EX-99.1 2 pfbiletter082207.htm TEXT OF PFBI 2ND QUARTER 2007 REPORT TO SHAREHOLDERS pfbiletter082207.htm

Dear Fellow Shareholder,
Following is a summary of Premier Financial Bancorp’s financial performance for the second quarter of 2007.  Our current stock price, in my opinion, does not reflect the solid financial performance of our company as I believe Premier has been painted with the same broad brush of concern about subprime lending losses as other financial company stocks across the country.  Rest assured that this management team has not deviated from the conservative community banking principles that we have embraced our entire careers.  Our loans are well underwritten and our investments are the same highly rated governmental agency and U.S Treasury bonds that banks have purchased for years.  In the coming months, we will continue to monitor the impact that national housing market price declines may have on our local markets and collateral valuations as we maintain the adequacy of our allowance for loan losses.  We do not anticipate our markets to be impacted as severely as other areas of the country due to our markets’ historically modest increases in real estate values.
We are pleased to be ahead of our year-to-date 2007 goals.  The challenge we have for 2007 is to replace the bottom-line benefits of the 2006 negative provisions for loan losses with increases in our core earnings such as net interest income and non-interest income.  And while we had no illusions about surpassing the superior earnings results of the second quarter of 2006 due to the $819,000 of negative provisions recorded during that quarter last year, interest income is up 8.7% quarter-to-quarter, net interest income is up 3.6% quarter-to-quarter and non-interest income is up 9.8% quarter-to-quarter.
For additional detailed information on Premier, please read our Securities & Exchange Commission filings which can be found at www.sec.gov by searching the company filings section using our stock symbol “PFBI”.  Or please write to us at 2883 5th Avenue, Huntington, WV 25702.
I continue to be grateful for your support of our company and welcome your comments and suggestions.  Should you have any additional questions or need further information, please contact the company staff at the address above.

Sincerely,
Robert W. Walker, President & CEO

Contact Information:
Brien M. Chase, CFO
(304) 525-1600


PREMIER FINANCIAL BANCORP REPORTS SECOND QUARTER 2007 EARNINGS

Premier realized income of $1,790,000 (34 cents per share) during the quarter ending June 30, 2007, a 10.5% decrease over the $2,000,000 of net income reported for the second quarter of 2006 which included the benefits of a significant negative provision for loan losses.  On a per share basis, Premier earned $0.34 during the second quarter of 2007, a similar decrease from the $0.38 per share earned during the second quarter of 2006.  Net interest income increased 3.6% in 2007 but was more than offset by the effect of higher negative provisions for loan losses recorded in the second quarter of 2006 versus the second quarter of 2007.  Also benefiting the second quarter 2007 net income results, however, were a 9.8% increase in non-interest income and a 1.0% decrease in non-interest expense.  For the first half of 2007 Premier has realized net income of $3,576,000 (68 cents per share), a 6.2% increase over the $3,367,000 (64 cents per share) earned during the first half of 2006.
Net interest income for the quarter ending June 30, 2007 totaled $5.551 million, compared to $5.360 million of net interest income earned in the second quarter of 2006 and $5.511 million earned in the first quarter of 2007.  When compared to the second quarter of 2006, net interest income has increased 3.6% due to increases in interest income from loans, up $350,000 or 5.5%, and federal funds sold, up $234,000 or 79.1%, and reflects $130,000 of net interest expense savings from the retirement of Premier’s 9.75% trust preferred securities in 2006. The interest expense savings, however, were more than offset by $648,000 of additional interest expense on deposit accounts as a result of increases in interest bearing deposits and rising interest rates.  The 0.7% increase in net interest income, when compared to the first quarter of 2007, is largely due to $77,000 of additional interest income from an increase in investments available for sale and higher yields on those investments; and $65,000 of net interest expense savings on the paydown of bank debt and Federal Home Loan Bank (FHLB) borrowings. The interest savings were more than offset by $118,000 of additional interest expense on deposit accounts again as a result of increases in interest bearing deposits and rising interest rates.
Also contributing to the financial performance of the second quarter of 2007 were lower net overhead costs.  Net overhead costs for the quarter ending June 30, 2007 totaled $3.022 million. This compares to $3.161 million in the second quarter of 2006, and $3.114 million in the first quarter of 2007.  Second quarter 2007 net overhead was generally lower than the second quarter of 2006, largely due to increases in electronic banking income and secondary market mortgage income as well as lower staff costs, professional fees and supplies expense.  These reductions in net overhead more than offset increases in occupancy and equipment, OREO and other operating expenses.  When compared to the first quarter of 2007, second quarter 2007 net overhead decreased slightly due to a seasonal increase in deposit service charge and overdraft income, increases in electronic banking income and secondary market mortgage income, lower salary and benefit costs and lower data processing costs.  These decreases in net overhead were partially reduced by higher professional fees, OREO expenses and other operating expenses in the second quarter of 2007 compared to the first quarter of 2007.
During the quarter ending June 30, 2007, Premier recorded $164,000 of negative provisions to the allowance for loan losses compared to $819,000 of negative provisions made during the same period of 2006 and $36,000 of positive provisions in the first quarter of 2007.  Premier recorded negative provisions to the allowance for loan losses in the second quarter of 2006 and 2007 primarily as a result loan loss recoveries and payments on loans previously identified as having significant credit risk at Premier’s subsidiary, Farmers Deposit Bank.  Future provisions to the allowance for loan losses, positive or negative, will depend on any future improvement or deterioration in estimated credit risk in the loan portfolio as well as whether additional payments are received on loans previously identified as having significant credit risk.  As a percent of total loans outstanding, the allowance for loan losses at June 30, 2007 was relatively unchanged at 1.93% compared to 1.93% at March 31, 2007 and 1.94% at year-end 2006.
Total assets as of June 30, 2007 of $547 million were up 2.2% from the $535 million of total assets at year-end 2006.  The $11.8 million increase in total assets is largely due to a $15.1 million increase in total deposits since year-end.  These funds have been held in federal funds sold pending future loan demand, invested in higher-yielding long-term investments, and used to reduce outstanding bank debt and FHLB borrowings.  Total loans outstanding at June 30, 2007 were relatively unchanged from December 31, 2006 as new loan volume during the year has been offset by customer loan payoffs, charge-offs and collections on troubled loans.  Shareholders’ equity of $63.2 million equaled 11.6% of total assets at June 30, 2007 which compares to shareholders’ equity of $61.0 million or 11.4% of total assets at December 31, 2006.  The increase in shareholders’ equity was due to the $3.6 million of net income in the first six months of 2007, partially offset by dividend payments to shareholders and a $355,000 increase in the net unrealized loss of the investment portfolio since year-end.  Premier invests in high quality debt securities of the U.S. Government and its agencies and fully expects to receive the face value of these securities upon their maturity.

