SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 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 officer) (Zip Code)
Registrant's telephone number (502) 863-1955
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common stock - 5,232,230 shares outstanding at August 13, 2001.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying information has not been audited by independent public
accountants; however, in the opinion of management such information reflects all
adjustments necessary for a fair presentation of the results for the interim
period. All such adjustments are of a normal and recurring nature.
The accompanying financial statements are presented in accordance with the
requirements of Form 10-Q and consequently do not include all of the disclosures
normally required by generally accepted accounting principles or those normally
made in the registrant's annual Form 10-K filing. Accordingly, the reader of the
Form 10-Q may wish to refer to the registrant's Form 10-K for the year ended
December 31, 2000 for further information in this regard.
Index to consolidated financial statements:
Consolidated Balance Sheets....................................... 3
Consolidated Statements of Income ................................ 4
Consolidated Statements of Comprehensive Income .................. 5
Consolidated Statements of Cash Flows............................. 6
Notes to Consolidated Financial Statements........................ 7
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
(UNAUDITED)
2001 2000
---- ----
ASSETS
Cash and due from banks $ 24,501 $ 23,339
Interest earning balances with banks 61 737
Federal funds sold 25,262 21,087
Investment securities
Available for sale 164,242 176,494
Held to maturity - 17,906
Loans 524,535 595,947
Unearned interest (220) (371)
Allowance for loan losses (9,403) (7,821)
------------- --------------
Net loans 514,912 587,755
Federal Home Loan Bank and Federal Reserve Bank stock 4,339 4,476
Premises and equipment, net 13,092 15,474
Real estate and other property acquired through foreclosure 3,529 3,116
Interest receivable 8,511 10,144
Goodwill and other intangibles 18,016 22,856
Other assets 6,093 6,548
------------- --------------
Total assets $ 782,558 $ 889,932
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 61,671 $ 74,438
Time deposits, $100 and over 89,866 105,490
Other interest bearing 487,060 548,484
------------- --------------
Total deposits 638,597 728,412
Securities sold under agreements to repurchase 5,291 20,553
Federal Home Loan Bank advances 27,035 30,687
Other borrowed funds 20,000 20,000
Interest payable 2,826 3,901
Other liabilities 2,372 1,799
------------- --------------
Total liabilities 696,121 805,352
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 12,670 12,151
Accumulated other comprehensive income 469 (869)
------------- --------------
Total stockholders' equity 57,687 55,830
------------- --------------
Total liabilities and stockholders' equity $ 782,558 $ 889,932
============= ==============
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See Accompanying Notes to Consolidated Financial Statements
3.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Interest Income
Loans, including fees $ 12,285 $ 13,822 $ 24,865 $ 27,181
Investment securities
Taxable 1,986 2,586 4,428 5,002
Tax-Exempt 251 363 553 720
Federal funds sold and other 477 262 949 741
---------- -------------- -------------- --------------
Total interest income 14,999 17,033 30,795 33,644
Interest Expense
Deposits 7,002 7,769 14,647 15,432
Debt and other borrowings 1,587 2,023 3,384 3,885
---------- -------------- -------------- -------------
Total interest expense 8,589 9,792 18,031 19,317
Net interest income 6,410 7,241 12,764 14,327
Provision for loan losses 3,015 1,505 3,647 2,890
---------- -------------- -------------- --------------
Net interest income after provision for
loan losses 3,395 5,736 9,117 11,437
Non-interest income
Service charges 590 573 1,116 1,065
Insurance commissions 98 121 137 238
Investment securities gains 60 (281) 240 (280)
Gain on the sale of subsidiary's banking
operations - - 3,418 -
Other 424 560 823 936
---------- -------------- -------------- --------------
1,172 973 5,734 1,959
Non-interest expenses
Salaries and employee benefits 2,893 3,267 5,925 6,550
Occupancy and equipment expenses 717 766 1,489 1,538
Amortization of intangibles 337 392 674 785
