UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~2019

	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number 000-20908

PREMIER FINANCIAL BANCORP, INC.

(Exact name of registrant as specified in its charter)

Kentucky		61-1206757
(State or other jurisdiction of incorporation organization)		(I.R.S. Employer Identification No.)

2883 Fifth Avenue Huntington, West Virginia		25702
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number (304) 525-1600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes No .

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§230.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes No .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one)~~

Large accelerated filer 		Accelerated filer 
Non-accelerated filer  ~~(Do not check if smaller reporting company~~)	Smaller reporting company 	Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). Yes No .

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	PFBI	The Nasdaq Stock Market LLC

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest ~~practical~~practicable date.

Common stock, no par value, – ~~10,668,589~~14,649,681 shares outstanding at November ~~1, 2017~~5, 2019

PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, ~~2017~~2019

INDEX TO REPORT

Part I - Financial Information
Item 1 – Financial Statements		3
Item 2 – ~~Management's~~Management’s Discussion and Analysis	40	42
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	53	55
Item 4 – Controls and Procedures	53	55
Part II - Other Information	54	56
Item 1 – Legal Proceedings	54	56
Item 1A – Risk Factors	54	56
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	54	56
Item 3 – Defaults Upon Senior Securities	54	56
Item 4 – Mine Safety Disclosures	54	56
Item 5 – Other Information	54	56
Item 6 – Exhibits	54	56
Signatures	55	57

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PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, ~~2017~~2019

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

The accompanying information has not been audited by an independent registered public accounting firm; however, in the opinion of management such information reflects all adjustments necessary for a fair presentation of the results for the interim period. All such adjustments are of a normal and recurring nature. Premier Financial Bancorp, Inc.’s (“Premier’s”) accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America. Certain accounting principles used by Premier involve a significant amount of judgment about future events and require the use of estimates in their application. The following policies are particularly sensitive in terms of judgments and the extent to which estimates are used: allowance for loan losses, the identification and evaluation of impaired loans, and the impairment of goodwill. These estimates are based on assumptions that may involve significant uncertainty at the time of their use. However, the policies, the estimates and the estimation process as well as the resulting disclosures are periodically reviewed by the Audit Committee of the Board of Directors and material estimates are subject to review as part of the external audit by the independent registered public accounting firm.

The accompanying financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the registrant’s annual report on Form 10-K. Accordingly, the reader of the Form 10-Q may wish to refer to the registrant’s Form 10-K for the year ended December 31, ~~2016~~2018 for further information in this regard.

Index to consolidated financial statements:

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

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, ~~2017~~2019 AND DECEMBER 31, ~~2016~~2018

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

(UNAUDITED)
September 30, December 31,
2017 2016
ASSETS
Cash and due from banks $ 41,831 $ 41,443
Interest bearing bank balances 21,681 55,720
Federal funds sold 11,632 7,555
Cash and cash equivalents 75,144 104,718
Time deposits with other banks 2,582 2,332
Securities available for sale 289,203 288,607
Loans 1,055,324 1,024,823
Allowance for loan losses (12,359 ) (10,836 )
Net loans 1,042,965 1,013,987
Federal Home Loan Bank stock, at cost 3,185 3,200
Premises and equipment, net 23,504 24,224
Real estate and other property acquired through foreclosure 11,458 12,665
Interest receivable 4,060 3,862
Goodwill 35,371 35,371
Other intangible assets 3,581 4,349
Other assets 1,622 2,878
Total assets $ 1,492,675 $ 1,496,193

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 327,965 $ 319,618
Time deposits, $250,000 and over 64,919 66,378
Other interest bearing 876,500 893,390
Total deposits 1,269,384 1,279,386
Securities sold under agreements to repurchase 25,116 23,820
Other borrowed funds 6,000 8,859
Subordinated debt 5,368 5,343
Interest payable 358 364
Other liabilities 3,192 4,237
Total liabilities 1,309,418 1,322,009

Stockholders' equity
Common stock, no par value; 20,000,000 shares authorized; 10,668,589 shares issued and outstanding at September 30, 2017, and 10,640,735 shares issued and outstanding at December 31, 2016 110,353 109,911
Retained earnings 72,449 66,195
Accumulated other comprehensive income (loss) 455 (1,922 )
Total stockholders' equity 183,257 174,184
Total liabilities and stockholders' equity $ 1,492,675 $ 1,496,193

