UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2000
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-20908
PREMIER FINANCIAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-1206757
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
115 N. Hamilton Street
Georgetown, Kentucky 40324
(Address of principal executive offices) (Zip Code)
Registrants' telephone number: (502) 863-1955
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock
(Title of Class)
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 X No ____
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this 10-K or any amendment
to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 16, 2001 was $35,317,552. The number of shares
outstanding of the Registrant's Common Stock as of March 16, 2001 was 5,232,230.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the Form
10-K part indicated:
Document Form 10-K
(1) Proxy statement for the 2001 annual meeting of Part III
shareholders
PART I
Item 1. Description of Business
THE COMPANY
Premier Financial Bancorp, Inc. (the "Company" or "Premier") is a
multi-bank holding company that, as of March 16, 2001, operated seventeen
banking offices in Kentucky, six banking offices in Ohio, and six banking
offices in West Virginia through its eight bank subsidiaries (the "Affiliate
Banks"). At December 31, 2000, Premier had total consolidated assets of $889.9
million, total consolidated deposits of $728.4 million and total consolidated
shareholders' equity of $55.8 million.
Premier began an acquisition program in 1993 and acquired six
commercial banks and five branches of other commercial banks through December
31, 2000. Premier also owns nonbank subsidiaries that provide consumer lending
and data processing services.
In 2000 Premier suspended its acquisition strategy in order to focus on
improving operations, strengthening capital and management oversight and
improving profitability at the banks previously acquired. As part of this change
in strategy Premier elected to dispose of one of its subsidiary banks, the Bank
of Mt. Vernon. While Premier remains committed to its core strategy of rural
banking with community oriented and named institutions, the Company may dispose
of additional corporate assets that no longer meet Premier's geographic or
operational performance goals.
Premier will continue to explore opportunities permitted by the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). Premier regularly
reviews, analyzes and engages in discussions regarding possible additional
acquisitions, but only if they meet Premier's long term objectives. It is not
presently known whether, or on what terms, such discussions will result in
further transactions, if any. Premier generally does not announce a transaction
until after the execution of a definitive agreement.
During June 2000, the Company announced a management change in the
appointment of Gardner E. Daniel to the position of President and Chief
Executive Officer. An executive search committee has been appointed to seek a
successor for Mr. Daniel who is currently serving on an interim basis.
Premier is a legal entity separate and distinct from its Affiliate
Banks and nonbank subsidiaries. Accordingly, the right of Premier, and thus the
right of Premier's creditors and shareholders, to participate in any
distribution of the assets or earnings of any of the Affiliate Banks or nonbank
subsidiaries is necessarily subject to the prior claims of creditors of such
subsidiaries, except to the extent that claims of Premier, in its capacity as a
creditor, may be recognized. The principal source of Premier's revenue is
dividends from its Affiliate Banks and nonbank subsidiaries. See "REGULATORY
MATTERS -- Dividend Restrictions" for discussion of the restrictions on the
Affiliate Banks' ability to pay dividends to Premier.
Premier was incorporated as a Kentucky corporation in 1991 and has
functioned as a bank holding company since its formation. Premier's principal
executive offices are located at 115 North Hamilton Street, Georgetown, Kentucky
40324, and its telephone number is (502) 863-1955.
BUSINESS
General
Through the Banks and its data processing subsidiary, the Company
focuses on providing quality, community banking services to individuals and
small-to medium sized businesses primarily in non-urban areas. By seeking to
provide such banking services in non-urban areas, the Company believes that it
can minimize the competitive effect of larger financial institutions that
typically are focused on large metropolitan areas. Through its experiences in
acquiring its Banks, the Company has developed and implemented a strategy of
joining together community banks that retain their commitment to local
orientation and direction, while having the benefit of the Company's capital for
growth and staff assistance to promote safety, soundness and regulatory
compliance. Each Bank is managed on a decentralized basis that offers customers
direct access to the Bank's president and other officers in an environment
conducive to friendly, informed and courteous service. This decentralized
approach also enables each Bank to offer local and timely decision-making, and
flexible and reasonable operating procedures and credit policies limited only by
a framework of centralized risk controls provided by the Company to promote
prudent banking practices. Each Bank maintains its community orientation by,
among other things, having selected members of its community as members of its
board of directors, who assist in the introduction of prospective customers to
the Bank and in the development or modification of products and services to meet
customer needs. As a result of the development of personal banking relationships
with its customers and the convenience and service offered by the Banks, the
Banks' lending and investing activities are funded primarily by core deposits.
When appropriate and economically advantageous, the Company centralizes
certain of the Banks' back office, support and investment functions in order to
achieve consistency and cost efficiency in the delivery of products and
services. The Company centrally provides services such as data processing,
operations support, accounting, loan review, compliance and internal auditing to
the Banks to enhance their ability to compete effectively. The Company also
provides overall direction in the areas of credit policy and administration,
strategic planning, marketing, investment portfolio management and other
financial and administrative services. Each Bank participates in product
development by advising management of new products and services needed by their
customers and desirable changes to existing products and services.
Each of the Banks provides a wide range of retail and commercial
banking services, including commercial, real estate, agricultural and consumer
lending; depository and funds transfer services; collections; safe deposit
boxes; cash management services; and other services tailored for both
individuals and businesses. Farmers Deposit Bank in Eminence, Kentucky, also
offers limited trust services and acts as executor, administrator, trustee and
in various other fiduciary capacities. Through Premier Data Services, Inc., the
Company's data processing subsidiary, the Company currently provides centralized
data processing services to seven of the Banks as well as one non-affiliated
bank.
The Banks' residential mortgage lending activities consist primarily of
loans for purchasing personal residences or loans for commercial or consumer
purposes secured by residential mortgages. Consumer lending activities consist
of traditional forms of financing for automobile and personal loans.
The Banks' range of deposit services includes checking accounts, NOW
accounts, savings accounts, money market accounts, club accounts, individual
retirement accounts, certificates of deposit and overdraft protection. Deposits
of the Banks are insured by the Bank Insurance Fund administered by the FDIC.
County Finance, Inc., a subsidiary of Citizens Deposit Bank & Trust in
Vanceburg, Kentucky, is a consumer loan company that provides secured and
unsecured loans to customers who would generally not qualify, due to credit
experience or other factors, for loans at that Bank.
Competition
The Banks encounter strong competition both in making loans and
attracting deposits. The deregulation of the banking industry and the widespread
enactment of state laws that permit multi-bank holding companies as well as the
availability of nationwide interstate banking have created a highly competitive
environment for financial services providers. In one or more aspects of its
business, each Bank competes with other commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment banking companies and other financial
intermediaries operating in its market and elsewhere, many of which have
substantially greater financial and managerial resources. Being smaller
financial institutions, each of the Banks' competitors include large bank
holding companies having substantially greater resources and offer certain
services that Premier Banks may not currently provide. Each Bank seeks to
minimize the competitive effect of larger financial institutions through a
community banking approach that emphasizes direct customer access to the Bank's
president and other officers in an environment conducive to friendly, informed
and courteous service.
Management believes that each Bank is positioned to compete
successfully in its respective primary market area, although no assurances can
be given. Competition among financial institutions is based upon interest rates
offered on deposit accounts, interest rates charged on loans and other credit
and service charges, the quality and scope of the services rendered, the
convenience of the banking facilities and, in the case of loans to commercial
borrowers, relative lending limits. Management believes that the commitment of
its Banks to per-sonal service, innovation and involvement in their respective
communities and primary market areas, as well as their commitment to quality
community banking service, are factors that contribute to their competitiveness.
Regulatory Matters
The following discussion sets forth certain elements of the regulatory
framework applicable to bank holding companies and their subsidiaries and
provides certain specific information relevant to Premier. This regulatory
framework is intended primarily for the protection of depositors and the federal
deposit insurance funds and not for the protection of the holders of securities,
including Premier Common Shares. To the extent that the following information
describes statutory or regulatory provisions, it is qualified in its entirety by
reference to those provisions. A change in the statutes, regulations or
regulatory policies applicable to Premier or its subsidiaries may have a
material effect on the business of Premier.
General - As a bank holding company, Premier is subject to regulation under the
Bank Holding Company Act ("BHC Act"), and to inspection, examination and
supervision by the Board of Governors of the Federal Reserve System ("Federal
Reserve"). Under the BHC Act, bank holding companies generally may not acquire
ownership or control of more than 5% of the voting shares or substantially all
the assets of any company, including a bank, without the Federal Reserve's prior
approval. Similarly, bank holding companies generally may not acquire ownership
or control of a savings association without the prior approval of the Federal
Reserve. Further, branching by the Affiliate Banks is subject to the
jurisdiction, and requires the approval, of each Affiliate Bank's primary
federal banking regulator and, if the Affiliate Bank is a state-chartered bank,
the appropriate state banking regulator.
Under the BHC Act, the Federal Reserve has the authority to require a
bank holding company to terminate any activity or relinquish control of the
nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a risk to the
financial soundness and stability of any bank subsidiary of the bank holding
company. Premier and the Affiliate Banks are subject to the Federal Reserve Act,
which limits borrowings by Premier and its nonbank subsidiaries from the
Affiliate Banks and also limits various other transactions between Premier and
its nonbank subsidiaries with the Affiliate Banks.
The five Affiliate Banks chartered in Kentucky are supervised,
regulated and examined by the Kentucky Department of Financial Institutions, the
two Affiliate Banks chartered in Ohio are supervised, regulated and examined by
the Ohio Division of Financial Institutions, and the two Affiliate Banks
chartered in West Virginia are supervised, regulated and examined by the West
Virginia Division of Banking. In addition, those Affiliate Banks that are state
banks and members of the Federal Reserve System are supervised and regulated by
the Federal Reserve, and those state banks that are not members of the Federal
Reserve System are supervised and regulated by the Federal Deposit Insurance
Corporation ("FDIC"). Each banking regulator has the authority to issue
cease-and-desist orders if it determines that the activities of a bank regularly
represent an unsafe and unsound banking practice or a violation of law.
Both federal and state law extensively regulates various aspects of the
banking business, such as reserve and capital requirements, truth-in-lending and
truth-in-savings disclosure, equal credit opportunity, fair credit reporting,
trading in securities and other aspects of banking operations. Premier, the
Affiliate Banks and Premier's nonbank subsidiaries are also affected by the
fiscal and monetary policies of the federal government and the Federal Reserve
and by various other governmental laws, regulations and requirements. Further,
the earnings of Premier and Affiliate Banks are affected by general economic
conditions and prevailing interest rates. Legislation and administrative actions
affecting the banking industry are frequently considered by the United States
Congress, state legislatures and various regulatory agencies. It is not possible
to predict with certainty whether such legislation or administrative actions
will be enacted or the extent to which the banking industry, in general, or
Premier and the Affiliate Banks, in particular, would be affected.
Liability for Bank Subsidiaries - The Federal Reserve has a policy to the effect
that a bank holding company is expected to act as a source of financial and
managerial strength to each of its subsidiary banks and to maintain resources
adequate to support each such subsidiary bank. This support may be required at
times when Premier may not have the resources to provide it. In the event of a
bank holding company's bankruptcy, any commitment by the bank holding company to
a federal bank regulatory agency to maintain the capital of a subsidiary bank
would be assumed by the bankruptcy trustee and entitled to priority of payment.
Any depository institution insured by the FDIC may be held liable for
any loss incurred, or reasonably expected to be incurred, by the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution, or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC-insured depository institution in danger of default. "Default"
is defined generally as the appointment of a conservator or receiver and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a "default" is likely to occur in the absence of regulatory
assistance. In the event that such a default occurred with respect to a bank,
any loans to the bank from its parent holding company will be subordinate in
right of payment to payment of the bank's depositors and certain of its other
obligations.
Capital Requirements - Premier is subject to capital ratios, requirements and
guidelines imposed by the Federal Reserve, which are substantially similar to
the ratios, requirements and guidelines imposed by the Federal Reserve and the
FDIC on the banks within their respective jurisdictions. These capital
requirements establish higher capital standards for banks and bank holding
companies that assume greater credit risks. For this purpose, a bank's or
holding company's assets and certain specified off-balance sheet commitments are
assigned to four risk categories, each weighted differently based on the level
of credit risk that is ascribed to such assets or commitments. A bank's or
holding company's capital is divided into two tiers: "Tier I" capital, which
includes common shareholders' equity, noncumulative perpetual preferred stock
and related surplus (excluding auction rate issues), minority interests in
equity accounts of consolidated subsidiaries, less goodwill, certain
identifiable intangible assets and certain other assets; and "Tier 2" capital,
which includes, among other items, perpetual preferred stock not meeting the
Tier I definition, mandatory convertible securities, subordinated debt and
allowances for loan and lease losses, subject to certain limitations, less
certain required deductions.
Bank holding companies currently are required to maintain Tier I and
total capital (the sum of Tier 1 and Tier 2 capital) equal to at least 4% and 8%
of total risk-weighted assets, respectively. At December 31, 2000, Premier met
both requirements, with Tier I and total capital equal to 9.0% and 12.0% of its
total risk-weighted assets, respectively.
In addition to the risk-based capital guidelines, the Federal Reserve
requires bank holding companies to maintain a minimum "leverage ratio" (Tier I
capital to adjusted total assets) of 3%, if the holding company has the highest
regulatory ratings for risk-based capital purposes and, accordingly, is required
to maintain a minimum "leverage ratio" of 3%. All other bank holding companies
are required to maintain a leverage ratio of 3% plus at least 100 to 200 basis
points. At December 31, 2000, Premier's leverage ratio was 6.1%.
The foregoing capital requirements are minimum requirements. The
Federal Reserve may set capital requirements higher than the minimums described
above for holding companies whose circumstances warrant it. For example, holding
companies experiencing or anticipating significant growth may be expected to
maintain capital ratios, including tangible capital positions, well above the
minimum levels.
Additionally, the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), among other things, identifies five capital categories for
insured depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines could
also subject a banking institution to capital raising requirements.
An "undercapitalized" bank must develop a capital restoration plan and
its parent holding company must guarantee the bank's compliance with the plan.
The liability of the parent holding company under any such guarantee is limited
to the lesser of 5% of the Bank's assets at the time it became
"undercapitalized" or the amount needed to comply with the plan. Furthermore, in
the event of the bankruptcy of the parent holding company, such guarantee would
take priority over the parent's general unsecured creditors. In addition, FDICIA
requires the various regulatory agencies to prescribe certain non-capital
standards for safety and executive compensation and permits regulatory action
against a financial institution that does not meet such standards.
Regulatory Agreements - On September 29, 2000, the company entered into an
agreement with the Federal Reserve that prohibits the company from paying
dividends or incurring any additional debt without the prior written approval of
the Federal Reserve. Additionally, the agreement requires the company to develop
and monitor compliance with certain operational policies designed to strengthen
Board of Director oversight including credit administration, liquidity, internal
audit and loan review.
Three of the company's subsidiaries, Citizens Deposit Bank & Trust,
Bank of Germantown and Bank of Mt. Vernon, have entered into similar agreements
with their respective primary regulator which, among other things, prohibits the
payment of dividends without prior written approval and requires significant
changes in their lending and credit administration policies.
These agreements, which require periodic reporting, will remain in
force until the regulators are satisfied that the company and the banks have
fully complied with the terms of the agreement.
Dividend Restrictions - Premier is dependent on dividends from its Affiliate
Banks for its revenues. Various federal and state regulatory provisions limit
the amount of dividends the Affiliate Banks can pay to Premier without
regulatory approval. At December 31, 2000, approximately $2.3 million of the
total shareholders' equity of the Affiliate Banks was available for payment of
dividends to Premier without approval by the applicable regulatory authority.
In addition, federal bank regulatory authorities have authority to
prohibit Premier's Affiliate Banks from engaging in an unsafe or unsound
practice in conducting their business. The payment of dividends, depending upon
the financial condition of the bank in question, could be deemed to constitute
such an unsafe or unsound practice. The ability of the Affiliate Banks to pay
dividends in the future is presently, and could be further, influenced by bank
regulatory policies and capital guidelines as well as each Affiliate Bank's
earnings and financial condition. Additional information regarding dividend
limitations can be found in Note 20 of the accompanying audited consolidated
financial statements.
Interstate Banking - Under the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act"), subject to certain concentration
limits, (i) bank holding companies, such as Premier, are permitted to acquire
banks and bank holding companies located in any state of the United States,
subject to certain restrictions, and (ii) banks are permitted to acquire branch
offices outside their home state by merging with out-of-state banks, purchasing
branches in other states or establishing de novo branch offices in other states;
provided that, in the case of any such purchase or opening of individual
branches, the host state has adopted legislation "opting in" to the relevant
provisions of the Riegle-Neal Act; and provided further, that, in the case of a
merger with a bank located in another state, the host state has not adopted
legislation "opting out" of the relevant provisions of the Riegle-Neal Act.
Gramm-Leach-Bliley Act - On November 12, 1999, the Gramm-Leach-Bliley Act (the
"Act") was signed into law, eliminating many of the remaining barriers to full
convergence of the banking, securities, and insurance industries. The major
provisions of the Act took effect March 12, 2000.
The Act enables a broad-scale consolidation among banks, securities
firms, and insurance companies by creating a new type of financial services
company called a "financial holding company," a bank holding company with
dramatically expanded powers. Financial holding companies can offer virtually
any type of financial service, including banking, securities underwriting,
insurance (both agency and underwriting), and merchant banking. In addition, the
Act permits the Federal Reserve and the Treasury Department to authorize
additional activities for financial holding companies, but only if they jointly
determine that such activities are "financial in nature" or "complementary to
financial activities."
The FRB serves as the primary "umbrella" regulator of financial holding
companies, with jurisdiction over the parent company and more limited oversight
over its subsidiaries. The primary regulator of each subsidiary of a financial
holding company depends on the activities conducted by the subsidiary. A
financial holding company need not obtain FRB approval prior to engaging, either
de novo or through acquisitions, in financial activities previously determined
to be permissible by the FRB. Instead, a financial holding company need only
provide notice to the FRB within 30 days after commencing the new activity or
consummating the acquisition.
The Company is currently contemplating whether to become a financial
holding company.
Number of Employees - The Company and its subsidiaries collectively had
approximately 361 full-time equivalent employees as of December 31, 2000. Its
executive offices are located at 115 North Hamilton Street, Georgetown,
Kentucky, telephone number (502) 863-1955 (facsimile number (502) 863-5604).