Other expenses 1,764 1,965 3,708 3,637
---------- -------------- -------------- --------------
5,711 6,390 11,796 12,510
---------- -------------- -------------- --------------
Income before income taxes (1,144) 319 3,055 886
Provision for income taxes (439) 57 2,536 177
---------- -------------- -------------- --------------
Net income $ (705) $ 262 $ 519 $ 709
========== ============== ============== ==============
Earnings per share $(.13) $.05 $.10 $.14
Earnings per share assuming dilution $(.13) $.05 $.10 $.14
Weighted average shares outstanding 5,232 5,232 5,232 5,232
- --------------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
4.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Net Income $ (705) $ 262 $ 519 $ 709
Other comprehensive income(loss), net of tax:
Unrealized gains and (losses) arising during
the period (92) (71) 1,496 (288)
Reclassification of realized amount (39) 185 (158) 185
------- ------- ------- -------
Net change in unrealized gain (loss) on
securities (131) 114 1,338 (103)
------- ------- ------- -------
Comprehensive income $ (836) $ 376 $ 1,857 $ 606
======= ======= ======= =======
- --------------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
5.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
2001 2000
---- ----
Cash flows from operating activities
Net income $ 519 $ 709
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 652 666
Provision for loan losses 3,647 2,890
Amortization, net 431 622
FHLB stock dividends (139) (147)
Investment securities losses (gains), net (240) 280
Gain on the sale of subsidiary's banking operations (3,418) -
Changes in
Interest Receivable 35 454
Other assets (317) (669)
Interest Payable (620) 799
Other liabilities 573 (100)
------------- -------------
Net cash from operating activities 1,123 5,504
Cash flows from investing activities
Purchases of securities available for sale (114,579) (31,624)
Proceeds from sales of securities available for sale 12,234 12,890
Proceeds from maturities and calls of securities available
for sale 122,450 12,328
Purchases of securities held to maturity - (1,165)
Proceeds from maturities and calls of securities held
to maturity - 1,251
Purchases of FHLB stock (175) (42)
Redemption of FHLB stock 451 -
Net change in federal funds sold (4,175) 12,348
Net change in loans (10,975) (24,104)
Purchases of premises and equipment, net 96 (903)
Proceeds from sale of other real estate acquired
through foreclosure 630 471
Net cash received (paid) related to acquisitions (7,178) -
---------------- ----------
Net cash from investing activities (1,221) (18,550)
Cash flows from financing activities
Net change in deposits 18,698 2,662
Advances from Federal Home Loan Bank 35,819 22,575
Repayment of Federal Home Loan Bank advances (39,471) (22,598)
Net change in agreements to repurchase securities (14,462) 4,725
Dividends paid - (784)
------------- -------------
Net cash from financing activities 584 6,580
------------- -------------
Net change in cash and cash equivalents 486 (6,466)
Cash and cash equivalents at beginning of period 24,076 29,861
------------- -------------
Cash and cash equivalents at end of period $ 24,562 $ 23,395
============= =============
- --------------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
6.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Premier Financial
Bancorp, Inc. (the Company) and its wholly owned subsidiaries:
Year June 30, 2001
Acquired Assets
-------- ------
(In Thousands)
<c>
Citizens Deposit Bank & Trust Vanceburg, Kentucky 1991 $ 121,871
Bank of Germantown Germantown, Kentucky 1992 28,933
Citizens Bank (Kentucky), Inc. Georgetown, Kentucky 1995 107,983
Farmers Deposit Bank Eminence, Kentucky 1996 146,286
The Sabina Bank Sabina, Ohio 1997 52,110
Ohio River Bank Ironton, Ohio 1998 77,521
The Bank of Philippi, Inc. Philippi, West Virginia 1998 80,062
Boone County Bank, Inc. Madison, West Virginia 1998 148,275
The Company also has a data processing subsidiary, Premier Data Services, Inc.,
the PFBI Capital Trust subsidiary as discussed in Note 7, and a loan servicing
subsidiary, Mt. Vernon Financial Holdings, Inc., the successor to Bank of Mt.
Vernon. All intercompany transactions and balances have been eliminated.
NOTE 2 - BUSINESS COMBINATIONS
On July 9, 2001, the Company announced the signing of a definitive agreement to
sell selected assets and have specified liabilities assumed of The Sabina Bank.
