-----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, A/saYag0/UANy4+9rGbFWpEZFQyRAVwv1HHFNWpYtaWA3DzPRHZ9CUljphmZgCQ/ I76D5B3r+ks4lV6FYYyZQg== 0000887919-01-500028.txt : 20020410 0000887919-01-500028.hdr.sgml : 20020410 ACCESSION NUMBER: 0000887919-01-500028 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 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: 1782098 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 sept0110q.txt SEPTEMBER 2001 10Q 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 September 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 November 12, 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 SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
(UNAUDITED) 2001 2000 ---- ---- ASSETS Cash and due from banks $ 20,348 $ 23,339 Interest earning balances with banks 61 737 Federal funds sold 36,695 21,087 Investment securities Available for sale 157,154 176,494 Held to maturity - 17,906 Loans 509,642 595,947 Unearned interest (134) (371) Allowance for loan losses (10,147) (7,821) ------------- -------------- Net loans 499,361 587,755 Federal Home Loan Bank and Federal Reserve Bank stock 4,408 4,476 Premises and equipment, net 13,088 15,474 Real estate and other property acquired through foreclosure 6,319 3,116 Interest receivable 8,756 10,144 Goodwill and other intangibles 17,679 22,856 Other assets 8,237 6,548 ------------- -------------- Total assets $ 772,106 $ 889,932 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Non-interest bearing $ 64,634 $ 74,438 Time deposits, $100 and over 97,110 105,490 Other interest bearing 466,073 548,484 ------------- -------------- Total deposits 627,817 728,412 Securities sold under agreements to repurchase 5,414 20,553 Federal Home Loan Bank advances 26,794 30,687 Other borrowed funds 20,000 20,000 Interest payable 2,770 3,901 Other liabilities 1,718 1,799 ------------- -------------- Total liabilities 684,513 805,352 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 12,716 12,151 Accumulated other comprehensive income 1,579 (869) ------------- -------------- Total stockholders' equity 58,843 55,830 ------------- -------------- Total liabilities and stockholders' equity $ 772,106 $ 889,932 ============= ==============
- -------------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements 3. PREMIER FINANCIAL BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED) - --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- Interest Income Loans, including fees $ 11,723 $ 14,399 $ 36,588 $ 41,580 Investment securities Taxable 1,916 2,520 6,344 7,522 Tax-Exempt 255 343 808 1,063 Federal funds sold and other 349 343 1,298 1,084 ----------- ----------- -------------- -------------- Total interest income 14,243 17,605 45,038 51,249 Interest Expense Deposits 6,501 8,321 21,148 23,753 Debt and other borrowings 1,502 2,153 4,886 6,038 ----------- ----------- -------------- -------------- Total interest expense 8,003 10,474 26,034 29,791 Net interest income 6,240 7,131 19,004 21,458 Provision for loan losses 1,793 1,125 5,440 4,015 ----------- ----------- -------------- -------------- Net interest income after provision for loan losses 4,447 6,006 13,564 17,443 Non-interest income Service charges 550 583 1,666 1,648 Insurance commissions 78 147 215 385 Investment securities gains(losses) 195 1 435 (279) Gain on the sale of subsidiary's banking operations - - 3,418 - Other 440 300 1,263 1,236 ----------- ----------- -------------- -------------- 1,263 1,031 6,997 2,990 Non-interest expenses Salaries and employee benefits 2,902 3,551 8,827 10,101 Occupancy and equipment expenses 714 827 2,203 2,365 Amortization of intangibles 337 393 1,011 1,178 Other expenses 1,753 1,823 5,461 5,460 ----------- ----------- -------------- -------------- 5,706 6,594 17,502 19,104 ----------- ----------- -------------- -------------- Income before income taxes 4 443 3,059 1,329 Provision for income taxes(benefit) (42) 72 2,494 249 ----------- ----------- -------------- -------------- Net income $ 46 $ 371 $ 565 $ 1,080 =========== =========== ============== ============== Earnings per share $.01 $.07 $.11 $.21 Earnings per share assuming dilution $.01 $.07 $.11 $.21 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 NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- Net Income $ 46 $ 371 $ 565 $ 1,080 Other comprehensive income(loss), net of tax: Unrealized gains and (losses) arising during the period 1,239 1,178 2,735 890 Reclassification of realized amount (129) (1) (287) 184 ------- ------- ------- ------- Net change in unrealized gain (loss) on securities 1,110 1,177 2,448 1,074 ------- ------- ------- ------- Comprehensive income $ 1,156 $ 1,548 $ 3,013 $ 2,154 ======= ======= ======= =======