Item 2. Properties
The Company owns 115 North Hamilton Street in Georgetown, Kentucky, at
which the Company's executive offices are located. The Company also owns
property located at 104 Jefferson Street, Brooksville, Kentucky, which serves as
a branch for Bank of Germantown. In South Webster, Ohio, Premier owns 110 North
Jackson Street, which is the site occupied by a branch of Ohio River Bank. The
Company also owns 120 Main Street in Mt. Vernon, Kentucky, which it currently
leases. Except as noted each of the Banks owns the real property and
improvements on which their banking activities are conducted.
Citizens Deposit Bank & Trust, in addition to its main office at 400
Second Street in Vanceburg, Kentucky, has five branch offices in Lewis County,
Kentucky, including one leased facility. The Bank of Germantown, with its main
office located on Highway 10 in Germantown, Kentucky, has two branches located
in Bracken County, Kentucky. Citizens Bank (Kentucky), Inc., in addition to its
main office at 120 North Hamilton Street in Georgetown, Kentucky, has two
branches in Scott County, Kentucky, and two branches in Bath County, Kentucky,
as a result of the merger with another Premier affiliate, Citizens Bank,
Sharpsburg in October 2000. Farmers Deposit Bank, in addition to its main office
at 5230 South Main Street in Eminence, Kentucky, has two branches in Henry
County, Kentucky. The Sabina Bank, in addition to its main office at 135 North
Howard Street in Sabina, Ohio, has two branches, one each located in Hardin and
Auglaize Counties, Ohio. Ohio River Bank, in addition to its main office at 221
Railroad Street in Ironton, Ohio, has two branches, one each located in Lawrence
and Scioto Counties, Ohio. The Bank of Philippi, in addition to its main office
at 2 South Main Street in Philippi, West Virginia, has a branch located in
Upshur County, West Virginia, and a loan production office located in Barbour
County, West Virginia. Boone County Bank, in addition to its main office at 300
State Street, Madison, West Virginia, has three branches, one each located in
Boone, Logan and Lincoln Counties, West Virginia.
Item 3. Legal Proceedings
The Banks are respectively parties to legal actions that are ordinary
routine litigation incidental to a commercial banking business. In management's
opinion, the outcome of these matters, individually or in the aggregate, will
not have a material adverse impact on the results of operations or financial
position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is listed on the NASDAQ under the symbol
PFBI. At December 31, 2000, the Company had approximately 766 record holders of
its common shares.
The following table sets forth on a quarterly basis cash dividends paid
and the range of high and low sales prices on a per share basis during the
quarters indicated. Cash dividends paid per share shown below have been adjusted
retroactively to reflect prior stock splits effected in the form of share
dividends.
Cash Sales Price
Dividends Paid High Low
-------------- ---- ---
1999:
First Quarter $ 0.15 $17.50 $14.00
Second Quarter 0.15 14.88 12.31
Third Quarter 0.15 14.44 11.00
Fourth Quarter 0.15 11.88 9.00
---------
$ 0.60
=========
2000:
First Quarter $ 0.15 $10.25 $ 7.50
Second Quarter - 8.38 6.00
Third Quarter - 6.75 4.63
Fourth Quarter - 6.50 5.06
---------
$ 0.15
=========
2001:
First Quarter $ - $ 7.25 $ 5.25
Due to Premier's recognition of an increase in problem assets, the Board
of Directors voluntarily suspended the payment of dividends during the second
quarter of 2000. In September 2000 as a result of an agreement entered into with
the Federal Reserve, the Company agreed not to declare additional dividends
without the prior approval of the Federal Reserve. The Board of Directors
anticipates paying dividends at some future date when, in its discretion,
financial prudence allows and the Federal Reserve concurs in the payment of such
dividends. Even if the Company is able to resume the payment of dividends, there
can be no assurance that the amount of the dividends will be what the Company
paid before the payment of dividends was suspended.
The payment of dividends by the Company depends upon the ability of the
Banks to declare and pay dividends to the Company because the principal source
of the Company's revenue will be dividends paid by the Banks. At December 31,
2000, approximately $2.3 million was available for payment as dividends from the
Banks to the Company without the need for regulatory approval. In considering
the payment of dividends, the Board of Directors will take into account the
Company's financial condition, results of operations, tax considerations, costs
of expansion, industry standards, economic conditions and need for funds, as
well as governmental policies and regulations applicable to the Company and the
Banks. See "REGULATORY MATTERS - Capital Requirements" for discussion on capital
guidelines.
Item 6. Selected Financial Data
The following table presents consolidated selected financial data for the
Company, it does not purport to be complete and is qualified in its entirety by
more detailed financial information and the audited consolidated financial
statements contained elsewhere in this annual report. The consolidated selected
financial data presented below has been retroactively adjusted to reflect all
prior stock dividends and splits effected in the form of share dividends and has
been restated to give the effect of acquisitions accounted for as a pooling of
interests.
At or for the Year Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Earnings
Net interest income $ 28,676 $ 28,665 $ 20,107 $ 17,458 $ 13,454
Provision for loan losses 4,932 3,294 1,742 1,399 953
Non-interest income 4,012 3,776 4,673 4,562 1,835
Non-interest expense 26,105 22,630 15,337 12,232 9,230
Income taxes 316 1,927 1,997 2,605 1,588
Net income $ 1,335 $ 4,590 $ 5,704 $ 5,784 $ 3,518
Financial Position
Total assets $ 889,932 $ 852,468 $ 657,744 $ 464,890 $ 363,739
Loans, net of unearned
income 595,576 570,106 395,620 312,102 265,453
Allowance for loan losses 7,821 6,812 4,363 3,479 3,127
Goodwill and other intangibles 22,856 24,339 21,555 7,262 5,565
Securities 194,400 170,420 177,192 73,409 58,253
Deposits 728,412 692,843 523,193 358,605 297,116
Other borrowings 71,240 73,929 47,670 21,842 15,392
Debt 28,750 28,750 28,750 28,750 0
Stockholders' equity 55,830 52,127 54,399 52,007 48,694
Share Data
Net income - basic $ .26 $ .88 $ 1.09 $ 1.11 $ .82
Net income - diluted .26 .88 1.09 1.10 .82
Book value 10.67 9.96 10.40 9.94 9.30
Cash dividend 0.15 0.60 0.60 0.55 0.50
Ratios
Return on average assets .15% .57% .97% 1.29% 1.22%
Return on average equity 2.53% 8.54% 10.80% 11.51% 9.54%
Dividend payout 58.80% 68.41% 53.79% 41.60% 51.66%
Stockholders' equity to total
assets at period-end 6.27% 6.11% 8.27% 11.19% 13.39%
Average stockholders' equity
to average total assets 6.07% 6.72% 9.02% 11.21% 12.79%
Capital Ratios
Equity to assets 6.3% 6.1% 8.3% 11.2% 13.4%
Leverage ratio 6.1% 6.2% 8.1% 13.6% 12.2%
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion presents Management's analysis of the primary factors affecting
Premier Financial Bancorp, Inc.'s (the "Company" or "Premier") performance and
financial condition. It should be read in conjunction with the accompanying
audited consolidated financial statements included in this report. Unless
otherwise noted, all amounts and per share data have been restated to give the
effect of acquisitions accounted for as a pooling of interests. All dollar
amounts (except per share data) are presented in thousands unless otherwise
noted.
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 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.
OVERVIEW
In 2000, Premier continued to consolidate its network of independently managed
community banks into a more centralized corporate structure. In doing so,
Premier suspended its acquisition strategy in order to focus on improving
operations, strengthening capital and management oversight and improving
profitability at the banks previously acquired. As part of this change in
strategy Premier elected to dispose of one of its subsidiary banks, the Bank of
Mt. Vernon. While Premier remains committed to its core strategy of rural
banking with community oriented and named institutions, the Company may dispose
of additional corporate assets that no longer meet Premier's geographic or
operational performance goals.
For 2000, net income was $1,335 compared to $4,590 for 1999; total assets
increased to $889,932 from the $852,468 in 1999, and shareholders' equity
increased to $55,830 from $52,127 in 1999.
Quarterly unaudited financial information for the Company for the years ended
December 31, 2000 and 1999, is summarized as follows:
Quarterly Financial Information
(Dollars in thousands except per share amounts)
Full
First Second Third Fourth Year
----- ------ ----- ------ ----
2000
---- Interest Income $16,611 $17,033 $17,605 $17,985 $69,234
Interest Expense 9,525 9,792 10,474 10,767 40,558
Net Interest Income 7,086 7,241 7,131 7,218 28,676
Provision for Loan Losses 1,385 1,505 1,125 917 4,932
Securities Gains 1 (281) 1 - (279)
Net Overhead 5,135 5,136 5,564 5,979 21,814
Income before Income Taxes 567 319 443 322 1,651
Net Income 447 262 371 255 1,335
Basic Net Income per share 0.09 0.05 0.07 0.05 0.26
Diluted Net Income per share 0.09 0.05 0.07 0.05 0.26
Dividends Paid per share 0.15 - - - 0.15
1999
---- Interest Income $14,785 $15,672 $15,936 $16,479 $62,872
Interest Expense 8,067 8,427 8,541 9,172 34,207
Net Interest Income 6,718 7,245 7,395 7,307 28,665
Provision for Loan Losses 474 621 1,648 551 3,294
Securities Gains 31 (26) 2 10 17
Net Overhead 4,613 4,737 4,626 4,895 18,871
Income before Income Taxes 1,662 1,861 1,123 1,871 6,517
Net Income 1,218 1,311 771 1,290 4,590
Basic Net Income per share 0.23 0.25 0.15 0.25 0.88
Diluted Net Income per share 0.23 0.25 0.15 0.25 0.88
Dividends Paid per share 0.15 0.15 0.15 0.15 0.60
BUSINESS COMBINATIONS
In 1999, Premier completed one acquisition. On January 20, 1999, the Company
acquired Mount Vernon Bancshares and its wholly owned subsidiary, Bank of Mt.
Vernon, with offices in Somerset, Mt. Vernon, Berea and Richmond, Kentucky, in a
cash transaction that was accounted for as a purchase.
On January 26, 2001, the company disposed of all the deposits (approximately
$110 million), the majority of loans (approximately $92 million) and the
majority of premises and equipment (approximately $1.6 million) of the Bank of
Mt. Vernon under the terms of a Purchase and Assumption Agreement. The final
settlement is pending due to certain recourse provisions available to the
purchaser. As a result of this transaction, the banking charter of the Bank of
Mt. Vernon has been relinquished and the Company has agreed to not compete in
the markets previously served by the Bank of Mt. Vernon.
In 1998, Premier completed acquisitions of three banks. On March 20, 1998,
Premier acquired Ohio River Bank, located in Ironton, Ohio, in a share exchange
accounted for as a pooling of interests. On June 26, 1998, the Company chartered
Boone County Bank, Inc. in Madison, West Virginia, and The Bank of Philippi,
Inc. in Philippi, West Virginia, for the purpose of acquiring three branch
offices of Banc One Corporation located in Madison, Van and Philippi, West
Virginia.
The significant financial data relative to these transactions is set forth in
Note 2 to the financial statements.
RESULTS OF OPERATIONS
Earnings Summary
Premier recorded net income for 2000 of $1,335, versus $4,590 and $5,704 for
1999 and 1998. Basic earnings per common share were $0.26 in 2000 compared to
$0.88 in 1999 and $1.09 in 1998. This decrease in 2000 was primarily attributed
to an increase in the provision for loan losses from $3,294 in 1999 to $4,932 in
2000 and an increase in noninterest expense of $3,475 from $22,630 in 1999 to
$26,105 in 2000. Partially offsetting these decreases to net income were an
increase in noninterest income from $3,776 in 1999 to $4,012 in 2000, an
increase of $236 or 6.3%, and a decrease in provision for income taxes from
$1,927 in 1999 to $316 in 2000, a decrease of $1,611 or 83.6%.
Net income of $4,590 in 1999 represented a 19.5% decrease from the 1998 amount
of $5,704. Net interest income increased from $20,107 in 1998 to $28,665 in
1999, an increase of $8,558 or 42.6%, and the provision for income taxes
decreased from $1,997 in 1998 to $1,927 in 1999, a difference of $70 or 3.5%.
Offsetting the increase in net interest income was an increase in the provision
for loan losses from $1,742 in 1998 to $3,294 in 1999, an increase in
noninterest expense of $7,293, or 47.6%, from $15,337 in 1998 to $22,630 in
1999, and a decrease in noninterest income from $4,673 in 1998 to $3,776 in
1999.
NET INTEREST INCOME
Premier's primary source of revenue is its net interest income, which is the
difference between the interest received on its earning assets and the interest
paid on the funds acquired to support those assets. Loans made to businesses and
individuals are the primary interest earning assets, followed by investment
securities and federal funds sold in the inter-bank market. Deposits are the
primary interest bearing liabilities used to support the interest earning
assets.
The level of net interest income is affected by both the balances and mix of
interest earning assets and interest bearing liabilities, the changes in their
corresponding yields and costs, by the volume of interest earning assets funded
by non interest bearing deposits, and the level of capital. Premier's long term
objective is to manage this income to provide the largest possible amount of
income while balancing interest rate, credit and liquidity risks.
Nontaxable income from loans and investment securities is presented on a
tax-equivalent basis whereby income exempt from tax has been adjusted upward by
an amount equivalent to the prevailing federal income taxes that would have been
paid if the income had been fully taxable. The discussion of factors influencing
net interest income that follows is based on taxable equivalent data. In each of
the three years, this adjustment is based on an assumed federal income tax rate
of 34%.
Summary of Net Interest Income
(Dollars in thousands on a taxable equivalent basis)
2000 1999 1998
---- ---- ----
Interest income.......................................... $ 69,234 $ 62,872 $ 45,350
Tax equivalent adjustment................................ 723 726 608
------------- ------------- -------------
Interest income...................................... 69,957 63,598 45,958
Interest expense......................................... 40,558 34,207 25,243
------------- ------------- -------------
Net interest income.................................. $ 29,399 $ 29,391 $ 20,715
============= ============= =============
The following table shows, for the three year period ended December 31, 2000,
the average distribution of assets, liabilities and the interest earned or paid
on those items together with the level of shareholders' equity as well as
Premier's net interest spread and net interest margin on interest earning assets
(net interest income divided by average earning assets). In 2000, tax equivalent
net interest income was $29,399, an amount essentially unchanged from the
$29,391 in 1999. The 2000 net interest income is the result of an increase of
$70,486 or 9.7% in average earning assets and an increase of $66,317 or 9.9% in
average interest bearing liabilities. The yield on earning assets in 2000 of
8.77% was 3 basis points higher than the 8.74% earned in 1999, and the cost of
interest bearing liabilities increased 40 basis points to 5.49% in 2000 from
5.09% in 1999. Consequently, Premier's net interest spread decreased from 3.65%
in 1999 to 3.28% in 2000 and the net interest margin decreased from 4.04% in
1999 to 3.68% in 2000. The decrease in net interest spread and net interest
margin is primarily attributable to the 40 basis point increase in interest
bearing liabilities in the rising rate environment experienced in 2000 and the
22 basis point decrease in yield on loans. The reduction in yield on loans can
be attributed to the liquidation of the higher yielding subprime real estate
portfolio, the increase in the average balance of nonaccrual loans, and the
increased level of competition experienced with the growth in the volume of
loans.
In 1999, tax equivalent net interest income increased to $29,391 from $20,715 in
1998, an increase of $8,676 or 41.9%. This increase was due to an increase of
$188,915 or 35.1% in average earning assets and an increase of $197,897 or 41.7%
in average interest bearing liabilities. The yield on earning assets in 1999 of
8.74% was 21 basis points higher than the 8.53% earned in 1998, and the cost of
interest bearing liabilities decreased 23 basis points from 5.32% in 1998 to
5.09% in 1999. Premier's net interest spread increased from 3.21% in 1998 to
3.65% in 1999 and the net interest margin increased from 3.85% in 1998 to 4.04%
in 1999. The increase in net interest spread and net interest margin is
primarily attributable to the placement of funds in higher yielding loans and
the overall lowering of the cost of interest bearing liabilities.
The following table presents average balances and interest rates for the
three-year period ended December 31, 2000.
Average Consolidated Balance Sheets and Net Interest
Analysis
(Dollars in thousands)
2000 1999 1998
---- ---- ----
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
Assets:
Interest earning assets
U.S. Treasury and federal agency
securities $ 152,479 $ 9,674 6.34% $ 152,454 $ 9,213 6.04% $ 139,655 $ 8,249 5.91%
States and municipal
obligations (1) 24,156 1,885 7.80 23,906 1,920 8.03 19,223 1,556 8.09
Other securities (1) 7,215 688 9.54 6,839 577 8.44 5,953 565 9.49
--------- ---------- ---- --------- --------- ---- --------- ---------- ----
Total investment securities $ 183,850 $ 12,247 6.66 $ 183,199 $ 11,710 6.39 $ 164,831 $ 10,370 6.29
Federal funds sold 22,714 1,398 6.15 20,909 1,047 5.01 31,667 1,686 5.32
Interest-bearing deposits with
banks 1,052 67 6.37 3,273 19 5.87 2,146 115 5.36
Loans, net of unearned income
(3) (4)
Commercial 228,760 22,090 9.66 211,948 20,200 9.53 144,557 14,284 9.88
Real estate mortgage 287,713 26,197 9.11 241,708 23,065 9.54 145,004 14,208 9.80
Installment 74,045 7,958 10.75 66,611 7,384 11.09 50,528 5,295 10.48
--------- ---------- ----- --------- --------- ----- --------- ---------- -----
Total loans $ 590,518 $ 56,245 9.52 $ 520,267 $ 50,649 9.74 $ 340,089 $ 33,787 9.93
Total interest-earning assets $ 798,134 $ 69,957 8.77% $ 727,648 $ 63,598 8.74% $ 538,733 $ 45,958 8.53%
Allowance for loan losses (7,626) (6,084) (3,936)
Cash and due from banks 20,580 21,794 17,657
Premises and equipment 15,143 14,120 9,850
Other assets 42,386 41,395 23,280
--------- --------- ---------
Total assets $ 868,617 $ 798,873 $ 585,584
Liabilities:
Interest bearing deposits:
NOW and money market $ 175,166 $ 7,272 4.15% $ 150,165 $ 5,475 3.65% $ 93,741 $ 3,268 3.49%
Savings 63,850 1,929 3.02 63,227 1,961 3.10 51,818 1,525 2.94
Certificates of deposit and
other time deposits 394,763 23,302 5.90 368,720 20,372 5.53 251,047 14,666 5.84
--------- ---------- ---- --------- --------- ---- --------- ---------- ----
Total interest-bearing
deposits $ 633,779 $ 32,503 5.13 $ 582,112 $ 27,808 4.78 $ 396,606 $ 19,459 4.91
Other borrowings 44,382 3,212 7.24 28,977 1,754 6.05 18,271 1,194 6.53
FHLB advances 32,071 1,991 6.21 32,826 1,793 5.46 31,141 1,738 5.58
Debt 28,750 2,852 9.92 28,750 2,852 9.92 28,750 2,852 9.92
--------- ---------- ---- --------- --------- ---- --------- ---------- ----
Total interest-bearing
liabilities $ 738,982 $ 40,558 5.49% $ 672,665 $ 34,207 5.09% $ 474,768 $ 25,243 5.32%
Non-interest bearing demand
deposits 72,392 66,483 54,043
Other liabilities 4,482 6,005 3,949
--------- --------- ---------
Total liabilities $ 815,856 $ 745,153 $ 532,760
Shareholders' Equity: 52,761 53,720 52,824
Total liabilities and shareholders' --------- --------- ---------
equity $ 868,617 $ 798,873 $ 585,584
Net interest income (1) 29,399 29,391 20,715
Net interest spread (1) 3.28% 3.65% 3.21%
Net interest margin (1) 3.68% 4.04% 3.85%
(1) Taxable - equivalent yields are calculated assuming a 34% federal income tax
rate.
