UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2019

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 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      No .

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§230.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No .

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

Large accelerated filer 		Accelerated filer  
Non-accelerated filer  	Smaller reporting company  	Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	PFBI	The Nasdaq Stock Market LLC

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

Common stock, no par value, – 14,636,402 shares outstanding at April 29, 2019

PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2019

INDEX TO REPORT

Part I - Financial Information
Item 1 – Financial Statements	3
Item 2 – Management’s Discussion and Analysis	40
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	49
Item 4 – Controls and Procedures	49
Part II - Other Information	50
Item 1 – Legal Proceedings	50
Item 1A – Risk Factors	50
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3 – Defaults Upon Senior Securities	50
Item 4 – Mine Safety Disclosures	50
Item 5 – Other Information	50
Item 6 – Exhibits	50
Signatures	51

- 2 -

PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2019

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

The accompanying information has not been audited by an independent registered public accounting firm; 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, and the impairment of goodwill.  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 registered public accounting firm.

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, 2018 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 Statement of Changes in Stockholders’ Equity	7
Consolidated Statements of Cash Flows	8
Notes to Consolidated Financial Statements	9

- 3 -

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2019 AND DECEMBER 31, 2018

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	(UNAUDITED)
	March 31, 2019			December 31, 2018
ASSETS
Cash and due from banks	$	24,542		$	22,992
Interest bearing bank balances		52,857			39,911
Federal funds sold		24,722			17,872
Cash and cash equivalents		102,121			80,775
Time deposits with other banks		1,094			1,094
Securities available for sale		369,082			365,731
Loans		1,155,874			1,149,301
Allowance for loan losses		(13,479	)		(13,738	)
Net loans		1,142,395			1,135,563
Federal Home Loan Bank stock, at cost		3,568			3,628
Premises and equipment, net		36,745			29,385
Real estate acquired through foreclosure		14,378			14,024
Interest receivable		4,638			4,295
Goodwill		47,640			47,640
Other intangible assets		5,040			5,268
Other assets		1,764			2,712
Total assets	$	1,728,465		$	1,690,115
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing	$	394,130		$	391,763
Time deposits, $250,000 and over		90,490			74,161
Other interest bearing		969,199			964,203
Total deposits		1,453,819			1,430,127
Securities sold under agreements to repurchase		22,025			22,062
Other borrowed funds		1,450			2,500
FHLB advances		7,335			8,819
Subordinated debt		5,413			5,406
Interest payable		860			733
Other liabilities		12,336			3,739
Total liabilities		1,503,238			1,473,386
Stockholders' equity
Common stock, no par value; 30,000,000 shares authorized; 14,628,902 shares issued and outstanding at March 31, 2019, and 14,624,193 shares issued and outstanding at December 31, 2018		133,338			133,248
Retained earnings		91,314			87,333
Accumulated other comprehensive income (loss)		575			(3,852	)
Total stockholders' equity		225,227			216,729
Total liabilities and stockholders' equity	$	1,728,465		$	1,690,115

- 4 -

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31, 2019 AND 2018

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

	Three Months Ended March 31,
	2019		2018
Interest income
Loans, including fees	$	16,289	$	14,034
Securities available for sale
Taxable		2,338		1,408
Tax-exempt		92		59
Federal funds sold and other		345		298
Total interest income		19,064		15,799
Interest expense
Deposits		2,050		1,031
Repurchase agreements and other		9		8
Other borrowings		21		47
FHLB advances		55		-
Subordinated debt		94		78
Total interest expense		2,229		1,164
Net interest income		16,835		14,635
Provision for loan losses		560		1,115
Net interest income after provision for loan losses		16,275		13,520
Non-interest income
Service charges on deposit accounts		1,094		1,094
Electronic banking income		822		817
Secondary market mortgage income		24		32
Other		236		123
		2,176		2,066
Non-interest expenses
Salaries and employee benefits		5,199		4,778
Occupancy and equipment expenses		1,664		1,610
Outside data processing		1,384		1,249
Professional fees		365		336
Taxes, other than payroll, property and income		238		240
Write-downs, expenses, sales of other real estate owned, net		249		(886	)
Amortization of intangibles		227		195
FDIC insurance		124		148
Other expenses		1,143		1,319
		10,593		8,989
Income before income taxes		7,858		6,597
Provision for income taxes		1,682		1,464
Net income	$	6,176	$	5,133
Net income per share:
Basic	$	0.42	$	0.38
Diluted		0.42		0.38

- 5 -

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2019 AND 2018

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

	Three Months Ended March 31,
	2019			2018
Net income	$	6,176		$	5,133
Other comprehensive income (loss):
Unrealized gains (losses) arising during the period		5,604			(3,862	)
Reclassification of realized amount		-			-
Net change in unrealized gain (loss) on securities		5,604			(3,862	)
Less tax impact		(1,177	)		811
Other comprehensive income (loss)		4,427			(3,051	)
Comprehensive income	$	10,603		$	2,082

- 6 -

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED MARCH 31, 2019

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

	Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (loss)			Total
Balances, January 1, 2018	$	110,445	$	74,983		$	(2,073	)	$	183,355
Net income		-		5,133			-			5,133
Other comprehensive income		-		-			(3,051	)		(3,051	)
Cash dividends paid ($0.12 per share)		-		(1,601	)		-			(1,601	)
Stock options exercised		13		-			-			13
Stock based compensation expense		27		-			-			27
Balances, March 31, 2018	$	110,485	$	78,515		$	(5,124	)	$	183,876

	Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (loss)			Total
Balances, January 1, 2019	$	133,248	$	87,333		$	(3,852	)	$	216,729
Net income		-		6,176			-			6,176
Other comprehensive income		-		-			4,427			4,427
Cash dividends paid ($0.15 per share)		-		(2,195	)		-			(2,195	)
Stock options exercised		51		-			-			51
Stock based compensation expense		39		-			-			39
Balances, March 31, 2019	$	133,338	$	91,314		$	575		$	225,227

- 7 -

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2019 AND 2018

(UNAUDITED, DOLLARS IN THOUSANDS)

	2019			2018
Cash flows from operating activities
Net income	$	6,176		$	5,133
Adjustments to reconcile net income to net cash from operating activities
Depreciation		467			433
Provision for loan losses		560			1,115
Amortization (accretion), net		(47	)		386
Writedowns (gains on the sale) of other real estate owned, net		(15	)		(1,080	)
Stock compensation expense		39			27
Changes in:
Interest receivable		(343	)		342
Other assets		(228	)		1,137
Interest payable		127			14
Other liabilities		1,131			(495	)
Net cash from operating activities		7,867			7,012
Cash flows from investing activities
Net change on time deposits with other banks		-			-
Purchases of securities available for sale		(13,854	)		(15,527	)
Proceeds from maturities and calls of securities available for sale		15,869			13,717
Redemption of FHLB stock		60			-
Net change in loans		(7,555	)		19,838
Purchases of premises and equipment, net		(361	)		(346	)
Proceeds from sales of other real estate acquired through foreclosure		414			7,145
Net cash from (used in) investing activities		(5,427	)		24,827
Cash flows from financing activities
Net change in deposits		23,637			30,514
Net change in agreements to repurchase securities		(37	)		(2,517	)
Repayment of other borrowed funds		(1,050	)		(750	)
Repayment of FHLB advances		(1,500	)		-
Proceeds from stock option exercises		51			13
Common stock dividends paid		(2,195	)		(1,601	)
Net cash from financing activities		18,906			25,659
Net change in cash and cash equivalents		21,346			57,498
Cash and cash equivalents at beginning of period		80,775			82,663
Cash and cash equivalents at end of period	$	102,121		$	140,161

Supplemental disclosures of cash flow information:
Cash paid during period for interest	$	2,102	$	1,150
Loans transferred to real estate acquired through foreclosure		753		284
Securities purchased not yet settled		-		5,059
Operating right-of-use asset resulting from lease liability		7,453		-

- 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”):

					March 31, 2018
		Year	Total		Net Income
Subsidiary	Location	Acquired	Assets		Qtr
Citizens Deposit Bank & Trust	Vanceburg, Kentucky	1991	$	459,409	$	1,379
Premier Bank, Inc.	Huntington, West Virginia	1998		1,261,402		5,374
Parent and Intercompany Eliminations				7,654		(577	)
Consolidated Total			$	1,728,465	$	6,176

All significant intercompany transactions and balances have been eliminated.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires organizations that are lessees to recognize a lease liability, which is the lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified property for the lease term.  The new guidance also requires lessees to disclose key information about leasing requirements for leases that were historically classified as operating leases under previous generally accepted accounting principles. This ASU became effective for Premier for interim and annual periods beginning after December 15, 2018.  The Company leases some of its branch locations.  The Company adopted Topic 842 on January 1, 2019.  The Company applied a modified retrospective transition approach for the applicable leases. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. The Company has also elected to use the practical expedient to make an accounting policy election for property leases to include both lease and non-lease components as a single component and account for it as a lease.  Upon adoption of this standard, the Company recorded a $7.6 million right of use asset, included in premises and equipment, determined by calculating an estimated present value of future lease payments over the extended lives of the Company’s leases.  The Company also recorded a $7.6 million finance lease liability, included in other liabilities.

