-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BZHNfexrMZSo2J3JFCkvv+FF+x3ySRarqzSk0XjsR7d0bNGVnIsLkaXBT5qz/nA3 7iYr2C5A5zVtpyDEN/AaPw== 0000887919-01-500010.txt : 20010815 0000887919-01-500010.hdr.sgml : 20010815 ACCESSION NUMBER: 0000887919-01-500010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREMIER FINANCIAL BANCORP INC CENTRAL INDEX KEY: 0000887919 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 611206757 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20908 FILM NUMBER: 1709657 BUSINESS ADDRESS: STREET 1: 115 N HAMILTON ST STREET 2: P O BOX 9 CITY: GEORGETOWN STATE: KY ZIP: 40324 BUSINESS PHONE: 6067963001 10-Q 1 june200110q.txt PFBI 6/2001 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number 0-20908 PREMIER FINANCIAL BANCORP, INC. (Exact name of registrant as specified in its charter) Kentucky 61-1206757 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 115 N. Hamilton Street Georgetown, Kentucky 40324 (address of principal executive officer) (Zip Code) Registrant's telephone number (502) 863-1955 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to filing requirements for the past 90 days. Yes X No __ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common stock - 5,232,230 shares outstanding at August 13, 2001. PART I - FINANCIAL INFORMATION Item 1. Financial Statements The accompanying information has not been audited by independent public accountants; however, in the opinion of management such information reflects all adjustments necessary for a fair presentation of the results for the interim period. All such adjustments are of a normal and recurring nature. The accompanying financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by generally accepted accounting principles or those normally made in the registrant's annual Form 10-K filing. Accordingly, the reader of the Form 10-Q may wish to refer to the registrant's Form 10-K for the year ended December 31, 2000 for further information in this regard. Index to consolidated financial statements: Consolidated Balance Sheets....................................... 3 Consolidated Statements of Income ................................ 4 Consolidated Statements of Comprehensive Income .................. 5 Consolidated Statements of Cash Flows............................. 6 Notes to Consolidated Financial Statements........................ 7 PREMIER FINANCIAL BANCORP, INC. CONSOLIDATED BALANCE SHEETS JUNE 30, 2001 AND DECEMBER 31, 2000 (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
(UNAUDITED) 2001 2000 ---- ---- ASSETS Cash and due from banks $ 24,501 $ 23,339 Interest earning balances with banks 61 737 Federal funds sold 25,262 21,087 Investment securities Available for sale 164,242 176,494 Held to maturity - 17,906 Loans 524,535 595,947 Unearned interest (220) (371) Allowance for loan losses (9,403) (7,821) ------------- -------------- Net loans 514,912 587,755 Federal Home Loan Bank and Federal Reserve Bank stock 4,339 4,476 Premises and equipment, net 13,092 15,474 Real estate and other property acquired through foreclosure 3,529 3,116 Interest receivable 8,511 10,144 Goodwill and other intangibles 18,016 22,856 Other assets 6,093 6,548 ------------- -------------- Total assets $ 782,558 $ 889,932 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Non-interest bearing $ 61,671 $ 74,438 Time deposits, $100 and over 89,866 105,490 Other interest bearing 487,060 548,484 ------------- -------------- Total deposits 638,597 728,412 Securities sold under agreements to repurchase 5,291 20,553 Federal Home Loan Bank advances 27,035 30,687 Other borrowed funds 20,000 20,000 Interest payable 2,826 3,901 Other liabilities 2,372 1,799 ------------- -------------- Total liabilities 696,121 805,352 Guaranteed preferred beneficial interests in Company's debentures 28,750 28,750 Stockholders' equity Preferred stock, no par value; 1,000,000 shares authorized; none issued or outstanding - - Common stock, no par value; 10,000,000 shares authorized; 5,232,230 shares issued and outstanding 1,103 1,103 Surplus 43,445 43,445 Retained earnings 12,670 12,151 Accumulated other comprehensive income 469 (869) ------------- -------------- Total stockholders' equity 57,687 55,830 ------------- -------------- Total liabilities and stockholders' equity $ 782,558 $ 889,932 ============= ==============
- -------------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements 3. PREMIER FINANCIAL BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED) - --------------------------------------------------------------------------------
Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ---- ---- ---- ---- Interest Income Loans, including fees $ 12,285 $ 13,822 $ 24,865 $ 27,181 Investment securities Taxable 1,986 2,586 4,428 5,002 Tax-Exempt 251 363 553 720 Federal funds sold and other 477 262 949 741 ---------- -------------- -------------- -------------- Total interest income 14,999 17,033 30,795 33,644 Interest Expense Deposits 7,002 7,769 14,647 15,432 Debt and other borrowings 1,587 2,023 3,384 3,885 ---------- -------------- -------------- ------------- Total interest expense 8,589 9,792 18,031 19,317 Net interest income 6,410 7,241 12,764 14,327 Provision for loan losses 3,015 1,505 3,647 2,890 ---------- -------------- -------------- -------------- Net interest income after provision for loan losses 3,395 5,736 9,117 11,437 Non-interest income Service charges 590 573 1,116 1,065 Insurance commissions 98 121 137 238 Investment securities gains 60 (281) 240 (280) Gain on the sale of subsidiary's banking operations - - 3,418 - Other 424 560 823 936 ---------- -------------- -------------- -------------- 1,172 973 5,734 1,959 Non-interest expenses Salaries and employee benefits 2,893 3,267 5,925 6,550 Occupancy and equipment expenses 717 766 1,489 1,538 Amortization of intangibles 337 392 674 785 Other expenses 1,764 1,965 3,708 3,637 ---------- -------------- -------------- -------------- 5,711 6,390 11,796 12,510 ---------- -------------- -------------- -------------- Income before income taxes (1,144) 319 3,055 886 Provision for income taxes (439) 57 2,536 177 ---------- -------------- -------------- -------------- Net income $ (705) $ 262 $ 519 $ 709 ========== ============== ============== ============== Earnings per share $(.13) $.05 $.10 $.14 Earnings per share assuming dilution $(.13) $.05 $.10 $.14 Weighted average shares outstanding 5,232 5,232 5,232 5,232
- -------------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements 4. PREMIER FINANCIAL BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ---- ---- ---- ---- Net Income $ (705) $ 262 $ 519 $ 709 Other comprehensive income(loss), net of tax: Unrealized gains and (losses) arising during the period (92) (71) 1,496 (288) Reclassification of realized amount (39) 185 (158) 185 ------- ------- ------- ------- Net change in unrealized gain (loss) on securities (131) 114 1,338 (103) ------- ------- ------- ------- Comprehensive income $ (836) $ 376 $ 1,857 $ 606 ======= ======= ======= =======
- -------------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements 5. PREMIER FINANCIAL BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
2001 2000 ---- ---- Cash flows from operating activities Net income $ 519 $ 709 Adjustments to reconcile net income to net cash from operating activities Depreciation 652 666 Provision for loan losses 3,647 2,890 Amortization, net 431 622 FHLB stock dividends (139) (147) Investment securities losses (gains), net (240) 280 Gain on the sale of subsidiary's banking operations (3,418) - Changes in Interest Receivable 35 454 Other assets (317) (669) Interest Payable (620) 799 Other liabilities 573 (100) ------------- ------------- Net cash from operating activities 1,123 5,504 Cash flows from investing activities Purchases of securities available for sale (114,579) (31,624) Proceeds from sales of securities available for sale 12,234 12,890 Proceeds from maturities and calls of securities available for sale 122,450 12,328 Purchases of securities held to maturity - (1,165) Proceeds from maturities and calls of securities held to maturity - 1,251 Purchases of FHLB stock (175) (42) Redemption of FHLB stock 451 - Net change in federal funds sold (4,175) 12,348 Net change in loans (10,975) (24,104) Purchases of premises and equipment, net 96 (903) Proceeds from sale of other real estate acquired through foreclosure 630 471 Net cash received (paid) related to acquisitions (7,178) - ---------------- ---------- Net cash from investing activities (1,221) (18,550) Cash flows from financing activities Net change in deposits 18,698 2,662 Advances from Federal Home Loan Bank 35,819 22,575 Repayment of Federal Home Loan Bank advances (39,471) (22,598) Net change in agreements to repurchase securities (14,462) 4,725 Dividends paid - (784) ------------- ------------- Net cash from financing activities 584 6,580 ------------- ------------- Net change in cash and cash equivalents 486 (6,466) Cash and cash equivalents at beginning of period 24,076 29,861 ------------- ------------- Cash and cash equivalents at end of period $ 24,562 $ 23,395 ============= =============
