UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2012

or

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

For the transition period from ___________ to ___________

Commission file number 000-20908

PREMIER FINANCIAL BANCORP, INC.

(Exact name of registrant as specified in its charter)

Kentucky	61-1206757
(State or other jurisdiction of incorporation organization)	(I.R.S. Employer Identification No.)
2883 Fifth Avenue Huntington, West Virginia	25702
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number    (304) 525-1600

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

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

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

Large accelerated filer o. Accelerated filer  o.    Non-accelerated filer  o (Do not check if smaller reporting company) Smaller reporting company  þ

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

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

Common stock, no par value, – 7,947,343 shares outstanding at November 1, 2012

PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, 2012

INDEX TO REPORT

Part I - Financial Information
Item 1 – Financial Statements	3
Item 2 – Management’s Discussion and Analysis	39
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	52
Item 4 – Controls and Procedures	52
Part II - Other Information	53
Item 1 – Legal Proceedings	53
Item 1A – Risk Factors	53
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3 – Defaults Upon Senior Securities	53
Item 4 – Mine Safety Disclosures	53
Item 5 – Other Information	53
Item 6 – Exhibits	53
Signatures -	54

2

PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, 2012

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.  Premier Financial Bancorp, Inc.’s (“Premier’s”) accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America.  Certain accounting principles used by Premier involve a significant amount of judgment about future events and require the use of estimates in their application.  The following policies are particularly sensitive in terms of judgments and the extent to which estimates are used: allowance for loan losses, the identification and evaluation of impaired loans, the impairment of goodwill, the realization of deferred tax assets and stock based compensation disclosures.  These estimates are based on assumptions that may involve significant uncertainty at the time of their use.  However, the policies, the estimates and the estimation process as well as the resulting disclosures are periodically reviewed by the Audit Committee of the Board of Directors and material estimates are subject to review as part of the external audit by the independent public accountants.

The accompanying financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the registrant’s annual report on Form 10-K.  Accordingly, the reader of the Form 10-Q may wish to refer to the registrant’s Form 10-K for the year ended December 31, 2011 for further information in this regard.

Index to consolidated financial statements:

Consolidated Balance Sheets	4
Consolidated Statements of Income	5
Consolidated Statements of Comprehensive Income	6
Consolidated Statements of Cash Flows	7
Notes to Consolidated Financial Statements	9

3

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2012 AND DECEMBER 31, 2011

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	(UNAUDITED)
	2012			2011
ASSETS
Cash and due from banks	$	27,698		$	29,380
Interest bearing bank balances		43,199			42,676
Federal funds sold		4,829			10,832
Cash and cash equivalents		75,726			82,888
Securities available for sale		300,775			278,479
Loans held for sale		-			70
Loans		692,488			690,923
Allowance for loan losses		(10,755	)		(9,795	)
Net loans		681,733			681,128
Federal Home Loan Bank stock		4,184			5,216
Premises and equipment, net		15,995			16,355
Real estate and other property acquired through foreclosure		14,831			14,642
Interest receivable		3,455			3,497
Goodwill		29,875			29,875
Other intangible assets		2,873			3,393
Prepaid FDIC insurance premiums		635			1,167
Deferred taxes		2,065			3,997
Other assets		1,553			3,380
Total assets	$	1,133,700		$	1,124,087
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing	$	198,487		$	196,125
Time deposits, $100,000 and over		149,626			155,208
Other interest bearing		598,254			573,745
Total deposits		946,367			925,078
Securities sold under agreements to repurchase		24,330			23,205
Federal Home Loan Bank advances		-			10,083
Other borrowed funds		16,573			18,130
Interest payable		550			712
Other liabilities		3,462			2,872
Total liabilities		991,282			980,080
Stockholders' equity
Preferred stock, no par value; liquidation preference $12,000 in 2012 and $22,252 in 2011, 5% cumulative, 1,000,000 shares authorized;
12,000 shares in 2012 and 22,252 shares in 2011 issued and outstanding		11,881			21,949
Common stock, no par value; 20,000,000 shares authorized;
7,947,343 shares in 2012 and 7,937,143 shares in 2011 issued and outstanding		72,645			71,571
Retained earnings		51,025			45,474
Accumulated other comprehensive income		6,867			5,013
Total stockholders' equity		142,418			144,007
Total liabilities and stockholders' equity	$	1,133,700		$	1,124,087

