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 September 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 November 12, 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
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<table>
<caption>
(UNAUDITED)
2001 2000
---- ----
<s> <c> <c>
ASSETS
Cash and due from banks $ 20,348 $ 23,339
Interest earning balances with banks 61 737
Federal funds sold 36,695 21,087
Investment securities
Available for sale 157,154 176,494
Held to maturity - 17,906
Loans 509,642 595,947
Unearned interest (134) (371)
Allowance for loan losses (10,147) (7,821)
------------- --------------
Net loans 499,361 587,755
Federal Home Loan Bank and Federal Reserve Bank stock 4,408 4,476
Premises and equipment, net 13,088 15,474
Real estate and other property acquired through foreclosure 6,319 3,116
Interest receivable 8,756 10,144
Goodwill and other intangibles 17,679 22,856
Other assets 8,237 6,548
------------- --------------
Total assets $ 772,106 $ 889,932
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 64,634 $ 74,438
Time deposits, $100 and over 97,110 105,490
Other interest bearing 466,073 548,484
------------- --------------
Total deposits 627,817 728,412
Securities sold under agreements to repurchase 5,414 20,553
Federal Home Loan Bank advances 26,794 30,687
Other borrowed funds 20,000 20,000
Interest payable 2,770 3,901
Other liabilities 1,718 1,799
------------- --------------
Total liabilities 684,513 805,352
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 12,716 12,151
Accumulated other comprehensive income 1,579 (869)
------------- --------------
Total stockholders' equity 58,843 55,830
------------- --------------
Total liabilities and stockholders' equity $ 772,106 $ 889,932
============= ==============
</table>
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See Accompanying Notes to Consolidated Financial Statements
3.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
- --------------------------------------------------------------------------------
<table>
<caption>
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
<s> <c> <c> <c> <c>
Interest Income
Loans, including fees $ 11,723 $ 14,399 $ 36,588 $ 41,580
Investment securities
Taxable 1,916 2,520 6,344 7,522
Tax-Exempt 255 343 808 1,063
Federal funds sold and other 349 343 1,298 1,084
----------- ----------- -------------- --------------
Total interest income 14,243 17,605 45,038 51,249
Interest Expense
Deposits 6,501 8,321 21,148 23,753
Debt and other borrowings 1,502 2,153 4,886 6,038
----------- ----------- -------------- --------------
Total interest expense 8,003 10,474 26,034 29,791
Net interest income 6,240 7,131 19,004 21,458
Provision for loan losses 1,793 1,125 5,440 4,015
----------- ----------- -------------- --------------
Net interest income after provision for loan losses 4,447 6,006 13,564 17,443
Non-interest income
Service charges 550 583 1,666 1,648
Insurance commissions 78 147 215 385
Investment securities gains(losses) 195 1 435 (279)
Gain on the sale of subsidiary's banking
operations - - 3,418 -
Other 440 300 1,263 1,236
----------- ----------- -------------- --------------
1,263 1,031 6,997 2,990
Non-interest expenses
Salaries and employee benefits 2,902 3,551 8,827 10,101
Occupancy and equipment expenses 714 827 2,203 2,365
Amortization of intangibles 337 393 1,011 1,178
Other expenses 1,753 1,823 5,461 5,460
----------- ----------- -------------- --------------
5,706 6,594 17,502 19,104
----------- ----------- -------------- --------------
Income before income taxes 4 443 3,059 1,329
Provision for income taxes(benefit) (42) 72 2,494 249
----------- ----------- -------------- --------------
Net income $ 46 $ 371 $ 565 $ 1,080
=========== =========== ============== ==============
Earnings per share $.01 $.07 $.11 $.21
Earnings per share assuming dilution $.01 $.07 $.11 $.21
Weighted average shares outstanding 5,232 5,232 5,232 5,232
</table>
- --------------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
4.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
<table>
<caption>
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
<s> <c> <c> <c> <c>
Net Income $ 46 $ 371 $ 565 $ 1,080
Other comprehensive income(loss), net of tax:
Unrealized gains and (losses) arising during
the period 1,239 1,178 2,735 890
Reclassification of realized amount (129) (1) (287) 184
------- ------- ------- -------
Net change in unrealized gain (loss) on
securities 1,110 1,177 2,448 1,074
------- ------- ------- -------
Comprehensive income $ 1,156 $ 1,548 $ 3,013 $ 2,154
======= ======= ======= =======
</table>
- --------------------------------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements
5.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(IN THOUSANDS)
(UNAUDITED)
- --------------------------------------------------------------------------------
2001 2000
---- ----
Cash flows from operating activities
Net income $ 565 $ 1,080
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 975 1,075
Provision for loan losses 5,440 4,015
Amortization, net 693 904
FHLB stock dividends (207) (224)
