| | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2019 | | | 2018 | | | 2019 | | | 2018 | |
Net income | | $ | 6,267 | | | $ | 5,021 | | | $ | 18,302 | | | $ | 14,529 | |
| | | | | | | | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | |
Unrealized gains (losses) arising during the period | | | 450 | | | | (1,451 | ) | | | 10,042 | | | | (6,414 | ) |
Reclassification of realized amount | | | - | | | | - | | | | - | | | | - | |
Net change in unrealized gain (loss) on securities | | | 450 | | | | (1,451 | ) | | | 10,042 | | | | (6,414 | ) |
Less tax impact | | | 96 | | | | (305 | ) | | | 2,109 | | | | (1,347 | ) |
Other comprehensive income (loss) | | | 354 | | | | (1,146 | ) | | | 7,933 | | | | (5,067 | ) |
| | | | | | | | | | | | | | | | |
Comprehensive income | | $ | 6,621 | | | $ | 3,875 | | | $ | 26,235 | | | $ | 9,462 | |
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20172019 AND 2018
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three months ended September 30 | | Common Stock | | | Retained Earnings | | | Accumulated Other Comprehensive Income (loss) | | | Total | |
Balances, July 1, 2019 | | $ | 133,597 | | | $ | 94,978 | | | $ | 3,727 | | | $ | 232,302 | |
Net income | | | - | | | | 6,267 | | | | - | | | | 6,267 | |
Other comprehensive income (loss) | | | - | | | | - | | | | 354 | | | | 354 | |
Cash dividends paid ($0.15 per share) | | | - | | | | (2,198 | ) | | | - | | | | (2,198 | ) |
Stock options exercised | | | 36 | | | | - | | | | - | | | | 36 | |
Stock based compensation expense | | | 47 | | | | - | | | | - | | | | 47 | |
Balances, September 30, 2019 | | $ | 133,680 | | | $ | 99,047 | | | $ | 4,081 | | | $ | 236,808 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balances, July 1, 2018 | | $ | 110,727 | | | $ | 80,872 | | | $ | (5,994 | ) | | $ | 185,605 | |
Net income | | | - | | | | 5,021 | | | | - | | | | 5,021 | |
Other comprehensive income (loss) | | | - | | | | - | | | | (1,146 | ) | | | (1,146 | ) |
Cash dividends paid ($0.15 per share) | | | - | | | | (2,005 | ) | | | - | | | | (2,005 | ) |
Stock options exercised | | | 67 | | | | - | | | | - | | | | 67 | |
Stock based compensation expense | | | 36 | | | | - | | | | - | | | | 36 | |
Balances, September 30, 2018 | | $ | 110,830 | | | $ | 83,888 | | | $ | (7,140 | ) | | $ | 187,578 | |
| | Common Stock | | | Retained Earnings | | | Accumulated Other Comprehensive Income | | | Total | | |
Balances, January 1, 2017 | | $ | 109,911 | | | $ | 66,195 | | | $ | (1,922 | ) | | $ | 174,184 | | |
Nine months ended September 30 | | | Common Stock | | | Retained Earnings | | | Accumulated Other Comprehensive Income (loss) | | | Total | |
Balances, January 1, 2019 | | | $ | 133,248 | | | $ | 87,333 | | | $ | (3,852 | ) | | $ | 216,729 | |
Net income | | | - | | | | 11,050 | | | | - | | | | 11,050 | | | - | | | 18,302 | | | - | | | 18,302 | |
Other comprehensive income | | | - | | | | - | | | | 2,377 | | | | 2,377 | | | - | | | - | | | 7,933 | | | 7,933 | |
Cash dividends paid ($0.45 per share) | | | - | | | | (4,796 | ) | | | - | | | | (4,796 | ) | | - | | | (6,588 | ) | | - | | | (6,588 | ) |
Stock options exercised | | | 176 | | | - | | | - | | | 176 | |
Stock based compensation expense | | | 194 | | | | - | | | | - | | | | 194 | | | | 256 | | | | - | | | | - | | | | 256 | |
Balances, September 30, 2019 | | | $ | 133,680 | | | $ | 99,047 | | | $ | 4,081 | | | $ | 236,808 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balances, January 1, 2018 | | | $ | 110,445 | | | $ | 74,983 | | | $ | (2,073 | ) | | $ | 183,355 | |
Net income | | | - | | | 14,529 | | | - | | | 14,529 | |
Other comprehensive income | | | - | | | - | | | (5,067 | ) | | (5,067 | ) |
Cash dividends paid ($0.42 per share) | | | - | | | (5,611 | ) | | - | | | (5,611 | ) |
Cash in lieu of fractional share for 5 for 4 stock split | | | - | | | (13 | ) | | - | | | (13 | ) |
Stock options exercised | | | 248 | | | | - | | | | - | | | | 248 | | | 168 | | | - | | | - | | | 168 | |
Balances, September 30, 2017 | | $ | 110,353 | | | $ | 72,449 | | | $ | 455 | | | $ | 183,257 | | |
Stock based compensation expense | | | | 217 | | | | - | | | | - | | | | 217 | |
Balances, September 30, 2018 | | | $ | 110,830 | | | $ | 83,888 | | | $ | (7,140 | ) | | $ | 187,578 | |
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 20172019 AND 20162018
(UNAUDITED, DOLLARS IN THOUSANDS)
| | 2017 | | | 2016 | |
Cash flows from operating activities | | | | | | |
Net income | | $ | 11,050 | | | $ | 8,767 | |
Adjustments to reconcile net income to net cash from operating activities | | | | | | | | |
Depreciation | | | 1,303 | | | | 1,461 | |
Provision for loan losses | | | 2,033 | | | | 1,436 | |
Amortization (accretion), net | | | 1,166 | | | | 2,010 | |
OREO writedowns, net | | | 434 | | | | 508 | |
Stock compensation expense | | | 194 | | | | 160 | |
Changes in : | | | | | | | | |
Interest receivable | | | (198 | ) | | | (259 | ) |
Other assets | | | (24 | ) | | | (140 | ) |
Interest payable | | | (6 | ) | | | (76 | ) |
Other liabilities | | | (1,045 | ) | | | (2,071 | ) |
Net cash from operating activities | | | 14,907 | | | | 11,796 | |
| | | | | | | | |
Cash flows from investing activities | | | | | | | | |
Net change in time deposits with other banks | | | (250 | ) | | | - | |
Purchases of securities available for sale | | | (49,210 | ) | | | (22,512 | ) |
Proceeds from maturities and calls of securities available for sale | | | 50,787 | | | | 62,011 | |
Redemption of FRB and FHLB stock | | | 15 | | | | 190 | |
Net change in loans | | | (30,865 | ) | | | (51,417 | ) |
Acquisition of subsidiary, net of cash received | | | - | | | | 16,385 | |
Purchases of premises and equipment, net | | | (654 | ) | | | (413 | ) |
Proceeds from sales of other real estate acquired through foreclosure | | | 1,827 | | | | 870 | |
Net cash from (used in) investing activities | | | (28,350 | ) | | | 5,114 | |
| | | | | | | | |
Cash flows from financing activities | | | | | | | | |
Net change in deposits | | | (10,020 | ) | | | 8,246 | |
Net change in agreements to repurchase securities | | | 1,296 | | | | 3,282 | |
Repayment of other borrowed funds | | | (2,859 | ) | | | (1,824 | ) |
Proceeds from stock option exercises | | | 248 | | | | 645 | |
Repayment of FHLB advances, net | | | - | | | | (772 | ) |
Common stock dividends paid | | | (4,796 | ) | | | (4,338 | ) |
Net cash from (used in) financing activities | | | (16,131 | ) | | | 5,239 | |
| | | | | | | | |
Net change in cash and cash equivalents | | | (29,574 | ) | | | 22,149 | |
| | | | | | | | |
Cash and cash equivalents at beginning of period | | | 104,718 | | | | 72,539 | |
| | | | | | | | |
Cash and cash equivalents at end of period | | $ | 75,144 | | | $ | 94,688 | |
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
(UNAUDITED, DOLLARS IN THOUSANDS)
| | 2019 | | | 2018 | |
Cash flows from operating activities | | | | | | |
Net income | | $ | 18,302 | | | $ | 14,529 | |
Adjustments to reconcile net income to net cash from operating activities | | | | | | | | |
Depreciation | | | 1,624 | | | | 1,274 | |
Provision for loan losses | | | 1,315 | | | | 1,890 | |
Amortization (accretion), net | | | 89 | | | | 984 | |
Writedowns (gains on the sale) of other real estate owned, net | | | 176 | | | | (909 | ) |
Stock compensation expense | | | 256 | | | | 217 | |
Changes in: | | | | | | | | |
Interest receivable | | | (120 | ) | | | (66 | ) |
Other assets | | | (1,158 | ) | | | 1,002 | |
Interest payable | | | 114 | | | | 104 | |
Other liabilities | | | 812 | | | | (19 | ) |
Net cash from operating activities | | | 21,410 | | | | 19,006 | |
| | | | | | | | |
Cash flows from investing activities | | | | | | | | |
Net change on time deposits with other banks | | | 496 | | | | 496 | |
Purchases of securities available for sale | | | (39,961 | ) | | | (92,644 | ) |
Proceeds from maturities and calls of securities available for sale | | | 67,203 | | | | 48,355 | |
Purchase of FHLB stock | | | (10 | ) | | | - | |
Redemption of FHLB stock | | | 100 | | | | 12 | |
Net change in loans | | | 7,394 | | | | 11,156 | |
Purchases of premises and equipment, net | | | (1,211 | ) | | | (2,643 | ) |
Proceeds from sales of other real estate acquired through foreclosure | | | 1,254 | | | | 7,562 | |
Net cash from (used in) investing activities | | | 35,265 | | | | (27,706 | ) |
| | | | | | | | |
Cash flows from financing activities | | | | | | | | |
Net change in deposits | | | (3,029 | ) | | | 46,930 | |
Net change in agreements to repurchase securities | | | (341 | ) | | | 1,418 | |
Repayment of other borrowed funds | | | (2,500 | ) | | | (1,650 | ) |
Repayment of FHLB advances | | | (2,500 | ) | | | - | |
Proceeds from stock option exercises | | | 176 | | | | 168 | |
Cash in lieu of fractional shares | | | - | | | | (13 | ) |
Common stock dividends paid | | | (6,588 | ) | | | (5,611 | ) |
Net cash from (used in) financing activities | | | (14,782 | ) | | | 41,242 | |
| | | | | | | | |
Net change in cash and cash equivalents | | | 41,893 | | | | 32,542 | |
| | | | | | | | |
Cash and cash equivalents at beginning of period | | | 80,775 | | | | 82,663 | |
| | | | | | | | |
Cash and cash equivalents at end of period | | $ | 122,668 | | | $ | 115,205 | |
| | 2017 | | | 2016 | | |
Supplemental disclosures of cash flow information: | | | | | | | | | | | | |
Cash paid during period for interest | | $ | 3,333 | | | $ | 3,555 | | | $ | 7,096 | | | $ | 3,886 | |
| | | | | | | | | |
Cash paid during period for income taxes | | | 6,395 | | | | 5,122 | | | 5,090 | | | 2,807 | |
| | | | | | | | | |
Loans transferred to real estate acquired through foreclosure | | | 983 | | | | 631 | | | 1,330 | | | 1,066 | |
| | | | | | | | | |
Stock issued to acquire subsidiary | | | - | | | | 22,041 | | |
| | | | | | | | | |
Premises transferred to other real estate owned | | | 71 | | | | - | | |
Operating right-of-use asset resulting from lease liability | | | 7,412 | | | - | |
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”):
| | | | | | | | 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 | |
| | | | | | | | | September 30, 2019 | |
| | | | Year | | Total | | | Net Income | |
Subsidiary | | Location | | Acquired | | Assets | | | Qtr | | | YTD | |
Citizens Deposit Bank & Trust | | Vanceburg, Kentucky | | 1991 | | $ | 475,113 | | | $ | 1,574 | | | $ | 4,517 | |
Premier Bank, Inc. | | Huntington, West Virginia | | 1998 | | | 1,227,748 | | | | 5,301 | | | | 15,550 | |
Parent and Intercompany Eliminations | | | | | | | 7,508 | | | | (608 | ) | | | (1,765 | ) |
Consolidated Total | | | | | | $ | 1,710,369 | | | $ | 6,267 | | | $ | 18,302 | |
All significant intercompany transactions and balances have been eliminated.
Recently Issued Accounting Pronouncements
In May 2014,February 2016, the FASB issued Accounting Standards Update 2014-09,ASU No. 2016-02, Revenue from Contracts with CustomersLeases (Topic 606)842). The ASU createsThis standard requires organizations that are lessees to recognize a new topic, Topic 606,lease liability, which is the lessee’s obligation to provide guidancemake lease payments arising from a lease, measured on revenue recognition for entitiesa discounted basis; and a right-of-use asset, which is an asset that enter into contracts with customersrepresents the lessee’s right to transfer goodsuse, or services or enter into contractscontrol the use of, a specified property for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.lease term. The new guidance was originallyalso requires lessees to disclose key information about leasing requirements for leases that were historically classified as operating leases under previous generally accepted accounting principles. This ASU became effective for annual reporting periods,Premier for interim and interim reporting periods within those annual periods beginning after December 15, 2016. However,2018. The Company leases some of its branch locations. The Company adopted Topic 842 on January 1, 2019. The Company applied a modified retrospective transition approach for the applicable leases. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. The Company has also elected to use the practical expedient to make an accounting policy election for property leases to include both lease and non-lease components as a single component and account for it as a lease. Upon adoption of this standard, the Company recorded a $7.6 million right of use asset, included in April 2015,premises and equipment, determined by calculating an estimated present value of future lease payments over the FASB voted to defer the effective date of ASU 2014-09 by one year, making the amendments effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Companies have the option to apply ASU 2014-09 asextended lives of the original effective date. Early adoption is not permitted.Company’s leases. 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 that the majority of the revenues earned by the Company are not within the scope of ASU 2014-09 because they are already governed by other accounting standards. For those revenue streams management has determined to be within 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 of revenue from 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 revenuesalso recorded a $7.6 million finance lease liability, included in the Company’s electronic banking income, focusing on the new disclosures required by the adoption of ASU 2014-09.other liabilities.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - BASIS OF PRESENTATION –- continued
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU makes several modifications to Subtopic 825-10, including the elimination of the available-for-sale classification of equity investments, requiring equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income, and using an exit price notion when measuring the fair value of financial instruments for disclosure purposes. This ASU will become effective for the Company for interim and annual periods beginning after December 15, 2017. The adoption of ASU No. 2016-01 is not expected to have a material impact on the Company's financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires organizations to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing requirements for leases that were historically classified as operating leases under previous generally accepted accounting principles. This ASU will become effective for the Company for interim and annual periods beginning after December 15, 2018. The Company leases some of its branch locations. Upon adoption of this standard, an asset will be recorded to recognize the right of the Company to use the leased facilities and a liability will be recorded representing the obligation to make all future lease payments on those facilities. 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 expected credit loss” or “CECL”. The standard pertains to financial assets measured at amortized cost such as loans, debt securities classified as held-to-maturity, and certain other contracts.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. ManagementThe company has formed a steering committee thatto 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 facilitateimpact of the adoption of this guidance and its required disclosures on the Company’s financial statements. Upon adoption, management anticipates an initial one-timecumulative increase in the allowance for loan losses which will be offsetis currently anticipated by management along with a corresponding decrease in capital as permitted by the standard. However, due to the complexity of the calculation and evolving guidance on adoption management has not yet determined the one-time adjustment. On July 17, 2019, the Financial Accounting Standards Board (“FASB”) voted for a proposal to extend the implementation deadline for smaller reporting companies like Premier. The proposal extends the implementation deadline for Premier for a period of three-years until January 1, 2023. The proposal was approved on October 16, 2019.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
Amortized cost and fair value of investment securities, by category, at September 30, 20172019 are summarized as follows:
2017 | | Amortized Cost | | | Unrealized Gains | | | Unrealized Losses | | | Fair Value | | |
2019 | | | 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 | | | $ | 243,344 | | | $ | 3,455 | | | $ | (277 | ) | | $ | 246,522 | |
U. S. sponsored agency CMO’s - residential | | | 56,330 | | | | 553 | | | | (369 | ) | | | 56,514 | | | | 66,774 | | | | 1,104 | | | | (71 | ) | | | 67,807 | |
Total mortgage-backed securities of government sponsored agencies | | | 255,813 | | | | 1,581 | | | | (947 | ) | | | 256,447 | | | | 310,118 | | | | 4,559 | | | | (348 | ) | | | 314,329 | |
U. S. government sponsored agency securities | | | 19,344 | | | | 5 | | | | (74 | ) | | | 19,275 | | | 17,967 | | | 383 | | | (12 | ) | | 18,338 | |
Obligations of states and political subdivisions | | | 13,346 | | | | 140 | | | | (5 | ) | | | 13,481 | | | 12,112 | | | 472 | | | - | | | 12,584 | |
Other securities | | | | 2,448 | | | | 112 | | | | - | | | | 2,560 | |
Total available for sale | | $ | 288,503 | | | $ | 1,726 | | | $ | (1,026 | ) | | $ | 289,203 | | | $ | 342,645 | | | $ | 5,526 | | | $ | (360 | ) | | $ | 347,811 | |
Amortized cost and fair value of investment securities, by category, at December 31, 20162018 are summarized as follows:
2016 | | 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 | | $ | 177,105 | | | $ | 245 | | | $ | (3,173 | ) | | $ | 174,177 | | | $ | 259,575 | | | $ | 513 | | | $ | (4,846 | ) | | $ | 255,242 | |
U. S. sponsored agency CMO’s - residential | | | 73,163 | | | | 761 | | | | (657 | ) | | | 73,267 | | | | 69,231 | | | | 94 | | | | (782 | ) | | | 68,543 | |
Total mortgage-backed securities of government sponsored agencies | | | 250,268 | | | | 1,006 | | | | (3,830 | ) | | | 247,444 | | | | 328,806 | | | | 607 | | | | (5,628 | ) | | | 323,785 | |
U. S. government sponsored agency securities | | | 24,652 | | | | 23 | | | | (174 | ) | | | 24,501 | | | 24,154 | | | 196 | | | (180 | ) | | 24,170 | |
Obligations of states and political subdivisions | | | 16,645 | | | | 111 | | | | (94 | ) | | | 16,662 | | | 14,194 | | | 176 | | | (43 | ) | | 14,327 | |
Other securities | | | | 3,453 | | | | 6 | | | | (10 | ) | | | 3,449 | |
Total available for sale | | $ | 291,565 | | | $ | 1,140 | | | $ | (4,098 | ) | | $ | 288,607 | | | $ | 370,607 | | | $ | 985 | | | $ | (5,861 | ) | | $ | 365,731 | |
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, 20172019 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 | | | $ | 7,115 | | | $ | 7,123 | |
Due after one year through five years | | | 17,073 | | | | 17,070 | | | 17,036 | | | 17,449 | |
Due after five years through ten years | | | 5,375 | | | | 5,430 | | | 3,967 | | | 4,156 | |
Due after ten years | | | 555 | | | | 555 | | | 4,409 | | | 4,754 | |
Mortgage-backed securities of government sponsored agencies | | | 255,813 | | | | 256,447 | | | | 310,118 | | | | 314,329 | |
Total available for sale | | $ | 288,503 | | | $ | 289,203 | | | $ | 342,645 | | | $ | 347,811 | |
Securities with unrealized losses at September 30, 20172019 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 | ) | | $ | - | | | $ | - | | | $ | 6,205 | | | $ | (12 | ) | | $ | 6,205 | | | $ | (12 | ) |
U.S government sponsored agency MBS – residential | | | 56,820 | | | | (429 | ) | | | 5,234 | | | | (149 | ) | | | 62,054 | | | | (578 | ) | | 31,976 | | | (141 | ) | | 13,629 | | | (136 | ) | | 45,605 | | | (277 | ) |
U.S government sponsored agency CMO’s – residential | | | 11,256 | | | | (129 | ) | | | 11,184 | | | | (240 | ) | | | 22,440 | | | | (369 | ) | |
Obligations of states and political subdivisions | | | 619 | | | | (4 | ) | | | 775 | | | | (1 | ) | | | 1,394 | | | | (5 | ) | |
U.S government sponsored agency CMO – residential | | | | - | | | | - | | | | 9,826 | | | | (71 | ) | | | 9,826 | | | | (71 | ) |
Total temporarily impaired | | $ | 85,937 | | | $ | (636 | ) | | $ | 17,193 | | | $ | (390 | ) | | $ | 103,130 | | | $ | (1,026 | ) | | $ | 31,976 | | | $ | (141 | ) | | $ | 29,660 | | | $ | (219 | ) | | $ | 61,636 | | | $ | (360 | ) |
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, 20162018 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 | ) | | $ | 999 | | | $ | - | | | $ | 11,057 | | | $ | (180 | ) | | $ | 12,056 | | | $ | (180 | ) |
U.S government sponsored agency MBS – residential | | | 157,022 | | | | (3,173 | ) | | | - | | | | - | | | | 157,022 | | | | (3,173 | ) | | 50,923 | | | (243 | ) | | 158,791 | | | (4,603 | ) | | 209,714 | | | (4,846 | ) |
U.S government sponsored agency CMO’s – residential | | | 18,374 | | | | (373 | ) | | | 8,750 | | | | (284 | ) | | | 27,124 | | | | (657 | ) | | 16,359 | | | (41 | ) | | 26,386 | | | (741 | ) | | 42,745 | | | (782 | ) |
Obligations of states and political subdivisions | | | 7,961 | | | | (94 | ) | | | - | | | | - | | | | 7,961 | | | | (94 | ) | | 679 | | | (6 | ) | | 3,454 | | | (37 | ) | | 4,133 | | | (43 | ) |
Other securities | | | | 1,712 | | | | (10 | ) | | | - | | | | - | | | | 1,712 | | | | (10 | ) |
Total temporarily impaired | | $ | 200,564 | | | $ | (3,814 | ) | | $ | 8,750 | | | $ | (284 | ) | | $ | 209,314 | | | $ | (4,098 | ) | | $ | 70,672 | | | $ | (300 | ) | | $ | 199,688 | | | $ | (5,561 | ) | | $ | 270,360 | | | $ | (5,861 | ) |
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, 20172019 and December 31, 20162018 are price changes resulting from changes in the interest rate environment and are considered to be temporary declines in the value of the securities. Management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery. Their fair value is expected to recover as the bonds approach their maturity date and/or market conditions improve.
