-----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, Oam/S7wm9OrDpxcW+EMO+EWUVjzlKlUzLy3s9M2/+MH04SPv6bnl/8lh1tTwjSn1 2itOfD5DQHvJnC3qpCaYQw== 0000887919-03-000044.txt : 20030814 0000887919-03-000044.hdr.sgml : 20030814 20030814165321 ACCESSION NUMBER: 0000887919-03-000044 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 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: 03848482 BUSINESS ADDRESS: STREET 1: 2883 FIFTH AVENUE STREET 2: NONE CITY: HUNTINGTON STATE: WV ZIP: 25702 BUSINESS PHONE: 3045251600 10-Q 1 june0310q.txt PREMIER FINANCIAL BANCORP 10-Q JUNE 30, 2003 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, 2003 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.) 2883 Fifth Avenue Huntington, West Virginia 25702 (address of principal executive officer) (Zip Code) Registrant's telephone number (304) 525-1600 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to filing requirements for the past 90 days. Yes X No . Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes___ No X . 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 July 31, 2003. PREMIER FINANCIAL BANCORP, INC. 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. Premier's accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America. Certain accounting principles used by Premier involve a significant amount of judgment about future events and require the use of estimates in their application. The following policies are particularly sensitive in terms of judgments and the extent to which estimates are used: allowance for loan losses, goodwill impairment, and stock based compensation. These estimates are based on assumptions that may involve significant uncertainty at the time of their use. However, the policies, the estimates and the estimation process as well as the resulting disclosures are periodically reviewed by the Audit Committee of the Board of Directors and material estimates are subject to review as part of the external audit by the independent public accountants. The accompanying financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the registrant's annual 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, 2002 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, 2003 AND DECEMBER 31, 2002 (DOLLARS IN THOUSANDS) - ------------------------------------------------------------------------------------------------------------------ (UNAUDITED) 2003 2002 ---- ---- ASSETS Cash and due from banks $ 24,576 $ 18,044 Federal funds sold 39,339 29,827 Investment securities available for sale 153,846 157,633 Loans 413,648 435,137 Allowance for loan losses (18,057) (11,360) -------------- ------- Net loans 395,591 423,777 Federal Home Loan Bank and Federal Reserve Bank stock 4,533 4,395 Premises and equipment, net 11,334 11,685 Real estate and other property acquired through foreclosure 2,831 3,939 Interest receivable 5,183 6,485 Goodwill 16,044 16,044 Other assets 9,524 5,799 ------------- -------------- Total assets $ 662,801 $ 677,628 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Non-interest bearing $ 59,360 $ 62,874 Time deposits, $100,000 and over 64,969 66,033 Other interest bearing 419,776 419,067 ------------- -------------- Total deposits 544,105 547,974 Securities sold under agreements to repurchase 5,755 5,851 Federal Home Loan Bank advances 22,453 23,533 Other borrowed funds 7,100 7,700 Notes payable 1,402 1,402 Guaranteed preferred beneficial interests in Company's debentures 25,750 28,750 Interest payable 2,978 1,818 Other liabilities 1,181 1,234 ------------- -------------- Total liabilities 610,724 618,262 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 5,707 13,250 Accumulated other comprehensive income 1,822 1,568 ------------- -------------- Total stockholders' equity 52,077 59,366 ------------- -------------- Total liabilities and stockholders' equity $ 662,801 $ 677,628 ============= ============== - ------------------------------------------------------------------------------------------------------------------ See Accompanying Notes to Consolidated Financial Statements
PREMIER FINANCIAL BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------ Three Months Ended Six Months Ended June 30, June 30, 2003 2002 2003 2002 ---- ---- ---- ---- Interest income Loans, including fees $ 7,856 $ 9,495 $ 16,379 $ 19,074 Investment securities Taxable 1,056 1,493 2,167 3,048 Tax-exempt 177 202 380 410 Federal funds sold and other 167 155 323 359 ----------- ----------- ----------- ----------- Total interest income 9,256 11,345 19,249 22,891 Interest expense Deposits 2,681 4,044 5,561 8,413 Other borrowings 402 438 804 928 Debentures 670 713 1,400 1,426 ----------- ----------------------------- ----------- Total interest expense 3,753 5,195 7,765 10,767 Net interest income 5,503 6,150 11,484 12,124 Provision for loan losses 13,386 3,200 14,783 4,186 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses (7,883) 2,950 (3,299) 7,938 Non-interest income Service charges 691 625 1,241 1,119 Insurance commissions 33 79 74 119 Securities gains (losses) 15 (103) 204 (59) Other 328 224 673 504 ----------- ----------- ----------- ----------- 1,067 825 2,192 1,683 Non-interest expenses Salaries and employee benefits 2,653 2,592 5,471 5,299 Occupancy and equipment expenses 673 681 1,377 1,363 Professional fees 317 307 579 558 Taxes, other than payroll, property and income 152 215 304 387 Write-downs, expenses, sales of other real estate owned 190 932 266 993 Other expenses 1,252 1,217 2,467 2,286 ----------- ----------- ----------- ----------- 5,237 5,944 10,464 10,886 ----------- ----------- ----------- ----------- Income (loss) before income taxes (12,053) (2,169) (11,571) (1,265) Provision for income taxes (benefit) (4,157) (789) (4,028) (529) ------------ ------------ ------------ ------------ Net income (loss) $ (7,896) $ (1,380) $ (7,543) $ (736) ============ ============ ============ ============ Basic earnings (loss) per share $ (1.51) $ (0.26) $ (1.44) $ (0.14) Earnings (loss) per share assuming dilution $ (1.51) $ (0.26) $ (1.44) $ (0.14) Weighted average shares outstanding 5,232 5,232 5,232 5,232 Weighted average shares assuming dilution 5,241 5,232 5,235 5,232 - ------------------------------------------------------------------------------------------------------------------ See Accompanying Notes to Consolidated Financial Statements
