10-Q

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 June 30, 2013

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 000-20908

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, – 8,011,310 shares outstanding at August 1, 2013

PREMIER FINANCIAL BANCORP, INC.

JUNE 30, 2013

INDEX TO REPORT

Part I - Financial Information
Item 1 – Financial Statements	3
Item 2 – Management’s Discussion and Analysis	41
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	55
Item 4 – Controls and Procedures	55
Part II - Other Information	56
Item 1 – Legal Proceedings	56
Item 1A – Risk Factors	56
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3 – Defaults Upon Senior Securities	56
Item 4 – Mine Safety Disclosures	56
Item 5 – Other Information	56
Item 6 – Exhibits	56
Signatures -	57

2

PREMIER FINANCIAL BANCORP, INC.

JUNE 30, 2013

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, 2012 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

3

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2013 AND DECEMBER 31, 2012

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	(UNAUDITED)
	2013			2012
ASSETS
Cash and due from banks	$	27,903		$	32,473
Interest bearing bank balances		38,161			33,536
Federal funds sold		4,266			4,236
Cash and cash equivalents		70,330			70,245
Securities available for sale		258,120			283,975
Loans held for sale		247			200
Loans		714,277			704,625
Allowance for loan losses		(12,198	)		(11,488	)
Net loans		702,079			693,137
Federal Home Loan Bank stock, at cost		4,183			4,181
Premises and equipment, net		15,620			15,952
Real estate and other property acquired through foreclosure		13,556			13,366
Interest receivable		3,107			3,403
Goodwill		29,875			29,875
Other intangible assets		2,417			2,721
Deferred taxes		3,817			2,624
Other assets		1,598			1,108
Total assets	$	1,104,949		$	1,120,787
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing	$	199,222		$	198,084
Time deposits, $100,000 and over		151,247			146,198
Other interest bearing		582,475			586,301
Total deposits		932,944			930,583
Securities sold under agreements to repurchase		8,515			26,102
Other borrowed funds		15,000			16,049
Interest payable		430			489
Other liabilities		3,416			3,268
Total liabilities		960,305			976,491
Stockholders' equity
Preferred stock, no par value; $12,000 liquidation preference, 5% cumulative, 1,000,000 shares authorized; 12,000 shares issued and outstanding		11,926			11,896
Common stock, no par value; 20,000,000 shares authorized; 8,011,310 shares issued and outstanding at June 30, 2013, and 7,962,693 shares issued and outstanding at December 31, 2012		73,308			72,849
Retained earnings		56,502			52,975
Accumulated other comprehensive income		2,908			6,576
Total stockholders' equity		144,644			144,296
Total liabilities and stockholders' equity	$	1,104,949		$	1,120,787

4

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013		2012
Interest income
Loans, including fees	$	10,706		$	10,027	$	20,466	$	22,364
Securities available for sale
Taxable		1,528			1,829		3,110		3,620
Tax-exempt		41			56		84		112
Federal funds sold and other		42			44		72		76
Total interest income		12,317			11,956		23,732		26,172
Interest expense
Deposits		1,054			1,437		2,145		2,972
Repurchase agreements and other		6			22		18		48
FHLB advances and other borrowings		164			189		336		426
Total interest expense		1,224			1,648		2,499		3,446
Net interest income		11,093			10,308		21,233		22,726
Provision for loan losses		(70	)		750		500		1,700
Net interest income after provision for loan losses		11,163			9,558		20,733		21,026
Non-interest income
Service charges on deposit accounts		847			873		1,636		1,703
Electronic banking income		517			522		987		1,010
Secondary market mortgage income		47			103		141		128
Gain on disposition of securities		-			-		148		-
Other		170			134		314		308
		1,581			1,632		3,226		3,149
Non-interest expenses
Salaries and employee benefits		3,845			3,858		7,437		7,821
Occupancy and equipment expenses		1,103			1,121		2,182		2,301
Outside data processing		855			873		1,675		1,745
Professional fees		289			300		445		584
Taxes, other than payroll, property and income		151			190		363		345
Write-downs, expenses, sales of other real estate owned, net		272			293		596		507
Amortization of intangibles		152			174		304		347
FDIC insurance		200			239		412		481
Loan collection expenses		129			184		266		853
Other expenses		813			834		1,516		1,676
		7,809			8,066		15,196		16,660
Income before income taxes		4,935			3,124		8,763		7,515
Provision for income taxes		1,826			1,032		3,150		2,593
Net income	$	3,109		$	2,092	$	5,613	$	4,922
Preferred stock dividends and accretion		165			306		330		611
Net income available to common stockholders	$	2,944		$	1,786	$	5,283	$	4,311
Net income per share:
Basic	$	0.37		$	0.23	$	0.66	$	0.54
Diluted		0.35			0.22		0.63		0.53