Major classifications of loans at September 30, 20172019 and December 31, 20162018 are summarized as follows:
| | 2017 | | | 2016 | | | 2019 | | | 2018 | |
Residential real estate | | $ | 337,502 | | | $ | 342,294 | | | $ | 381,310 | | | $ | 381,027 | |
Multifamily real estate | | | 70,698 | | | | 74,165 | | | 38,074 | | | 54,016 | |
Commercial real estate: | | | | | | | | | | | | | | |
Owner occupied | | | 134,773 | | | | 129,370 | | | 151,446 | | | 138,209 | |
Non owner occupied | | | 237,655 | | | | 220,836 | | |
Non-owner occupied | | | 292,879 | | | 282,608 | |
Commercial and industrial | | | 82,332 | | | | 76,736 | | | 98,779 | | | 103,624 | |
Consumer | | | 29,675 | | | | 30,916 | | | 25,296 | | | 27,688 | |
Construction and land | | | 122,464 | | | 128,926 | |
All other | | | 162,689 | | | | | | | | 30,614 | | | | 33,203 | |
| | $ | 1,055,324 | | | $ | 1,024,823 | | | $ | 1,140,862 | | | $ | 1,149,301 | |
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, 20172019 was as follows:
Loan Class | | Balance Dec 31, 2016 | | | Provision (credit) for loan losses | | | Loans charged-off | | | Recoveries | | | Balance Sept 30, 2017 | | | Balance Dec 31, 2018 | | | Provision (credit) for loan losses | | | Loans charged-off | | | Recoveries | | | Balance Sept 30, 2019 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate | | $ | 2,948 | | | $ | 363 | | | $ | (362 | ) | | $ | 52 | | | $ | 3,001 | | | $ | 1,808 | | | $ | 165 | | | $ | (121 | ) | | $ | 34 | | | $ | 1,886 | |
Multifamily real estate | | | 785 | | | | 475 | | | | - | | | | - | | | | 1,260 | | | 1,649 | | | 143 | | | - | | | 7 | | | 1,799 | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 1,543 | | | | (161 | ) | | | (7 | ) | | | 242 | | | | 1,617 | | | 2,120 | | | 700 | | | (533 | ) | | 5 | | | 2,292 | |
Non owner occupied | | | 2,350 | | | | 265 | | | | (8 | ) | | | - | | | | 2,607 | | |
Non-owner occupied | | | 3,058 | | | 334 | | | (57 | ) | | 2 | | | 3,337 | |
Commercial and industrial | | | 1,140 | | | | 3 | | | | (138 | ) | | | 95 | | | | 1,100 | | | 1,897 | | | 191 | | | (393 | ) | | 48 | | | 1,743 | |
Consumer | | | 347 | | | | 148 | | | | (214 | ) | | | 86 | | | | 367 | | | 351 | | | 125 | | | (175 | ) | | 34 | | | 335 | |
Construction and land | | | 2,255 | | | (349 | ) | | (14 | ) | | - | | | 1,892 | |
All other | | | 1,723 | | | | 940 | | | | (373 | ) | | | 117 | | | | 2,407 | | | | 600 | | | | 6 | | | | (171 | ) | | | 92 | | | | 527 | |
Total | | $ | 10,836 | | | $ | 2,033 | | | $ | (1,102 | ) | | $ | 592 | | | $ | 12,359 | | | $ | 13,738 | | | $ | 1,315 | | | $ | (1,464 | ) | | $ | 222 | | | $ | 13,811 | |
Activity in the allowance for loan losses by portfolio segment for the nine months endingended September 30, 20162018 was as follows:
Loan Class | | Balance Dec 31, 2015 | | | Provision (credit) for loan losses | | | Loans charged-off | | | Recoveries | | | Balance Sept 30, 2016 | | | Balance Dec 31, 2017 | | | Provision (credit) for loan losses | | | Loans charged-off | | | Recoveries | | | Balance Sept 30, 2018 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate | | $ | 2,501 | | | $ | 377 | | | $ | (107 | ) | | $ | 19 | | | $ | 2,790 | | | $ | 2,986 | | | $ | (509 | ) | | $ | (229 | ) | | $ | 30 | | | $ | 2,278 | |
Multifamily real estate | | | 821 | | | | 92 | | | | - | | | | - | | | | 913 | | | 978 | | | (504 | ) | | (11 | ) | | - | | | 463 | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 1,509 | | | | (140 | ) | | | - | | | | 2 | | | | 1,371 | | | 1,653 | | | 174 | | | (21 | ) | | 1 | | | 1,807 | |
Non owner occupied | | | 2,070 | | | | 645 | | | | - | | | | - | | | | 2,715 | | |
Non-owner occupied | | | 2,313 | | | 500 | | | (16 | ) | | 2 | | | 2,799 | |
Commercial and industrial | | | 1,033 | | | | 83 | | | | (29 | ) | | | 42 | | | | 1,129 | | | 1,101 | | | 1,108 | | | (525 | ) | | 40 | | | 1,724 | |
Consumer | | | 307 | | | | 172 | | | | (232 | ) | | | 71 | | | | 318 | | | 328 | | | 90 | | | (105 | ) | | 50 | | | 363 | |
Construction and land | | | 2,408 | | | 651 | | | (20 | ) | | 400 | | | 3,439 | |
All other | | | 1,406 | | | | 207 | | | | (207 | ) | | | 221 | | | | 1,627 | | | | 337 | | | | 380 | | | | (203 | ) | | | 96 | | | | 610 | |
Total | | $ | 9,647 | | | $ | 1,436 | | | $ | (575 | ) | | $ | 355 | | | $ | 10,863 | | | $ | 12,104 | | | $ | 1,890 | | | $ | (1,130 | ) | | $ | 619 | | | $ | 13,483 | |
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, 20172019 was as follows:
Loan Class | | Balance June 30, 2017 | | | Provision (credit) for loan losses | | | Loans charged-off | | | Recoveries | | | Balance Sept 30, 2017 | | | Balance June 30, 2019 | | | Provision (credit) for loan losses | | | Loans charged-off | | | Recoveries | | | Balance Sept 30, 2019 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate | | $ | 2,973 | | | $ | 170 | | | $ | (163 | ) | | $ | 21 | | | $ | 3,001 | | | $ | 1,880 | | | $ | 61 | | | $ | (62 | ) | | $ | 7 | | | $ | 1,886 | |
Multifamily real estate | | | 1,337 | | | | (77 | ) | | | - | | | | - | | | | 1,260 | | | 1,716 | | | 78 | | | - | | | 5 | | | 1,799 | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 1,618 | | | | 5 | | | | (7 | ) | | | 1 | | | | 1,617 | | | 1,790 | | | 500 | | | - | | | 2 | | | 2,292 | |
Non owner occupied | | | 2,334 | | | | 276 | | | | (3 | ) | | | - | | | | 2,607 | | |
Non-owner occupied | | | 3,280 | | | 57 | | | - | | | - | | | 3,337 | |
Commercial and industrial | | | 1,093 | | | | (6 | ) | | | (4 | ) | | | 17 | | | | 1,100 | | | 2,000 | | | 13 | | | (280 | ) | | 10 | | | 1,743 | |
Consumer | | | 373 | | | | 10 | | | | (49 | ) | | | 33 | | | | 367 | | | 368 | | | (4 | ) | | (35 | ) | | 6 | | | 335 | |
Construction and land | | | 2,140 | | | (247 | ) | | (1 | ) | | - | | | 1,892 | |
All other | | | 1,967 | | | | 513 | | | | (110 | ) | | | 37 | | | | 2,407 | | | | 599 | | | | (33 | ) | | | (74 | ) | | | 35 | | | | 527 | |
Total | | $ | 11,695 | | | $ | 891 | | | $ | (336 | ) | | $ | 109 | | | $ | 12,359 | | | $ | 13,773 | | | $ | 425 | | | $ | (452 | ) | | $ | 65 | | | $ | 13,811 | |
Activity in the allowance for loan losses by portfolio segment for the three months endingended September 30, 20162018 was as follows:
Loan Class | | Balance June 30, 2016 | | | Provision (credit) for loan losses | | | Loans charged-off | | | Recoveries | | | Balance Sept 30, 2016 | | | Balance June 30, 2018 | | | Provision (credit) for loan losses | | | Loans charged-off | | | Recoveries | | | Balance Sept 30, 2018 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate | | $ | 2,747 | | | $ | 91 | | | $ | (51 | ) | | $ | 3 | | | $ | 2,790 | | | $ | 2,254 | | | $ | 100 | | | $ | (81 | ) | | $ | 5 | | | $ | 2,278 | |
Multifamily real estate | | | 822 | | | | 91 | | | | - | | | | - | | | | 913 | | | 557 | | | (94 | ) | | - | | | - | | | 463 | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 1,442 | | | | (72 | ) | | | - | | | | 1 | | | | 1,371 | | | 1,917 | | | (92 | ) | | (18 | ) | | - | | | 1,807 | |
Non owner occupied | | | 2,708 | | | | 7 | | | | - | | | | - | | | | 2,715 | | |
Non-owner occupied | | | 2,437 | | | 360 | | | - | | | 2 | | | 2,799 | |
Commercial and industrial | | | 1,111 | | | | 43 | | | | (29 | ) | | | 4 | | | | 1,129 | | | 1,599 | | | 132 | | | (21 | ) | | 14 | | | 1,724 | |
Consumer | | | 306 | | | | 139 | | | | (142 | ) | | | 15 | | | | 318 | | | 354 | | | 39 | | | (42 | ) | | 12 | | | 363 | |
Construction and land | | | 3,253 | | | (213 | ) | | (1 | ) | | 400 | | | 3,439 | |
All other | | | 1,668 | | | | 13 | | | | (81 | ) | | | 27 | | | | 1,627 | | | | 611 | | | | 43 | | | | (73 | ) | | | 29 | | | | 610 | |
Total | | $ | 10,804 | | | $ | 312 | | | $ | (303 | ) | | $ | 50 | | | $ | 10,863 | | | $ | 12,982 | | | $ | 275 | | | $ | (236 | ) | | $ | 462 | | | $ | 13,483 | |
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, 20172019 and December 31, 2016.2018.
| | 2017 | | | 2016 | | | 2019 | | | 2018 | |
Residential real estate | | $ | 1,515 | | | $ | 1,619 | | | $ | 2,132 | | | $ | 2,665 | |
Commercial real estate | | | | | | | | | | | | | | |
Owner occupied | | | 1,564 | | | | 2,013 | | | 1,671 | | | 2,040 | |
Non owner occupied | | | - | | | | 5,396 | | |
Non-owner occupied | | | 2,694 | | | 3,434 | |
Commercial and industrial | | | 214 | | | | 232 | | | 333 | | | 1,720 | |
Construction and land | | | 556 | | | 1,212 | |
All other | | | 1,828 | | | | 2,061 | | | | 233 | | | | 225 | |
Total carrying amount | | $ | 5,121 | | | $ | 11,321 | | | $ | 7,619 | | | $ | 11,296 | |
Contractual principal balance | | $ | 7,116 | | | $ | 14,784 | | | $ | 11,037 | | | $ | 15,436 | |
| | | | | | | | | | | | | | |
Carrying amount, net of allowance | | $ | 5,071 | | | $ | 11,311 | | | $ | 7,619 | | | $ | 11,296 | |
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-monthsnine months ended September 30, 2016.2019 and September 30, 2018.
For those purchased loans disclosed above, where the Company can reasonably estimate the cash flows expected to be collected on the loans, a portion of the purchase discount is allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion is being recognized as interest income over the remaining life of the loan.
Where the Company cannot reasonably estimate the cash flows expected to be collected on the loans, it has continued to account for those loans using the cost recovery method of income recognition. As such, no portion of a purchase discount adjustment has been determined to meet the definition of an accretable yield adjustment on those loans accounted for using the cost recovery method. If, in the future, cash flows from the borrower(s) can be reasonably estimated, a portion of the purchase discount would be allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion would be recognized as interest income over the remaining life of the loan. Until such accretable yield can be calculated, under the cost recovery method of income recognition, all payments will be used to reduce the carrying value of the loan and no income will be recognized on the loan until the carrying value is reduced to zero. Any loan accounted for under the cost recovery method is also still included as a non-accrual loan in the amounts presented in the tables below.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
The accretable yield, or income expected to be collected, on the purchased loans above is as follows at September 30, 20172019 and September 30, 2016.2018.