	(UNAUDITED)
	September 30, 2019			December 31, 2018
ASSETS
Cash and due from banks	$	26,608		$	22,992
Interest bearing bank balances		80,077			39,911
Federal funds sold		15,983			17,872
Cash and cash equivalents		122,668			80,775
Time deposits with other banks		598			1,094
Securities available for sale		347,811			365,731
Loans		1,140,862			1,149,301
Allowance for loan losses		(13,811	)		(13,738	)
Net loans		1,127,051			1,135,563
Federal Home Loan Bank stock, at cost		3,538			3,628
Premises and equipment, net		36,384			29,385
Real estate acquired through foreclosure		13,924			14,024
Interest receivable		4,415			4,295
Goodwill		47,640			47,640
Other intangible assets		4,595			5,268
Other assets		1,745			2,712
Total assets	$	1,710,369		$	1,690,115

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing	$	369,034		$	391,763
Time deposits, $250,000 and over		96,117			74,161
Other interest bearing		962,089			964,203
Total deposits		1,427,240			1,430,127
Securities sold under agreements to repurchase		21,721			22,062
Other borrowed funds		-			2,500
FHLB advances		6,362			8,819
Subordinated debt		5,428			5,406
Interest payable		847			733
Other liabilities		11,963			3,739
Total liabilities		1,473,561			1,473,386

Stockholders' equity
Common stock, no par value; 30,000,000 shares authorized; 14,647,515 shares issued and outstanding at September 30, 2019, and 14,624,193 shares issued and outstanding at December 31, 2018		133,680			133,248
Retained earnings		99,047			87,333
Accumulated other comprehensive income (loss)		4,081			(3,852	)
Total stockholders' equity		236,808			216,729
Total liabilities and stockholders' equity	$	1,710,369		$	1,690,115

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2017~~2019 AND ~~2016~~2018

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017 2016 2017 2016
Interest income
Loans, including fees $ 13,469 $ 13,375 $ 41,667 $ 39,084
Securities available for sale
Taxable 1,427 1,285 4,236 4,075
Tax-exempt 62 82 198 254
Federal funds sold and other 176 123 515 328
Total interest income 15,134 14,865 46,616 43,741

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

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

Non-interest income
Service charges on deposit accounts 1,136 1,031 3,201 2,975
Electronic banking income 811 791 2,424 2,355
Secondary market mortgage income 67 64 173 163
Other 163 176 530 571
2,177 2,062 6,328 6,064
Non-interest expenses
Salaries and employee benefits 4,760 4,817 14,703 15,025
Occupancy and equipment expenses 1,511 1,635 4,481 4,697
Outside data processing 1,344 1,300 4,019 3,935
Professional fees 196 167 721 500
Taxes, other than payroll, property and income 189 156 589 473
Write-downs, expenses, sales of other real estate owned, net 346 765 1,139 1,402
Amortization of intangibles 252 278 768 862
FDIC insurance 159 278 506 752
Other expenses 1,168 1,212 3,401 3,674
9,925 10,608 30,327 31,320
Income before income taxes 5,392 4,858 17,257 13,570
Provision for income taxes 1,925 1,694 6,207 4,803

Net income $ 3,467 $ 3,164 $ 11,050 $ 8,767

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019		2018
Interest income
Loans, including fees	$	16,438		$	13,731	$	48,954	$	41,449
Securities available for sale
Taxable		2,266			1,745		6,917		4,787
Tax-exempt		85			52		265		166
Federal funds sold and other		519			473		1,342		1,151
Total interest income		19,308			16,001		57,478		47,553

Interest expense
Deposits		2,367			1,355		6,702		3,583
Repurchase agreements and other		24			10		45		25
Other borrowings		-			37		31		125
FHLB advances		48			-		151		-
Subordinated debt		91			90		281		257
Total interest expense		2,530			1,492		7,210		3,990

Net interest income		16,778			14,509		50,268		43,563
Provision for loan losses		425			275		1,315		1,890
Net interest income after provision for loan losses		16,353			14,234		48,953		41,673

Non-interest income
Service charges on deposit accounts		1,216			1,183		3,432		3,343
Electronic banking income		891			968		2,640		2,677
Secondary market mortgage income		97			29		154		142
Other		267			257		768		572
		2,471			2,437		6,994		6,734
Non-interest expenses
Salaries and employee benefits		5,422			4,846		16,048		14,667
Occupancy and equipment expenses		1,700			1,570		5,241		4,660
Outside data processing		1,478			1,315		4,288		3,841
Professional fees		286			526		957		1,261
Taxes, other than payroll, property and income		235			217		734		669
Write-downs, expenses, sales of other real estate owned, net		213			26		690		(335	)
Amortization of intangibles		223			190		673		575
FDIC insurance		(5	)		171		238		443
Other expenses		1,198			1,306		3,515		3,833
		10,750			10,167		32,384		29,614
Income before income taxes		8,074			6,504		23,563		18,793
Provision for income taxes		1,807			1,483		5,261		4,264

