UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

or

o 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 incorporation organization)	(I.R.S. Employer Identification No.)
2883 Fifth Avenue Huntington, West Virginia	25702
(Address of principal executive offices)	(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 þ     No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer, ”and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer o. Accelerated filer  o.    Non-accelerated filer  o (Do not check if smaller reporting company) Smaller reporting company  þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).  Yeso     No þ.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

Common stock, no par value, – 7,937,143 shares outstanding at May 1, 2012

PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2012

INDEX TO REPORT

Part I - Financial Information
Item 1 – Financial Statements	3
Item 2 – Management’s Discussion and Analysis	39
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	48
Item 4 – Controls and Procedures	48
Part II - Other Information	49
Item 1 – Legal Proceedings	49
Item 1A – Risk Factors	49
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3 – Defaults Upon Senior Securities	49
Item 4 – Mine Safety Disclosures	49
Item 5 – Other Information	49
Item 6 – Exhibits	49
Signatures -	50

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PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2012

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 Financial Bancorp, Inc.’s (“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, the identification and evaluation of impaired loans, the impairment of goodwill, the realization of deferred tax assets and stock based compensation disclosures.  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 report on Form 10-K.  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, 2011 for further information in this regard.

Index to consolidated financial statements:

Consolidated Balance Sheets	4
Consolidated Statements of Income	5
Consolidated Statements of Comprehensive Income	6
Consolidated Statements of Cash Flows	7
Notes to Consolidated Financial Statements	9

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2012 AND DECEMBER 31, 2011

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	(UNAUDITED)
	2012			2011
ASSETS
Cash and due from banks	$	29,256		$	29,380
Interest bearing bank balances		51,894			42,676
Federal funds sold		10,295			10,832
Cash and cash equivalents		91,445			82,888
Securities available for sale		301,112			278,479
Loans held for sale		947			70
Loans		673,999			690,923
Allowance for loan losses		(10,311	)		(9,795	)
Net loans		663,688			681,128
Federal Home Loan Bank stock		5,216			5,216
Premises and equipment, net		16,370			16,355
Real estate and other property acquired through foreclosure		16,551			14,642
Interest receivable		3,453			3,497
Goodwill		29,875			29,875
Other intangible assets		3,220			3,393
Prepaid FDIC insurance premiums		942			1,167
Deferred taxes		3,084			3,997
Other assets		2,297			3,380
Total assets	$	1,138,200		$	1,124,087
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing	$	200,163		$	196,125
Time deposits, $100,000 and over		153,982			155,208
Other interest bearing		594,070			573,745
Total deposits		948,215			925,078
Securities sold under agreements to repurchase		21,634			23,205
Federal Home Loan Bank advances		24			10,083
Other borrowed funds		17,613			18,130
Interest payable		657			712
Other liabilities		2,806			2,872
Total liabilities		990,949			980,080
Stockholders' equity
Preferred stock, no par value; $22,252 liquidation preference,
5% cumulative, 1,000,000 shares authorized; 22,252 shares issued and outstanding		21,977			21,949
Common stock, no par value; 20,000,000 shares authorized;
7,937,143 shares issued and outstanding		71,599			71,571
Retained earnings		47,998			45,474
Accumulated other comprehensive income		5,677			5,013
Total stockholders' equity		147,251			144,007
Total liabilities and stockholders' equity	$	1,138,200		$	1,124,087

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	Three Months Ended March 31,
	2012		2011
Interest income
Loans, including fees	$	12,337	$	10,940
Securities available for sale
Taxable		1,791		1,936
Tax-exempt		56		62
Federal funds sold and other		32		53
Total interest income		14,216		12,991
Interest expense
Deposits		1,535		1,932
Repurchase agreements and other		26		47
FHLB advances and other borrowings		237		263
Total interest expense		1,798		2,242
Net interest income		12,418		10,749
Provision for loan losses		950		520
Net interest income after provision for loan losses		11,468		10,229
Non-interest income
Service charges on deposit accounts		830		888
Electronic banking income		488		449
Secondary market mortgage income		25		88
Other		174		186
		1,517		1,611
Non-interest expenses
Salaries and employee benefits		3,963		4,031
Occupancy and equipment expenses		1,181		1,236
Outside data processing		872		1,207
Professional fees		284		260
Taxes, other than payroll, property and income		155		193
Write-downs, expenses, sales of other real estate owned, net		214		84
Amortization of intangibles		173		210
Conversion expenses		-		379
FDIC insurance		242		508
Loan collection expenses		669		190
Other expenses		841		1,009
		8,594		9,307
Income before income taxes		4,391		2,533
Provision for income taxes		1,561		862
Net income	$	2,830	$	1,671
Preferred stock dividends and accretion		305		305
Net income available to common stockholders	$	2,525	$	1,366
Net income per share:
Basic	$	0.32	$	0.17
Diluted		0.31		0.17

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	Three Months Ended March 31,
	2012		2011
Net income	$	2,830	$	1,671
Other comprehensive income:
Unrealized gains arising during the period		1,006		1,689
Net change in unrealized gain (loss) on securities		1,006		1,689
Less tax impact		342		574
Other comprehensive income:		664		1,115
Comprehensive income	$	3,494	$	2,786

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	2012			2011
Cash flows from operating activities
Net income	$	2,830		$	1,671
Adjustments to reconcile net income to net cash from operating activities
Depreciation		362			376
Provision for loan losses		950			520
Amortization (accretion), net		(1,665	)		(334	)
OREO writedowns (gains on sales), net		(54	)		(16	)
Stock compensation expense		28			17
Loans originated for sale		(3,327	)		(4,375	)
Secondary market loans sold		2,475			5,635
Secondary market income		(25	)		(88	)
Changes in :
Interest receivable		44			103
Other assets		1,879			329
Interest payable		(55	)		(24	)
Other liabilities		(66	)		134
Net cash from operating activities		3,376			3,948
Cash flows from investing activities
Purchases of securities available for sale		(32,299	)		(36,815	)
Proceeds from maturities and calls of securities available for sale		10,255			13,208
Redemption of FRB and FHLB  stock, (net of purchases)		-			59
Net change in loans		16,086			12,928
Purchases of premises and equipment, net		(377	)		(144	)
Proceeds from sales of other real estate acquired through foreclosure		727			359
Net cash from investing activities		(5,608	)		(10,405	)
Cash flows from financing activities
Net change in deposits		23,173			11,244
Preferred Stock dividends paid		(278	)		-
Net change in short-term Federal Home Loan Bank advances		-			(2,400	)
Repayment of Federal Home Loan Bank advances		(10,018	)		(41	)
Repayment of other borrowed funds		(517	)		(510	)
Net change in agreements to repurchase securities		(1,571	)		(7,162	)
Net cash from financing activities		10,789			1,131
Net change in cash and cash equivalents		8,557			(5,326	)
Cash and cash equivalents at beginning of period		82,888			122,248
Cash and cash equivalents at end of period	$	91,445		$	116,922

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	2012		2011
Supplemental disclosures of cash flow information:
Cash paid during period for interest	$	1,853	$	2,266
Loans transferred to real estate acquired through foreclosure		2,582		145

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  1 - BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Premier Financial Bancorp, Inc. (the Company) and its wholly owned subsidiaries (the “Banks”):

					March 31, 2012
		Year	Total		Net Income
Subsidiary	Location	Acquired	Assets		Qtr
Citizens Deposit Bank & Trust	Vanceburg, Kentucky	1991	$	217,222	$	976
Farmers Deposit Bank	Eminence, Kentucky	1996		60,259		119
Ohio River Bank	Ironton, Ohio	1998		97,306		242
Premier Bank, Inc.	Huntington, West Virginia	1998		755,659		2,016
Parent and Intercompany Eliminations				7,754		(523	)
Consolidated Total			$	1,138,200	$	2,830

All significant intercompany transactions and balances have been eliminated.

Recently Issued Accounting Pronouncements

In June 2011, the FASB issued ASU No. 2011-05, "Comprehensive Income (Topic 220) - Presentation of Comprehensive Income." The ASU requires entities to present items of net income and other comprehensive income either in one continuous statement - referred to as the statement of comprehensive income - or in two separate, but consecutive, statements of net income and other comprehensive income. The ASU is effective for the first interim period and annual period beginning after December 15, 2011. The adoption of this guidance did not  have a material impact upon the Company’s financial statements.