- -------------------------------------------------------------------------------- See Accompanying Notes to Consolidated Financial Statements 5. PREMIER FINANCIAL BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
2001 2000 ---- ---- Cash flows from operating activities Net income $ 565 $ 1,080 Adjustments to reconcile net income to net cash from operating activities Depreciation 975 1,075 Provision for loan losses 5,440 4,015 Amortization, net 693 904 FHLB stock dividends (207) (224) Investment securities losses (gains), net (435) 279 Gain on the sale of subsidiary's banking operations (3,418) - Changes in Interest Receivable (210) (235) Other assets (3,033) (774) Interest Payable (676) 571 Other liabilities (80) 228 ------------- ------------- Net cash from operating activities (386) 6,919 Cash flows from investing activities Purchases of securities available for sale (151,242) (37,080) Proceeds from sales of securities available for sale 12,429 13,845 Proceeds from maturities and calls of securities available for sale 167,958 15,126 Purchases of securities held to maturity - (1,321) Proceeds from maturities and calls of securities held to maturity - 1,614 Purchases of FHLB stock (176) (42) Redemption of FHLB stock 451 - Net change in federal funds sold (15,608) 8,086 Net change in loans (299) (35,393) Purchases of premises and equipment, net (223) (1,266) Proceeds from sale of other real estate acquired through foreclosure 921 594 Net cash received (paid) related to acquisitions (7,178) - ------------- ------------- Net cash from investing activities 7,033 (35,837) Cash flows from financing activities Net change in deposits 7,917 16,740 Advances from Federal Home Loan Bank 40,385 38,475 Repayment of Federal Home Loan Bank advances (44,277) (39,224) Net change in agreements to repurchase securities (14,339) 6,247 Dividends paid - (785) ------------- ------------- Net cash from financing activities (10,314) 21,453 ------------- ------------- Net change in cash and cash equivalents (3,667) (7,465) Cash and cash equivalents at beginning of period 24,076 29,861 ------------- ------------- Cash and cash equivalents at end of period $ 20,409 $ 22,396 ============= =============
- -------------------------------------------------------------------------------- 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 September 30, 2001 Acquired Assets -------- ------ (In Thousands) Citizens Deposit Bank & Trust Vanceburg, Kentucky 1991 $ 115,919 Bank of Germantown Germantown, Kentucky 1992 28,717 Citizens Bank (Kentucky), Inc. Georgetown, Kentucky 1995 106,193 Farmers Deposit Bank Eminence, Kentucky 1996 143,529 The Sabina Bank Sabina, Ohio 1997 49,977 Ohio River Bank Ironton, Ohio 1998 70,156 The Bank of Philippi, Inc. Philippi, West Virginia 1998 80,617 Boone County Bank, Inc. Madison, West Virginia 1998 160,741
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 September 30, 2001 are summarized as follows:
(In Thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value Available for sale U. S. Treasury securities $ 4,007 $ 33 $ - $ 4,040 U. S. agency securities 113,809 1,480 (18) 115,271 Obligations of states and political Subdivisions 20,009 772 - 20,781 Mortgage-backed securities 8,932 131 - 9,063 Other securities 8,000 104 (105) 7,999 -------------- -------------- -------------- --------------- Total available for sale $ 154,757 $ 2,520 $ (123) $ 157,154 ============== ============== ============== ===============
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 September 30, 2001 and December 31, 2000 are summarized as follows:
2001 2000 ---- ---- (In Thousands) Commercial, secured by real estate $ 115,585 $ 149,733 Commercial, other 77,249 86,069 Real estate construction 20,450 24,774 Residential real estate 186,767 211,662 Agricultural 11,968 13,817 Consumer and home equity 96,589 108,646 Other 1,034 1,246 ------------ ------------ $ 509,642 $ 595,947 ============ ============
NOTE 6 - ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses are as follows:
Three Months Ended Nine Months Ended Sept. 30, Sept. 30, 2001 2000 2001 2000 ---- ---- ---- ---- Balance, beginning of period $ 9,403 $ 8,245 $ 7,821 $ 6,812 Net charge-offs (1,049) (793) (3,114) (2,250) Provision for loan losses 1,793 1,125 5,440 4,015 ------- ------- ------- ------- Balance, end of period $10,147 $ 8,577 $10,147 $ 8,577 ======= ======= ======= =======
