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 March 31, 1998
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.)
120 N. HAMILTON STREET
GEORGETOWN, KENTUCKY 40324
(address of principal executive officer) (Zip Code)
Registrant's telephone number (502) 863-7500
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 - 4,983,230 shares outstanding at May 12, 1998.
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, 1997 for further information in this regard.
Index to consolidated financial statements:
Consolidated Balance Sheets......................... 3
Consolidated Statements of Income................... 4
Consolidated Statements of Cash Flows............... 5
Notes to Consolidated Financial Statements.......... 6
2.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS)
1998 1997
-------- --------
ASSETS
Cash and due from banks $ 13,205 $ 11,610
Federal funds sold 27,223 40,771
Securities available for sale 157,141 45,926
Securities held to maturity 20,757 20,362
Loans 318,670 285,798
Less: Unearned interest (2,571) (2,409)
Allowance for loan losses (3,600) (3,144)
-------- --------
Net loans 312,499 280,245
Federal Home Loan Bank and Federal Reserve Stock 3,087 2,923
Premises and equipment, net 8,736 6,895
Goodwill and other intangibles 7,143 7,262
Other assets 10,436 9,442
-------- --------
TOTAL ASSETS $560,227 $425,436
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 41,404 $ 37,702
Time deposits, $100,000 and over 48,185 47,105
Other interest bearing 273,349 239,747
-------- --------
Total deposits 362,938 324,554
Securities sold under agreements to repurchase 82,548 5,634
Federal Home Loan Bank advances 29,752 15,263
Other liabilities 3,872 3,438
-------- --------
Total liabilities 479,110 348,889
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; 4,983,230 shares at
March 31, 1998 and 4,685,390 at
December 31, 1997, issued and outstanding 985 982
Surplus 38,747 33,825
Retained earnings 12,965 13,055
Net unrealized losses on securities
available for sale (330) (65)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 52,367 47,797
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $560,227 $425,436
-------- --------
-------- --------
See accompanying notes to financial statements.
3.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(IN THOUSANDS)
1998 1997
-------- --------
Interest income
Loans, including fees $ 7,833 $ 6,026
Investment securities
Taxable 1,082 488
Tax-exempt 279 274
Federal funds sold and other 641 194
-------- --------
Total interest income 9,835 6,982
Interest expense
Deposits 4,189 2,924
Debt and other borrowings 1,090 205
-------- --------
Total interest expense 5,279 3,129
Net interest income 4,556 3,853
Provision for possible loan losses 276 194
-------- --------
Net interest income after provision for
possible loan losses 4,280 3,659
Non-interest income
Service charges 312 275
Insurance commissions 102 120
Investment securities gains (losses) 2 -
Other 74 214
-------- --------
490 609
Non-interest expenses
Salaries and employee benefits 1,538 1,385
Occupancy and equipment expenses 503 323
Other expenses 1,123 825
-------- --------
3,164 2,533
Income before income taxes 1,606 1,735
Provision for income taxes 225 505
-------- --------
NET INCOME $ 1,381 $ 1,230
-------- --------
-------- --------
Change in unrealized losses on securities (274) (145)
-------- --------
Comprehensive income $ 1,107 $ 1,085
-------- --------
-------- --------
Earnings per share $ .28 $ .26
Earnings per share assuming dilution .28 .26
Weighted average shares outstanding 4,983 4,685
See accompanying notes to financial statements.
4.
PREMIER FINANCIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(IN THOUSANDS)
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,381 $ 1,230
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 272 126
Provision for loan losses 276 194
Gain on sale of securities (2) -
Changes in:
Other assets (407) (528)
Other liabilities 140 417
-------- --------
Net cash from operating activities 1,660 1,439
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (117,381) (3,299)
Proceeds from sales of securities available for sale 751 -
Proceeds from maturities and calls of securities
available for sale 12,047 1,850
Purchases of investment securities held to maturity (2,291) (1,148)
Proceeds from maturities and calls of securities held
to maturity 1,881 351
Net change in federal funds sold 14,023 1,550
Net change in loans (4,153) (5,115)
Purchases of bank premises and equipment (474) (605)
Cash acquired through merger 1,490 -
-------- --------
Net cash from investing activities (94,107) (6,416)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 4,332 4,685
Net change in agreements to repurchase securities 75,969 180
Net change in Federal Home Loan Bank advances 14,489 107
Dividends paid (748) (609)
-------- --------
Net cash from financing activities 94,042 4,363
Net change in cash and cash equivalents 1,595 (614)
Cash and cash equivalents at beginning of period 11,610 9,304
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $13,205 $ 8,690
-------- --------
-------- --------
See accompanying notes to financial statements.