- 9 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  1 - BASIS OF PRESENTATION - continued

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments.  This ASU replaces the measurement for credit losses from a probable incurred estimate with an expected future loss estimate, which is referred to as the “current expected credit loss” or “CECL”.  The standard pertains to financial assets measured at amortized cost such as loans, debt securities classified as held-to-maturity, and certain other contracts, in which organizations will now use forward-looking information to enhance their credit loss estimates on these assets.  The largest impact will be on the allowance for loan and lease losses.  This ASU will become effective for the Company for interim and annual periods beginning after December 15, 2019.  Although early adoption is permitted the Company did not elect early adoption.  The company has formed a committee to oversee the steps required in the adoption of the new current expected credit loss method.  The committee has selected a third-party vendor to assist in data analysis and modeling as well as the required disclosures. Management is currently evaluating the impact of the adoption of this guidance on the Company’s financial statements.  Upon adoption, an initial cumulative increase in the allowance for loan losses is currently anticipated by management along with a corresponding decrease in capital as permitted by the standard.  However, due to the complexity of the calculation and evolving guidance on adoption management has not yet determined the one-time adjustment.

- 10 -

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 March 31, 2019 are summarized as follows:

2019	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. sponsored agency MBS - residential	$	257,523	$	1,635	$	(1,719	)	$	257,439
U. S. sponsored agency CMO’s - residential		71,470		552		(386	)		71,636
Total mortgage-backed securities of government sponsored agencies		328,993		2,187		(2,105	)		329,075
U. S. government sponsored agency securities		22,328		379		(89	)		22,618
Obligations of states and political subdivisions		13,581		296		(10	)		13,867
Other securities		3,452		70		-			3,522
Total available for sale	$	368,354	$	2,932	$	(2,204	)	$	369,082

Amortized cost and fair value of investment securities, by category, at December 31, 2018 are summarized as follows:

2018	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. sponsored agency MBS - residential	$	259,575	$	513	$	(4,846	)	$	255,242
U. S. sponsored agency CMO’s - residential		69,231		94		(782	)		68,543
Total mortgage-backed securities of government sponsored agencies		328,806		607		(5,628	)		323,785
U. S. government sponsored agency securities		24,154		196		(180	)		24,170
Obligations of states and political subdivisions		14,194		176		(43	)		14,327
Other securities		3,453		6		(10	)		3,449
Total available for sale	$	370,607	$	985	$	(5,861	)	$	365,731

- 11 -

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 March 31, 2019 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	$	6,795	$	6,762
Due after one year through five years		19,152		19,352
Due after five years through ten years		8,490		8,751
Due after ten years		4,424		4,642
Corporate preferred securities		500		500
Mortgage-backed securities of government sponsored agencies		328,993		329,075
Total available for sale	$	368,354	$	369,082

There were no sales of securities during the first three months of 2019 and 2018.

Securities with unrealized losses at March 31, 2019 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	$	-	$	-		$	10,288	$	(89	)	$	10,288	$	(89	)
U.S government sponsored agency MBS – residential		10,718		(35	)		145,531		(1,684	)		156,249		(1,719	)
U.S government sponsored agency CMO – residential		-		-			18,953		(386	)		18,953		(386	)
Obligations of states and political subdivisions		-		-			1,847		(10	)		1,847		(10	)
Total temporarily impaired	$	10,718	$	(35	)	$	176,619	$	(2,169	)	$	187,337	$	(2,204	)

- 12 -

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, 2018 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	$	999	$	-		$	11,057	$	(180	)	$	12,056	$	(180	)
U.S government sponsored agency MBS – residential		50,923		(243	)		158,791		(4,603	)		209,714		(4,846	)
U.S government sponsored agency CMO’s – residential		16,359		(41	)		26,386		(741	)		42,745		(782	)
Obligations of states and political subdivisions		679		(6	)		3,454		(37	)		4,133		(43	)
Other securities		1,712		(10	)		-		-			1,712		(10	)
Total temporarily impaired	$	70,672	$	(300	)	$	199,688	$	(5,561	)	$	270,360	$	(5,861	)

The investment portfolio is predominately high credit quality interest-bearing bonds with defined maturity dates backed by the U.S. Government or Government sponsored entities.  The unrealized losses at March 31, 2019 and December 31, 2018 are price changes resulting from changes in the interest rate environment and are considered to be temporary declines in the value of the securities.  Management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery.  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 March 31, 2019 and December 31, 2018 are summarized as follows:

	2019		2018
Residential real estate	$	375,905	$	381,027
Multifamily real estate		52,929		54,016
Commercial real estate:
Owner occupied		138,366		138,209
Non-owner occupied		291,124		282,608
Commercial and industrial		106,383		103,624
Consumer		26,004		27,688
Construction and land		131,680		128,926
All other		33,483		33,203
	$	1,155,874	$	1,149,301

- 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 ended March 31, 2019 was as follows:

Loan Class	Balance Dec 31, 2018		Provision (credit) for loan losses			Loans charged-off			Recoveries		Balance March 31, 2019
Residential real estate	$	1,808	$	42		$	(32	)	$	5	$	1,823
Multifamily real estate		1,649		(61	)		-			2		1,590
Commercial real estate:
Owner occupied		2,120		236			(533	)		1		1,824
Non-owner occupied		3,058		400			(57	)		-		3,401
Commercial and industrial		1,897		(97	)		(110	)		31		1,721
Consumer		351		110			(107	)		11		365
Construction and land		2,255		(93	)		(13	)		-		2,149
All other		600		23			(51	)		34		606
Total	$	13,738	$	560		$	(903	)	$	84	$	13,479

Activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2018 was as follows:

Loan Class	Balance Dec 31, 2017		Provision (credit) for loan losses			Loans charged-off			Recoveries		Balance March 31, 2018
Residential real estate	$	2,986	$	(691	)	$	(49	)	$	16	$	2,262
Multifamily real estate		978		(320	)		(11	)		-		647
Commercial real estate:
Owner occupied		1,653		164			(2	)		1		1,816
Non-owner occupied		2,313		(110	)		(16	)		-		2,187
Commercial and industrial		1,101		813			(267	)		4		1,651
Consumer		328		49			(33	)		25		369
Construction and land		2,408		913			(19	)		-		3,302
All other		337		297			(67	)		39		606
Total	$	12,104	$	1,115		$	(464	)	$	85	$	12,840

- 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 Impaired Loans

The Company holds purchased loans for which there was, at their 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 March 31, 2019 and December 31, 2018.

	2019		2018
Residential real estate	$	2,655	$	2,665
Commercial real estate
Owner occupied		1,979		2,040
Non-owner occupied		3,142		3,434
Commercial and industrial		358		1,720
Construction and land		629		1,212
All other		229		225
Total carrying amount	$	8,992	$	11,296
Contractual principal balance	$	12,859	$	15,436
Carrying amount, net of allowance	$	8,992	$	11,296

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses during the three-months ended March 31, 2019 and March 31, 2018.

For those purchased loans disclosed above, where the Company can reasonably estimate the cash flows expected to be collected on the loans, a portion of the purchase discount is 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 is being recognized as interest income over the remaining life of the loan.

Where the Company cannot reasonably estimate the cash flows expected to be collected on the loans, it has continued to account for those 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 on those loans accounted for using the cost recovery method.  If, in the future, cash flows from the borrower(s) can be reasonably estimated, a portion of the purchase discount would 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.

- 15 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  3 - LOANS - continued

The accretable yield, or income expected to be collected, on the purchased loans above is as follows at March 31, 2019 and March 31, 2018.

	2019			2018
Balance at January 1	$	642		$	754
New loans purchased		-			-
Accretion of income		(53	)		(69	)
Loans placed on non-accrual		(14	)		(41	)
Income recognized upon full repayment		(42	)		-
Reclassifications from non-accretable difference		-			-
Disposals		-			-
Balance at March 31	$	533		$	644

- 16 -

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 March 31, 2019 and December 31, 2018.  The recorded investment in non-accrual loans is less than the principal owed on non-accrual loans due to discounts applied to the carrying value of the loan at time of their acquisition and interest payments made by the borrower which have been used to reduce the recorded investment in the loan rather than recognized as interest income.