In May 2011, the FASB issued ASU No. 2011-04, "Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." This ASU represents the converged guidance of the FASB and the IASB (the "Boards") on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term "fair value." The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. Included in the ASU are requirements to disclose additional quantitative disclosures about unobservable inputs for all Level 3 fair value measurements, as well as qualitative disclosures about the sensitivity inherent in recurring Level 3 fair value measurements. The ASU is effective during interim and annual periods beginning after December 15, 2011. The adoption of this guidance did not have a material impact upon the Company’s financial statements.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  2 –SECURITIES

Amortized cost and fair value of investment securities, by category, at March 31, 2012 are summarized as follows:

2012	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. sponsored agency MBS - residential	$	38,935	$	1,910	$	(8	)	$	40,837
U. S. sponsored agency CMO’s - residential		206,978		5,234		(1	)		212,211
Total mortgage-backed securities of government sponsored agencies		245,913		7,144		(9	)		253,048
U. S. government sponsored agency securities		33,078		28		(155	)		32,951
Obligations of states and political subdivisions		9,179		461		-			9,640
Other securities subdivisions		4,340		1,205		(72	)		5,473
Total available for sale	$	292,510	$	8,838	$	(236	)	$	301,112

Amortized cost and fair value of investment securities, by category, at December 31, 2011 are summarized as follows:

2011	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. sponsored agency MBS - residential	$	38,403	$	1,856	$	(4	)	$	40,255
U. S. sponsored agency CMO’s - residential		200,835		4,933		(30	)		205,738
Total mortgage-backed securities of government sponsored agencies		239,238		6,789		(34	)		245,993
U. S. government sponsored agency securities		18,114		58		(31	)		18,141
Obligations of states and political subdivisions		9,193		457		-			9,650
Other securities subdivisions		4,338		440		(83	)		4,695
Total available for sale	$	270,883	$	7,744	$	(148	)	$	278,479

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  2–SECURITIES - continued

The amortized cost and fair value of securities at March 31, 2012 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Fair Value
Available for sale
Due in one year or less	$	1,050	$	1,061
Due after one year through five years		21,185		21,349
Due after five years through ten years		20,585		20,719
Due after ten years		2,685		3,475
Corporate preferred securities		1,092		1,460
Mortgage-backed securities of government sponsored agencies		245,913		253,048
Total available for sale	$	292,510	$	301,112

Securities with unrealized losses at March 31, 2012 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

	Less than 12 Months					12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. government sponsored agency securities	$	19,851	$	(155	)	$	-	$	-	$	19,851	$	(155	)
U.S government sponsored agency MBS – residential		3,093		(8	)		-		-		3,093		(8	)
U.S government sponsored agency CMO – residential		3,693		(1	)		-		-		3,693		(1	)
Other securities		4		(72	)		-		-		4		(72	)
Total temporarily impaired	$	26,641	$	(236	)	$	-	$	-	$	26,641	$	(236	)

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  2–SECURITIES - continued

Securities with unrealized losses at December 31, 2011 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

	Less than 12 Months					12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. government sponsored agency securities	$	7,080	$	(31	)	$	-	$	-	$	7,080	$	(31	)
U.S government sponsored agency MBS – residential		2,544		(4	)		-		-		2,544		(4	)
U.S government sponsored agency CMO – residential		3,941		(30	)		-		-		3,941		(30	)
Other securities		370		(83	)		-		-		370		(83	)
Total temporarily impaired	$	13,935	$	(148	)	$	-	$	-	$	13,935	$	(148	)

The investment portfolio is predominately high quality interest-bearing debt securities with defined maturity dates backed by the U.S. Government or Government sponsored entities.  The unrealized losses at March 31, 2012 and December 31, 2011 are price changes resulting from changes in the interest rate environment and are not considered to be other than temporary declines in the value of the securities.  Their fair value is expected to recover as the bonds approach their maturity date and/or market conditions improve.

NOTE  3 - LOANS

Major classifications of loans at March 31, 2012 and December 31, 2011 are summarized as follows:

	2012		2011
Residential real estate	$	218,260	$	221,756
Multifamily real estate		33,237		34,335
Commercial real estate:
Owner occupied		101,607		101,864
Non owner occupied		163,869		166,540
Commercial and industrial		71,566		76,960
Consumer		28,751		30,090
All other		56,709		59,378
	$	673,999	$	690,923

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  3–LOANS - continued

Activity in the allowance for loan losses by portfolio segment for the three months ending March 31, 2012 was as follows:

Loan Class	Balance Dec 31, 2011		Provision for loan losses			Loans charged-off		Recoveries		Balance March 31, 2012
Residential real estate	$	2,134	$	276		$	65	$	23	$	2,368
Multifamily real estate		284		150			-		-		434
Commercial real estate:
Owner occupied		918		121			15		-		1,024
Non owner occupied		2,381		(22	)		38		-		2,321
Commercial and industrial		1,880		544			2		-		2,422
Consumer		298		47			66		26		305
All other		1,900		(166	)		335		38		1,437
Total	$	9,795	$	950		$	521	$	87	$	10,311

Activity in the allowance for loan losses by portfolio segment for the three months ending March 31, 2011 was as follows:

Loan Class	Balance Dec 31, 2010		Provision for loan losses			Loans charged-off		Recoveries		Balance March 31, 2011
Residential real estate	$	2,666	$	168		$	80	$	6	$	2,760
Multifamily real estate		252		51			-		-		303
Commercial real estate:
Owner occupied		1,141		115			-		2		1,258
Non owner occupied		1,644		267			16		1		1,896
Commercial and industrial		2,421		(151	)		16		8		2,262
Consumer		366		23			28		25		386
All other		1,375		47			40		35		1,417
Total	$	9,865	$	520		$	180	$	77	$	10,282

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  3–LOANS - continued

Purchased Loans

As a result of the acquisition Abigail Adams National Bancorp, the Company holds purchased loans for which there was, at the October 1, 2009 acquisition date, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected.  The carrying amount of those loans is as follows at March 31, 2012 and December 31, 2011.

	2012		2011
Residential real estate	$	279	$	282
Multifamily real estate		3,611		3,708
Commercial real estate
Owner occupied		291		1,934
Non owner occupied		6,388		6,427
Commercial and industrial		565		583
All other		1,553		1,925
Total carrying amount	$	12,687	$	14,859
Carrying amount, net of allowance	$	12,687	$	14,859

The Company cannot reasonably estimate the cash flows expected to be collected on these loans and therefore has continued to account for these loans using the cost recovery method of income recognition.  As such, no portion of a purchase discount adjustment has been determined to meet the definition of an accretable yield adjustment.  If, in the future, cash flows from the borrower(s) can be reasonably estimated, a portion of the purchase discount would be allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion would be recognized as interest income over the remaining life of the loan. Until such accretable yield can be calculated, under the cost recovery method of income recognition, all payments will be used to reduce the carrying value of the loan and no income will be recognized on the loan until the carrying value is reduced to zero.  Any loan accounted for under the cost recovery method is also still included as a non-accrual loan in the amounts presented in the tables below.

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses for the three months ended March 31, 2012 and decreased the allowance for loan losses by $143 for the three months ended March 31, 2011.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  3–LOANS - continued

Past Due and Non-performing Loans

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2012 and December 31 2011.  The recorded investment in non-accrual loans is less than the principal owed on non-accrual loans due to discounts applied to the carrying value of the loan at time of their acquisition and interest payments made by the borrower which have been used to reduce the recorded investment in the loan rather than recognized as interest income.