| | 2017 | | | 2016 | | | 2019 | | | 2018 | |
Balance at January 1 | | $ | 1,208 | | | $ | 185 | | | $ | 642 | | | $ | 754 | |
New loans purchased | | | - | | | | 1,151 | | | - | | | - | |
Accretion of income | | | (398 | ) | | | (64 | ) | | (149 | ) | | (141 | ) |
Reclassification to non-accretable | | | - | | | | - | | |
Loans placed on non-accrual | | | - | | | (52 | ) |
Income recognized upon full repayment | | | (74 | ) | | (38 | ) |
Reclassifications from non-accretable difference | | | - | | | - | |
Disposals | | | - | | | | - | | | | - | | | | - | |
Balance at September 30 | | $ | 810 | | | $ | 1,272 | | | $ | 419 | | | $ | 523 | |
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, 20172019 and December 31, 2016.2018. 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 | | |
September 30, 2019 | | | 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 | | | $ | 5,043 | | | $ | 4,014 | | | $ | 975 | |
Multifamily real estate | | | 11,101 | | | | 11,095 | | | | 334 | | | 4,113 | | | 3,726 | | | - | |
Commercial real estate | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 2,052 | | | | 1,974 | | | | 63 | | | 3,807 | | | 3,482 | | | 54 | |
Non owner occupied | | | 310 | | | | 209 | | | | 86 | | |
Non-owner occupied | | | 3,010 | | | 1,786 | | | 447 | |
Commercial and industrial | | | 2,062 | | | | 1,054 | | | | 648 | | | 1,224 | | | 434 | | | - | |
Consumer | | | 331 | | | | 304 | | | | - | | | 235 | | | 191 | | | - | |
Construction and land | | | 483 | | | 458 | | | - | |
All other | | | 6,984 | | | | 6,863 | | | | - | | | | 75 | | | | 73 | | | | - | |
Total | | $ | 26,088 | | | $ | 24,345 | | | $ | 1,716 | | | $ | 17,990 | | | $ | 14,164 | | | $ | 1,476 | |
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, 2018 | | | Principal Owed on Non-accrual Loans | | | Recorded Investment in Non-accrual Loans | | | Loans Past Due Over 90 Days, still accruing | |
| | | | | | | | | | | | | | | | | | |
Residential real estate | | $ | 3,467 | | | $ | 2,794 | | | $ | 606 | | | $ | 4,966 | | | $ | 3,708 | | | $ | 954 | |
Multifamily real estate | | | 11,157 | | | | 11,106 | | | | 334 | | | 4,127 | | | 3,905 | | | - | |
Commercial real estate | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 1,769 | | | | 1,704 | | | | 15 | | | 3,692 | | | 3,436 | | | 56 | |
Non owner occupied | | | 294 | | | | 196 | | | | 36 | | |
Non-owner occupied | | | 5,761 | | | 4,592 | | | 76 | |
Commercial and industrial | | | 2,537 | | | | 1,209 | | | | 1,008 | | | 1,303 | | | 625 | | | - | |
Consumer | | | 366 | | | | 347 | | | | - | | | 292 | | | 253 | | | - | |
Construction and land | | | 857 | | | 856 | | | - | |
All other | | | 8,408 | | | | 8,391 | | | | - | | | | 75 | | | | 73 | | | | - | |
Total | | $ | 27,998 | | | $ | 25,747 | | | $ | 1,999 | | | $ | 21,073 | | | $ | 17,448 | | | $ | 1,086 | |
Nonaccrual loans and impaired loans are defined differently. Some loans may be included in both categories, and some may only be included in one category. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
The following table presents the aging of the recorded investment in past due loans as of September 30, 20172019 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 | | | $ | 381,310 | | | $ | 6,108 | | | $ | 2,776 | | | $ | 8,884 | | | $ | 372,426 | |
Multifamily real estate | | | 70,698 | | | | - | | | | 11,429 | | | | 11,429 | | | | 59,269 | | | 38,074 | | | - | | | 89 | | | 89 | | | 37,985 | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 134,773 | | | | 172 | | | | 1,979 | | | | 2,151 | | | | 132,622 | | | 151,446 | | | 56 | | | 1,995 | | | 2,051 | | | 149,395 | |
Non owner occupied | | | 237,655 | | | | 374 | | | | 227 | | | | 601 | | | | 237,054 | | |
Non-owner occupied | | | 292,879 | | | 1,787 | | | 990 | | | 2,777 | | | 290,102 | |
Commercial and industrial | | | 82,332 | | | | 179 | | | | 1,628 | | | | 1,807 | | | | 80,525 | | | 98,779 | | | 314 | | | 261 | | | 575 | | | 98,204 | |
Consumer | | | 29,675 | | | | 365 | | | | 121 | | | | 486 | | | | 29,189 | | | 25,296 | | | 255 | | | 49 | | | 304 | | | 24,992 | |
Construction and land | | | 122,464 | | | 285 | | | 3 | | | 288 | | | 122,176 | |
All other | | | 162,689 | | | | 1,370 | | | | 6,861 | | | | 8,231 | | | | 154,458 | | | | 30,614 | | | | - | | | | 73 | | | | 73 | | | | 30,541 | |
Total | | $ | 1,055,324 | | | $ | 8,920 | | | $ | 23,962 | | | $ | 32,882 | | | $ | 1,022,442 | | | $ | 1,140,862 | | | $ | 8,805 | | | $ | 6,236 | | | $ | 15,041 | | | $ | 1,125,821 | |
The following table presents the aging of the recorded investment in past due loans as of December 31, 20162018 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 | | | $ | 381,027 | | | $ | 7,078 | | | $ | 2,594 | | | $ | 9,672 | | | $ | 371,355 | |
Multifamily real estate | | | 74,165 | | | | - | | | | 11,440 | | | | 11,440 | | | | 62,725 | | | 54,016 | | | - | | | 110 | | | 110 | | | 53,906 | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 129,370 | | | | 1,746 | | | | 1,474 | | | | 3,220 | | | | 126,150 | | | 138,209 | | | 124 | | | 2,601 | | | 2,725 | | | 135,484 | |
Non owner occupied | | | 220,836 | | | | 1,803 | | | | 159 | | | | 1,962 | | | | 218,874 | | |
Non-owner occupied | | | 282,608 | | | 172 | | | 3,301 | | | 3,473 | | | 279,135 | |
Commercial and industrial | | | 76,736 | | | | 330 | | | | 2,120 | | | | 2,450 | | | | 74,286 | | | 103,624 | | | 2,235 | | | 262 | | | 2,497 | | | 101,127 | |
Consumer | | | 30,916 | | | | 403 | | | | 223 | | | | 626 | | | | 30,290 | | | 27,688 | | | 247 | | | 112 | | | 359 | | | 27,329 | |
Construction and land | | | 128,926 | | | 388 | | | 810 | | | 1,198 | | | 127,728 | |
All other | | | 150,506 | | | | 577 | | | | 8,187 | | | | 8,764 | | | | 141,742 | | | | 33,203 | | | | 546 | | | | 73 | | | | 619 | | | | 32,584 | |
Total | | $ | 1,024,823 | | | $ | 10,972 | | | $ | 25,199 | | | $ | 36,171 | | | $ | 988,652 | | | $ | 1,149,301 | | | $ | 10,790 | | | $ | 9,863 | | | $ | 20,653 | | | $ | 1,128,648 | |
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, 2017:2019:
| | Allowance for Loan Losses | | | Loan Balances | |
Loan Class | | Individually Evaluated for Impairment | | | Collectively Evaluated for Impairment | | | Acquired with Deteriorated Credit Quality | | | Total | | | Individually Evaluated for Impairment | | | Collectively Evaluated for Impairment | | | Acquired with Deteriorated Credit Quality | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate | | $ | - | | | $ | 1,886 | | | $ | - | | | $ | 1,886 | | | $ | 65 | | | $ | 379,113 | | | $ | 2,132 | | | $ | 381,310 | |
Multifamily real estate | | | 1,570 | | | | 229 | | | | - | | | | 1,799 | | | | 3,725 | | | | 34,349 | | | | - | | | | 38,074 | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 426 | | | | 1,866 | | | | - | | | | 2,292 | | | | 2,699 | | | | 147,076 | | | | 1,671 | | | | 151,446 | |
Non-owner occupied | | | 219 | | | | 3,118 | | | | - | | | | 3,337 | | | | 3,917 | | | | 286,268 | | | | 2,694 | | | | 292,879 | |
Commercial and industrial | | | 192 | | | | 1,551 | | | | - | | | | 1,743 | | | | 386 | | | | 98,060 | | | | 333 | | | | 98,779 | |
Consumer | | | - | | | | 335 | | | | - | | | | 335 | | | | - | | | | 25,296 | | | | - | | | | 25,296 | |
Construction and land | | | 66 | | | | 1,826 | | | | | | | | 1,892 | | | | 446 | | | | 121,462 | | | | 556 | | | | 122,464 | |
All other | | | - | | | | 527 | | | | - | | | | 527 | | | | - | | | | 30,381 | | | | 233 | | | | 30,614 | |
Total | | $ | 2,473 | | | $ | 11,338 | | | $ | - | | | $ | 13,811 | | | $ | 11,238 | | | $ | 1,122,005 | | | $ | 7,619 | | | $ | 1,140,862 | |
| | Allowance for Loan Losses | | | Loan Balances | |
Loan Class | | Individually Evaluated for Impairment | | | Collectively Evaluated for Impairment | | | Acquired with Deteriorated Credit Quality | | | Total | | | Individually Evaluated for Impairment | | | Collectively Evaluated for Impairment | | | Acquired with Deteriorated Credit Quality | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate | | $ | - | | | $ | 3,001 | | | $ | - | | | $ | 3,001 | | | $ | 320 | | | $ | 335,667 | | | $ | 1,515 | | | $ | 337,502 | |
Multifamily real estate | | | 517 | | | | 743 | | | | - | | | | 1,260 | | | | 13,588 | | | | 57,110 | | | | - | | | | 70,698 | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 301 | | | | 1,316 | | | | - | | | | 1,617 | | | | 3,725 | | | | 129,484 | | | | 1,564 | | | | 134,773 | |
Non-owner occupied | | | 88 | | | | 2,519 | | | | - | | | | 2,607 | | | | 5,583 | | | | 232,072 | | | | - | | | | 237,655 | |
Commercial and industrial | | | 105 | | | | 945 | | | | 50 | | | | 1,100 | | | | 1,129 | | | | 80,989 | | | | 214 | | | | 82,332 | |
Consumer | | | 19 | | | | 348 | | | | - | | | | 367 | | | | 19 | | | | 29,656 | | | | - | | | | 29,675 | |
All other | | | 518 | | | | 1,889 | | | | - | | | | 2,407 | | | | 7,177 | | | | 153,684 | | | | 1,828 | | | | 162,689 | |
Total | | $ | 1,548 | | | $ | 10,761 | | | $ | 50 | | | $ | 12,359 | | | $ | 31,541 | | | $ | 1,018,662 | | | $ | 5,121 | | | $ | 1,055,324 | |
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, 2016:2018:
| | Allowance for Loan Losses | | | Loan Balances | |
Loan Class | | Individually Evaluated for Impairment | | | Collectively Evaluated for Impairment | | | Acquired with Deteriorated Credit Quality | | | Total | | | Individually Evaluated for Impairment | | | Collectively Evaluated for Impairment | | | Acquired with Deteriorated Credit Quality | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate | | $ | - | | | $ | 1,808 | | | $ | - | | | $ | 1,808 | | | $ | 298 | | | $ | 378,064 | | | $ | 2,665 | | | $ | 381,027 | |
Multifamily real estate | | | 1,281 | | | | 368 | | | | - | | | | 1,649 | | | | 3,905 | | | | 50,111 | | | | - | | | | 54,016 | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 692 | | | | 1,428 | | | | - | | | | 2,120 | | | | 2,820 | | | | 133,349 | | | | 2,040 | | | | 138,209 | |
Non-owner occupied | | | 267 | | | | 2,791 | | | | - | | | | 3,058 | | | | 10,111 | | | | 269,063 | | | | 3,434 | | | | 282,608 | |
Commercial and industrial | | | 414 | | | | 1,483 | | | | - | | | | 1,897 | | | | 558 | | | | 101,346 | | | | 1,720 | | | | 103,624 | |
Consumer | | | - | | | | 351 | | | | - | | | | 351 | | | | - | | | | 27,688 | | | | - | | | | 27,688 | |
Construction and land | | | 142 | | | | 2,113 | | | | - | | | | 2,255 | | | | 1,351 | | | | 126,363 | | | | 1,212 | | | | 128,926 | |
All other | | | - | | | | 600 | | | | - | | | | 600 | | | | - | | | | 32,978 | | | | 225 | | | | 33,203 | |
Total | | $ | 2,796 | | | $ | 10,942 | | | $ | - | | | $ | 13,738 | | | $ | 19,043 | | | $ | 1,118,962 | | | $ | 11,296 | | | $ | 1,149,301 | |
| | Allowance for Loan Losses | | | Loan Balances | |
Loan Class | | Individually Evaluated for Impairment | | | Collectively Evaluated for Impairment | | | Acquired with Deteriorated Credit Quality | | | Total | | | Individually Evaluated for Impairment | | | Collectively Evaluated for Impairment | | | Acquired with Deteriorated Credit Quality | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate | | $ | - | | | $ | 2,948 | | | $ | - | | | $ | 2,948 | | | $ | 379 | | | $ | 340,296 | | | $ | 1,619 | | | $ | 342,294 | |
Multifamily real estate | | | - | | | | 785 | | | | - | | | | 785 | | | | 13,641 | | | | 60,524 | | | | - | | | | 74,165 | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 244 | | | | 1,299 | | | | - | | | | 1,543 | | | | 2,801 | | | | 124,556 | | | | 2,013 | | | | 129,370 | |
Non-owner occupied | | | - | | | | 2,350 | | | | - | | | | 2,350 | | | | 2,373 | | | | 213,067 | | | | 5,396 | | | | 220,836 | |
Commercial and industrial | | | 266 | | | | 864 | | | | 10 | | | | 1,140 | | | | 1,418 | | | | 75,086 | | | | 232 | | | | 76,736 | |
Consumer | | | - | | | | 347 | | | | - | | | | 347 | | | | - | | | | 30,916 | | | | - | | | | 30,916 | |
All other | | | 86 | | | | 1,637 | | | | - | | | | 1,723 | | | | 12,976 | | | | 135,469 | | | | 2,061 | | | | 150,506 | |
Total | | $ | 596 | | | $ | 10,230 | | | $ | 10 | | | $ | 10,836 | | | $ | 33,588 | | | $ | 979,914 | | | $ | 11,321 | | | $ | 1,024,823 | |
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
In the tables below, total individually evaluated impaired loans include certain purchased loans that were acquired with deteriorated credit quality that are still individually evaluated for impairment.
The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2017.2019. The table includes $199,000$1,174,000 of loans acquired with deteriorated credit quality thatfor 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 | | $ | 360 | | | $ | 320 | | | $ | - | | | $ | 192 | | | $ | 65 | | | $ | - | |
Multifamily real estate | | | 2,492 | | | | 2,492 | | | | - | | | 96 | | | 89 | | | - | |
Commercial real estate | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 2,916 | | | | 2,855 | | | | - | | | 2,618 | | | 2,334 | | | - | |
Non owner occupied | | | 3,604 | | | | 3,512 | | | | - | | |
Non-owner occupied | | | 2,527 | | | 1,776 | | | - | |
Commercial and industrial | | | 1,767 | | | | 1,012 | | | | - | | | | 509 | | | | - | | | | - | |
All other | | | 3,186 | | | | 3,066 | | | | - | | |
| | | 14,325 | | | | 13,257 | | | | - | | | 5,942 | | | 4,264 | | | - | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | | | |
Multifamily real estate | | $ | 11,102 | | | $ | 11,095 | | | $ | 517 | | | 4,016 | | | 3,636 | | | 1,570 | |
Commercial real estate | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 888 | | | | 870 | | | | 301 | | | 1,114 | | | 1,087 | | | 426 | |
Non owner occupied | | | 2,072 | | | | 2,072 | | | | 88 | | |
Non-owner occupied | | | 2,702 | | | 2,593 | | | 219 | |
Commercial and industrial | | | 468 | | | | 316 | | | | 155 | | | 396 | | | 386 | | | 192 | |
Consumer | | | 19 | | | | 19 | | | | 19 | | |
All other | | | 4,116 | | | | 4,111 | | | | 518 | | |
Construction and land | | | | 470 | | | | 446 | | | | 66 | |
| | | 18,665 | | | | 18,483 | | | | 1,598 | | | | 8,698 | | | | 8,148 | | | | 2,473 | |
Total | | $ | 32,990 | | | $ | 31,740 | | | $ | 1,598 | | | $ | 14,640 | | | $ | 12,412 | | | $ | 2,473 | |
| | | | | | | | | | | | | |
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, 2016.2018. The table includes $208,000$1,160,000 of loans acquired with deteriorated credit quality thatfor 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 | | | $ | - | | | $ | 426 | | | $ | 298 | | | $ | - | |
Multifamily real estate | | | 13,692 | | | | 13,641 | | | | - | | | 110 | | | 110 | | | - | |
Commercial real estate | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 1,803 | | | | 1,766 | | | | - | | | 1,305 | | | 1,092 | | | - | |
Non owner occupied | | | 2,465 | | | | 2,373 | | | | - | | |
Non-owner occupied | | | 8,458 | | | 7,740 | | | - | |
Commercial and industrial | | | 2,429 | | | | 1,338 | | | | - | | | 531 | | | - | | | - | |
All other | | | 9,868 | | | | 9,853 | | | | - | | |
Construction and land | | | | 786 | | | | 786 | | | | - | |
| | | 31,000 | | | | 29,350 | | | | - | | | 11,616 | | | 10,026 | | | - | |
With an allowance recorded: | | | | | | | | | | | | | | | | | | | | | |
Multifamily real estate | | | $ | 4,016 | | | $ | 3,795 | | | $ | 1,281 | |
Commercial real estate | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | $ | 1,055 | | | $ | 1,035 | | | $ | 244 | | | 2,523 | | | 2,478 | | | 692 | |
Non-owner occupied | | | 2,852 | | | 2,781 | | | 267 | |
Commercial and industrial | | | 431 | | | | 288 | | | | 276 | | | 562 | | | 558 | | | 414 | |
All other | | | 3,124 | | | | 3,123 | | | | 86 | | |
Construction and land | | | | 565 | | | | 565 | | | | 142 | |
| | | 4,610 | | | | 4,446 | | | | 606 | | | | 10,518 | | | | 10,177 | | | | 2,796 | |
Total | | $ | 35,610 | | | $ | 33,796 | | | $ | 606 | | | $ | 22,134 | | | $ | 20,203 | | | $ | 2,796 | |
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 months ended September 30, 20172019 and September 30, 2016.2018. 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 | | | Nine months ended Sept 30, 2019 | | | Nine months ended Sept 30, 2018 | |
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 | | | $ | 217 | | | $ | - | | | $ | - | | | $ | 301 | | | $ | - | | | $ | - | |
Multifamily real estate | | | 13,605 | | | | 196 | | | | 181 | | | | 1,580 | | | | 121 | | | | 121 | | | 3,823 | | | - | | | - | | | 2,192 | | | 11 | | | 11 | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 3,340 | | | | 49 | | | | 49 | | | | 1,144 | | | | 3 | | | | 3 | | | 3,779 | | | 10 | | | 10 | | | 3,163 | | | 54 | | | 54 | |
Non-owner occupied | | | 2,955 | | | | 124 | | | | 124 | | | | 5,066 | | | | 275 | | | | 273 | | | 9,009 | | | 664 | | | 664 | | | 9,005 | | | 327 | | | 327 | |
Commercial and industrial | | | 1,474 | | | | 114 | | | | 114 | | | | 1,155 | | | | 26 | | | | 26 | | | 517 | | | 3 | | | 3 | | | 990 | | | 21 | | | 21 | |
Consumer | | | 5 | | | | - | | | | - | | | | - | | | | - | | | | - | | |
Construction and land | | | 910 | | | 123 | | | 123 | | | 4,633 | | | 12 | | | 12 | |
All other | | | 8,641 | | | | 342 | | | | 341 | | | | 3,011 | | | | 40 | | | | 6 | | | | - | | | | - | | | | - | | | | 216 | | | | 10 | | | | 10 | |
Total | | $ | 30,359 | | | $ | 826 | | | $ | 810 | | | $ | 12,568 | | | $ | 481 | | | $ | 443 | | | $ | 18,255 | | | $ | 800 | | | $ | 800 | | | $ | 20,500 | | | $ | 435 | | | $ | 435 | |
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, 20172019 and September 30, 20162018. 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 | | | Three months ended Sept 30, 2019 | | | Three months ended Sept 30, 2018 | |
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 | | $ | 323 | | | $ | - | | | $ | - | | | $ | 667 | | | $ | 5 | | | $ | 5 | | | $ | 170 | | | $ | - | | | $ | - | | | $ | 299 | | | $ | - | | | $ | - | |
Multifamily real estate | | | 13,590 | | | | 66 | | | | 60 | | | | 2,594 | | | | 63 | | | | 63 | | | 3,768 | | | - | | | - | | | 1,939 | | | - | | | - | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 3,910 | | | | 27 | | | | 27 | | | | 1,847 | | | | 3 | | | | 3 | | | 3,683 | | | 4 | | | 4 | | | 3,041 | | | 3 | | | 3 | |
Non-owner occupied | | | 3,749 | | | | 63 | | | | 63 | | | | 4,240 | | | | 175 | | | | 175 | | | 7,439 | | | 478 | | | 478 | | | 7,489 | | | 86 | | | 86 | |
Commercial and industrial | | | 1,390 | | | | 13 | | | | 13 | | | | 1,809 | | | | 10 | | | | 10 | | | 535 | | | 1 | | | 1 | | | 532 | | | 5 | | | 5 | |
Consumer | | | 9 | | | | - | | | | - | | | | - | | | | - | | | | - | | |
Construction and land | | | 480 | | | 2 | | | 2 | | | 4,467 | | | 9 | | | 9 | |
All other | | | 7,183 | | | | 53 | | | | 53 | | | | 5,243 | | | | 33 | | | | - | | | | - | | | | - | | | | - | | | | 142 | | | | 6 | | | | 6 | |
Total | | $ | 30,154 | | | $ | 222 | | | $ | 216 | | | $ | 16,400 | | | $ | 289 | | | $ | 256 | | | $ | 16,075 | | | $ | 485 | | | $ | 485 | | | $ | 17,909 | | | $ | 109 | | | $ | 109 | |
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
Troubled Debt Restructurings
A loan is classified as a troubled debt restructuring ("TDR") when loan terms are modified due to a borrower's financial difficulties and a concession is granted to a borrower that would not have otherwise been considered. Most of the Company’s loan modifications involve a restructuring of loan terms prior to maturity to temporarily reduce the payment amount and/or to require only interest for a temporary period, usually up to six months. These modifications generally do not meet the definition of a TDR because the modifications are considered to be an insignificant delay in payment. The determination of an insignificant delay in payment is evaluated based on the facts and circumstances of the individual borrower(s).