- -------------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements 6. PREMIER FINANCIAL BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements include the accounts of Premier Financial Bancorp, Inc. (the Company) and its wholly owned subsidiaries:
Year June 30, 2001 Acquired Assets -------- ------ (In Thousands) Citizens Deposit Bank & Trust Vanceburg, Kentucky 1991 $ 121,871 Bank of Germantown Germantown, Kentucky 1992 28,933 Citizens Bank (Kentucky), Inc. Georgetown, Kentucky 1995 107,983 Farmers Deposit Bank Eminence, Kentucky 1996 146,286 The Sabina Bank Sabina, Ohio 1997 52,110 Ohio River Bank Ironton, Ohio 1998 77,521 The Bank of Philippi, Inc. Philippi, West Virginia 1998 80,062 Boone County Bank, Inc. Madison, West Virginia 1998 148,275
The Company also has a data processing subsidiary, Premier Data Services, Inc., the PFBI Capital Trust subsidiary as discussed in Note 7, and a loan servicing subsidiary, Mt. Vernon Financial Holdings, Inc., the successor to Bank of Mt. Vernon. All intercompany transactions and balances have been eliminated. NOTE 2 - BUSINESS COMBINATIONS On July 9, 2001, the Company announced the signing of a definitive agreement to sell selected assets and have specified liabilities assumed of The Sabina Bank. Additional information regarding this proposed transaction can be found in Part II, Item 5, Other Information. On January 26, 2001, the Company disposed of all the deposits (approximately $109 million), the majority of loans (approximately $79 million), approximately $12.5 million of investment securities and the premises and equipment (approximately $1.6 million) of the Bank of Mt. Vernon under the terms of a Purchase and Assumption Agreement. As a result of this transaction, the banking charter of the Bank of Mt. Vernon has been relinquished and the Company has agreed to not compete in the markets previously served by the Bank of Mt. Vernon. NOTE 3 - REGULATORY MATTERS On September 29, 2000, the Company entered into an agreement with the Federal Reserve Bank (FRB) that prohibits the Company from paying dividends or incurring any additional debt without the prior written approval of the FRB. Additionally, the agreement requires the Company to develop and monitor compliance with certain operational policies designed to strengthen Board of Director oversight including credit administration, liquidity, internal audit and loan review. - -------------------------------------------------------------------------------- CONTINUED 7. PREMIER FINANCIAL BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOTE 3 - REGULATORY MATTERS (Continued) Two of the Company's subsidiaries, Citizens Deposit Bank & Trust and Bank of Germantown, have entered into similar agreements with their respective primary regulators which, among other things, prohibit the payment of dividends without prior written approval and requires significant changes in their credit administration policies. These agreements, which require periodic reporting, will remain in force until the regulators are satisfied that the Company and the banks have fully complied with the terms of the agreement. NOTE 4 - SECURITIES Amortized cost and fair value of investment securities, by category, at June 30, 2001 are summarized as follows:
(In Thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- Available for sale U. S. Treasury securities $ 5,321 $ 32 $ - $ 5,353 U. S. agency securities 120,854 517 (64) 121,307 Obligations of states and political Subdivisions 19,903 496 (19) 20,380 Mortgage-backed securities 9,433 - (18) 9,415 Other securities 8,021 7 (241) 7,787 -------------- -------------- -------------- --------------- Total available for sale $ 163,532 $ 1,052 $ (342) $ 164,242 ============== ============== ============== ===============
Upon adoption of Financial Accounting Standards Board Statement 133 on January 1, 2001, all of the Company's securities classified as held to maturity were re-classified as available for sale. Amortized cost and fair value of investment securities, by category, at December 31, 2000 are summarized as follows:
(In Thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- Available for sale U. S. Treasury securities $ 3,345 $ 13 $ (1) $ 3,357 U. S. agency securities 155,045 232 (1,389) 153,888 Obligations of states and political Subdivisions 7,016 117 (1) 7,132 Mortgage-backed securities 9,478 - (159) 9,319 Preferred stock 2,000 - - 2,000 Other securities 925 - (127) 798 -------------- -------------- -------------- --------------- Total available for sale $ 177,809 $ 362 $ (1,677) $ 176,494 ============== ============== ============== ===============