Investment securities losses (gains), net (435) 279
Gain on the sale of subsidiary's banking operations (3,418) -
Changes in
Interest Receivable (210) (235)
Other assets (3,033) (774)
Interest Payable (676) 571
Other liabilities (80) 228
------------- -------------
Net cash from operating activities (386) 6,919
Cash flows from investing activities
Purchases of securities available for sale (151,242) (37,080)
Proceeds from sales of securities available for sale 12,429 13,845
Proceeds from maturities and calls of securities available
for sale 167,958 15,126
Purchases of securities held to maturity - (1,321)
Proceeds from maturities and calls of securities held
to maturity - 1,614
Purchases of FHLB stock (176) (42)
Redemption of FHLB stock 451 -
Net change in federal funds sold (15,608) 8,086
Net change in loans (299) (35,393)
Purchases of premises and equipment, net (223) (1,266)
Proceeds from sale of other real estate acquired
through foreclosure 921 594
Net cash received (paid) related to acquisitions (7,178) -
------------- -------------
Net cash from investing activities 7,033 (35,837)
Cash flows from financing activities
Net change in deposits 7,917 16,740
Advances from Federal Home Loan Bank 40,385 38,475
Repayment of Federal Home Loan Bank advances (44,277) (39,224)
Net change in agreements to repurchase securities (14,339) 6,247
Dividends paid - (785)
------------- -------------
Net cash from financing activities (10,314) 21,453
------------- -------------
Net change in cash and cash equivalents (3,667) (7,465)
Cash and cash equivalents at beginning of period 24,076 29,861
------------- -------------
Cash and cash equivalents at end of period $ 20,409 $ 22,396
============= =============
</table>
- --------------------------------------------------------------------------------
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:
<table>
<caption>
Year September 30, 2001
Acquired Assets
-------- ------
(In Thousands)
<s> <c> <c> <c>
Citizens Deposit Bank & Trust Vanceburg, Kentucky 1991 $ 115,919
Bank of Germantown Germantown, Kentucky 1992 28,717
Citizens Bank (Kentucky), Inc. Georgetown, Kentucky 1995 106,193
Farmers Deposit Bank Eminence, Kentucky 1996 143,529
The Sabina Bank Sabina, Ohio 1997 49,977
Ohio River Bank Ironton, Ohio 1998 70,156
The Bank of Philippi, Inc. Philippi, West Virginia 1998 80,617
Boone County Bank, Inc. Madison, West Virginia 1998 160,741
</table>
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.
<page>
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
September 30, 2001 are summarized as follows:
<table>
<caption>
(In Thousands)
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<s> <c> <c> <c> <c>
Available for sale
U. S. Treasury securities $ 4,007 $ 33 $ - $ 4,040
U. S. agency securities 113,809 1,480 (18) 115,271
Obligations of states and political
Subdivisions 20,009 772 - 20,781
Mortgage-backed securities 8,932 131 - 9,063
Other securities 8,000 104 (105) 7,999
-------------- -------------- -------------- ---------------
Total available for sale $ 154,757 $ 2,520 $ (123) $ 157,154
============== ============== ============== ===============
</table>
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:
<table>
<caption>
(In Thousands)
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<s> <c> <c> <c> <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
============== ============== ============== ===============
</table>
- --------------------------------------------------------------------------------
CONTINUED
8.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 4 - SECURITIES (Continued)
<table>
<caption>
(In Thousands)
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<s> <c> <c> <c> <c>
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
============== ============== ============== ===============
</table>
NOTE 5 - LOANS
Major classifications of loans at September 30, 2001 and December 31, 2000 are
summarized as follows:
<table>
<caption>
2001 2000
---- ----
(In Thousands)
<s> <c> <c>
Commercial, secured by real estate $ 115,585 $ 149,733
Commercial, other 77,249 86,069
Real estate construction 20,450 24,774
Residential real estate 186,767 211,662
Agricultural 11,968 13,817
Consumer and home equity 96,589 108,646
Other 1,034 1,246
------------ ------------
$ 509,642 $ 595,947
============ ============
</table>
NOTE 6 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
<table>
<caption>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2001 2000 2001 2000
---- ---- ---- ----
<s> <c> <c> <c> <c>
Balance, beginning of period $ 9,403 $ 8,245 $ 7,821 $ 6,812
Net charge-offs (1,049) (793) (3,114) (2,250)
Provision for loan losses 1,793 1,125 5,440 4,015
------- ------- ------- -------
Balance, end of period $10,147 $ 8,577 $10,147 $ 8,577
======= ======= ======= =======
</table>
- --------------------------------------------------------------------------------
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 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, as of September
30, 2001, the Company and the Banks meet all quantitative capital adequacy
requirements to which they are subject.