PREMIER FINANCIAL BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME THREE AND NINE MONTHS ENDED JUNE 30, 2003 AND 2002 (IN THOUSANDS) (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------ Three Months Ended Six Months Ended June 30, June 30, 2003 2002 2003 2002 ---- ---- ---- ---- Net income (loss) $ (7,896) $ (1,380) $ (7,543) $ (736) Other comprehensive income (loss), net of tax: Unrealized gains and (losses) arising during the period 560 953 389 $ 291 Reclassification of realized amount (10) 68 (135) 39 ----------- ---------- ----------- --------- Net change in unrealized gain (loss) on securities 550 1,021 254 330 ---------- ---------- ---------- --------- Comprehensive income (loss) $ (7,346) $ (359) $ (7,289) $ (406) ========== =========== ========== ========== - ------------------------------------------------------------------------------------------------------------------ See Accompanying Notes to Consolidated Financial Statements
PREMIER FINANCIAL BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (IN THOUSANDS) (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------ 2003 2002 ---- ---- Cash flows from operating activities Net (loss) income $ (7,543) $ (736) Adjustments to reconcile net income (loss) to net Cash from operating activities Depreciation 605 520 Provision for loan losses 14,783 4,186 Amortization, net 448 136 FHLB stock dividends (95) (73) Investment securities losses (gains), net (204) 59 Write downs of OREO 178 655 Changes in Interest Receivable 1,302 1,005 Other assets (3,856) (10) Interest Payable 1,160 547 Other liabilities (53) (537) -------------- -------------- Net cash from operating activities 6,725 5,752 Cash flows from investing activities Purchases of securities available for sale (80,796) (54,315) Proceeds from sales of securities available for sale 13,294 4,061 Proceeds from maturities and calls of securities available for sale 71,430 57,596 Purchases of FHLB stock (43) (50) Redemption of FHLB stock - - Net change in federal funds sold (9,512) (3,203) Net change in loans 12,644 3,267 Purchases of premises and equipment, net (254) (331) Proceeds from sale of other real estate acquired through foreclosure 1,689 2,384 ------------- ------------- Net cash from investing activities 8,452 9,409 Cash flows from financing activities Net change in deposits (3,869) (5,653) Advances from Federal Home Loan Bank 2,750 10,395 Repayment of Federal Home Loan Bank advances (3,830) (17,239) Early redemption of Trust Preferred Securities (3,000) - Repayment of Other Borrowed Funds (600) (3,300) Proceeds from Notes Payable - 701 Net change in agreements to repurchase securities (96) 91 -------------- ------------- Net cash from financing activities (8,645) (15,005) -------------- -------------- Net change in cash and cash equivalents 6,532 156 Cash and cash equivalents at beginning of period 18,044 20,628 ------------- ------------- Cash and cash equivalents at end of period $ 24,576 $ 20,784 ============= ============= - ------------------------------------------------------------------------------------------------------------------ See Accompanying Notes to Consolidated Financial Statements
PREMIER FINANCIAL BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS) - -------------------------------------------------------------------------------- NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements include the accounts of Premier Financial Bancorp, Inc. (the Company) and its wholly owned subsidiaries:
June 30, 2003 Year Net Income ------------------ Acquired Assets Qtr Year Citizens Deposit Bank & Trust Vanceburg, Kentucky 1991 $ 86,383 $ 236 $ 359 Bank of Germantown Germantown, Kentucky 1992 24,087 22 32 Citizens Bank (Kentucky), Inc. Georgetown, Kentucky 1995 82,614 (76) (103) Farmers Deposit Bank Eminence, Kentucky 1996 140,107 (8,514) (8,446) Ohio River Bank Ironton, Ohio 1998 75,441 253 456 First Central Bank, Inc. Philippi, West Virginia 1998 84,697 272 451 Boone County Bank, Inc. Madison, West Virginia 1998 161,582 497 985 Mt. Vernon Financial Holdings, Inc. Huntington, West Virginia 1999 6,615 22 (13)
The Company also has a data processing subsidiary, Premier Data Services, Inc., and the PFBI Capital Trust subsidiary as discussed in Note 7. All intercompany transactions and balances have been eliminated. The Company maintains the Premier Financial Bancorp, Inc. 1996 Employee Stock Ownership Incentive Plan (the Plan), whereby certain employees of the Company are eligible to receive incentive stock options. Under the Plan, a maximum of 100,000 shares of the Company's common stock may be issued through the exercise of these incentive stock options. The option price is the fair market value of the Company's shares at the date of the grant. In January, 2003, the Company granted 28,650 options under this plan at $7.96 per share which will be fully vested in three years. Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at the date of grant. - -------------------------------------------------------------------------------- CONTINUED PREMIER FINANCIAL BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS) - -------------------------------------------------------------------------------- NOTE 1 - BASIS OF PRESENTATION (continued) The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation. 