March 31, 2012	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
Residential  real estate	$	4,186	$	3,750	$	1,194
Multifamily real estate		4,724		3,048		1,065
Commercial real estate
Owner occupied		6,570		5,751		1,254
Non owner occupied		14,028		10,744		847
Commercial and industrial		4,905		3,366		1,179
Consumer		127		110		9
All other		6,251		2,421		1
Total	$	40,791	$	29,190	$	5,549

December 31, 2011	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
Residential  real estate	$	4,479	$	4,111	$	1,216
Multifamily real estate		13,118		11,139		-
Commercial real estate
Owner occupied		9,970		8,260		851
Non owner occupied		12,938		9,835		1,596
Commercial and industrial		4,756		3,227		814
Consumer		246		237		50
All other		9,198		5,545		-
Total	$	54,705	$	42,354	$	4,527

Nonaccrual loans and impaired loans are defined differently. Some loans may be included in both categories, and some may only be included in one category. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  3–LOANS - continued

The following table presents the aging of the recorded investment in past due loans as of March 31, 2012 by class of loans:

Loan Class	Total Loans		30-89 Days Past Due		Greater than 90 days past due		Total Past Due		Loans Not Past Due
Residential real estate	$	218,260	$	4,129	$	4,135	$	8,264	$	209,996
Multifamily real estate		33,237		3,227		1,915		5,142		28,095
Commercial real estate:
Owner occupied		101,607		1,201		6,427		7,628		93,979
Non owner occupied		163,869		682		6,206		6,888		156,981
Commercial and industrial		71,566		613		4,036		4,649		66,917
Consumer		28,751		272		39		311		28,440
All other		56,709		78		2,418		2,496		54,213
Total	$	673,999	$	10,202	$	25,176	$	35,378	$	638,621

The following table presents the aging of the recorded investment in past due loans as of December 31, 2011 by class of loans:

Loan Class	Total Loans		30-89 Days Past Due		Greater than 90 days past due		Total Past Due		Loans Not Past Due
Residential real estate	$	221,756	$	6,729	$	3,635	$	10,364	$	211,392
Multifamily real estate		34,335		3,249		8,892		12,141		22,194
Commercial real estate:
Owner occupied		101,864		8,081		3,981		12,062		89,802
Non owner occupied		166,540		2,444		6,065		8,509		158,031
Commercial and industrial		76,960		1,714		3,153		4,867		72,093
Consumer		30,090		497		233		730		29,360
All other		59,378		222		5,532		5,754		53,624
Total	$	690,923	$	22,936	$	31,491	$	54,427	$	636,496

- 16 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  3–LOANS - continued

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2012:

	Allowance for Loan Losses								Loan Balances
Loan Class	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total
Residential real estate	$	561	$	1,807	$	-	$	2,368	$	9,974	$	208,007	$	279	$	218,260
Multifamily real estate		-		434		-		434		1,282		28,344		3,611		33,237
Commercial real estate:
Owner occupied		149		875		-		1,024		7,454		93,862		291		101,607
Non-owner occupied		880		1,441		-		2,321		5,241		152,240		6,388		163,869
Commercial and industrial		1,781		641		-		2,422		10,749		60,252		565		71,566
Consumer		37		268		-		305		37		28,714		-		28,751
All other		167		1,270		-		1,437		5,315		49,841		1,553		56,709
Total	$	3,575	$	6,736	$	-	$	10,311	$	40,052	$	621,260	$	12,687	$	673,999

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2011:

	Allowance for Loan Losses								Loan Balances
Loan Class	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Acquired with Deteriorated Credit Quality		Total
Residential real estate	$	451	$	1,683	$	-	$	2,134	$	9,795	$	211,679	$	282	$	221,756
Multifamily real estate		-		284		-		284		8,594		22,033		3,708		34,335
Commercial real estate:
Owner occupied		138		780		-		918		8,663		91,267		1,934		101,864
Non-owner occupied		922		1,459		-		2,381		5,147		154,966		6,427		166,540
Commercial and industrial		894		986		-		1,880		3,636		72,741		583		76,960
Consumer		37		261		-		298		37		30,053		-		30,090
All other		605		1,295		-		1,900		8,372		49,081		1,925		59,378
Total	$	3,047	$	6,748	$	-	$	9,795	$	44,244	$	631,820	$	14,859	$	690,923

- 17 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  3–LOANS - continued

In the tables below, total individually evaluated impaired loans include certain purchased loans that were acquired with deteriorated credit quality that are still individually evaluated for impairment.

The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2012.  The table includes $12,687 of loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential  real estate	$	5,486	$	5,199	$	-
Multifamily real estate		7,108		4,893		-
Commercial real estate
Owner occupied		8,312		7,090		-
Non owner occupied		12,581		9,485		-
Commercial and industrial		4,102		3,038		-
All other		10,496		6,667		-
		48,085		36,372		-
With an allowance recorded:
Residential  real estate	$	5,100	$	5,054	$	561
Commercial real estate
Owner occupied		655		655		149
Non owner occupied		2,199		2,144		880
Commercial and industrial		8,586		8,276		1,781
Consumer		37		37		37
All other		201		201		167
		16,778		16,367		3,575
Total	$	64,863	$	52,739	$	3,575

- 18 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  3–LOANS - continued

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2011.  The table includes $14,859 of loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential  real estate	$	5,602	$	5,329	$	-
Multifamily real estate		15,513		12,302		-
Commercial real estate
Owner occupied		10,939		9,291		-
Non owner occupied		12,296		9,383		-
Commercial and industrial		3,392		2,287		-
All other		8,957		5,306		-
		56,699		43,898		-
With an allowance recorded:
Residential  real estate	$	4,803	$	4,748	$	451
Commercial real estate
Owner occupied		1,384		1,306		138
Non owner occupied		2,240		2,191		922
Commercial and industrial		2,242		1,932		894
Consumer		37		37		37
All other		4,992		4,991		605
		15,698		15,205		3,047
Total	$	72,397	$	59,103	$	3,047

- 19 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  3–LOANS - continued

The following table presents the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the three months ended March 31, 2012 and March 31, 2011.   The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Three months ended March 31, 2012						Three months ended March 31, 2011
Loan Class	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
Residential real estate	$	10,165	$	128	$	123	$	263	$	2	$	2
Multifamily real estate		8,598		1,307		1,303		6,668		-		-
Commercial real estate:
Owner occupied		9,171		894		885		11,790		13		14
Non-owner occupied		11,602		35		26		11,206		7		7
Commercial and industrial		7,767		107		107		8,379		173		174
Consumer		37		1		1		41		1		1
All other		8,583		97		81		12,743		6		9
Total	$	55,923	$	2,569	$	2,526	$	51,090	$	202	$	207

- 20 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  3–LOANS - continued

Troubled Debt Restructurings

A loan is classified as a troubled debt restructuring ("TDR") when loan terms are modified due to a borrower's financial difficulties and a concession is granted to a borrower that would not have otherwise been considered. Most of the Company’s loan modifications involve a restructuring of loan terms prior to maturity to temporarily reduce the payment amount and/or to require only interest for a temporary period, usually up to six months.  These modifications generally do not meet the definition of a TDR because the modifications are considered to be an insignificant delay in payment.

The following table presents TDR’s as of March 31, 2012 and December 31, 2011:

March 31, 2012	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential  real estate	$	317	$	1,086	$	1,403
Commercial real estate
Owner occupied		4,486		-		4,486
Non owner occupied		3,053		1,620		4,673
Commercial and industrial		45		2,890		2,935
Consumer		9		1		10
All other		-		2,039		2,039
Total	$	7,910	$	7,636	$	15,546

December 31, 2011	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential  real estate	$	59	$	1,371	$	1,430
Commercial real estate
Owner occupied		4,541		-		4,541
Non owner occupied		3,135		1,641		4,776
Commercial and industrial		42		897		939
Consumer		11		1		12
All other		-		2,041		2,041
Total	$	7,788	$	5,951	$	13,739

At March 31, 2012 $145,000 in specific reserves was allocated to loans that had restructured terms.  At December 31, 2011 $238,000 in specific reserves was allocated to loans that had restructured terms.

- 21 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  3–LOANS - continued

The following table presents TDR’s that occurred during the three ended March 31, 2012:

	Three months ended March 31, 2012
Loan Class	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial and industrial		2	$	1,999	$	1,999

The troubled debt restructurings described above increased the allowance for loan losses by $40,000 during the period ending March 31, 2012.