- -------------------------------------------------------------------------------- CONTINUED 8. PREMIER FINANCIAL BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOTE 4 - SECURITIES (Continued)
(In Thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- Held to maturity U. S. agency securities 1,233 4 (7) 1,230 Obligations of states and political Subdivisions 16,656 378 (31) 17,003 Mortgage-backed securities 17 - (1) 16 -------------- -------------- -------------- --------------- Total held to maturity $ 17,906 $ 382 $ (39) $ 18,249 ============== ============== ============== ===============
NOTE 5 - LOANS Major classifications of loans at June 30, 2001 and December 31, 2000 are summarized as follows:
2001 2000 ---- ---- (In Thousands) Commercial, secured by real estate $ 116,801 $ 149,733 Commercial, other 79,826 86,069 Real estate construction 21,727 24,774 Residential real estate 190,694 211,662 Agricultural 11,809 13,817 Consumer and home equity 101,959 108,646 Other 1,719 1,246 ------------ ------------ $ 524,535 $ 595,947 ============ ============
NOTE 6 - ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses are as follows:
Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ---- ---- ---- ---- Balance, beginning of period $ 7,953 $ 7,626 $ 7,821 $ 6,812 Net charge-offs (1,565) (886) (2,065) (1,457) Provision for loan losses 3,015 1,505 3,647 2,890 ------- ------- ------- ------- Balance, end of period $ 9,403 $ 8,245 $ 9,403 $ 8,245 ======= ======= ======= =======
- -------------------------------------------------------------------------------- CONTINUED 9. PREMIER FINANCIAL BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOTE 7 - GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S SUBORDINATED DEBENTURES Guaranteed preferred beneficial interests in Company's debentures (Preferred Securities) represent preferred beneficial interests in the assets of PFBI Capital Trust (Trust). The Trust holds certain 9.75% junior subordinated debentures due June 30, 2027 issued by the Company on June 9, 1997. Distributions on the Preferred Securities is payable at an annual rate of 9.75% of the stated liquidation amount of $25 per Capital Security, payable quarterly. Cash distributions on the Preferred Securities are made to the extent interest on the debentures is received by the Trust. In the event of certain changes or amendments to regulatory requirements or federal tax rules, the Preferred Securities are redeemable in whole. Otherwise, the Preferred Securities are generally redeemable by the Company in whole or in part on or after June 30, 2002 at 100% of the liquidation amount. The Trust's obligations under the Preferred Securities are fully and unconditionally guaranteed by the Company. NOTE 8 - STOCKHOLDERS' EQUITY The Company's principal source of funds 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 2001, the Banks could, without prior approval, declare dividends of approximately $2.3 million plus any 2001 net profits in certain banking subsidiaries 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 Company and 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 table) of Total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of June 30, 2001, the Company and the Banks meet all quantitative capital adequacy requirements to which they are subject. - -------------------------------------------------------------------------------- CONTINUED 10. PREMIER FINANCIAL BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOTE 8 - STOCKHOLDERS' EQUITY (Continued) Shown below is a summary of regulatory capital ratios for the Company:
Regulatory June 30, December 31, Minimum 2001 2000 Requirements ---- ---- ------------ Tier I Capital (to Average Assets) 7.6% 6.1% 4.0% Tier I Capital (to Risk-Weighted Assets) 11.3% 9.0% 4.0% Total Capital (to Risk-Weighted Assets) 14.4% 12.0% 8.0%
