ~~underlying~~ collateral ~~values. Fair value~~value. The newly adopted exit price notion uses the same approach but also incorporates additional factors such as using economic factors, credit risk, and market rates and conditions. The new definition using the exit price focuses on the price that would be received to sell the asset or paid to transfer the liability, not the price that would be paid to acquire the asset or received to assume the liability. As 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~~March 31, 2018, the technique used by the Company ~~used the following methods and significant assumptions~~ to estimate the exit price of the loan portfolio consists of similar procedures to those used as of December 31, 2017, but with added emphasis on both illiquidity risk and credit risk not captured by the previously applied entry price notion. This credit risk assumption is intended to approximate the fair value ~~of each type of financial instrument measured on~~that a ~~recurring basis:~~

~~Investment Securities:~~market participant would realize in a hypothetical orderly transaction. The Company's loan portfolio is initially 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 calculatedvalued using ~~discounted cash flows or other market indicators (Level 3)~~a segmented approach, using the eight categories as disclosed in Note 3 – Loans.

- 32 -

~~Table of Contents~~

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE 7 – FAIR VALUE - continued

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).

- 33 -

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 ~~September 30, 2017~~March 31, 2018 were as follows:

				Fair Value Measurements at September 30, 2017 Using														Fair Value Measurements at March 31, 2018 Using
	Carrying Amount			Level 1			Level 2			Level 3		Total			Carrying Amount			Level 1			Level 2			Level 3		Total
Financial assets
Cash and due from banks	$	63,512		$	63,512		$	-		$	-	$	63,512		$	124,813		$	124,813		$	-		$	-	$	124,813
Time deposits with other banks		2,582			-			2,589			-		2,589			2,582			-			2,572			-		2,572
Federal funds sold		11,632			11,632			-			-		11,632			15,348			15,348			-			-		15,348
Securities available for sale		289,203			-			289,203			-		289,203			281,088			-			281,088			-		281,088
Loans, net		1,042,965			-			-			1,029,145		1,029,145			1,015,918			-			-			1,012,776		1,012,776
Federal Home Loan Bank stock		3,185			n/a			n/a			n/a		n/a			3,185			n/a			n/a			n/a		n/a
Interest receivable		4,060			-			829			3,231		4,060			3,701			-			799			2,902		3,701

Financial liabilities
Deposits	$	(1,269,384	)	$	(925,328	)	$	(340,134	)	$	-	$	(1,265,462	)	$	(1,303,195	)	$	(962,506	)	$	(334,299	)	$	-	$	(1,296,805	)
Securities sold under agreements to repurchase		(25,116	)		-			(25,116	)		-		(25,116	)		(20,793	)		-			(20,793	)		-		(20,793	)
Other borrowed funds		(6,000	)		-			(5,966	)		-		(5,966	)		(4,250	)		-			(4,194	)		-		(4,194	)
Subordinated Debt		(5,368	)		-			(5,381	)		-		(5,381	)
Subordinated debt																(5,383	)		-			(5,503	)		-		(5,503	)
Interest payable		(358	)		(7	)		(351	)		-		(358	)		(407	)		(8	)		(399	)		-		(407	)

The carrying amounts and estimated fair values of financial instruments at December 31, ~~2016~~2017 were as follows:

				Fair Value Measurements at December 31, 2016 Using														Fair Value Measurements at December 31, 2017 Using
	Carrying Amount			Level 1			Level 2			Level 3		Total			Carrying Amount			Level 1			Level 2			Level 3		Total
Financial assets
Cash and due from banks	$	97,163		$	97,163		$	-		$	-	$	97,163		$	78,005		$	78,005		$	-		$	-	$	78,005
Time deposits with other banks		2,332			-			2,352			-		2,352			2,582			-			2,581			-		2,581
Federal funds sold		7,555			7,555			-			-		7,555			4,658			4,658			-			-		4,658
Securities available for sale		288,607			-			288,607			-		288,607			278,466			-			278,466			-		278,466
Loans, net		1,013,987			-			-			1,004,388		1,004,388			1,036,948			-			-			1,016,723		1,016,723
Federal Home Loan Bank stock		3,200			n/a			n/a			n/a		n/a			3,185			n/a			n/a			n/a		n/a
Interest receivable		3,862			-			771			3,091		3,862			4,043			-			700			3,343		4,043