March 31, 2019	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
Residential real estate	$	4,568	$	3,311	$	692
Multifamily real estate		4,127		3,849		-
Commercial real estate
Owner occupied		4,332		4,050		118
Non-owner occupied		5,890		4,726		362
Commercial and industrial		1,128		524		24
Consumer		225		187		-
Construction and land		1,346		1,345		13
All other		75		73		-
Total	$	21,691	$	18,065	$	1,209

December 31, 2018	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
Residential real estate	$	4,966	$	3,708	$	954
Multifamily real estate		4,127		3,905		-
Commercial real estate
Owner occupied		3,692		3,436		56
Non-owner occupied		5,761		4,592		76
Commercial and industrial		1,303		625		-
Consumer		292		253		-
Construction and land		857		856		-
All other		75		73		-
Total	$	21,073	$	17,448	$	1,086

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.

- 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 aging of the recorded investment in past due loans as of        March 31, 2019 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	$	375,905	$	7,503	$	1,719	$	9,222	$	366,683
Multifamily real estate		52,929		-		111		111		52,818
Commercial real estate:
Owner occupied		138,366		1,609		1,747		3,356		135,010
Non-owner occupied		291,124		461		3,674		4,135		286,989
Commercial and industrial		106,383		142		361		503		105,880
Consumer		26,004		149		52		201		25,803
Construction and land		131,680		288		833		1,121		130,559
All other		33,483		2		73		75		33,408
Total	$	1,155,874	$	10,154	$	8,570	$	18,724	$	1,137,150

The following table presents the aging of the recorded investment in past due loans as of December 31, 2018 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	$	381,027	$	7,078	$	2,594	$	9,672	$	371,355
Multifamily real estate		54,016		-		110		110		53,906
Commercial real estate:
Owner occupied		138,209		124		2,601		2,725		135,484
Non-owner occupied		282,608		172		3,301		3,473		279,135
Commercial and industrial		103,624		2,235		262		2,497		101,127
Consumer		27,688		247		112		359		27,329
Construction and land		128,926		388		810		1,198		127,728
All other		33,203		546		73		619		32,584
Total	$	1,149,301	$	10,790	$	9,863	$	20,653	$	1,128,648

- 18 -

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 March 31, 2019:

	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	$	-	$	1,823	$	-	$	1,823	$	68	$	373,182	$	2,655	$	375,905
Multifamily real estate		1,231		359		-		1,590		3,849		49,080		-		52,929
Commercial real estate:
Owner occupied		140		1,684		-		1,824		3,274		133,113		1,979		138,366
Non-owner occupied		299		3,102		-		3,401		10,174		277,808		3,142		291,124
Commercial and industrial		203		1,518		-		1,721		440		105,585		358		106,383
Consumer		-		365		-		365		-		26,004		-		26,004
Construction and land		106		2,043				2,149		1,332		129,719		629		131,680
All other		-		606		-		606		-		33,254		229		33,483
Total	$	1,979	$	11,500	$	-	$	13,479	$	19,137	$	1,127,745	$	8,992	$	1,155,874

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 December 31, 2018:

	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	$	-	$	1,808	$	-	$	1,808	$	298	$	378,064	$	2,665	$	381,027
Multifamily real estate		1,281		368		-		1,649		3,905		50,111		-		54,016
Commercial real estate:
Owner occupied		692		1,428		-		2,120		2,820		133,349		2,040		138,209
Non-owner occupied		267		2,791		-		3,058		10,111		269,063		3,434		282,608
Commercial and industrial		414		1,483		-		1,897		558		101,346		1,720		103,624
Consumer		-		351		-		351		-		27,688		-		27,688
Construction and land		142		2,113		-		2,255		1,351		126,363		1,212		128,926
All other		-		600		-		600		-		32,978		225		33,203
Total	$	2,796	$	10,942	$	-	$	13,738	$	19,043	$	1,118,962	$	11,296	$	1,149,301

- 19 -

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 March 31, 2019.  The table includes $1,531,000 of loans acquired with deteriorated credit quality that the Company cannot reasonably estimate cash flows such that they are accounted for on the cost recovery method and are still individually evaluated for impairment.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential real estate	$	442	$	230	$	-
Multifamily real estate		110		110		-
Commercial real estate
Owner occupied		2,916		2,639		-
Non-owner occupied		8,552		7,830		-
Commercial and industrial		552		42		-
Construction and Land		821		821		-
		13,393		11,672		-
With an allowance recorded:
Multifamily real estate		4,017		3,739		1,231
Commercial real estate
Owner occupied		1,548		1,540		140
Non-owner occupied		2,886		2,808		299
Commercial and industrial		403		398		203
Construction and land		511		511		106
		9,365		8,996		1,979
Total	$	22,758	$	20,668	$	1,979

- 20 -

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 loans individually evaluated for impairment by class of loans as of December 31, 2018.  The table includes $1,160,000 of loans acquired with deteriorated credit quality for which the Company cannot reasonably estimate cash flows such that they are accounted for on the cost recovery method and are still individually evaluated for impairment.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential real estate	$	426	$	298	$	-
Multifamily real estate		110		110		-
Commercial real estate
Owner occupied		1,305		1,092		-
Non-owner occupied		8,458		7,740		-
Commercial and industrial		531		-		-
Construction and land		786		786		-
		11,616		10,026		-
With an allowance recorded:
Multifamily real estate	$	4,016	$	3,795	$	1,281
Commercial real estate
Owner occupied		2,523		2,478		692
Non-owner occupied		2,852		2,781		267
Commercial and industrial		562		558		414
Construction and land		565		565		142
		10,518		10,177		2,796
Total	$	22,134	$	20,203	$	2,796

- 21 -

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 average balance of loans individually evaluated for impairment and interest income recognized on these loans for the three months ended March 31, 2019 and March 31, 2018.  The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Three months ended March 31, 2019						Three months ended March 31, 2018
Loan Class	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
Residential real estate	$	264	$	-	$	-	$	303	$	-	$	-
Multifamily real estate		3,877		-		-		2,444		9		-
Commercial real estate:
Owner occupied		3,874		3		3		3,284		25		25
Non-owner occupied		10,580		94		91		10,521		136		136
Commercial and industrial		500		1		1		1,448		8		8
Construction and land		1,341		8		8		4,799		-		-
All other		-		-		-		291		4		4
Total	$	20,436	$	106	$	103	$	23,090	$	182	$	173

- 22 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  3 - LOANS - continued

Troubled Debt Restructurings

A loan is classified as a troubled debt restructuring ("TDR") when loan terms are modified due to a borrower's financial difficulties and a concession is granted to a borrower that would not have otherwise been considered. Most of the Company’s loan modifications involve a restructuring of loan terms prior to maturity to temporarily reduce the payment amount and/or to require only interest for a temporary period, usually up to six months.  These modifications generally do not meet the definition of a TDR because the modifications are considered to be an insignificant delay in payment.  The determination of an insignificant delay in payment is evaluated based on the facts and circumstances of the individual borrower(s).

The following table presents TDR’s as of March 31, 2019 and December 31, 2018:

March 31, 2019	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential real estate	$	126	$	93	$	219
Multifamily real estate		3,739		-		3,739
Commercial real estate
Owner occupied		1,540		218		1,758
Non-owner occupied		-		5,946		5,946
Commercial and industrial		191		-		191
Total	$	5,596	$	6,257	$	11,853

December 31, 2018	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential real estate	$	347	$	97	$	444
Multifamily real estate		3,795		-		3,795
Commercial real estate
Owner occupied		1,647		222		1,869
Non-owner occupied		-		5,964		5,964
Commercial and industrial		191		-		191
Total	$	5,980	$	6,283	$	12,263

At March 31, 2019, $1,477,000 in specific reserves was allocated to loans that had restructured terms resulting in a negative provision for loan losses of $65,000 for the three months ended March 31, 2019, compared to $379,000 in provision for loan losses on restructured loans during the three months ended March 31, 2018.  At December 31, 2018, $1,630,000 in specific reserves was allocated to loans that had restructured terms.  There were no commitments to lend additional amounts to these borrowers.

- 23 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  3 - LOANS - continued

There were no TDR’s that occurred during the three months ended March 31, 2019 or the three months ended March 31, 2018.