The capital amounts and classifications are also subject to qualitative judgments by the regulators. As a result of these qualitative judgments, the Company and two of the Company's subsidiaries have entered into agreements with the applicable regulatory authorities which provide for additional restrictions on their respective capital levels and the payment of dividends. The Company entered into an agreement with the Federal Reserve Bank (FRB) on September 29, 2000 restricting the Company from declaring or paying dividends without prior approval from the FRB. An additional provision of this agreement requires prior approval from the FRB before the Company increases its borrowings or incurs any debt. This agreement is in effect until terminated by the FRB. Citizens Deposit Bank (Citizens) entered into a Written Agreement with the FRB on September 29, 2000 restricting Citizens from declaring or paying dividends without prior approval. This agreement is in effect until terminated by the FRB. Citizens' Tier I capital to average assets was 9.0% at June 30, 2001. Bank of Germantown (Germantown) entered into an agreement with the Kentucky Department of Financial Institutions (KDFI) and the Federal Deposit Insurance Corporation (FDIC) on June 13, 2000 restricting Germantown from declaring or paying dividends, without prior approval, if its Tier I capital to average assets falls below 8%. This agreement is in effect until terminated by the KDFI and FDIC. Germantown's Tier I capital to average assets was 7.0% at June 30, 2001. As of June 30, 2001, the most recent notification from the Federal Reserve Bank categorized the Company and its subsidiary banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company must maintain minimum Total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the preceding table. There are no conditions or events since that notification that management believes have changed the Company's category. - -------------------------------------------------------------------------------- 11. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- A. Results of Operations Net income for the six months ended June 30, 2001 was $519,000 or $0.10 per share compared to net income of $709,000 or $0.14 per share for the six months ended June 30, 2000. Net income for the 2001 period includes the $625,000 net gain (after tax) realized from the sale of Bank of Mt. Vernon's banking operations. Excluding the net gain on the sale and the loss from operations of the Bank of Mt. Vernon's successor entity, Mt. Vernon Financial Holdings, Inc., Premier's net income for the six months ending June 30, 2001 was $636,000, or $0.12 per share. This compares to Premier's net income for the six months ending June 30, 2000, net of the Bank of Mt. Vernon's operations, of $452,000 or $0.09 cents per share. Results for the six months ending June 30, 2001 reflect charges for amortization of goodwill and other intangibles associated with cash acquisitions totaling $510,000 (after tax) as compared to $621,000 (after tax) in the same period for 2000. Not including these charges, net income for the first six months of 2001 was $1,029,000 or $0.20 per share versus $1,330,000 or $0.25 per share in 2000. Not including these charges, and excluding the net gain on the sale and the loss from operations of Mt. Vernon Financial Holdings, Inc., Premier's net income for the six months ending June 30, 2001 was $1,146,000, or $0.22 per share. Not including these charges, and excluding the Bank of Mt. Vernon's operations, net income for the same period in 2000 was $1,073,000, or $0.21 per share. Premier recorded a net loss for the quarter ending June 30, 2001, of $(705,000), or (13) cents per share, compared to net income of $262,000, or 5 cents per share, for the second quarter in 2000. Results for the second quarter in 2000 include the operations of the Bank of Mt. Vernon, which was involved in a sale of certain assets and assumption of certain liabilities in the first quarter of 2001. Excluding the operations of the Bank of Mt. Vernon's successor non-bank entity, Mt. Vernon Financial Holdings, Inc., net income for the quarter ending June 30, 2001 was $90,000, or 2 cents per share. This compares to net income for the quarter ending June 30, 2000, net of the Bank of Mt. Vernon's operations, of $129,000, or 2 cents per share. Results for the second quarter 2001 reflect charges for amortization of goodwill and other intangibles associated with cash acquisitions totaling $255,000 (after tax) as compared to $311,000 (after tax) in the same period for 2000. Excluding these charges, the net loss for the second quarter 2001 was $(450,000), or (9) cents per share, versus net income of $573,000, or 11 cents per share for the same period in 2000. Excluding these charges and the operations of Bank of Mt. Vernon and its successor entity, Premier would have experienced positive earnings of $345,000 or $0.07 per share, for the quarter ending June 30, 2001 versus $440,000 or $0.08 per share for the