During the three months ended March 31, 2012 and the three months ended March 31, 2011, there were no TDR’s for which there as a payment default within twelve months following the modification.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

- 22 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  3–LOANS - continued

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes non-homogeneous loans, such as commercial, commercial real estate, multifamily residential and commercial purpose loans secured residential real estate, on a monthly basis.  For consumer loans, including consumer loans secured by residential real estate, the analysis involves monitoring the performing status of the loan.  At the time such loans become past due by 30 days or more, the Company evaluates the loan to determine if a change in risk category is warranted. The Company uses the following definitions for risk ratings:

Special Mention.  Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard.  Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

- 23 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  3–LOANS - continued

As of March 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Loan Class	Pass		Special Mention		Substandard		Doubtful		Total Loans
Residential real estate	$	196,506	$	7,131	$	14,373	$	250	$	218,260
Multifamily real estate		23,133		2,212		7,892		-		33,237
Commercial real estate:
Owner occupied		81,948		5,294		14,365		-		101,607
Non-owner occupied		143,810		4,757		15,302		-		163,869
Commercial and industrial		53,249		6,808		11,486		23		71,566
Consumer		28,505		149		60		37		28,751
All other		44,210		1,138		10,583		778		56,709
Total	$	571,361	$	27,489	$	74,061	$	1,088	$	673,999

As of December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Loan Class	Pass		Special Mention		Substandard		Doubtful		Total Loans
Residential real estate	$	198,865	$	8,105	$	14,731	$	55	$	221,756
Multifamily real estate		16,798		2,218		15,319		-		34,335
Commercial real estate:
Owner occupied		79,753		5,377		16,600		134		101,864
Non-owner occupied		146,305		4,883		15,352		-		166,540
Commercial and industrial		58,158		8,675		10,095		32		76,960
Consumer		29,753		198		102		37		30,090
All other		43,485		1,052		14,064		777		59,378
Total	$	573,117	$	30,508	$	86,263	$	1,035	$	690,923

- 24 -

 PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  4 – FEDERAL HOME LOAN BANK ADVANCES

The Banks own stock of the Federal Home Loan Bank (FHLB) of Cincinnati, Ohio, the FHLB of Pittsburgh, Pennsylvania, and the FHLB of Atlanta, Georgia. This stock allows the Banks to borrow advances from the FHLB.

Advances from the FHLB at March 31, 2012 and December 31, 2011 were as follows:

	2012		2011
Payments due at maturity in March 2012, fixed rate at 1.81%	$	-	$	10,042
Payments due monthly with maturity in July 2012, fixed rate at 4.40%		24		41
	$	24	$	10,083

Advances are secured by the FHLB stock, certain pledged investment securities and substantially all single family first mortgage loans of the participating Banks.  Principal payments on all FHLB advances are due during the year ending December 31, 2012.

- 25 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  5 - STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS

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 2012 the Banks could, without prior approval, declare dividends to Premier of approximately $7.4 million plus any 2012 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 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 March 31, 2012, 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:

	Mar 31, 2012			December 31, 2011			Regulatory Minimum Requirements			To Be Considered Well Capitalized
Tier I Capital (to Risk-Weighted Assets)		16.8	%		16.0	%		4.0	%		6.0	%
Total Capital (to Risk-Weighted Assets)		18.0	%		17.2	%		8.0	%		10.0	%
Tier I Capital (to Average Assets)		10.3	%		10.0	%		4.0	%		5.0	%

As of March 31, 2012, the most recent notification from each of the Banks’ primary Federal regulators categorized the subsidiary Banks as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, the Banks 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 Banks’ categories.

- 26 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  5 - STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS - continued

The July 29, 2010 Written Agreement between the Premier, the FRB and the Virginia Bureau requires Premier to obtain prior written approval of the FRB and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System for declaring or paying any dividends, and also requires prior written approval of the FRB before incurring, increasing or guaranteeing any debt or purchasing or redeeming any shares of its stock.

- 27 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  6 – PREFERRED STOCK

On October 2, 2009, as part of the Troubled Asset Relief Program (“TARP”) Capital Purchase Program, the Company entered into a Letter Agreement and Securities Purchase Agreement (collectively, the “Purchase Agreement”) with the United States Department of the Treasury (“U.S. Treasury”).  Pursuant to the Purchase Agreement, the Company issued and sold to the U.S. Treasury 22,252 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, no par value, with a liquidation preference of one thousand dollars per share (the “Series A Preferred Stock”) and a ten-year warrant (the “Warrant”) to purchase 628,587 shares of the Company’s common stock, no par value, at an exercise price of $5.31 per share, for an aggregate purchase price of $22,252 in cash.

Under standardized TARP Capital Purchase Program terms, cumulative dividends on the Series A Preferred Stock will accrue on the liquidation preference at a rate of 5% per annum until November 14, 2014, and at a rate of 9% per annum thereafter.  These dividends will be paid only if, as and when declared by Premier’s Board of Directors.  The Series A Preferred Stock has no maturity date and ranks senior to the Company’s common stock with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of Premier.  Subject to the approval of the Appropriate Federal Banking Agency (as defined in the Securities Purchase Agreement, which for Premier is the Board of Governors of the Federal Reserve System), the Series A Preferred Stock is redeemable at the option of Premier at 100% of its liquidation preference plus accrued and unpaid dividends, without penalty, delay or the need to raise additional replacement capital.

The Series A Preferred Stock is non-voting, but has class voting rights on (i) any authorization or issuance of shares ranking senior to the Series A Preferred Stock; (ii) any amendment to the rights of the Series A Preferred Stock; or (iii) any merger, consolidation, share exchange, reclassification or similar transaction which would adversely affect the rights of the Series A Preferred Stock.  In the event that the cumulative dividends described above are not paid in full for an aggregate of six dividend periods or more, whether or not consecutive, the authorized number of directors of Premier would automatically be increased by two and the holders of the Series A Preferred Stock would have the right to elect two directors.  The right to elect directors would end when dividends have been paid in full for four consecutive dividend periods.As previously disclosed, Premier has already deferred two dividend payments on the Series A Preferred Stock as a result of the Federal Reserve Board’s refusal to initially approve the November 15, 2010 and February 15, 2011 dividends under the Written Agreement dated July 29, 2010, among CB&T, a wholly owned subsidiary of Premier; the FRB, and the Virginia Bureau. These deferred dividends were paid along with the regularly scheduled May 15, 2011 Series A Preferred Stock quarterly dividend.

- 28 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  6 – PREFERRED STOCK - continued

The U.S. Treasury has agreed not to exercise voting power with respect to any common stock issued to it upon exercise of the Warrant.  The common stock will be issued from authorized but unissued common stock and thus will dilute the interests of existing Premier common shareholders.  As of March 31, 2012, the Warrant has not yet been exercised.

Pursuant to the terms of the Purchase Agreement, the ability of the Company to declare or pay dividends or distributions on, or purchase, redeem or otherwise acquire for consideration, shares of its common stock will be subject to restrictions, including a restriction against increasing dividends from the last quarterly cash dividend per share ($0.11) declared on the common stock prior to October 2, 2009.

NOTE  7 – STOCK COMPENSATION EXPENSE

From time to time the Company grants stock options to its employees.  The Company estimates the fair value of the options at the time they are granted to employees and expenses that fair value over the vesting period of the option grant.

On March 21, 2012, 105,700 incentive stock options were granted out of the 2002 Employee Stock Option Plan at an exercise price of $7.47, the closing market price of Premier on the grant date.  These options vest in three equal annual installments ending on March 21, 2015.  On March 18, 2011, 102,000 incentive stock options were granted out of the 2002 Employee Stock Option Plan at an exercise price of $6.95 the closing market price of Premier on the grant date.  These options vest in three equal annual installments ending on March 18, 2014.  On March 17, 2010, 47,700 incentive stock options were granted out of the 2002 Plan at an exercise price of $8.90.  These options vest in three equal annual installments ending on March 17, 2013.

The fair value of the Company's employee stock options granted is estimated at the date of grant using the Black-Scholes option-pricing model. This model requires the input of highly subjective assumptions, changes to which can materially affect the fair value estimate. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. The assumptions used in the Black-Scholes option-pricing model are as follows

	2012			2011			2010
Risk-free interest rate		2.31	%		3.58	%		3.65	%
Expected option life (yrs)		10.00			10.00			10.00
Expected stock price volatility		34.93	%		30.01	%		24.67	%
Dividend yield		2.68	%		4.03	%		4.94	%
Weighted average fair value of options granted during the year	$	2.34		$	1.63		$	1.41

- 29 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  7– STOCK COMPENSATION EXPENSE - continued

The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield in effect at the time of the grant.  The expected option life was estimated since there has been little option exercise history.  The expected stock price volatility is based on historical volatilities of the Company’s common stock.  The dividend yield was estimated using historical dividends and dividend yields since at the time of the option grant the Company is restricted from paying dividends by its primary regulator.