4

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Interest income
Loans, including fees	$	10,759		$	11,252		$	33,123		$	33,479
Securities available for sale
Taxable		1,740			1,916			5,360			5,973
Tax-exempt		50			58			162			180
Federal funds sold and other		31			28			107			121
Total interest income		12,580			13,254			38,752			39,753
Interest expense
Deposits		1,353			1,746			4,325			5,504
Repurchase agreements and other		22			37			70			124
FHLB advances and other borrowings		188			257			614			790
Total interest expense		1,563			2,040			5,009			6,418
Net interest income		11,017			11,214			33,743			33,335
Provision for loan losses		1,260			810			2,960			3,150
Net interest income after provision for loan losses		9,757			10,404			30,783			30,185
Non-interest income
Service charges on deposit accounts		919			1,021			2,622			2,890
Electronic banking income		502			442			1,512			1,370
Secondary market mortgage income		74			108			202			248
Gain on disposition of securities		273			-			273			18
Other		168			295			476			685
		1,936			1,866			5,085			5,211
Non-interest expenses
Salaries and employee benefits		3,720			4,174			11,541			12,217
Occupancy and equipment expenses		1,143			1,188			3,445			3,706
Outside data processing		850			954			2,595			3,341
Professional fees		325			248			909			730
Taxes, other than payroll, property and income		187			158			532			573
Write-downs, expenses, sales of other real estate owned, net		372			316			879			723
Amortization of intangibles		173			203			520			618
Conversion expenses		25			909			25			1,751
FDIC insurance		102			21			583			998
Loan collection expenses		189			471			1,042			841
Other expenses		818			895			2,493			3,062
		7,904			9,537			24,564			28,560
Income before income taxes		3,789			2,733			11,304			6,836
Provision for income taxes		1,378			920			3,971			2,323
Net income	$	2,411		$	1,813		$	7,333		$	4,513
Discount on redemption of preferred stock		904			-			904			-
Preferred stock dividends and accretion		(297	)		(305	)		(908	)		(916	)
Net income available to common stockholders	$	3,018		$	1,508		$	7,329		$	3,597
Net income per share:
Basic	$	0.38		$	0.19		$	0.92		$	0.45
Diluted		0.37			0.19			0.90			0.45

5

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012			2011
Net income	$	2,411		$	1,813	$	7,333		$	4,513
Other comprehensive income:
Unrealized gains arising during the period		1,290			3,279		3,082			11,921
Reclassification of realized amount		(273	)		-		(273	)		(18	)
Net change in unrealized gain (loss) on securities		1,017			3,279		2,809			11,903
Less tax impact		346			1,115		955			4,047
Other comprehensive income:		671			2,164		1,854			7,856
Comprehensive income	$	3,082		$	3,977	$	9,187		$	12,369

6

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

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

	2012			2011
Cash flows from operating activities
Net income	$	7,333		$	4,513
Adjustments to reconcile net income to net cash from operating activities
Depreciation		1,090			1,113
Provision for loan losses		2,960			3,150
Amortization (accretion), net		(1,345	)		(1,063	)
OREO writedowns (gains on sales), net		(125	)		292
Stock compensation expense		134			77
Loans originated for sale		(10,157	)		(12,595	)
Secondary market loans sold		10,429			13,832
Secondary market income		(202	)		(248	)
Gain on sale of buildings		-			(171	)
Gain on disposition of securities		(273	)		(18	)
Changes in :
Interest receivable		42			245
Other assets		3,337			1,161
Interest payable		(162	)		(117	)
Other liabilities		590			(56	)
Net cash from operating activities		13,651			10,115
Cash flows from investing activities
Purchases of securities available for sale		(73,771	)		(110,447	)
Proceeds from the sale of securities available for sale		1,000			2,017
Proceeds from maturities and calls of securities available for sale		52,212			94,293
Redemption of FRB and FHLB  stock, (net of purchases)		1,032			1,558
Net change in loans		(3,634	)		30,839
Purchases of premises and equipment, net		(730	)		(624	)
Proceeds from sales of other real estate acquired through foreclosure		3,090			1,907
Net cash from investing activities		(20,801	)		19,543
Cash flows from financing activities
Net change in deposits		21,372			(47,374	)
Net change in agreements to repurchase securities		1,125			(2,492	)
Net change in short-term Federal Home Loan Bank advances		-			(2,400	)
Net change in federal funds purchased		-			145
Repayment of Federal Home Loan Bank advances		(10,042	)		(131	)
Repayment of other borrowed funds		(1,557	)		(1,532	)
Redemption of Preferred stock		(9,237	)		-
Proceeds from stock option exercises		35			-
Common stock dividends paid		(874	)		-
Preferred stock dividends paid		(834	)		(1,112	)
Net cash from financing activities		(12	)		(54,896	)
Net change in cash and cash equivalents		(7,162	)		(25,238	)
Cash and cash equivalents at beginning of period		82,888			122,248
Cash and cash equivalents at end of period	$	75,726		$	97,010