same quarter in 2000. Net interest income decreased $1,563,000 to $12,764,000 for the six months ended June 30, 2001 compared to $14,327,000 for the same period in 2000. Net interest income decreased $831,000 to $6,410,000 for the three months ended June 30, 2001 compared to the $7,241,000 reported in the three months ended June 30, 2000. This is due to the decrease in earning assets associated with the sale of Bank of Mt. Vernon's banking operations. Net interest margin on a tax equivalent basis for the six months ending June 30, 2001 was approximately 3.59% as compared to 3.75% for the same period in 2000. This decrease in net interest margin is the result primarily from an increase in shorter term assets which are 12. at lower rates from the same period last year due to the recent drop in market interest rates. The annualized returns on stockholders' equity and on average assets were approximately 1.79% and .13% for the six months ended June 30, 2001 compared to 2.74% and .17% for the same period in 2000. Excluding the net gain (after tax) from the sale and the operations of the Bank of Mt. Vernon and its successor, the annualized returns on stockholders equity and on average assets were approximately 2.19% and .17% for the six months ended June 30, 2001 versus 1.74% and .12% for the same period in 2000. During the quarter ending June 30, 2001 the provision for loan losses was $3,015,000 compared to $1,505,000 for the same period in 2000, an increase of $1,510,000. The provision attributed to Mt. Vernon Financial Holdings, Inc., for the quarter ending June 30, 2001, was $1,545,000 compared to the $350,000 in provision to loan loss reserves for the Bank of Mt. Vernon in the quarter ending June 30, 2000. For the six months ended June 30, 2001 the provision for loan loss was $3,647,000 compared to $2,890,000 for the same period ended June 30, 2000, an increase of $757,000. The provision attributed to Mt. Vernon Financial Holdings, Inc. for the six months ending June 30, 2001 was $1,558,000 compared to the $637,000 in provision to loan loss reserves for the Bank of Mt. Vernon for the same period in 2000. The increases in both the six months ended June 30, 2001 and the three months ended June 30, 2001 are primarily attributable to the replenishment and required additions to the reserve for loan losses at a majority of the Company's affiliates. Additional information concerning the level of and the activity within the reserve for loan losses can be found in the Financial Position section. Non-interest income increased $3,775,000 to $5,734,000 for the first six months of 2001 compared to $1,959,000 for the first six months of 2000. Excluding the pre-tax gain on sale of subsidiary's banking operations of $3,418,000, non-interest income increased $357,000 or 18.2%, for the six months ending June 30, 2001 compared to the same period for 2000. Non-interest income increased $199,000, or 20.5%, to $1,172,000 for the three months ended June 30, 2001 compared to $973,000 for the same period in 2000. Non-interest expenses for the first half of 2001 totaled $11,796,000 or 3.0% of average assets on an annualized basis compared to $12,510,000 or 2.9% of average assets for the same period of 2000. Contributing to this decrease is the exclusion of the Bank of Mt. Vernon's operations. This decrease was partially offset by increased costs associated with heightened levels of risk identification and controls. Income tax expense was $2,536,000 for the first six months of 2001 compared to $177,000 for the first six months of 2000. The increase in income tax expense can be attributed to the $2,792,000 tax effect associated with the gain on sale of subsidiary's banking operations. Income tax expense was $(439,000) for the three month period ended June 30, 2001, a decrease of $496,000 from the $57,000 for the same period in 2000. This decrease in income tax expense can be attributed to the decrease in income before taxes, a result of the increase in the provision for loan loss during the same period. The annualized effective tax rate for the period ended June 30, 2001 was 83.0%, compared to the 20.0% effective tax rate for the same period in 2000. This is primarily due to the elimination of intangibles associated with the Company's acquisition of the Bank of Mt. Vernon. The expensing of this intangible was a non-taxable event thereby raising the annualized effective tax rate for the period ended June 30, 2001. 