(2) Yields are calculated on historical cost except for yields on marketable
equity securities that are calculated using fair value.
(3) Includes loan fees, immaterial in amount, in both interest income and the
calculation of yield on loans.
(4) Includes loans on nonaccrual status.
The accompanying analysis of changes in net interest income in the following
table shows the relationship of the volume and rate portions of these changes in
2000 and 1999.
Analysis of Changes in Net
Interest Income
(Dollars in thousands on a taxable equivalent basis)
2000 vs. 1999 1999 vs. 1998
Increase (decrease) due to change in Increase (decrease) due to change in
Volume Rate Net Change Volume Rate Net Change
Interest Income:
Loans $ 6,734 $ (1,138) $ 5,596 $ 17,554 $ (692) $ 16,862
Investment securities 42 495 537 1,172 169 1,341
Federal funds sold 96 255 351 (544) (95) (639)
Deposits with banks (140) 15 (125) 65 12 77
----------- ----------- ----------- ----------- ----------- -----------
Total interest income $ 6,732 $ (373) $ 6,359 $ 18,247 $ (606) $ 17,641
Interest Expense:
Deposits -
NOW and money market $ 980 $ 817 $ 1,797 $ 2,051 $ 156 $ 2,207
Savings 19 (51) (32) 350 86 436
Certificates of deposit 1,489 1,441 2,930 6,540 (834) 5,706
Other borrowings 1,066 392 1,458 654 (94) 560
FHLB borrowings (42) 240 198 93 (37) 56
Debt - - - - - -
----------- ----------- ----------- ----------- ----------- -----------
Total interest expense $ 3,512 $ 2,839 $ 6,351 $ 9,688 $ (723) $ 8,965
Net interest income $ 3,220 $ (3,212) $ 8 $ 8,559 $ 117 $ 8,676
The change in interest income and expense due to both rate and volume has been
allocated to changes in average volume and changes in average rates in
proportion to the relationship of the absolute dollar amounts of change in each
category.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The company maintains its allowance for loan losses (allowance) at a
level that is considered sufficient to absorb potential losses in the loan
portfolio. The allowance is increased by the provision for possible loan losses
as well as recoveries of previously charged-off loans, and is decreased by loan
charge-offs. The provision is the necessary charge to expense to provide for
current loan losses and to maintain the allowance at an adequate level
commensurate with management's evaluation of the risks inherent in the loan
portfolio. Various factors are taken into consideration when the Company
determines the amount of the provision and the adequacy of the allowance. Some
of the factors include:
* Past due and nonperforming assets;
* Specific internal analyses of loans requiring special attention;
* The current level of regulatory classified and criticized assets and the
associated risk factors with each;
* Examinations and reviews by the Company's independent accountants, external
and internal loan review personnel; and
* Examinations of the loan portfolio by federal and state regulatory agencies.
The data collected from these sources is evaluated with regard to current
national and local economic trends, prior loss history, underlying collateral
values, credit concentrations, and industry risks. An estimate of potential
future loss on specific loans is developed in conjunction with an overall risk
evaluation of the total loan portfolio.
The following table is a summary of the Company's loan loss experience for each
of the past five years.
Summary of Loan Loss Experience
(Dollars in Thousands)
Years Ended December 31,
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Balance at beginning of year $ 6,812 $ 4,363 $ 3,479 $ 3,127 $ 2,113
Balance of allowance for loan losses of
acquired subsidiaries at acquisition date - 1,310 115 - 812
Amounts charged off:
Commercial 3,298 1,380 500 532 252
Real estate mortgage 125 381 60 139 68
Consumer 959 795 629 634 656
----------- ----------- ----------- ------------ -----------
Total loans charged off $ 4,382 $ 2,556 $ 1,189 $ 1,305 $ 976
Recoveries on amounts previously charged off:
Commercial 257 158 45 48 91
Real estate mortgage 4 12 1 - 4
Consumer 198 231 170 210 130
----------- ----------- ----------- ------------ -----------
Total recoveries 459 401 216 258 225
Net charge-offs 3,923 2,155 973 1,047 751
Provision for loan losses 4,932 3,294 1,742 1,399 953
----------- ----------- ----------- ------------ -----------
Balance at end of year $ 7,821 $ 6,812 $ 4,363 $ 3,479 $ 3,127
Total loans, net of unearned income:
Average 590,518 520,267 340,089 285,208 207,006
At December 31 595,576 570,106 395,620 312,102 265,453
As a percentage of average loans:
Net charge-offs .66% .41% .29% .37% .36%
Provision for loan losses .84% .63% .51% .49% .46%
Allowance as a percentage of year-end net loans 1.31% 1.19% 1.10% 1.11% 1.18%
Allowance as a multiple of net charge-offs 2 3 4 3 4
The provision for loan losses for 2000 was $4,932 compared to $3,294 in 1999, an
increase of $1,638. This increase can be mainly attributed to additional
charge-offs, loan growth, and the timely identification of additional problem
credits. In 2000, net charge-offs were $3,923 compared to $2,155 in 1999, an
increase of $1,768. The increase in 2000 net charge-offs is primarily attributed
to the deterioration in the commercial loan portfolio principally within three
of the Company's markets. At December 31, 2000, Premier's allowance for loan
losses was 1.31% of period-end loans compared to 1.19% at December 31, 1999.
Net charge-offs to average loans were .66% for the year 2000 compared to .41%
for the year 1999. At December 31, 2000, Premier's allowance for loan
losses totaled $7,821, representing an increase of $1,009 over the amount for
December 31, 1999. The allowance for loan losses was 73% of
nonperforming loans on December 31, 2000, compared to 98% at December 31, 1999.
At year end 2000, nonperforming loans represented 1.80% of total outstanding
loans, up from 1.22% on December 31, 1999.
The following table sets forth an allocation for the allowance for loan
losses by category of loan and a percentage of loans in that category. In making
the allocation, consideration was given to such factors as management's
evaluation of risk in each category, current economic conditions and charge-off
experience. An allocation for the allowance for loan losses is an
estimate of the portion of the allowance that will be used to cover future
charge-offs in each major loan category, but it does not preclude any portion of
the allowance allocated to one type of loan being used to absorb losses of
another loan type.
Allocation of the Allowance for Loan Losses and
Percent of Loans to Total Loans
(Dollars in thousands)
At December 31,
-----------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Amount % Amount % Amount % Amount % Amount %
------- ----- ------- ----- ------- ----- ------- ----- -------- -----
Commercial $ 2,535 17.0% $ 2,123 20.6% $ 1,695 22.5% $ 1,226 27.0% $ 1,066 18.5%
Real estate mortgage 3,417 64.8 2,490 61.9 1,728 57.8 732 51.1 1,229 60.7
Consumer 1,261 18.2 948 17.5 738 19.7 965 21.9 739 20.8
Unallocated 608 -- 1,251 -- 202 -- 556 -- 93 --
------- ----- ------- ----- ------- ----- ------- ----- -------- -----
Total $ 7,821 100.0% $ 6,812 100.0% $ 4,363 100.0% $ 3,479 100.0% $ 3,127 100.0%
Any reallocation to the allowance is primarily indicative of changes in loan
portfolio mix, not changes in loan concentrations or terms. The Company does
consider quality in regards to specific loans when determining an adequate
allowance allocation. The level of increase in nonperforming loans, which is
more specifically addressed in the nonperforming loan section, is believed to be
temporary and should not materially affect the allowance.
NONINTEREST INCOME AND EXPENSES
Noninterest income is a significant component of the Company's total income. The
Company continues to develop and enhance existing products and to create new
products in order to augment fee income as trends in the financial services
industry and the economic environment continue to put pressure on the Company's
ability to increase its net interest income. Noninterest income includes deposit
service charges, fees from data processing and trust services, fees and
commissions from many other corporate and retail products and gains and losses
from the sale of investment securities.
Total fees and other income in 2000 increased $243 or 6.5% to $4,002 from $3,759
in 1999. Service charges on deposit accounts increased 13.7% or $270 to $2,235
from $1,965 in 1999. Insurance commissions decreased 21.6% and other income
increased 7.7%.
Total fees and other income increased $641 or 20.6% in 1999 to $3,759 from
$3,118 in 1998. Service charges on deposit accounts increased 24.0% and all
other income increased 15.4%.
Losses on the sale of investment securities in 2000 were $(279), a decrease of
$296 from the gains of $17 in investment securities in 1999. Investment
securities gains in 1999 were $17 versus $224 in 1998, a decrease of $207.
Premier recognized a gain of $289 during the second quarter of 2000 as the
result of the sale of an affiliate's Federal Home Loan Bank advance. This gain
was substantially offset by losses on securities of $281, which was also
recognized in the second quarter of 2000.
Premier recognized a $1.3 million finder's fee during the second quarter of
1998. Received in cash and without recourse, the fee is the Company's portion of
an agreement to assist another financial institution in connection with the
acquisition and subsequent resale of several branches of Banc One Corporation
located in West Virginia. There was no similar non-recurring fee recognized in
1999 or 2000.
Noninterest expenses increased $3,475 or 15.4% in 2000, from $22,630 in 1999 to
$26,105 in 2000, and increased $7,293 or 47.6% in 1999 from $15,337 in 1998.
Salaries and employee benefits, the largest component of noninterest expense,
increased 14.2% in 2000 and 53.0% in 1999. The increases include salary
increases and reflect increases in the number of full time equivalent employees
from 273 at December 31, 1998 to 351 at December 31, 1999 and 361 at December
31, 2000, due to acquisitions and expansion of the Company's business activity.
1999 was the first full year of salaries and employee benefits expense
associated with the mid year 1998 purchase of the West Virginia branches. Also
contributing to the 1999 increase was the January 20, 1999 acquisition of Mt.
Vernon Bancshares. The 2000 increase can be primarily attributed to the addition
of three banking locations, the expensing of severance costs and annual salary
increases.
Occupancy and equipment expense for 2000 of $3,187 was $302 or 10.5% higher than
the $2,885 for 1999. The increase in 1999 was $704, or 32.3%, more than the
$2,181 expensed in 1998. The increases in 1999 and 2000 are primarily
attributable to the expansion in the number of banking locations from 23 at
December 31, 1998 up to 34 at December 31, 2000.
Other noninterest expense, which is the second largest category, increased
$1,461 or 28.6% in 2000 and $1,703 or 50.1% in 1999. This increase includes the
addition of the purchased West Virginia branches in June 1998 and their
respective operating expenses as full service banks. Also included in the 1999
increases are the respective costs assumed with the Mt. Vernon Bancshares
purchase. The 2000 increases are primarily attributed to write-downs of other
real estate owned of approximately $617 and increased costs associated with
heightened levels of risk identification and controls.
Premier incurred no acquisition-related expenses in 2000 or 1999.
The Company incurred expenses relating to the acquisitions of Ohio River Bank
and the West Virginia branches of $132 in 1998. Expenses related to acquisitions
are charged to expense for
acquisitions accounted for as pooling of interests while certain expenses
related to acquisitions accounted for as purchases are capitalized as a
component of the purchase price and ultimately increase the amount of goodwill
included with the purchase.
Amortization of intangibles decreased $54 or 3.3% to $1,571 for 2000 from the
1999 amount of $1,625. The 1999 amount is an increase of $643 from the amount of
$982 in 1998. The 1999 increase is primarily attributed to goodwill amortization
of intangible cost regarding branch acquisitions along with the purchase of Mt.
Vernon Bancshares.
The Company continually seeks to develop fees and other income for services
provided while holding operating expenses to the minimum amount required to
provide quality service. In 2000, total net noninterest expenses (excluding
investment securities gains, gain on FHLB advance sale, finders fee and
acquisition expenses) as a percent of average total assets were 2.54%, compared
to 2.36% in 1999 and 2.06% in 1998.
The following table is a summary of non-interest income and expense for the
three-year period indicated.
Non-Interest Income and Expense
(Dollars in thousands)
Increase Increase
(decrease) (decrease)
2000 vs. 1999 vs.
2000 1999 1999 1999 1998 1998
-----------------------------------------------------------------------------
Non-Interest Income:
Service charges on deposit accounts $ 2,235 $ 1,965 $ 270 $ 1,965 $ 1,585 $ 380
Insurance income 443 565 (122) 565 468 97
Other 1,324 1,229 95 1,229 1,065 164
--------- --------- ----------- --------- --------- -----------
Total fees and other income $ 4,002 $ 3,759 $ 243 $ 3,759 $ 3,118 $ 641
Investment securities gains(losses) (279) 17 (296) 17 224 (207)
Gain on FHLB advance sale 289 - 289 - - -
Finders Fee - - - - 1,331 (1,331)
--------- --------- ----------- --------- --------- -----------
Total non-interest income $ 4,012 $ 3,776 $ 236 $ 3,776 $ 4,673 $ (897)
Non-Interest Expense:
Salaries and employee benefits 13,332 11,679 1,653 11,679 7,634 4,045
Occupancy and equipment expense 3,187 2,885 302 2,885 2,181 704
Professional fees 705 547 158 547 452 95
Taxes, other than payroll, property
and income 749 794 (45) 794 559 235
Acquisition related expenses - - - - 132 (132)
Amortization of intangibles 1,571 1,625 (54) 1,625 982 643
Other expenses 6,561 5,100 1,461 5,100 3,397 1,703
--------- --------- ----------- --------- --------- -----------
Total non-interest expenses $ 26,105 $ 22,630 $ 3,475 $ 22,630 $ 15,337 $ 7,293
Net non-interest expenses as a percent
of average assets 2.54% 2.36% 2.36% 1.82%
Net non-interest expenses as a percent
of average assets (excluding investment
securities gains, finders fee, gain on
FHLB advance sale, and acquisition related
expenses) 2.54% 2.36% 2.36% 2.06%
INCOME TAXES
The Company's provision for income taxes was $316 in 2000, which represented
19.1% of pre-tax income versus $1,927 in 1999 or 29.6% and $1,997 or 25.9% of
pre-tax income in 1998. The dollar amount of decrease is primarily attributed to
the decrease in income before income taxes.
An analysis of the difference between the effective tax rates and the statutory
U.S. federal income tax rate is contained in Note 13 to the consolidated
financial statements.
FINANCIAL CONDITION
Lending Activities
Loans are the Company's primary use of financial resources and represent the
largest component of earning assets. The Company's loans are made predominantly
within the Banks' market areas and the portfolio is diversified. Credit risk is
inherent in each financial institution's loan and investment portfolio. In an
effort to minimize credit risk, the Company utilizes a credit administration
network, including specific lending authorities for each loan officer, a system
of loan committees to review and approve loans, and a loan review and credit
quality rating system. This network assists in the evaluation of the quality of
new loans and in the identification of problem or potential problem credits and
provides information to aid management and the Board of Directors in determining
the adequacy of the allowance for possible loan losses. During 2000, the Company
and its regulators identified certain deficiencies within its affiliate system
and has implemented definitive action plans to address these deficiencies. The
improvements made to the credit administration network during 2000 should
enhance the scope, breadth, and depth of the Company's credit risk
identification processes.
Total loans, net of unearned income, averaged $590,518 in 2000 compared with
$520,267 in 1999. At year end 2000, loans net of unearned income totaled
$595,576 compared to $570,106 at December 31, 1999, an increase of $25,470 or
4.5%.
The following table presents a summary of the Company's loan portfolio by
category for each of the last five years. Other than the categories noted, there
is no concentration of loans in any industry greater than 5% in the portfolio.
The Company has no foreign loans or highly leveraged transactions in its loan
portfolio.
LOAN PORTFOLIO COMPOSITION
Loans Outstanding
(Dollars in thousands)
December 31
2000 % 1999 % 1998 % 1997 % 1996 %
Commercial, secured by real
estate $149,733 25.1% $135,078 23.7% $ 86,010 21.6% $ 71,818 22.8% $ 63,179 23.6%
Commercial, other 86,069 14.5 98,543 17.3 73,982 18.6 48,309 15.4 37,609 14.1
Real estate construction 24,774 4.2 26,092 4.6 13,374 3.4 8,352 2.6 4,523 1.7
Real estate mortgage 211,662 35.5 192,088 33.6 131,212 33.0 103,664 33.0 94,844 35.4
Agricultural 13,817 2.3 17,525 3.1 15,433 3.9 13,232 4.2 11,751 4.4
Consumer 108,646 18.2 100,075 17.5 73,100 18.4 68,461 21.8 54,160 20.2
Other 1,246 0.2 1,352 0.2 4,502 1.1 674 0.2 1,493 0.6
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans $595,947 100.0% $570,753 100.0% $397,613 100.0% $314,510 100.0% $267,559 100.0%
Less unearned income (371) (647) (1,993) (2,408) (2,106)
-------- -------- -------- -------- --------
Total loans net of
unearned income $595,576 $570,106 $395,620 $312,102 $265,453
Commercial loans generally are made to small-to-medium size businesses located
within a Bank's defined market area and typically are secured by business assets
and guarantees of the principal owners. Collateral for real estate mortgage
loans include residential properties and the loans generally do not exceed 80%
of the value of the real property securing the loan based on recent independent
appraisals. The Company's real estate mortgage loan portfolio primarily consists
of adjustable rate residential mortgage loans. The origination of these mortgage
loans can be more difficult in a low interest rate environment where there is a
significant demand for fixed rate mortgages. A number of the banks do
participate in the origination of loans into the secondary market and recognize
the referral fees into other income. Consumer loans generally are made to
individuals living in a Bank's defined market area who are known to the Bank's
staff. Consumer loans are made for terms of up to seven years on a secured or
unsecured basis. While consumer loans generally provide the Company with
increased interest income, consumer loans may involve a greater risk of default.
