BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2020

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”):

		Year	Total		September 30, 2020 Net Income
Subsidiary	Location	Acquired	Assets		Qtr		YTD
Citizens Deposit Bank & Trust	Vanceburg, Kentucky	1991	$	568,963	$	1,548	$	4,569
Premier Bank, Inc.	Huntington, West Virginia	1998		1,312,288		4,481		13,455
Parent and Intercompany Eliminations				7,642		(405)		(1,526)
Consolidated Total			$	1,888,893	$	5,624	$	16,498

All significant intercompany transactions and balances have been eliminated.

Estimates in the Financial Statements: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions based on available information. These estimates are, to a large degree, dependent upon our accounting policies. The selection and application of these accounting policies involve judgments, estimates, and uncertainties that are susceptible to change. Those accounting policies that management believes are the most important to the presentation and understanding of our financial condition and results of operations include the allowance for loan losses, business combinations and impairment of goodwill, and other than temporary impairment (“OTTI”) of securities available for sale. The estimates and assumptions used in these calculations affect the amounts reported in the financial statements and the disclosures provided. National and local participation in a worldwide effort to curb the spread of the COVID-19 virus has resulted in and may continue to result in negative changes in the national and regional business climate in the geographic areas in which Premier operates. During the first quarter of 2020, management determined that the deterioration in the general economic conditions as a result of these efforts to curb the spread of the COVID-19 virus represented a triggering event prompting a qualitative evaluation of goodwill impairment. Based on analyses performed in the third quarter of 2020, management determined that goodwill was not impaired. At this time, management does not believe there exists any impairment to goodwill and intangible assets, long-lived assets, or available-for-sale securities due to the COVID-19 pandemic. The effects of government measures to curb the spread of the COVID-19 virus on the local or national economy are uncertain and could cause assumptions and conditions to change in the near term. In the event that changes to assumptions or conditions from what was originally estimated were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood.

Loans: In addition to the eight loan portfolio segments already identified as having differing risk characteristics, in the second quarter of 2020 Premier added the following porfolio segment:

Small Business Administration Paycheck Protection Plan: Loans originated under the Small Business Administration’s Paycheck Protection Plan (“SBA PPP”), as originally enacted, provide qualifying small business borrowers with a fixed rate loan bearing an interest rate of 1.00%, a 24-month maturity date, and payment deferrals for the first six months of the loan. The loans require no collateral and are fully guaranteed, both principal and interest, by the Small Business Administration (“SBA”) and the U. S. Treasury. As fully guaranteed loans, no allowance for loans losses is considered necessary. Loan amounts per borrower are limited to an amount approximating two and one-half months of their average payroll expense during the calendar year 2019. A key feature of the loan program is that borrowers can receive repayment forgiveness by the SBA for the portion of their loan proceeds that were expended on certain employee payroll related costs and qualifying premises and equipment costs during the eight weeks following loan disbursement, up to 100% of the loan amount. The program has since been modified to allow borrowers up to twenty-four weeks to expend the proceeds on those qualifying expenses. Upon forgiveness, the issuing bank would be reimbursed by the SBA for the forgiveness portion and any accrued interest thereon. Any remaining balance would be repaid by the borrower over the remaining eighteen months to loan maturity. Subsequent changes to the program provide for an additional 10 months before repayment must commence and allows borrowers an option to extend the repayment period up to 60 months if the bank agrees.

Recently Issued Accounting Pronouncements

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. 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. On July 17, 2019, the Financial Accounting Standards Board (“FASB”) voted for a proposal to extend the implementation deadline for smaller reporting companies like Premier. The proposal extends the implementation deadline for Premier for a period of three-years until January 1, 2023. The proposal was approved on October 16, 2019.