13. B. Financial Position Total assets decreased $107.3 million or 12.1% to $782.6 million from the $889.9 million on December 31, 2000. This decrease can be attributed to the decrease in assets of approximately $110 million associated with the sale of Bank of Mt. Vernon's banking operations. Exclusive of the assets involved in this sale total assets increased approximately $2.7 million, or .3%, when comparing June 30, 2001 to December 31, 2000. Earning assets decreased to $718.2 million on June 30, 2001 from $816.3 million on December 31, 2000, a decrease of $98.1 million, or 12.0%. This decrease can be primarily attributed to the decrease in earning assets of approximately $92 million associated with the sale of Bank of Mt. Vernon' s banking operations. Exclusive of the earning assets involved in this sale, total earning assets decreased approximately $6.1 million, or .8%, from December 31, 2000 to June 30, 2001. Cash and cash equivalents at June 30, 2001 were $24.6 million or a $.6 million increase from $24.0 million on December 31, 2000. Fed funds sold increased to $25.3 million from $21.1 million during the same period; an increase of $4.2 million. Total loans at June 30, 2001 were $524.3 million compared to $595.6 million at December 31, 2000, a decrease of $71.3 million. This decrease can be attributed to the approximately $79 million of loans included in the sale of Bank of Mt. Vernon's banking operations. Exclusive of the loans involved in this sale, total loans increased approximately $7.7 million, or 1.4%, when comparing June 30, 2001 to December 31, 2000. Deposits totaled $638.6 million as of June 30, 2001, a decrease of $89.8 million, or 12.3%, from the December 31, 2000 amount of $728.4 million. This decrease can be attributed to the decrease in deposits of approximately $109 million associated with the sale of Bank of Mt. Vernon's banking operations. Exclusive of the deposits involved in this sale, total deposits increased approximately $19.2 million, or 3.1%, when comparing June 30, 2001 to December 31, 2000. Short term borrowings and Federal Home Loan Bank advances at June 30, 2001 were $32.3 million compared to the $51.2 million at December 31, 2000, a decrease of $18.9 million. 14. The following table sets forth information with respect to the Company's nonperforming assets at June 30, 2001 and December 31, 2000.
(In Thousands) 2001 2000 ---- ---- Non-accrual loans $ 10,799 $ 7,840 Accruing loans which are contractually past due 90 days or more 8,256 2,196 Restructured 522 689 -------------- ------------ Total non-performing loans 19,577 10,725 Other real estate acquired through Foreclosure 3,529 3,116 -------------- ------------ Total non-performing assets $ 23,106 $ 13,841 Non-performing loans as a percentage of total loans 3.73% 1.80% Non-performing assets as a percentage of total assets 2.95% 1.56%
The provision for loan losses and net chargeoffs were $3,015,000 and $1,565,000 for the second quarter of 2001 compared to $1,505,000 and $886,000, respectively, for the second quarter of 2000. The provision for loan losses and net chargeoffs were $3,647,000 and $2,065,000 for the first six months of 2001 compared to $2,890,000 and $1,457,000 for the six month period ended June 30, 2000. The increases in the provision for both the three month and six month periods ended June 30, 2001 were necessary to replenish the reserve from the increased charge-offs and to accommodate the increased level of non-performing loans. The allowance for loan losses at June 30, 2001 was 1.79% of total loans as compared to 1.31% at December 31, 2000. This increase in the percentage of allowance for loan losses to total loans can be attributed to the reduction in total loans associated with the sale of Bank of Mt. Vernon's banking operations and the increase in non-performing loans. Nonperforming loans increased to $19.6 million as of June 30, 2001, when compared to the $10.7 million on December 31, 2000. This increase in conjunction with the decrease in total loans, resulted in the increase of the ratio of nonperforming loans to total loans from 1.80% on December 31, 2000 to 3.73% on June 30, 2001. The Company retains approximately $18 million of loans that were previously serviced and held by Bank of Mt. Vernon, of which approximately $9.1 million are currently nonperforming. These loans are now held in the Company's subsidiary, Mt. Vernon Financial Holdings, Inc. Exclusive of the nonperforming loans associated with Bank of Mt. Vernon or Mt. Vernon Financial Holdings, Inc., total nonperforming loans increased approximately $3.9 million from December 31, 2000 to June 30, 2001. This increase can be attributed to the deterioration in loan quality within the Company's markets to a level higher than previously anticipated. Further deterioration, if any, will be addressed on an ongoing basis. Although management believes it uses the best information available to make allowance provisions, future adjustments, which could be material, may be necessary if management's assumptions differ significantly from the loan portfolio's actual performance. 