5

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
Net income	$	3,109		$	2,092	$	5,613		$	4,922
Other comprehensive income:
Unrealized gains (losses) arising during the period		(4,830	)		786		(5,409	)		1,792
Reclassification of realized amount		-			-		(148	)		-
Net change in unrealized gain (loss) on securities		(4,830	)		786		(5,557	)		1,792
Less tax impact		1,642			267		1,889			609
Other comprehensive income (loss)		(3,188	)		519		(3,668	)		1,183
Comprehensive income (loss)	$	(79	)	$	2,611	$	1,945		$	6,105

6

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

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

	2013			2012
Cash flows from operating activities
Net income	$	5,613		$	4,922
Adjustments to reconcile net income to net cash from operating activities
Depreciation		677			731
Provision for loan losses		500			1,700
Amortization (accretion), net		131			(1,121	)
OREO writedowns (gains on sales), net		(74	)		(38	)
Stock compensation expense		87			85
Loans originated for sale		(6,703	)		(7,084	)
Secondary market loans sold		6,797			7,061
Secondary market income		(141	)		(128	)
Gain on disposition of securities		(148	)		-
Changes in :
Interest receivable		296			50
Other assets		205			3,796
Interest payable		(59	)		(116	)
Other liabilities		148			226
Net cash from operating activities		7,329			10,084
Cash flows from investing activities
Purchases of securities available for sale		(27,230	)		(57,685	)
Proceeds from maturities and calls of securities available for sale		46,900			31,736
Redemption of FRB and FHLB  stock, (net of purchases)		-			811
Net change in loans		(9,401	)		18,400
Purchases of premises and equipment, net		(345	)		(533	)
Proceeds from sales of other real estate owned, net		766			1,782
Net cash from investing activities		10,690			(5,489	)
Cash flows from financing activities
Net change in deposits		2,386			24,857
Net change in agreements to repurchase securities		(17,587	)		(3,498	)
Repayment of Federal Home Loan Bank advances		-			(10,036	)
Repayment of other borrowed funds		(1,049	)		(1,036	)
Proceeds from stock option exercises		372			-
Common Stock dividends paid		(1,756	)		-
Preferred Stock dividends paid		(300	)		(556	)
Net cash from financing activities		(17,934	)		9,731
Net change in cash and cash equivalents		85			14,326
Cash and cash equivalents at beginning of period		70,245			82,888
Cash and cash equivalents at end of period	$	70,330		$	97,214

7

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

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

	2013		2012
Supplemental disclosures of cash flow information:
Cash paid during period for interest	$	2,559	$	3,562
Cash paid during period for income taxes		3,376		(623	)
Loans transferred to real estate acquired through foreclosure		882		2,837

8

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”):

					June 30, 2013
		Year	Total		Net Income
Subsidiary	Location	Acquired	Assets		QTD			YTD
Citizens Deposit Bank & Trust	Vanceburg, Kentucky	1991	$	369,124	$	1,178		$	2,359
Premier Bank, Inc.	Huntington, West Virginia	1998		728,006		2,387			4,152
Parent and Intercompany Eliminations				7,819		(456	)		(898	)
Consolidated Total			$	1,104,949	$	3,109		$	5,613

All significant intercompany transactions and balances have been eliminated.

Recently Issued Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued ASU 2013-02, “Comprehensive Income (Topic 220):  Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (AOCI).”  The amendment requires an entity to present the reclassification adjustments out of AOCI and into net income for each component reported. These amounts may be disclosed before-tax or after-tax, and must be disclosed in either the income statement or the notes to the financial statements. This update is intended to supplement changes made in 2012 to increase the prominence of items reported in other comprehensive income. The standard became effective for the Company on January 1, 2013.  The adoption of this guidance resulted in the disclosures in Note 9 below and did not have a material impact upon the Company’s financial statements.