2003 2002 ---- ---- Net (loss) income as reported $ (7,543) $ (736) Deduct: Stock-based compensation expense determined under fair value based method (21) - ------------ ----------- Pro forma net (loss) income $ (7,564) $ (736) Basic loss per share as reported $ (1.44) $ (0.14) Pro forma basic earnings per share (1.45) (0.14) Diluted earnings per share as reported $ (1.44) $ (0.14) Pro forma diluted earnings per share (1.45) (0.14) The fair value of the options granted are estimated as of the measurement date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2003: dividend yield of 0.0%, expected volatility of 42.4%, risk-free interest rate of 3.1%, and expected life of five years. The weighted average fair value of options granted in 2003 was $3.30. NOTE 2 - REGULATORY MATTERS On January 29, 2003, the Company entered into a written agreement with the Federal Reserve Bank of Cleveland (FRB) which supersedes and rescinds all previous agreements between the Company and the FRB. Among the provisions of the agreement were the continuation of the restriction on the Company's payment of dividends on its common stock without the express written consent of the FRB and the continuation of the restriction on the Company's payment of quarterly distributions on its Trust Preferred Securities without the express written consent of the FRB. Among other provisions, the agreement requires the Company to retain an independent consultant to review its management, directorate and organizational structure, adopt a management plan responsive to such consultant's report, update its management succession plan in accordance with any recommendations in such consultant's report, monitor its subsidiary banks' compliance with bank policies and loan review programs, conduct formal quarterly reviews of its subsidiary Banks' allowances for loan losses, maintain sufficient capital, submit a plan to the FRB for improving consolidated earnings over a three-year period, and submit to the FRB annual projections of planned sources and uses of the Company's cash, including a plan to service its outstanding debt and trust preferred securities. - -------------------------------------------------------------------------------- CONTINUED PREMIER FINANCIAL BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS) - -------------------------------------------------------------------------------- NOTE 2 - REGULATORY MATTERS (continued) As of August 14, 2003, the Company has received a "Management, Directorate, and Organizational Review" (the "Review") from an independent consultant it retained. Management is drafting plans to implement the proposed recommendations in the Review and will submit those plans to the FRB in accordance with the Written Agreement. The Company's compliance with the written agreement is being monitored by a committee which consists of three of its outside directors. Three of the Company's subsidiaries, Citizens Deposit Bank & Trust, Bank of Germantown and Citizens Bank (Kentucky), Inc. 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 3 - NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) recently issued two new accounting standards, Statement 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, and Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equities, both of which generally become effective in the quarter beginning July 1, 2003. Because the Company does not have any derivative instruments, Statement 149 will not materially affect the Company's operating results or financial condition. Under the new standard for certain liabilities and equity instruments, Statement 150, the Company's trust preferred securities are considered liabilities and not part of mezzanine (or temporary) equity. As of December 31, 2002 the Company opted for early adoption of Statement 150. Accordingly, as part of its year-end 2002 financial reporting, the Company included its trust preferred securities in total liabilities. A new accounting standard dealing with asset retirement obligations applies for 2003. This standard did not have a material effect on the Company's financial position or results of operations. - -------------------------------------------------------------------------------- CONTINUED PREMIER FINANCIAL BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS) - -------------------------------------------------------------------------------- NOTE 4 - SECURITIES Amortized cost and fair value of investment securities, by category, at June 30, 2003 are summarized as follows:
Amortized Unrealized Unrealized Fair Cost Gains Losses Value Available for sale U. S. Treasury securities $ 650 $ 7 $ - $ 657 U. S. agency securities 116,849 1,450 - 118,299 Obligations of states and political Subdivisions 15,709 1,077 (3) 16,783 Mortgage-backed securities 15,199 167 (6) 15,360 Corporate securities 2,679 68 - 2,747 -------------- -------------- -------------- --------------- Total available for sale $ 151,086 $ 2,769 $ (9) $ 153,846 ============== ============== ============== ===============
Amortized cost and fair value of investment securities, by category, at December 31, 2002 are summarized as follows:
Amortized Unrealized Unrealized Fair Cost Gains Losses Value Available for sale U. S. Treasury securities $ 399 $ 8 $ - $ 407 U. S. agency securities 120,660 1,256 - 121,916 Obligations of states and political subdivisions 17,794 827 (11) 18,610 Mortgage-backed securities 7,369 279 - 7,648 Corporate securities 9,036 16 - 9,052 -------------- -------------- -------------- --------------- Total available for sale $ 155,258 $ 2,386 $ (11) $ 157,633 ============== ============== ============== ===============
NOTE 5 - LOANS Major classifications of loans at June 30, 2003 and December 31, 2002 are summarized as follows: 2003 2002 ---- ---- Commercial, secured by real estate $ 114,281 $ 120,306 Commercial, other 55,311 64,014 Real estate construction 11,717 11,924 Residential real estate 149,615 156,215 Agricultural 8,354 8,862 Consumer and home equity 72,459 71,075 Other 1,911 2,741 ------------ ------------ $ 413,648 $ 435,137 ============ ============ - -------------------------------------------------------------------------------- CONTINUED PREMIER FINANCIAL BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS) - -------------------------------------------------------------------------------- NOTE 5 - LOANS (continued) The following table sets forth information with respect to the Company's impaired loans at June 30, 2003 and December 31, 2002. 2003 2002 ---- ---- Impaired loans at period end $ 17,769 $ 8,949 Amount of allowance for loan losses allocated 8,260 3,016 The following table sets forth information with respect to the Company's nonperforming loans at June 30, 2003 and December 31, 2002. 