15. C. 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 $100,000 or more. Management believes that the majority of its $100,000 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 $164.2 million of securities at market value as of June 30, 2001. 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. D. Capital At June 30, 2001, total shareholders' equity of $57.7 million was 7.4% of total consolidated assets. This compares to total shareholders' equity of $55.8 million or 6.3% of total consolidated assets on December 31, 2000. Tier I capital totaled $58.2 million at June 30, 2001, which represents a Tier I leverage ratio of 7.6%. This compares to Tier I capital of $52.6 million at December 31, 2000, which represents a Tier I leverage ratio of 6.1%. Book value per share was $11.03 at June 30, 2001, and $10.67 at December 31, 2000. An increase in unrealized gain on securities available for sale was primarily responsible for the increase in accumulated other comprehensive income and corresponding increase in book value per share. Also, contributing to the increase in book value per share, as well as total shareholders' equity, was the retention of earnings in the amount of $519,000. The Company did not declare a first quarter or second quarter 2001 dividend. The Company declared a first quarter 2000 dividend of $0.15 per share, or $784,835. During the second quarter 2000, the Company suspended its common stock dividend and subsequently entered into an agreement with the Federal Reserve Bank (FRB) to refrain from paying any dividends without written approval from the FRB. 16. 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 2000 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 2000 10-K. 17. PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a vote of Security Holders (a) Annual meeting of the Shareholders was held June 20, 2001. (b) The following were elected as directors of the Corporation for a term of one year. 1. Edsel R. Burns 2. Marshall T. Reynolds 3. Gardner E. Daniel 4. Toney Adkins 5. Hosmer A. Brown, III 6. Wilbur M. Jenkins 7. E. V. Holder, Jr. 8. Neal Scaggs 9. Keith Molihan 10. Thomas W. Wright (c) Ratification of Crowe, Chizek and Company, LLP as independent auditors of the Corporation for 2001. Votes for 4,598,903; votes against 16,935; votes abstaining 11,612. Item 5. Other Information Premier Financial Bancorp, Inc., Georgetown, Kentucky, a multi-bank holding company with affiliates in Kentucky, Ohio and West Virginia announced July 9, 2001 the signing of a definitive agreement to sell selected assets and liabilities of The Sabina Bank, which operates three offices in Sabina, Ada and Waynesfield, Ohio, to The National Bank and Trust Company (NB&T), Wilmington, Ohio. Under the terms of the agreement, NB&T will acquire substantially all of the assets and assume specified liabilities, including the deposits, of The Sabina Bank. NB&T will pay to Premier in cash an amount equal to 2.25 times the regulatory Tier I capital of The Sabina Bank, less intangible assets and certain other amounts. Based on financial data as of March 31, 2001, that amount would have been approximately, $11.5 million. The acquisition will not require the approval of the shareholders of either Premier or NB&T Financial Group. The transaction is expected to be consummated before the end of the year, subject to regulatory approval and customary conditions of closing. At March 31, 2001, The Sabina Bank had approximately $55 million in total assets and $47 million in deposits. Item 6. Exhibits and Reports on Form 8-K None 18. 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: August 13, 2001 /s/ Marshall T. Reynolds ------------------------------------ Marshall T. Reynolds Chairman of the Board Date: August 13, 2001 /s/ Gardner E. Daniel ------------------------------------ Gardner E. Daniel President & Chief Executive Officer Date: August 13, 2001 /s/ Edward Barnes ------------------------------------ Edward Barnes Vice President & Chief Financial Officer 19. -----END PRIVACY-ENHANCED MESSAGE-----