Net income	$	6,267		$	5,021	$	18,302	$	14,529

Net income per share:
Basic	$	0.43		$	0.38	$	1.25	$	1.09
Diluted		0.43			0.37		1.24		1.08

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2017~~2019 AND ~~2016~~2018

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017 2016 2017 2016
Net income $ 3,467 $ 3,164 $ 11,050 $ 8,767

Other comprehensive income (loss):

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

Comprehensive income $ 3,423 $ 3,174 $ 13,427 $ 11,691

	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

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2017~~2019 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

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, ~~2017~~2019 AND ~~2016~~2018

(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

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~~Table of Contents~~

~~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		-

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1 - BASIS OF PRESENTATION

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

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 Customers~~Leases (Topic ~~606)~~842). ~~The ASU creates~~This standard requires organizations that are lessees to recognize a ~~new topic, Topic 606,~~lease liability, which is the lessee’s obligation to ~~provide guidance~~make lease payments arising from a lease, measured on ~~revenue recognition for entities~~a discounted basis; and a right-of-use asset, which is an asset that ~~enter into contracts with customers~~represents the lessee’s right to ~~transfer goods~~use, or ~~services or enter into contracts~~control 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 originally~~also 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.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1 - BASIS OF PRESENTATION –- continued

~~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. Management~~The company has formed a ~~steering~~ committee ~~that~~to oversee the steps required in the adoption of the new current expected credit loss method. The committee has selected a third-party vendor to assist in data analysis and modeling as well as the required disclosures. Management is currently evaluating the ~~data gathering requirements, available economic forecasting and loss estimation models and potential software that would be employed by the Company to facilitate~~impact of the adoption of this guidance ~~and its required disclosures~~ on the Company’s financial statements. Upon adoption, ~~management anticipates~~ an initial ~~one-time~~cumulative increase in the allowance for loan losses ~~which will be offset~~is currently anticipated by management along with a corresponding decrease in capital as permitted by the standard. 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.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 2 –SECURITIES

Amortized cost and fair value of investment securities, by category, at September 30, ~~2017~~2019 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, ~~2016~~2018 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

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 2–SECURITIES - continued

The amortized cost and fair value of securities at September 30, ~~2017~~2019 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, ~~2017~~2019 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	)

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 2–SECURITIES - continued

Securities with unrealized losses at December 31, ~~2016~~2018 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

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

U.S government sponsored agency securities	$	17,207	$	(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, ~~2017~~2019 and December 31, ~~2016~~2018 are price changes resulting from changes in the interest rate environment and are considered to be temporary declines in the value of the securities. Management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery. Their fair value is expected to recover as the bonds approach their maturity date and/or market conditions improve.

NOTE 3 - LOANS

Major classifications of loans at September 30, ~~2017~~2019 and December 31, ~~2016~~2018 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		150,506		30,614		33,203
	$	1,055,324	$	1,024,823	$	1,140,862	$	1,149,301

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3–LOANS - continued

Activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, ~~2017~~2019 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 ~~ending~~ended September 30, ~~2016~~2018 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

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3–LOANS - continued

Activity in the allowance for loan losses by portfolio segment for the three months ended September 30, ~~2017~~2019 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 ~~ending~~ended September 30, ~~2016~~2018 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

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3–LOANS - continued

Purchased Impaired Loans

The Company holds purchased loans for which there was, at their acquisition date, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows at September 30, ~~2017~~2019 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-months~~nine 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.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3–LOANS - continued

The accretable yield, or income expected to be collected, on the purchased loans above is as follows at September 30, ~~2017~~2019 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

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3–LOANS - continued

Past Due and Non-performing Loans

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of September 30, ~~2017~~2019 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.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3–LOANS - continued

The following table presents the aging of the recorded investment in past due loans as of September 30, ~~2017~~2019 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, ~~2016~~2018 by class of loans:

Loan Class	Total Loans		30-89 Days Past Due		Greater than 90 days past due		Total Past Due		Loans Not Past Due		Total Loans		30-89 Days Past Due		Greater than 90 days past due		Total Past Due		Loans Not Past Due

Residential real estate	$	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

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3–LOANS - continued

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, ~~2017:~~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

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3–LOANS - continued

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 ~~that~~for which the Company cannot reasonably estimate cash flows such that they are accounted for on the cost recovery method and are still individually evaluated for impairment.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential real estate	$	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