Financial liabilities
Deposits	$	(1,279,386	)	$	(920,745	)	$	(354,885	)	$	-	$	(1,275,630	)	$	(1,272,675	)	$	(929,202	)	$	(338,291	)	$	-	$	(1,267,493	)
Securities sold under agreements to repurchase		(23,820	)		-			(23,820	)		-		(23,820	)		(23,310	)		-			(23,310	)		-		(23,310	)
Other borrowed funds		(8,859	)		-			(8,906	)		-		(8,906	)		(5,000	)		-			(4,955	)		-		(4,955	)
Subordinated debt		(5,343	)		-			(5,341	)		-		(5,341	)		(5,376	)		-			(5,439	)		-		(5,439	)
Interest payable		(364	)		(7	)		(357	)		-		(364	)		(393	)		(7	)		(386	)		-		(393	)

- 3334 -

~~Table of Contents~~

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 September 30, 2017 Using:								Fair Value Measurements at March 31, 2018 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		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	$	199,933	$	-	$	199,933	$	-	$	200,324	$	-	$	200,324	$	-
U. S. agency CMO’s - residential		56,514		-		56,514		-
U. S. agency CMO's - residential										51,838		-		51,838		-
Total mortgage-backed securities of government sponsored agencies		256,447		-		256,447		-		252,162		-		252,162		-
U. S. government sponsored agency securities		19,275		-		19,275		-		17,551		-		17,551		-
Obligations of states and political subdivisions		13,481		-		13,481		-		11,375		-		11,375		-
Total available for sale	$	289,203	$	-	$	289,203	$	-
Total securities available for sale									$	281,088	$	-	$	281,088	$	-

			Fair Value Measurements at December 31, 2016 Using:								Fair Value Measurements at December 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)		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	$	-	$	196,590	$	-	$	196,590	$	-
U. S. agency CMO’s - residential		73,267		-		73,267		-
U. S. agency CMO's										51,108		-		51,108		-
Total mortgage-backed securities of government sponsored agencies		247,444		-		247,444		-		247,698		-		247,698		-
U. S. government sponsored agency securities		24,501		-		24,501		-		19,134		-		19,134		-
Obligations of states and political subdivisions		16,662		-		16,662		-		11,634		-		11,634		-
Total securities available for sale	$	288,607	$	-	$	288,607	$	-	$	278,466	$	-	$	278,466	$	-

There were no transfers between Level 1 and Level 2 during ~~2017~~2018 or ~~2016.~~2017.

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~~Table of Contents~~

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:~~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~~borrower's financial statements, or aging reports. Management periodically evaluates the appraised collateral values and will discount the ~~collateral’s~~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~~management's expertise and knowledge of the client and ~~client’s~~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~~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 write-down.

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~~Table of Contents~~

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 ~~September 30, 2017~~March 31, 2018 are summarized below:

			Fair Value Measurements at September 30, 2017 Using								Fair Value Measurements at March 31, 2018 Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		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:
Multifamily real estate	$	10,578	$	-	$	-	$	10,578	$	1,910	$	-	$	-	$	1,910
Commercial real estate:
Commercial real estate
Owner occupied		569		-		-		569		469		-		-		469
Non-owner occupied		1,984		-		-		1,984		1,969		-		-		1,969
Commercial and industrial		161		-		-		161		12		-		-		12
All other		3,593		-		-		3,593
Construction and land										2,841		-		-		2,841
Total impaired loans	$	16,885	$	-	$	-	$	16,885	$	7,201	$	-	$	-	$	7,201

Other real estate owned:
Residential real estate	$	370	$	-	$	-	$	370	$	352	$	-	$	-	$	352
Commercial real estate:
Commercial real estate
Owner occupied		175		-		-		175		175		-		-		175
Non-owner occupied		1,853		-		-		1,853		200		-		-		200
All other		2,855		-		-		2,855
Construction and land										150		-		-		150
Total OREO	$	5,253	$	-	$	-	$	5,253	$	877	$	-	$	-	$	877

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of ~~$18,483,000~~$9,211,000 at ~~September 30,~~March 31, 2018 with a valuation allowance of $2,010,000 and a carrying amount of $9,384,000 at December 31, 2017 with a valuation allowance of ~~$1,598,000 and a carrying amount of $4,446,000 at December 31, 2016 with a valuation allowance of $606,000. The change resulted~~$1,502,000 resulting in a provision for loan losses of ~~$1,165,000~~$707,000 for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, compared to ~~an $215,000 provision for loan losses for the nine months ended September 30, 2016 and~~ a ~~$423,000~~$85,000 provision for loan losses for the three months ended ~~September 30, 2017, compared to a $24,000 provision for loan losses for the three months ended September 30, 2016.~~March 31, 2017. The detail of impaired loans by loan class is contained in Note 3 ~~above~~. above.