Additional information regarding this proposed transaction can be found in Part
II, Item 5, Other Information.
On January 26, 2001, the Company disposed of all the deposits (approximately
$109 million), the majority of loans (approximately $79 million), approximately
$12.5 million of investment securities and the premises and equipment
(approximately $1.6 million) of the Bank of Mt. Vernon under the terms of a
Purchase and Assumption Agreement. 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.
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.
- --------------------------------------------------------------------------------
CONTINUED
7.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 3 - REGULATORY MATTERS (Continued)
Two of the Company's subsidiaries, Citizens Deposit Bank & Trust and Bank of
Germantown, 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.
NOTE 4 - SECURITIES
Amortized cost and fair value of investment securities, by category, at June 30,
2001 are summarized as follows:
(In Thousands)
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Available for sale
U. S. Treasury securities $ 5,321 $ 32 $ - $ 5,353
U. S. agency securities 120,854 517 (64) 121,307
Obligations of states and political
Subdivisions 19,903 496 (19) 20,380
Mortgage-backed securities 9,433 - (18) 9,415
Other securities 8,021 7 (241) 7,787
-------------- -------------- -------------- ---------------
Total available for sale $ 163,532 $ 1,052 $ (342) $ 164,242
============== ============== ============== ===============
Upon adoption of Financial Accounting Standards Board Statement 133 on January
1, 2001, all of the Company's securities classified as held to maturity were
re-classified as available for sale.
Amortized cost and fair value of investment securities, by category, at December
31, 2000 are summarized as follows:
(In Thousands)
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<c>
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
============== ============== ============== ===============
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CONTINUED
8.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 4 - SECURITIES (Continued)
(In Thousands)
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
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
============== ============== ============== ===============
NOTE 5 - LOANS
Major classifications of loans at June 30, 2001 and December 31, 2000 are
summarized as follows:
2001 2000
---- ----
(In Thousands)
Commercial, secured by real estate $ 116,801 $ 149,733
Commercial, other 79,826 86,069
Real estate construction 21,727 24,774
Residential real estate 190,694 211,662
Agricultural 11,809 13,817
Consumer and home equity 101,959 108,646
Other 1,719 1,246
------------ ------------
$ 524,535 $ 595,947
============ ============
NOTE 6 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Balance, beginning of period $ 7,953 $ 7,626 $ 7,821 $ 6,812
Net charge-offs (1,565) (886) (2,065) (1,457)
Provision for loan losses 3,015 1,505 3,647 2,890
------- ------- ------- -------
Balance, end of period $ 9,403 $ 8,245 $ 9,403 $ 8,245
======= ======= ======= =======
- --------------------------------------------------------------------------------
CONTINUED
9.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 7 - GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S
SUBORDINATED 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 8 - STOCKHOLDERS' EQUITY
The Company's principal source of funds 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 in certain banking subsidiaries 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, as of June 30,
2001, the Company and the Banks meet all quantitative capital adequacy
requirements to which they are subject.
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CONTINUED
10.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 8 - STOCKHOLDERS' EQUITY (Continued)
Shown below is a summary of regulatory capital ratios for the Company:
Regulatory
June 30, December 31, Minimum
2001 2000 Requirements
---- ---- ------------
Tier I Capital (to Average Assets) 7.6% 6.1% 4.0%
Tier I Capital (to Risk-Weighted Assets) 11.3% 9.0% 4.0%
Total Capital (to Risk-Weighted Assets) 14.4% 12.0% 8.0%
The capital amounts and classifications are also subject to qualitative
judgments by the regulators. As a result of these qualitative judgments, the
Company and two 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 9.0% at June 30, 2001.
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 is in effect until terminated by the KDFI
and FDIC. Germantown's Tier I capital to average assets was 7.0% at June 30,
2001.
As of June 30, 2001, 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 preceding table. There
are no conditions or events since that notification that management believes
have changed the Company's category.