Compensation expense of $28,000 was recorded for the first three months of 2012 while $17,000 was recorded for the first three months of 2011.  Stock-based compensation expense is recognized ratably over the requisite vesting period for all awards. Unrecognized stock-based compensation expense related to stock options totaled $305,000 at March 31, 2012. This unrecognized expense is expected to be recognized over the next 35 months based on the vesting periods of the options.

A summary of the Company’s stock option activity and related information is presented below for the three months ended March 31:

	- - - - - - 2012 - - - - - -					- - - - - - 2011 - - - - - -
				Weighted Average Exercise				Weighted Average Exercise
	Options			Price		Options		Price
Outstanding at beginning of year		350,949		$	10.77		255,649	$	10.77
Grants		105,700			7.47		102,000		6.95
Exercises		-			-		-		-
Forfeitures or expired		(4,332	)		7.70		-		-
Outstanding at March 31,		452,317		$	9.19		357,649	$	9.68
Exercisable at March 31,		268,364					209,996
Weighted average remaining life of options outstanding		7.0					7.2
Weighted average fair value of options granted during the year	$	2.34				$	1.63

Options outstanding at period-end are expected to fully vest.

- 30 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  7 – STOCK COMPENSATION EXPENSE - continued

Additional information regarding stock options outstanding and exercisable at March 31, 2012, is provided in the following table:

	- - - - - - - - Outstanding - - - - - - - -						- - - - - - - - Currently Exercisable - - - - - - - -
Range of Exercise Prices	Number		Weighted Average Exercise Price		Aggregate Intrinsic Value		Number		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Aggregate Intrinsic Value
$6.50 to $10.00		327,684	$	7.51	$	100		143,731		6.1	$	7.66	$	61
$10.01 to $12.50		28,333		11.62		-		28,333		2.8		11.62		-
$12.51 to $15.00		68,800		13.47		-		68,800		5.4		13.47		-
$15.01 to $17.50		27,500		16.00		-		27,500		3.9		16.00		-
Outstanding - Mar 31, 2012		452,317		9.19	$	100		268,364		5.4		10.42	$	61

NOTE  8 – EARNINGS PER SHARE

A reconciliation of the numerators and denominators of the earnings per common share and earnings per common share assuming dilution computations for the three months ended March 31, 2012 and 2011 is presented below:

	Three Months Ended March 31,
	2012		2011
Basic earnings per share
Income available to common stockholders	$	2,525	$	1,366
Weighted average common shares outstanding		7,937,143		7,937,143
Earnings per share	$	0.32	$	0.17
Diluted earnings per shares
Income available to common stockholders	$	2,525	$	1,366
Weighted average common shares outstanding		7,937,143		7,937,143
Add dilutive effects of potential additional common stock		88,490		142,581
Weighted average common and dilutive potential common shares outstanding		8,025,633		8,079,724
Earnings per share assuming dilution	$	0.31	$	0.17

Stock options for 456,649 and 311,049 shares of common stock were not considered in computing diluted earnings per share for the three months ended March 31, 2012 and 2011 because they were antidilutive.

- 31 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  9 – FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. However, certain assets and liabilities are not traded in observable markets and the Company must use other valuation methods to develop a fair value.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument measured on a recurring basis:

Investment Securities:  The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

- 32 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  9 – FAIR VALUE - continued

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements at  March 31, 2012 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets  (Level 1)		Significant Other Observable Inputs  (Level 2)		Significant Unobservable Inputs  (Level 3)
Available for sale
Mortgage-backed securities
U. S. agency MBS - residential	$	40,837	$	-	$	40,837	$	-
U. S. agency CMO’s - residential		212,211		-		212,211		-
Total mortgage-backed securities of government sponsored agencies		253,048		-		253,048		-
U. S. government sponsored agency securities		32,951		-		32,951		-
Obligations of states and political subdivisions		9,640		-		9,500		140
Other securities		5,473		-		5,473		-
Total available for sale	$	301,112	$	-	$	300,972	$	140

			Fair Value Measurements at  December 31, 2011 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets  (Level 1)		Significant Other Observable Inputs  (Level 2)		Significant Unobservable Inputs  (Level 3)
Available for sale
Mortgage-backed securities
U. S. agency MBS - residential	$	40,255	$	-	$	40,255	$	-
U. S. agency CMO’s - residential		205,738		-		205,738		-
Total mortgage-backed securities of government sponsored agencies		245,993		-		245,993		-
U. S. government sponsored agency securities		18,141		-		18,141		-
Obligations of states and political subdivisions		9,650		-		9,510		140
Other securities		4,695		-		4,695		-
Total available for sale	$	278,479	$	-	$	278,339	$	140

- 33 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  9 – FAIR VALUE - continued

The carrying amounts and estimated fair values of financial instruments at March 31, 2012 were as follows:

				Fair Value Measurements at March 31, 2012 Using
	Carrying Amount			Level 1			Level 2			Level 3		Total
Financial assets
Cash and due from banks	$	81,150		$	81,150		$	-		$	-	$	81,150
Federal funds sold		10,295			10,295			-			-		10,295
Securities available for sale		301,112			-			301,972			140		301,112
Loans held for sale		947			-			947			-		947
Loans, net		663,688			-			-			660,360		660,360
Federal Home Loan Bank stock		5,216			n/a			n/a			n/a		n/a
Interest receivable		3,453			-			959			2,494		3,453
Financial liabilities
Deposits	$	(948,215	)	$	(565,401	)	$	(387,637	)	$	-	$	(953,038	)
Securities sold under agreements to repurchase		(21,634	)		-			(21,634	)-		-		(21,634	)
Federal Home Loan Bank advances		(24	)		-			(24	)		-		(24	)
Other borrowed funds		(17,613	)		-			(17,583	)		-		(17,583	)
Interest payable		(657	)		(7	)		(650	)		-		(657	)

The carrying amounts and estimated fair values of financial instruments at December 31, 2011 were as follows:

	Carrying Amount			Fair Value
Financial assets
Cash and due from banks	$	72,056		$	72,056
Federal funds sold		10,832			10,832
Securities available for sale		278,479			278,479
Loans held for sale		70			70
Loans, net		681,128			675,616
Federal Home Loan Bank stock		5,216			n/a
Interest receivable		3,497			3,497
Financial liabilities
Deposits	$	(925,078	)	$	(929,796	)
Securities sold under agreements to repurchase		(23,205	)		(23,205	)
Federal Home Loan Bank advances		(10,083	)		(10,141	)
Other borrowed funds		(18,130	)		(18,101	)
Interest payable		(712	)		(712	)

- 34 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  9 – FAIR VALUE - continued

Carrying amount is the estimated fair value for cash and due from banks, Federal funds sold, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully.  It was not practicable to determine the fair value of Federal Home Loan Bank stock due to the restrictions placed on its transferability.  For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk.  Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values.  Fair value of debt is based on current rates for similar financing. The fair value of commitments to extend credit and standby letters of credit is not material.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument measured on a non-recurring basis:

Impaired Loans:  The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and unique to each property and result in a Level 3 classification of the inputs for determining fair value.  Management periodically evaluates the appraised values and will discount a property’s appraised value to account for a number of factors including but not limited to the cost of liquidating the collateral, the age of the appraisal, observable deterioration since the appraisal, or other factors unique to the property.  To the extent an adjusted appraised value is lower than the carrying value of an impaired loan, a specific allocation of the allowance for loan losses is assigned to the loan.

Other real estate owned (OREO):  The fair value of OREO is based on appraisals less cost to sell at the date of foreclosure.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.  Management periodically evaluates the appraised values and will discount a property’s appraised value to account for a number of factors including but not limited to the cost of liquidating the collateral, the age of the appraisal, observable deterioration since the appraisal, or other factors unique to the property. To the extent an adjusted appraised value is lower than the carrying value of an OREO property, a direct charge to earnings is recorded as an OREO writedown.