Loss experience in all categories has been increasing over the past five years,
with net charge-offs being .66% of loans in 2000 and .41% in 1999. With respect
to consumer loans in particular, net charge-offs for the year ended December 31,
2000 were $761, or .70% of total consumer loans outstanding at December 31,
2000, and $564 in 1999, or .56% of total consumer loans outstanding at December
31, 1999.
The following table sets forth the maturity distribution and interest
sensitivity of selected loan categories at December 31, 2000. Maturities are
based upon contractual terms. The Company's policy is to specifically review and
approve any loan renewed; no loans are automatically rolled over.
Loan Maturities and Interest Sensitivity
December 31, 2000
(Dollars in thousands)
One Year One Through Over Total
or Less Five Years Five Years Loans
-------- ----------- ---------- -----
Commercial, secured by real estate $ 105,929 $ 36,156 $ 7,648 $ 149,733
Commercial, other 65,438 16,354 4,277 86,069
Real estate construction 18,107 5,525 1,142 24,774
Agricultural 13,817 - - 13,817
------------ ------------ ------------ ------------
Total $ 203,291 $ 58,035 $ 13,067 $ 274,393
============ ============ ============ ============
Fixed rate loans $ 131,536 $ 58,035 $ 13,067 $ 202,638
Floating rate loans 71,755 - - 71,755
------------ ------------ ------------ ------------
Total $ 203,291 $ 58,035 $ 13,067 $ 274,393
============ ============ ============ ============
Nonperforming assets
Nonperforming assets consist of loans on which interest is no longer accrued,
certain restructured loans where interest rate or other terms have been
renegotiated, accruing loans past due 90 days or more and real estate acquired
through foreclosure. All loans considered impaired under SFAS 114 are included
in nonperforming loans.
The Company discontinues the accrual of interest on loans that become 90 days
past due as to principal or interest unless they are adequately secured and in
the process of collection. A loan remains in a nonaccrual status until doubts
concerning the collectibility no longer exist. A loan is classified as a
restructured loan when the interest rate is materially reduced or the term is
extended beyond the original maturity date because of the inability of the
borrower to service the loan under the original terms. Other real estate is
recorded at the lower of cost or fair value less estimated costs to sell.
A summary of the components of nonperforming assets, including several ratios
using period-end data, is shown as follows:
Nonperforming Assets
(Dollars in thousands)
December 31
----------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Nonaccrual loans $ 7,840 $ 4,540 $ 3,500 $ 562 $ 768
Accruing loans which are contractually
past due 90 days or more 2,196 1,721 1,322 522 594
Restructured loans 689 666 105 356 0
--------------- --------------- --------------- -------------- ------------
Total nonperforming and restructured
loans $ 10,725 $ 6,927 $ 4,927 $ 1,440 $ 1,362
Other real estate acquired through
foreclosures 3,116 3,009 961 836 485
--------------- --------------- --------------- -------------- ------------
Total nonperforming and restructured
loans and other real estate $ 13,841 $ 9,936 $ 5,888 $ 2,276 $ 1,847
Nonperforming and restructured loans
as a percentage of net loans 1.80% 1.22% 1.25% .46% .51%
Nonperforming and restructured loans
and other real estate as a percentage
of total assets 1.56% 1.17% .90% .49% .51%
Nonaccrual loans increased from $4,540 at December 31, 1999 to $7,840 at
December 31, 2000. Total nonperforming assets increased from $9,936 at December
31, 1999 to $13,841 at December 31, 2000. The percentage of nonperforming loans
to total loans increased from 1.22% to 1.80%.
The increase in total nonperforming loans and other real estate owned of $3,905
is largely attributable to the deterioration in loan quality concentrated
principally within three of the Company's markets.
Reserves allocated in connection with these assets are believed to be adequate.
The Company continues to follow its long-standing policy of not engaging in
international lending and not concentrating lending activity in any one
industry.
Although loans may be classified as nonperforming, some continue to pay interest
irregularly or at less than original contractual rates. A summary of actual
income recognized on nonaccrual and restructured loans versus their full
contractual yields for each of the past five years is presented below.
Interest Income on Non-Accrual and Restructured Loans
Year ended December 31
(Dollars in thousands)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Contractual interest 673 272 135 77 73
Interest recognized 89 6 6 62 2
Investment Activities
The securities portfolio consists of debt and equity securities, which provide
the Company with a relatively stable source of income. Additionally, the
investment portfolio provides a balance to interest rate and credit risks in
other categories of the balance sheet. The Company also uses the securities
portfolio as a secondary source of liquidity. The Company has classified the
majority of its municipal securities and certain U. S. Treasury and agency
securities as held to maturity based on management's positive intent and ability
to hold such securities to maturity. These municipal securities provide tax-free
income and are within management's guidelines with respect to credit risk and
market risk. The municipal securities have been issued principally by Kentucky
municipalities. The U. S. Treasury and agency securities are held as a source of
stable, long-term income, which can be used as collateral to secure municipal
deposits and repurchase agreements. All other investment securities are
classified as available for sale. The portfolio does contain holdings in GNMA
mortgage-backed securities. The securities portfolio does not contain
significant holdings in collateralized mortgage obligations or other
mortgage-related derivative products and/or structured notes.
Securities as a percentage of average interest-earning assets decreased to 23.0%
in 2000 versus 25.2% in 1999 and 30.6% in 1998. The 2000 decrease in securities
reflects the movement of funds into higher yielding loan balances, primarily in
regards to the acquisition of deposits held in the West Virginia branches.
At December 31, 2000 and 1999, the Company had an investment in noncumulative
perpetual preferred stock of First Guaranty Bank, Hammond, Louisiana. The market
value of this investment approximated its book value, which totaled $2 million
at December 31, 2000 and 1999. The dividend rate on the preferred stock is 2% in
excess of the prime rate as in effect from time to time.
The following tables present the carrying values and maturity distribution of
investment securities.
Carrying Value of Securities
(Dollars in thousands)
December 31
2000 1999 1998
---- ---- ----
U.S. Treasury and Federal agencies:
Available for sale $ 157,245 $ 128,101 $ 132,106
Held to maturity 1,233 1,733 3,529
State and municipal obligations:
Available for sale 7,132 7,354 3,831
Held to maturity 16,656 16,876 16,474
Equity securities:
Available for sale 2,798 2,775 2,798
Held to maturity 0 0 0
Other securities:
Available for sale 9,319 13,557 18,405
Held to maturity 17 24 49
Total securities:
Available for sale 176,494 151,787 157,140
Held to maturity 17,906 18,633 20,052
----------------- ----------------- -----------------
Total $ 194,400 $ 170,420 $ 177,192
Maturity Distribution of Securities
December 31, 2000
(Dollars in thousands)
One Five
Year Through Through Over
Or Five Ten Ten Other Market
Less Years Years Years Securities Total Value
U.S. Treasury and Federal agencies:
Available for sale $ 33,991 $ 97,349 $ 18,178 $ 7,727 $ - $ 157,245 $ 157,245
Held to maturity - 1,233 - - - 1,233 1,230
State and municipal obligations:
Available for sale 622 1,113 2,949 2,448 - 7,132 7,132
Held to maturity 1,416 5,277 7,046 2,917 - 16,656 17,003
Other securities:
Available for sale - - - - 12,117 12,117 12,117
Held to maturity - - - - 17 17 16
Total securities:
Available for sale 34,613 98,462 21,127 10,175 12,117 176,494 176,494
Held to maturity 1,416 6,510 7,046 2,917 17 17,906 18,249
--------- --------- ---------- -------- -------- ---------- ----------
Total $ 36,029 $ 104,972 $ 28,173 $ 13,092 $ 12,134 $ 194,400 $ 194,743
========= ========= ========== ======== ======== ========== ==========
Percent of total 18.53% 54.00% 14.49% 6.74% 6.24% 100.00%
Weighted average yield* 6.05% 6.12% 6.51% 6.86% 7.34% 6.29%
*The weighted average yields are calculated on historical cost on a non
tax-equivalent basis.
Deposit Activities
Managing the mix and repricing of deposit liabilities is an important aspect of
the Company's ability to maximize its net interest margin. The strategies used
to manage interest-bearing deposit liabilities are designed to adjust as the
interest rate environment changes. In this regard, management of the Company
regularly assesses its funding needs, deposit pricing, and interest rate
outlooks.
Total deposits averaged $706,171 in 2000, a 8.9% increase over 1999. Total
deposits averaged $648,595 in 1999, an increase of $197,946 or 43.9% over 1998.
Noninterest bearing deposits averaged 10.3% of total deposits in 2000, compared
to 10.3% in 1999 and 12.0% in 1998.
At December 31, 2000, deposits totaled $728,412, compared to $692,843 at
December 31, 1999, an increase of $35,569, or 5.1%.
The table below provides information on the maturities of time deposits of
$100,000 or more at December 31, 2000.
Maturity of Time
Deposits of $100,000 or More
December 31, 2000
(In thousands)
Maturing 3 months or less $ 20,376
Maturing over 3 months through 6 months 19,740
Maturing over 6 months through 12 months 41,251
Maturing over 12 months 24,123
----------------
Total $ 105,490
================
The following table sets forth the average amount of and average rate paid on
selected deposit categories during the past three full years.
Selected Deposit Categories
(Dollars in Thousands)
2000 1999 1998
---- ---- ----
Category Amount Rate (%) Amount Rate (%) Amount Rate (%)
Demand $ 72,392 0% $ 66,483 0% $ 54,043 0%
NOW and money
market accounts 175,166 4.15% 150,165 3.65% 93,741 3.49%
Savings 63,850 3.02% 63,227 3.10% 51,818 2.94%
Certificates of deposit
and other time 394,763 5.90% 368,720 5.53% 251,047 5.84%
----------- ---- ----------- ---- ----------- ----
Total $ 706,171 4.60% $ 648,595 4.29% $ 450,649 4.32%
Capital
Stockholders' equity increased $3,703 in 2000 to $55.8 million or 6.3% of total
assets at December 31, 2000. This compares to $52.1 million, or 6.1% of total
assets at December 31, 1999. The primary reason for the 2000 increase in
stockholders' equity was the decrease in unrealized loss on securities of $3,153
from ($4,022) on December 31, 1999, to ($869) on December 31, 2000. This is a
component of accumulated other comprehensive income. The increase was
supplemented by the retention of net earnings of $550 in 2000. Stockholders'
equity decreased $2,272 or 4.2% in 1999 from $54.4 million at December 31, 1998
to $52.1 million for 1999. The primary reason for the 1999 decrease in
stockholders' equity was the increase in unrealized loss on securities of $3,722
from ($300) on December 31, 1998, to ($4,022) on December 31, 1999. The decrease
was partially offset by the retention of net earnings of $1,450 in 1999. The
consolidated statements of changes in stockholders' equity detail the changes in
equity for the last three years.
The fair value adjustment of the Company's available for sale securities
portfolio, which is recorded as a component of stockholders' equity, may change
significantly as market conditions change. At December 31, 2000 and 1999, the
adjustment resulted in a reduction of stockholders' equity of $869 and $4,022.
Further volatility in stockholders' equity may occur in the future as market
conditions change.
The Company's principal source of funds for dividend payments to stockholders 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
without prior approval of regulatory agencies 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 regulatory capital requirements
and additional restrictions as more fully described in Note 20 to the
consolidated financial statements. During 2001, the Banks could, without prior
approval, declare dividends to the Company of approximately $2.3 million plus
any 2001 net profits retained to the date of the dividend declaration.
The various regulatory agencies having supervisory authority over financial
institutions have adopted risk-based capital guidelines, which define the
adequacy of the capital levels of regulated institutions. These risk-based
capital guidelines require minimum levels of capital based upon the risk rating
of assets and certain off-balance-sheet items. Assets and off-balance-sheet
items are assigned regulatory-risk weights ranging from 0% to 100% depending on
their level of credit risk. The guidelines classify capital in two tiers, Tier I
and Tier 2, the sum of which is total capital. Tier I capital is essentially
common equity, less intangible assets. Tier 2 capital is essentially qualifying
long-term debt and a portion of the allowance for possible loan losses.
Selected Capital Information
(Dollars in thousands)
December 31
2000 1999 Change
---- ---- ------
Stockholders' Equity $ 55,830 $ 52,127 $ 3,703
Qualifying capital securities of subsidiary
trust 18,872 18,683 189
Disallowed amounts of goodwill and other
intangibles (22,856) (24,339) 1,483
Unrealized loss on securities available
for sale 785 3,923 (3,138)
---------------- ---------------- ----------------
Tier I capital $ 52,631 $ 50,394 $ 2,237
Tier II capital adjustments:
Qualifying capital securities of subsidiary
trust 9,878 10,067
Allowance for loan losses 7,298 6,812
---------------- ----------------
Total capital $ 69,807 $ 67,273
Total risk-weighted assets $ 583,259 $ 566,632
Ratios
Tier I capital to risk-weighted assets 9.0% 8.9%
Total capital to risk-weighted assets 12.0% 11.9%
Leverage at year-end 6.1% 6.2%
As a result of the disposition in January 2001 of substantially all the loans,
deposits and premises and equipment of the Company's Bank of Mt. Vernon
subsidiary, the Company's net gain on the sale and the elimination of
approximately $4.1 million of goodwill had the effect of increasing Tier I
capital by approximately $4.7 million and increasing the Company's leverage
ratio from 6.1% as of December 31, 2000 to approximately 7.5%.
Liquidity
Liquidity for a financial institution 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. Liquidity is maintained through the
Company's ability to convert assets into cash, manage the maturities of
liabilities and generate funds through the attraction of local deposits.
As part of its liquidity management, the Company maintains funding relationships
with the Federal Home Loan Bank and other financial institutions. The Company
prefers to manage its liquidity requirements generally through the matching of
maturities of assets and liabilities. The consolidated statements of cash flows
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.
Liquidity risk is the possibility that the Company may not be able to meet its
cash requirements. Management of liquidity risk includes maintenance of adequate
cash and sources of cash to fund operations and meets the needs of borrowers,
depositors and creditors. Liquidity must be maintained at a level, which is
adequate but not excessive. Excess liquidity has a negative impact on earnings
resulting from the lower yields on short-term assets.
The Company's principal source of funds to meet the cash requirements of the
holding company is dividends received from its subsidiaries and the cash flows
provided by intercompany tax payments. Additional funds have been provided in
prior years from the borrowings on the Company's credit facilities. The Company
expects the cash flows from its subsidiaries to be sufficient to meet its cash
requirements, however the Company has identified certain assets that could be
sold to generate additional funds as needed.
Cash, cash equivalents, Federal funds sold, and the securities portfolio
provides an important source of liquidity to the subsidiary banks. The total of
securities maturing within one year along with cash, due from banks,
interest-earning balances with banks maturing within one year, and Federal funds
sold totaled $80.7 million as of December 31, 2000. Additionally, securities
available-for-sale with maturities greater than one year, equity securities, and
interest-earning balances with banks with maturities greater than one year,
totaled $142.3 million at December 31, 2000. These securities represent a
secondary source available to meet liquidity needs on a continuing basis.
To maintain a desired level of liquidity, the Banks have several sources of
funds available. One is the cash flow generated daily from the Banks' various
loan portfolios in the form of principal and interest payments. Another source
is its deposit base. The Company maintains a relatively stable base of customer
deposits which has historically exhibited steady growth. This growth, when
combined with other sources, is expected to be adequate to meet its demand for
funds. Due to the nature of the markets served by the Company's subsidiary
banks, management believes that the majority of certificates of deposit of
$100,000 or more are no more volatile than its core deposits. Certificates of
deposits and other time deposits of $100,000 or more represented approximately
14.5% and 14.3% of total deposits at December 31, 2000 and 1999. A number of
techniques are used to measure the liquidity position, including the utilization
of ratios that are presented below. These ratios are calculated based on annual
averages for each year.
Liquidity Ratios
2000 1999 1998
---- ---- ----
Total loans/total deposits............................... 83.6% 80.2% 75.5%
Total loans/total deposits less float.................... 84.8% 81.0% 76.3%
This analysis shows that the Company's loan to deposit ratio has increased in
both 1999 and 2000. The increases are primarily the result of funds moving from
lower yielding assets into higher yielding loans, principally in the West
Virginia markets.
Information regarding short-term borrowings for the past three years is
presented below.
Short-Term Borrowings
(Dollars in thousands)
2000 1999 1998
---- ---- ----
Repurchase Agreements:
Balance at year end $ 20,553 $ 21,282 $ 7,772
Weighted average rate at year end 6.67% 5.80% 4.47%
Average balance during the year $ 23,580 $ 8,640 $ 20,167
Weighted average rate during the year 6.40% 5.14% 4.58%
Maximum month-end balance $ 28,009 $ 21,282 $ 82,755
Other short-term borrowings:
Balance at year end $ 19,825 $ 11,225 $ 18,225
Weighted average rate at year end 6.62% 5.93% 5.74%
Average balance during the year $ 17,418 $ 12,184 $ 14,867
Weighted average rate during the year 6.58% 5.61% 5.83%
Maximum month-end balance $ 24,493 $ 15,788 $ 19,800
Total short-term borrowings:
Balance at year end $ 38,878 $ 32,507 $ 25,997
Weighted average rate at year end 6.65% 5.84% 5.36%
Average balance during the year $ 40,998 $ 20,824 $ 35,034
Weighted average rate during the year 6.48% 5.41% 5.12%
Maximum month-end balance $ 52,502 $ 32,507 $ 92,719
Substantially all federal funds purchased and repurchase agreements mature in
less than ninety days. Other short-term borrowings primarily represent Federal
Home Loan Bank (FHLB) advances to Bank Affiliates (with varying maturity dates)
which are funding residential mortgage and commercial loans.
Interest Rate Sensitivity
The interest spread and liability funding discussed above are directly related
to changes in asset and liability mixes, volumes, maturities and repricing
opportunities of interest-earning assets and interest-bearing liabilities.
Interest-sensitive assets and liabilities are those, which are subject to being
repriced in the near term, including either floating or adjustable rate
instruments and instruments approaching maturity. The interest sensitivity gap
is the difference between total interest-sensitive assets and total
interest-sensitive liabilities. Interest rates on the Company's various asset
and liability categories do not respond uniformly to changing market conditions.
Interest rate risk is the degree to which interest rate fluctuations in the
marketplace can affect net interest income.
The need for interest sensitivity gap management is most critical in times of a
significant change in overall interest rates. Management generally seeks to
limit the exposure of the Company to interest rate fluctuations by maintaining a
relatively balanced mix of rate sensitive assets and liabilities on a one-year
time horizon. This mix is altered periodically depending upon management's
assessment of current business conditions and the interest rate outlook.
