10-Q 1 pfbi10q09302012.htm PREMIER FINANCIAL BANCORP, INC., FORM 10-Q, SEPT 30, 2012 pfbi10q09302012.htm


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






PREMIER FINANCIAL BANCORP, INC.
SEPTEMBER 30, 2012



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
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  

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  

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  
                                 

PREMIER FINANCIAL BANCORP, INC.
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  

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  
                 



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.



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  



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 )


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.


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  


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  


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  


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.



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.

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  



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  

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       112  
Non owner occupied