7

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

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

	2012		2011
Supplemental disclosures of cash flow information:
Cash paid during period for interest	$	5,171	$	6,535
Cash (received) paid during period for income taxes		1,414		2,805
Loans transferred to real estate acquired through foreclosure		3,154		8,601

8

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  1 - BASIS OF PRESENTATION

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

					September 30, 2012
		Year	Total		Net Income
Subsidiary	Location	Acquired	Assets		Qtr			YTD
Citizens Deposit Bank & Trust	Vanceburg, Kentucky	1991	$	376,916	$	1,279		$	3,676
Premier Bank, Inc.	Huntington, West Virginia	1998		748,939		1,655			5,201
Parent and Intercompany Eliminations				7,845		(523	)		(1,544	)
Consolidated Total			$	1,133,700	$	2,411		$	7,333

All significant intercompany transactions and balances have been eliminated.

Recently Issued Accounting Pronouncements

In June 2011, the FASB issued ASU No. 2011-05, "Comprehensive Income (Topic 220) - Presentation of Comprehensive Income." The ASU requires entities to present items of net income and other comprehensive income either in one continuous statement - referred to as the statement of comprehensive income - or in two separate, but consecutive, statements of net income and other comprehensive income. The ASU is effective for the first interim period and annual period beginning after December 15, 2011. The adoption of this guidance did not  have a material impact upon the Company’s financial statements.

In May 2011, the FASB issued ASU No. 2011-04, "Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." This ASU represents the converged guidance of the FASB and the IASB (the "Boards") on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term "fair value." The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. Included in the ASU are requirements to disclose additional quantitative disclosures about unobservable inputs for all Level 3 fair value measurements, as well as qualitative disclosures about the sensitivity inherent in recurring Level 3 fair value measurements. The ASU is effective during interim and annual periods beginning after December 15, 2011. The adoption of this guidance did not have a material impact upon the Company’s financial statements.

9

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  2 –SECURITIES

Amortized cost and fair value of investment securities, by category, at September 30, 2012 are summarized as follows:

2012	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. sponsored agency MBS - residential	$	38,790	$	2,352	$	-		$	41,142
U. S. sponsored agency CMO’s - residential		217,905		6,299		(161	)		224,043
Total mortgage-backed securities of government sponsored agencies		256,695		8,651		(161	)		265,185
U. S. government sponsored agency securities		22,067		206		-			22,273
Obligations of states and political subdivisions		7,991		485		-			8,476
Other securities		3,618		1,296		(73	)		4,841
Total available for sale	$	290,371	$	10,638	$	(234	)	$	300,775

Amortized cost and fair value of investment securities, by category, at December 31, 2011 are summarized as follows:

2011	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. sponsored agency MBS - residential	$	38,403	$	1,856	$	(4	)	$	40,255
U. S. sponsored agency CMO’s - residential		200,835		4,933		(30	)		205,738
Total mortgage-backed securities of government sponsored agencies		239,238		6,789		(34	)		245,993
U. S. government sponsored agency securities		18,114		58		(31	)		18,141
Obligations of states and political subdivisions		9,193		457		-			9,650
Other securities		4,338		440		(83	)		4,695
Total available for sale	$	270,883	$	7,744	$	(148	)	$	278,479