The following table presents TDR’s as of September 30, 20172019 and December 31, 2016:2018:
September 30, 2017 | | TDR’s on Non-accrual | | | Other TDR’s | | | Total TDR’s | |
| | | | | | | | | |
Residential real estate | | $ | 317 | | | $ | 110 | | | $ | 427 | |
Multifamily real estate | | | - | | | | 2,159 | | | | 2,159 | |
Commercial real estate | | | | | | | | | | | | |
Owner occupied | | | 602 | | | | 1,766 | | | | 2,368 | |
Non owner occupied | | | - | | | | 3,875 | | | | 3,875 | |
Commercial and industrial | | | 57 | | | | 508 | | | | 565 | |
Consumer | | | - | | | | - | | | | - | |
All other | | | 4,783 | | | | 297 | | | | 5,080 | |
Total | | $ | 5,759 | | | $ | 8,715 | | | $ | 14,474 | |
| | | | | | | | | | | | |
September 30, 2019 | | TDR’s on Non-accrual | | | Other TDR’s | | | Total TDR’s | |
| | | | | | | | | |
Residential real estate | | $ | 36 | | | $ | 161 | | | $ | 197 | |
Multifamily real estate | | | 3,636 | | | | - | | | | 3,636 | |
Commercial real estate | | | | | | | | | | | | |
Owner occupied | | | 1,087 | | | | 210 | | | | 1,297 | |
Non-owner occupied | | | - | | | | 2,674 | | | | 2,674 | |
Commercial and industrial | | | 191 | | | | - | | | | 191 | |
Total | | $ | 4,950 | | | $ | 3,045 | | | $ | 7,995 | |
December 31, 2016 | | TDR’s on Non-accrual | | | Other TDR’s | | | Total TDR’s | | |
December 31, 2018 | | | TDR’s on Non-accrual | | | Other TDR’s | | | Total TDR’s | |
| | | | | | | | | | | | | | | | | | |
Residential real estate | | $ | 129 | | | $ | 464 | | | $ | 593 | | | $ | 347 | | | $ | 97 | | | $ | 444 | |
Multifamily real estate | | | - | | | | 2,201 | | | | 2,201 | | | 3,795 | | | - | | | 3,795 | |
Commercial real estate | | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | - | | | | 856 | | | | 856 | | | 1,647 | | | 222 | | | 1,869 | |
Non-owner occupied | | | - | | | 5,964 | | | 5,964 | |
Commercial and industrial | | | 62 | | | | 352 | | | | 414 | | | | 191 | | | | - | | | | 191 | |
All other | | | 751 | | | | 4,395 | | | | 5,146 | | |
Total | | $ | 942 | | | $ | 8,268 | | | $ | 9,210 | | | $ | 5,980 | | | $ | 6,283 | | | $ | 12,263 | |
| | | | | | | | | | | | | |
At September 30, 2017 $640,0002019, $1,956,000 in specific reserves were allocated to loans that had restructured terms resulting in a provision for loan losses of $263,000 for the three months ended September 30, 2019 and $413,000 for the nine months ended September 30, 2019. This compares to a provision for loan losses on restructured loans of $140,000 for the three months ended September 30, 2018 and $303,000 for the nine months ended September 30, 2018. At December 31, 2018, $1,630,000 in specific reserves were 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, thereThere were no commitments to lend additional amounts to these borrowers.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3–LOANS - continued
The following tables presentThere were no new 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 three2019 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.
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, and by $181,000 during the nine months ended September 30, 2016.2018.
During the three and nine months ended September 30, 20172019 and the three and nine months ended September 30, 2016,2018, there were no TDR’s for which there wasas 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.
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.
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, 2019, 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 | | $ | 368,996 | | | $ | 3,026 | | | $ | 9,288 | | | $ | - | | | $ | 381,310 | |
Multifamily real estate | | | 32,577 | | | | 1,771 | | | | 3,726 | | | | - | | | | 38,074 | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 140,610 | | | | 4,401 | | | | 6,435 | | | | - | | | | 151,446 | |
Non-owner occupied | | | 281,887 | | | | 5,426 | | | | 5,566 | | | | - | | | | 292,879 | |
Commercial and industrial | | | 94,930 | | | | 2,969 | | | | 880 | | | | - | | | | 98,779 | |
Consumer | | | 25,059 | | | | - | | | | 237 | | | | - | | | | 25,296 | |
Construction and land | | | 111,764 | | | | 9,798 | | | | 902 | | | | - | | | | 122,464 | |
All other | | | 30,290 | | | | 155 | | | | 169 | | | | - | | | | 30,614 | |
Total | | $ | 1,086,113 | | | $ | 27,546 | | | $ | 27,203 | | | $ | - | | | $ | 1,140,862 | |
As of December 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 | | $ | 369,808 | | | $ | 1,376 | | | $ | 9,681 | | | $ | 162 | | | $ | 381,027 | |
Multifamily real estate | | | 45,187 | | | | 4,924 | | | | 3,905 | | | | - | | | | 54,016 | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 126,422 | | | | 4,840 | | | | 6,947 | | | | - | | | | 138,209 | |
Non-owner occupied | | | 262,149 | | | | 7,647 | | | | 12,812 | | | | - | | | | 282,608 | |
Commercial and industrial | | | 96,066 | | | | 5,280 | | | | 2,278 | | | | - | | | | 103,624 | |
Consumer | | | 27,344 | | | | 31 | | | | 313 | | | | - | | | | 27,688 | |
Construction and land | | | 107,196 | | | | 19,728 | | | | 2,002 | | | | | | | | 128,926 | |
All other | | | 32,749 | | | | 381 | | | | 73 | | | | - | | | | 33,203 | |
Total | | $ | 1,066,921 | | | $ | 44,207 | | | $ | 38,011 | | | $ | 162 | | | $ | 1,149,301 | |
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, 2017 and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
Loan Class | | Pass | | | Special Mention | | | Substandard | | | Doubtful | | | Total Loans | |
| | | | | | | | | | | | | | | |
Residential real estate | | $ | 324,121 | | | $ | 3,502 | | | $ | 9,878 | | | $ | 1 | | | $ | 337,502 | |
Multifamily real estate | | | 52,472 | | | | 3,590 | | | | 12,024 | | | | 2,612 | | | | 70,698 | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 122,983 | | | | 4,305 | | | | 7,485 | | | | - | | | | 134,773 | |
Non-owner occupied | | | 220,173 | | | | 11,243 | | | | 6,239 | | | | - | | | | 237,655 | |
Commercial and industrial | | | 71,850 | | | | 7,400 | | | | 3,082 | | | | - | | | | 82,332 | |
Consumer | | | 29,145 | | | | 136 | | | | 375 | | | | 19 | | | | 29,675 | |
All other | | | 148,216 | | | | 5,479 | | | | 8,994 | | | | - | | | | 162,689 | |
Total | | $ | 968,960 | | | $ | 35,655 | | | $ | 48,077 | | | $ | 2,632 | | | $ | 1,055,324 | |
As of December 31, 2016, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
Loan Class | | Pass | | | Special Mention | | | Substandard | | | Doubtful | | | Total Loans | |
| | | | | | | | | | | | | | | |
Residential real estate | | $ | 328,905 | | | $ | 4,880 | | | $ | 8,507 | | | $ | 2 | | | $ | 342,294 | |
Multifamily real estate | | | 59,375 | | | | 78 | | | | 14,712 | | | | - | | | | 74,165 | |
Commercial real estate: | | | | | | | | | | | | | | | | | | | | |
Owner occupied | | | 118,134 | | | | 6,720 | | | | 4,516 | | | | - | | | | 129,370 | |
Non-owner occupied | | | 213,641 | | | | 4,391 | | | | 2,804 | | | | - | | | | 220,836 | |
Commercial and industrial | | | 72,094 | | | | 2,337 | | | | 2,275 | | | | 30 | | | | 76,736 | |
Consumer | | | 30,369 | | | | 242 | | | | 305 | | | | - | | | | 30,916 | |
All other | | | 134,945 | | | | 1,958 | | | | 13,603 | | | | - | | | | 150,506 | |
Total | | $ | 957,463 | | | $ | 20,606 | | | $ | 46,722 | | | $ | 32 | | | $ | 1,024,823 | |
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4- STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS
The Company’s principal source of funds for dividend payments to shareholders is dividends received from the subsidiary Banks. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, as defined, combined with the retained net profits of the preceding two years, subject to the capital requirements and additional restrictions as discussed below. During 20172019 the Banks could, without prior approval, declare dividends to the Company of approximately $4.1$8.4 million plus any 20172019 net profits retained to the date of the dividend declaration.
The Company and the subsidiary Banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet specific guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.
These quantitative measures established by regulation to ensure capital adequacy require the Company and Banks to maintain minimum amounts and ratios (set forth in the following table)tables). The final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. Banks (Basel III rules) became effective for the Company and Banks on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule by January 1, 2019. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes, as of September 30, 2017,2019, that the Company and the Banks meet all quantitative capital adequacy requirements to which they are subject.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4- STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS - continued
Shown below is a summary of regulatory capital ratios, exclusive of the capital conservation buffer, for the Company:
| | September 30, 2017 | | | December 31, 2016 | | | Regulatory Minimum Requirements | | | To Be Considered Well Capitalized | | | September 30, 2019 | | | December 31, 2018 | | | 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 | % | | 15.4 | % | | 14.2 | % | | 4.5 | % | | 6.5 | % |
Tier 1 Capital (to Risk-Weighted Assets) | | | 14.4 | % | | | 13.9 | % | | | 6.0 | % | | | 8.0 | % | | 15.9 | % | | 14.7 | % | | 6.0 | % | | 8.0 | % |
Total Capital (to Risk-Weighted Assets) | | | 15.5 | % | | | 15.0 | % | | | 8.0 | % | | | 10.0 | % | | 17.1 | % | | 15.9 | % | | 8.0 | % | | 10.0 | % |
Tier 1 Capital (to Average Assets) | | | 10.7 | % | | | 10.1 | % | | | 4.0 | % | | | 5.0 | % | | 11.4 | % | | 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 beis measured as a percentage of risk weighted assets and will bewas phased-in over a four year period from 2016 thru 2019, resulting in a required capital conservation buffer2019. As of 0.625% in 2016 and 1.25% in 2017. When fully implemented,January 1, 2019, the capital conservation buffer will beis 2.50% of risk weighted assets over and above the regulatory minimum capital ratios for Common Equity Tier 1 Capital (CET1) to risk-weightedrisk weighted assets, Tier 1 Capital to risk-weightedrisk weighted assets, and Total Capital to risk-weightedrisk 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-weightedrisk weighted assets ratio of at least 7.00%, a Tier 1 Capital to risk-weightedrisk weighted assets ratio of at least 8.50%, and a Total Capital to risk-weightedrisk weighted assets ratio of at least 10.50%. The Company’s capital conservation buffer was 7.50%9.07% at September 30, 20172019 and 6.95%7.88% at December 31, 2016,2018, well in excess of the fully phased-in 2.50% required by December 31,January 1, 2019.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5
– PREMISES AND EQUIPMENT
The Company leases certain banking facilities and equipment under various agreements with original terms provide for fixed monthly payments over periods generally ranging from two to sixteen years, including renewal options. Certain leases contain renewal options and rent escalation clauses calling for rent increases during the term of the lease. Short-term leases of equipment are recognized on a straight-line basis over the lease term. As of September 30, 2019, the weighted average remaining lease term for operating leases was 9.59 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.22%.
Total lease expense for the nine months ended September 30, 2019, which is included in net occupancy and equipment expense, was $922,000, consisting of $75,000 short-term lease expense and $847,000 of operating lease expense. For the three months ended September 30, 2019, lease expense was $300,000, consisting of $27,000 short-term lease expense and $273,000 of operating lease expense.
The following table summarizes the future minimum rental commitments under operating leases:
2019 | | $ | 268 | |
2020 | | | 1,059 | |
2021 | | | 1,013 | |
2022 | | | 995 | |
2023 | | | 779 | |
2024 and thereafter | | | 4,172 | |
Total undiscounted cash flows | | | 8,286 | |
Discounted cash flows | | | (874 | ) |
Total lease liability | | $ | 7,412 | |
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6 – 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 the Company also grants shares of stock to its employees. The Company uses the closing price of the stock on the date of grant to determine the amount of compensation expense to record as a result of the stock grant.
On March 15, 2017, 55,50020, 2019, 72,075 incentive stock options were granted under the 2012 Long Term Incentive Plan at an exercise price of $19.01,$15.57, the closing market price of Premier’s common stock on the grant date. These options vest in three equal annual installments ending on March 15, 2020.20, 2022. On March 16, 2016, 55,99021, 2018, 67,875 incentive stock options were granted under the 2012 Long Term Incentive Plan at an exercise price of $13.55,$15.12, the closing market price of Premier’s common stock on the grant date.date adjusted for the 5 for 4 stock split issued by the Company on June 8, 2018. These options vest in three equal annual installments ending on March 16, 2019.21, 2021.
On April 19, 2017, 6,00017, 2019, 7,500 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$16.78 per share based upon the closing price of Premier’s stock on the date of grant and $124,000$126,000 of stock-based compensation was recorded as a result. On March 16, 2016, 7,700April 25, 2018, 7,500 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$15.82 per share based upon the closing price of Premier’s stock on the date of grant and $104,000$119,000 of stock-based compensation was recorded as a result.
Compensation expense of $194,000$256,000 was recorded for the first nine months of 20172019 while $160,000$217,000 was recorded for the first nine months of 2016, including the compensation expense related to the stock grants to Mr. Walker.2018. 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$175,000 at September 30, 2017.2019. This unrecognized expense is expected to be recognized over the next 29 months based on the vesting periods of the options.
- 30 -
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE
67 – 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, 20172019 and 20162018 is presented below:
| | Three Months Ended Sept 30, | | | Nine Months Ended Sept 30, | | | Three Months Ended Sept 30, | | | Nine Months Ended Sept 30, | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | |
Basic earnings per share | | | | | | | | | | | | | | | | | | | | | | | | |
Income available to common stockholders | | $ | 3,467 | | | $ | 3,164 | | | $ | 11,050 | | | $ | 8,767 | | | $ | 6,267 | | | $ | 5,021 | | | $ | 18,302 | | | $ | 14,529 | |
Weighted average common shares outstanding | | | 10,661,157 | | | | 10,626,185 | | | | 10,653,594 | | | | 10,508,809 | | | | 14,645,002 | | | | 13,368,782 | | | | 14,636,004 | | | | 13,356,998 | |
Earnings per share | | $ | 0.33 | | | $ | 0.30 | | | $ | 1.04 | | | $ | 0.83 | | | $ | 0.43 | | | $ | 0.38 | | | $ | 1.25 | | | $ | 1.09 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per share | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income available to common stockholders | | $ | 3,467 | | | $ | 3,164 | | | $ | 11,050 | | | $ | 8,767 | | | $ | 6,267 | | | $ | 5,021 | | | $ | 18,302 | | | $ | 14,529 | |
Weighted average common shares outstanding | | | 10,661,157 | | | | 10,626,185 | | | | 10,653,594 | | | | 10,508,809 | | | 14,645,002 | | | 13,368,782 | | | 14,636,004 | | | 13,356,998 | |
Add dilutive effects of potential additional common stock | | | 77,794 | | | | 60,742 | | | | 80,418 | | | | 60,372 | | | | 75,513 | | | | 123,624 | | | | 76,136 | | | | 102,578 | |
Weighted average common and dilutive potential common shares outstanding | | | 10,738,951 | | | | 10,686,927 | | | | 10,734,012 | | | | 10,569,181 | | | | 14,720,515 | | | | 13,492,406 | | | | 14,712,140 | | | | 13,459,576 | |
Earnings per share assuming dilution | | $ | 0.32 | | | $ | 0.30 | | | $ | 1.03 | | | $ | 0.83 | | | $ | 0.43 | | | $ | 0.37 | | | $ | 1.24 | | | $ | 1.08 | |
There were no stock options considered antidilutive for the three or nine months ended September 30, 20172019 and 2016.2018.
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.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and the Company must use other valuation methods to develop a fair value.
Carrying amount is the estimated fair value for cash and due from banks, Federal funds sold, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. Fair values of time deposits with other banks are based on current rates for similar time deposits using the remaining time to maturity. It 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 lifelife. Fair values for loans is measured at the exit price notion by using the discounted cash flow or collateral value but also incorporates additional factors such as using economic factors, credit risk, and credit risk.market rates and conditions. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values. Fair value of debt is based on current rates for similar financing. The fair value of commitments to extend credit and standby letters of credit is not material.