Other real estate owned measured at fair value less costs to sell, had a net carrying amount of ~~$5,253,000~~$877,000 which is made up of the outstanding balance of ~~$8,642,000~~$1,498,000 net of a valuation allowance of ~~$3,389,000~~$621,000 at ~~September 30, 2017.~~March 31, 2018. There were $474,000 of additional write downs during the nine months ended September 30, 2017, compared to $478,000 of additional write downs during the nine months ended September 30, 2016. For the three months ended September 30, 2017 there were $111,000 of additional write downs compared to $478,000 of additionalno write downs during the three months ended ~~September 30, 2016.~~March 31, 2018, and $39,000 of write downs during the three months ended March 31, 2017. At December 31, ~~2016,~~2017, other real estate owned had a net carrying amount of ~~$6,624,000,~~$2,641,000, made up of the outstanding balance of ~~$9,900,000,~~$4,082,000, net of a valuation allowance of ~~$3,276,000.~~$1,441,000.

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~~Table of Contents~~

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 ~~September 30, 2017~~March 31, 2018 are summarized below:

	September 30, 2017		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)	March 31, 2018		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Multifamily real estate:	$	10,578	sales comparison	adjustment for differences between the comparable sales	4.0%-4.0% (4.0%)
Commercial real estate:
Multifamily real estate						$	1,910	sales comparison	adjustment for estimated realizable value	46.0%-46.7% (46.4%)
Commercial real estate
Owner occupied		569	sales comparison	adjustment for estimated realizable value	23.1%-23.1% (23.1%)		469	sales comparison	adjustment for estimated realizable value	36.9%-36.9% (36.9%)
Non-owner occupied		1,984	income approach	adjustment for differences in net operating income expectations	67.4%-67.4% (67.4%)		1,969	income approach	adjustment for differences in net operating income expectations	67.0%-67.0% (67.0%)
Commercial and industrial		161	sales comparison	adjustment for estimated realizable value	8.0%-56.5% (52.8%)		12	sales comparison	adjustment for estimated realizable value	8.0%-8.0% (8.0%)
All other		3,593	sales comparison	adjustment for percentage of completion of construction	8.0%-23.0% (22.7%)
Construction and land							2,841	sales comparison	adjustment for percentage of completion of construction	38.0%-38.0% (27.7%)
Total impaired loans	$	16,885				$	7,201

Other real estate owned:
Residential real estate	$	370	sales comparison	adjustment for differences between the comparable sales	0.0%-50.2% (16.4%)	$	352	sales comparison	adjustment for estimated realizable value	8.8%-50.2% (20.0%)
Commercial real estate:
Commercial real estate
Owner occupied		175	sales comparison	adjustment for estimated realizable value	21.8%-21.8% (21.8%)		175	sales comparison	adjustment for estimated realizable value	21.8%-21.8% (21.8%)
Non-owner occupied		1,853	sales comparison	adjustment for estimated realizable value	31.8%-58.9% (34.7%)		200	sales comparison	adjustment for estimated realizable value	58.9%-58.9% (58.9%)
All other		2,855	sales comparison	adjustment for estimated realizable value	15.1%-69.0% (18.8%)
Construction and land							150	sales comparison	adjustment for estimated realizable value	50.3%-50.3% (50.3%)
Total OREO	$	5,253				$	877

- 3738 -

~~Table of Contents~~

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~~2017 are summarized below:

			Fair Value Measurements at December 31, 2016 Using								Fair Value Measurements at December 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)		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:
Multifamily real estate									$	1,910	$	-	$	-	$	1,910
Commercial real estate
Owner occupied	$	793	$	-	$	-	$	793		568		-		-		568
Commercial and Industrial		12		-		-		12
All Other		3,036		-		-		3,036
Non-owner occupied										1,984		-		-		1,984
Commercial and industrial										111		-		-		111
Construction and land										3,309		-		-		3,309
Total impaired loans	$	3,841	$	-	$	-	$	3,841	$	7,882	$	-	$	-	$	7,882

Other real estate owned:
Residential real estate:	$	613	$	-	$	-	$	613
Commercial real estate:
Residential real estate									$	352	$	-	$	-	$	352
Commercial real estate
Owner occupied		175		-		-		175		175		-		-		175
Non-owner occupied		2,153		-		-		2,153		200		-		-		200
All other		3,683		-		-		3,683
Construction and land										1,914		-		-		1,914
Total OREO	$	6,624	$	-	$	-	$	6,624	$	2,641	$	-	$	-	$	2,641

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~~Table of Contents~~

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~~2017 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