- -------------------------------------------------------------------------------- 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 for dividend payments 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 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 September 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 September 30, December 31, Minimum 2001 2000 Requirements ---- ---- ------------ Tier I Capital (to Average Assets) 7.7% 6.1% 4.0% Tier I Capital (to Risk-Weighted Assets) 11.5% 9.0% 4.0% Total Capital (to Risk-Weighted Assets) 14.6% 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 9.2% at September 30, 2001. Bank of Germantown (Germantown) entered into a revised agreement with the Kentucky Department of Financial Institutions (KDFI) and the Federal Deposit Insurance Corporation (FDIC) on August 14, 2001, which in part lifted the previous requirement of prior approval for dividends if Germantown's Tier I capital to average assets fell below 8%. The revised agreement requires the maintaining of a Tier I capital ratio equal to or greater than 7%. This agreement is in effect until terminated by the KDFI and FDIC. Germantown's Tier I capital to average assets was 7.0% at September 30, 2001. As of September 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. - -------------------------------------------------------------------------------- CONTINUED 11. PREMIER FINANCIAL BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOTE 9 - NEW ACCOUNTING PRONOUNCEMENTS In 2001, new accounting guidance was issued that requires the purchase method of accounting for all business combinations initiated after June 30, 2001 and prohibits the use of the pooling-of-interests method of accounting after this time. Beginning in 2002, the new guidance revises the accounting for goodwill and intangible assets. Intangible assets with indefinite lives and goodwill will no longer be amortized, but will periodically be reviewed for impairment and written down if impaired. Additional disclosures about intangible assets and goodwill may be required. An initial goodwill impairment test is required during the first six months of 2002. The Company has not yet completed an analysis of its intangibles under the new guidance and cannot assess the impact on the financial statements at this time. - -------------------------------------------------------------------------------- 12. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- A. Results of Operations Net income for the nine months ended September 30, 2001 was $565,000 or $0.11 per share compared to net income of $1,080,000 or $0.21 per share for the nine months ended September 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 nine months ending September 30, 2001 was $1,126,000, or $0.22 per share. This compares to Premier's net income for the nine months ending September 30, 2000, net of the Bank of Mt. Vernon's operations, of $569,000 or $0.11 cents per share. Results for the nine months ending September 30, 2001 reflect charges for amortization of goodwill and other intangibles associated with cash acquisitions totaling $765,000 (after tax) as compared to $932,000 (after tax) in the same period for 2000. Not including these charges, net income for the first nine months of 2001 was $1,330,000 or $0.25 per share versus $2,012,000 or $0.38 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 nine months ending September 30, 2001 was $1,891,000, or $0.36 per share. Not including these charges, and excluding the Bank of Mt. Vernon's operations, net income for the same period in 2000 was $1,501,000, or $0.29 per share. Premier recorded net income for the quarter ending September 30, 2001, of $46,000, or 1 cent per share, compared to net income of $371,000, or 7 cents per share, for the third quarter in 2000. Results for the third 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 September 30, 2001 was $490,000, or 9 cents per share. This compares to net income for the quarter ending September 30, 2000, net of the Bank of Mt. Vernon's operations, of $118,000, or 2 cents per share. Results for the third 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, net income for the third quarter 2001 was $301,000, or 6 cents per share, versus net income of $682,000, or 13 cents per share for the same period in 2000. Excluding these charges and the operations of Bank of Mt. Vernon and its successor entity, net income was $745,000 or 14 cents per share, for the quarter ending September 30, 2001 versus $429,000 or 8 cents per share for the same quarter in 2000. 13. Net interest income decreased $2,454,000 to $19,004,000 for the nine months ended September 30, 2001 compared to $21,458,000 for the same period in 2000. Net interest income decreased $891,000 to $6,240,000 for the three months ended September 30, 2001 compared to the $7,131,000 reported in the three months ended September 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 nine months ending September 30, 2001 was approximately 3.57% as compared to 3.72% 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 at lower rates from the same period last year due to the drop in market interest rates during the year 2001. The annualized returns on stockholders' equity and on average assets were approximately 1.30% and .10% for the nine