10

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  2–SECURITIES - continued

The amortized cost and fair value of securities at September 30, 2012 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Fair Value
Available for sale
Due in one year or less	$	794	$	725
Due after one year through five years		10,349		10,691
Due after five years through ten years		19,483		19,866
Due after ten years		1,958		2,745
Corporate preferred securities		1,092		1,563
Mortgage-backed securities of government sponsored agencies		256,695		265,185
Total available for sale	$	290,371	$	300,775

Proceeds from the sale of securities during the first nine months of 2012 and 2011 were $1,000,000 and $2,017,000.  A $273,000 gain was recorded on the disposition of securities in the first nine months of 2012.  An $18,000 gain was recorded from the sale of securities during the first nine months of 2011.

Securities with unrealized losses at September 30, 2012 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S sponsored agency CMO – residential	$	24,014	$	(161	)	$	-	$	-		$	24,014	$	(161	)
Other securities		-		-			4		(73	)		4		(73	)
Total temporarily impaired	$	24,014	$	(161	)	$	4	$	(73	)	$	24,018	$	(234	)

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  2–SECURITIES - continued

Securities with unrealized losses at December 31, 2011 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

	Less than 12 Months					12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. government sponsored agency securities	$	7,080	$	(31	)	$	-	$	-	$	7,080	$	(31	)
U.S sponsored agency MBS – residential		2,544		(4	)		-		-		2,544		(4	)
U.S sponsored agency CMO – residential		3,941		(30	)		-		-		3,941		(30	)
Other securities		370		(83	)		-		-		370		(83	)
Total temporarily impaired	$	13,935	$	(148	)	$	-	$	-	$	13,935	$	(148	)

The investment portfolio is predominately high quality interest-bearing debt securities with defined maturity dates backed by the U.S. Government or Government sponsored entities.  The unrealized losses at September 30, 2012 and December 31, 2011 are price changes resulting from changes in the interest rate environment and are not considered to be other than temporary declines in the value of the securities.  Their fair value is expected to recover as the bonds approach their maturity date and/or market conditions improve.

NOTE  3 - LOANS

Major classifications of loans at September 30, 2012 and December 31, 2011 are summarized as follows:

	2012		2011
Residential real estate	$	218,631	$	221,756
Multifamily real estate		29,776		34,335
Commercial real estate:
Owner occupied		97,286		101,864
Non owner occupied		172,417		166,540
Commercial and industrial		72,276		76,960
Consumer		28,827		30,090
All other		73,275		59,378
	$	692,488	$	690,923

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  3–LOANS - continued

Activity in the allowance for loan losses by portfolio segment for the nine months ending September 30, 2012 was as follows:

Loan Class	Balance Dec 31, 2011		Provision for loan losses			Loans charged-off		Recoveries		Balance Sept 30, 2012
Residential real estate	$	2,134	$	422		$	223	$	44	$	2,377
Multifamily real estate		284		92			-		-		376
Commercial real estate:
Owner occupied		918		(172	)		15		272		1,003
Non owner occupied		2,381		(236	)		318		3		1,830
Commercial and industrial		1,880		1,585			1,216		2		2,251
Consumer		298		87			186		77		276
All other		1,900		1,182			527		87		2,642
Total	$	9,795	$	2,960		$	2,485	$	485	$	10,755

Activity in the allowance for loan losses by portfolio segment for the nine months ending September 30, 2011 was as follows:

Loan Class	Balance Dec 31, 2010		Provision for loan losses			Loans charged-off		Recoveries		Balance Sept 30, 2011
Residential real estate	$	2,666	$	83		$	318	$	28	$	2,459
Multifamily real estate		252		32			-		21		305
Commercial real estate:
Owner occupied		1,141		35			-		2		1,178
Non owner occupied		1,644		819			261		28		2,230
Commercial and industrial		2,421		(430	)		17		36		2,010
Consumer		366		36			90		67		379
All other		1,375		2,575			179		66		3,837
Total	$	9,865	$	3,150		$	865	$	248	$	12,398