One tool, which is used to monitor interest rate risk, is the interest
sensitivity analysis as shown in the table below. This analysis reflects the
repricing characteristics of assets and liabilities over various time periods.
The gap indicates the level of assets and liabilities that are subject to
repricing over a given time period.
As shown by the interest rate sensitivity analysis as of December 31, 2000, the
cumulative amount of the Company's interest earning assets repricing during the
first year is lower than the total amount of its interest bearing liabilities
repricing during this period. This position, which is normally termed a negative
interest sensitivity gap, generally allows for enhanced net interest income
during periods of falling interest rates. This negative gap is within the
Company's internal policy guidelines and is not expected to impact significantly
the Company's net interest income during a period of rising interest rates.
The following table provides an analysis of the Company's interest rate
sensitivity at December 31, 2000.
Interest Rate Sensitivity Analysis
(Dollars in Thousands)
0 - 90 91 days - 1 - 5 Over 5
Days 1 Year Years Years Total
Assets
Loans, net of unearned income $ 237,787 $ 170,900 $ 133,155 $ 53,734 $ 595,576
Investment securities 15,737 20,292 104,972 57,875 198,876
Interest-earning balances 288 - 292 157 737
Federal funds sold 21,087 - - - 21,087
------------ ----------- ------------ ----------- ------------
Total earning assets $ 274,899 $ 191,192 $ 238,419 $ 111,766 $ 816,276
Sources of Funds
NOW, money market and
savings $ 83,387 $ 55,592 $ 92,652 $ 28,048 $ 259,679
Time deposits 77,267 208,011 109,017 - 394,295
Borrowings 46,060 16,523 8,657 - 71,240
------------ ----------- ------------ ----------- ------------
Total interest bearing liabilities $ 206,714 $ 280,126 $ 210,326 $ 28,048 $ 725,214
Interest Sensitivity Gap
For the period $ 68,185 $ (88,934) $ 28,093 $ 83,718 $ 91,062
Cumulative 68,185 (20,749) 7,344 91,062 -
Cumulative as a percent of
earning assets 8.35% (2.54)% .90% 11.16%
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Asset/Liability Management and Market Risk
Market risk is the risk of gain or loss from changes in the fair value of
financial instruments due to changes in interest rates, exchange rates and
equity prices. Premier's market risk is composed almost exclusively with
interest rate risk. This exposure is managed primarily through the strategy of
selecting the types and terms of interest earning assets and interest bearing
liabilities which generate favorable earnings, while limiting the potential
negative effects of changes in market interest rates. Since Premier's primary
source of interest bearing liabilities is customer deposits, the ability to
manage the types and terms of such deposits may be somewhat limited by customer
preferences in the market areas in which it operates. Borrowings, which include
Federal Home Loan Bank advances, short-term borrowings and long-term borrowings,
are generally structured with specific terms, which in management's judgment,
when aggregated with the terms for outstanding deposits and matched with
interest earning assets, mitigate our exposure to interest rate risk.
The Company's Board of Directors is responsible for reviewing the interest rate
sensitivity of the Company and establishing policies to monitor and limit
exposure to interest rate risk. Interest rate risk is monitored through the use
of an earnings simulation model prepared by an independent third party to
analyze net interest income sensitivity.
The earnings simulation model forecasts the effect of instantaneous movements in
interest rates of both 100 and 200 basis points. The most recent earnings
simulation model projects net interest income would increase by approximately
1.4% of stable rate net interest income if rates rise by 100 basis points over
the next year. It projects a decrease of 3.8% if the rates fall by 100 basis
points. Management believes this reflects a slight asset sensitive rate risk
position for the less than 90 day time frame. For the one-year horizon the rate
risk position evolves into one with a slight liability sensitivity.
Within the same time frame, but assuming a 200 basis point movement in rates,
the model forecasts that net interest income would rise above that earned in a
stable rate environment by 1.7% in a rising rate scenario and decrease by 8.6%
in a falling rate scenario. Under both the 100 and 200 basis point forecast, the
percentage changes in net interest income are within ALCO guidelines.
This simulation model includes assumptions about how the balance sheet is likely
to evolve through time. Loan prepayments are developed from industry median
estimates for prepayment speeds. Noncontractual deposit pricing and sensitivity
are assumed to follow historical patterns.
The Economic Value at Risk (EVR) of the balance sheet, at a point in time, is
defined as the discounted present value of asset cash flows minus the discounted
value of liability cash flows. The resulting percentage change in EVR is an
indication of the longer term repricing risk imbedded in the balance sheet. At
December 31, 2000, a 200 basis point increase in rates is estimated to decrease
EVR by 14.2%. Additionally, EVR is projected to decrease by 10.0% if rates fall
by 200 basis points. The calculations of present value have certain
shortcomings. The
discount rates utilized are based on estimated market interest rate levels for
similar loans and securities nationwide. The unique characteristics of Premier's
loans and securities may not necessarily parallel those assumed in this
calculation, and therefore, would likely result in different discount rates,
prepayment experiences and present values. The discount rates utilized for
deposits and borrowings are based upon available alternative types and sources
of funds which are not necessarily indicative of the present value of deposits
and FHLB advances since such deposits and advances are unique to, and have
certain price and customer relationship advantages for, depository institutions.
A higher or lower interest rate environment will most likely result in different
investment and borrowing strategies by Premier designed to further mitigate the
effect on the value of, and the net earnings generated from, the Company's net
assets from any change in interest rates.
Summary information about the simulation model's interest rate risk measures is
presented below:
Year-End Year-End ALCO
2000 1999 Guidelines
-------- -------- ----------
Projected 1-Year Net Interest Income
-100 bp change vs. Base Rate -3.8% -3.2% +/-10%
+100 bp change vs. Base Rate 1.4% 3.0% +/-10%
Projected 1-Year Net Interest Income
-200 bp change vs. Base Rate -8.6% -9.3% +/-10%
+200 bp change vs. Base Rate 1.7% 5.3% +/-10%
Economic Value Change
-200 bp Change vs. Base Rate -10.0% -16.2% +/-20%
+200 bp Change vs. Base Rate -14.2% .5% +/-20%
Interest Rate Risk Management
Premier's strategy of investing primarily in loans and securities permits it to
limit its exposure to interest rate risk, together with credit risk, while at
the same time achieving a positive interest rate spread from the difference
between the income earned on interest earning assets and the cost of interest
bearing liabilities. Managing this exposure involves significant assumptions
about the relationship of various interest rate indices of certain financial
instruments. Prepayments on loans and mortgage-backed securities generally
increase when long-term interest rates fall or are at historically low levels
relative to short-term interest rates making fixed rate loans more desirable.
Other investment securities, other than those with early call provisions,
generally do not have significant imbedded options and repay pursuant to
specific terms until maturity. While savings and checking deposits generally may
be withdrawn upon the customer's request without prior notice, a continuing
relationship with customers resulting in future deposits and withdrawals is
generally predictable resulting in a dependable and uninterruptible source of
funds. Time deposits generally have early withdrawal penalties, which discourage
customer withdrawal, while term Federal Home Loan Bank advances have prepayment
penalties, which discourage prepayment prior to maturity.
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable rate mortgage loans,
have features that restrict changes in interest rates on a short-term basis and
over the life of the loan. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels could deviate significantly from those
assumed in calculating the table. Finally, the ability of many borrowers to
service their debt may decrease in the event of a significant interest rate
increase.
The previous table does not necessarily indicate the impact of general interest
rate movements on Premier's net interest income because the repricing of certain
categories of assets and liabilities are subject to competitive and other
pressures beyond our control. As a result, certain assets and liabilities
indicated as maturing or otherwise repricing within a stated period may in fact
mature or reprice at different times and at different volumes.
Management expects interest rates to be biased toward decreasing further during
2001 and believes that the current modest level of liability sensitivity is
appropriate when taken in conjunction with the unlikely event of a significant
rate increase. Premier's interest sensitivity profile changed from 1999 to 2000
as a result of the increase in shorter-term liability instruments.
Trade Risk Management
Premier does not maintain a trading account, which would primarily provide
investment products and risk management services to its customers as well as to
take propriety risk positions.
Derivative Instruments
A derivative financial instrument includes futures, forwards, interest rate
swaps, options and other financial instruments with similar characteristics.
Premier currently does not enter into futures, forwards, swaps or options.
However, the Company is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to make loans and
standby letters of credit, which involve to varying degrees elements of credit
risk and interest rate risk in excess of amounts recognized on the balance
sheets. Commitments to make loans are agreements to lend to a customer as long
as there is no violation of any contract condition. Commitments generally have
fixed expiration dates and may require collateral if deemed necessary. Standby
letters of credit are conditional commitments issued by Premier to guarantee the
performance of a customer to a third party up to a stipulated amount and with
specific terms and conditions. Commitments to make loans and standby letters of
credit are not recorded as an asset or liability by the Company until the
instrument is exercised.
Item 8. Financial Statements and Supplementary Data
The Company's Financial Statements and related Independent Auditors'
Report are presented in the following pages. The financial statements filed in
this Item 8 are as follows:
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets - December 31, 2000 and 1999
Consolidated Statements of Income - Years Ended December 31, 2000, 1999
and 1998
Consolidated Statements of Comprehensive Income - Years Ended December
31, 2000, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 2000,
1999 and 1998
Notes to Consolidated Financial Statements
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
CONTENTS
REPORT OF INDEPENDENT AUDITORS....................................... 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets....................................... 2
Consolidated Statements of Income................................. 3
Consolidated Statements of Comprehensive Income................... 4
Consolidated Statements of Changes in Stockholders' Equity........ 5
Consolidated Statements of Cash Flows............................. 6 - 7
Notes to Consolidated Financial Statements........................ 8 - 31
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Premier Financial Bancorp, Inc.
Georgetown, Kentucky
We have audited the accompanying consolidated balance sheets of Premier
Financial Bancorp, Inc. as of December 31, 2000 and 1999, and the related
consolidated statements of income and comprehensive income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Premier Financial
Bancorp, Inc. as of December 31, 2000 and 1999 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2000 in conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Lexington, Kentucky
March 14, 2001
1.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
2000 1999
---- ----
(In Thousands)
ASSETS
Cash and due from banks $ 23,339 $ 28,227
Interest-earning balances with banks 737 1,634
Federal funds sold 21,087 25,197
Investment securities
Available for sale 176,494 151,787
Held to maturity 17,906 18,633
Loans 595,947 570,753
Unearned income (371) (647)
Allowance for loan losses (7,821) (6,812)
------------ ------------
Net loans 587,755 563,294
Federal Home Loan Bank and Federal Reserve Bank stock 4,476 4,123
Premises and equipment, net 15,474 14,935
Real estate and other property acquired through foreclosure 3,116 3,019
Interest receivable 10,144 9,814
Goodwill and other intangibles 22,856 24,339
Other assets 6,548 7,466
------------ ------------
Total assets $ 889,932 $ 852,468
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 74,438 $ 68,490
Time deposits, $100,000 and over 105,490 99,292
Other interest bearing 548,484 525,061
------------ ------------
Total deposits 728,412 692,843
Securities sold under agreements to repurchase 20,553 21,282
Federal Home Loan Bank advances 30,687 32,647
Other borrowed funds 20,000 20,000
Interest payable 3,901 3,265
Other liabilities 1,799 1,554
------------ ------------
Total liabilities 805,352 771,591
Guaranteed preferred beneficial interests in Company's debentures 28,750 28,750
Stockholders' equity
Preferred stock, no par value; 1,000,000 shares
authorized; none issued or outstanding - -
Common stock, no par value; 10,000,000 shares authorized;
5,232,230 shares issued and outstanding 1,103 1,103
Surplus 43,445 43,445
Retained earnings 12,151 11,601
Accumulated other comprehensive income (869) (4,022)
------------ ------------
Total stockholders' equity 55,830 52,127
------------ ------------
Total liabilities and stockholders' equity $ 889,932 $ 852,468
============ ============
- --------------------------------------------------------------------------------
See accompanying notes.
2.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
- --------------------------------------------------------------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
Interest income
Loans, including fees $ 56,245 $ 50,649 $ 33,787
Investment securities -
Taxable 10,120 9,575 8,582
Tax-exempt 1,404 1,409 1,180
Federal funds sold 1,398 1,047 1,686
Other interest income 67 192 115
----------- ----------- -----------
Total interest income 69,234 62,872 45,350
Interest expense
Deposits 32,503 27,808 19,459
Other borrowings 5,203 3,547 2,932
Debt 2,852 2,852 2,852
----------- ----------- -----------
Total interest expense 40,558 34,207 25,243
Net interest income 28,676 28,665 20,107
Provision for loan losses 4,932 3,294 1,742
----------- ----------- -----------
Net interest income after provision for loan losses 23,744 25,371 18,365
Non-interest income
Service charges 2,235 1,965 1,585
Insurance commissions 443 565 468
Investment securities gains (losses) (279) 17 224
Other income 1,613 1,229 2,396
----------- ----------- -----------
4,012 3,776 4,673
Non-interest expenses
Salaries and employee benefits 13,332 11,679 7,634
Occupancy and equipment expenses 3,187 2,885 2,181
Professional fees 705 547 452
Taxes, other than payroll, property and income 749 794 559
Acquisition related expenses - - 132
Amortization of intangibles 1,571 1,625 982
Other expenses 6,561 5,100 3,397
----------- ----------- -----------
26,105 22,630 15,337
Income before income taxes 1,651 6,517 7,701
Provision for income taxes 316 1,927 1,997
----------- ----------- -----------
Net income $ 1,335 $ 4,590 $ 5,704
=========== =========== ===========
Weighted average common shares outstanding:
Basic 5,232 5,232 5,232
Diluted 5,232 5,232 5,247
Earnings per share:
Basic $ .26 $ .88 $ 1.09
Diluted .26 .88 1.09
- --------------------------------------------------------------------------------
See accompanying notes.
3.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31
- --------------------------------------------------------------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
Net Income $ 1,335 $ 4,590 $ 5,704
Other comprehensive income (loss), net of tax:
Unrealized gains and (losses) arising during
the period 2,969 (3,711) (95)
Reclassification of realized amount 184 (11) (149)
Net change in unrealized gain (loss) on ----------- ----------- -----------
securities 3,153 (3,722) (244)
----------- ----------- -----------
Comprehensive income $ 4,488 $ 868 $ 5,460
=========== =========== ===========
- --------------------------------------------------------------------------------
See accompanying notes.
4.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
Accumulated
Other
Common Retained Comprehensive
Stock Surplus Earnings Income Total
(In Thousands, Except Per Share Data)
Balances, January 1, 1998 $ 985 $ 38,795 $ 12,283 $ (56) $ 52,007
Net change in unrealized losses on
securities available for sale - - - (244) (244)
Net income - - 5,704 - 5,704
Dividends paid - $.60 per share - - (3,068) - (3,068)
Stock dividend 118 4,650 (4,768) - -
-------- --------- --------- ---------- ----------
Balances, December 31, 1998 $ 1,103 $ 43,445 $ 10,151 $ (300) $ 54,399
Net change in unrealized losses on
securities available for sale - - - (3,722) (3,722)
Net income - - 4,590 - 4,590
Dividends paid - $.60 per share - - (3,140) - (3,140)
-------- --------- --------- ---------- ----------
Balances, December 31, 1999 $ 1,103 $ 43,445 $ 11,601 $ (4,022) $ 52,127
Net change in unrealized losses on
securities available for sale - - - 3,153 3,153
Net income - - 1,335 - 1,335
Dividends paid - $.15 per share - - (785) - (785)
-------- --------- --------- ---------- ----------
Balances, December 31, 2000 $ 1,103 $ 43,445 $ 12,151 $ (869) $ 55,830
======== ========= ========= ========== ==========
- --------------------------------------------------------------------------------
See accompanying notes.
5.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
- --------------------------------------------------------------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
Cash flows from operating activities
Net income $ 1,335 $ 4,590 $ 5,704
Adjustments to reconcile net income to
net cash from operating activities
Depreciation 1,436 1,214 872
Provision for loan losses 4,932 3,294 1,742
Amortization, net 1,228 1,750 591
FHLB stock dividends (311) (254) (227)
Write-downs of other real estate owned 617 1 -
Investment securities gains(losses), net 279 (17) (224)
Changes in
Interest receivable (330) (409) (2,566)
Other assets (705) (312) (161)
Interest payable 636 256 578
Other liabilities 245 127 (531)
-------- ---------- -----------
Net cash from operating activities 9,362 10,240 5,778
Cash flows from investing activities
Purchases of securities available for sale (61,664) (82,373) (640,535)
Proceeds from sales of securities available for sale 19,727 40,082 222,750
Proceeds from maturities and calls of securities
available for sale 21,985 52,865 313,671
Purchases of securities held to maturity (1,571) (2,055) (4,978)
Proceeds from maturities and calls of securities
held to maturity 2,296 3,472 5,276
Purchases of FHLB stock (42) (61) (155)
Net change in interest-earning balances with banks 897 (1,634) -
Net change in federal funds sold 4,110 6,933 21,840
Net change in loans (30,692) (82,882) (75,665)
Purchases of premises and equipment, net (1,975) (2,396) (2,129)
Proceeds from sale of other real estate acquired
through foreclosure 584 943 399
Net cash received (paid) related to acquisitions - (8,579) 123,971
-------- ---------- -----------
Net cash from investing activities (46,345) (75,685) (35,555)
Cash flows from financing activities
Net change in deposits 35,569 50,983 14,137
Advances from Federal Home Loan Bank 62,783 16,345 27,225
Repayment of Federal Home Loan Bank advances (64,743) (15,596) (10,590)
Proceeds from other borrowed funds - 12,000 8,000
Net change in securities sold under agreements to
repurchase (729) 12,909 1,193
Dividends paid (785) (3,140) (3,068)
-------- ---------- -----------
Net cash from financing activities 32,095 73,501 36,897
-------- ---------- -----------
- --------------------------------------------------------------------------------
(Continued)
6.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
- --------------------------------------------------------------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
Net change in cash and cash equivalents (4,888) 8,056 7,120
Cash and cash equivalents at beginning
of year 28,227 20,171 13,051
------------ ----------- -----------
Cash and cash equivalents at end of year $ 23,339 $ 28,227 $ 20,171
============ =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for -
Interest $ 39,922 $ 33,951 $ 24,665
Income taxes 1,115 2,050 2,550
Loans transferred to real estate acquired
through foreclosure $ 1,298 $ 2,943 $ 555
- --------------------------------------------------------------------------------
See accompanying notes.