2003 2002 ---- ---- Non-accrual loans $ 8,188 $ 10,588 Accruing loans which are contractually past due 90 days or more 1,661 1,399 Restructured loans 292 293 ------------ ------------ $ 10,141 $ 12,280 ============ ============ NOTE 6 - ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses for the three months and six months ended June 30, 2003 and 2002 are as follows: Three Months Ended Six Months Ended June 30, June 30, 2003 2002 2003 2002 ---- ---- ---- ---- Balance, beginning of period $ 11,617 $ 8,747 $ 11,360 $ 8,946 Gross charge-offs (7,137) (3,039) (8,489) (4,582) Recoveries 191 218 403 576 Provision for loan losses 13,386 3,200 14,783 4,186 -------- -------- -------- -------- Balance, end of period $ 18,057 $ 9,126 $ 18,057 $ 9,126 ======== ======== ======== ======== 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 are payable at an annual rate of 9.75% of the stated liquidation amount of $25 per Capital Security, payable quarterly (see Note 8). 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. - -------------------------------------------------------------------------------- CONTINUED PREMIER FINANCIAL BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS) - -------------------------------------------------------------------------------- NOTE 7 - GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S SUBORDINATED DEBENTURES (continued) As previously disclosed, pursuant to an agreement entered into with the Federal Reserve Bank (FRB) described in Note 2, the Company is required to request approval for the payment of distributions due on the Trust Preferred Securities. As part of a Debt Reduction and Profitability plan presented on January 6, 2003, the Company requested and received approval from the FRB to redeem $3,000,000 of the $28,750,000 outstanding Trust Preferred Securities which occurred on March 31, 2003. However, the FRB denied the Company's request to make distributions on the remaining Trust Preferred Securities for the first quarter of 2003. The FRB has also denied the Company's request to make distributions on the Trust Preferred Securities for the second quarter of 2003. In December 2002, the Company exercised its right to defer the payment of interest on its 9.75% Trust Preferred Securities for December 31, 2002 and for an indefinite period, which can be no longer than 20 consecutive quarterly periods. That deferment has continued for consecutive quarters through June 30, 2003. These and any future deferred distributions will accrue interest at an annual rate of 9.75% which will be paid when the deferred distributions are ultimately paid. Management of Premier does not expect to resume payments on the Subordinated Debentures or the Trust Preferred until the Federal Reserve Bank of Cleveland determines that the Company has achieved adequate and sustained levels of profitability to support such payments and approves such payments. NOTE 8 - STOCKHOLDERS' EQUITY AND REGULATORY MATTERS The Company's principal source of funds for dividend payments to shareholders is dividends received from the subsidiary Banks. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year's net profits, as defined, combined with the retained net profits of the preceding two years, subject to the capital requirements and additional restrictions as discussed below. During the remainder of 2003, the Banks could, without prior approval, declare dividends of approximately $3.4 million plus any remaining 2003 net profits retained by the Banks to the date of the dividend declaration. In July 2003, $1.3 million of this total was declared and paid by one of the subsidiary banks. 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. - -------------------------------------------------------------------------------- CONTINUED PREMIER FINANCIAL BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS) - -------------------------------------------------------------------------------- NOTE 8 - STOCKHOLDERS' EQUITY AND REGULATORY MATTERS (continued) 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, 2003, that the Company and the Banks meet all quantitative capital adequacy requirements to which they are subject. Shown below is a summary of regulatory capital ratios for the Company: Regulatory June 30, December 31, Minimum 2003 2002 Requirements ---- ---- ------------ Tier I Capital (to Risk-Weighted Assets) 12.2% 14.1% 4.0% Total Capital (to Risk-Weighted Assets) 15.6% 17.5% 8.0% Tier I Capital (to Average Assets) 7.5% 9.1% 4.0% The capital amounts and classifications are also subject to qualitative judgments by the regulators. As a result of these qualitative judgments, the Company and four 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 of Cleveland (FRB), as discussed in Note 2, 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 ratio was 11.7% at June 30, 2003, an increase from 10.9% at December 31, 2002. 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 7%. This agreement is in effect until terminated by the KDFI and FDIC. Germantown's Tier I capital to average assets ratio was 8.4% at June 30, 2003, an increase from 7.6% at December 31, 2002. Citizens Bank (Kentucky), Inc. (Citizens, KY) entered into an agreement with the Kentucky Department of Financial Institutions (KDFI) and the Federal Deposit Insurance Corporation (FDIC) on September 11, 2002 restricting Citizens, KY from declaring or paying dividends, without prior approval. This agreement is in effect until terminated by the KDFI and FDIC. Citizens KY's Tier I capital to average assets ratio was 9.0% at June 30, 2003, an increase from 8.7% at December 31, 2002. - -------------------------------------------------------------------------------- CONTINUED PREMIER FINANCIAL BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED, IN THOUSANDS) - -------------------------------------------------------------------------------- NOTE 8 - STOCKHOLDERS' EQUITY AND REGULATORY MATTERS (continued) Due to the negative effects of the reported losses at Farmers Deposit Bank on its capital, the Company developed a plan in conjunction with the Federal Deposit Insurance Corporation (FDIC) to inject capital at Farmers Deposit Bank as needed to maintain the bank's well capitalized designation. In July 2003, the Company injected $3.5 million of capital as part of this plan. As of June 30, 2003, the most recent notification from the FRB 