13

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  3–LOANS - continued

Activity in the allowance for loan losses by portfolio segment for the three months ending    September 30, 2012 was as follows:

Loan Class	Balance June 30, 2012		Provision for loan losses			Loans charged-off		Recoveries		Balance  Sept 30, 2012
Residential real estate	$	2,268	$	201		$	104	$	12	$	2,377
Multifamily real estate		427		(51	)		-		-		376
Commercial real estate:
Owner occupied		979		(248	)		-		272		1,003
Non owner occupied		2,306		(199	)		277		-		1,830
Commercial and industrial		1,984		490			224		1		2,251
Consumer		310		(11	)		47		24		276
All other		1,588		1,078			53		29		2,642
Total	$	9,862	$	1,260		$	705	$	338	$	10,755

Activity in the allowance for loan losses by portfolio segment for the three months ending    September 30, 2011 was as follows:

Loan Class	Balance June 30, 2011		Provision for loan losses			Loans charged-off		Recoveries		Balance Sept 30, 2011
Residential real estate	$	2,666	$	(69	)	$	150	$	12	$	2,459
Multifamily real estate		349		(63	)		-		19		305
Commercial real estate:
Owner occupied		988		190			-		-		1,178
Non owner occupied		1,639		566			-		25		2,230
Commercial and industrial		1,934		49			1		28		2,010
Consumer		364		18			30		27		379
All other		3,808		119			106		16		3,837
Total	$	11,748	$	810		$	287	$	127	$	12,398

14

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  3–LOANS - continued

Purchased Loans

As a result of the acquisition of Abigail Adams National Bancorp, the Company holds purchased loans for which there was, at the October 1, 2009 acquisition date, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected.  The carrying amount of those loans is as follows at September 30, 2012 and December 31, 2011.

	2012		2011
Residential real estate	$	206	$	282
Multifamily real estate		3,258		3,708
Commercial real estate
Owner occupied		274		1,934
Non owner occupied		6,036		6,427
Commercial and industrial		528		583
All other		1,243		1,925
Total carrying amount	$	11,545	$	14,859
Carrying amount, net of allowance	$	11,045	$	14,859

The Company cannot reasonably estimate the cash flows expected to be collected on these loans and therefore has continued to account for these loans using the cost recovery method of income recognition.  As such, no portion of a purchase discount adjustment has been determined to meet the definition of an accretable yield adjustment.  If, in the future, cash flows from the borrower(s) can be reasonably estimated, a portion of the purchase discount may be allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion would be recognized as interest income over the remaining life of the loan. Until such accretable yield can be calculated, under the cost recovery method of income recognition, all payments will be used to reduce the carrying value of the loan and no income will be recognized on the loan until the carrying value is reduced to zero.  Any loan accounted for under the cost recovery method is also still included as a non-accrual loan in the amounts presented in the tables below.

For those purchased loans disclosed above, the Company increased the allowance for loan losses by $500,000 during the nine months ended September 30, 2012 and decreased the allowance for loan losses by $190,000 during the nine months ended September 30, 2011.

15

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  3–LOANS - continued

Past Due and Non-performing Loans

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of September 30, 2012 and December 31 2011.  The recorded investment in a non-accrual loan may be less than the principal owed on the loan due to discounts applied to the carrying value of the loan at time of its acquisition and/or interest payments made by the borrower which have been used to reduce the recorded investment in the loan rather than recognized as interest income.

September 30, 2012	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
Residential real estate	$	3,154	$	2,838	$	1,128
Multifamily real estate		5,446		4,381		622
Commercial real estate
Owner occupied		6,387		5,544		862
Non owner occupied		12,816		9,233		202
Commercial and industrial		11,733		10,314		18
Consumer		114		104		-
All other		4,803		2,033		-
Total	$	44,453	$	34,447	$	2,832

December 31, 2011	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
Residential real estate	$	4,479	$	4,111	$	1,216
Multifamily real estate		13,118		11,139		-
Commercial real estate
Owner occupied		9,970		8,260		851
Non owner occupied		12,938		9,835		1,596
Commercial and industrial		4,756		3,227		814
Consumer		246		237		50
All other		9,198		5,545		-
Total	$	54,705	$	42,354	$	4,527