7.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Premier Financial
Bancorp, Inc. (the Company) and its wholly-owned subsidiaries:
December 31, 2000
Year Net
Acquired Assets Income
-------- ------ ------
(In Thousands)
Citizens Deposit Bank & Trust Vanceburg, Kentucky 1991 $ 115,152 $ 448
Bank of Germantown Germantown, Kentucky 1992 28,934 (463)
Citizens Bank (Kentucky), Inc. Georgetown, Kentucky 1995 110,162 1,120
Farmers Deposit Bank Eminence, Kentucky 1996 144,729 1,748
The Sabina Bank Sabina, Ohio 1997 58,934 357
Ohio River Bank Ironton, Ohio 1998 69,027 414
The Bank of Philippi, Inc. Philippi, West Virginia 1998 77,614 231
Boone County Bank, Inc. Madison, West Virginia 1998 150,733 969
The Bank of Mt. Vernon Richmond, Kentucky 1999 132,159 724
The Company also has a data processing subsidiary, Premier Data Services, Inc.,
and PFBI Capital Trust subsidiary as discussed in Note 12. All intercompany
transactions and balances have been eliminated.
On October 20, 2000, the Company merged two of its wholly-owned subsidiaries,
Georgetown Bank and Trust Company, Georgetown, Kentucky, and Citizens Bank,
Sharpsburg, Kentucky, to form Citizens Bank (Kentucky), Inc.
Prior period consolidated financial statements have been restated to include the
accounts of significant acquisitions accounted for using the pooling of
interests method of accounting. Business combinations accounted for as purchases
are included in the consolidated financial statements from the respective dates
of acquisition. Assets and liabilities of financial institutions accounted for
as purchases are adjusted to their fair values as of their dates of acquisition.
Certain prior amounts have been reclassified to conform with the current year
presentation.
Nature of Operations: The Banks operate under state bank charters and provide
traditional banking services, including trust services, to customers primarily
located in the counties and adjoining counties in Kentucky, Ohio, and West
Virginia in which the Banks operate. Chartered as state banks, the Banks are
subject to regulation by their respective state banking regulators and the
Federal Deposit Insurance Corporation (FDIC) or the Federal Reserve Bank for
member banks. The Company is also subject to regulation by the Federal Reserve
Bank.
- --------------------------------------------------------------------------------
(Continued)
8.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Estimates in the Financial Statements: The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
allowance for loan losses and fair values of financial instruments are
particularly subject to change.
Cash Flows: For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and interest-earning balances with
banks with an original maturity less than ninety days. Net cash flows are
reported for loans, federal funds sold, deposits, and other borrowing
transactions.
Investment Securities: The Company classifies its investment securities
portfolio into three categories: trading, securities available for sale and
securities held to maturity. Fair value adjustments are made to the securities
based on their classification with the exception of the held to maturity
category. The Company has no investments classified as trading.
Investment securities available for sale are carried at fair value. Adjustments
from amortized cost to fair value are recorded in stockholders' equity, net of
related income tax, under accumulated other comprehensive income on securities
available for sale. The adjustment is computed on the difference between fair
value and cost adjusted for amortization of premiums and accretion of discounts
which are recorded as adjustments to interest income using the constant yield
method.
Investment securities for which the Banks have the positive intent and ability
to hold to maturity are stated at cost, adjusted for amortization of premiums
and accretion of discounts, which are recorded as adjustments to interest income
using the constant yield method.
Gains or losses on dispositions are based on the net proceeds and adjusted
carrying amount of the securities sold using the specific identification method.
Loans: Loans are stated at the amount of unpaid principal, reduced by unearned
income and an allowance for loan losses. Interest income on loans is recognized
on the accrual basis except for those loans in a nonaccrual of income status.
The accrual of interest on impaired loans is discontinued when management
believes, after consideration of economic and business conditions and collection
efforts, that the borrowers' financial condition is such that collection of
interest is doubtful. When interest accrual is discontinued, interest income is
subsequently recognized only to the extent cash payments are received.
- --------------------------------------------------------------------------------
(Continued)
9.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The allowance for loan losses is established through a provision for loan losses
charged to expense. The allowance is an amount that management believes will be
adequate to absorb losses on existing loans that may become uncollectible based
on evaluations of the collectibility of loans and prior loan loss experience.
The evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrowers'
ability to pay. Loans are charged against the allowance for loan losses when
management believes that the collection of principal is unlikely.
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral.
Certain loan origination fees and direct origination costs are capitalized and
recognized as an adjustment of the yield on the related loan.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is recorded principally by the
straight-line method over the estimated useful lives of the premises and
equipment.
Real Estate Acquired Through Foreclosure: Real estate acquired through
foreclosure is carried at the lower of the recorded investment in the property
or its fair value. The value of the underlying loan is written down to the fair
value of the real estate to be acquired by a charge to the allowance for loan
losses, if necessary. Any subsequent write-downs are charged to operating
expenses. Certain parcels of real estate are being leased to third parties to
offset holding period costs. Operating expenses of such properties, net of
related income, and gains and losses on their disposition are included in other
expenses.
Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged to cover
these liabilities, which are not covered by federal deposit insurance.
Goodwill and Other Intangibles: The unamortized costs in excess of the fair
value of acquired net tangible assets are included in goodwill and other
intangibles. Identifiable intangibles, except for premiums on purchased deposits
which are amortized on a straight-line method over 10 years, are amortized over
the estimated periods benefited. The remaining costs (goodwill) are amortized on
a straight-line basis over 15 to 25 years.
- --------------------------------------------------------------------------------
(Continued)
10.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes: The Company uses the liability method for computing deferred
income taxes. Under the liability method, deferred income taxes are based on the
change during the year in the deferred tax liability or asset established for
the expected future tax consequences of differences in the financial reporting
and tax bases of assets and liabilities. The differences relate principally to
premises and equipment, unrealized gains and losses on investment securities
available for sale, FHLB stock, and the allowance for loan losses.
Earnings Per Common Share: Basic earnings per common share is net income divided
by the weighted average number of common shares outstanding during the period.
Diluted earnings per common share includes the dilutive effect of additional
potential common shares issuable under stock options. Earnings and dividends per
share are restated for all stock splits and dividends through the date of
issuance of the financial statements.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale which are also recognized as a separate
component of equity.
New Accounting Pronouncements: Beginning January 1, 2001, a new accounting
standard required all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
income statement. Fair value changes involving hedges will generally be recorded
by offsetting gains and losses on the hedge and on the hedged item, even if the
fair value of the hedged item is not otherwise recorded. Implementation of this
standard did not have a material effect on the consolidated financial
statements.
Industry Segments: All of the Company's operations are considered by management
to be aggregated into one reportable operating segment.
NOTE 2 - BUSINESS COMBINATIONS
On January 20, 1999, the Company acquired all of the outstanding shares of Mt.
Vernon Bancshares, Inc., Mt. Vernon, Kentucky, a one-bank holding company owning
all of the shares of Bank of Mt. Vernon (Mt. Vernon) for cash. Mt. Vernon offers
full service banking in the counties of Rockcastle, Pulaski, and Madison,
Kentucky. The total acquisition cost exceeded the fair value of net assets
acquired by approximately $4.5 million. The combination was accounted for as a
purchase and the results of operations of Mt. Vernon are included in the
consolidated financial statements from January 20, 1999.
On January 26, 2001, the Company disposed of all the deposits (approximately
$110 million), the majority of loans (approximately $92 million) and the
premises and equipment (approximately $1.6 million) of the Bank of Mt. Vernon
under the terms of a Purchase and Assumption Agreement. The final settlement
- --------------------------------------------------------------------------------
(Continued)
11.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 2 - BUSINESS COMBINATIONS (Continued)
is pending due to certain recourse provisions available to the purchaser. As a
result of this transaction, the banking charter of the Bank of Mt. Vernon has
been relinquished and the Company has agreed to not compete in the markets
previously served by the Bank of Mt. Vernon.
On June 26, 1998, the Company chartered Boone County Bank, Inc. in Madison, West
Virginia, and The Bank of Philippi, Inc. in Philippi, West Virginia, for the
purpose of acquiring three branch offices of Banc One Corporation located in
Madison, Philippi and Van, West Virginia. Included in the purchase were $150
million in deposits and $9 million in loans. These branches were part of a
larger group of branches acquired in cooperation with another bank holding
company headquartered in Kentucky. Certain individual branches within the group
were not retained by either company. The gain on disposition of these branches
was shared between the Company and the other bank holding company. The Company's
portion of the gain, $1.3 million, is included in other income in the
accompanying financial statements.
On March 20, 1998, the Company acquired Ohio River Bank, Ironton, Ohio, (Ohio
River) whereby the Company exchanged 297,840 shares of its common stock for all
the issued and outstanding shares of Ohio River in a business combination
accounted for as a pooling of interests. Based on the date of the acquisition
agreement, the market value of the shares exchanged was $7.7 million. The
accompanying consolidated financial statements for 1998 are based on the
assumption that the companies were combined for the full year. At the date of
acquisition, Ohio River had $40.9 million in total assets, $28.0 million in net
loans, $35.2 million in deposits, and $4.3 million in stockholders' equity.
NOTE 3 - REGULATORY MATTERS
On September 29, 2000, the Company entered into an agreement with the Federal
Reserve Bank (FRB) that prohibits the Company from paying dividends or incurring
any additional debt without the prior written approval of the FRB. Additionally,
the agreement requires the Company to develop and monitor compliance with
certain operational policies designed to strengthen Board of Director oversight
including credit administration, liquidity, internal audit and loan review.
Three of the Company's subsidiaries, Citizens Deposit Bank & Trust, Bank of
Germantown and Bank of Mt. Vernon, have entered into similar agreements with
their respective primary regulators which, among other things, prohibit the
payment of dividends without prior written approval and requires significant
changes in their credit administration policies.
These agreements, which require periodic reporting, will remain in force until
the regulators are satisfied that the Company and the banks have fully complied
with the terms of the agreement.
- --------------------------------------------------------------------------------
(Continued)
12.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 4 - RESTRICTIONS ON CASH AND DUE FROM BANKS
Included in cash and due from banks are certain non-interest bearing deposits
that are held at the Federal Reserve or maintained in vault cash in accordance
with average balance requirements specified by the Federal Reserve Board of
Governors. The balance requirement at December 31, 2000 and 1999 was $3.6
million and $2.2 million.
NOTE 5 - INVESTMENT SECURITIES
Amortized cost and fair value of investment securities, by category, at December
31, 2000 are as follows:
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
(In Thousands)
Available for sale
U. S. Treasury securities $ 3,345 $ 13 $ (1) $ 3,357
U. S. agency securities 155,045 232 (1,389) 153,888
Obligations of states and political
subdivisions 7,016 117 (1) 7,132
Mortgage-backed securities 9,478 - (159) 9,319
Preferred stock 2,000 - - 2,000
Other securities 925 - (127) 798
----------- -------- --------- -----------
Total available for sale $ 177,809 $ 362 $ (1,677) $ 176,494
=========== ======== ========= ===========
Held to maturity
U. S. agency securities $ 1,233 $ 4 $ (7) $ 1,230
Obligations of states and political
subdivisions 16,656 378 (31) 17,003
Mortgage-backed securities 17 - (1) 16
----------- -------- --------- -----------
Total held to maturity $ 17,906 $ 382 $ (39) $ 18,249
=========== ======== ========= ===========
- --------------------------------------------------------------------------------
(Continued)
13.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 5 - INVESTMENT SECURITIES (Continued)
Amortized cost and fair value of investment securities, by category, at December
31, 1999 are as follows:
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
(In Thousands)
Available for sale
U. S. Treasury securities $ 2,900 $ - $ (6) $ 2,894
U. S. agency securities 130,254 - (5,047) 125,207
Obligations of states and political
subdivisions 7,468 - (114) 7,354
Mortgage-backed securities 14,333 - (776) 13,557
Preferred stock 2,000 - - 2,000
Other securities 925 - (150) 775
----------- -------- --------- -----------
Total available for sale $ 157,880 $ - $ (6,093) $ 151,787
=========== ======== ========= ===========
Held to maturity
U. S. Treasury securities $ 500 $ - $ (1) $ 499
U. S. agency securities 1,233 - (29) 1,204
Obligations of states and political
subdivisions 16,876 132 (150) 16,858
Mortgage-backed securities 24 - - 24
----------- -------- --------- -----------
Total held to maturity $ 18,633 $ 132 $ (180) $ 18,585
=========== ======== ========= ===========
The amortized cost and fair value of investment securities at December 31, 2000,
by category and 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 Fair
Cost Value
--------- -----
(In Thousands)
Available for sale
Due in one year or less $ 34,609 $ 34,613
Due after one year through five years 98,938 98,462
Due after five years through ten years 21,426 21,127
Due after ten years 10,433 10,175
Mortgage-backed securities 9,478 9,319
Preferred stock 2,000 2,000
Other securities 925 798
----------- -----------
Total available for sale $ 177,809 $ 176,494
=========== ===========
- --------------------------------------------------------------------------------
(Continued)
14.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 5 - INVESTMENT SECURITIES (Continued)
Amortized Fair
Cost Value
--------- -----
(In Thousands)
Held to maturity
Due in one year or less $ 1,416 $ 1,420
Due after one year through five years 6,510 6,603
Due after five years through ten years 7,046 7,202
Due after ten years 2,917 3,008
Mortgage-backed securities 17 16
----------- -----------
Total held to maturity $ 17,906 $ 18,249
=========== ===========
Proceeds from sales of investment securities during 2000, 1999 and 1998 were
$19.7 million, $40.1 million and $222.7 million. Gross gains of $7,000, $44,000
and $232,000, and gross losses of $286,000, $27,000 and $8,000 were realized on
those sales.
Investment securities with an approximate carrying value of $134.1 million and
$76.3 million at December 31, 2000 and 1999 were pledged to secure public
deposits, trust funds, securities sold under agreements to repurchase and for
other purposes as required or permitted by law.
NOTE 6 - LOANS
Major classifications of loans are summarized as follows:
December 31
2000 1999
---- ----
(In Thousands)
Commercial, secured by real estate $ 149,733 $ 135,078
Commercial, other 86,069 98,543
Real estate construction 24,774 26,092
Residential real estate 211,662 192,088
Agricultural 13,817 17,525
Consumer and home equity 108,646 100,075
Other 1,246 1,352
------------ ------------
$ 595,947 $ 570,753
============ ============
Certain directors and executive officers of the Banks and companies, in which
they have beneficial ownership, were loan customers of the Banks during 2000 and
1999. Such loans were made in the ordinary course of business at the Banks'
normal credit terms and interest rates.
- --------------------------------------------------------------------------------
(Continued)
15.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 6 - LOANS (Continued)
An analysis of the 2000 activity with respect to all director and executive
officer loans is as follows:
(In Thousands)
Balance, December 31, 1999 $ 12,276
Additions, including loans now meeting disclosure
requirements 2,221
Amounts collected, including loans no longer meeting
disclosure requirements (2,678)
--------------
Balance, December 31, 2000 $ 11,819
==============
Changes in the allowance for loan losses are as follows:
2000 1999 1998
---- ---- ----
(In Thousands)
Balance, beginning of year $ 6,812 $ 4,363 $ 3,479
Allowance related to acquired subsidiaries - 1,310 115
Loans charged off (4,382) (2,556) (1,189)
Recoveries 459 401 216
Provision for loan losses 4,932 3,294 1,742
--------- --------- ---------
Balance, end of year $ 7,821 $ 6,812 $ 4,363
========= ========= =========
Information about impaired loans is presented below. There were no impaired
loans for the periods presented without an allowance allocation.
2000 1999 1998
(In Thousands)
Impaired loans at year end $ 4,661 $ 2,717 $ 2,562
Amount of the allowance for loan losses allocated 742 543 659
Average of impaired loans during the year 3,993 3,810 905
Interest income recognized during impairment 55 - -
Cash-basis interest income recognized 34 6 6
- --------------------------------------------------------------------------------
(Continued)
16.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 6 - LOANS (Continued)
2000 1999 1998
---- ---- ----
(In Thousands)
Nonperforming loans at year end were as follows:
Loans past due over 90 days still on accrual $ 2,196 $ 1,721 $ 1,322
Nonaccrual loans 7,840 4,540 3,500
Nonperforming loans include impaired loans and smaller balance homogeneous
loans, such as residential mortgage and consumer loans, that are collectively
evaluated for impairment.
NOTE 7 - PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
---------December 31--------
2000 1999
---- ----
(In Thousands)
Land $ 2,257 $ 2,252
Buildings and leasehold improvements 11,283 10,566
Furniture and equipment 9,876 8,655
---------- ----------
23,416 21,473
Less: accumulated depreciation (7,942) (6,538)
---------- ----------
$ 15,474 $ 14,935
========== ==========
NOTE 8 - DEPOSITS
At December 31, 2000, the scheduled maturities of time deposits are as follows:
(In Thousands)
2001 $ 282,046
2002 81,838
2003 20,421
2004 4,163
2005 and thereafter 5,827
----------
$ 394,295
==========
Certain directors and executive officers of the Banks and companies, in which
they have beneficial ownership, were deposit customers of the Banks during 2000.
The balance of such deposits at December 31, 2000 was approximately $10,246,000.
- --------------------------------------------------------------------------------
(Continued)
17.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 9 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase generally mature within one to
ninety days from the transaction date. Information concerning securities sold
under agreements to repurchase is summarized as follows:
---------December 31---------
2000 1999
---- ----
(Dollars In Thousands)
Year-end balance $ 20,553 $ 21,282
Average balance during the year $ 23,580 $ 8,640
Average interest rate during the year 6.40% 5.14%
Maximum month-end balance during the year $ 28,009 $ 21,282
NOTE 10 - FEDERAL HOME LOAN BANK ADVANCES
The Banks own stock of the Federal Home Loan Bank (FHLB) of Cincinnati, Ohio.
This stock allows the Banks to borrow advances from the FHLB.
At December 31, 2000 and 1999, $30.7 million and $32.6 million represented the
balance due on the above advances from the FHLB. All advances are paid either on
a monthly basis or at maturity, over remaining terms of one to fifteen years,
with interest rates ranging from 5.50% to 8.45%. Advances are secured by the
FHLB stock and substantially all single family first mortgage loans of the
participating Banks. Scheduled principal payments due on advances during the
five years subsequent to December 31, 2000 are as follows:
(In Thousands)
2001 $ 20,449
2002 432
2003 145
2004 122
2005 and thereafter 9,539
----------
$ 30,687
==========
NOTE 11 - OTHER BORROWED FUNDS
The Company has a $20 million line of credit with a financial institution for
general corporate purposes, including acquisitions. The line of credit, expiring
April 2001, contains certain covenants and performance terms, all of which have
been complied with or waiver received thereon at December 31, 2000. Interest is
payable at term at LIBOR plus 1.75% and adjusts based on agreed terms. Common
stock of seven of the Company's subsidiary Banks is pledged to secure the
agreement. There was $20 million borrowed under this agreement at December 31,
2000 and 1999.