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 capital ratio of 10.0%, a minimum Tier I risk-based capital ratio of 6.0% and a Tier I leverage ratio if 5.0%. There are no conditions or events since that notification that management believes have changed the Company's category. NOTE 9 - NOTES PAYABLE During 2002, the Company also entered into notes payable with the Company's Chairman of the Board and President. Due to the regulatory restriction on the Company's payment of its Trust Preferred distributions as discussed in Note 7, the Company reached an agreement with the FRB whereby the Company's Chairman of the Board, who is also the Company's largest shareholder, agreed to loan the Company the amount of the second quarter distribution, $701,000, so that the Company, with the FRB's approval, could make such distribution. A similar agreement was reached with the FRB for the payment of the distribution due for the third quarter 2002. The Company's President, who is also a director, agreed to loan the Company the amount of that distribution, $701,000. Thus, the balance of notes payable at June 30 2003, was $1,402,000. Both loans are unsecured at a zero percent interest rate with no defined maturity date. The loans cannot be repaid without the prior approval of the FRB. - -------------------------------------------------------------------------------- PREMIER FINANCIAL BANCORP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations A. Results of Operations Premier realized a net loss for the six months ended June 30, 2003, of $7,543,000, or $1.44 per share, compared to a net loss of $736,000 or 14 cents per share for the six months ended June 30, 2002. The net loss and loss per share for 2003 was primarily the result of a $12.1 million provision for loan losses in the month of June at Farmers Deposit Bank (the "Bank"), a wholly owned subsidiary of Premier. On June 16, 2003, Premier announced that as a result of an ongoing internal investigation it had uncovered a systematic disregard for its loan approval and credit administration policies at the Bank and had accepted the resignation of the Bank's president. On July 31, 2003, Premier announced that as a result of the investigation to date, Premier had charged-off approximately $6.2 million of loans at the Bank in the month of June. Premier also increased the allowance for loan losses at the Bank to over $8.7 million to absorb probable future charge-offs which may be necessary as the investigation continues and action plans are developed and executed. The combined result of the charge-offs and the increase in the allowance for loan losses was a $12.1 million provision for loan losses. In addition to the provision for loan losses, $303,000 of interest income reversals and $255,000 of additional expenses were also recorded. Premier's initial investigation indicates that the Bank's former president had engaged in conduct which subverted the Bank's internal controls and credit administration policies, conduct which appears to have been designed to avoid detection by management and those entities employed by Premier to perform independent reviews of its subsidiaries' accounting records, internal controls, and credit risk. While the investigation is still on-going, management at Premier has implemented a number of actions since the Bank president's resignation including the appointment of one of Premier's senior executives as interim chief executive officer of the Bank; the development of a plan in conjunction with the FDIC to inject capital at the Bank as needed to continue to maintain the Bank's "Well Capitalized" designation; daily meetings of a loan committee, chaired by the interim chief executive officer, to review all new loan applications and renewals; the hiring of a senior collection officer with 20+ years of collection experience; and developing collection plans for the loans that were charged-off as well as other loans within the loan portfolio. Excluding the transactions related to the Bank investigation, Premier would have realized a net profit for the six months ended June 30, 2003 of approximately $811,000, or 16 cents per share. For the quarter ending June 30, 2003, Premier recorded a net loss of $7,896,000, or $1.51 per share. Excluding the transactions related to the Bank investigation, Premier would have realized a net profit for the quarter ended June 30, 2003 of approximately $458,000, or 9 cents per share. For the For the Quarter Six Months Ended Ended June 30 June 30 Dollars in thousands 2003 2003 --------- --------- Net Income before Bank investigation transactions 458 811 Impact on net income of transactions related to Bank investigation Interest income reversal (303) (303) Additional provision for loan losses (12,100) (12,100) Additional non-interest expenses (255) (255) Income tax benefit 4,304 4,304 --------- --------- Reported Net Loss (7,896) (7,543) ========= ========= The year-to-date 2002 loss is largely due to $4.2 million of provisions for loan losses and $993,000 of OREO writedowns, sales and expenses. For the quarter ending June 30, 2002, Premier recorded a net loss of $1,380,000, or 26 cents per share. The total provision for loan losses was $13.4 million for the second quarter of 2003 (largely due to the $12.1 million provision in June resulting from the Bank investigation) compared to $3.2 million for the second quarter of 2002. This addition brings the year-to-date provision to $14.8 million compared to $4.2 million for the same year-to-date period in 2002. While management has not yet exhausted all efforts and means available to collect the identified problem loans, the additional provisions were made in accordance with Premier's policies regarding the adequacy of the allowance for loan losses which are in accordance with accounting principles generally accepted in the United States of America. Any collections on these loans would be presented in future financial statements as recoveries of the amounts charged against the allowance. The allowance for loan losses at June 30, 2003 was 4.36% of total loans as compared to 2.61% at December 31, 2002. The increase in the percentage of allowance for loan losses to total loans is largely due to the large provision