	December 31, 2017		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Multifamily real estate	$	1,910	sales comparison	adjustment for estimated realizable value	46.0%-46.7% (46.4%)
Commercial real estate
Owner occupied		568	sales comparison	adjustment for estimated realizable value	23.1%-23.1% (23.1%)
Non-owner occupied		1,984	income approach	adjustment for differences in net operating income expectations	67.4%-67.4% (67.4%)
Commercial and industrial		111	sales comparison	adjustment for estimated realizable value	8.0%-71.1% (64.2%)
Construction and land		3,309	sales comparison	adjustment for percentage of completion of construction	27.7%-27.7% (27.7%)
Total impaired loans	$	7,882

Other real estate owned:
Residential real estate	$	352	sales comparison	adjustment for estimated realizable value	8.8%-50.2% (20.0%)
Commercial real estate
Owner occupied		175	sales comparison	adjustment for estimated realizable value	21.8%-21.8% (21.8%)
Non-owner occupied		200	sales comparison	adjustment for estimated realizable value	58.9%-58.9% (58.9%)
Construction and land		1,914	sales comparison	adjustment for estimated realizable value	25.2%-69.0% (27.8%)
Total OREO	$	2,641

- 3940 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

~~Table~~NOTE 8 – SUBSEQUENT EVENT

On April 18, 2018, Premier Financial Bancorp, Inc. ("Premier") entered into a material definitive merger agreement (the "Merger Agreement") with First Bank of ~~Contents~~Charleston, Inc. ("First Bank"), a $189 million bank (as of December 31, 2017) headquartered in Charleston, West Virginia whereby Premier will acquire First Bank in exchange for a combination of cash and Premier common stock currently valued at approximately $33.0 million.

Under terms of the definitive agreement, First Bank shareholders will be entitled to a combination of Premier common stock and cash currently valued at approximately $32.00 per First Bank share, or an aggregate value of $33.0 million, including $5.00 per share in cash from Premier and a $5.00 per share special dividend from First Bank. Under a floating exchange ratio, Premier would issue approximately 1.15 million shares in the acquisition assuming Premier's closing price of $19.73 per share on April 18, 2018. The transaction, which is subject to satisfaction of various contractual conditions, requires approval by bank regulatory agencies and the shareholders of First Bank and approval of Premier shareholders for the issuance of shares. The transaction is anticipated to close in the fourth quarter of 2018 with a systems conversion anticipated to be completed soon thereafter.

- 41 -

PREMIER FINANCIAL BANCORP, INC.

~~MANAGEMENT'S DISCUSSION AND ANALYSIS~~

~~SEPTEMBER 30, 2017~~MARCH 31, 2018

Item 2. ~~Management’s~~Management's Discussion and Analysis

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”~~"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~~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~~institution's optimal profitability while maintaining a minimum amount of interest rate risk and credit risk.

Net income for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 was ~~$11,050,000,~~$5,133,000, or ~~$1.03~~$0.48 per diluted share, compared to net income of ~~$8,767,000,~~$3,664,000, or $0.83 per diluted share, for the nine months ended September 30, 2016. The increase in income in 2017 is largely due to an increase in net interest income, an increase in other operating income, and a decrease in other operating expense. The annualized returns on average common stockholders’ equity and average assets were approximately 8.13% and 0.99% for the nine months ended September 30, 2017 compared to 6.71% and 0.79%% for the same period in 2016.

~~Net income for the three months ended September 30, 2017 was $3,467,000, or $0.32 per diluted share, compared to net income of $3,164,000, or $0.30~~$0.34 per diluted share for the three months ended ~~September 30, 2016.~~March 31, 2017. The increase in ~~net~~ income ~~during~~in the first three months ~~ended September 30, 2017~~of 2018 is largely due to gains on the sale of OREO decreasing non-interest expense, an increase in interest income ~~and~~on loans, an increase in non-interest income, ~~as well as~~and a decrease in income taxes, all of which more than offset increases in the provision for loan losses and interest expense. The increase in interest income on loans in the first three months of 2018 is partially due to $553,000 of interest income collected on non-accrual loans liquidated during the first quarter of 2018 compared to $446,000 of interest income collected on non-accrual loans liquidated during the first quarter of 2017. The provision for loan losses was $1,115,000 during the first three months of 2018, which compares to $366,000 of provision expense ~~and~~recorded during the first three months of 2017. The decrease in non-interest ~~expense.~~expense was largely due to $1,080,000 of gains on the sale of OREO properties. The annualized returns on average common ~~stockholders’~~shareholders' equity and average assets were approximately ~~7.53%~~11.08% and ~~0.93%~~1.37% for the three months ended ~~September 30, 2017~~March 31, 2018 compared to ~~7.10%~~8.25% and ~~0.84%~~0.98% for the same period in ~~2016.~~2017.