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3–LOANS - continued

The following table presents loans individually evaluated for impairment by class of loans as of December 31, ~~2016.~~2018. The table includes ~~$208,000~~$1,160,000 of loans acquired with deteriorated credit quality ~~that~~for which the Company cannot reasonably estimate cash flows such that they are accounted for on the cost recovery method and are still individually evaluated for impairment.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential real estate	$	743	$	379	$	-	$	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

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3–LOANS - continued

The following table presents the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the nine months ended September 30, ~~2017~~2019 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, ~~2017~~2019 and September 30, ~~2016~~2018. 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

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3–LOANS - continued

Troubled Debt Restructurings

A loan is classified as a troubled debt restructuring ("TDR") when loan terms are modified due to a borrower's financial difficulties and a concession is granted to a borrower that would not have otherwise been considered. Most of the Company’s 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, ~~2017~~2019 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 $640,000~~2019, $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, there~~There were no commitments to lend additional amounts to these borrowers.

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3–LOANS - continued

~~The following tables present~~There 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 three~~2019 and ~~nine months ended~~ September 30, 2016 involve reducing the borrowers’ required monthly payment by offering extended interest only periods that exceed the timeframes customarily offered by the Company and/or lengthening the amortization period for loan repayment, each in an effort to help the borrowers keep their loan current.

~~- 25 -~~

~~Table of Contents~~

~~PREMIER FINANCIAL BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~NOTE 3–LOANS - continued~~

The modifications did not include a permanent reduction of the recorded investment in the loans and did not decrease the stated interest rate on loans. The Company increased the allowance for loan losses related to these loans by $35,000 during the three months ended September 30, 2016, and by $181,000 during the nine months ended September 30, 2016.2018.

During the three and nine months ended September 30, ~~2017~~2019 and the three and nine months ended September 30, ~~2016,~~2018, there were no TDR’s for which there ~~was~~as a payment default within twelve months following the modification.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes non-homogeneous loans, such as commercial, commercial real estate, multifamily residential and commercial purpose loans secured by residential real estate, on a monthly basis. For consumer loans, including consumer loans secured by residential real estate, and smaller balance non-homogeneous loans, the analysis involves monitoring the performing status of the loan. At the time such loans become past due by 3090 days or more, the Company evaluates the loan to determine if a change in risk category is warranted. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3–LOANS - continued

As of September 30, 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

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

~~NOTE 3–LOANS - continued~~

~~As of September 30, 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

~~- 27 -~~

~~Table of Contents~~

~~PREMIER FINANCIAL BANCORP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

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

NOTE 4- STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS

The Company’s principal source of funds for dividend payments to shareholders is dividends received from the subsidiary Banks. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, as defined, combined with the retained net profits of the preceding two years, subject to the capital requirements and additional restrictions as discussed below. During ~~2017~~2019 the Banks could, without prior approval, declare dividends to the Company of approximately ~~$4.1~~$8.4 million plus any ~~2017~~2019 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.

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 4- STOCKHOLDERS’ 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 be~~is measured as a percentage of risk weighted assets and ~~will be~~was phased-in over a four year period from 2016 thru ~~2019, resulting in a required capital conservation buffer~~2019. As of ~~0.625% in 2016 and 1.25% in 2017. When fully implemented,~~January 1, 2019, the capital conservation buffer ~~will be~~is 2.50% of risk weighted assets over and above the regulatory minimum capital ratios for Common Equity Tier 1 Capital (CET1) to ~~risk-weighted~~risk weighted assets, Tier 1 Capital to ~~risk-weighted~~risk weighted assets, and Total Capital to ~~risk-weighted~~risk weighted assets. The consequences of not meeting the capital conservation buffer thresholds include restrictions on the payment of dividends, restrictions on the payment of discretionary bonuses, and restrictions on the repurchasing of common shares by the Company. The capital ratios of the Affiliate Banks and the Company ~~already~~ exceed the new minimum capital ratios plus the fully phased-in 2.50% capital buffer requiring a CET1 Capital to ~~risk-weighted~~risk weighted assets ratio of at least 7.00%, a Tier 1 Capital to ~~risk-weighted~~risk weighted assets ratio of at least 8.50%, and a Total Capital to ~~risk-weighted~~risk weighted assets ratio of at least 10.50%. The Company’s capital conservation buffer was ~~7.50%~~9.07% at September 30, ~~2017~~2019 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.

- 2928 -

Table of Contents

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

- 29 -

Table of Contents

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, 55,500~~20, 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, 55,990~~21, 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, 6,000~~17, 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, 7,700~~April 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 ~~2017~~2019 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 -

Table of Contents

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, ~~2017~~2019 and ~~2016~~2018 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, ~~2017~~2019 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.