- 35 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  9 – FAIR VALUE - continued

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements at March 31, 2012 Using
	March 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans:
Residential Real Estate	$	4,492	$	-	$	-	$	4,492
Commercial Real Estate
Owner Occupied		506		-		-		506
Non-owner Occupied		1,263		-		-		1,263
Commercial and Industrial		6,495		-		-		6,495
All Other		35		-		-		35
Total impaired loans		12,792	$	-	$	-	$	12,792
Other real estate owned:
Residential Real Estate	$	1,604	$	-	$	-	$	1,604
Commercial Real Estate
Owner Occupied		729		-		-		729
Non-owner Occupied		2,931		-		-		2,931
Commercial and Industrial		55		-		-		55
All Other		11,232		-		-		11,232
Total OREO	$	16,551	$	-	$	-	$	16,551

- 36 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  9 – FAIR VALUE - continued

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements at December 31 2011 Using
	Dec. 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans:
Residential Real Estate	$	4,297	$	-	$	-	$	4,297
Commercial Real Estate
Owner Occupied		1,168		-		-		1,168
Non-owner Occupied		1,269		-		-		1,269
Commercial and Industrial		1,038		-		-		1,038
All Other		4,386		-		-		4,386
Total impaired loans		12,158	$	-	$	-	$	12,158
Other real estate owned:
Residential Real Estate	$	1,608	$	-	$	-	$	1,608
Commercial Real Estate
Owner Occupied		701		-		-		701
Non-owner Occupied		2,931		-		-		2,931
Commercial and Industrial		55		-		-		55
All Other		8,788		-		-		8,788
Total OREO	$	14,083	$	-	$	-	$	14,083

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $16,367,000 at March 31, 2012 with a valuation allowance of $3,575,000 and a carrying amount of $15,205,000 at December 31, 2011 with a valuation allowance of $3,047,000, resulting in a provision for loan losses of $528,000 for the three months ended March 31, 2012, compared to a $15,000 provision for loan losses for the three months ended March 31, 2011.  The detail of impaired loans by loan class is contained in Note 3 above.

Other real estate owned measured at fair value less costs to sell, had a net carrying amount of $16,511,000 which is made up of the outstanding balance of $17,737,000 net of a valuation allowance of $1,186,000 at March 31, 2012, resulting in write downs of $44,000 for the three months ended March 31, 2012.  At December 31, 2011, other real estate owned had a net carrying amount of $14,083,000, made up of the outstanding balance of $15,288,000, net of a valuation allowance of $1,205,000.

- 37 -

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED, DOLLARS IN TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

NOTE  10 – SUBSEQUENT EVENTS

On April 12, 2012, Premier submitted a request to the FRB for written approval from the FRB and the Director of the Division of Banking Supervision and Regulation of the Board of Governors to declare and pay its quarterly dividend obligation to the U.S. Treasury due on  May 15, 2012.  In a letter dated May 7, 2012, the FRB and Board of Governors approved Premier’s request to pay the current $278,150 dividend due May 15, 2012. See Note 6 for additional details on Premier’s Series A, Fixed Rate Cumulative Perpetual Preferred Stock.

- 38 -

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

MARCH 31, 2012

Item 2.  Management’s Discussion and Analysis

   of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

Management's discussion and analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. However, such performance involves risks and uncertainties, and there are certain important factors that may cause actual results to differ materially from those anticipated. These important factors include, but are not limited to, economic conditions (both generally and more specifically in the markets in which Premier operates), competition for Premier's customers from other providers of financial services, government legislation and regulation (which changes from time to time), changes in interest rates, Premier's ability to originate quality loans, collect delinquent loans and attract and retain deposits, the impact of Premier's growth, Premier's ability to control costs, and new accounting pronouncements, all of which are difficult to predict and many of which are beyond the control of Premier.  The words “may,” “could,” “should,” “would,” “will,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “project,” “predict,” “continue” and similar expressions are intended to identify forward-looking statements.

A.         Results of Operations

A financial institution’s primary sources of revenue are generated by interest income on loans, investments and other earning assets, while its major expenses are produced by the funding of these assets with interest bearing liabilities.  Effective management of these sources and uses of funds is essential in attaining a financial institution’s optimal profitability while maintaining a minimum amount of interest rate risk and credit risk.

Net income for the three months ended March 31, 2012 was $2,830,000, or $0.31 per diluted share, compared to net income of $1,671,000, or $0.17 per diluted share for the three months ended March 31, 2011.  The increase in income in 2012 is largely due to an increase in interest income on loans, a decrease in total interest expense plus decreases in data processing expense, conversion costs and FDIC insurance costs more than offsetting an increase in the provision for loan losses and a decrease in non-interest income.  The annualized returns on common shareholders’ equity and average assets were approximately 7.98% and 0.99% for the three months ended March 31, 2012 compared to 4.90% and 0.56% for the same period in 2011.

Net interest income for the three months ended March 31, 2012 totaled $12.42 million, up $1.67 million, or 15.5%, from the $10.75 million of net interest income earned in the first three months of 2011.  Interest income in 2012 increased by $1.23 million, or 9.4%, largely due to a $1.40 million increase in interest income on loans.   Interest income on loans included $1.56 million from the recognition of deferred interest and purchase discounts on non-accrual loans liquidated during the first quarter of 2012.  The timing of these liquidations is difficult to predict, which creates fluctuations in reported loan interest income.  Interest earned on investments decreased by $151,000, or 7.6%, due to lower average yields even though on a higher average volume of investments.  Interest earned on federal funds sold and interest bearing bank balances decreased by $21,000, largely due to a lower average volume of assets held in this category.

- 39 -

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

MARCH 31, 2012

Complementing the increase in interest income, interest expense decreased in total during the first three months of 2012 by $444,000, or 19.8%, when compared to the same three months of 2011.  Interest expense on deposits decreased by $397,000, or 20.5%, largely due to a continuing decrease in the rates paid on deposits combined with a lower average balance of deposits outstanding.  Interest expense on repurchase agreements and other short-term borrowings decreased by $21,000, largely due lower rates paid and a lower average balance outstanding.  Interest expense on FHLB advances decreased by $6,000, due to a decrease in the average balance outstanding resulting from the repayment of advances at maturity.  Interest expense on other borrowings decreased by $20,000, or 9.3%, in the first three months of 2012 compared to the first three months of 2011, largely due to a decrease in the average amount of borrowings outstanding.  The Board of Governors’ policy to reduce the federal funds rate to nearly zero, coupled with the U.S. Treasury actively buying investment securities, has significantly reduced the yield on much of Premier’s earning assets, including investments, federal funds sold and variable rate loans.  Premier has tried to offset some of the lower interest income by lowering the rates paid on its deposits and repurchase agreements with customers.  The recognition of additional loan interest income combined with the lower rates paid on interest-bearing deposits and repurchase agreements have combined to increase Premier’s overall net interest margin.  Premier’s net interest margin during the first three months of 2012 was 4.82% compared to 3.99% for the same period in 2011.  A portion of the interest income on loans is the result of recognizing into interest income the remaining fair value discounts on notes acquired via a business acquisition if that note was paid-off during the quarter.  These events cannot be predicted with certainty and may positively or negatively affect interest income on loans in future months.

- 40 -

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

MARCH 31, 2012

Additional information on Premier’s net interest income for the first quarter of 2012 and first quarter of 2011 is contained in the following table.

PREMIER FINANCIAL BANCORP, INC.
AVERAGE CONSOLIDATED BALANCE SHEETS
AND NET INTEREST INCOME ANALYSIS
	Three Months Ended March 31, 2012								Three Months Ended March 31, 2011
	Balance			Interest		Yield/Rate			Balance			Interest		Yield/Rate
Assets
Interest Earning Assets
Federal funds sold and other	$	65,385		$	32		0.20	%	$	100,033		$	53		0.21	%
Securities available for sale
Taxable		280,581			1,773		2.53			265,971			1,936		2.91
Tax-exempt		9,673			74		4.64			8,375			62		4.49
Total investment securities		290,254			1,847		2.60			274,346			1,998		2.96
Total loans		680,046			12,337		7.28			718,778			10,940		6.17
Total interest-earning assets		1,035,685			14,216		5.52	%		1,093,157			12,991		4.82	%
Allowance for loan losses		(9,834	)							(10,021	)
Cash and due from banks		28,441								24,339
Other assets		76,265								80,086
Total assets	$	1,130,557							$	1,187,561
Liabilities and Equity
Interest-bearing liabilities
Interest-bearing deposits	$	739,260			1,535		0.83		$	772,265			1,932		1.01
Short-term borrowings		22,386			26		0.47			27,306			47		0.70
FHLB advances		7,502			41		2.19			11,116			47		1.71
Other borrowings		17,641			196		4.46			19,897			216		4.40
Total interest-bearing liabilities		786,789			1,798		0.92	%		830,584			2,242		1.09	%
Non-interest bearing deposits		192,916								219,751
Other liabilities		3,896								3,924
Shareholders’ equity		146,956								133,302
Total liabilities and equity	$	1,130,557							$	1,187,561
Net interest earnings				$	12,418							$	10,749
Net interest spread							4.60	%							3.73	%
Net interest margin							4.82	%							3.99	%

- 41 -

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

MARCH 31, 2012

Non-interest income decreased by $94,000, or 5.8%, to $1,517,000 for the first three months of 2012 compared to the same three months of 2011.  Service charges on deposit accounts decreased by $58,000, or 6.5%, secondary market mortgage income decreased by $63,000, or 71.6%, and income from other sources decreased by $12,000, or 6.5%.  These decreases were partially offset by a $39,000, or 8.7%, increase in electronic banking income (income from debit/credit cards, ATM fees and internet banking charges).  Electronic banking income increased largely due to continued increases in Premier’s deposit customer base and customers’ greater propensity to use electronic means to conduct their banking business.