- --------------------------------------------------------------------------------
11.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
A. Results of Operations
Net income for the six months ended June 30, 2001 was $519,000 or $0.10
per share compared to net income of $709,000 or $0.14 per share for the six
months ended June 30, 2000. Net income for the 2001 period includes the $625,000
net gain (after tax) realized from the sale of Bank of Mt. Vernon's banking
operations. Excluding the net gain on the sale and the loss from operations of
the Bank of Mt. Vernon's successor entity, Mt. Vernon Financial Holdings, Inc.,
Premier's net income for the six months ending June 30, 2001 was $636,000, or
$0.12 per share. This compares to Premier's net income for the six months ending
June 30, 2000, net of the Bank of Mt. Vernon's operations, of $452,000 or $0.09
cents per share.
Results for the six months ending June 30, 2001 reflect charges for
amortization of goodwill and other intangibles associated with cash acquisitions
totaling $510,000 (after tax) as compared to $621,000 (after tax) in the same
period for 2000. Not including these charges, net income for the first six
months of 2001 was $1,029,000 or $0.20 per share versus $1,330,000 or $0.25 per
share in 2000. Not including these charges, and excluding the net gain on the
sale and the loss from operations of Mt. Vernon Financial Holdings, Inc.,
Premier's net income for the six months ending June 30, 2001 was $1,146,000, or
$0.22 per share. Not including these charges, and excluding the Bank of Mt.
Vernon's operations, net income for the same period in 2000 was $1,073,000, or
$0.21 per share.
Premier recorded a net loss for the quarter ending June 30, 2001, of
$(705,000), or (13) cents per share, compared to net income of $262,000, or 5
cents per share, for the second quarter in 2000. Results for the second quarter
in 2000 include the operations of the Bank of Mt. Vernon, which was involved in
a sale of certain assets and assumption of certain liabilities in the first
quarter of 2001. Excluding the operations of the Bank of Mt. Vernon's successor
non-bank entity, Mt. Vernon Financial Holdings, Inc., net income for the quarter
ending June 30, 2001 was $90,000, or 2 cents per share. This compares to net
income for the quarter ending June 30, 2000, net of the Bank of Mt. Vernon's
operations, of $129,000, or 2 cents per share.
Results for the second quarter 2001 reflect charges for amortization of
goodwill and other intangibles associated with cash acquisitions totaling
$255,000 (after tax) as compared to $311,000 (after tax) in the same period for
2000. Excluding these charges, the net loss for the second quarter 2001 was
$(450,000), or (9) cents per share, versus net income of $573,000, or 11 cents
per share for the same period in 2000. Excluding these charges and the
operations of Bank of Mt. Vernon and its successor entity, Premier would have
experienced positive earnings of $345,000 or $0.07 per share, for the quarter
ending June 30, 2001 versus $440,000 or $0.08 per share for the same quarter in
2000.
Net interest income decreased $1,563,000 to $12,764,000 for the six
months ended June 30, 2001 compared to $14,327,000 for the same period in 2000.
Net interest income decreased $831,000 to $6,410,000 for the three months ended
June 30, 2001 compared to the $7,241,000 reported in the three months ended June
30, 2000. This is due to the decrease in earning assets associated with the sale
of Bank of Mt. Vernon's banking operations. Net interest margin on a tax
equivalent basis for the six months ending June 30, 2001 was approximately 3.59%
as compared to 3.75% for the same period in 2000. This decrease in net interest
margin is the result primarily from an increase in shorter term assets which are
12.
at lower rates from the same period last year due to the recent drop in market
interest rates. The annualized returns on stockholders' equity and on average
assets were approximately 1.79% and .13% for the six months ended June 30, 2001
compared to 2.74% and .17% for the same period in 2000. Excluding the net gain
(after tax) from the sale and the operations of the Bank of Mt. Vernon and its
successor, the annualized returns on stockholders equity and on average assets
were approximately 2.19% and .17% for the six months ended June 30, 2001 versus
1.74% and .12% for the same period in 2000.