The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument measured on a recurring basis:
Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 78 – FAIR VALUE - continued
The carrying amounts and estimated fair values of financial instruments at September 30, 20172019 were as follows:
| | | | | Fair Value Measurements at September 30, 2017 Using | | | | | | Fair Value Measurements at September 30, 2019 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 | | | $ | 106,685 | | | $ | 106,685 | | | $ | - | | | $ | - | | | $ | 106,685 | |
Time deposits with other banks | | | 2,582 | | | | - | | | | 2,589 | | | | - | | | | 2,589 | | | 598 | | | - | | | 599 | | | - | | | 599 | |
Federal funds sold | | | 11,632 | | | | 11,632 | | | | - | | | | - | | | | 11,632 | | | 15,983 | | | 15,983 | | | - | | | - | | | 15,983 | |
Securities available for sale | | | 289,203 | | | | - | | | | 289,203 | | | | - | | | | 289,203 | | | 347,811 | | | - | | | 347,811 | | | - | | | 347,811 | |
Loans, net | | | 1,042,965 | | | | - | | | | - | | | | 1,029,145 | | | | 1,029,145 | | | 1,127,051 | | | - | | | - | | | 1,118,758 | | | 1,118,758 | |
Federal Home Loan Bank stock | | | 3,185 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | 3,538 | | | n/a | | | n/a | | | n/a | | | n/a | |
Interest receivable | | | 4,060 | | | | - | | | | 829 | | | | 3,231 | | | | 4,060 | | | 4,415 | | | 5 | | | 990 | | | 3,420 | | | 4,415 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Deposits | | $ | (1,269,384 | ) | | $ | (925,328 | ) | | $ | (340,134 | ) | | $ | - | | | $ | (1,265,462 | ) | | $ | (1,427,240 | ) | | $ | (1,025,301 | ) | | $ | (399,595 | ) | | $ | - | | | $ | (1,424,896 | ) |
Securities sold under agreements to repurchase | | | (25,116 | ) | | | - | | | | (25,116 | ) | | | - | | | | (25,116 | ) | | (21,721 | ) | | - | | | (21,721 | ) | | - | | | (21,721 | ) |
Other borrowed funds | | | (6,000 | ) | | | - | | | | (5,966 | ) | | | - | | | | (5,966 | ) | |
Subordinated Debt | | | (5,368 | ) | | | - | | | | (5,381 | ) | | | - | | | | (5,381 | ) | |
FHLB advances | | | (6,362 | ) | | - | | | (6,401 | ) | | - | | | (6,401 | ) |
Subordinated debt | | | (5,428 | ) | | - | | | (5,424 | ) | | - | | | (5,424 | ) |
Interest payable | | | (358 | ) | | | (7 | ) | | | (351 | ) | | | - | | | | (358 | ) | | (847 | ) | | (16 | ) | | (831 | ) | | - | | | (847 | ) |
The carrying amounts and estimated fair values of financial instruments at December 31, 20162018 were as follows:
| | | | | Fair Value Measurements at December 31, 2016 Using | | | | | | Fair Value Measurements at December 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 | | $ | 97,163 | | | $ | 97,163 | | | $ | - | | | $ | - | | | $ | 97,163 | | | $ | 62,903 | | | $ | 62,903 | | | $ | - | | | $ | - | | | $ | 62,903 | |
Time deposits with other banks | | | 2,332 | | | | - | | | | 2,352 | | | | - | | | | 2,352 | | | 1,094 | | | - | | | 1,085 | | | - | | | 1,085 | |
Federal funds sold | | | 7,555 | | | | 7,555 | | | | - | | | | - | | | | 7,555 | | | 17,872 | | | 17,872 | | | - | | | - | | | 17,872 | |
Securities available for sale | | | 288,607 | | | | - | | | | 288,607 | | | | - | | | | 288,607 | | | 365,731 | | | - | | | 365,231 | | | 500 | | | 365,731 | |
Loans, net | | | 1,013,987 | | | | - | | | | - | | | | 1,004,388 | | | | 1,004,388 | | | 1,135,563 | | | - | | | - | | | 1,121,517 | | | 1,121,517 | |
Federal Home Loan Bank stock | | | 3,200 | | | | n/a | | | | n/a | | | | n/a | | | | n/a | | | 3,628 | | | n/a | | | n/a | | | n/a | | | n/a | |
Interest receivable | | | 3,862 | | | | - | | | | 771 | | | | 3,091 | | | | 3,862 | | | 4,295 | | | - | | | 1,032 | | | 3,263 | | | 4,295 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Deposits | | $ | (1,279,386 | ) | | $ | (920,745 | ) | | $ | (354,885 | ) | | $ | - | | | $ | (1,275,630 | ) | | $ | (1,430,127 | ) | | $ | (1,039,430 | ) | | $ | (384,496 | ) | | $ | - | | | $ | (1,423,926 | ) |
Securities sold under agreements to repurchase | | | (23,820 | ) | | | - | | | | (23,820 | ) | | | - | | | | (23,820 | ) | | (22,062 | ) | | - | | | (22,062 | ) | | - | | | (22,062 | ) |
FHLB advances | | | (8,819 | ) | | - | | | (8,688 | ) | | - | | | (8,688 | ) |
Other borrowed funds | | | (8,859 | ) | | | - | | | | (8,906 | ) | | | - | | | | (8,906 | ) | | (2,500 | ) | | - | | | (2,478 | ) | | - | | | (2,478 | ) |
Subordinated debt | | | (5,343 | ) | | | - | | | | (5,341 | ) | | | - | | | | (5,341 | ) | | (5,406 | ) | | - | | | (5,509 | ) | | - | | | (5,509 | ) |
Interest payable | | | (364 | ) | | | (7 | ) | | | (357 | ) | | | - | | | | (364 | ) | | (733 | ) | | (22 | ) | | (711 | ) | | - | | | (733 | ) |
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 78 – 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 September 30, 2019 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 | | | $ | - | | | $ | 246,522 | | | $ | - | | | $ | 246,522 | | | $ | - | |
U. S. agency CMO’s - residential | | | 56,514 | | | | - | | | | 56,514 | | | | - | | | | 67,807 | | | | - | | | | 67,807 | | | | - | |
Total mortgage-backed securities of government sponsored agencies | | | 256,447 | | | | - | | | | 256,447 | | | | - | | | | 314,329 | | | | - | | | | 314,329 | | | | - | |
U. S. government sponsored agency securities | | | 19,275 | | | | - | | | | 19,275 | | | | - | | | 18,338 | | | - | | | 18,338 | | | - | |
Obligations of states and political subdivisions | | | 13,481 | | | | - | | | | 13,481 | | | | - | | | 12,584 | | | - | | | 12,584 | | | - | |
Total available for sale | | $ | 289,203 | | | $ | - | | | $ | 289,203 | | | $ | - | | |
Other securities | | | | 2,560 | | | | - | | | | 2,560 | | | | - | |
Total securities available for sale | | | $ | 347,811 | | | $ | - | | | $ | 347,811 | | | $ | - | |
| | | | | Fair Value Measurements at December 31, 2016 Using: | | | | | | Fair Value Measurements at December 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 | | $ | 174,177 | | | $ | - | | | $ | 174,177 | | | $ | - | | | $ | 255,242 | | | $ | - | | | $ | 255,242 | | | $ | - | |
U. S. agency CMO’s - residential | | | 73,267 | | | | - | | | | 73,267 | | | | - | | |
U. S. agency CMO’s | | | | 68,543 | | | | - | | | | 68,543 | | | | - | |
Total mortgage-backed securities of government sponsored agencies | | | 247,444 | | | | - | | | | 247,444 | | | | - | | | | 323,785 | | | | - | | | | 323,785 | | | | - | |
U. S. government sponsored agency securities | | | 24,501 | | | | - | | | | 24,501 | | | | - | | | 24,170 | | | - | | | 24,170 | | | - | |
Obligations of states and political subdivisions | | | 16,662 | | | | - | | | | 16,662 | | | | - | | | 14,327 | | | - | | | 14,327 | | | - | |
Other securities | | | | 3,449 | | | | - | | | | 2,949 | | | | 500 | |
Total securities available for sale | | $ | 288,607 | | | $ | - | | | $ | 288,607 | | | $ | - | | | $ | 365,731 | | | $ | - | | | $ | 365,231 | | | $ | 500 | |
There were no transfers between Level 1 and Level 2 during 20172019 or 2016.2018.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 78 – FAIR VALUE - continued
The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2019:
| | Securities Available-for-sale | |
| | Nine Months Ended September 30, 2019 | |
Balance of recurring Level 3 assets at beginning of period | | $ | 500 | |
Total gains or losses (realized/unrealized): | | | | |
Included in earnings – realized | | | - | |
Included in earnings – unrealized | | | - | |
Included in other comprehensive income | | | - | |
Purchases, sales, issuances and settlements, net | | | (500 | ) |
Transfers in and/or out of Level 3 | | | - | |
Balance of recurring Level 3 assets at period-end | | $ | - | |
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 financial statements, or aging reports. Management periodically evaluates the appraised collateral values and will discount the collateral’s appraised value to account for a number of factors including but not limited to the cost of liquidating the collateral, the age of the appraisal, observable deterioration since the appraisal, management’s expertise and knowledge of the client and client’s business, or other factors unique to the collateral. To the extent an adjusted collateral value is lower than the carrying value of an impaired loan, a specific allocation of the allowance for loan losses is assigned to the loan.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 8 - FAIR VALUE - continued
Other real estate owned (OREO): The fair value of OREO is based on appraisals less cost to sell at the date of foreclosure. Management may obtain additional updated appraisals depending on the length of time since foreclosure. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Management periodically evaluates the appraised values and will discount a property’s appraised value to account for a number of factors including but not limited to the cost of liquidating the collateral, the age of the appraisal, observable deterioration since the appraisal, or other factors unique to the property. To the extent an adjusted appraised value is lower than the carrying value of an OREO property, a direct charge to earnings is recorded as an OREO write-down.writedown.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 78 – FAIR VALUE - continued
Assets and liabilities measured at fair value on a non-recurring basis at September 30, 20172019 are summarized below:
| | | | | Fair Value Measurements at September 30, 2017 Using | | | | | | Fair Value Measurements at September 30, 2019 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 | | | $ | 2,066 | | | $ | - | | | $ | - | | | $ | 2,066 | |
Commercial real estate: | | | | | | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | |
Owner occupied | | | 569 | | | | - | | | | - | | | | 569 | | | 661 | | | - | | | - | | | 661 | |
Non-owner occupied | | | 1,984 | | | | - | | | | - | | | | 1,984 | | | 2,374 | | | - | | | - | | | 2,374 | |
Commercial and industrial | | | 161 | | | | - | | | | - | | | | 161 | | | 194 | | | - | | | - | | | 194 | |
All other | | | 3,593 | | | | - | | | | - | | | | 3,593 | | |
Construction and land | | | | 380 | | | | - | | | | - | | | | 380 | |
Total impaired loans | | $ | 16,885 | | | $ | - | | | $ | - | | | $ | 16,885 | | | $ | 5,675 | | | $ | - | | | $ | - | | | $ | 5,675 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other real estate owned: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate | | $ | 370 | | | $ | - | | | $ | - | | | $ | 370 | | | $ | 1,149 | | | $ | - | | | $ | - | | | $ | 1,149 | |
Commercial real estate: | | | | | | | | | | | | | | | | | |
Multifamily real estate | | | 10,307 | | | - | | | - | | | 10,307 | |
Commercial real estate | | | | | | | | | | | | | |
Owner occupied | | | 175 | | | | - | | | | - | | | | 175 | | | 291 | | | - | | | - | | | 291 | |
Non-owner occupied | | | 1,853 | | | | - | | | | - | | | | 1,853 | | |
All other | | | 2,855 | | | | - | | | | - | | | | 2,855 | | |
Construction and land | | | | 829 | | | | - | | | | - | | | | 829 | |
Total OREO | | $ | 5,253 | | | $ | - | | | $ | - | | | $ | 5,253 | | | $ | 12,576 | | | $ | - | | | $ | - | | | $ | 12,576 | |
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$8,148,000 at September 30,
20172019 with a valuation allowance of
$1,598,000$2,473,000 and a carrying amount of
$4,446,000$10,177,000 at December 31,
20162018 with a valuation allowance of
$606,000.$2,796,000. The change resulted in a provision for loan losses of
$1,165,000$324,000 for the
nine monthsnine-months ended September 30,
2017,2019, compared to
an $215,000a $868,000 provision for loan losses for the
ninenine-months ended September 30, 2018 and a $98,000 increase in provision for loans losses for the three months ended September 30,
2016 and2019, compared to a
$423,000$348,000 increase in 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, 2016.2018. The detail of impaired loans by loan class is contained in
Note 3 above.
Other real estate owned measured at fair value less costs to sell, had a net carrying amount of $5,253,000$12,576,000, which is made up of the outstanding balance of $8,642,000$13,455,000 net of a valuation allowance of $3,389,000$879,000 at September 30, 2017.2019. There were $474,000$311,000 of additional write downswritedowns during the nine months ended September 30, 2017,2019, compared to $478,000$120,000 of additional write downswritedowns during the nine months ended September 30, 2016.2018. For the three months ended September 30, 20172019 there were $111,000$180,000 of additional write downswritedowns compared to $478,000 ofno additional write downswritedowns during the three months ended September 30, 2016.2018. At December 31, 2016,2018, other real estate owned had a net carrying amount of $6,624,000,$11,766,000, made up of the outstanding balance of $9,900,000,$12,769,000, net of a valuation allowance of $3,276,000.$1,003,000.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 78 – FAIR VALUE - continued
The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at September 30, 20172019 are summarized below:
| | September 30, 2017 | | Valuation Techniques | | Unobservable Inputs | | Range (Weighted Avg) | | September 30, 2019 | | 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 | |
| $ | 2,066 | | sales comparison | | adjustment for estimated realizable value |
| 55.2%-55.2% (55.2%) |
Commercial real estate | | | | | | | | | |
Owner occupied | | | 569 | | sales comparison | | adjustment for estimated realizable value | | 23.1%-23.1% (23.1%) | | 661 | | sales comparison | | adjustment for estimated realizable value | | 68.4%-68.4% (68.4%) |
Non-owner occupied | | | 1,984 | | income approach | | adjustment for differences in net operating income expectations | | 67.4%-67.4% (67.4%) | | 2,374 | | income approach | | adjustment for differences in net operating income expectations | | 23.4%-67.4% (56.4%) |
Commercial and industrial | | | 161 | | sales comparison | | adjustment for estimated realizable value | | 8.0%-56.5% (52.8%) | | 194 | | sales comparison | | adjustment for estimated realizable value | | 0.0%-0.0% (0.0%) |
All other | | | 3,593 | | sales comparison | | adjustment for percentage of completion of construction | | 8.0%-23.0% (22.7%) | |
Construction and land | | | | 380 | | sales comparison | | adjustment for estimated realizable value | | 56.5%-56.5% (56.5%) |
Total impaired loans | | $ | 16,885 | | | | | | | | $ | 5,675 | | | | | | |
| | | | | | | | | | | | | | | | | |
Other real estate owned: | | | | | | | | | | | | | | | | | |
Residential real estate | | $ | 370 | | sales comparison | | adjustment for differences between the comparable sales | | 0.0%-50.2% (16.4%) | | $ | 1,149 | | sales comparison | | adjustment for estimated realizable value | | 0.2%-59.8% (20.2%) |
Commercial real estate: | | | | | | | | | | |
Multifamily real estate | | | 10,307 | | income approach | | adjustment for differences in net operating income expectations | | 20.0%-20.0% (20.0%) |
Commercial real estate | | | | | | | | | |
Owner occupied | | | 175 | | sales comparison | | adjustment for estimated realizable value | | 21.8%-21.8% (21.8%) | | 291 | | sales comparison | | adjustment for estimated realizable value | | 14.6%-83.2% (39.0%) |
Non-owner occupied | | | 1,853 | | sales comparison | | adjustment for estimated realizable value | | 31.8%-58.9% (34.7%) | |
All other | | | 2,855 | | sales comparison | | adjustment for estimated realizable value | | 15.1%-69.0% (18.8%) | |
Construction and land | | | | 829 | | sales comparison | | adjustment for estimated realizable value | | 37.5%-69.9% (64.1%) |
Total OREO | | $ | 5,253 | | | | | | | | $ | 12,576 | | | | | | |
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 78 – FAIR VALUE - continued
Assets and liabilities measured at fair value on a non-recurring basis at December 31, 20162018 are summarized below:
| | | | | Fair Value Measurements at December 31, 2016 Using | | | | | | Fair Value Measurements at December 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: | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial real estate: | | | | | | | | | | | | | |
Multifamily real estate | | | $ | 2,514 | | | $ | - | | | $ | - | | | $ | 2,514 | |
Commercial real estate | | | | | | | | | | | | | |
Owner occupied | | $ | 793 | | | $ | - | | | $ | - | | | $ | 793 | | | 1,786 | | | - | | | - | | | 1,786 | |
Commercial and Industrial | | | 12 | | | | - | | | | - | | | | 12 | | |
All Other | | | 3,036 | | | | - | | | | - | | | | 3,036 | | |
Non-owner occupied | | | 2,514 | | | - | | | - | | | 2,514 | |
Commercial and industrial | | | 144 | | | - | | | - | | | 144 | |
Construction and land | | | | 423 | | | | - | | | | - | | | | 423 | |
Total impaired loans | | $ | 3,841 | | | $ | - | | | $ | - | | | $ | 3,841 | | | $ | 7,381 | | | $ | - | | | $ | - | | | $ | 7,381 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other real estate owned: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Residential real estate: | | $ | 613 | | | $ | - | | | $ | - | | | $ | 613 | | |
Commercial real estate: | | | | | | | | | | | | | | | | | |
Residential real estate | | | $ | 984 | | | $ | - | | | $ | - | | | $ | 984 | |
Multifamily real estate | | | 10,307 | | | - | | | - | | | 10,307 | |
Commercial real estate | | | | | | | | | | | | | |
Owner occupied | | | 175 | | | | - | | | | - | | | | 175 | | | 125 | | | - | | | - | | | 125 | |
Non-owner occupied | | | 2,153 | | | | - | | | | - | | | | 2,153 | | | 200 | | | - | | | - | | | 200 | |
All other | | | 3,683 | | | | - | | | | - | | | | 3,683 | | |
Construction and land | | | | 150 | | | | - | | | | - | | | | 150 | |
Total OREO | | $ | 6,624 | | | $ | - | | | $ | - | | | $ | 6,624 | | | $ | 11,766 | | | $ | - | | | $ | - | | | $ | 11,766 | |
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 78 – FAIR VALUE - continued
The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at December 31, 20162018 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, 2018 | | Valuation Techniques | | Unobservable Inputs | | Range (Weighted Avg) |
Impaired loans: | | | | | | | | |
Multifamily real estate | | $ | 2,514 | | sales comparison | | adjustment for estimated realizable value | | 45.3%-45.3% (45.3%) |
Commercial real estate | | | | | | | | | |
Owner occupied | | | 1,786 | | sales comparison | | adjustment for estimated realizable value | | 31.5%-50.6% (35.5%) |
Non-owner occupied | | | 2,514 | | income approach | | adjustment for differences in net operating income expectations | | 16.1%-67.2% (54.1%) |
Commercial and industrial | | | 144 | | sales comparison | | adjustment for estimated realizable value | | 0.0%-0.0% (0.0%) |
Construction and land | | | 423 | | sales comparison | | adjustment for estimated realizable value | | 53.2%-83.6% (54.5%) |
Total impaired loans | | $ | 7,381 | | | | | | |
| | | | | | | | | |
Other real estate owned: | | | | | | | | | |
Residential real estate | | $ | 984 | | sales comparison | | adjustment for estimated realizable value | | 19.2%-59.8% (21.9%) |
Multifamily real estate | | | 10,307 | | income approach | | adjustment for differences in net operating income expectations | | 20.0%-20.0% (20.0%) |
Commercial real estate | | | | | | | | | |
Owner occupied | | | 125 | | sales comparison | | adjustment for estimated realizable value | | 42.4%-42.4% (42.4%) |
Non-owner occupied | | | 200 | | sales comparison | | adjustment for estimated realizable value | | 57.9%-57.9% (57.9%) |
Construction and land | | | 150 | | sales comparison | | adjustment for estimated realizable value | | 50.3%-50.3% (50.3%) |
Total OREO | | $ | 11,766 | | | | | | |
- 3940 -
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 9 - SUBSEQUENT EVENT
Effective with the close of business on October 25, 2019, Premier completed its purchase of The First National Bank of Jackson (“Jackson”), a $103.6 million national bank (as of September 30, 2019) headquartered in Jackson, Kentucky whereby Citizens Deposit Bank and Trust, Inc., Premier’s wholly owned subsidiary, purchased Jackson for $14,560,000 in cash. Under terms of the Merger Agreement, Citizens purchased all the shares of Jackson common stock for an amount equal to Jackson’s total shareholder equity at the effective time plus certain adjustments and subsequently merged Jackson with and into Citizens. Management has not yet completed all of the analyses needed to estimate the fair value of the assets and liabilities acquired, both tangible and intangible.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 20172019
Item 2. 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” and similar expressions are intended to identify forward-looking statements.