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 78 – FAIR VALUE

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

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

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

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and the Company must use other valuation methods to develop a fair value.

Carrying amount is the estimated fair value for cash and due from banks, Federal funds sold, accrued interest receivable and payable, demand deposits, short-term debt, and ~~variable rate loans or~~ deposits that reprice frequently and fully. Fair values of time deposits with other banks are based on current rates for similar time deposits using the remaining time to maturity. It iswas not practicable to determine the fair value of Federal Home Loan Bank stock due to the restrictions placed on its transferability. For ~~fixed rate loans or~~ deposits and ~~for~~ variable rate ~~loans or~~ deposits with infrequent repricing, ~~or repricing limits,~~ fair value is based on discounted cash flows using current market rates applied to the estimated ~~life~~life. 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).

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 78 – FAIR VALUE - continued

The carrying amounts and estimated fair values of financial instruments at September 30, ~~2017~~2019 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, ~~2016~~2018 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	)

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 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 ~~2017~~2019 or ~~2016.~~2018.

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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.

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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.

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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, ~~2017~~2019 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, ~~2017~~2019 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, ~~2016~~2018 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 months~~nine-months ended September 30, ~~2017,~~2019, compared to ~~an $215,000~~a $868,000 provision for loan losses for the ~~nine~~nine-months ended September 30, 2018 and a $98,000 increase in provision for loans losses for the three months ended September 30, ~~2016 and~~2019, 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 downs~~writedowns during the nine months ended September 30, ~~2017,~~2019, compared to ~~$478,000~~$120,000 of ~~additional write downs~~writedowns during the nine months ended September 30, ~~2016.~~2018. For the three months ended September 30, ~~2017~~2019 there were ~~$111,000~~$180,000 of additional ~~write downs~~writedowns compared to ~~$478,000 of~~no additional ~~write downs~~writedowns 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.

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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, ~~2017~~2019 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

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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, ~~2016~~2018 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

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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, ~~2016~~2018 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

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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.

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PREMIER FINANCIAL BANCORP, INC.

~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, ~~2017~~2019

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, ~~2017~~2019 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 ~~2017~~the first nine months of 2019 is largely due to an increase in ~~net~~ interest income, an increase in ~~other operating~~non-interest income, and a decrease in ~~other operating~~the 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, ~~2017~~2019 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, ~~2017~~2019 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, 2017~~third quarter of 2019 is largely due to ~~an increase~~increases in interest income and non-interest income, ~~as well as a decrease~~all 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, ~~2017~~2019 compared to ~~7.10%~~10.65% and ~~0.84%~~1.32% for the same period in ~~2016.~~2018.

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PREMIER FINANCIAL BANCORP, INC.

~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, ~~2017~~2019

Net interest income for the nine months ended September 30, ~~2017~~2019 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 ~~2017~~2019 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 ~~2017~~2019 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 ~~2017~~2019 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 funds~~outstanding. The higher average balance of investments and ~~maturing investments have been used~~loans is largely due to ~~fund~~ the ~~higher yielding~~investment 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 from~~2019 as a result of increases in the short-term interest rate policy of the Federal Reserve Board of ~~Governors’ decisions to~~Governors during 2018.

Partially offsetting the increase ~~the federal funds target rate by a total of 75 basis points~~in interest income in the ~~last twelve~~first 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 lower~~deposits. 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 outstanding~~rate 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%, when~~2019 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, primarily~~2019 compared to the same period of 2018, largely due to ~~a lower~~the acquisition of the First Bank of Charleston in the fourth quarter of 2018. The average ~~balance~~interest 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 deposit~~interest paid on time deposits increased by 70 basis points, driving the overall increase in interest expense on deposits in the first nine months of ~~2017~~2019 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 decrease~~2019, largely due to an increase in the average ~~of these deposit balances was partially replaced by an~~rate 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 lower~~2019 was $151,000 of interest ~~rate than certificates~~expense on the remaining Federal Home Loan Bank (“FHLB”) borrowings of ~~deposit. Interest~~First 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 ~~2017~~2019 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 ~~including~~on the ~~full repayment~~long-term borrowing at the parent company. This borrowing was fully repaid during the first half of ~~bank based FHLB borrowings during 2016. Partially offsetting~~2019. Also, adding to the ~~decrease~~overall increase in interest expense ~~on borrowings~~during 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 moves~~has 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.