months ended September 30, 2001 compared to 2.76% 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 2.58% and .20% for the nine months ended September 30, 2001 versus 1.45% and .10% for the same period in 2000. During the quarter ending September 30, 2001 the provision for loan losses was $1,793,000 compared to $1,125,000 for the same period in 2000, an increase of $668,000. The provision attributed to Mt. Vernon Financial Holdings, Inc., for the quarter ending September 30, 2001, was $769,000 compared to the $30,000 in provision to loan loss reserves for the Bank of Mt. Vernon in the quarter ending September 30, 2000. For the nine months ended September 30, 2001 the provision for loan loss was $5,440,000 compared to $4,015,000 for the same period ended September 30, 2000, an increase of $1,425,000. The provision attributed to Mt. Vernon Financial Holdings, Inc. for the nine months ending September 30, 2001 was $2,327,000 compared to the $667,000 in provision to loan loss reserves for the Bank of Mt. Vernon for the same period in 2000. The increases in both the nine months ended September 30, 2001 and the three months ended September 30, 2001 are primarily attributable to the replenishment and required additions to the reserve for loan losses for the loans that were retained by the Company from the sale of the Bank of Mt. Vernon. 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 $4,007,000 to $6,997,000 for the first nine months of 2001 compared to $2,990,000 for the first nine months of 2000. Excluding the pre-tax gain on sale of subsidiary's banking operations of $3,418,000, non-interest income increased $589,000 or 19.7%, for the nine months ending September 30, 2001 compared to the same period for 2000. Non-interest income increased $232,000, or 22.5%, to $1,263,000 for the three months ended September 30, 2001 compared to $1,031,000 for the same period in 2000. 14. Non-interest expenses for the first nine months of 2001 totaled $17,502,000 or 3.0% of average assets on an annualized basis compared to $19,104,000 or 3.0% of average assets for the same period of 2000. This decrease can be attributed to the exclusion of the Bank of Mt. Vernon's operations. The decrease was partially offset by increased costs associated with heightened levels of risk identification and controls. Income tax expense was $2,494,000 for the first nine months of 2001 compared to $249,000 for the first nine 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 benefit was $42,000 for the three month period ended September 30, 2001, a decrease of $114,000 from the $72,000 for the same period in 2000. This decrease in income tax expense can be attributed to the decrease in income before taxes, a result primarily due to the increase in the provision for loan loss during the same period. The annualized effective tax rate for the period ended September 30, 2001 was 81.5%, compared to the 18.7% 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 September 30, 2001. 15. B. Financial Position Total assets decreased $117.8 million or 13.2% to $772.1 million from the $889.9 million on December 31, 2000. This decrease can primarily 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 decreased approximately $7.8 million, or 1.0%, when comparing September 30, 2001 to December 31, 2000. Earning assets decreased to $707.8 million on September 30, 2001 from $816.3 million on December 31, 2000, a decrease of $108.5 million, or 13.3%. 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 and the cash paid in connection with this transaction, total earning assets decreased approximately $9.3 million, or 1.3%, from December 31, 2000 to September 30, 2001. Cash and cash equivalents at September 30, 2001 were $20.4 million or a $3.7 million decrease from $24.1 million on December 31, 2000. Fed funds sold increased to $36.7 million from $21.1 million during the same period; an increase of $15.6 million. Total loans at September 30, 2001 were $509.5 million compared to $595.6 million at December 31, 2000, a decrease of $86.1 million. This decrease can be primarily 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 decreased approximately $7.1 million, or 1.4%, when comparing September 30, 2001 to December 31, 2000. Deposits totaled $627.8 million as of September 30, 2001, a decrease of $100.6 million, or 13.8%, 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 $7.9 million, or 1.3%, when comparing September 30, 2001 to December 31, 2000. Securities sold under agreements to repurchase and Federal Home Loan Bank advances at September 30, 2001 were $32.2 million compared to the $51.2 million at December 31, 2000, a decrease of $19.0 million. 16. The following table sets forth information with respect to the Company's nonperforming assets at September 30, 2001 and December 31, 2000.