- --------------------------------------------------------------------------------
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:
<table>
<caption>
Regulatory
September 30, December 31, Minimum
2001 2000 Requirements
---- ---- ------------
<s> <c> <c> <c>
Tier I Capital (to Average Assets) 7.7% 6.1% 4.0%
Tier I Capital (to Risk-Weighted Assets) 11.5% 9.0% 4.0%
Total Capital (to Risk-Weighted Assets) 14.6% 12.0% 8.0%
</table>
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 9.2% at September 30, 2001.
Bank of Germantown (Germantown) entered into a revised agreement with the
Kentucky Department of Financial Institutions (KDFI) and the Federal Deposit
Insurance Corporation (FDIC) on August 14, 2001, which in part lifted the
previous requirement of prior approval for dividends if Germantown's Tier I
capital to average assets fell below 8%. The revised agreement requires the
maintaining of a Tier I capital ratio equal to or greater than 7%. This
agreement is in effect until terminated by the KDFI and FDIC. Germantown's Tier
I capital to average assets was 7.0% at September 30, 2001.
As of September 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.
- --------------------------------------------------------------------------------
CONTINUED
11.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 9 - NEW ACCOUNTING PRONOUNCEMENTS
In 2001, new accounting guidance was issued that requires the purchase method of
accounting for all business combinations initiated after June 30, 2001 and
prohibits the use of the pooling-of-interests method of accounting after this
time. Beginning in 2002, the new guidance revises the accounting for goodwill
and intangible assets. Intangible assets with indefinite lives and goodwill will
no longer be amortized, but will periodically be reviewed for impairment and
written down if impaired. Additional disclosures about intangible assets and
goodwill may be required. An initial goodwill impairment test is required during
the first six months of 2002. The Company has not yet completed an analysis of
its intangibles under the new guidance and cannot assess the impact on the
financial statements at this time.
- --------------------------------------------------------------------------------
12.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
A. Results of Operations
Net income for the nine months ended September 30, 2001 was $565,000 or
$0.11 per share compared to net income of $1,080,000 or $0.21 per share for the
nine months ended September 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 nine months ending September 30,
2001 was $1,126,000, or $0.22 per share. This compares to Premier's net income
for the nine months ending September 30, 2000, net of the Bank of Mt. Vernon's
operations, of $569,000 or $0.11 cents per share.
Results for the nine months ending September 30, 2001 reflect charges for
amortization of goodwill and other intangibles associated with cash acquisitions
totaling $765,000 (after tax) as compared to $932,000 (after tax) in the same
period for 2000. Not including these charges, net income for the first nine
months of 2001 was $1,330,000 or $0.25 per share versus $2,012,000 or $0.38 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 nine months ending September 30, 2001 was
$1,891,000, or $0.36 per share. Not including these charges, and excluding the
Bank of Mt. Vernon's operations, net income for the same period in 2000 was
$1,501,000, or $0.29 per share.
Premier recorded net income for the quarter ending September 30, 2001, of
$46,000, or 1 cent per share, compared to net income of $371,000, or 7 cents per
share, for the third quarter in 2000. Results for the third 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
September 30, 2001 was $490,000, or 9 cents per share. This compares to net
income for the quarter ending September 30, 2000, net of the Bank of Mt.