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2019

Premier’s net interest margin during the first nine months of ~~2017~~2019 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 ~~2017~~2019 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 net~~2018. 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 in~~increased by 34 basis points during the first nine months of ~~2017, as decreases in~~2019. As noted above, the average rates paid on interest-bearing deposits ~~and~~increased 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 higher~~and 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 ~~2017~~2018 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.

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PREMIER FINANCIAL BANCORP, INC.

~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, ~~2017~~2019

Additional information on Premier’s net interest income for the ~~first~~ nine months of ~~2017~~2019 and ~~first~~ nine months of ~~2016~~2018 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	%

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PREMIER FINANCIAL BANCORP, INC.

~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, ~~2017~~2019

Additional information on Premier’s net interest income for the third quarter of ~~2017~~2019 and third quarter of ~~2016~~2018 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 %

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PREMIER FINANCIAL BANCORP, INC.

~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, ~~2017~~2019

Net interest income for the quarter ended September 30, ~~2017~~2019 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 ~~2017~~2019 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 year~~2019 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, largely~~2019, 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 ~~2017~~2019 increased by ~~$122,000,~~$554,000, or ~~8.9%~~30.8%, largely due to a higher average ~~yield on the investment portfolio, although~~yields on a ~~lower~~higher 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 although~~2019 resulting from increases in the short-term interest rate policy of the Federal Reserve Board of Governors during 2018 on a ~~lower~~higher average balance outstanding during the ~~quarter.~~third quarter of 2019 when compared to the third quarter of 2018.

~~Complementing~~Partially offsetting the increase in interest income in the third quarter of ~~2017~~2019 was a ~~$46,000,~~$1,038,000, or ~~4.0%~~69.6%, ~~decrease~~increase in interest expense. Interest expense on deposits ~~decreased~~increased by ~~$11,000,~~$1,012,000, or ~~1.1%~~74.7%, in the third quarter of ~~2017, primarily~~2019, due to ~~a lower~~increases 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 agreements~~was up 32 basis points in 2019, from 0.57% in the third quarter of ~~2017 decreased by $3,000, or 30.0%, primarily due~~2018 to ~~a lower average balance outstanding during the quarter. Interest expense on borrowings~~0.89% in the third quarter of ~~2017 decreased~~2019. 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, including~~70 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 interest~~average 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 ~~2017~~2019 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 decreased~~the 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.

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PREMIER FINANCIAL BANCORP, INC.

~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, ~~2017~~2019

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 ~~2017~~2019 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 banking~~secondary 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, ~~particularly~~while 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 quarter~~level of ~~2017, as Premier Bank introduced updated courtesy overdraft protection features on its consumer checking accounts. Electronic~~home purchasing and refinancing activity in Premier’s markets. Partially offsetting these increases was a decrease in electronic banking income ~~increased~~by $37,000, or 1.4%, primarily due to ~~an increase~~a 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 sales~~activity 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 extension~~from debit card transaction activity and ~~other fees on loans.~~non-customer ATM fees.

Non-interest expenses for the first nine months of ~~2017~~2019 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%, ~~decrease~~increase in non-interest expenses in ~~2017~~2019 when compared to the first nine months of ~~2016~~2018 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 $30,000~~during the first quarter of ~~net losses on the sale of OREO properties~~2018 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 decreased~~2019 compared to the first nine months of 2018, largely due to ~~lower~~the 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 conversion~~process of ~~First National Bankshares versus only $17,000 of conversion costs incurred in 2017.~~being liquidated. These ~~decreases~~increases in non-interest expense were partially offset by a ~~$221,000,~~$400,000, or ~~44.2%~~61.7%, ~~increase~~decrease 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%, ~~increase~~decrease in ~~taxes not on income,~~FDIC insurance, and a ~~$84,000,~~$55,000, or ~~2.1%~~7.4%, ~~increase~~decrease in ~~data processing costs when compared to~~expenses and writedowns on OREO properties (after excluding the ~~first nine months~~$1,080,000 of ~~2016. Professional fees increased largely due to increases~~net 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).

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PREMIER FINANCIAL BANCORP, INC.

~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, ~~2017~~2019

Non-interest expenses for the third quarter of ~~2017~~2019 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%, ~~decrease~~increase in non-interest expenses in the third quarter of ~~2017~~2019 when compared to the third quarter of ~~2016~~2018 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%, ~~decrease~~increase in staff costs, a ~~$124,000,~~$187,000 increase in OREO expenses, a $163,000, or ~~7.6%~~12.4%, ~~decrease~~increase in data processing, and a $130,000, or 8.3%, increase in occupancy and equipment ~~expense, and~~expense. 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 decreased~~premiums, 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 decreased~~carrying value of the properties in the third quarter of ~~2017 largely~~2019. The decrease in FDIC insurance premium was due to ~~a $367,000 decrease in~~ the ~~amount~~application of ~~OREO value writedowns, when compared~~FDIC 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 in~~offset 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 ~~2017~~2019 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, ~~2017~~2019 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.