5.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Premier Financial
Bancorp, Inc. (the Company) and its wholly-owned subsidiaries, Georgetown Bank
& Trust, Georgetown, Kentucky; Citizens Deposit Bank & Trust, Vanceburg,
Kentucky; Bank of Germantown, Germantown, Kentucky; Citizens Bank, Sharpsburg,
Kentucky; Farmers Deposit Bank, Eminence, Kentucky; The Sabina Bank, Sabina,
Ohio; Ohio River Bank, Ironton, Ohio; and PFBI Capital Trust. In addition,
the Company has a data processing service subsidiary, Premier Data Services,
Inc., Vanceburg, Kentucky. All material intercompany transactions and balances
have been eliminated.
NOTE 2 - BUSINESS COMBINATIONS
On March 20, 1998, the Company acquired Ohio River Bank (Ohio River) whereby
the Company exchanged 300,000 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. The financial statement presentation prior to January 1,
1998 has not been restated for this merger as the impact on those statements is
not material. As of and for the year ended December 31, 1997, Ohio River
reported net income of $176,000 and total assets of $39.5 million.
On December 30, 1997, the Company entered into a purchase and assumption
agreement to acquire three branch offices of Banc One Corporation located in
Madison, Philippi and Van, West Virginia. Included in the purchase are
approximately $148 million in deposits, $10 million in loans and $1.2 million
in facilities. The net premium to be paid for these branches is approximately
$14.3 million. The acquisition is expected to be completed in the second
quarter of 1998.
NOTE 3 - SECURITIES
Amortized cost and fair value of securities, by category, at March 31, 1998 are
summarized as follows:
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
Available for sale
U. S. Treasury securities $ 113,874 $ 40 $ (436) $ 113,478
U. S. agency securities 24,536 1 (55) 24,482
Obligations of states and political
subdivisions 3,396 116 - 3,512
Asset-backed securities 12,935 - (65) 12,870
Preferred stock 2,000 - - 2,000
Other equity securities 900 - (101) 799
---------- ---------- ---------- ----------
Total available for sale $ 157,641 $ 157 $ (657) $ 157,141
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
6.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - SECURITIES (Continued)
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
Held to maturity
U. S. Treasury securities $ 1,550 $ 7 $ (1) $ 1,556
U. S. agency securities 3,341 8 (1) 3,348
Obligations of states and political
subdivisions 15,770 469 (18) 16,221
Asset-backed securities 96 1 - 97
-------- ---- ----- --------
Total held to maturity $ 20,757 $485 $ (20) $ 21,222
-------- ---- ----- --------
-------- ---- ----- --------
Amortized cost and fair value of securities, by category, at December 31, 1997
are summarized as follows:
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
Available for sale:
U. S. Treasury securities $ 10,071 $ 2 $ (11) $ 10,062
U. S. agency securities 25,966 29 (90) 25,905
Obligations of states and political
subdivisions 3,458 110 (4) 3,564
Asset-backed securities 3,630 - (30) 3,600
Preferred stock 2,000 - - 2,000
Other equity securities 900 - (105) 795
-------- ---- ----- --------
Total available for sale $ 46,025 $141 $(240) $ 45,926
-------- ---- ----- --------
-------- ---- ----- --------
Held to maturity:
U. S. Treasury securities $ 1,250 $ 6 $ (1) $ 1,255
U. S. agency securities 4,338 15 (5) 4,348
Obligations of states and political
subdivisions 14,625 500 (15) 15,110
Asset-backed securities 149 1 (1) 149
-------- ---- ----- --------
Total held to maturity $ 20,362 $ 522 $ (22) $ 20,862
-------- ---- ----- --------
-------- ---- ----- --------
7.
PREMIER FINANCIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LOANS
Major classifications of loans at March 31, 1998 and December 31, 1997 are
summarized as follows:
1998 1997
---- ----
(In Thousands)
Commercial, secured by real estate $ 72,231 $ 66,893
Commercial, other 51,619 45,024
Real estate construction 9,455 7,857
Real estate mortgage 105,466 93,789
Agricultural 11,578 13,208
Consumer 67,642 58,523
Other 679 504
-------- --------
$318,670 $285,798
-------- --------
-------- --------
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the three months ended March 31,
1998 and 1997 are as follows:
1998 1997
---- ----
(In Thousands)
Balance, beginning of period $ 3,144 $ 2,854
Acquired through merger with Ohio River Bank 335 -
Net charge-offs (155) (57)
Provision for loan losses 276 194
-------- --------
Balance, end of period $ 3,600 $ 2,991
-------- --------
-------- --------
NOTE 6 - GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S
SUBORDINATED DEBENTURES
Guaranteed preferred beneficial interests in Company's subordinated debentures
(Preferred Securities) represent preferred beneficial interests in the assets
of PFBI Capital Trust (Trust), a wholly-owned subsidiary of the Company. The
Trust's sole assets are 9.75% junior subordinated debentures due June 30, 2027
issued by the Company on June 9, 1997. Distributions on the Preferred
Securities will be payable at an annual rate of 9.75% of the stated liquidation
amount of $25 per Preferred 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 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.