for loan losses required versus the level of net charge-offs actually taken during the first six months of 2003 plus the effect of the decline in total loans outstanding. Net interest income for the six months ending June 30, 2003 totaled $11.48 million, a 5.3% decrease from the $12.12 million of net interest income earned in the first six months of 2002. The decrease was largely due to interest income reversals at the Bank coupled with an overall decline in loans outstanding across the remainder of Premier and lower yields on investments. This decline in interest income more than offset the lower cost of funds resulting from the decline in market interest rates over the past year and the reduction in trust preferred obligations, FHLB advances and other borrowings. As a result, the net interest margin for the six months ending June 30, 2003 was approximately 3.72% compared to 3.82% for the same period in 2002. For the quarter ending June 30, 2003, net interest income totaled $5.50 million, an 8.0% decrease from the $5.98 million reported for the first quarter of 2003, and a 10.5% decrease from the $6.15 million of net interest income earned in the second quarter of 2002. The decrease compared to the first quarter of 2003 was largely due the interest income reversals at the Bank and the lower rates earned on floating rate loans and reinvestments of maturing securities in the low interest rate environment. These declines more than offset the $259,000 of interest expense savings resulting from debt reduction and lower rates paid on deposits. The decrease compared to the prior year second quarter was also primarily the result of the interest income reversals and the lower reinvestment rate on maturing securities. Non-interest income increased $509,000 to $2,192,000 for the first six months of 2003 compared to $1,683,000 for the first six months of 2002, partially due to a $263,000 increase in gains on the sale of securities. The remaining increase was largely due to a 10.9% or $122,000 increase in service charges and fees and an increased volume of secondary market mortgage loan activity resulting in secondary market fee income. These were partially offset by a $45,000 decrease in insurance commissions. For the quarter ended June 30, 2003, non-interest income decreased $58,000 to $1,067,000 compared to the $1,125,000 reported for the first quarter of 2003. The decline was largely due to a $174,000 reduction in gains on investment security transactions. These were only partially offset by a $141,000 (25.6%) increase in revenue from service charges on deposit accounts. When compared to the second quarter of 2002, the $1,067,000 of non-interest income was a $242,000 or 29.3% increase over the $825,000 reported last year. Approximately half of the increase was due to an increase in gains on investment security transactions while the remaining increase was largely due to a $66,000 or 10.6% increase service charges on deposit and an increased volume of secondary market mortgage loan activity. Non-interest expenses for the first six months of 2003 totaled $10,464,000 or 3.1% of average assets on an annualized basis compared to $10,886,000 or 3.1% of average assets for the same period of 2002. The decrease in non-interest expense is largely due to a $727,000 decrease in expenses to maintain, sell or writedown to estimated realizable values various Other Real Estate Owned (OREO) properties, as well as a decline in taxes other than payroll, property and income taxes. These were partially offset by a $172,000 or 3.3% increase in staff costs, a $14,000 or 1.0% increase in occupancy & equipment expense and the $255,000 of expenses related to the Bank investigation. For the quarter ending June 30, 2003, non-interest expense totaled $5,237,000, an $11.9% or $707,000 decrease from the same quarter of 2002. The decrease is again largely due to the $742,000 decrease in OREO expenses and writedowns, coupled with the decrease in taxes other than payroll, property and income taxes. These positive variances were partially offset by a $61,000 or 2.4% increase in staff costs and the $255,000 of expenses related to the Bank investigation. When compared to the first quarter of 2003, non-interest expense increased by $10,000 or 0.2%. A $165,000 or 5.9% decline in staff costs due to the commencement of employee participation in the cost of medical insurance and a planned reduction in staff and a $31,000 or 4.4% decrease in occupancy and equipment costs were more than offset by the $255,000 of expenses related to the Bank investigation. The income tax benefit was $4,028,000 for the first six months of 2003 compared to an income tax benefit of $529,000 for the first six months of 2002. The decrease in income tax expense can be primarily attributed to the decrease in pretax net income resulting from the additional provision for loan losses. The income tax benefit for the quarter ending June 30, 2003 was $4,157,000 compared to a tax benefit of $789,000 during the same period of 2002. The annualized returns on stockholders' equity and on average assets were approximately (25.77)% and (2.23)% for the six months ended June 30, 2003 compared to (3.28)% and (0.28)% for the same period in 2002. B. Financial Position Total assets at June 30, 2003 decreased $14.8 million or 2.2% to $662.8 million from the $677.6 million at December 31, 2002. This decrease is largely due to the year-to-date loss resulting from the $12.1 million provision for loan losses, a $3.9 million decrease in deposits, and the $3.0 million early redemption of the Company's preferred debentures in March 2003. Earning assets decreased to $612.2 at June 30, 2003 from the $627.3 million at December 31, 2002, a decrease of $15.1 million, or 2.4%. The decrease is largely due to a $28.2 million decline in net loans (see below), partially offset by a $6.5 million increase in cash and due from banks and a $9.5 million increase in federal funds sold. Cash and due from banks at June 30, 2003 was $24.6 million, a $6.5 million increase from $18.0 million on December 31, 2002. Likewise, federal funds sold increased to $39.3 million from the $29.8 million reported at December 31, 2002, an increase of $9.5 