During the quarter ending June 30, 2001 the provision for loan losses
was $3,015,000 compared to $1,505,000 for the same period in 2000, an increase
of $1,510,000. The provision attributed to Mt. Vernon Financial Holdings, Inc.,
for the quarter ending June 30, 2001, was $1,545,000 compared to the $350,000 in
provision to loan loss reserves for the Bank of Mt. Vernon in the quarter ending
June 30, 2000. For the six months ended June 30, 2001 the provision for loan
loss was $3,647,000 compared to $2,890,000 for the same period ended June 30,
2000, an increase of $757,000. The provision attributed to Mt. Vernon Financial
Holdings, Inc. for the six months ending June 30, 2001 was $1,558,000 compared
to the $637,000 in provision to loan loss reserves for the Bank of Mt. Vernon
for the same period in 2000. The increases in both the six months ended June 30,
2001 and the three months ended June 30, 2001 are primarily attributable to the
replenishment and required additions to the reserve for loan losses at a
majority of the Company's affiliates. Additional information concerning the
level of and the activity within the reserve for loan losses can be found in the
Financial Position section.
Non-interest income increased $3,775,000 to $5,734,000 for the first
six months of 2001 compared to $1,959,000 for the first six months of 2000.
Excluding the pre-tax gain on sale of subsidiary's banking operations of
$3,418,000, non-interest income increased $357,000 or 18.2%, for the six months
ending June 30, 2001 compared to the same period for 2000. Non-interest income
increased $199,000, or 20.5%, to $1,172,000 for the three months ended June 30,
2001 compared to $973,000 for the same period in 2000.
Non-interest expenses for the first half of 2001 totaled $11,796,000 or
3.0% of average assets on an annualized basis compared to $12,510,000 or 2.9% of
average assets for the same period of 2000. Contributing to this decrease is the
exclusion of the Bank of Mt. Vernon's operations. This decrease was partially
offset by increased costs associated with heightened levels of risk
identification and controls.
Income tax expense was $2,536,000 for the first six months of 2001
compared to $177,000 for the first six months of 2000. The increase in income
tax expense can be attributed to the $2,792,000 tax effect associated
with the gain on sale of subsidiary's banking operations. Income tax expense was
$(439,000) for the three month period ended June 30, 2001, a decrease of
$496,000 from the $57,000 for the same period in 2000. This decrease in income
tax expense can be attributed to the decrease in income before taxes, a result
of the increase in the provision for loan loss during the same period. The
annualized effective tax rate for the period ended June 30, 2001 was 83.0%,
compared to the 20.0% effective tax rate for the same period in 2000. This is
primarily due to the elimination of intangibles associated with the Company's
acquisition of the Bank of Mt. Vernon. The expensing of this intangible was a
non-taxable event thereby raising the annualized effective tax rate for the
period ended June 30, 2001.
13.
B. Financial Position
Total assets decreased $107.3 million or 12.1% to $782.6 million from
the $889.9 million on December 31, 2000. This decrease can be attributed to the
decrease in assets of approximately $110 million associated with the sale of
Bank of Mt. Vernon's banking operations. Exclusive of the assets involved in
this sale total assets increased approximately $2.7 million, or .3%, when
comparing June 30, 2001 to December 31, 2000.
Earning assets decreased to $718.2 million on June 30, 2001 from $816.3
million on December 31, 2000, a decrease of $98.1 million, or 12.0%. This
decrease can be primarily attributed to the decrease in earning assets of
approximately $92 million associated with the sale of Bank of Mt. Vernon' s
banking operations. Exclusive of the earning assets involved in this sale, total
earning assets decreased approximately $6.1 million, or .8%, from December 31,
2000 to June 30, 2001.
Cash and cash equivalents at June 30, 2001 were $24.6 million or a $.6
million increase from $24.0 million on December 31, 2000. Fed funds sold
increased to $25.3 million from $21.1 million during the same period; an
increase of $4.2 million.
Total loans at June 30, 2001 were $524.3 million compared to $595.6
million at December 31, 2000, a decrease of $71.3 million. This decrease can be
attributed to the approximately $79 million of loans included in the sale of
Bank of Mt. Vernon's banking operations. Exclusive of the loans involved in this
sale, total loans increased approximately $7.7 million, or 1.4%, when comparing
June 30, 2001 to December 31, 2000.
Deposits totaled $638.6 million as of June 30, 2001, a decrease of
$89.8 million, or 12.3%, from the December 31, 2000 amount of $728.4 million.