A. Results of Operations
A financial institution’s primary sources of revenue are generated by interest income on loans, investments and other earning assets, while its major expenses are produced by the funding of these assets with interest bearing liabilities. Effective management of these sources and uses of funds is essential in attaining a financial institution’s optimal profitability while maintaining a minimum amount of interest rate risk and credit risk.
Net income for the nine months ended September 30, 20172019 was $11,050,000,$18,302,000, or $1.03$1.24 per diluted share, compared to net income of $8,767,000,$14,529,000, or $0.83$1.08 per diluted share, for the nine months ended September 30, 2016.2018. The increase in income in 2017the first nine months of 2019 is largely due to an increase in net interest income, an increase in other operatingnon-interest income, and a decrease in other operatingthe provision for loan losses all of which more than offset increases in interest expense and non-interest expense. The comparative increases in interest income and expense as well as non-interest income and expense are, in large part, attributable to the operations of the First Bank of Charleston acquired on October 12, 2018, which are not included in the first nine months of 2018 income statement results. The increase in non-interest expense was also partially due to an increase in OREO expense resulting from $1,080,000 of net gains on the sale of OREO properties in the first three months of 2018. OREO expenses and writedowns are traditionally included in Premier’s total non-interest expenses, so the net gains from these sales reduced non-interest expense in the first quarter of 2018. The annualized returns on average common stockholders’shareholders’ equity and average assets were approximately 8.13%10.67% and 0.99%1.43% for the nine months ended September 30, 20172019 compared to 6.71%10.38% and 0.79%%1.28% for the same period in 2016.2018.
Net income for the three months ended September 30, 20172019 was $3,467,000,$6,267,000, or $0.32$0.43 per diluted share, compared to net income of $3,164,000,$5,021,000, or $0.30$0.37 per diluted share for the three months ended September 30, 2016.2018. The increase in net income during the three months ended September 30, 2017third quarter of 2019 is largely due to an increaseincreases in interest income and non-interest income, as well as a decreaseall of which more than offset increases in the provision for loan losses, interest expense, and non-interest expense. The annualized returns on average common stockholders’shareholders’ equity and average assets were approximately 7.53%10.61% and 0.93%1.46% for the three months ended September 30, 20172019 compared to 7.10%10.65% and 0.84%1.32% for the same period in 2016.2018.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 20172019
Net interest income for the nine months ended September 30, 20172019 totaled $43.289$50.268 million, up $3.027 million,an increase of $6,705,000, or 7.5%15.4%, from the $40.262$43.563 million of net interest income earned in the first nine months of 2016.2018. Interest income in 20172019 increased by $2.875 million,$9,925,000, or 6.6%20.9%, largely due to a $2.583 million$7,505,000 increase in interest income on loans.loans, a $2,229,000 increase in interest income on investments, and a $191,000 increase in interest income on federal funds sold and other interest-bearing bank balances. Interest income on loans in the first nine months of 20172019 included approximately $1.607 million$1,619,000 of income recognized from deferred interest and discounts recognized on loans that paid off during the first nine months of 2017,2019 compared to $212,000$843,000 of loan interest income of this kind recognized during the first nine months of 2016.2018. The loan payoffs in 2017 included both non-accrual loans and performing loans that were once on non-accrual status. Otherwise, interest income on loans increased by $1.188 million,$6,729,000, or 3.0%16.6%, in the first nine months of 2019, largely due to a higher average yield on a higher average balance of loans outstanding during 2019 when compared to the period.first nine months of 2018. Interest income on investment securities in the first nine months of 20172019 increased by $105,000,$2,229,000, or 2.4%45.0%, largely due to higher average yields and a higher yielding investment portfolio, although on a lower average balance of investments outstanding, as surplus fundsoutstanding. The higher average balance of investments and maturing investments have been usedloans is largely due to fund the higher yieldinginvestment and loan portfolio.portfolios from the First Bank of Charleston acquisition in the fourth quarter of 2018. Interest income from interest-bearing bank balances and federal funds sold increased by $187,000,$191,000, or 57.0%16.6%, largely due to an increase in the average yield earned on these balances in 2017 resulting from2019 as a result of increases in the short-term interest rate policy of the Federal Reserve Board of Governors’ decisions toGovernors during 2018.
Partially offsetting the increase the federal funds target rate by a total of 75 basis pointsin interest income in the last twelvefirst nine months of 2019 was a $3,220,000, or 80.7%, increase in interest expense, driven by an increase in interest expense on a lowerdeposits. Interest expense on deposits increased by $3,119,000, or 87.1% in the first nine months of 2019 due to increases in the average balance outstandingrate paid on certificates of deposit, savings deposits, and NOW and money market deposits during the first nine months of 2017.
Interest expense decreased in total during the first nine months of 2017 by $152,000, or 4.4%, when2019 compared to the same nine months of 2016. Interest expense on deposits decreased by $63,000,period in 2018. Average interest-bearing deposit balances were up $107.2 million, or 2.2%11.3%, in the first nine months of 2017, primarily2019 compared to the same period of 2018, largely due to a lowerthe acquisition of the First Bank of Charleston in the fourth quarter of 2018. The average balanceinterest rate paid on interest-bearing deposits was up 34 basis points in 2019, from 0.51% in 2018 to 0.85% in 2019. Increases in short-term rates have increased competition for deposits and time deposits in particular. The related rates of higher rate certificates of depositinterest paid on time deposits increased by 70 basis points, driving the overall increase in interest expense on deposits in the first nine months of 20172019 when compared to the same period of 2018. Interest expense on customer repurchase agreements and other short-term borrowings increased by $20,000 in the first nine months of 2016. The decrease2019, largely due to an increase in the average of these deposit balances was partially replaced by anrate paid on a slightly higher average balance outstanding. Adding to the interest expense increase in average transaction based interest-bearing deposits and savings deposits, which typically pay a lower2019 was $151,000 of interest rate than certificatesexpense on the remaining Federal Home Loan Bank (“FHLB”) borrowings of deposit. InterestFirst Bank of Charleston assumed by Premier as part of the acquisition, while there was no such interest in the first nine months of 2018. Partially offsetting the increase in interest expense on FHLB borrowings, interest expense on other borrowings in the first nine months of 20172019 decreased by $119,000,$94,000, or 33.7%75.2%, largely due to a decrease in outstanding borrowings from scheduled and accelerated principal payments includingon the full repaymentlong-term borrowing at the parent company. This borrowing was fully repaid during the first half of bank based FHLB borrowings during 2016. Partially offsetting2019. Also, adding to the decreaseoverall increase in interest expense on borrowingsduring 2019 was a $37,000,$24,000, or 20.4%9.3%, increase in interest expense on Premier’s subordinated debt due to an increase in the variable rate interest rate paid in 2017.2019. The variable interest rate is indexed to the three month London Interbank Offered Rate (“LIBOR”), which is sensitive to moveshas increased over the past twelve months in conjunction with increases in the short-term interest rate market.policy by the Federal Reserve Board of Governors.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 2019
Premier’s net interest margin during the first nine months of 20172019 was 4.19%,4.22% compared to 3.92%4.13% for the same period in 2016.2018. A portion of the interest income on loans isin both 2019 and 2018 was the result of recognizing deferred interest income and discounts on loans that paid-off during the period. Excluding this income, Premier’s net interest margin during the first nine months of 20172019 would have been 4.03%,4.09% compared to 3.90%4.05% for the same period in 2016.2018. As shown in the table below, Premier’s yield earned on federal funds sold and interest bearing bank balances increased to 1.47%2.37% in the first nine months of 2017,2019, from the 0.66%1.90% earned in the first nine months of 2016.2018. The average yield earned on securities available for sale and total loans outstanding also increased when compared to the first nine months of 2016. Further improving Premier’s net2018. Similarly, the average yield earned on total loans outstanding increased to 5.68% in 2019 from the 5.35% earned during the first nine months of 2018. Earning asset yields have increased generally in response to increases in short-term interest margin,rate policy as new loans have been made with higher interest rates and new investment purchases have been at higher market yields. Similar to the increase in earning asset yields, the average rate paid on interest-bearing liabilities decreased inincreased by 34 basis points during the first nine months of 2017, as decreases in2019. As noted above, the average rates paid on interest-bearing deposits andincreased from 0.51% in the first nine months to 2018 to 0.85% during the first nine months of 2019, largely due to higher rates paid on certificates of deposit. The average rate paid on short-term borrowings were partially offset by a higherand other borrowings increased slightly. Furthermore, the average rate paid on Premier’s variable rate subordinated debentures. The overall effect was to increase Premier’s net interest spread by 26 basis points to 4.06% and its net interest margin by 27 basis points to 4.19%debentures increased from 6.38% in the first nine months of 20172018 to 6.94% in the first nine months of 2019 due to increases in short-term interest rate policy. These increases in average rates paid, plus the average interest rate on the FHLB borrowings assumed in the acquisition of First Bank of Charleston, resulted in an increase in the average rate paid on total interest-bearing liabilities to 0.89% in the first nine months of 2019 compared to 0.55% in the first nine months of 2018. The overall effect was a decrease to Premier’s net interest spread by 2 basis points to 3.94%. However, due to a greater increase in average interest-earning assets than the increase in average interest-bearing liabilities funded from non-interest-bearing sources, such as the $40.7 million, or 11.9%, increase in non-interest bearing deposits and the $42.2 million, or 22.6% increase in average stockholders’ equity, Premier’s net interest margin did not decrease but increased by 9 basis points to 4.22% in the first nine months of 2019 when compared to the first nine months of 2016.2018.
- 4144 -
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 20172019
Additional information on Premier’s net interest income for the first nine months of 20172019 and first nine months of 20162018 is contained in the following table.
PREMIER FINANCIAL BANCORP, INC. | PREMIER FINANCIAL BANCORP, INC. | | PREMIER FINANCIAL BANCORP, INC. | |
AVERAGE CONSOLIDATED BALANCE SHEETS | AVERAGE CONSOLIDATED BALANCE SHEETS | | AVERAGE CONSOLIDATED BALANCE SHEETS | |
AND NET INTEREST INCOME ANALYSIS | AND NET INTEREST INCOME ANALYSIS | | AND NET INTEREST INCOME ANALYSIS | |
| | | | |
| | Nine Months Ended Sept 30, 2017 | | | Nine Months Ended Sept 30, 2016 | | | Nine Months Ended Sept 30, 2019 | | | Nine Months Ended Sept 30, 2018 | |
| | Balance | | | Interest | | | Yield/Rate | | | Balance | | | Interest | | | Yield/Rate | | | Balance | | | Interest | | | Yield/Rate | | | Balance | | | Interest | | | Yield/Rate | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest earning assets | | | | | | | | | | | | | | | | | | | |
Interest Earning Assets | | | | | | | | | | | | | | | | | | | |
Federal funds sold and other | | $ | 46,851 | | | $ | 515 | | | | 1.47 | % | | $ | 66,518 | | | $ | 328 | | | | 0.66 | % | | $ | 75,694 | | | $ | 1,342 | | | 2.37 | % | | $ | 80,960 | | | $ | 1,151 | | | 1.90 | % |
Securities available for sale | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | | 286,602 | | | | 4,236 | | | | 1.97 | | | | 294,926 | | | | 4,075 | | | | 1.84 | | | 351,783 | | | 6,917 | | | 2.62 | | | 284,136 | | | 4,787 | | | 2.25 | |
Tax-exempt | | | 12,523 | | | | 198 | | | | 3.24 | | | | 18,048 | | | | 254 | | | | 2.89 | | | | 13,058 | | | | 265 | | | | 3.43 | | | | 9,362 | | | | 166 | | | | 3.01 | |
Total investment securities | | | 299,125 | | | | 4,434 | | | | 2.02 | | | | 312,974 | | | | 4,329 | | | | 1.90 | | | 364,841 | | | 7,182 | | | 2.65 | | | 293,498 | | | 4,953 | | | 2.27 | |
Total loans | | | 1,038,719 | | | | 41,667 | | | | 5.36 | | | | 995,517 | | | | 39,084 | | | | 5.24 | | | | 1,151,855 | | | | 48,954 | | | | 5.68 | | | | 1,035,634 | | | | 41,449 | | | | 5.35 | |
Total interest-earning assets | | | 1,384,695 | | | | 46,616 | | | | 4.51 | % | | | 1,375,009 | | | | 43,741 | | | | 4.26 | % | | 1,592,390 | | | 57,478 | | | 4.83 | % | | 1,410,092 | | | 47,553 | | | 4.51 | % |
Allowance for loan losses | | | (11,231 | ) | | | | | | | | | | | (10,235 | ) | | | | | | | | | | (13,780 | ) | | | | | | | | (12,843 | ) | | | | | | |
Cash and due from banks | | | 40,700 | | | | | | | | | | | | 38,291 | | | | | | | | | | | 22,935 | | | | | | | | | 25,967 | | | | | | | |
Other assets | | | 80,857 | | | | | | | | | | | | 81,678 | | | | | | | | | | | | 109,325 | | | | | | | | | | 86,392 | | | | | | | |
Total assets | | $ | 1,495,021 | | | | | | | | | | | $ | 1,484,743 | | | | | | | | | | | $ | 1,710,870 | | | | | | | | | $ | 1,509,608 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing deposits | | $ | 959,489 | | | | 2,854 | | | | 0.40 | | | $ | 960,668 | | | | 2,917 | | | | 0.41 | | | $ | 1,053,876 | | | 6,702 | | | 0.85 | | | $ | 946,718 | | | 3,583 | | | 0.51 | |
Short-term borrowings | | | 22,512 | | | | 21 | | | | 0.12 | | | | 25,068 | | | | 28 | | | | 0.15 | | | 21,864 | | | 45 | | | 0.28 | | | 21,769 | | | 25 | | | 0.15 | |
FHLB advances | | | - | | | | - | | | | - | | | | 2,904 | | | | 32 | | | | 1.47 | | | 6,837 | | | 151 | | | 2.95 | | | - | | | - | | | 0.00 | |
Other borrowings | | | 7,586 | | | | 234 | | | | 4.12 | | | | 10,396 | | | | 321 | | | | 4.12 | | | 949 | | | 31 | | | 4.37 | | | 4,080 | | | 125 | | | 4.10 | |
Subordinated debentures | | | 5,355 | | | | 218 | | | | 5.44 | | | | 5,027 | | | | 181 | | | | 4.81 | | |
Subordinated debt | | | | 5,416 | | | | 281 | | | | 6.94 | | | | 5,386 | | | | 257 | | | | 6.38 | |
Total interest-bearing liabilities | | | 994,942 | | | | 3,327 | | | | 0.45 | % | | | 1,004,063 | | | | 3,479 | | | | 0.46 | % | | 1,088,942 | | | 7,210 | | | 0.89 | % | | 977,953 | | | | 3,990 | | | 0.55 | % |
Non-interest bearing deposits | | | 314,344 | | | | | | | | | | | | 302,558 | | | | | | | | | | | 381,655 | | | | | | | | | 340,922 | | | | | | | |
Other liabilities | | | 4,582 | | | | | | | | | | | | 3,918 | | | | | | | | | | | 11,479 | | | | | | | | | 4,121 | | | | | | | |
Stockholders’ equity | | | 181,153 | | | | | | | | | | | | 174,204 | | | | | | | | | | | | 228,794 | | | | | | | | | | 186,612 | | | | | | | |
Total liabilities and equity | | $ | 1,495,021 | | | | | | | | | | | $ | 1,484,743 | | | | | | | | | | | $ | 1,710,870 | | | | | | | | | $ | 1,509,608 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net interest earnings | | | | | | $ | 43,289 | | | | | | | | | | | $ | 40,262 | | | | | | | | | | $ | 50,268 | | | | | | | | | $ | 43,563 | | | | |
Net interest spread | | | | | | | | | | | 4.06 | % | | | | | | | | | | | 3.80 | % | | | | | | | | 3.94 | % | | | | | | | | 3.96 | % |
Net interest margin | | | | | | | | | | | 4.19 | % | | | | | | | | | | | 3.92 | % | | | | | | | | 4.22 | % | | | | | | | | 4.13 | % |
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 20172019
Additional information on Premier’s net interest income for the third quarter of 20172019 and third quarter of 20162018 is contained in the following table.
PREMIER FINANCIAL BANCORP, INC. | |
AVERAGE CONSOLIDATED BALANCE SHEETS | |
AND NET INTEREST INCOME ANALYSIS | |
| |
| | Three Months Ended Sept 30, 2019 | | | Three Months Ended Sept 30, 2018 | |
| | Balance | | | Interest | | | Yield/Rate | | | Balance | | | Interest | | | Yield/Rate | |
Assets | | | | | | | | | | | | | | | | | | |
Interest Earning Assets | | | | | | | | | | | | | | | | | | |
Federal funds sold and other | | $ | 93,796 | | | $ | 519 | | | | 2.20 | % | | $ | 89,644 | | | $ | 473 | | | | 2.09 | % |
Securities available for sale | | | | | | | | | | | | | | | | | | | | | | | | |
Taxable | | | 346,444 | | | | 2,266 | | | | 2.62 | | | | 297,367 | | | | 1,745 | | | | 2.35 | |
Tax-exempt | | | 12,600 | | | | 85 | | | | 3.42 | | | | 8,555 | | | | 52 | | | | 3.14 | |
Total investment securities | | | 359,044 | | | | 2,351 | | | | 2.64 | | | | 305,922 | | | | 1,797 | | | | 2.37 | |
Total loans | | | 1,146,275 | | | | 16,438 | | | | 5.69 | | | | 1,032,099 | | | | 13,731 | | | | 5.28 | |
Total interest-earning assets | | | 1,599,115 | | | | 19,308 | | | | 4.81 | % | | | 1,427,665 | | | | 16,001 | | | | 4.46 | % |
Allowance for loan losses | | | (13,837 | ) | | | | | | | | | | | (13,252 | ) | | | | | | | | |
Cash and due from banks | | | 21,296 | | | | | | | | | | | | 22,410 | | | | | | | | | |
Other assets | | | 108,150 | | | | | | | | | | | | 85,166 | | | | | | | | | |
Total assets | | $ | 1,714,724 | | | | | | | | | | | $ | 1,521,989 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Equity | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing deposits | | $ | 1,055,037 | | | | 2,367 | | | | 0.89 | | | $ | 947,588 | | | | 1,355 | | | | 0.57 | |
Short-term borrowings | | | 21,490 | | | | 24 | | | | 0.44 | | | | 23,233 | | | | 10 | | | | 0.17 | |
FHLB advances | | | 6,354 | | | | 48 | | | | 3.00 | | | | - | | | | - | | | | 0.00 | |
Other borrowings | | | - | | | | - | | | | 0.00 | | | | 3,592 | | | | 37 | | | | 4.09 | |
Subordinated debentures | | | 5,424 | | | | 91 | | | | 6.66 | | | | 5,394 | | | | 90 | | | | 6.62 | |
Total interest-bearing liabilities | | | 1,088,305 | | | | 2,530 | | | | 0.92 | % | | | 979,807 | | | | 1,492 | | | | 0.60 | % |
Non-interest bearing deposits | | | 378,757 | | | | | | | | | | | | 349,028 | | | | | | | | | |
Other liabilities | | | 11,500 | | | | | | | | | | | | 4,634 | | | | | | | | | |
Stockholders’ equity | | | 236,162 | | | | | | | | | | | | 188,520 | | | | | | | | | |
Total liabilities and equity | | $ | 1,714,724 | | | | | | | | | | | $ | 1,521,989 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net interest earnings | | | | | | $ | 16,778 | | | | | | | | | | | $ | 14,509 | | | | | |
Net interest spread | | | | | | | | | | | 3.89 | % | | | | | | | | | | | 3.86 | % |
Net interest margin | | | | | | | | | | | 4.17 | % | | | | | | | | | | | 4.04 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
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 | % |
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 20172019
Net interest income for the quarter ended September 30, 20172019 totaled $14.031$16.778 million, up $315,000,$2,269,000, or 2.3%15.6%, from the $13.716$14.509 million of net interest income earned in the third quarter of 2016.2018. Interest income in 20172019 increased by $269,000,$3,307,000, or 1.8%20.7%, largely due to a $122,000,$2,707,000, or 8.9%19.7%, increase in interest income on investment securities.loans. Interest income on loans in the third quarter of 2017 increased $94,000, or 0.7%, compared to the interest income on loans earned during the same quarter of 2016. Interest income on loans in the third quarter of the prior year2019 included approximately $142,000$607,000 of income recognized from deferred interest and discounts recognized on loans that paid off during the quarter compared to noonly $141,000 of interest income of this kind recognized during the third quarter of 2017.2018. Otherwise, interest income on loans increased by $236,000,$2,241,000, or 1.8%16.5%, in the third quarter of 2017, largely2019, partially due to a higher average balance of loans outstanding during the quarter.quarter when compared to the third quarter of 2018, largely due to the loans acquired via the purchase of The First Bank of Charleston late in 2018, as well as a higher average yield on the loans outstanding. Interest income on investment securities in the third quarter of 20172019 increased by $122,000,$554,000, or 8.9%30.8%, largely due to a higher average yield on the investment portfolio, althoughyields on a lowerhigher average balance of investments outstanding during the quarter.third quarter of 2019, primarily due to the investment portfolio added from the acquisition of The First Bank of Charleston in the fourth quarter of 2018. Interest income from interest-bearing bank balances and federal funds sold increased by $53,000,$46,000, or 43.1%9.7%, largely due to an increase in the average yield on these balances in 2017 although2019 resulting from increases in the short-term interest rate policy of the Federal Reserve Board of Governors during 2018 on a lowerhigher average balance outstanding during the quarter.third quarter of 2019 when compared to the third quarter of 2018.