During the three months ended March 31, 2019 and the three months ended March 31, 2018, there were no TDR’s for which there was a payment default within twelve months following the modification.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

- 24 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  3 - LOANS - continued

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes non-homogeneous loans, such as commercial, commercial real estate, multifamily residential and commercial purpose loans secured by residential real estate, on a monthly basis.  For consumer loans, including consumer loans secured by residential real estate, and smaller balance non-homogeneous loans, the analysis involves monitoring the performing status of the loan.  At the time such loans become past due by 90 days or more, the Company evaluates the loan to determine if a change in risk category is warranted. The Company uses the following definitions for risk ratings:

Special Mention.  Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

- 25 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  3 - LOANS - continued

As of March 31, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Loan Class	Pass		Special Mention		Substandard		Doubtful		Total Loans
Residential real estate	$	364,956	$	1,624	$	9,163	$	162	$	375,905
Multifamily real estate		44,251		4,829		3,849		-		52,929
Commercial real estate:
Owner occupied		126,681		4,391		7,294		-		138,366
Non-owner occupied		274,620		3,567		12,937		-		291,124
Commercial and industrial		102,187		3,111		1,085		-		106,383
Consumer		25,693		37		274		-		26,004
Construction and land		114,764		14,996		1,920		-		131,680
All other		33,163		247		73		-		33,483
Total	$	1,086,315	$	32,802	$	36,595	$	162	$	1,155,874

As of December 31, 2018, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Loan Class	Pass		Special Mention		Substandard		Doubtful		Total Loans
Residential real estate	$	369,808	$	1,376	$	9,681	$	162	$	381,027
Multifamily real estate		45,187		4,924		3,905		-		54,016
Commercial real estate:
Owner occupied		126,422		4,840		6,947		-		138,209
Non-owner occupied		262,149		7,647		12,812		-		282,608
Commercial and industrial		96,066		5,280		2,278		-		103,624
Consumer		27,344		31		313		-		27,688
Construction and land		107,196		19,728		2,002				128,926
All other		32,749		381		73		-		33,203
Total	$	1,066,921	$	44,207	$	38,011	$	162	$	1,149,301

- 26 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  4 - STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS

The Company’s principal source of funds for dividend payments to shareholders 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 2019 the Banks could, without prior approval, declare dividends to the Company of approximately $8.4 million plus any 2019 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 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 tables).  The final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. Banks (Basel III rules) became effective for the Company and Banks on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule by     January 1, 2019.  The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital.  Management believes, as of March 31, 2019, that the Company and the Banks meet all quantitative capital adequacy requirements to which they are subject.

- 27 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  4 - STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS - continued

Shown below is a summary of regulatory capital ratios, exclusive of the capital conservation buffer, for the Company:

	Mar 31, 2019			December 31, 2018			Regulatory Minimum Requirements			To Be Considered Well Capitalized
Common Equity Tier 1 Capital (to Risk-Weighted Assets)		14.4	%		14.2	%		4.5	%		6.5	%
Tier 1 Capital (to Risk-Weighted Assets)		14.9	%		14.7	%		6.0	%		8.0	%
Total Capital (to Risk-Weighted Assets)		16.0	%		15.9	%		8.0	%		10.0	%
Tier 1 Capital (to Average Assets)		11.0	%		10.7	%		4.0	%		5.0	%

Beginning on January 1, 2016 an additional capital conservation buffer has been added to the minimum regulatory capital ratios under the regulatory framework for prompt corrective action.  The capital conservation buffer is measured as a percentage of risk weighted assets and was phased-in over a four year period from 2016 thru 2019.  As of January 1 2019, the capital conservation buffer is 2.50% of risk weighted assets over and above the regulatory minimum capital ratios for Common Equity Tier 1 Capital (CET1) to risk weighted assets, Tier 1 Capital to risk weighted assets, and Total Capital to risk weighted assets.  The consequences of not meeting the capital conservation buffer thresholds include restrictions on the payment of dividends, restrictions on the payment of discretionary bonuses, and restrictions on the repurchasing of common shares by the Company.  The capital ratios of the Affiliate Banks and the Company exceed the new minimum capital ratios plus the fully phased-in 2.50% capital buffer requiring a CET1 Capital to risk weighted assets ratio of at least 7.00%, a Tier 1 Capital to risk weighted assets ratio of at least 8.50%, and a Total Capital to risk weighted assets ratio of at least 10.50%.  The Company’s capital conservation buffer was 8.01% at March 31, 2019 and 7.88% at December 31, 2018, well in excess of the fully phased-in 2.50% required by January 1, 2019.

- 28 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  5 – PREMISES AND EQUIPMENT

The Company leases certain banking facilities and equipment under various agreements with original terms provide for fixed monthly payments over periods generally ranging from two to sixteen years, including renewal options.  Certain leases contain renewal options and rent escalation clauses calling for rent increases of the term of the lease.  Short-term leases of equipment are recognized on a straight-line basis over the lease term.  As of March 31, 2019, the weighted average remaining lease term for operating leases was 10.1 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.92%.

Total lease expense for the three months ended March 31, 2019, which is included in net occupancy and equipment expense, was $312,000, consisting of $28,000 short-term lease expense and $284,000 of operating lease expense.

The following table summarizes the future minimum rental commitments under operating leases:

2019	$	750
2020		987
2021		995
2022		995
2023		799
2024 and thereafter		4,172
Total undiscounted cash flows		8,698
Discounted cash flows		(1,245	)
Total lease liability	$	7,453

NOTE  6 - STOCK COMPENSATION EXPENSE

From time to time the Company grants stock options to its employees.  The Company estimates the fair value of the options at the time they are granted to employees and expenses that fair value over the vesting period of the option grant.

On March 20, 2019, 72,075 incentive stock options were granted under the 2012 Long Term Incentive Plan at an exercise price of $15.57, the closing market price of Premier’s common stock on the grant date.  These options vest in three equal annual installments ending on March 20, 2022.  On March 21, 2018, 67,875 incentive stock options were granted under the 2012 Long Term Incentive Plan at an exercise price of $15.12, the closing market price of Premier’s common stock on the grant date adjusted for the 5 for 4 stock split issued by the Company on June 8, 2018.  These options vest in three equal annual installments ending on March 21, 2021.

Compensation expense of $39,000 was recorded for the first three months of 2019 while $27,000 was recorded for the first three months of 2018.  Stock-based compensation expense related to incentive stock option grants is recognized ratably over the requisite vesting period for all awards. Unrecognized stock-based compensation expense related to stock options totaled $267,000 at March 31, 2019. This unrecognized expense is expected to be recognized over the next 35 months based on the vesting periods of the options.

- 29 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  7 - EARNINGS PER SHARE

A reconciliation of the numerators and denominators of the earnings per common share and earnings per common share assuming dilution computations for the three months ended March 31, 2019 and 2018 is presented below:

	Three Months Ended March 31,
	2019		2018
Basic earnings per share
Income available to common stockholders	$	6,176	$	5,133
Weighted average common shares outstanding		14,626,234		13,346,375
Earnings per share	$	0.42	$	0.38
Diluted earnings per share
Income available to common stockholders	$	6,176	$	5,133
Weighted average common shares outstanding		14,626,234		13,346,375
Add dilutive effects of potential additional common stock		72,865		77,825
Weighted average common and dilutive potential common shares outstanding		14,699,099		13,424,200
Earnings per share assuming dilution	$	0.42	$	0.38

Stock options for 72,075 shares of common stock were not considered in computing diluted earnings per share for the three months ended March 31, 2019 because they were antidilutive.Stock options for 132,563 shares of common stock were not considered in computing diluted earnings per share for the three months ended March 31, 2018 because they were antidilutive.

- 30 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  8 - FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and the Company must use other valuation methods to develop a fair value.

Carrying amount is the estimated fair value for cash and due from banks, Federal funds sold, accrued interest receivable and payable, demand deposits, short-term debt, and deposits that reprice frequently and fully.  Fair values of time deposits with other banks are based on current rates for similar time deposits using the remaining time to maturity.  It was not practicable to determine the fair value of Federal Home Loan Bank stock due to the restrictions placed on its transferability.  For deposits and variable rate deposits with infrequent repricing, fair value is based on discounted cash flows using current market rates applied to the estimated life.  Fair values for loans is measured at the exit price notion by using the discounted cash flow or collateral value but also incorporates additional factors such as using economic factors, credit risk, and market rates and conditions.  Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values.  Fair value of debt is based on current rates for similar financing. The fair value of commitments to extend credit and standby letters of credit is not material.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument measured on a recurring basis:

Investment Securities:  The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

- 31 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  8 - FAIR VALUE - continued

The carrying amounts and estimated fair values of financial instruments at March 31, 2019 were as follows:

				Fair Value Measurements at March 31, 2019 Using
	Carrying Amount			Level 1			Level 2			Level 3		Total
Financial assets
Cash and due from banks	$	77,399		$	77,399		$	-		$	-	$	77,399
Time deposits with other banks		1,094			-			1,089			-		1,089
Federal funds sold		24,722			24,722			-			-		24,722
Securities available for sale		369,082			-			368,582			500		369,082
Loans, net		1,142,395			-			-			1,127,961		1,127,961
Federal Home Loan Bank stock		3,568			n/a			n/a			n/a		n/a
Interest receivable		4,638			-			1,100			3,538		4,638
Financial liabilities
Deposits	$	(1,453,819	)	$	(1,047,126	)	$	(403,128	)	$	-	$	(1,450,254	)
Securities sold under agreements to repurchase		(22,025	)		-			(22,025	)		-		(22,025	)
FHLB advance		(7,335	)		-			(7,308	)		-		(7,308	)
Other borrowed funds		(1,450	)		-			(1,444	)		-		(1,444	)
Subordinated debt		(5,413	)		-			(5,484	)		-		(5,484	)
Interest payable		(860	)		(23	)		(837	)		-		(860	)