Vernon's operations, of $118,000, or 2 cents per share.
Results for the third 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, net income for the third quarter 2001 was
$301,000, or 6 cents per share, versus net income of $682,000, or 13 cents per
share for the same period in 2000. Excluding these charges and the operations of
Bank of Mt. Vernon and its successor entity, net income was $745,000 or 14 cents
per share, for the quarter ending September 30, 2001 versus $429,000 or 8 cents
per share for the same quarter in 2000.
13.
<page>
Net interest income decreased $2,454,000 to $19,004,000 for the nine months
ended September 30, 2001 compared to $21,458,000 for the same period in 2000.
Net interest income decreased $891,000 to $6,240,000 for the three months ended
September 30, 2001 compared to the $7,131,000 reported in the three months ended
September 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 nine months ending September 30, 2001 was
approximately 3.57% as compared to 3.72% 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 at lower rates from the same period last year due
to the drop in market interest rates during the year 2001. The annualized
returns on stockholders' equity and on average assets were approximately 1.30%
and .10% for the nine months ended September 30, 2001 compared to 2.76% 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 2.58%
and .20% for the nine months ended September 30, 2001 versus 1.45% and .10% for
the same period in 2000.
During the quarter ending September 30, 2001 the provision for loan losses
was $1,793,000 compared to $1,125,000 for the same period in 2000, an increase
of $668,000. The provision attributed to Mt. Vernon Financial Holdings, Inc.,
for the quarter ending September 30, 2001, was $769,000 compared to the $30,000
in provision to loan loss reserves for the Bank of Mt. Vernon in the quarter
ending September 30, 2000. For the nine months ended September 30, 2001 the
provision for loan loss was $5,440,000 compared to $4,015,000 for the same
period ended September 30, 2000, an increase of $1,425,000. The provision
attributed to Mt. Vernon Financial Holdings, Inc. for the nine months ending
September 30, 2001 was $2,327,000 compared to the $667,000 in provision to loan
loss reserves for the Bank of Mt. Vernon for the same period in 2000. The
increases in both the nine months ended September 30, 2001 and the three months
ended September 30, 2001 are primarily attributable to the replenishment and
required additions to the reserve for loan losses for the loans that were
retained by the Company from the sale of the Bank of Mt. Vernon. 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 $4,007,000 to $6,997,000 for the first nine
months of 2001 compared to $2,990,000 for the first nine months of 2000.
Excluding the pre-tax gain on sale of subsidiary's banking operations of
$3,418,000, non-interest income increased $589,000 or 19.7%, for the nine months
ending September 30, 2001 compared to the same period for 2000. Non-interest
income increased $232,000, or 22.5%, to $1,263,000 for the three months ended
September 30, 2001 compared to $1,031,000 for the same period in 2000.
14.
<page>
Non-interest expenses for the first nine months of 2001 totaled $17,502,000
or 3.0% of average assets on an annualized basis compared to $19,104,000 or 3.0%
of average assets for the same period of 2000. This decrease can be attributed
to the exclusion of the Bank of Mt. Vernon's operations. The decrease was
partially offset by increased costs associated with heightened levels of risk
identification and controls.
Income tax expense was $2,494,000 for the first nine months of 2001
compared to $249,000 for the first nine 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 benefit was $42,000
for the three month period ended September 30, 2001, a decrease of $114,000 from
the $72,000 for the same period in 2000. This decrease in income tax expense can
be attributed to the decrease in income before taxes, a result primarily due to
the increase in the provision for loan loss during the same period. The
annualized effective tax rate for the period ended September 30, 2001 was 81.5%,
compared to the 18.7% 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 September 30, 2001.
15.
B. Financial Position
Total assets decreased $117.8 million or 13.2% to $772.1 million from the
$889.9 million on December 31, 2000. This decrease can primarily 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 decreased approximately $7.8 million, or 1.0%, when
comparing September 30, 2001 to December 31, 2000.
Earning assets decreased to $707.8 million on September 30, 2001 from
$816.3 million on December 31, 2000, a decrease of $108.5 million, or 13.3%.