ComplementingPartially offsetting the increase in interest income in the third quarter of 20172019 was a $46,000,$1,038,000, or 4.0%69.6%, decreaseincrease in interest expense. Interest expense on deposits decreasedincreased by $11,000,$1,012,000, or 1.1%74.7%, in the third quarter of 2017, primarily2019, due to a lowerincreases in the average rate paid on certificates of deposit, savings deposits, and NOW and money market deposits during the quarter, when compared to the third quarter of 2018. Adding to the increase in interest expense on deposits, average interest-bearing deposit balances were up $107.4 million, or 11.3%, compared to the third quarter of 2018, while the average interest rate paid on interest-bearing deposits outstanding during the quarter. Interest expense on repurchase agreementswas up 32 basis points in 2019, from 0.57% in the third quarter of 2017 decreased by $3,000, or 30.0%, primarily due2018 to a lower average balance outstanding during the quarter. Interest expense on borrowings0.89% in the third quarter of 2017 decreased2019. Increases in short-term rates have increased competition for deposits and time deposits in particular. The related rates of interest paid on time deposits increased by $43,000, or 38.7%, largely due to a decrease in outstanding borrowings, including70 basis points, driving the full repayment of bank based FHLB borrowings during 2016. Partially offsetting the decrease in interest expense on borrowings was an $11,000, or 17.5%,overall increase in interest expense on Premier’s subordinated debt,deposits in the third quarter of 2019 when compared to the third quarter of 2018. Interest expense on customer repurchase agreements and other short-term borrowings increased by $14,000 in the third quarter of 2019, largely due to an increase in the variable interestaverage rate paid on a slightly lower average balance outstanding. Adding to the interest expense increase in 2017.2019 was $48,000 of interest expense on the remaining Federal Home Loan Bank (“FHLB”) borrowings of First Bank of Charleston assumed by Premier as part of the acquisition, while there was no such interest in the third quarter of 2018. Partially offsetting the increase in interest expense on FHLB borrowings, interest expense on other borrowings by the parent company decreased by $37,000, in the third quarter of 2019, due to the full repayment of this borrowing prior to the end of June 2019.
Premier’s net interest margin during the third quarter of 20172019 was 4.05%4.17% compared to 3.91%4.04% for the same period in 2016.2018. A portion of the interest income on loans in 2019 was the result of recognizing deferred interest income and discounts on loans that paid-off during the period. Excluding this income, Premier’s net interest margin during the third quarter of 2019 would have been 4.02% compared to 4.00% for the same period in 2018. As shown in the table above, Premier’s yield earned on federal funds sold and interest bearing bank balances increased to 2.16%2.20% in the third quarter of 2017,2019, from the 0.71%2.09% earned in the third quarter of 2016.2018. The average yield earned on securities available for sale also increased to 2.64% when compared to 2.37% earned during the third quarter of 2016.2018. The average yield earned on total loans outstanding decreasedthe loan portfolio increased to 5.10%5.69% in the third quarter of 2017,2019 from the 5.18% earned in the third quarter of 2016, partially due to the $142,000 of income recognized from deferred interest and discounts in the third quarter of 2016. The average rate paid on interest-bearing liabilities remained unchanged in the third quarter of 2017, as a decrease in interest expense on bank based FHLB advances was offset by a higher average rate paid on Premier’s variable rate subordinated debentures. The overall effect was to increase Premier’s net interest spread by 14 basis points to 3.92% and its net interest margin by 14 basis points to 4.05% in the third quarter of 2017 when compared to the same quarter of 2016.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 20172019
5.28% average yield earned in the third quarter of 2018. Earning asset yields have increased generally in response to increases in short-term interest rate policy as new loans have been made with higher interest rates and new investment purchases have been at higher market yields. Similar to the increase in earning asset yields, the average rate paid on interest bearing liabilities increased in the third quarter of 2019. The average rates paid on interest-bearing deposits increased from 0.57% in the third quarter of 2018 to 0.89% during the third quarter of 2019, largely due to higher rates paid on certificates of deposit. The average rate paid on short-term borrowings and other borrowings also increased although on lower combined average balance outstanding due to the repayment of other borrowings at the parent company. Furthermore, the average rate paid on Premier’s variable rate subordinated debentures increased from 6.62% in the third quarter of 2018 to 6.66% in the third quarter of 2019 due to increases in short-term interest rate policy. These increases in the average rates paid, plus the average interest rate on the FHLB borrowings assumed in the acquisition of First Bank of Charleston, resulted in an increase in the average rate paid on total interest-bearing liabilities to 0.92% in the third quarter of 2019 compared to 0.60% in the third quarter of 2018. The overall effect was an increase to Premier’s net interest spread by 3 basis points to 3.89% and its net interest margin by 13 basis point to 4.17% in the third quarter of 2019 when compared to the third quarter of 2018.
Non-interest income increased by $264,000,$260,000, or 4.4%3.9%, to $6,328,000$6,994,000 for the first nine months of 20172019 compared to the same period of 2016.2018. Service charges on deposit accounts increased by $226,000,$89,000, or 7.6%2.7%, other non-interest income increased by $196,000, or 34.3.%, and electronic bankingsecondary market mortgage income (income from debit/credit cards, ATM fees and internet banking charges) increased by $69,000,$12,000, or 2.9%8.5%. Service charges on deposit accounts increased largely due to an increase in customer overdraft activity, particularlywhile other non-interest income increased largely due to an increase in proportional income from an investment in a start-up insurance agency in 2018, and secondary market mortgage income increased largely due to an increase in the third quarterlevel of 2017, as Premier Bank introduced updated courtesy overdraft protection features on its consumer checking accounts. Electronichome purchasing and refinancing activity in Premier’s markets. Partially offsetting these increases was a decrease in electronic banking income increasedby $37,000, or 1.4%, primarily due to an increasea decrease in income from debit card transaction activity. Partially offsetting these increases was a $37,000, or 6.5%, decrease in other non- interest income, largely due to lower revenue on checkbook salesactivity and wire transfer fees as well as a lower level of loan extension and other fees on loans.non-customer ATM fees.
For the quarter ending September 30, 2017,2019, non-interest income increased by $115,000,$34,000, or 5.6%1.4%, to $2,177,000$2,471,000 compared to $2,062,000$2,437,000 recognized during the same quarter of 2016.2018. Service charges and fees on deposit accounts increased by $105,000,$33,000, or 10.2%2.8%, secondary market mortgage income increased by $68,000, or 234.5%, and other non-interest income increased by $10,000. These increases were partially offset by a $77,000, or 8.0%, decrease in electronic banking income increased by $20,000, or 2.5%. Service charges on deposit accounts increased largely due to an increase in customer overdraft activity, particularly in the third quarter of 2017, while electronic banking income increased primarily due to an increase in revenue from non-customer use of bank owned automated teller machines. Partially offsetting these increases was a $13,000, or 7.4%, decrease in other non-interest income largely due to a lower amount of loan extensionfrom debit card transaction activity and other fees on loans.non-customer ATM fees.
Non-interest expenses for the first nine months of 20172019 totaled $30.33$32.38 million, or 2.71%2.53% of average assets on an annualized basis, compared to $31.32$29.61 million, or 2.82%2.62% of average assets for the same period of 2016.2018. The $993,000,$2,770,000, or 3.2%9.4%, decreaseincrease in non-interest expenses in 20172019 when compared to the first nine months of 20162018 is largely due to a $322,000, or 2.1%, decrease in staff costs, a $263,000, or 18.8%, decrease in expenses and write-downs of OREO, a $246,000, or 32.7%, decrease in FDIC insurance expense, a $216,000, or 4.6%, decrease in occupancy and equipment expenses, and a $273,000, or 7.4%, decrease in other non-interest expenses. Staff costs decreased largely due to reductions in salary expense, payroll taxes, medical benefit costs, and retirement benefit costs related to reductions in personnel and changes to benefit plans at the acquired First National Bankshares locations. These savings were partially offset by normal salary increases at Premier’s other operations. OREO expenses decreased in 2017, largely due to lower cost to maintain properties held while being marketed for sale when comparedpart to the first nine months of 2016. In addition to lower maintenance costs, Premier recorded $41,000$1,080,000 of net gains on the sale of OREO compared to $30,000during the first quarter of net losses on the sale of OREO properties2018 discussed above. Otherwise, non-interest expense increased by $1,690,000, or 5.5% in the first nine months of 2016. Occupancy and equipment expense decreased2019 compared to the first nine months of 2018, largely due to lowerthe inclusion of the newly acquired First Bank of Charleston location. Increases in operating costs include a $1,381,000, or 9.4%, increase in staff costs, a $581,000, or 12.5%, increase in occupancy and equipment expenses, a $447,000, or 11.6%, increase in data processing, a $98,000, or 17.0%, increase in core deposit amortization, and a $65,000, or 9.7%, increase in taxes not on income. The $447,000 increase in occupancy and equipment expenses included an $185,000 building repairs and lower deprecation on information technology equipment. FDIC insurance decreased, largely due to lower rates charged on the assessment base. Other non-interest expenses decreased due in large part to $196,000 of conversion related expenses incurred in 2016impairment charge related to a branch location that is in the acquisition and data systems conversionprocess of First National Bankshares versus only $17,000 of conversion costs incurred in 2017.being liquidated. These decreasesincreases in non-interest expense were partially offset by a $221,000,$400,000, or 44.2%61.7%, increasedecrease in collection related expenses incurred, a $304,000, or 24.1%, decrease in professional fees, a $116,000,$205,000, or 24.5%46.3%, increasedecrease in taxes not on income,FDIC insurance, and a $84,000,$55,000, or 2.1%7.4%, increasedecrease in data processing costs when compared toexpenses and writedowns on OREO properties (after excluding the first nine months$1,080,000 of 2016. Professional fees increased largely due to increasesnet gains on sales in legal fees, audit costs, and expenditures on third party consultants. Taxes not on income increased largely due to increases in equity and deposit based taxes in Kentucky and Ohio due to growth in those markets from Premier’s expanding branch network into the metro Cincinnati, Ohio area. Outside data processing costs increased in 2017 largely due to the costs of expanding electronic access products such as internet banking and mobile banking.2018 discussed above).
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 20172019
Non-interest expenses for the third quarter of 20172019 totaled $9.93$10.75 million, or 2.65%2.49%, of average assets on an annualized basis, compared to $10.61$10.17 million, or 2.79%2.65%, of average assets for the same period of 2016.2018. The $683,000,$583,000, or 6.4%5.7%, decreaseincrease in non-interest expenses in the third quarter of 20172019 when compared to the third quarter of 20162018 is largely due to a $419,000,$576,000, or 54.8% decrease in OREO expenses and write-downs, a $57,000, or 1.2%11.9%, decreaseincrease in staff costs, a $124,000,$187,000 increase in OREO expenses, a $163,000, or 7.6%12.4%, decreaseincrease in data processing, and a $130,000, or 8.3%, increase in occupancy and equipment expense, andexpense. These increases were partially offset by a $119,000,$240,000, or 42.8%45.6%, decrease in professional fees, a $47,000, or 41.2%, decrease in loan collection expenses, a $176,000, or 103%, decrease in FDIC insurance expense. Staff costs decreasedpremiums, and a $67,000, or 6.4%, decrease in other operating expenses, when compared to the third quarter of 2018. The increase in OREO expense was largely due to a reduction in the number$180,000 of participants in the medical benefit plan and in medical benefit costs related to changes to benefit plans at the acquired First National Bankshares locations. Occupancy and equipment expense decreased largely due to lower building repairs, utility costs, and property insurance costs as well as lower deprecation related to information technology equipment. FDIC insurance decreased largely due to lower rates chargedwritedowns on the assessment base. OREO expenses decreasedcarrying value of the properties in the third quarter of 2017 largely2019. The decrease in FDIC insurance premium was due to a $367,000 decrease in the amountapplication of OREO value writedowns, when comparedFDIC premium credits for community banks used to the same quarter of 2016, as well as $26,000 of net gains on the sale of OREO inoffset the third quarter of 2017 when compared to $45,000 of net losses on the sale of OREO in the same quarter of 2016. These decreases were partially offset by a $29,000, or 17.4%, increase in professional fees, a $33,000, or 21.2%, increase in taxes not on income, and a $44,000, or 3.4%, increase in data processing costs. Professional fees increased largely due to increases in legal fees and audit costs. Taxes not on income increased largely due to increases in equity and deposit based taxes in Kentucky and Ohio due to growth in those markets from Premier’s expanding branch network into the metro Cincinnati, Ohio area. Outside data processing costs increased in the third quarter of 2017 largely due to the costs of expanding electronic access products such as internet banking and mobile banking.assessment.
Income tax expense was $6.207 million$5,261,000 for the first nine months of 20172019 compared to $4.803 million$4,264,000 for the first nine months of 2016.2018. The effective tax rate for the nine months ended September 30, 20172019 was 36.0%22.3% compared to 35.4%22.7% for the same period in 2016.2018. For the quarter ended September 30, 2017,2019, income tax expense was $1.925 million,$1,807,000, a 35.7%22.4% effective tax rate, compared to $1.694 million$1,483,000 (a 34.9%22.8% effective tax rate) for the same period in 2016. The increase in income tax expense during the first nine months of 2017 can be primarily attributed to the increase in pre-tax income detailed above. The increase in the effective tax rate in 2017 is largely due to higher levels of state taxable income. Similarly, the increase in income tax expense during the third quarter of 2017 when compared to the same quarter of 2016, can be primarily attributed to the increase in pre-tax income for the quarter as detailed above. The increase in the third quarter effective tax rate in 2017 is also largely due to higher levels of state taxable income.2018.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 20172019
B. Financial Position
Total assets at September 30, 2017 decreased2018 increased by $3.5$20.3 million to $1.493$1.710 billion from the $1.496$1.690 billion at December 31, 2016.2018. The decreaseincrease in total assets since year-end is largely due to a $33.8$40.2 million decreaseincrease in interest bearinginterest-bearing bank balances, a $1.3$3.6 million decreaseincrease in other assetscash and due from banks, and a $1.2$7.0 million decreaseincrease in OREO. These decreases werepremises and equipment, partially offset by a $30.5$17.9 million increasedecrease in the investment portfolio, an $8.4 million decrease in total loans, outstanding and a $4.1$1.9 million increasedecrease in federal funds sold. Contrary to the decrease in total assets, earningEarning assets increased by $1.4$11.3 million from the $1.382$1.578 billion at year-end 20162018 to end the third quarter at $1.384$1.589 billion.
Cash and due from banks at September 30, 20172019 was $41.8$26.6 million, a $388,000$3.6 million increase from the $41.4$23.0 million at December 31, 2016.2018. Interest-bearing bank balances decreasedincreased by $34.0$40.2 million from the $55.7$39.9 million reported at December 31, 2016. Federal2018 but federal funds sold increaseddecreased by $4.1$1.9 million to $11.6from $17.9 million at September 30, 2017.December 31, 2018. Changes in these highly liquid assets are generally in response to increases in deposits, the demand for deposit withdrawals or the funding of loans or investment purchases, and are part of Premier’s management of its liquidity and interest rate risks.
Securities available for sale totaled $347.8 million at September 30, 2019, a $17.9 million decrease from the $365.7 million at December 31, 2018. The decrease in interest-bearing bank balanceswas largely due to $59.9 million of securities that matured or were called during the first nine months of 2017 was largely in response to an increase in total loans outstanding.
Securities available for sale totaled $289.2 million at September 30, 2017, a $596,000 increase from the $288.6 million at December 31, 2016. The increase was largely due to the purchase of $49.2 million of investment securities2019 and a $3.7 million increase in the market value of the securities available for sale, which more than offset $50.8 million of proceeds from monthly principal payments on Premier’s mortgage backed securities portfolio and the sale of $7.3 million of investment securities that matured or were called duringwhich more than offset the year.$40.0 million increase from new purchases and the $10.0 million increase in market value of securities available for sale. The investment portfolio is predominately high quality residential mortgage backed securities backed by the U.S. Government or Government sponsored agencies. Any unrealized losses on securities within the portfolio at September 30, 20172019 and December 31, 20162018 are believed to be price changes resulting from increaseschanges in the long-term interest rate environment since acquiring the investment security and management anticipates receiving all principal and interest on these investments as they come due. Additional details on investment activities can be found in the Consolidated Statements of Cash Flows.