This decrease can be attributed to the decrease in deposits of approximately
$109 million associated with the sale of Bank of Mt. Vernon's banking
operations. Exclusive of the deposits involved in this sale, total deposits
increased approximately $19.2 million, or 3.1%, when comparing June 30, 2001 to
December 31, 2000.
Short term borrowings and Federal Home Loan Bank advances at June 30,
2001 were $32.3 million compared to the $51.2 million at December 31, 2000, a
decrease of $18.9 million.
14.
The following table sets forth information with respect to the
Company's nonperforming assets at June 30, 2001 and December 31, 2000.
(In Thousands)
2001 2000
---- ----
Non-accrual loans $ 10,799 $ 7,840
Accruing loans which are contractually
past due 90 days or more 8,256 2,196
Restructured 522 689
-------------- ------------
Total non-performing loans 19,577 10,725
Other real estate acquired through
Foreclosure 3,529 3,116
-------------- ------------
Total non-performing assets $ 23,106 $ 13,841
Non-performing loans as a percentage
of total loans 3.73% 1.80%
Non-performing assets as a percentage
of total assets 2.95% 1.56%
The provision for loan losses and net chargeoffs were $3,015,000 and
$1,565,000 for the second quarter of 2001 compared to $1,505,000 and $886,000,
respectively, for the second quarter of 2000. The provision for loan losses and
net chargeoffs were $3,647,000 and $2,065,000 for the first six months of 2001
compared to $2,890,000 and $1,457,000 for the six month period ended June 30,
2000. The increases in the provision for both the three month and six month
periods ended June 30, 2001 were necessary to replenish the reserve from the
increased charge-offs and to accommodate the increased level of non-performing
loans. The allowance for loan losses at June 30, 2001 was 1.79% of total loans
as compared to 1.31% at December 31, 2000. This increase in the percentage of
allowance for loan losses to total loans can be attributed to the reduction in
total loans associated with the sale of Bank of Mt. Vernon's banking operations
and the increase in non-performing loans.
Nonperforming loans increased to $19.6 million as of June 30, 2001,
when compared to the $10.7 million on December 31, 2000. This increase in
conjunction with the decrease in total loans, resulted in the increase of the
ratio of nonperforming loans to total loans from 1.80% on December 31, 2000 to
3.73% on June 30, 2001.
The Company retains approximately $18 million of loans that were
previously serviced and held by Bank of Mt. Vernon, of which approximately $9.1
million are currently nonperforming. These loans are now held in the Company's
subsidiary, Mt. Vernon Financial Holdings, Inc. Exclusive of the nonperforming
loans associated with Bank of Mt. Vernon or Mt. Vernon Financial Holdings, Inc.,
total nonperforming loans increased approximately $3.9 million from December 31,
2000 to June 30, 2001. This increase can be attributed to the deterioration in
loan quality within the Company's markets to a level higher than previously
anticipated. Further deterioration, if any, will be addressed on an ongoing
basis.
Although management believes it uses the best information available to
make allowance provisions, future adjustments, which could be material, may be
necessary if management's assumptions differ significantly from the loan
portfolio's actual performance.
15.
C. Liquidity
Liquidity objectives for the Company can be expressed in terms of
maintaining sufficient cash flows to meet both existing and unplanned
obligations in a cost effective manner. Adequate liquidity allows the Company to
meet the demands of both the borrower and the depositor on a timely basis, as
well as pursuing other business opportunities as they arise. Thus, liquidity
management embodies both an asset and liability aspect while attempting to
maximize profitability. In order to provide for funds on a current and long-term
basis, the Company's subsidiary banks rely primarily on the following sources:
1. Core deposits consisting of both consumer and commercial
deposits and certificates of deposit of $100,000 or more.
Management believes that the majority of its $100,000 or more
certificates of deposit are no more volatile than its other
deposits. This is due to the nature of the markets in which the
subsidiaries operate.
2. Cash flow generated by repayment of loans and interest.
3. Arrangements with correspondent banks for purchase of unsecured
federal funds.