- 4042 -

~~Table of Contents~~

Loan Class	Balance Dec 31, 2015		Provision (credit) for loan losses			Loans charged-off			Recoveries		Balance Sept 30, 2016

Residential real estate	$	2,501	$	377		$	(107	)	$	19	$	2,790
Multifamily real estate		821		92			-			-		913
Commercial real estate:
Owner occupied		1,509		(140	)		-			2		1,371
Non owner occupied		2,070		645			-			-		2,715
Commercial and industrial		1,033		83			(29	)		42		1,129
Consumer		307		172			(232	)		71		318
All other		1,406		207			(207	)		221		1,627
Total	$	9,647	$	1,436		$	(575	)	$	355	$	10,863

	Three months ended Sept 30, 2017						Three months ended Sept 30, 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	$	323	$	-	$	-	$	667	$	5	$	5
Multifamily real estate		13,590		66		60		2,594		63		63
Commercial real estate:
Owner occupied		3,910		27		27		1,847		3		3
Non-owner occupied		3,749		63		63		4,240		175		175
Commercial and industrial		1,390		13		13		1,809		10		10
Consumer		9		-		-		-		-		-
All other		7,183		53		53		5,243		33		-
Total	$	30,154	$	222	$	216	$	16,400	$	289	$	256

PREMIER FINANCIAL BANCORP, INC.
AVERAGE CONSOLIDATED BALANCE SHEETS
AND NET INTEREST INCOME ANALYSIS

	Three Months Ended Sept 30, 2017								Three Months Ended Sept 30, 2016
	Balance			Interest		Yield/Rate			Balance			Interest		Yield/Rate
Assets
Interest earning assets
Federal funds sold and other	$	32,288		$	176		2.16	%	$	69,396		$	123		0.71	%
Securities available for sale
Taxable		288,241			1,427		1.98			288,582			1,285		1.78
Tax-exempt		11,579			62		3.30			16,796			82		3.00
Total investment securities		299,820			1,489		2.03			305,378			1,367		1.85
Total loans		1,047,202			13,469		5.10			1,027,011			13,375		5.18
Total interest-earning assets		1,379,310			15,134		4.37	%		1,401,785			14,865		4.23	%
Allowance for loan losses		(11,760	)							(10,840	)
Cash and due from banks		41,253								42,224
Other assets		79,702								81,240
Total assets	$	1,488,505							$	1,514,409

Liabilities and Equity
Interest-bearing liabilities
Interest-bearing deposits	$	946,258			954		0.40		$	970,005			965		0.40
Short-term borrowings		22,784			7		0.12			29,571			10		0.13
FHLB advances		-			-		-			5,104			10		0.78
Other borrowings		6,553			68		4.12			9,779			101		4.11
Subordinated debentures		5,365			74		5.47			5,328			63		4.70
Total interest-bearing liabilities		980,960			1,103		0.45	%		1,019,787			1,149		0.45	%
Non-interest bearing deposits		318,894								312,898
Other liabilities		4,539								3,536
Stockholders’ equity		184,112								178,188
Total liabilities and equity	$	1,488,505							$	1,514,409

Net interest earnings				$	14,031							$	13,716
Net interest spread							3.92	%							3.78	%
Net interest margin							4.05	%							3.91	%

	(In Thousands)						(In Thousands)
	2017			2016			2018			2017
Non-accrual loans	$	24,345		$	25,747		$	15,314		$	15,246
Accruing loans which are contractually past due 90 days or more		1,716			1,999			678			3,391
Accruing restructured loans		8,715			8,268			10,512			12,584
Total non-performing and restructured loans		34,776			36,014
Total non-performing loans								26,504			31,221
Other real estate acquired through foreclosure (OREO)		11,458			12,665			14,185			19,966
Total non-performing assets	$	46,234		$	48,679		$	40,689		$	51,187

Non-performing loans as a percentage of total loans		3.30	%		3.51	%		2.58	%		2.98	%

Non-performing assets as a percentage of total assets		3.10	%		3.25	%		2.67	%		3.43	%

Item 1.	Legal Proceedings	None

Item 1A.	Risk Factors

Please refer to Premier's Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 for disclosures with respect to Premier's risk factors at December 31, ~~2016.~~2017. There have been no material changes since year-end ~~2016~~2017 in the specified risk factors disclosed in the Annual Report on Form 10-K.

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	None

Item 3.	Defaults Upon Senior Securities	None

Item 4.	Mine Safety Disclosures	Not Applicable

Item 5.	Other Information	None

Item 6.	Exhibits