Non-interest expenses for the first quarter of 2012 totaled $8,594,000, or 3.06% of average assets on an annualized basis, compared to $9,307,000, or 3.18% of average assets for the same period of 2011.  The $713,000 decrease in non-interest expenses in 2012 when compared to the first quarter of 2011 is largely due to a $335,000, or 27.8%, decrease in data processing expenses and $379,000 of conversion expenses incurred during the first quarter of 2011, as Premier changed its operating and customer delivery systems to a more unified platform last year.  Also contributing to the decrease in non-interest expenses in 2012 was a $266,000, or 52.4%, decrease in FDIC insurance costs.  In the second quarter of 2011, Premier merged five of its subsidiary banks together to form Premier Bank, Inc.  The FDIC insurance expense of Premier Bank is substantially less than the combined insurance costs of the five individual subsidiary banks.  Other decreases in non-interest expense during the first quarter of 2012 include a $68,000, or 1.7%, decrease in staff costs, a $55,000, or 4.5%, decrease in occupancy and equipment expense, a $38,000, or 19.7%, decrease in taxes not on income and a $37,000, or 17.6%, decrease in core deposit amortization expense.  Staff costs have decreased as normal salary and benefit increases have been offset by a reduction in the number of employees.  Occupancy and equipment expense decreased due to lower utility costs and snow removal expenses as a result of the milder winter and lower equipment expenses.  Taxes not on income have decreased due to enacted rate decreases in equity based taxes in West Virginia.  Core deposit amortization expense decreased as Premier utilizes an accelerated method to amortize its core deposit intangible asset.  These expense decreases were partially offset by a $24,000, or 9.2%, increase in professional fees, a $130,000 increase in expenses and writedowns on other real estate owned (OREO), and a $306,000 increase in other non-interest expenses, namely foreclosure and other loan collection expenses associated with the liquidation of non-accrual loans during the first quarter of 2012.

Income tax expense was $1,561,000 for the first three months of 2012 compared to $862,000 for the first three months of 2011.  The effective tax rate for the three months ended March 31, 2012 was 35.5% compared to the 34.0% effective tax rate for the same period in 2011.  The increase in income tax expense can be primarily attributed to the increase in pre-tax income detailed above, while the increase in the effective income tax rate can be attributed to an increase in the amount of income subject to state income taxes.

- 42 -

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

MARCH 31, 2012

B.         Financial Position

Total assets at March 31, 2012 increased by $14.1 million to just over $1.138 billion from the $1.124 billion at December 31, 2011.  Likewise, earning assets increased by $14.4 million from the $1.028 billion at year-end 2011 to end the quarter at $1.043 billion.  The increase in earning assets was largely due to an increase in securities available for sale partially offset by a decrease in total loans outstanding (see below).

Cash and due from banks at March 31, 2012 was $29.3 million, a 0.1 million decrease from the $29.4 million at December 31, 2011.  Interest bearing bank balances increased by $9.2 million from the $42.7 million reported at December 31, 2011, while federal funds sold decreased by $0.5 million to $10.3 million at March 31, 2012.  Changes in these highly liquid assets are generally in response to increases in deposits, the demand for deposit withdrawals or the funding of loans or investment purchases and are part of Premier’s management of its liquidity and interest rate risks.  The increase in interest bearing bank balances during the first three months of 2012 was largely in response to an increase in funding primarily via an increase in total deposits during the quarter.

Securities available for sale totaled $301.1 million at March 31, 2012, a $22.6 million increase from the $278.5 million at December 31, 2011.  The increase was largely due to the investment of surplus funds from the repayment or complete payoff of loans in the first quarter exceeding new loan volume plus additional funds from the net growth in deposits during the quarter.  During the first quarter of 2011, Premier used some of its surplus liquid assets to purchase bonds in the short- to mid-term maturity range in an effort to improve its overall yield on earning assets without unduly increasing interest rate risk.  The investment portfolio is predominately high quality residential mortgage backed securities backed by the U.S. Government or Government sponsored agencies.  The unrealized losses at March 31, 2012 and December 31, 2011 are believed to be price changes resulting from increases in the long-term interest rate environment and management anticipates receiving all principal and interest on these investments as they come due.  Additional details on investment activities can be found in the Consolidated Statements of Cash Flows.

Total loans at March 31, 2012 were $674.0 million compared to $690.9 million at December 31, 2011, a decrease of approximately $16.9 million.  The decrease in loans was largely due to loan payoffs, transfers of loans to OREO upon foreclosure and principal payments which more than offset sluggish loan demand during the first quarter of 2012.

Deposits totaled $948.2 million as of March 31, 2012, a $23.1 million increase from the $925.1 million in deposits at December 31, 2011.  The overall increase in deposits is largely due to a $20.3 million increase in interest bearing transaction accounts and time deposits less than $100,000 (other interest bearing deposits).  Non-interest bearing deposits increased by $4.0 million to $200.2 million during the first quarter of 2012.  These increases were partially offset by a $1.2 million, or 0.8%, decrease in interest bearing time deposits $100,000 and over.  Contrary to the growth in total deposits, repurchase agreements with corporate and public entity customers decreased in the first quarter of 2012, declining by $1.6 million to $21.6 million as of March 31, 2012.

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

MARCH 31, 2012

During the first quarter of 2012, a portion of the increase in deposits was used to repay $10.0 million of Federal Home Loan Bank (FHLB) advances upon maturity.  FHLB advances declined by $10.1 million during the first three months of 2012 leaving only $24,000 of FHLB advances outstanding at March 31, 2012.  Other borrowed funds decreased by $517,000 during the first quarter of 2012 due to regularly scheduled principal payments plus accelerated principal payments.  See Note 4 to the consolidated financial statements for additional information on the Company’s outstanding FHLB advances.

The following table sets forth information with respect to the Company’s nonperforming assets at March 31, 2012 and December 31, 2011.

	(In Thousands)
	2012			2011
Non-accrual loans	$	29,190		$	42,354
Accruing loans which are contractually past due 90 days or more		5,549			4,527
Accruing restructured loans		7,634			5,951
Total non-performing loans		42,373			52,832
Other real estate acquired through foreclosure (OREO)		16,551			14,642
Total non-performing assets	$	58,924		$	67,474
Non-performing loans as a percentage of total loans		6.29	%		7.65	%
Non-performing assets as a percentage of total assets		5.18	%		6.00	%

Total non-performing loans have decreased since year-end, largely due to a $13.2 million decrease in non-accrual loans.  During the first quarter of 2012, non-accrual loans decreased by $9.4 million due to payoffs upon the liquidation of collateral and by another $2.7 million due to the transfer of collateral upon foreclosure to OREO, resulting in the increase in other real estate owned.  The significant level of non-accrual loans and OREO is due to the non-performing assets that came with the acquisition of Abigail Adams and its two subsidiary banks (the “Acquired Banks”).