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PREMIER FINANCIAL BANCORP, INC.

~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, ~~2017~~2019

B. Financial Position

Total assets at September 30, ~~2017 decreased~~2018 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 ~~decrease~~increase in total assets since year-end is largely due to a ~~$33.8~~$40.2 million ~~decrease~~increase in ~~interest bearing~~interest-bearing bank balances, a ~~$1.3~~$3.6 million ~~decrease~~increase in ~~other assets~~cash and due from banks, and a ~~$1.2~~$7.0 million ~~decrease~~increase in ~~OREO. These decreases were~~premises and equipment, partially offset by a ~~$30.5~~$17.9 million ~~increase~~decrease in the investment portfolio, an $8.4 million decrease in total loans, ~~outstanding~~ and a ~~$4.1~~$1.9 million ~~increase~~decrease in federal funds sold. ~~Contrary to the decrease in total assets, earning~~Earning assets increased by ~~$1.4~~$11.3 million from the ~~$1.382~~$1.578 billion at year-end ~~2016~~2018 to end the ~~third~~ quarter at ~~$1.384~~$1.589 billion.

Cash and due from banks at September 30, ~~2017~~2019 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 ~~decreased~~increased by ~~$34.0~~$40.2 million from ~~the $55.7~~$39.9 million reported at December 31, ~~2016. Federal~~2018 but federal funds sold ~~increased~~decreased by ~~$4.1~~$1.9 million ~~to $11.6~~from $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 balances~~was 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 during~~which 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, ~~2017~~2019 and December 31, ~~2016~~2018 are believed to be price changes resulting from ~~increases~~changes 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, ~~2017~~2019 were ~~$1.055~~$1.141 billion compared to ~~$1.025~~$1.149 billion at December 31, ~~2016, an increase~~2018, a decrease of approximately ~~$30.5~~$8.4 million, or ~~3.0%~~0.7%. The ~~increase in loans was~~slight 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 which~~2019 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 ~~purchase~~fair 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.

~~Premises~~accordance 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 depreciation~~the $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.~~

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PREMIER FINANCIAL BANCORP, INC.

~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, ~~2017~~2019

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 were~~non-interest bearing deposits. The decrease was partially offset by ~~an $8.3~~a $9.0 million, or ~~2.6%~~2.3%, increase in ~~non interest-bearing demand~~certificates 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 ~~increased~~decreased in the first nine months of ~~2017~~2019 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 ~~2016~~2018 due to ~~the $248,000 payment at maturity of a subsidiary bank borrowing as well as~~ scheduled principal payments ~~and~~plus additional principal payments on Premier’s existing ~~parent company~~ borrowings. Subordinated debentures increased ~~$25,000,~~by $22,000, due to ~~the continuing monthly accretion~~amortization of the purchase accounting fair value ~~adjustment recorded in 2016 as part~~adjustments 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, ~~2017~~2019 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 ~~sales~~foreclosures 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.

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PREMIER FINANCIAL BANCORP, INC.

~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, ~~2017~~2019

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 residential~~the foreclosure on one commercial real estate ~~loans~~property 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 foreclosure~~one 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 ~~2017~~2019 totaled ~~$592,000,~~$222,000, resulting in net charge-offs for the first nine months of ~~2017~~2019 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, ~~2017~~2019 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 quarter~~first nine months of ~~2017~~2019 was ~~$891,000 compared~~primarily to ~~an $312,000~~provide 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 week~~first nine months of ~~June 2016. Management’s initial estimate of loan losses related~~2018 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 provision~~provide 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 by~~in Premier’s ~~branch network. As a result, much of the initial provision for~~commercial and industrial loan, ~~losses has been reversed~~commercial real estate loan, and ~~helped offset additional provisions for~~construction 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 area~~provision 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.~~

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~~PREMIER FINANCIAL BANCORP, INC.~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS~~

~~SEPTEMBER 30, 2017~~

evaluating credit risk. The provisions for loan losses recorded in ~~2016~~2018 and ~~2017~~2019 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 change~~Management updated its policies regarding estimation of probable incurred losses in the ~~adoption~~first quarter of ~~ASU No. 2016-13,~~ ~~Financial Instruments—Credit Losses: Measurement~~2018. 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 ~~FASB~~allowance 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 interim~~amount 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 ~~continue~~will 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-downs~~writedowns 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.