The carrying amounts and estimated fair values of financial instruments at December 31, 2018 were as follows:

				Fair Value Measurements at December 31, 2018 Using
	Carrying Amount			Level 1			Level 2			Level 3		Total
Financial assets
Cash and due from banks	$	62,903		$	62,903		$	-		$	-	$	62,903
Time deposits with other banks		1,094			-			1,085			-		1,085
Federal funds sold		17,872			17,872			-			-		17,872
Securities available for sale		365,731			-			365,231			500		365,731
Loans, net		1,135,563			-			-			1,121,517		1,121,517
Federal Home Loan Bank stock		3,628			n/a			n/a			n/a		n/a
Interest receivable		4,295			-			1,032			3,263		4,295
Financial liabilities
Deposits	$	(1,430,127	)	$	(1,039,430	)	$	(384,496	)	$	-	$	(1,423,926	)
Securities sold under agreements to repurchase		(22,062	)		-			(22,062	)		-		(22,062	)
FHLB advance		(8,819	)		-			(8,688	)		-		(8,688	)
Other borrowed funds		(2,500	)		-			(2,478	)		-		(2,478	)
Subordinated debt		(5,406	)		-			(5,509	)		-		(5,509	)
Interest payable		(733	)		(22	)		(711	)		-		(733	)

- 32 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  8 - FAIR VALUE - continued

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements at March 31, 2019 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale
Mortgage-backed securities
U. S. agency MBS - residential	$	257,439	$	-	$	257,439	$	-
U. S. agency CMO’s - residential		71,636		-		71,636		-
Total mortgage-backed securities of government sponsored agencies		329,075		-		329,075		-
U. S. government sponsored agency securities		22,618		-		22,618		-
Obligations of states and political subdivisions		13,867		-		13,867		-
Other securities		3,522		-		3,022		500
Total securities available for sale	$	369,082	$	-	$	368,582	$	500

			Fair Value Measurements at December 31, 2018 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale
Mortgage-backed securities
U. S. agency MBS - residential	$	255,242	$	-	$	255,242	$	-
U. S. agency CMO’s		68,543		-		68,543		-
Total mortgage-backed securities of government sponsored agencies		323,785		-		323,785		-
U. S. government sponsored agency securities		24,170		-		24,170		-
Obligations of states and political subdivisions		14,327		-		14,327		-
Other securities		3,449		-		2,949		500
Total securities available for sale	$	365,731	$	-	$	365,231	$	500

There were no transfers between Level 1 and Level 2 during 2019 or 2018.

- 33 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  8 - FAIR VALUE - continued

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2019:

	Securities Available-for-sale
	Three Months Ended March 31, 2019
Balance of recurring Level 3 assets at beginning of period	$	500
Total gains or losses (realized/unrealized):
Included in earnings – realized		-
Included in earnings – unrealized		-
Included in other comprehensive income		-
Purchases, sales, issuances and settlements, net		-
Transfers in and/or out of Level 3		-
Balance of recurring Level 3 assets at period-end	$	500

Assets and Liabilities Measured on a Non-Recurring Basis

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument measured on a non-recurring basis:

Impaired loans:  The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent collateral appraisals. Real estate appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and unique to each property and result in a Level 3 classification of the inputs for determining fair value.  Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports. Management periodically evaluates the appraised collateral values and will discount the collateral’s appraised value to account for a number of factors including but not limited to the cost of liquidating the collateral, the age of the appraisal, observable deterioration since the appraisal, management’s expertise and knowledge of the client and client’s business, or other factors unique to the collateral.  To the extent an adjusted collateral value is lower than the carrying value of an impaired loan, a specific allocation of the allowance for loan losses is assigned to the loan.

- 34 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  8 - FAIR VALUE - continued

Other real estate owned (OREO):  The fair value of OREO is based on appraisals less cost to sell at the date of foreclosure.  Management may obtain additional updated appraisals depending on the length of time since foreclosure.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.  Management periodically evaluates the appraised values and will discount a property’s appraised value to account for a number of factors including but not limited to the cost of liquidating the collateral, the age of the appraisal, observable deterioration since the appraisal, or other factors unique to the property. To the extent an adjusted appraised value is lower than the carrying value of an OREO property, a direct charge to earnings is recorded as an OREO write-down.

- 35 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  8 - FAIR VALUE - continued

Assets and liabilities measured at fair value on a non-recurring basis at March 31, 2019 are summarized below:

			Fair Value Measurements at March 31, 2019 Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans:
Multifamily real estate	$	2,508	$	-	$	-	$	2,508
Commercial real estate
Owner occupied		1,400		-		-		1,400
Non-owner occupied		2,510		-		-		2,510
Commercial and industrial		194		-		-		194
Construction and land		405		-		-		405
Total impaired loans	$	7,017	$	-	$	-	$	7,017
Other real estate owned:
Residential real estate	$	925	$	-	$	-	$	925
Multifamily real estate		10,307		-		-		10,307
Commercial real estate
Non-owner occupied		200		-		-		200
Construction and land		150		-		-		150
Total OREO	$	11,582	$	-	$	-	$	11,582

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $8,996,000 at March 31, 2019 with a valuation allowance of $1,979,000 and a carrying amount of $10,177,000 at December 31, 2018 with a valuation allowance of $2,796,000 resulting in a negative provision for loan losses of $189,000 for the three months ended March 31, 2019, compared to a $707,000 provision for loan losses for the three months ended March 31, 2018.  The detail of impaired loans by loan class is contained in Note 3 above.

Other real estate owned measured at fair value less costs to sell, had a net carrying amount of $11,582,000 which is made up of the outstanding balance of $12,423,000 net of a valuation allowance of $841,000 at March 31, 2019.  There were no write downs during the three months ended March 31, 2019 and March 31, 2018.  At December 31, 2018, other real estate owned had a net carrying amount of $11,766,000, made up of the outstanding balance of $12,769,000, net of a valuation allowance of $1,003,000.

- 36 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  8 - FAIR VALUE - continued

The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at March 31, 2019 are summarized below:

	March 31, 2019		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Multifamily real estate	$	2,508	sales comparison	adjustment for estimated realizable value	45.4%-45.4% (45.4%)
Commercial real estate
Owner occupied		1,400	sales comparison	adjustment for estimated realizable value	31.5%-31.5% (31.5%)
Non-owner occupied		2,510	income approach	adjustment for differences in net operating income expectations	16.1%-67.4% (54.2%)
Commercial and industrial		194	sales comparison	adjustment for estimated realizable value	0.0%-0.0% (0.0%)
Construction and land		405	sales comparison	adjustment for estimated realizable value	53.2%-53.2% (53.2%)
Total impaired loans	$	7,017
Other real estate owned:
Residential real estate	$	925	sales comparison	adjustment for estimated realizable value	21.0%-59.8% (22.0%)
Multifamily real estate		10,307	income approach	adjustment for differences in net operating income expectations	20.0%-20.0% (20.0%)
Commercial real estate
Non-owner occupied		200	sales comparison	adjustment for estimated realizable value	57.9%-57.9% (57.9%)
Construction and land		150	sales comparison	adjustment for estimated realizable value	50.3%-50.3% (50.3%)
Total OREO	$	11,582

- 37 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  8 - FAIR VALUE - continued

Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2018 are summarized below:

			Fair Value Measurements at December 31, 2018 Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans:
Multifamily real estate	$	2,514	$	-	$	-	$	2,514
Commercial real estate
Owner occupied		1,786		-		-		1,786
Non-owner occupied		2,514		-		-		2,514
Commercial and industrial		144		-		-		144
Construction and land		423		-		-		423
Total impaired loans	$	7,381	$	-	$	-	$	7,381
Other real estate owned:
Residential real estate	$	984	$	-	$	-	$	984
Multifamily real estate		10,307		-		-		10,307
Commercial real estate
Owner occupied		125		-		-		125
Non-owner occupied		200		-		-		200
Construction and land		150		-		-		150
Total OREO	$	11,766	$	-	$	-	$	11,766

- 38 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  8 - FAIR VALUE - continued

The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at December 31, 2018 are summarized below:

	December 31, 2018		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Multifamily real estate	$	2,514	sales comparison	adjustment for estimated realizable value	45.3%-45.3% (45.3%)
Commercial real estate
Owner occupied		1,786	sales comparison	adjustment for estimated realizable value	31.5%-50.6% (35.5%)
Non-owner occupied		2,514	income approach	adjustment for differences in net operating income expectations	16.1%-67.2% (54.1%)
Commercial and industrial		144	sales comparison	adjustment for estimated realizable value	0.0%-0.0% (0.0%)
Construction and land		423	sales comparison	adjustment for estimated realizable value	53.2%-83.6% (54.5%)
Total impaired loans	$	7,381
Other real estate owned:
Residential real estate	$	984	sales comparison	adjustment for estimated realizable value	19.2%-59.8% (21.9%)
Multifamily real estate		10,307	income approach	adjustment for differences in net operating income expectations	20.0%-20.0% (20.0%)
Commercial real estate
Owner occupied		125	sales comparison	adjustment for estimated realizable value	42.4%-42.4% (42.4%)
Non-owner occupied		200	sales comparison	adjustment for estimated realizable value	57.9%-57.9% (57.9%)
Construction and land		150	sales comparison	adjustment for estimated realizable value	50.3%-50.3% (50.3%)
Total OREO	$	11,766

- 39 -

PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2019

Item 2.  Management’s Discussion and Analysis

   of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

Management's discussion and analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. However, such performance involves risks and uncertainties, and there are certain important factors that may cause actual results to differ materially from those anticipated. These important factors include, but are not limited to, economic conditions (both generally and more specifically in the markets in which Premier operates), competition for Premier's customers from other providers of financial services, government legislation and regulation (which changes from time to time), changes in interest rates, Premier's ability to originate quality loans, collect delinquent loans and attract and retain deposits, the impact of Premier's growth or lack thereof, Premier's ability to control costs, and new accounting pronouncements, all of which are difficult to predict and many of which are beyond the control of Premier.  The words “may,” “could,” “should,” “would,” “will,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “project,” “predict,” “continue” and similar expressions are intended to identify forward-looking statements.

A.Results of Operations

A financial institution’s primary sources of revenue are generated by interest income on loans, investments and other earning assets, while its major expenses are produced by the funding of these assets with interest bearing liabilities.  Effective management of these sources and uses of funds is essential in attaining a financial institution’s optimal profitability while maintaining a minimum amount of interest rate risk and credit risk.

Net income for the three months ended March 31, 2019 was $6,176,000, or $0.42 per diluted share, compared to net income of $5,133,000, or $0.38 per diluted share for the three months ended March 31, 2018.  The increase in income in the first three months of 2019 is largely due to an increase in interest income on loans, an increase in non-interest income, and a decrease in provision for loan losses, all of which more than offset increases in interest expense and non-interest expense.  The comparative increases in interest income and expense as well as non-interest income and expense is, in large part, attributable to the operations of the newly acquired First Bank of Charleston, which were not included in the first quarter 2018 income statement results.  The provision for loan losses was $560,000 during the first three months of 2019, which compares to $1,115,000 of provision expense recorded during the first three months of 2018.  The increase in non-interest expense was partially due an increase in OREO expense resulting from $1,080,000 of net gains on the sale of OREO properties in the first three months of 2018.  OREO expenses and writedowns are traditionally included in Premier’s total non-interest expenses, so the net gains from these sales reduced non-interest expense in the first quarter of 2018.  The annualized returns on average common shareholders’ equity and average assets were approximately 11.14% and 1.46% for the three months ended March 31, 2019 compared to 11.08% and 1.37% for the same period in 2018.

- 40 -

PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2019

Net interest income for the quarter ended March 31, 2019 totaled $16.835 million, up $2,200,000, or 15.0%, from the $14.635 million of net interest income earned in the first quarter of 2018.  Interest income in 2019 increased by $3,265,000, a 20.7% increase, largely due to a $2,255,000, or 16.1%, increase in interest income on loans.  Interest income on loans in the first quarter of 2019 included approximately $719,000 of income recognized from deferred interest and discounts recognized on loans that paid off during the quarter compared to approximately $533,000 of interest income of this kind recognized during the first quarter of 2018.  Otherwise, interest income on loans increased by $2,069,000, or 15.3%, in the first quarter of 2019, largely due to a higher average balance of loans outstanding with a higher average yield during the quarter when compared to the first quarter of 2018.  Interest income on investment securities in the first quarter of 2019 increased by $963,000, or 65.6%, largely due to a higher average balance of investments outstanding with higher average yields when compared to the first quarter of 2018.  Interest income from interest-bearing bank balances and federal funds sold increased by $47,000, or 15.8%, largely due to an increase in the yield on these balances in 2019 resulting from increases in the short-term interest rate policy of the Federal Reserve Board of Governors on a lower average balance outstanding during the first quarter of 2019.

Partially offsetting some of the increase in interest income in the first quarter of 2019 was a $1,065,000, or 91.5%, increase in interest expense.  Interest expense on deposits increased by $1,019,000, or 98.8%, in the first quarter of 2019, largely due to a higher average of interest-bearing deposit balances outstanding in 2019 as well as overall higher rates paid on these deposits. Average interest-bearing deposit balances were up $99.5 million, or 10.5%, in the first quarter of 2019 compared to the first quarter of 2018, largely due to the acquisition of First Bank of Charleston in the fourth quarter of 2018, and the average interest rates paid on interest-bearing deposits increased by 36 basis points from 0.44% in the first quarter of 2018 to 0.80% in the first quarter of 2019.  Adding to the interest expense increase in 2019, was $55,000 of interest expense on the remaining Federal Home Loan Bank borrowings of First Bank of Charleston assumed by Premier as part of the acquisition, while there was no such interest in the first quarter of 2018. Partially offsetting the increase in interest expense from FHLB borrowings, interest expense on other borrowings in the first quarter of 2019 decreased by $26,000, or 55.3%, largely due to a decrease in outstanding borrowings from scheduled and accelerated principal payments on long-term borrowings at the parent company.  Also adding to the overall increase in interest expense during the first quarter of 2019 was a $16,000, or 20.5%, increase in interest expense on Premier’s subordinated debt due to an increase in the variable interest rate paid in 2019.  The variable interest rate is indexed to the short-term three-month LIBOR interest rate, which has increased over the past twelve months in conjunction with increases in short-term interest rate policy by the Federal Reserve Board of Governors.

Premier’s net interest margin during the first three months of 2019 was 4.35% compared to 4.29% for the same period in 2018.  A portion of the interest income on loans is the result of recognizing deferred interest income on loans that paid-off during the period.  Excluding this income, Premier’s net interest margin during the first three months of 2019 would have been 4.17% compared to 4.13% for the same period in 2018.  As shown in the table below, Premier’s yield earned on federal funds sold and interest-bearing bank balances increased to 2.74% in the first three months of 2019, from the 1.93% earned in the first quarter of 2018.  The average yield earned on securities available for sale increased to 2.68% in the first three months of 2019, from the 2.15% earned in the first quarter of 2018.  Similarly, the average yield earned on total loans outstanding increased to 5.73% from the 5.45% average yield earned in the first three months of 2018.  Earning asset yields have increased generally in response to increases in short-term interest rate policy as new loans have been made with higher interest rates and new investment purchases have been at higher market yields.  Similar to the increase in earning asset yields, the average rate paid on interest bearing liabilities increased in the first three months of 2019. 

- 41 -

PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2019

The average rates paid on interest-bearing deposits increased from 0.44% in the first three months to 2018 to 0.80% during the first three months of 2019, largely due to higher rates paid on certificates of deposit.  The average rate paid on short-term borrowings and other borrowings increased slightly although on lower average balances outstanding.  Furthermore, the average rate paid on Premier’s variable rate subordinated debentures increased from 5.88% in the first three months of 2018 to 7.05% in the first three months of 2019 due to increases in short-term interest rate policy.  These increases in average rates paid, plus the average interest rate on the FHLB borrowings assumed in the acquisition of First Bank of Charleston, resulted in an increase in the average rate paid on total interest-bearing liabilities to 0.84% in the first three months of 2019 compared to 0.48% in the first three months of 2018.  The overall effect was to decrease Premier’s net interest spread by 7 basis points to 4.08%.  However, due to the $48.9 million, or 14.9%, increase in non-interest bearing deposits, Premier’s net interest margin did not decrease but increased by 6 basis points to 4.35% in the first three months of 2019 when compared to the first three months of 2018.

Additional information on Premier’s net interest income for the first quarter of 2019 and first quarter of 2018 is contained in the following table.