million. Approximately, $11.3 million of the increase in these liquid assets was at the Bank to satisfy some scheduled maturities of short-term deposits and to provide increased liquidity for deposit withdrawals. The remaining increase in these liquid assets was the result of retaining the liquidity from maturing investments and loan payoffs as part of Premier's interest rate management strategy. As investments have matured and loan principal balances have paid down, Premier has been reluctant to reinvest the proceeds and lock in at the unusually low yields investment securities were offering. Rather, Premier has elected to keep funds in more short-term investments in order to take advantage of anticipated increases in interest rates and to meet loan demand in growing markets. See the additional discussion on liquidity below. Total loans at June 30, 2003 were $413.6 million compared to $435.1 million at December 31, 2002, a decrease of $21.5 million. This decrease is due to various factors. During the first six months of 2003, Premier charged-off $8.5 million of loans, $6.2 million in June as a result of the Bank investigation. Premier has continued its efforts to collect the loans retained from the sale of the Bank of Mt Vernon, reducing their outstanding balances by approximately $1.5 million during the first six months of 2003. Most of Premier's other affiliate banks have experienced a significant level of commercial loan and residential real estate loan payoffs as interest rates have declined and opportunities for customers to refinance at lower rates have expanded. Furthermore, the sluggish economy has reduced the consumer demand for new loans and the resulting competition for new loan volume has increased. However, two of Premier's banks have continued to increase their loans outstanding during this time by a combined $4.9 million. While total loans outstanding have decreased by $21.5 million, the allowance for loan losses has increased by $6.7 million since December 31, 2003, largely due to the $12.1 million provision resulting from the Bank investigation. The combined effect of these two factors was a reduction in net loans of approximately $28.2 million. Deposits totaled $544.1 million as of June 30, 2003, a $3.9 million decrease from the $548.0 million in deposits at December 31, 2002. The decrease is due to $6.5 million decline in time deposits, largely due to non-renewal of some high rate certificates of deposit, the non-renewal of a contract for approximately $5.5 million of interest bearing public funds and a $3.5 million decline in demand deposits. These declines were nearly offset by an approximately $11.6 million increase in transaction based interest bearing deposit accounts and traditional money market and savings accounts. Outstanding debt, including the Company's outstanding trust preferred debentures, has declined by $4.7 million since December 31, 2002. Federal Home Loan Bank advances have declined by $1.1 million due to maturities and principal payments. Other borrowed funds have declined by $600,000 due to scheduled principal payments. Additionally, the Company's outstanding trust preferred debentures have declined by $3.0 million due to a one-time call executed on March 31, 2003 (see footnote 7 to the consolidated financial statements.) The following table sets forth information with respect to the Company's nonperforming assets at June 30, 2003 and December 31, 2002. (In Thousands) 2003 2002 ---- ---- Non-accrual loans $ 8,188 $10,588 Accruing loans which are contractually past due 90 days or more 1,661 1,399 Restructured 292 293 ------- ------- Total non-performing loans 10,141 12,280 Other real estate acquired through foreclosure 2,831 3,939 ------- ------- Total non-performing assets $12,972 $16,219 ======= ======= Non-performing loans as a percentage of total loans 2.45% 2.82% Non-performing assets as a percentage of total assets 1.96% 2.39% The following table sets forth information with respect to the Company's impaired loans at June 30, 2003 and December 31, 2002. (In Thousands) 2003 2002 ---- ---- Impaired loans $17,769 $ 8,949 Amount of the allowance for loan losses allocated 8,260 3,016 Total non-performing loans and non-performing assets have declined since year-end due to loan charge-offs and the continuation of senior management directives that have emphasized the reduction of the level of delinquency, non-accrual loans and OREO. However, while total non-performing loans have declined, accruing loans at least 90 days past due have increased. A significant effort has been placed on reviews of loan files, efforts by lenders to bring borrowers current with the terms of their loan agreements and the sale of certain OREO properties. It was during the course of this effort that facts arose that led to the Bank investigation and the resulting charge-offs and increase in the provision for loan losses. The increase in impaired loans is primarily a result of the Bank investigation. As Premier's other Kentucky institutions are in various stages of producing positive results toward improved credit quality, senior management plans include developing and executing similar action plans on the troubled loans recently identified at the Bank. As in the past, when these plans are executed, Premier may experience increases in non-performing loans and non-performing assets. Furthermore, any resulting increases in loans placed on non-accrual status will have a negative impact on future loan interest income. Also, as the investigation continues, other loans may be identified that would necessitate additional charge-offs and potentially additional provisions for loan losses. C. Critical Accounting Policies The Company follows financial accounting and reporting policies that are in accordance with generally accepted accounting principles in the United States of America. These policies are presented in Note 1 to the consolidated audited financial statements in the Company's annual report on Form 10-K for the year ended December 31, 2002. Some of these accounting policies, as discussed below, are considered to be critical accounting policies. Critical accounting policies are those policies