Financial Highlights (Dollars in thousands, except per share data)
Summary Income Statements
 
For the Quarter Ended
 
 
For the Six Months Ended
 
 
 
June 30
 
 
June 30
 
 
June 30
 
 
June 30
 
 
 
2007
 
 
2006
 
 
2007
 
 
2006
 
Interest Income
 
 
8,712
 
 
 
8,014
 
 
 
17,324
 
 
 
15,690
 
Interest Expense
 
 
3,161
 
 
 
2,654
 
 
 
6,262
 
 
 
5,126
 
Net Interest Income
 
 
5,551
 
 
 
5,360
 
 
 
11,062
 
 
 
10,564
 
Provision for Loan Losses
 
 
(164
)
 
 
(819
)
 
 
(128
)
 
 
(1,013
)
Net Interest Income after Provision
 
 
5,715
 
 
 
6,179
 
 
 
11,190
 
 
 
11,577
 
Non-Interest Income
 
 
1,105
 
 
 
1,006
 
 
 
2,351
 
 
 
1,904
 
Securities Transactions
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Non-Interest Expenses
 
 
4,127
 
 
 
4,167
 
 
 
8,275
 
 
 
8,413
 
Income Before Taxes
 
 
2,693
 
 
 
3,018
 
 
 
5,266
 
 
 
5,068
 
Income Taxes
 
 
903
 
 
 
1,018
 
 
 
1,690
 
 
 
1,701
 
NET INCOME
 
 
1,790
 
 
 
2,000
 
 
 
3,576
 
 
 
3,367
 
EARNINGS PER SHARE
 
 
0.34
 
 
 
0.38
 
 
 
0.68
 
 
 
0.64
 
DIVIDENDS PER SHARE
 
 
0.10
 
 
 
- 
 
 
 
0.20
 
 
 
-
 
 
 
 
 
 
Summary Balance Sheets
 
June 30
 
 
December 31
 
 
 
2007
 
 
2006
 
ASSETS
 
 
 
 
 
 
Cash and Due From Banks
 
 
16,404
 
 
 
16,974
 
Federal Funds Sold
 
 
37,025
 
 
 
27,583
 
Securities Available for Sale
 
 
123,446
 
 
 
121,367
 
Loans Held for Sale
 
 
3,578
 
 
 
1,978
 
Loans (net)
 
 
337,071
 
 
 
337,136
 
Other Real Estate Owned
 
 
501
 
 
 
495
 
Other Assets
 
 
13,418
 
 
 
14,103
 
Goodwill
 
 
15,816
 
 
 
15,816
 
TOTAL ASSETS
 
 
547,259
 
 
 
535,452
 
 
 
 
 
 
 
 
 
 
LIABILITIES & EQUITY
 
 
 
 
 
 
 
 
Deposits
 
 
454,104
 
 
 
438,950
 
Fed Funds/Repurchase Agreements
 
 
13,526
 
 
 
13,531
 
FHLB Advances
 
 
5,011
 
 
 
7,285
 
Other Borrowings
 
 
9,107
 
 
 
12,275
 
Other Liabilities
 
 
2,263
 
 
 
2,409
 
TOTAL LIABILITIES
 
 
484,011
 
 
 
474,450
 
Stockholders’ Equity
 
 
63,248
 
 
 
61,002
 
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY
 
 
547,259
 
 
 
535,452
 
 
 
 
 
 
 
 
 
 
TOTAL BOOK VALUE PER SHARE
 
 
12.08
 
 
 
11.65
 

FORWARD-LOOKING STATEMENTS
Certain Statements contained in this letter to shareholders, including without limitation statements including the word "believes," "anticipates," "intends," "expects" or words of similar import, constitute "forward-looking statements" within the meaning of section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Premier to be materially different from any future results, performance or achievements of Premier expressed or implied by such forward-looking statements. Such factors include, among others, general economic and business conditions, changes in business strategy or development plans and other factors referenced in this press release. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. Premier disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.