PREMIER FINANCIAL BANCORP, INC.
AVERAGE CONSOLIDATED BALANCE SHEETS
AND NET INTEREST INCOME ANALYSIS
	Three Months Ended March 31, 2019								Three Months Ended March 31, 2018
	Balance			Interest		Yield/Rate			Balance			Interest		Yield/Rate
Assets
Interest Earning Assets
Federal funds sold and other	$	51,145		$	345		2.74	%	$	62,579		$	298		1.93	%
Securities available for sale
Taxable		352,106			2,338		2.66			265,697			1,408		2.12
Tax-exempt		13,569			92		3.43			10,186			59		2.93
Total investment securities		365,675			2,430		2.68			275,883			1,467		2.15
Total loans		1,153,448			16,288		5.73			1,045,044			14,034		5.45
Total interest-earning assets		1,570,268			19,063		4.92	%		1,383,506			15,799		4.63	%
Allowance for loan losses		(13,817	)							(12,309	)
Cash and due from banks		24,078								33,797
Other assets		110,478								88,743
Total assets	$	1,691,007							$	1,493,737
Liabilities and Equity
Interest-bearing liabilities
Interest-bearing deposits	$	1,042,947			2,050		0.80		$	943,475			1,031		0.44
Short-term borrowings		22,171			9		0.16			22,551			8		0.14
FHLB Advances		7,675			55		2.91			-			-
Other borrowings		1,991			21		4.28			4,620			47		4.13
Subordinated debt		5,408			94		7.05			5,379			78		5.88
Total interest-bearing liabilities		1,080,192			2,229		0.84	%		976,025			1,164		0.48	%
Non-interest bearing deposits		377,442								328,527
Other liabilities		11,690								3,802
Stockholders’ equity		221,683								185,383
Total liabilities and equity	$	1,691,007							$	1,493,737
Net interest earnings				$	16,834							$	14,635
Net interest spread							4.08	%							4.15	%
Net interest margin							4.35	%							4.29	%

- 42 -

PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2019

Non-interest income increased by $110,000, or 5.3%, to $2,176,000 for the first three months of 2019 compared to the same three months of 2018,largely due to an $119,000 increase in income from Premier’s partial ownership in a start-up insurance agency, included in other non-interest income.  In the first quarter of 2018, Premier incurred $50,000 of proportional start-up costs from the insurance agency, compared to $69,000 of proportional income from the agency in the first quarter of 2019.  Otherwise, non-interest income decreased by $9,000 in the first quarter of 2019 compared to the same quarter of 2018.   Service charges on deposit accounts remained unchanged in the first quarter of 2019 while electronic banking income (income from debit/credit cards, ATM fees and internet banking charges) increased by $5,000, or 0.6%.  These increases were partially offset by an $8,000 decrease in secondary market mortgage income and a $6,000 decrease in other non-interest income.

Non-interest expenses for the first quarter of 2019 totaled $10,593,000, or 2.54% of average assets on an annualized basis, compared to $8,989,000, or 2.44% of average assets for the same period of 2018.  The $1,604,000 increase in non-interest expenses in 2019 when compared to the first quarter of 2018 is due in part to the $1,080,000 of net gains on the sale of OREO during the first quarter of 2018 discussed above.  Otherwise, non-interest expense increased by $524,000, or 5.2% in the first quarter of 2019 compared to the first quarter of 2018, largely due to the operations of the newly acquired First Bank of Charleston location.   Increases in operating costs include a $421,000, or 8.8%, increase in staff costs, a $135,000, or 10.8% increase in data processing expense, a $54,000, or 3.4%, increase in net occupancy and equipment expense, a $32,000, or 30.2%, increase in supplies, and a $32,000, or 16.4%, increase in the amortization of intangible assets.  Other increases include a $29,000 increase in professional fees and a $55,000 increase in expenses and writedowns on OREO properties (after excluding the $1,080,000 of net gains on sales in 2018 discussed above).  These increases were partially offset by a $231,000, or 64.2%, decrease in collection costs and a $24,000, or 16.2% decrease in FDIC insurance.  The unusually high decrease in collection costs is primarily due to loan collection expenses in the first quarter of 2018 related to foreclosure on a large multifamily housing unit.  FDIC insurance expense decreased, largely due to an overall average lower assessment rate on the combined organization.

Income tax expense was $1,682,000 for the first three months of 2019 compared to $1,464,000 for the first three months of 2018.  The increase in income tax expense is largely due to the increase in pretax income described above, as the effective tax rate for the three months ended March 31, 2019 was 21.4% which compares similarly to the 22.2% effective tax rate for the same period in 2018.

- 43 -

PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2019

B.Financial Position

Total assets at March 31, 2019 increased by $38.4 million to $1.728 billion from the $1.690 billion at December 31, 2018.  The increase in total assets since year-end is largely due to a $12.9 million increase in interest bearing bank balances, a $6.9 million increase in federal funds sold, and a $6.6 million increase in total loans.  Earning assets increased by $29.7 million from the $1.578 billion at year-end 2018 to end the quarter at $1.607 billion.

Cash and due from banks at March 31, 2019 was $24.5 million, a $1.5 million increase from the $23.0 million at December 31, 2018.  Interest bearing bank balances increased by $12.9 million from the $41.0 million reported at December 31, 2018 and federal funds sold increased by $6.9 million to $24.7 million at March 31, 2019.  Changes in these highly liquid assets are generally in response to increases in deposits, the demand for deposit withdrawals or the funding of loans or investment purchases, and are part of Premier’s management of its liquidity and interest rate risks.

Securities available for sale totaled $369.1 million at March 31, 2019, a $3.4 million increase from the $365.7 million at December 31, 2018.  The increase was largely due to the purchase of $13.9 million of investment securities and a $5.6 million increase in market value of securities available for sale, which more than offset $15.9 million of proceeds from monthly principal payments on Premier’s mortgage backed securities portfolio and securities that matured or were called during the quarter. The investment portfolio is predominately high quality residential mortgage backed securities backed by the U.S. Government or Government sponsored agencies.  Any unrealized losses on securities within the portfolio at March 31, 2019 and December 31, 2018 are believed to be price changes resulting from changes in the long-term interest rate environment and management anticipates receiving all principal and interest on these investments as they come due.  Additional details on investment activities can be found in the Consolidated Statements of Cash Flows.

Total loans at March 31, 2019 were $1.156 billion compared to $1.149 billion at December 31, 2018, an increase of approximately $6.6 million, or 0.6%. The increase is largely due to internal loan growth partially offset by regular principal payments, loan payoffs and transfers of loans to OREO upon foreclosure.  Loan payoffs during the first quarter of 2019 resulted in recognizing approximately $316,000 of interest income deferred while the loans were on non-accrual status and $403,000 of remaining fair value discounts associated with the loans.

Premises and equipment increased by $7.4 million, largely due to the recording of a $7.5 million Finance Lease Right to Use Asset in accordance with the adoption of Accounting Standards Update (“ASU”) 2016-02 on January 1, 2019.  Goodwill and other intangible assets decreased by $228,000, due to the amortization of core deposit intangibles.

- 44 -

PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2019

Deposits totaled $1.454 billion as of March 31, 2019, a $23.7 million, or 1.7%, increase from the $1.430 billion in deposits at December 31, 2018.  The overall increase in deposits is largely due to a $16.0 million, or 4.1%, increase in certificates of deposits, partially due to interest rate specials designed to attract and retain time deposits.  Non-interest bearing deposits increased by $2.4 million, or 0.6%, during the first three months of 2019, while savings and money market deposits increased by $5.3 million, or 0.8%.  Repurchase agreements with corporate and public entity customers remained relatively unchanged in the first quarter of 2019, decreasing by $37,000, or 0.2%.  FHLB borrowings decreased by $1.5 million since year-end 2018 due to repayment of borrowings upon maturity.  Other borrowings decreased by $1,050,000 since year-end 2018 due to scheduled principal payments plus additional principal payments on Premier’s existing borrowings.  Subordinated debentures increased by $7,000, due to amortization of the fair value adjustment.  Other liabilities increased by $8.6 million, largely due to the recording of a $7.5 million Finance Lease Liability also in accordance with the adoption of ASU 2016-02 on January 1, 2019.

The following table sets forth information with respect to the Company’s nonperforming assets at March 31, 2019 and December 31, 2018.

	(In Thousands)
	2019			2018
Non-accrual loans	$	18,065		$	17,448
Accruing loans which are contractually past due 90 days or more		1,209			1,086
Accruing restructured loans		6,257			6,283
Total non-performing loans		25,531			24,817
Other real estate acquired through foreclosure (OREO)		14,378			14,024
Total non-performing assets	$	39,909		$	38,841
Non-performing loans as a percentage of total loans		2.21	%		2.16	%
Non-performing assets as a percentage of total assets		2.31	%		2.30	%

Total non-performing loans have increased since year-end, largely due to a $617,000 increase in non-accrual loans and a $123,000 increase in accruing loans past due 90 days or more.  These increases in non-performing loans were partially offset by a $26,000 decrease in accruing restructured loans.  Total non-performing assets have increased since year-end, largely due to the increase in non-performing loans plus a $354,000 increase in other real estate acquired through foreclosure (“OREO”).  Other real estate owned increased by $354,000, or 2.5%, largely due to the foreclosure on one commercial real estate property that also resulted in a $450,000 loan charge-off.