(In Thousands) 2001 2000 ---- ---- Non-accrual loans $ 11,445 $ 7,840 Accruing loans which are contractually past due 90 days or more 7,389 2,196 Restructured 319 689 -------------- ------------ Total non-performing loans 19,153 10,725 Other real estate acquired through Foreclosure 6,319 3,116 -------------- ------------ Total non-performing assets $ 25,472 $ 13,841 Non-performing loans as a percentage of total loans 3.76% 1.80% Non-performing assets as a percentage of total assets 3.30% 1.56%
The provision for loan losses and net chargeoffs were $1,793,000 and $1,049,000 for the third quarter of 2001 compared to $1,125,000 and $793,000, respectively, for the third quarter of 2000. The provision for loan losses and net chargeoffs were $5,440,000 and $3,114,000 for the first nine months of 2001 compared to $4,015,000 and $2,250,000 for the nine month period ended September 30, 2000. The increases in the provision for both the three month and nine month periods ended September 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 September 30, 2001 was 1.99% 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 significant increase in non-performing loans. Nonperforming loans increased to $19.2 million as of September 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 3.76% on September 30, 2001. The Company retains approximately $16 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 $3.5 million from December 31, 2000 to September 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. 17. 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 $157.2 million of securities at market value as of September 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 September 30, 2001, total shareholders' equity of $58.8 million was 7.6% 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 $58.6 million at September 30, 2001, which represents a Tier I leverage ratio of 7.7%. 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 $11.25 at September 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 $565,000. To date, the Company has not declared a quarterly dividend for the year 2001. 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. 18. 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. 19. 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 None 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 September 30, 2001, The Sabina Bank had approximately $50 million in total assets and $42 million in deposits. Premier Financial Bancorp, Inc., Georgetown, Kentucky announced on October 19, 2001 that the Board of Directors had appointed Robert W. Walker as a Director, as well as President and Chief Executive Officer. Mr. Walker has over 33 years banking experience including positions at Lincoln National Bank of Hamlin, Key Centurion Bancshares, Inc., Bank One, NA, West Virginia and most recently at Boone County Bank, West Virginia, an affiliate of Premier. Mr. Walker assumed the position previously held by Gardner E. Daniel who retired as CEO but will remain as a Director. Mr. Daniel had come out of retirement in June of 2000 to accept the position on a short-term basis at the request of the Board and will now resume his retirement. Item 6. Exhibits and Reports on Form 8-K None 20. 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: November 12, 2001 /s/ Marshall T. Reynolds ---------------------------------------- Marshall T. Reynolds Chairman of the Board Date: November 12, 2001 /s/ Robert W. Walker ---------------------------------------- Robert W. Walker President & Chief Executive Officer Date: November 12, 2001 /s/ Edward Barnes ---------------------------------------- Edward Barnes Vice President & Chief Financial Officer 21. -----END PRIVACY-ENHANCED MESSAGE-----