4. The sale of securities under repurchase agreements and borrowing
from the Federal Home Loan Bank.
5. Maintenance of an adequate available-for-sale security
portfolio. The Company owns $164.2 million of securities at
market value as of June 30, 2001.
The cash flow statements for the periods presented in the financial
statements provide an indication of the Company's sources and uses of cash as
well as an indication of the ability of the Company to maintain an adequate
level of liquidity.
D. Capital
At June 30, 2001, total shareholders' equity of $57.7 million was 7.4%
of total consolidated assets. This compares to total shareholders' equity of
$55.8 million or 6.3% of total consolidated assets on December 31, 2000.
Tier I capital totaled $58.2 million at June 30, 2001, which represents
a Tier I leverage ratio of 7.6%. This compares to Tier I capital of $52.6
million at December 31, 2000, which represents a Tier I leverage ratio of 6.1%.
Book value per share was $11.03 at June 30, 2001, and $10.67 at
December 31, 2000. An increase in unrealized gain on securities available for
sale was primarily responsible for the increase in accumulated other
comprehensive income and corresponding increase in book value per share. Also,
contributing to the increase in book value per share, as well as total
shareholders' equity, was the retention of earnings in the amount of $519,000.
The Company did not declare a first quarter or second quarter 2001
dividend. The Company declared a first quarter 2000 dividend of $0.15 per share,
or $784,835. During the second quarter 2000, the Company suspended its common
stock dividend and subsequently entered into an agreement with the Federal
Reserve Bank (FRB) to refrain from paying any dividends without written approval
from the FRB.
16.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The Company currently does not engage in any derivative or hedging
activity. Refer to the Company's 2000 10-K for analysis of the interest rate
sensitivity. The Company believes there have been no significant changes in the
interest rate sensitivity since previously reported on the Company's 2000 10-K.
17.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a vote of Security Holders
(a) Annual meeting of the Shareholders was held June 20, 2001.
(b) The following were elected as directors of the Corporation for a
term of one year.
1. Edsel R. Burns
2. Marshall T. Reynolds
3. Gardner E. Daniel
4. Toney Adkins
5. Hosmer A. Brown, III
6. Wilbur M. Jenkins
7. E. V. Holder, Jr.
8. Neal Scaggs
9. Keith Molihan
10. Thomas W. Wright
(c) Ratification of Crowe, Chizek and Company, LLP as independent
auditors of the Corporation for 2001. Votes for 4,598,903;
votes against 16,935; votes abstaining 11,612.
Item 5. Other Information
Premier Financial Bancorp, Inc., Georgetown, Kentucky, a multi-bank
holding company with affiliates in Kentucky, Ohio and West Virginia announced
July 9, 2001 the signing of a definitive agreement to sell selected assets and
liabilities of The Sabina Bank, which operates three offices in Sabina, Ada and
Waynesfield, Ohio, to The National Bank and Trust Company (NB&T), Wilmington,
Ohio.
Under the terms of the agreement, NB&T will acquire substantially all
of the assets and assume specified liabilities, including the deposits, of The
Sabina Bank. NB&T will pay to Premier in cash an amount equal to 2.25 times the
regulatory Tier I capital of The Sabina Bank, less intangible assets and certain
other amounts. Based on financial data as of March 31, 2001, that amount would
have been approximately, $11.5 million.
The acquisition will not require the approval of the shareholders of
either Premier or NB&T Financial Group. The transaction is expected to be
consummated before the end of the year, subject to regulatory approval and
customary conditions of closing.
At March 31, 2001, The Sabina Bank had approximately $55 million in
total assets and $47 million in deposits.
Item 6. Exhibits and Reports on Form 8-K None
18.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREMIER FINANCIAL BANCORP, INC.
Date: August 13, 2001 /s/ Marshall T. Reynolds
------------------------------------
Marshall T. Reynolds
Chairman of the Board
Date: August 13, 2001 /s/ Gardner E. Daniel
------------------------------------
Gardner E. Daniel
President & Chief Executive Officer
Date: August 13, 2001 /s/ Edward Barnes
------------------------------------
Edward Barnes
Vice President & Chief Financial Officer
19.