- --------------------------------------------------------------------------------
(Continued)
18.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 12 - GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S DEBENTURES
Guaranteed preferred beneficial interests in Company's debentures (Preferred
Securities) represent preferred beneficial interests in the assets of PFBI
Capital Trust (Trust). The Trust holds certain 9.75% junior subordinated
debentures due June 30, 2027 issued by the Company on June 9, 1997.
Distributions on the Preferred Securities is payable at an annual rate of 9.75%
of the stated liquidation amount of $25 per Capital Security, payable quarterly.
Cash distributions on the Preferred Securities are made to the extent interest
on the debentures is received by the Trust. In the event of certain changes or
amendments to regulatory requirements or federal tax rules, the Preferred
Securities are redeemable in whole. Otherwise, the Preferred Securities are
generally redeemable by the Company in whole or in part on or after June 30,
2002 at 100% of the liquidation amount. The Trust's obligations under the
Preferred Securities are fully and unconditionally guaranteed by the Company.
NOTE 13 - INCOME TAXES
The components of the provision for income taxes are as follows:
2000 1999 1998
---- ---- ----
(In Thousands)
Current $ 794 $ 2,157 $ 2,350
Deferred (478) (230) (118)
Change in valuation allowance - - (235)
----------- -------------- -----------
$ 316 $ 1,927 $ 1,997
=========== ============== ===========
The Company's deferred tax assets and liabilities at December 31, 2000 and 1999
are shown below. No valuation allowance for the realization of deferred tax
assets is considered necessary at December 31, 2000 and 1999.
2000 1999
---- ----
(In Thousands)
Deferred tax assets
Allowance for loan losses $ 2,288 $ 1,703
Unrealized loss on investment securities 492 2,071
Other 276 184
--------- ---------
Total deferred tax assets 3,056 3,958
- --------------------------------------------------------------------------------
(Continued)
19.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 13 - INCOME TAXES (Continued)
2000 1999
---- ----
(In Thousands)
Deferred tax liabilities
Depreciation $ (491) $ (445)
Federal Home Loan Bank dividends (406) (300)
Other (183) (135)
--------- ---------
Total deferred tax liabilities (1,080) (880)
Net deferred tax asset, included in other assets $ 1,976 $ 3,078
========= =========
An analysis of the differences between the effective tax rates and the statutory
U.S. federal income tax rate is as follows:
2000 1999 1998
---- ---- ----
(Dollars In Thousands)
U. S. federal income tax rate $ 561 34.0% $ 2,216 34.0% $ 2,618 34.0%
Changes from the statutory rate
Tax-exempt investment income (445) (27.0) (494) (7.6) (425) (5.5)
Non-deductible interest expense
related to carrying tax-exempt
investments 73 4.4 66 1.0 57 .7
Tax credits (71) (4.3) (70) (1.1) (149) (1.9)
Change in valuation allowance - - - - (235) (3.1)
Goodwill amortization 206 12.5 202 3.1 137 1.8
Other (8) (0.5) 7 0.1 (6) (0.1)
--------- ---- -------- ---- --------- ----
$ 316 19.1% $ 1,927 29.5% $ 1,997 25.9%
========= ==== ======== ==== ========= ====
NOTE 14 - EMPLOYEE BENEFIT PLANS
The Company has qualified profit sharing plans that cover substantially all
employees. Contributions to the plans consist of a Company match and additional
amounts are at the discretion of the Company's Board of Directors. Total
contributions to the plans were $276,000, $251,000 and $180,000 in 2000, 1999
and 1998.
The Company also maintains the Premier Financial Bancorp, Inc. 1996 Employee
Stock Ownership Incentive Plan (the Plan), whereby certain employees of the
Company are eligible to receive incentive stock options. The Plan is accounted
for in accordance with Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees", and related interpretations. Under
the Plan, a maximum of 100,000 shares of the Company's common stock may be
issued through the exercise of these incentive stock options. The option price
is the fair market value of the
- --------------------------------------------------------------------------------
(Continued)
20.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 14 - EMPLOYEE BENEFIT PLANS (Continued)
Company's shares at the date of the grant. The options are exercisable ten years
from the date of grant.
A summary of the Company's stock option activity is as follows:
---------2000--------- ---------1999--------- ----------1998----------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
Outstanding at beginning of year 62,000 $ 13.71 62,000 $ 13.71 42,000 $ 12.38
Granted - - - - 20,000 16.50
------ ------ ------
Outstanding at year end 62,000 $ 13.71 62,000 $ 13.71 62,000 $ 13.71
====== ====== ======
Exercisable at year end 58,000 49,800 41,600
Weighted average remaining life 6.3 7.3 8.3
Although the Company has elected to follow APB No. 25, SFAS No. 123, "Accounting
for Stock Based Compensation" requires pro forma disclosure of net income and
earnings per share as if the Company had accounted for its employee stock
options under that Statement. The fair value of each option grant was estimated
on the grant date using an option-pricing model.
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effects on net income and earnings per share of
this statement are as follows:
2000 1999 1998
---- ---- ----
(Dollars In Thousands)
Net income
As reported $ 1,335 $ 4,590 $ 5,704
Pro forma 1,295 4,550 5,649
Basic earnings per share
As reported $ .26 $ .88 $ 1.09
Pro forma .25 .87 1.08
Diluted earnings per share
As reported $ .26 $ .88 $ 1.09
Pro forma .25 .87 1.08
- --------------------------------------------------------------------------------
(Continued)
21.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 14 - EMPLOYEE BENEFIT PLANS (Continued)
The weighted average assumptions for options granted during the year and the
resulting estimated weighted average fair value per share used in computing pro
forma disclosures are as follows:
2000 1999 1998
---- ---- ----
(Dollars In Thousands)
Weighted averages
Fair value of options granted $ - $ - $ 4.66
Risk free interest rate - - 5.50%
Expected life - - 10 years
Expected volatility - - 17.88%
Expected dividend $ - $ - $ .60
Future pro forma net income will be negatively impacted should the Company
choose to grant additional options.
NOTE 15 - RELATED PARTY TRANSACTIONS
During 2000, 1999, and 1998, the Company paid approximately $391,000, $432,000,
and $369,000 for printing, supplies, furniture, and equipment to a company
affiliated by common ownership. The Company also paid this affiliate
approximately $1,066,000, $820,000, and $649,000 in 2000, 1999, and 1998 to
permit the Company's employees to participate in its employee medical benefit
plan.
The Company has purchased and currently holds noncumulative perpetual preferred
stock with a carrying value of $2.0 million in a Louisiana bank controlled by
the Company's largest stockholder. The dividend rate on the preferred stock is
2% over the prevailing prime rate.
NOTE 16 - 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 2000,
1999 and 1998 is presented below:
------------------Year Ended----------------
2000 1999 1998
---- ---- ----
(In Thousands, Except Per Share Data)
Basic earnings per share
Net income available to common
stockholders $ 1,335 $ 4,590 $ 5,704
Weighted average common shares
outstanding 5,232 5,232 5,232
Earnings per share $ .26 $ .88 $ 1.09
- --------------------------------------------------------------------------------
(Continued)
22.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 16 - EARNINGS PER SHARE (Continued)
------------------Year Ended----------------
2000 1999 1998
---- ---- ----
(In Thousands, Except Per Share Data)
Diluted earnings per share
Net income available to common
stockholders $ 1,335 $ 4,590 $ 5,704
Weighted average common shares
outstanding 5,232 5,232 5,232
Add dilutive effects of assumed exercise
of stock options - - 15
---------- ----------- -----------
Weighted average common and dilutive
potential common shares outstanding 5,232 5,232 5,247
Earnings per share assuming dilution $ .26 $ .88 $ 1.09
Stock options for 62,000 shares of common stock were not included in the 2000
and 1999 computation of earnings per share assuming dilution because their
impact was anti-dilutive.
NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's financial instruments at December 31, 2000 and
1999 are as follows:
--------------2000------------- -------------1999--------------
Carrying Fair Carrying Fair
Amount Value Amount Value
(In Thousands)
Financial assets
Cash and due from banks $ 23,339 $ 23,339 $ 28,227 $ 28,227
Interest-earning balances 737 742 1,634 1,642
Federal funds sold 21,087 21,087 25,197 25,197
Investment securities 194,400 194,743 170,420 170,372
Loans, net 587,755 585,037 563,294 563,324
Federal Home Loan Bank and
Federal Reserve Bank stock 4,476 4,476 4,123 4,123
Interest receivable 10,144 10,144 9,814 9,814
Financial liabilities
Deposits $ (728,412) $ (729,270) $ (692,843) $ (693,250)
Securities sold under agreements
to repurchase (20,553) (20,605) (21,282) (21,282)
Federal Home Loan Bank advances (30,687) (30,567) (32,647) (32,236)
Other borrowed funds (20,000) (20,019) (20,000) (20,000)
Guaranteed preferred beneficial
interests in Company's debentures (28,750) (24,006) (28,750) (27,888)
Interest payable (3,901) (3,901) (3,265) (3,265)
- --------------------------------------------------------------------------------
(Continued)
23.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont.)
Carrying amount is the estimated fair value for cash and cash equivalents,
short-term borrowings, Federal Home Loan Bank and Federal Reserve Bank stock,
accrued interest receivable and payable, demand deposits, short-term debt, and
variable rate loans or deposits that reprice frequently and fully. Security fair
values are based on market prices or dealer quotes, and if no such information
is available, on the rate and term of the security and information about the
issuer. For fixed rate loans or deposits and for variable rate loans or deposits
with infrequent repricing or repricing limits, fair value is based on discounted
cash flows using current market rates applied to the estimated life and credit
risk. Fair values for impaired loans are estimated using discounted cash flow
analysis or underlying collateral values. Fair value of debt is based on current
rates for similar financing. The fair value of commitments to extend credit and
standby letters of credit is not considered material.
NOTE 18 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Banks are parties to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of their customers.
These financial instruments include standby letters of credit and commitments to
extend credit in the form of unused lines of credit. The Banks use the same
credit policies in making commitments and conditional obligations as they do for
on-balance sheet instruments.
At December 31, 2000 and 1999, the Banks had the following financial instruments
whose approximate contract amounts represent credit risk:
2000 1999
---- ----
(In Thousands)
Standby letters of credit $ 1,497 $ 2,219
Commitments to extend credit:
Fixed $ 17,157 $ 19,638
Variable 22,265 31,623
Standby letters of credit represent conditional commitments issued by the Banks
to guarantee the performance of a third party. The credit risk involved in
issuing these letters of credit is essentially the same as the risk involved in
extending loans to customers. Collateral held varies but primarily includes real
estate and certificates of deposit. Some letters of credit are unsecured.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Outstanding
commitments are at current market rates. Fixed rate loan commitments have
interest rates ranging from 7.75% to 18%. Commitments generally have fixed
expiration dates or other termination clauses and may
- --------------------------------------------------------------------------------
(Continued)
24.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 18 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (Cont.)
require payment of a fee. The Banks evaluate each customer's creditworthiness on
a case-by-case basis. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Collateral held varies but may include
accounts receivable, inventory, property and equipment, and income producing
properties.
NOTE 19 - LEGAL PROCEEDINGS
Legal proceedings involving the Company and its subsidiaries periodically arise
in the ordinary course of business, including claims by debtors and their
related interests against the Company's subsidiaries following initial
collection proceedings. These legal proceedings sometimes can involve claims for
substantial damages. At December 31, 2000, management is unaware of any legal
proceedings, of which the ultimate result would have a material adverse effect
upon the consolidated financial statements of the Company.
NOTE 20 - STOCKHOLDERS' EQUITY
The Company paid a 5% stock dividend on September 30, 1998 to stockholders of
record on September 21, 1998. A total of 249,027 shares were issued in
connection with the stock dividend.
The Company's principal source of funds for dividend payments 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 2001, the
Banks could, without prior approval, declare dividends of approximately $2.3
million plus any 2001 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 Company and the Banks must meet specific guidelines that involve
quantitative measures of their assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices.
These quantitative measures established by regulation to ensure capital adequacy
require the Company and Banks to maintain minimum amounts and ratios (set forth
in the following table) of Total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes,
- --------------------------------------------------------------------------------
(Continued)
25.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 20 - STOCKHOLDERS' EQUITY (Continued)
as of December 31, 2000, the Company and the Banks meet all quantitative capital
adequacy requirements to which they are subject.
The capital amounts and classifications are also subject to qualitative
judgments by the regulators. As a result of these qualitative judgments, the
Company and three of the Company's subsidiaries have entered into agreements
with the applicable regulatory authorities which provide for additional
restrictions on their respective capital levels and the payment of dividends.
The Company entered into an agreement with the Federal Reserve Bank (FRB) on
September 29, 2000 restricting the Company from declaring or paying dividends
without prior approval from the FRB. An additional provision of this agreement
requires prior approval from the FRB before the Company increases its borrowings
or incurs any debt. This agreement is in effect until terminated by the FRB.
Citizens Deposit Bank (Citizens) entered into a Written Agreement with the FRB
on September 29, 2000 restricting Citizens from declaring or paying dividends
without prior approval. This agreement is in effect until terminated by the FRB.
Citizens Tier I capital to average assets was 9.2% at December 31, 2000.
Bank of Germantown (Germantown) entered into an agreement with the Kentucky
Department of Financial Institutions (KDFI) and the Federal Deposit Insurance
Corporation (FDIC) on June 13, 2000 restricting Germantown from declaring or
paying dividends, without prior approval, if its Tier I capital to average
assets falls below 8%. This agreement, in effect until terminated by the KDFI
and FDIC. Germantown's Tier I capital to average assets was 6.9% at December 31,
2000.
Mt. Vernon Bancshares, Inc. is precluded from declaring or paying any dividends
without prior approval as the result of an existing agreement with the Federal
Reserve Bank. Mt. Vernon's Tier I capital to average assets was 8.6% at December
31, 2000.
As of December 31, 2000, the most recent notification from the Federal Reserve
Bank categorized the Company and its subsidiary banks as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Company must maintain minimum Total risk-based, Tier I
risk-based and Tier I leverage ratios as set forth in the following table. There
are no conditions or events since that notification that management believes
have changed the Company's category.
- --------------------------------------------------------------------------------
(Continued)
26.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 20 - STOCKHOLDERS' EQUITY (Continued)
The Company's and the four largest subsidiary Banks' capital amounts and ratios
as of December 31, 2000 and 1999 are presented in the table below.
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
2000 Amount Ratio Amount Ratio Amount Ratio
---- (Dollars In Thousands)
Total Capital (to Risk-Weighted Assets):
Consolidated $ 69,807 12.0% $ 46,661 8% $ 58,326 10%
Farmers Deposit Bank 16,157 15.1 8,545 8 10,681 10
Boone County Bank 13,984 17.8 6,297 8 7,872 10
Citizens Deposit Bank 11,693 14.2 6,608 8 8,260 10
The Bank of Mt. Vernon 12,495 13.1 7,632 8 9,540 10
Tier I Capital (to Risk-Weighted Assets):
Consolidated $ 52,631 9.0% $ 23,330 4% $ 34,996 6%
Farmers Deposit Bank 14,840 13.9 4,272 4 6,409 6
Boone County Bank 13,055 16.6 3,149 4 4,723 6
Citizens Deposit Bank 10,656 12.9 3,304 4 4,956 6
The Bank of Mt. Vernon 11,301 11.8 3,816 4 5,724 6
Tier I Capital (to Average Assets):
Consolidated $ 52,631 6.1% $ 34,448 4% $ 43,060 5%
Farmers Deposit Bank 14,840 10.6 5,598 4 6,998 5
Boone County Bank 13,055 9.3 5,633 4 7,042 5
Citizens Deposit Bank 10,656 9.2 4,628 4 5,785 5
The Bank of Mt. Vernon 11,301 8.6 5,255 4 6,569 5
1999
----
Total Capital (to Risk-Weighted Assets):
Consolidated $ 67,273 11.9% $ 45,331 8% $ 56,663 10%
Farmers Deposit Bank 14,759 14.4 8,181 8 10,227 10
Boone County Bank 12,800 18.3 5,603 8 7,004 10
Citizens Deposit Bank 12,608 13.5 7,468 8 9,335 10
The Bank of Mt. Vernon 11,400 11.9 7,652 8 9,565 10
Tier I Capital (to Risk-Weighted Assets):
Consolidated $ 50,394 8.9% $ 22,665 4% $ 33,998 6%
Farmers Deposit Bank 13,481 13.2 4,091 4 6,136 6
Boone County Bank 12,005 17.1 2,802 4 4,202 6
Citizens Deposit Bank 11,468 12.3 3,734 4 5,601 6
The Bank of Mt. Vernon 10,422 10.9 3,826 4 5,739 6
Tier I Capital (to Average Assets):
Consolidated $ 50,394 6.2% $ 32,372 4% $ 40,465 5%
Farmers Deposit Bank 13,481 9.8 5,505 4 6,881 5
Boone County Bank 12,005 9.6 5,018 4 6,272 5
Citizens Deposit Bank 11,468 9.2 4,980 4 6,224 5
The Bank of Mt. Vernon 10,422 8.3 5,040 4 6,300 5
- --------------------------------------------------------------------------------
(Continued)
27.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 21 - PARENT COMPANY FINANCIAL STATEMENTS
Condensed Balance Sheets
December 31
2000 1999
---- ----
(In Thousands)
ASSETS
Cash $ 817 $ 616
Investment in subsidiaries 100,242 95,175
Investment securities available for sale 2,005 2,005
Premises and equipment 976 1,653
Other real estate acquired through foreclosure 380 490
Other assets 1,487 1,507
---------- -----------
Total assets $ 105,907 $ 101,446
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 1,327 $ 569
Other borrowed funds 20,000 20,000
---------- -----------
Total liabilities 21,327 20,569
Guaranteed preferred beneficial interests in Company's
debentures 28,750 28,750
Stockholders' equity
Preferred stock - -
Common stock 1,103 1,103
Surplus 43,445 43,445
Retained earnings 12,151 11,601
Accumulated other comprehensive income (869) (4,022)
---------- -----------
Total stockholders' equity 55,830 52,127
---------- -----------
Total liabilities and stockholders' equity $ 105,907 $ 101,446
========== ===========
- --------------------------------------------------------------------------------
(Continued)
28.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 21 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
Condensed Statements of Income
Years Ended December 31
2000 1999 1998
---- ---- ----
(In Thousands)
Income
Dividends from subsidiary banks $ 3,775 $ 6,300 $ -
Interest and dividend income 229 203 1,748
Gain on sale of investment securities - - 136
Other income 15 93 1,620
----------- ----------- -----------
Total income 4,019 6,596 3,504
Expenses
Interest expense 4,507 4,111 3,593
Salaries and employee benefits 1,459 921 461
Other expenses 927 708 684
----------- ----------- -----------
Total expenses 6,893 5,740 4,738
Income (loss) before income taxes and equity
in undistributed income of subsidiaries (2,874) 856 (1,234)
Income tax expense (benefit) (2,315) (1,899) (516)
----------- ----------- -----------
Income (loss) before equity in undistributed
income of subsidiaries (559) 2,755 (718)
Equity in undistributed income of subsidiaries 1,894 1,835 6,422
----------- ----------- -----------
Net income $ 1,335 $ 4,590 $ 5,704
=========== =========== ===========
- --------------------------------------------------------------------------------
(Continued)
29.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 21 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
Condensed Statements of Cash Flows
Years Ended December 31
2000 1999 1998
---- ---- ----
(In Thousands)
Cash flows from operating activities
Net income $ 1,335 $ 4,590 $ 5,704
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 76 169 134
Write-down of other real estate owned 110 - -
Investment securities gains - - (136)
Equity in undistributed income of
subsidiaries (1,894) (1,835) (6,422)
Change in other assets 20 573 (534)
Change in other liabilities 758 430 (28)
------------ ------------ -------------
Net cash from operating activities 405 3,927 (1,282)
Cash flows from investing activities
Purchase of subsidiary banks - (13,677) (15,168)
Capital contributed to subsidiaries (21) (88) (14,908)
Purchase of securities available for sale - (5) (87,687)
Proceeds from sale of securities - - 87,823
Net change in federal funds sold - - 16,340
Net change in loans - (490) 5,621
Purchase of premises and equipment (80) (269) (1,309)
Proceeds from sale of fixed assets 682 2,041 -
------------ ------------ -------------
Net cash from investing activities 581 (12,488) (9,288)
Cash flows from financing activities
Dividends paid (785) (3,140) (3,068)
Proceeds from other borrowed funds - 12,000 8,000
------------ ------------ -------------
Net cash from financing activities (785) 8,860 4,932
Net change in cash and cash equivalents 201 299 (5,638)
Cash and cash equivalents at beginning of year 616 317 5,955
------------ ------------ -------------
Cash and cash equivalents at end of year $ 817 $ 616 $ 317
============ ============ =============
Supplemental disclosure of cash flow information:
Loans transferred to real estate acquired
through foreclosure $ - $ 490 $ -
- --------------------------------------------------------------------------------
(Continued)
30.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 22 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Interest Net Interest Net Earnings per Share
Income Income Income Basic Fully Diluted
2000
- ----
First Quarter $ 16,611 $ 7,086 $ 447 $ .09 $ .09
Second Quarter 17,033 7,241 262 .05 .05
Third Quarter 17,605 7,131 371 .07 .07
Fourth Quarter 17,985 7,218 255 .05 .05
1999
- ----
First Quarter $ 14,785 $ 6,718 $ 1,218 $ .23 $ .23
Second Quarter 15,672 7,245 1,311 .25 .25
Third Quarter 15,936 7,395 771 .15 .15
Fourth Quarter 16,479 7,307 1,290 .25 .25
- --------------------------------------------------------------------------------
31.