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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, ~~2016~~2018. Some of these accounting policies, as discussed below, are considered to be critical accounting policies. Critical accounting policies are those policies that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company has identified ~~four~~two 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, ~~2016~~2018. 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.

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~~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:

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.

Cash flow generated by repayment of loans and interest.

Arrangements with correspondent banks for purchase of unsecured federal funds.

The sale of securities under repurchase agreements and borrowing from the Federal Home Loan Bank.

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.

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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 ~~$11.1~~the $18.3 million of net income inearned during the first nine months of ~~2017 as well as~~2019 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, or~~the $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.

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~~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 be~~is measured as a percentage of risk weighted assets and ~~will be~~was phased-in over ~~the~~a four year period from 2016 thru 2019. ~~When fully implemented,~~As of January 1 2019, the capital conservation buffer ~~requirement will be~~is 2.50% of ~~risk-weighted~~risk weighted assets over and above the regulatory minimum capital ratios for ~~Tier 1 Capital to risk-weighted assets, Total Capital to risk-weighted assets and~~ Common Equity Tier 1 Capital (CET1) to risk weighted assets, 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 $16.37~~2019 and $14.82 at December 31, ~~2016.~~2018. Adding to Premier’s book value per share in the first nine months of ~~2017~~2019 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 quarters~~nine months of ~~2017.~~2019. Also adding to Premier’s book value per share at September 30, ~~2017~~2019 was the ~~$2,377,000~~$7.9 million of other comprehensive income for the first nine months of ~~2017~~2019 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.

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PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, ~~2017~~2019

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company currently does not engage in any derivative or hedging activity. Refer to the Company’s ~~2016~~2018 10-K for analysis of the interest rate ~~sensitivity.~~sensitivity. The Company believes there have been no significant changes in the interest rate sensitivity since previously reported on the Company’s ~~2016~~2018 10-K.

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.

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, ~~2017~~

2019

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	None

Item 1A.	Risk Factors

Please refer to Premier's Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 for disclosures with respect to Premier's risk factors at December 31, ~~2016.~~2018. There have been no material changes since year-end ~~2016~~2018 in the specified risk factors disclosed in the Annual Report on Form 10-K.

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

Item 3.	Defaults Upon Senior Securities	None

Item 4.	Mine Safety Disclosures	Not Applicable

Item 5.	Other Information	None

Item 6.	Exhibits

(a)The following exhibits are furnished in accordance with the provisions of Item 601 of Regulation S-K.

31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification Pursuant to 18 U.S.C §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~31.1Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~31.2Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

32 ~~Certification Pursuant to 18 U.S.C §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

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Table of Contents

PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, ~~2017~~2019

SIGNATURES

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, 2017~~7, 2019/s/ Brien M. Chase

Brien M. Chase

Senior Vice President & Chief Financial Officer

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	(UNAUDITED)
	September 30,			December 31,
	2017			2016
ASSETS
Cash and due from banks	$	41,831		$	41,443
Interest bearing bank balances		21,681			55,720
Federal funds sold		11,632			7,555
Cash and cash equivalents		75,144			104,718
Time deposits with other banks		2,582			2,332
Securities available for sale		289,203			288,607
Loans		1,055,324			1,024,823
Allowance for loan losses		(12,359	)		(10,836	)
Net loans		1,042,965			1,013,987
Federal Home Loan Bank stock, at cost		3,185			3,200
Premises and equipment, net		23,504			24,224
Real estate and other property acquired through foreclosure		11,458			12,665
Interest receivable		4,060			3,862
Goodwill		35,371			35,371
Other intangible assets		3,581			4,349
Other assets		1,622			2,878
Total assets	$	1,492,675		$	1,496,193

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing	$	327,965		$	319,618
Time deposits, $250,000 and over		64,919			66,378
Other interest bearing		876,500			893,390
Total deposits		1,269,384			1,279,386
Securities sold under agreements to repurchase		25,116			23,820
Other borrowed funds		6,000			8,859
Subordinated debt		5,368			5,343
Interest payable		358			364
Other liabilities		3,192			4,237
Total liabilities		1,309,418			1,322,009

Stockholders' equity
Common stock, no par value; 20,000,000 shares authorized; 10,668,589 shares issued and outstanding at September 30, 2017, and 10,640,735 shares issued and outstanding at December 31, 2016		110,353			109,911
Retained earnings		72,449			66,195
Accumulated other comprehensive income (loss)		455			(1,922	)
Total stockholders' equity		183,257			174,184
Total liabilities and stockholders' equity	$	1,492,675		$	1,496,193