Total loans at September 30, 20172019 were $1.055$1.141 billion compared to $1.025$1.149 billion at December 31, 2016, an increase2018, a decrease of approximately $30.5$8.4 million, or 3.0%0.7%. The increase in loans wasslight decrease is largely due to internal loan growth which more than offset regular principal payments, loan payoffs, and transfers of loans to OREO upon foreclosure.foreclosure, which was partially offset by internal loan growth. Loan payoffs during the first nine months of 2017 included payoffs on $5.6 million of non-accrual loans and $5.4 million of performing loans which2019 resulted in recognizing approximately $1,407,000$894,000 of interest income deferred while the loans were on non-accrual status and $199,000$725,000 of remaining purchasefair value discounts associated with the loans. The increase
Premises and equipment increased by $7.0 million, largely due to the recording of a $7.4 million Finance Lease Right to Use Asset in total loans since year-end resulted from increases in commercial real estate loans, commercial and industrial loans, and all other loans. These increases more than offset decreases in residential real estate loans, multifamily real estate loans, and retail consumer loans.
Premisesaccordance with the adoption of Accounting Standards Update (“ASU”) 2016-02 on January 1, 2019. Otherwise, premises and equipment decreased by $720,000$400,000, largely due to normal depreciationthe $185,000 building impairment charge related to a branch location that is in the process of fixed assets. Other real estate owned acquired through foreclosure (“OREO”) decreased by $1.2 million largely due to $1.8 million of sales and $474,000 of OREO write-downs on existing OREO, partially offset by $1.1 million of new additions.being liquidated as well as regular depreciation. Goodwill and other intangible assets decreased by $768,000,$673,000, due to the year-to-date amortization of core deposit intangibles. Other assets decreased by $1.3 million primarily due to a decrease in deferred tax assets.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 20172019
Deposits totaled $1.269$1.427 billion as of September 30, 2017,2019, a $10.0$2.9 million, or 0.8%0.2%, decrease from the $1.279$1.430 billion in deposits at December 31, 2016.2018. The overall decrease in deposits is largely due to a $14.5$22.7 million, or 4.0% decrease in savings and money market accounts, and a $14.6, or 4.1%5.8%, decrease in certificates of deposit. These decreases werenon-interest bearing deposits. The decrease was partially offset by an $8.3a $9.0 million, or 2.6%2.3%, increase in non interest-bearing demandcertificates of deposits, a $6.1 million, or 1.7%, increase in savings deposits, and a $10.8$4.7 million, or 4.5%1.6%, increase in interest-bearing transaction accounts.interest bearing deposits. Repurchase agreements with corporate and public entity customers increaseddecreased in the first nine months of 20172019 by $1.3$341,000, or 1.5%. FHLB borrowings decreased by $2.5 million, or 5.4%.28.0%, since year-end 2018 due to planned repayment of borrowings upon maturity. Other borrowings decreased by $2.9$2.5 million since year-end 20162018 due to the $248,000 payment at maturity of a subsidiary bank borrowing as well as scheduled principal payments andplus additional principal payments on Premier’s existing parent company borrowings. Subordinated debentures increased $25,000,by $22,000, due to the continuing monthly accretionamortization of the purchase accounting fair value adjustment recorded in 2016 as partadjustments applied to the $6.186 million face value of the acquisition of First National Bankshares.subordinated debentures from previous acquisitions.
The following table sets forth information with respect to the Company’s nonperforming assets at September 30, 20172019 and December 31, 2016.2018.
| | (In Thousands) | | | (In Thousands) | |
| | 2017 | | | 2016 | | | 2019 | | | 2018 | |
Non-accrual loans | | $ | 24,345 | | | $ | 25,747 | | | $ | 14,164 | | | $ | 17,448 | |
Accruing loans which are contractually past due 90 days or more | | | 1,716 | | | | 1,999 | | | 1,476 | | | 1,086 | |
Accruing restructured loans | | | 8,715 | | | | 8,268 | | | | 3,045 | | | | 6,283 | |
Total non-performing and restructured loans | | | 34,776 | | | | 36,014 | | |
Total non-performing loans | | | 18,685 | | | 24,817 | |
Other real estate acquired through foreclosure (OREO) | | | 11,458 | | | | 12,665 | | | | 13,924 | | | | 14,024 | |
Total non-performing assets | | $ | 46,234 | | | $ | 48,679 | | | $ | 32,609 | | | $ | 38,841 | |
| | | | | | | | | | | | | | |
Non-performing loans as a percentage of total loans | | | 3.30 | % | | | 3.51 | % | | 1.64 | % | | 2.16 | % |
| | | | | | | | | | | | | | |
Non-performing assets as a percentage of total assets | | | 3.10 | % | | | 3.25 | % | | 1.91 | % | | 2.30 | % |
Total non-performing and restructured loans have decreased by $6.1 million since year-end, largely due to a $1.4$3.3 million decrease in non-accrual loans and a $238,000$3.2 million decrease in loans past due 90 days or more.accruing restructured loans. These decreases in non-performing loans were partially offset by a $447,000$390,000 increase in accruing restructured loans.loans past due 90 days or more. Total non-performing assets have decreased since year-end, largely due to the $6.1 million reduction in non-performing loans plus a $1.2 million$100,000 decrease in other real estate acquired through foreclosure (“OREO”). Other real estate owned decreased by $100,000, or 0.7%, as salesforeclosures during the year, including one commercial real estate property that also resulted in a $450,000 loan charge-off, were more than offset by $1.1 million of OREO sales and additional write-downs on$296,000 of writedowns of existing properties induring the first nine months of 2017 exceeded new foreclosures.year.
Premier continues to make a significant effort to reduce its past due and non-performing loans by reviewing loan files, using the courts to bring borrowers current with the terms of their loan agreements and/or the foreclosure and sale of OREO properties. As in the past, when these plans are executed, Premier may experience increases in non-performing loans and non-performing assets. Furthermore, any resulting increases in loans placed on non-accrual status will have a negative impact on future loan interest income. Also, as these plans are executed, other loans may be identified that would necessitate additional charge-offs and potentially additional provisions for loan losses.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 20172019
Gross charge-offs totaled $1.1$1.5 million during the first nine months of 2017,2019, largely due to consumer lending based charge-offs, including residentialthe foreclosure on one commercial real estate loansproperty from a previously identified impaired loan relationship that also resulted in a $450,000 loan charge-off and the partial charge-off of loans upon foreclosureone commercial and placement into OREO.industrial impaired loan that resulted in a $250,000 loan charge-off. Any collections on charged-off loans, or partially charged-off loans, would be presented in future financial statements as recoveries of the amounts charged against the allowance. Recoveries recorded during the first nine months of 20172019 totaled $592,000,$222,000, resulting in net charge-offs for the first nine months of 20172019 of $510,000.$1.2 million. This compares to $220,000 of$511,000of net charge-offs recorded in the first nine months of 2016. During the three months ending on September 30, 2017, Premier recorded net charge-offs of $227,000 compared to $253,000 of net charge-offs recorded in the same three months ending on September 30, 2016.2018. The allowance for loan losses at September 30, 20172019 was 1.17%1.21% of total loans compared to 1.06%1.20% at December 31, 2016.2018. The increase in the ratio is largely due to ana decrease in total loans and a slight increase in the total amount of allowance allocated to loans individually evaluated for impairment. At December 31, 2016, specific allocations of the allowance for loan losses related to loans individually evaluated for impairment totaled $606,000. This amount increased to $1,598,000 at September 30, 2017, largely due to a $517,000 increase in estimated credit loss on an impaired multifamily real estate loan and a $514,000 increase in estimated credit loss on an impaired construction loan.losses.
During the first nine months of 2017,2019, Premier recorded a $2,033,000$1,315,000 of provision for loan losses. This provision compares to a $1,436,000$1,890,000 of provision for loan losses recorded during the same nine months of 2016.2018. The provision for loan losses recorded during the third quarterfirst nine months of 20172019 was $891,000 comparedprimarily to an $312,000provide for new loans recorded and additional identified credit risk in Premier’s multifamily residential real estate loan, owner occupied real estate loan, non-owner occupied real estate loan, and commercial and industrial loan portfolios partially offset by a decrease in the allowance for construction loans that transferred to repayment status. The provision for loan losses in the third quarter of 2016. The 2017 provision for loan losses was due in large part to increases in specific allocations of the allowance for loan losses related to loans individually evaluated for impairment as well as a $38.7 million, or 4.0%, increase in loans collectively evaluated for impairment. The 2016 provision for loan losses was due in large part to the $51.2 million of growth in outstanding loans in 2016, exclusive of the loans acquired from the January 2016 acquisition of First National Bankshares, and an estimate for the potential loan losses related to the flash flooding that occurred in some of Premier’s West Virginia marketsrecorded during the last weekfirst nine months of June 2016. Management’s initial estimate of loan losses related2018 was primarily to unreimbursed damage to borrowers’ collateral or the lasting economic impact to business customers in areas that rely on vacation season tourism resulted in adding $500,000 to the provisionprovide for loan losses during the second quarter of 2016. Due to substantial assistance from both public and private sources to the regions of West Virginia affected by the flooding, Premier’s actual loan loss experience related to the flooding was minor, and management now believes the affected geographic areas demonstrate no more additional identified credit risk than that of the other general economic areas served byin Premier’s branch network. As a result, much of the initial provision forcommercial and industrial loan, losses has been reversedcommercial real estate loan, and helped offset additional provisions forconstruction loan losses related to individually impaired loans and increases in estimates of potential losses from declining economic activity in southern and central West Virginia. Premier also continues to monitor the impact of the decline in coal mining that may have a larger impact in the southern area of West Virginia and the decrease in theportfolios. The level of drilling activity in the oil & gas industry which may have a larger impact in the central areaprovision expense is determined under Premier’s internal analyses of West Virginia. A resulting decline in employment and local economic activity could increase non-performing assets from loans originated in these areas.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 2017
evaluating credit risk. The provisions for loan losses recorded in
20162018 and
20172019 were made in accordance with Premier’s policies regarding management’s estimation of probable incurred losses in the loan portfolio and the adequacy of the allowance for loan losses, which are in accordance with accounting principles generally accepted in the United States of America.
These methodologies are subject to changeManagement updated its policies regarding estimation of probable incurred losses in the
adoptionfirst quarter of
ASU No. 2016-13, Financial Instruments—Credit Losses: Measurement2018. 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 evaluated impaired loans, and reallocating the qualitative portion of Credit Losses on Financial Instruments issued by the
FASBallowance to align more closely to the inputs used to determine the qualitative portion. The result was a reduction in
June 2016 which will become effective for the
Company for interimamount of the allowance attributed to collectively impaired residential real estate and
annual periods beginning after December 15, 2019.multifamily real estate loans and an increase in the amount of allowance attributed to collectively impaired commercial and industrial loans, consumer, construction, and all other loans. Future provisions to the allowance for loan losses, positive or negative, will depend on future improvement or deterioration in estimated credit risk in the loan portfolio as well as whether additional payments are received on loans having significant credit risk. With the concentrations of commercial real estate loans in the Washington, DC, Richmond, Virginia, and Cincinnati, Ohio markets, fluctuations in commercial real estate values
continuewill be monitored. Premier also continues to
be monitored.monitor the impact of declines in the coal mining industry that may have a larger impact in the southern area of West Virginia and the decrease in the level of drilling activity in the oil & gas industry, which may have a larger impact in the central area of West Virginia. A resulting decline in employment could increase non-performing assets from loans originated in these areas. In each of the last five years, Premier sold some OREO properties at a gain while other OREO properties have required subsequent
write-downswritedowns to net realizable values. These factors are considered in determining the adequacy of the allowance for loan losses. For additional details on the activity in the allowance for loan losses, impaired loans, past due and non-accrual loans and restructured loans, see
Note 3 to the consolidated financial statements.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 2019
C. Critical Accounting Policies
The Company follows financial accounting and reporting policies that are in accordance with generally accepted accounting principles in the United States of America. These policies are presented in
Note 1 to the consolidated audited financial statements in the Company's annual report on
Form 10-K for the year ended December 31, 20162018. Some of these accounting policies, as discussed below, are considered to be critical accounting policies. Critical accounting policies are those policies that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company has identified
fourtwo accounting policies that are critical accounting policies, and an understanding of these policies is necessary to understand the financial statements. These policies relate to determining the adequacy of the allowance for loan losses
and the identification and evaluation of impaired
loans, the impairment of goodwill and the realization of deferred tax assets.loans. A detailed description of these accounting policies is contained in the
Company’s annual report on Form 10-K for the year ended December 31, 20162018. There have been no significant changes in the application of these accounting policies since December 31,
2016.2018.Management believes that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 2017
D. Liquidity
Liquidity objectives for the Company can be expressed in terms of maintaining sufficient cash flows to meet both existing and unplanned obligations in a cost effective manner. Adequate liquidity allows the Company to meet the demands of both the borrower and the depositor on a timely basis, as well as pursuing other business opportunities as they arise. Thus, liquidity management embodies both an asset and liability aspect while attempting to maximize profitability. In order to provide for funds on a current and long-term basis, the Company’s subsidiary banks rely primarily on the following sources:
| 1. | Core deposits consisting of both consumer and commercial deposits and certificates of deposit of $250,000 or more. Management believes that the majority of its $250,000 or more certificates of deposit are no more volatile than its other deposits. This is due to the nature of the markets in which the subsidiaries operate. |
| 2. | Cash flow generated by repayment of loans and interest. |
| 3. | Arrangements with correspondent banks for purchase of unsecured federal funds. |
| 4. | The sale of securities under repurchase agreements and borrowing from the Federal Home Loan Bank. |
| 5. | Maintenance of an adequate available-for-sale security portfolio. The Company owns $289.2$347.8 million of securities at fair value as of September 30, 2017.2019. |
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 2019
The cash flow statements for the periods presented in the financial statements provide an indication of the Company’s sources and uses of cash as well as an indication of the ability of the Company to maintain an adequate level of liquidity.
E. Capital
At September 30, 2017,2019, total stockholders’ equity of $183.3$236.8 million was 12.3%13.8% of total assets. This compares to total stockholders’ equity of $174.2$216.7 million, or 11.6%12.8% of total assets on December 31, 2016.2018. The increase in stockholders’ equity was largely due to $11.1the $18.3 million of net income inearned during the first nine months of 2017 as well as2019 and a $2.4$7.9 million, net of tax, increase in the market value of the investment portfolio available for sale. These increases in stockholders’ equity were partially offset by $4.8 million, orthe $0.45 per share in cash dividends declared and paid to stockholders.during the first nine months of 2019.
Tier 1 capital totaled $155.2$189.9 million at September 30, 2017,2019, which represents a Tier 1 leverage ratio of 10.7%11.4%. This ratio is up from the 10.1%10.7% Tier 1 leverage ratio and $147.6$177.0 million of Tier 1 capital at December 31, 2016.2018. The slight increase in the Tier 1 leverage ratio is largely due to the growth in Tier 1 capital exceeding the proportional growth in average total assets at September 30, 2017.2019.
PREMIER FINANCIAL BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 2017
The regulatory authorities introduced a new capital measure in the first quarter of 2015 for financial institutions of Premier’s size, Common Equity Tier 1 Capital. The Common Equity Tier 1 capital measure seeks to determine how much of the traditional Tier 1 capital is attributable to equity contributed by common shareholders by excluding Tier 1 capital from other sources such as preferred stockholders’ equity and subordinated debt. As of September 30, 2017, Premier’s Common Equity Tier 1 capital is $6.0 million lower than its total Tier 1 capital due to the additional Tier 1 capital included from the subordinated debentures. Since the subordinated debentures are held by the parent company, the Common Equity Tier 1 capital of the subsidiary banks is identical to their total Tier 1 capital, as none of the subsidiary banks have issued any preferred stock or subordinated debentures. Beginning 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 beis measured as a percentage of risk weighted assets and will bewas phased-in over thea four year period from 2016 thru 2019. When fully implemented,As of January 1 2019, the capital conservation buffer requirement will beis 2.50% of risk-weightedrisk weighted assets over and above the regulatory minimum capital ratios for Tier 1 Capital to risk-weighted assets, Total Capital to risk-weighted assets and Common Equity Tier 1 Capital (CET1) to risk weighted assets, Tier 1 Capital to risk weighted assets, and Total Capital to risk weighted assets. The consequences of not meeting the capital conservation buffer thresholds include restrictions on the payment of dividends, restrictions on the payment of discretionary bonuses, and restrictions on the repurchase of common shares by the Company. The capital ratios of the Affiliate Banks and the Company already exceed the new minimum capital ratios plus the fully phased-in 2.50% capital buffer requiring a CET1 Capital to risk-weighted asset ratio of at least 7.00%, a Tier 1 Capital to risk weighted assets ratio of at least 8.50% and a Total Capital to risk weighted assets ratio of at least 10.50%. At September 30, 2017,2019, the Company’s capital conservation buffer was 7.50%9.07%, well in excess of the 1.250% required.fully phased-in 2.50% required by January 1, 2019.
Book value per common share was $17.18$16.17 at September 30, 2017 compared to $16.372019 and $14.82 at December 31, 2016.2018. Adding to Premier’s book value per share in the first nine months of 20172019 was the $1.04$1.25 per share earned during the period partially offset by the $0.45 per share in total quarterly cash dividends to common shareholders declared and paid during the first three quartersnine months of 2017.2019. Also adding to Premier’s book value per share at September 30, 20172019 was the $2,377,000$7.9 million of other comprehensive income for the first nine months of 20172019 related to the after tax increase in the market value of investment securities available for sale, which increased book value at September 30, 2017 by approximately $0.22$0.54 per share.
PREMIER FINANCIAL BANCORP, INC.
SEPTEMBER 30, 20172019
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
A. Disclosure Controls & Procedures
Premier management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to the Securities and Exchange Act of 1934 Rule 13a-15c as of the end of the period covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion.
B. Changes in Internal Controls over Financial Reporting
There were no changes in internal controls over financial reporting during the first fiscal quarter that have materially affected or are reasonably likely to materially affect Premier's internal controls over financial reporting.
C. Inherent Limitations on Internal Control
"Internal controls" are procedures, which are designed with the objective of providing reasonable assurance that (1) transactions are properly authorized; (2) assets are safeguarded against unauthorized or improper use; and (3) transactions are properly recorded and reported, all so as to permit the preparation of reports and financial statements in conformity with generally accepted accounting principles. However, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their cost. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is also based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Finally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
PREMIER FINANCIAL BANCORP, INC.
SEPTEMBER 30, 2017
2019
PART II - OTHER INFORMATION
Item 1. | Legal Proceedings | None |
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Item 1A. | Risk Factors | |
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|
| | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | None |
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Item 3. | Defaults Upon Senior Securities | None |
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Item 4. | Mine Safety Disclosures | Not Applicable |
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Item 5. | Other Information | None |
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Item 6. | Exhibits | |
(a)The following exhibits are furnished in accordance with the provisions of Item 601 of Regulation S-K.
PREMIER FINANCIAL BANCORP, INC.
SEPTEMBER 30, 20172019
Pursuant to the requirements of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PREMIER FINANCIAL BANCORP, INC.
Date: November 9, 2017 7, 2019/s/ Robert W. Walker
Robert W. Walker
President & Chief Executive Officer
Date: November 9, 20177, 2019/s/ Brien M. Chase
Brien M. Chase
Senior Vice President & Chief Financial Officer
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