8.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A. Financial Condition and Results of Operations
Net income for the three months ended March 31, 1998, of $1,381,000 or $0.28
per share, was 12% above net income of $1,230,000 or $0.26 for the three months
ended March 31, 1997. This $151,000 increase in net income was primarily the
result of reversing a $234,000 previously recorded valuation allowance for
deferred tax assets by a recently acquired banking subsidiary. Comparing the
same periods aside from this one time event, income would have decreased
$83,000 or 6%. The primary reason for the decrease is the $700,000 quarterly
interest expense associated with the Preferred Securities issued in June 1997
to fund acquisitions and to add to the Company's capital position. Earning
assets increased $130 million to $520 million at March 31, 1998 over
December 31, 1997. The increase is primarily the result of a strategy to
leverage the Company's available capital in the form of $75 million repurchase
agreements correspondingly invested into available for sale securities and from
the first quarter acquisition of Ohio River Bank which provided an additional
$37 million in earning assets. Net interest margin for the three months ending
March 31, 1998 was approximately 4.08% as compared to 5.16% for the same period
in 1997. The returns on stockholders' equity and on average assets were
approximately 10.49% and 1.15% for the three months ended March 31, 1998
compared to 12.18% and 1.49% for the same period in 1997.
Non-interest income decreased $119,000 to $490,000 for the first three months
of 1998 compared to the first three months of 1997. The decrease is
attributable to certain non-recurring income items recorded during the first
quarter of 1997.
Non-interest expenses for the first quarter of 1998 totaled $3,164,000 or 2.6%
of average assets on an annualized basis compared to $2,533,000 or 3.1% of
average assets for the same period of 1997. This increase in non-interest
expense is attributed to the expansion of the Company's business.
Income tax expense was $225,000 for the first quarter of 1998 compared to
$505,000 for the first quarter of 1997. The decrease in income tax expense is
the result of the reversal of a $234,000 valuation allowance for deferred tax
assets of a recently acquired subsidiary bank. The valuation allowance was
recorded by the bank prior to its acquisition. The Company's consolidated tax
position is such that following the acquisition, the valuation allowance was no
longer necessary. Absent this event, the effective tax rate for 1998 was 29%
and is constant as compared to 1997.
9.
The following table sets forth information with respect to the Company's non-
performing assets at March 31, 1998 and December 31, 1997.
1998 1997
---- ----
(In Thousands)
Non-accrual loans $ 732 $ 562
Accruing loans which are contractually
past due 90 days or more 810 490
Restructured 320 356
------ ------
Total non-performing loans 1,862 1,408
Other real estate acquired through
Foreclosure 784 836
------ ------
Total non-performing assets $2,646 $2,244
Non-performing loans as a percentage
of total net loans .59% .50%
Non-performing assets as a percentage
of total assets .47% .53%
The provision for possible loan losses and net chargeoffs were $276,000 and
$155,000 for the first quarter of 1998, compared to $194,000 and $57,000,
respectively, for the first quarter of 1997. The increases in these amounts
primarily relate to the increase in average loans between the two periods. The
allowance for loan losses at March 31, 1998, of 1.1% of total loans remained
constant as compared to December 31, 1997.
B. 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. In order to provide for funds on
a current and long-term basis, the Corporation primarily relies on the
following sources:
1. Core deposits consisting of both consumer and commercial
deposits and certificates of deposit of $100,000 or more.
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.
10.
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.
C. Capital
At March 31, 1998, total shareholder's equity of $52.4 million was 9.3% of
total consolidated assets. Tier I capital totaled $62.8 million which
represents a Tier I leverage ratio of 12.8%.
As further discussed in Note 6, in June 1997, the Company issued $28.8 million
of 9.75% preferred securities. These securities qualify as Tier I capital up
to 25% of Tier I capital. The increase in capital will allow the Company to
target larger financial institutions as potential acquisitions.
The Company declared a first quarter dividend of $.15 per share, or $747,809
payable March 31, 1998 to shareholders of record as of March 20, 1998.
11.
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 None
Item 6. Exhibits and Reports on Form 8-K None
12.
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: May 12, 1998 /s/ Marshall T. Reynolds
----------------------------------
Marshall T. Reynolds
Chairman of the Board
Date: May 12, 1998 /s/ J. Howell Kelly
----------------------------------
J. Howell Kelly
President & Chief Executive Officer
13.