At December 31, 2011, the Acquired Banks accounted for $44.4 million or 65.9% of Premier’s non-performing assets while at March 31, 2012 the Acquired Banks accounted for $39.4 million or 66.8% of Premier’s non-performing assets.  However, since these assets were recorded at an estimated fair value on the date of acquisition, the amount of credit risk assumed by Premier is not nearly as great as the volume of non-performing assets suggests taken at face value.  The estimate of fair value on all loans, but particularly on non-performing assets, included factors for the measurement of credit risk, interest rate risk and re-salability in the most advantageous market for the loans in an orderly transaction between market participants. These estimates included significant discounts on the non-accrual loans.  Since the estimated fair value of these loans was believed to have accounted for the reasonably estimable credit risk in the loans, consistent with new accounting guidance for acquisitions after 2008, no allowance for loan losses for these loans was recorded at the date of acquisition.  Under previous accounting standards, the loan loss allowance of acquired banks would have carried over to Premier’s books and records, as was the case for the Traders Bank and Citizens First Bank acquisitions.  The following table illustrates the face value of the non-performing assets of the Acquired Banks as of March 31, 2012 and December 31, 2011 and the discounted net carrying value of those non-performing assets.

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

MARCH 31, 2012

NON-PERFORMING ASSETS AT ACQUIRED SUBSIDIARY BANKS
(Dollars in thousands)
	March 31, 2012				December 31, 2011
	Face Value		Discounted Net Carrying Value		Face Value		Discounted Net Carrying Value
Non-performing Assets
Non-accrual loans	$	28,976	$	22,649	$	37,201	$	29,824
Loans 90+ days past due		4,719		4,632		4,087		3,997
Restructured loans		1,601		1,579		-		-
Other real estate owned		10,859		10,503		10,978		10,622
Total non-performing assets	$	46,155	$	39,363	$	52,266	$	44,443
(1) Face value includes reductions for interest payments received on loans while on non-accrual status in accordance with the cost recovery method of accounting for non-accrual loans.

Many of the non-accrual loans obtained from the Acquired Banks are continuing to be accounted for under cost recovery methods of income recognition as permitted by the guidance for accounting for non-accrual loans acquired in a business combination.  Most of the non-accrual loans at the Acquired Banks were placed in that status due to a lack of predictable cash flows from the borrower.  At acquisition by Premier, these loans were recorded at their estimated fair value.  These estimates included significant discounts on the non-accrual loans.  Yet, the lack of predictable cash flows from the borrowers remains.  As a result, accounting guidance requires these loans to continue to be accounted for under cost recovery methods of income recognition, even though the estimated collateral value may exceed the discounted net carrying value.

Premier continues to make a significant effort to reduce its past due and non-performing loans by reviewing loan files, using the courts to bring borrowers current with the terms of their loan agreements and/or the foreclosure and sale of OREO properties.  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 these plans are executed, other loans may be identified that would necessitate additional charge-offs and potentially additional provisions for loan losses.

During the first quarter of 2012, Premier recorded $950,000 of provisions for loan losses, largely due to estimated increases in the overall credit risk in the loan portfolio.  The continuing level of non-performing loans, plus additional loans identified as impaired under Premier’s policies for estimating credit risk are evidence of the increased credit risk in the loan portfolio.  The actual amount of realized losses, if any, has yet to be determined and may not be determined for some time into the future.  However, in management’s opinion, sufficient evidence existed in the first quarter to reduce the likelihood of full repayment and increase the related estimated credit risk.  As the pace of economic recovery continues to be sluggish in Premier’s markets, the ability of borrowers to consistently make their loan payments is increasingly being tested.  Evidence of the continuing higher level of credit risk includes a high level of past due and non-accrual loans, loan charge-offs and increases in other real estate owned as a result of foreclosures.  The $950,000 first quarter 2012 provision for loan losses compares to the $520,000 of provision expense recorded during the first quarter of 2011.  The provisions for loan losses were made in accordance with Premier’s policies regarding management’s estimation of probable incurred losses in the loan portfolio and the adequacy of the allowance for loan losses, which are in accordance with accounting principles generally accepted in the United States of America.  

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

MARCH 31, 2012

The higher provision expense was largely in response to an increase in the amount of specific reserves assigned to impaired loans.  In the coming months, Premier will continue to monitor the impact that national housing market price declines may have on its local markets and collateral valuations as management evaluates the adequacy of the allowance for loan losses.  While some price deterioration is expected, it is not currently anticipated that Premier’s markets will be impacted as severely as other areas of the country due to the historically modest increases in real estate values in the Company’s Appalachian markets.  However, as local and national unemployment rates remain at elevated levels and the downturn in housing prices extends further into the future, there is an increasing risk of price deterioration in real estate values in the Company’s markets.  Future provisions to the allowance for loan losses, positive or negative, will depend on future improvement or deterioration in estimated credit risk in the loan portfolio as well as whether additional payments are received on loans having significant credit risk.

Gross charge-offs totaled $521,000 during the first three months of 2012.  Any collections on these loans would be presented in future financial statements as recoveries of the amounts charged against the allowance.  Recoveries recorded during the first three months of 2012 totaled $87,000 resulting in net charge-offs for the first quarter of 2012 of $434,000.  This compares to $103,000 of net charge-offs recorded in the first quarter of 2011.  The allowance for loan losses at March 31, 2012 was 1.53% of total loans compared to 1.42% at December 31, 2011.  The increase in the ratio is largely due to the $950,000 of additional provisions for loan losses exceeding the $434,000 of net charge-offs recorded in the first quarter of 2012 as well as the $16.9 million decrease in total loans outstanding.

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, 2011.  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 four 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 identification and evaluation of impaired loans, the impairment of goodwill and the realization of deferred tax assets.  A detailed description of these accounting policies is contained in the Company’s annual report on Form 10-K for the year ended December 31, 2011.  There have been no significant changes in the application of these accounting policies since December 31, 2011.

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.

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PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

MARCH 31, 2012

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 $301.1 million of securities at fair value as of March 31, 2012.

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 March 31, 2012, total shareholders’ equity of $147.3 million was 12.9% of total assets.  This compares to total shareholders’ equity of $144.0 million or 12.8% of total assets on December 31, 2011.

Tier I capital totaled $112.3million at March 31, 2012, which represents a Tier I leverage ratio of 10.3%.  This ratio is up slightly from the 10.0% at December 31, 2011 as the percentage growth in Tier I capital exceeded percentage increase in total assets during the first quarter of 2012.

Book value per common share was $15.78 at March 31, 2012, and $15.38 at December 31, 2011.  The increase in book value per share was the result of the $0.31 per share earned during the quarter, including an approximate $0.04 per share reduction for the $305,000 of preferred stock dividends accrued and related accretion.  Also increasing the book value per share was $664,000 of other comprehensive income for the first three months of 2012 related to the after tax increase in the market value of investment securities available for sale, which increased book value by approximately $0.08 per share.

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PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2012

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 2011 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 2011 10-K.

Item 4. Controls and Procedures

A.         Disclosure Controls & 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 the Securities and Exchange Act of 1934 Rule 13a-15c as of the end of the period covered by this quarterly report. 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.

B.         Changes in Internal Controls over Financial Reporting

There were no changes in internal controls over financial reporting during the first fiscal quarter that have materially affected or are reasonably likely to materially affect Premier's internal controls over financial reporting.

C.         Inherent Limitations on Internal Control

"Internal controls" are procedures, which are designed with the objective of providing reasonable assurance that (1) transactions are properly authorized; (2) assets are safeguarded against unauthorized or improper use; and (3) transactions are properly recorded and reported, all so as to permit the preparation of reports and financial statements in conformity with generally accepted accounting principles. However, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their cost. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is also based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Finally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

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PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2012

PART II - OTHER INFORMATION

Item 1.              Legal Proceedings                                                                                             None

Item 1A.           Risk Factors

Please refer to Premier’s Annual Report on Form 10-K for the year ended December 31, 2011 for disclosures with respect to Premier’s risk factors at December 31, 2011. There have been no material changes since year-end 2011 in the specified risk factors disclosed in the Annual Report on Form 10-K.

Item 2.              Unregistered Sales of Equity Securities and Use of Proceeds                         None

Item 3.              Defaults Upon Senior Securities                                                                      None

Item 4.              Mine Safety Disclosures                                                                           Not Applicable

Item 5.              Other Information                                                                                             None

Item 6.              Exhibits

 (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.C §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2012

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: May 15, 2012                                        /s/ Robert W. Walker                                                          

Robert W. Walker

President & Chief Executive Officer

Date: May 15, 2012                                        /s/ Brien M. Chase                                                          

Brien M. Chase

Senior Vice President & Chief Financial Officer

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