that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company has identified three accounting policies that are critical accounting policies and an understanding of these policies is necessary to understand the financial statements. These policies relate to determining the adequacy of the allowance for loan losses, the impairment of goodwill, and the valuation of deferred tax assets. There have been no significant changes in the application of accounting policies since December 31, 2002. Management believes that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time. D. Liquidity Liquidity objectives for the Company can be expressed in terms of maintaining sufficient cash flows to meet both existing and unplanned obligations in a cost effective manner. Adequate liquidity allows the Company to meet the demands of both the borrower and the depositor on a timely basis, as well as pursuing other business opportunities as they arise. Thus, liquidity management embodies both an asset and liability aspect while attempting to maximize profitability. In order to provide for funds on a current and long-term basis, the Company's subsidiary banks rely primarily on the following sources: 1. Core deposits consisting of both consumer and commercial deposits and certificates of deposit of $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 $153.8 million of securities at market value as of June 30, 2003. The cash flow statements for the periods presented in the financial statements provide an indication of the Company's sources and uses of cash as well as an indication of the ability of the Company to maintain an adequate level of liquidity. E. Capital At June 30, 2003, total shareholders' equity of $52.1 million was 7.9% of total consolidated assets. This compares to total shareholders' equity of $59.4 million or 8.8% of total consolidated assets on December 31, 2002. Tier I capital totaled $49.8 million at June 30, 2003, which represents a Tier I leverage ratio of 7.5%. Book value per share was $9.95 at June 30, 2003, and $11.35 at December 31, 2002. The $7.5 million loss for the year-to-date was primarily responsible for the decrease in comprehensive income and corresponding decrease in book value per share. Partially offsetting this decrease was the after tax increase in the market value of investment securities available for sale of $254,000. 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 2002 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 2002 10-K. Item 4. Controls and Procedures Premier management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation. PREMIER FINANCIAL BANCORP, INC. - -------------------------------------------------------------------------------- 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 18, 2003. (b) All director nominees were elected. (c) Certain matters voted upon at the meeting and the votes cast with respect to such matters are as follows: (i) The following were elected as directors of the Company for a term of one year. Director Votes Received Votes Withheld 1. Toney K. Adkins 4,622,469 81,495 2. Hosmer A. Brown, III 4,620,964 83,000 3. Edsel R. Burns 4,617,991 85,973 4. E. V. Holder, Jr. 4,621,519 82,445 5. Charles R. Hooten, Jr. 4,620,964 83,000 6. Wilbur M. Jenkins 4,621,174 82,790 7. Keith F. Molihan 4,622,218 81,746 8. Marshall T. Reynolds 4,507,859 196,105 9. Neal Scaggs 4,622,594 81,370 10. Robert W. Walker 4,622,024 81,940 11. Thomas W. Wright 4,622,344 81,620 (ii) Ratification of Crowe Chizek and Company, LLC as independent auditors of the Corporation for 2003. Votes for 4,652,450; votes against 44,534; votes abstaining 6,980. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are furnished in accordance with the provisions of Item 601 of Regulation S-K. 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification Pursuant to 18 U.S.Css.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) The following Current Reports on Form 8-K were filed in the second quarter of the Company's year. April 28, 2003 - Press release reporting first quarter 2003 earnings. June 5, 2003 - Press release regarding the continuation of the deferral to pay the quarterly distributions on Premier's Trust Preferred Certificates outstanding. June 16, 2003 - Press release regarding an anticipated increase in the allowance for loan losses at one of Premier's subsidiary banks. 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 14, 2003 /s/ Robert W. Walker --------------------------------------- Robert W. Walker President & Chief Executive Officer Date: August 14, 2003 /s/ Brien M. Chase --------------------------------------- Brien M. Chase Vice President & Chief Financial Officer EX-31 3 exhibit31-1.txt 302 CERTIFICATION FOR CEO Exhibit 31.1 PRINCIPAL EXECUTIVE OFFICER CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert W. Walker, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Premier Financial Bancorp, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ Robert W. Walker - ----------------------------------- Robert W. Walker President & Chief Executive Officer EX-31 4 exhibit31-2.txt 302 CERTIFICATION FOR CFO Exhibit 31.2 PRINCIPAL FINANCIAL OFFICER CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Brien M. Chase, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Premier Financial Bancorp, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ Brien M. Chase - ---------------------------------------- Brien M. Chase Vice President & Chief Financial Officer EX-32 5 exhibit32.txt 906 CERTIFICATION Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Premier Financial Bancorp, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Robert W. Walker and Brien M. Chase, Chief Executive Officer and Chief Financial Officer, respectively, of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge: o The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and o The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/Robert W. Walker --------------------------------------- Robert W. Walker President and Chief Executive Officer By: /s/ Brien M. Chase --------------------------------------- Brien M. Chase Vice President and Chief Financial Officer Date: August 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----