PART III
Item 10, 11, 12 and 13. Directors and Executive Officers of the Registrant;
Executive Compensation; Security Ownership of Certain Beneficial
Owners and Management; and Certain Relationships and Related
Transactions
The information required by these Items is omitted because the
Corporation is filing a definitive proxy statement pursuant to Regulation 14A
not later than 120 days after the end of the fiscal year covered by this report
which includes the required information. The required information contained in
the Corporation's proxy statement is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
Independent Auditors Report
Consolidated Balance Sheets - December 31, 2000 and 1999
Consolidated Statement of Income - Years Ended December 31, 2000,
1999 and 1998
Consolidated Statement of Comprehensive Income - Years Ended December
31, 2000, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity - Years
Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows - Years Ended December 31,2000,
1999 and 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
No financial statement schedules have been included as part of this
report because they are either not required or the information is
otherwise included.
3. List of Exhibits:
The following is a list of exhibits required by Item 601 of
Regulation S-K and by paragraph (c) of this Item 14.
Exhibit
Number Description of Document
- ------- -----------------------
3.1 Form of Articles of Incorporation of registrant (included as Exhibit 3.1 to
registrant's Registration Statement on Form S-1, Registration No. 333-1702,
filed on February 28, 1996 with the Commission and incorporated herein by
reference).
3.2 Form of Articles of Amendment to Articles of Incorporation effective March
15, 1996 re: amendment to Article IV (included as Exhibit 3.2 to
registrant's Amendment No. 1 to Registration Statement on Form S-1,
Registration No. 333-1702, filed on March 25, 1996 with the Commission and
incorporated herein by reference).
3.3 Bylaws of registrant (included as Exhibit 3.2 to registrant's Registration
Statement on Form S-1, Registration No. 333-1702, filed on February 28,
1996 with the Commission and incorporated herein by reference).
4.1 Form of Junior Subordinated Indenture dated as of June 6, 1997 between
Registrant and Bankers Trust Company, as Trustee, with respect to 9.75%
Junior Subordinated Deferrable Interest Debentures due June 30, 2027
(incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form S-1 of Registrant filed May 28, 1997 with the Commission (Registration
No. 333-27943)).
4.2 Form of 9.75% Junior Subordinated Deferrable Interest Debenture Certificate
(incorporated by reference to Exhibit 4.2 to the Registration Statement on
Form S-1 of Registrant filed May 28, 1997 with the Commission (Registration
No. 333-27943)).
4.3 Form of Amended and Restated Trust Agreement dated as of June 6, 1997 among
Registrant, as Depositor, Bankers Trust Company, as Property Trustee, and
Bankers Trust (Delaware), as Delaware Trustee (incorporated by reference to
Exhibit 4.4 to the Registration Statement on Form S-1 of Registrant filed
May 28, 1997 with the Commission (Registration No. 333-27943)).
4.4 Form of Guarantee Agreement dated as of June 6, 1997 between Registrant and
Bankers Trust Company (incorporated by reference to Exhibit 4.6 to the
Registration Statement on Form S-1 of Registrant filed May 28, 1997 with
the Commission (Registration No. 333-27943)).
10.1 Amended and Restated Preferred Stock Purchase Agreement dated as of
September 29, 1994 between First Guaranty Bank, Hammond, Louisiana, and
registrant (included as Exhibit 10.3 to registrant's Registration Statement
on Form S-1, Registration No. 333-1702, filed on February 28, 1996 with the
Commission and incorporated herein by reference).
10.2 Deferred Compensation Agreement dated December 17, 1992, between Georgetown
Bank & Trust Company and Gardner E. Daniel (included as Exhibit 10.5 to
registrant's Registration Statement on Form S-1, Registration No. 333-1702,
filed on February 28, 1996 with the Commission and incorporated herein by
reference).
10.3 Premier Financial Bancorp, Inc. 1996 Employee Stock Ownership Incentive
Plan (included as Exhibit 10.6 to registrant's Registration Statement on
Form S-1, Registration No. 333-1702, filed on February 28, 1996 with the
Commission and incorporated herein by reference).
10.4 An agreement dated June 30, 2000 by and between Premier Financial Bancorp,
Inc. and its former Chief Executive Officer, J. Howell Kelly.
21 Subsidiaries of registrant
(b) Reports on Form 8-K
No Form 8-K was filed during the quarter ending December 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
registrant has duly caused this Annual Report on Form 10-K to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Georgetown,
Commonwealth of Kentucky, on the 27th day of March, 2001.
PREMIER FINANCIAL BANCORP, INC.
By: /s/ Gardner E. Daniel, President
--------------------------------
Gardner E. Daniel, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the registrant in the capacities and on the dates indicated.
March 27, 2001 /s/ Gardner E. Daniel Principal Executive and Director
---------------------
Gardner E. Daniel
March 27, 2001 /s/ Edward Barnes Principal Financial and
--------------------- Accounting Officer
Edward Barnes
March 27, 2001 /s/ Toney K. Adkins Director
---------------------
Toney K. Adkins
March 27, 2001 /s/ Edsel R. Burns Director
---------------------
Edsel R. Burns
March 27, 2001 /s/ E. V. Holder, Jr. Director
---------------------
E. V. Holder, Jr.
March 27, 2001 /s/ Wilbur M. Jenkins Director
---------------------
Wilbur M. Jenkins
March 27, 2001 /s/ Keith F. Molihan Director
---------------------
Keith F. Molihan
March 27, 2001 /s/ Marshall T. Reynolds Director
------------------------
Marshall T. Reynolds
March 27, 2001 /s/ Neal Scaggs Director
------------------------
Neal Scaggs
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of all subsidiaries of Premier Financial Bancorp, Inc.
and their state of incorporation.
Subsidiary State of Incorporation
---------- ----------------------
Citizens Deposit Bank and Trust Company Kentucky
County Finance (a direct subsidiary of Citizens Deposit
Bank and Trust Company) Kentucky
Bank of Germantown Kentucky
Georgetown Bancorp, Inc. Kentucky
Citizens Bank (Kentucky), Inc. (a direct subsidiary
of Georgetown Bancorp, Inc.) Kentucky
Premier Data Services, Inc. Kentucky
Farmers Deposit Bancorp, Inc. Kentucky
Farmers Deposit Bank (a direct subsidiary of Farmers
Deposit Bancorp, Inc.) Kentucky
Mt. Vernon Financial Holdings, Inc. Kentucky
The Sabina Bank Ohio
Ohio River Bank Ohio
The Bank of Philippi West Virginia
Boone County Bank West Virginia
Exhibit 10.4
AGREEMENT
This is an Agreement (the "Agreement") effective as of June 30, 2000
between Premier Financial Bancorp, Inc. ("PFBI") and J. Howell Kelly (the
"Executive").
I
1.1 Resignation. Executive hereby resigns as President, Chief Executive
Officer and Director, and from all other positions with PFBI, its subsidiaries
and affiliates, effective June 30, 2000 (the "Resignation Date") with all
accrued benefits to that date due, and PFBI hereby accepts the Executive's
resignation, effective as of the Resignation date; provided, however, that
Executive shall remain employed by PFBI as an advisor and consultant as
described in paragraph 1.2.
1.2 Consultation. From time to time upon specific, occasional request
by PFBI, Executive shall make himself available at times and in a manner
convenient to Executive to provide advice and consultation to PFBI, this
availability not to be unreasonably withheld.
1.3 Severance Benefit. PFBI shall pay Executive his regular base
monthly salary as in effect as of June 15, 2000 each month during the period
from the Resignation Date to and including December 31, 2001 (the "Period") on
PFBI's regular payroll payment dates.
1.4 Additional Benefits. PFBI shall provide and pay for health
insurance coverage under PFBI's group health plan for Executive for the Period
in the manner consistent with Executive's last election immediately prior to the
Resignation Date. In the event Executive is ineligible for coverage under PFBI's
plan, PFBI shall compensate and reimburse the Executive for (a) the full cost of
alternative health insurance as selected by the Executive, including, but not
limited to, Executive's election pursuant to his continuation coverage rights
under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), and
(b) the amount of any additional tax incurred as a result of PFBI's
reimbursement.
1.5 Automobile. PFBI shall transfer to Executive, on the Resignation
Date, title to the automobile currently used by Executive for one dollar. PFBI
shall pay any sales, use or transfer tax or fees due as a result of the
transfer.
1.6 Stock Options. All PFBI stock options previously granted to
Executive are hereby fully vested. The period for exercise of all PFBI stock
options granted to Executive pursuant to any stock option plan maintained by
PFBI is extended until the expiration date for exercise of those options as that
expiration date would have been determined immediately preceding and
notwithstanding Executive's resignation.
1.7 Consideration Not Compensation For Services. All consideration,
including severance amounts, are paid or provided by PFBI solely in
consideration for the Executive's agreements and undertaking set out herein, and
not for any present, past, or future services. The payments and benefits to be
provided by PFBI to the Executive provided for in this Agreement may not be
reduced or avoided for any failure by the Executive to provide future services
pursuant to paragraph 1.2 or otherwise.
II
2.1 Releases by PFBI. PFBI hereby binds itself, its wholly or partially
owned subsidiaries, affiliates, predecessors, successors, and assigns
(collectively "PFBI"). PFBI hereby releases the Executive and his heirs,
executors, administrators, representatives, agents and assigns (collectively the
"Executive Releasees").
2.2 Full General Release of Executive Releasees. PFBI hereby
irrevocably and unconditionally releases and discharges the Executive Releasees
from, and shall hold the Executive Releasees harmless from, any and all actions,
causes of action, suits, debts, charges, complaints, claims, liabilities,
obligations, promises, agreements, controversies, damages and expenses
(including attorneys' fees and costs actually incurred) of any nature whatsoever
in law or equity, whether known or unknown, accrued or not accrued, against any
of the Executive Releasees, arising out of events occurring before or on the
effective date hereof.
III
3.1 Releases by Executive. The Executive hereby binds himself, his
heirs, executors, administrators, personal representatives, agents and assigns
(collectively the "Executive"). Executive hereby releases PFBI and PFBI's
present and former agents, directors, shareholders, officers, executives,
representatives, agents, wholly or partially owned subsidiaries, and affiliates,
and their predecessors, successors, heirs, executors, administrators, personal
representatives, agents and assigns (collectively the "PFBI Releasees").
3.2 Full General Release of All Claims. Executive hereby irrevocably
and unconditionally releases and discharges the PFBI Releasees from, and shall
hold the PFBI Releasees harmless from, any and all actions, causes of action,
suits, debts, charges, complaints, claims, liabilities, obligations, promises,
agreements, controversies, damages and expenses (including attorneys' fees and
costs actually incurred) of any nature whatsoever in law or equity, whether
known or unknown, accrued or not accrued, against any of the PFBI Releasees,
arising out of events occurring before or on the effective date hereof.
3.3 Specific Release of All Other Employment Law Claims. Claims being
released under Paragraph 3.2 include, but are not limited to, any and all claims
against the PFBI Releasees arising under any federal, state or local statutes,
ordinances, resolutions, regulations or constitutional provisions and/or common
law(s), and specifically include claims of harassment or discrimination in
employment on the basis of race, sex, religion, national origin, age, disability
and/or veteran's status arising under or pursuant to Title VII of the Civil
Rights Act of 1991, as amended, 42 U.S.C. ss.2000e, et seq.; the Americans With
Disabilities Act, as amended; the Fair Labor Standards Act, as amended; the
Family and Medical Leave Act; the Federal Rehabilitation Act of 1973, as
amended; Executive Order 11246; any and all tort claims including, but not
limited to claims of wrongful termination, assault, battery, and intentional or
negligent infliction of emotional distress and outrage; any and all claims of
breach of any express or implied employment contract; any and all claims for
unpaid benefits, commissions, stock options, pension or profit sharing plans, or
entitlements asserted under any plan or policy, benefits offering or program
(except as reserved below); and any and all claims for attorneys' fees,
interest, costs or injunctive relief to which Executive is, or may be, entitled
either by statute or otherwise.
3.4 Indemnification. Provided, however, the Executive does not release
the PFBI Releasees from any obligation to indemnify or advance expenses on
behalf of the Executive as a former employee, officer or director of PFBI
pursuant to the provisions of applicable law and PFBI's Articles of
Incorporation and bylaws.
IV
4.1 No Admission. This Agreement is made in settlement of disputed
claims and neither it, nor the fact of settlement, constitutes an admission of
any liability, violation of law or wrongdoing of any kind or nature whatsoever
on the part of PFBI or the Executive. No release, waiver or other promise set
forth in this Agreement shall be construed to prohibit either party from
enforcing the terms of this Agreement.
4.2 Governing Law and Severability. This Agreement shall be
interpreted, enforced and governed under the laws of Kentucky. The language of
all parts of this Agreement shall in all cases be interpreted as a whole,
according to its fair meaning, and not strictly for or against either party,
regardless of which party is the drafter of this Agreement. Should any provision
of this Agreement be declared or determined to be illegal or invalid, the
validity of the remaining parts, terms or provisions shall not be affected
thereby and said illegal or invalid part, term or provision shall be deemed not
to be a part of this Agreement. This Agreement sets forth the entire Agreement
between the Executive and PFBI and fully supersedes any and all prior agreements
or understandings between them relating to the subject matter hereof.
4.3 Arbitration Of Disputes. Any dispute or controversy arising under
this agreement shall be determined and settled by arbitration under the rules of
the American Arbitration Association. The arbitration award shall be final and
binding and judgment on the award may be entered by any court having competent
jurisdiction.
4.4 Non-Disparagement. Executive Releasees will not disparage or
comment negatively about PFBI Releasees. Executive shall not discourage anyone
from doing business with PFBI, or encourage anyone to terminate any employment
with PFBI Releasees.
4.5 Inquiries. PFBI will not disparage or comment negatively about
Executive Releasees. PFBI will respond to any oral or written inquiries
regarding the Executive's employment with PFBI with a statement to the following
effect:
Executive was employed as President and Chief Executive
Officer of PFBI from January 1, 1995 until June 30, 2000. He
resigned from this position under mutually agreeable terms.
4.6 Confidentiality. Executive and PFBI shall keep the contents and
terms of this Agreement confidential and shall not disclose to any person or
entity any of the terms, conditions, or other facts with respect to this
Agreement, except as required by law, without the prior written consent of the
other. If Executive or PFBI is required by legal process or by operation of
applicable law to disclose any of the foregoing, the party so required will
provide prompt notice of such requirement to the other within a reasonable
amount of time prior to any such disclosure. Executive shall not to disclose to
others, or use, any Confidential Information (of either technical or
non-technical nature) of PFBI, of which Executive became informed during the
course of his employment with PFBI. For purposes of this paragraph,
"Confidential Information" means strategic information of PFBI not generally
known in the banking and financial services industry, which was disclosed to the
Executive, or known by the Executive, as a consequence of, or through, his
employment with PFBI.
Executive and PFBI have signed this Agreement effective June 30, 2000
on the dates indicated below.
/s/ J. Howell Kelly
------------------------------
J. Howell Kelly
Date: 6/30/00
------------------------
PREMIER FINANCIAL BANCORP, INC.
By /s/ Gardner Daniel
----------------------------
Title: President & CEO
-----------------------
Date: June 30, 2000
-----------------------