Nonaccrual loans and impaired loans are defined differently. Some loans may be included in both categories, and some may only be included in one category. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

16

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  3–LOANS - continued

The following table presents the aging of the recorded investment in past due loans as of September 30, 2012 by class of loans:

Loan Class	Total Loans		30-89 Days Past Due		Greater than 90 days past due		Total Past Due		Loans Not Past Due
Residential real estate	$	218,631	$	6,965	$	3,182	$	10,147	$	208,484
Multifamily real estate		29,776		-		5,003		5,003		24,773
Commercial real estate:
Owner occupied		97,286		2,334		1,561		3,895		93,391
Non owner occupied		172,417		237		4,359		4,596		167,821
Commercial and industrial		72,276		884		5,118		6,002		66,274
Consumer		28,827		510		44		554		28,273
All other		73,275		100		2,030		2,130		71,145
Total	$	692,488	$	11,030	$	21,297	$	32,327	$	660,161

The following table presents the aging of the recorded investment in past due loans as of December 31, 2011 by class of loans:

Loan Class	Total Loans		30-89 Days Past Due		Greater than 90 days past due		Total Past Due		Loans Not Past Due
Residential real estate	$	221,756	$	6,729	$	3,635	$	10,364	$	211,392
Multifamily real estate		34,335		3,249		8,892		12,141		22,194
Commercial real estate:
Owner occupied		101,864		8,081		3,981		12,062		89,802
Non owner occupied		166,540		2,444		6,065		8,509		158,031
Commercial and industrial		76,960		1,714		3,153		4,867		72,093
Consumer		30,090		497		233		730		29,360
All other		59,378		222		5,532		5,754		53,624
Total	$	690,923	$	22,936	$	31,491	$	54,427	$	636,496

17

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  3–LOANS - continued

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2012:

	Allowance for Loan Losses								Loan Balances
Loan Class	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total
Residential real estate	$	701	$	1,676	$	-	$	2,377	$	8,921	$	209,504	$	206	$	218,631
Multifamily real estate		-		376		-		376		921		25,597		3,258		29,776
Commercial real estate:
Owner occupied		112		891		-		1,003		7,084		89,928		274		97,286
Non-owner occupied		362		1,468		-		1,830		4,745		161,636		6,036		172,417
Commercial and industrial		1,574		677		-		2,251		11,259		60,489		528		72,276
Consumer		36		240		-		276		36		28,791		-		28,827
All other		132		2,010		500		2,642		4,296		67,736		1,243		73,275
Total	$	2,917	$	7,338	$	500	$	10,755	$	37,262	$	643,681	$	11,545	$	692,488

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2011:

	Allowance for Loan Losses								Loan Balances
Loan Class	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total
Residential real estate	$	451	$	1,683	$	-	$	2,134	$	9,795	$	211,679	$	282	$	221,756
Multifamily real estate		-		284		-		284		8,594		22,033		3,708		34,335
Commercial real estate:
Owner occupied		138		780		-		918		8,663		91,267		1,934		101,864
Non-owner occupied		922		1,459		-		2,381		5,147		154,966		6,427		166,540
Commercial and industrial		894		986		-		1,880		3,636		72,741		583		76,960
Consumer		37		261		-		298		37		30,053		-		30,090
All other		605		1,295		-		1,900		8,372		49,081		1,925		59,378
Total	$	3,047	$	6,748	$	-	$	9,795	$	44,244	$	631,820	$	14,859	$	690,923

18

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  3–LOANS - continued

In the tables below, total individually evaluated impaired loans include certain purchased loans that were acquired with deteriorated credit quality that are still individually evaluated for impairment.

The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2012.  The table includes $11,545,000 of loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential real estate	$	5,328	$	5,124	$	-
Multifamily real estate		5,954		4,179		-
Commercial real estate
Owner occupied		8,096		6,736		-
Non owner occupied		13,407		9,995		-
Commercial and industrial		3,748		2,563		-
All other		6,404		3,769		-
		42,937		32,366		-
With an allowance recorded:
Residential real estate	$	4,025	$	4,003	$	701
Commercial real estate
Owner occupied		622		622