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 and the cash paid in
connection with this transaction, total earning assets decreased approximately
$9.3 million, or 1.3%, from December 31, 2000 to September 30, 2001.
Cash and cash equivalents at September 30, 2001 were $20.4 million or a
$3.7 million decrease from $24.1 million on December 31, 2000. Fed funds sold
increased to $36.7 million from $21.1 million during the same period; an
increase of $15.6 million.
Total loans at September 30, 2001 were $509.5 million compared to $595.6
million at December 31, 2000, a decrease of $86.1 million. This decrease can be
primarily 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 decreased approximately $7.1 million, or 1.4%, when
comparing September 30, 2001 to December 31, 2000.
Deposits totaled $627.8 million as of September 30, 2001, a decrease of
$100.6 million, or 13.8%, 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 $7.9 million, or 1.3%, when comparing September 30, 2001
to December 31, 2000.
Securities sold under agreements to repurchase and Federal Home Loan Bank
advances at September 30, 2001 were $32.2 million compared to the $51.2 million
at December 31, 2000, a decrease of $19.0 million.
16.
The following table sets forth information with respect to the Company's
nonperforming assets at September 30, 2001 and December 31, 2000.
<table>
<caption>
(In Thousands)
2001 2000
---- ----
<s> <c> <c>
Non-accrual loans $ 11,445 $ 7,840
Accruing loans which are contractually
past due 90 days or more 7,389 2,196
Restructured 319 689
-------------- ------------
Total non-performing loans 19,153 10,725
Other real estate acquired through
Foreclosure 6,319 3,116
-------------- ------------
Total non-performing assets $ 25,472 $ 13,841
Non-performing loans as a percentage
of total loans 3.76% 1.80%
Non-performing assets as a percentage
of total assets 3.30% 1.56%
</table>
The provision for loan losses and net chargeoffs were $1,793,000 and
$1,049,000 for the third quarter of 2001 compared to $1,125,000 and $793,000,
respectively, for the third quarter of 2000. The provision for loan losses and
net chargeoffs were $5,440,000 and $3,114,000 for the first nine months of 2001
compared to $4,015,000 and $2,250,000 for the nine month period ended September
30, 2000. The increases in the provision for both the three month and nine month
periods ended September 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 September 30, 2001 was
1.99% 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 significant increase in non-performing loans.
Nonperforming loans increased to $19.2 million as of September 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
3.76% on September 30, 2001.
The Company retains approximately $16 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 $3.5 million from December 31, 2000
to September 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.
17.
<page>
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 $157.2 million of securities at
market value as of September 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 September 30, 2001, total shareholders' equity of $58.8 million was 7.6%
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 $58.6 million at September 30, 2001, which
represents a Tier I leverage ratio of 7.7%. 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 $11.25 at September 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 $565,000.
To date, the Company has not declared a quarterly dividend for the year
2001. 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.
18.
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.
19.
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 None
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 September 30, 2001,
The Sabina Bank had approximately $50 million in total assets and $42 million in
deposits.
Premier Financial Bancorp, Inc., Georgetown, Kentucky announced on October
19, 2001 that the Board of Directors had appointed Robert W. Walker as a
Director, as well as President and Chief Executive Officer. Mr. Walker has over
33 years banking experience including positions at Lincoln National Bank of
Hamlin, Key Centurion Bancshares, Inc., Bank One, NA, West Virginia and most
recently at Boone County Bank, West Virginia, an affiliate of Premier. Mr.
Walker assumed the position previously held by Gardner E. Daniel who retired as
CEO but will remain as a Director. Mr. Daniel had come out of retirement in June
of 2000 to accept the position on a short-term basis at the request of the Board
and will now resume his retirement.
Item 6. Exhibits and Reports on Form 8-K None
20.
<page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREMIER FINANCIAL BANCORP, INC.
Date: November 12, 2001 /s/ Marshall T. Reynolds
----------------------------------------
Marshall T. Reynolds
Chairman of the Board
Date: November 12, 2001 /s/ Robert W. Walker
----------------------------------------
Robert W. Walker
President & Chief Executive Officer
Date: November 12, 2001 /s/ Edward Barnes
----------------------------------------
Edward Barnes
Vice President & Chief Financial Officer
21.