Premier continues to make a significant effort to reduce its past due and non-performing loans by reviewing loan files, using the courts to bring borrowers current with the terms of their loan agreements and/or the foreclosure and sale of OREO properties.  As in the past, when these plans are executed, Premier may experience increases in non-performing loans and non-performing assets.  Furthermore, any resulting increases in loans placed on non-accrual status will have a negative impact on future loan interest income.  Also, as these plans are executed, other loans may be identified that would necessitate additional charge-offs and potentially additional provisions for loan losses.

- 45 -

PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2019

Gross charge-offs totaled $903,000 during the first three months of 2019, largely due to the foreclosure on one commercial real estate property from a previously identified impaired loan relationship that also resulted in a $450,000 loan charge-off.  Any collections on charged-off loans, or partially charged-off loans, would be presented in future financial statements as recoveries of the amounts charged against the allowance.  Recoveries recorded during the first three months of 2019 totaled $84,000, resulting in net charge-offs for the first quarter of 2019 of $819,000.  This compares to $379,000 of net charge-offs recorded in the first quarter of 2018.  The allowance for loan losses at March 31, 2019 was 1.17% of total loans compared to 1.20% at December 31, 2018.  The decrease in the ratio is largely due to an increase in total loans outstanding and a decrease in the amount of allowance allocated to loans individually evaluated for impairment.

During the first quarter of 2019, Premier recorded $560,000 of provision for loan losses.  This provision compares to $1,115,000 of provision for loan losses recorded during the same quarter of 2018.  The provision for loan losses recorded during the first quarter of 2019 was primarily to provide for new loans recorded and additional identified credit risk in Premier’s owner occupied and non-owner occupied real estate loan portfolios.  The provision for loan losses recorded during the first quarter of 2018 was primarily to provide for additional identified credit risk in Premier’s commercial and industrial loan, commercial real estate loan and construction loan portfolios.  The level of provision expense is determined under Premier’s internal analyses of evaluating credit risk.  The provisions for loan losses recorded in 2018 and 2019 were made in accordance with Premier’s policies regarding management’s estimation of probable incurred losses in the loan portfolio and the adequacy of the allowance for loan losses, which are in accordance with accounting principles generally accepted in the United States of America.  Management updated its policies regarding estimation of probable incurred losses in the first quarter of 2018.  The updates included incorporating a common estimated loss ratio for all pass credits within a given loan classification, addingan additional qualitative factor for document exceptions on collectively impaired loans, and reallocating the qualitative portion of the allowance to align more closely to the inputs used to determine the qualitative portion.  The result was a reduction in the amount of the allowance attributed to collectively impaired residential real estate and multifamily real estate loans and an increase in the amount of allowance attributed to collectively impaired commercial and industrial loans, consumer, construction and all other loans. Future provisions to the allowance for loan losses, positive or negative, will depend on future improvement or deterioration in estimated credit risk in the loan portfolio as well as whether additional payments are received on loans having significant credit risk.  With the concentrations of commercial real estate loans in the Washington, DC, Richmond, Virginia, and Cincinnati, Ohio markets, fluctuations in commercial real estate values will be monitored. Premier also continues to monitor the impact of declines in the coal mining industry that may have a larger impact in the southern area of West Virginia and the decrease in the level of drilling activity in the oil & gas industry, which may have a larger impact in the central area of West Virginia.  A resulting decline in employment could increase non-performing assets from loans originated in these areas.  In each of the last five years, Premier sold some OREO properties at a gain while other OREO properties have required subsequent write-downs to net realizable values. These factors are considered in determining the adequacy of the allowance for loan losses.  For additional details on the activity in the allowance for loan losses, impaired loans, past due and non-accrual loans and restructured loans, see Note 3 to the consolidated financial statements.

- 46 -

PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2019

C.Critical Accounting Policies

The Company follows financial accounting and reporting policies that are in accordance with generally accepted accounting principles in the United States of America.  These policies are presented in Note 1 to the consolidated audited financial statements in the Company's annual report on Form 10-K for the year ended December 31, 2018.  Some of these accounting policies, as discussed below, are considered to be critical accounting policies.  Critical accounting policies are those policies that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.  The Company has identified two accounting policies that are critical accounting policies, and an understanding of these policies is necessary to understand the financial statements.  These policies relate to determining the adequacy of the allowance for loan losses and the identification and evaluation of impaired loans.  A detailed description of these accounting policies is contained in the Company’s annual report on Form 10-K for the year ended December 31, 2018.  There have been no significant changes in the application of these accounting policies since December 31, 2018.

Management believes that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time.

D.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 $250,000 or more.  Management believes that the majority of its $250,000 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 $369.1 million of securities at fair value as of March 31, 2019.

- 47 -

PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2019

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.

E.Capital

At March 31, 2019, total stockholders’ equity of $225.2 million was 13.0% of total assets.  This compares to total stockholders’ equity of $216.7 million, or 12.8% of total assets on December 31, 2018.  The increase in stockholders’ equity was largely due to the $6.2 million of first quarter net income and a $4.4 million, net of tax, increase in the market value of the investment portfolio available for sale.   This increase in stockholders’ equity was partially offset by a $0.15 per share cash dividend declared and paid during the first quarter of 2019.

Tier 1 capital totaled $181.4 million at March 31, 2019, which represents a Tier 1 leverage ratio of 11.0%.  This ratio is up from the 10.7% Tier 1 leverage ratio and $177.0 million of Tier 1 capital at December 31, 2018.  The slight increase in the Tier 1 leverage ratio is largely due to the growth in Tier 1 capital exceeding the proportional growth in average total assets at March 31, 2019.

Beginning on January 1, 2016 an additional capital conservation buffer has been added to the minimum regulatory capital ratios under the regulatory framework for prompt corrective action.  The capital conservation buffer is measured as a percentage of risk weighted assets and was phased-in over a four year period from 2016 thru 2019.  As of January 1 2019, the capital conservation buffer is 2.50% of risk weighted assets over and above the regulatory minimum capital ratios for Common Equity Tier 1 Capital (CET1) to risk weighted assets, Tier 1 Capital to risk weighted assets, and Total Capital to risk weighted assets.  The consequences of not meeting the capital conservation buffer thresholds include restrictions on the payment of dividends, restrictions on the payment of discretionary bonuses, and restrictions on the repurchasing of common shares by the Company.  The capital ratios of the Affiliate Banks and the Company exceed the new minimum capital ratios plus the fully phased-in 2.50% capital buffer requiring a CET1 Capital to risk weighted assets ratio of at least 7.00%, a Tier 1 Capital to risk weighted assets ratio of at least 8.50%, and a Total Capital to risk weighted assets ratio of at least 10.50%.  At March 31, 2019, the Company’s capital conservation buffer was 8.01%, well in excess of the fully phased-in 2.50% required by January 1, 2019.

Book value per common share was $15.40 at March 31, 2019 and $14.82 at December 31, 2018.  The increase in book value per share was largely due to the $0.42 per share earned during the first quarter, partially offset by the $0.15 per share quarterly cash dividend to common shareholders declared and paid during the first quarter of 2019.  Also increasing Premier’s book value per share at March 31, 2019 was the $4.4 million of other comprehensive income for the first three months of 2019 related to the increase in the market value of investment securities available for sale, which increased book value by approximately $0.30 per share.

- 48 -

PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2019

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 2018 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 2018 10-K.

Item 4. Controls and Procedures

A.Disclosure Controls & Procedures

Premier management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to the Securities and Exchange Act of 1934 Rule 13a-15c as of the end of the period covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion.

B.Changes in Internal Controls over Financial Reporting

There were no changes in internal controls over financial reporting during the first fiscal quarter that have materially affected or are reasonably likely to materially affect Premier's internal controls over financial reporting.

C.Inherent Limitations on Internal Control

"Internal controls" are procedures, which are designed with the objective of providing reasonable assurance that (1) transactions are properly authorized; (2) assets are safeguarded against unauthorized or improper use; and (3) transactions are properly recorded and reported, all so as to permit the preparation of reports and financial statements in conformity with generally accepted accounting principles. However, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their cost. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is also based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Finally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

- 49 -

PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2019

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	None
Item 1A.	Risk Factors
Please refer to Premier's Annual Report on Form 10-K for the year ended December 31, 2018 for disclosures with respect to Premier's risk factors at December 31, 2018. There have been no material changes since year-end 2018 in the specified risk factors disclosed in the Annual Report on Form 10-K.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	None
Item 3.	Defaults Upon Senior Securities	None
Item 4.	Mine Safety Disclosures	Not Applicable
Item 5.	Other Information	None
Item 6.	Exhibits

 (a)The following exhibits are furnished in accordance with the provisions of Item 601 of Regulation S-K.

31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32 Certification Pursuant to 18 U.S.C §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

- 50 -

PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2019

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 9, 2019 /s/ Robert W. Walker                                             

Robert W. Walker

President & Chief Executive Officer

Date: May 9, 2019 /s/ Brien M. Chase                                                  

Brien M. Chase

Senior Vice President & Chief Financial Officer

- 51 -