In July 2012, the FASB amended existing guidance relating to testing indefinite-lived intangible assets for impairment.  The amendment permits an assessment of qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired.  If, after assessing the totality of events and circumstances, it is concluded that it is not more likely than not that the indefinite-lived intangible asset is impaired, then no further action is required.  However, after the same assessment, if it is concluded that it is more likely than not that the indefinite-lived intangible asset is impaired, then a quantitative impairment test should be performed whereby the fair value of the indefinite-lived intangible asset is compared to the carrying amount.  The amendments in this guidance are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.  Early adoption is permitted.  The adoption of this guidance is not expected to have a material impact upon the Company’s financial statements.

9

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 June 30, 2013 are summarized as follows:

2013	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. sponsored agency MBS - residential	$	37,366	$	1,035	$	(177	)	$	38,224
U. S. sponsored agency CMO’s - residential		201,458		3,690		(1,030	)		204,118
Total mortgage-backed securities of government sponsored agencies		238,824		4,725		(1,207	)		242,342
U. S. government sponsored agency securities		7,070		23		(124	)		6,969
Obligations of states and political subdivisions		6,447		300		-			6,747
Other securities		1,373		761		(72	)		2,062
Total available for sale	$	253,714	$	5,809	$	(1,403	)	$	258,120

Amortized cost and fair value of investment securities, by category, at December 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	$	35,172	$	1,928	$	-		$	37,100
U. S. sponsored agency CMO’s - residential		206,466		6,392		(11	)		212,847
Total mortgage-backed securities of government sponsored agencies		241,638		8,320		(11	)		249,947
U. S. government sponsored agency securities		22,062		182		-			22,244
Obligations of states and political subdivisions		7,419		441		-			7,860
Other securities		2,892		1,105		(73	)		3,924
Total available for sale	$	274,011	$	10,048	$	(84	)	$	283,975

10

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 June 30, 2013 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	$	1,748	$	1,708
Due after one year through five years		8,346		8,647
Due after five years through ten years		3,997		3,873
Due after ten years		377		790
Corporate preferred securities		422		760
Mortgage-backed securities of government sponsored agencies		238,824		242,342
Total available for sale	$	253,714	$	258,120

A $148,000 gain was recognized from calls of securities during the first six months of 2013 while no gains on securities were recorded during the first six months of 2012.  There were no sales of securities during the first six months of 2013 or 2012.

Securities with unrealized losses at June 30, 2013 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 MBS – residential	$	10,415	$	(177	)	$	-	$	-		$	10,415	$	(177	)
U.S government sponsored agency CMO – residential		46,143		(1,030	)		-		-			46,143		(1,030	)
U.S government sponsored agency securities		3,873		(124	)		-		-			3,873		(124	)
Other securities		-		-			4		(72	)		4		(72	)
Total temporarily impaired	$	60,431	$	(1,331	)	$	4	$	(72	)	$	60,435	$	(1,403	)

11

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, 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 CMO – residential	$	2,077	$	(11	)	$	-	$	-		$	2,077	$	(11	)
Other securities		-		-			4		(73	)		4		(73	)
Total temporarily impaired	$	2,077	$	(11	)	$	4	$	(73	)	$	2,081	$	(84	)

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 June 30, 2013 and December 31, 2012 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 June 30, 2013 and December 31, 2012 are summarized as follows:

	2013		2012
Residential real estate	$	213,139	$	214,743
Multifamily real estate		35,281		28,673
Commercial real estate:
Owner occupied		93,927		91,902
Non owner occupied		179,308		178,849
Commercial and industrial		94,775		84,430
Consumer		26,087		28,128
All other		71,760		77,900
	$	714,277	$	704,625

12

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 six months ending June 30, 2013 was as follows:

Loan Class	Balance Dec 31, 2012		Provision for loan losses			Loans charged-off		Recoveries		Balance June 30, 2013
Residential real estate	$	2,163	$	358		$	156	$	6	$	2,371
Multifamily real estate		331		98			-		-		429
Commercial real estate:
Owner occupied		1,117		(255	)		67		299		1,094
Non owner occupied		1,888		80			-		-		1,968
Commercial and industrial		3,046		987			12		52		4,073
Consumer		244		27			63		25		233
All other		2,699		(795	)		94		220		2,030
Total	$	11,488	$	500		$	392	$	602	$	12,198

Activity in the allowance for loan losses by portfolio segment for the six months ending June 30, 2012 was as follows:

Loan Class	Balance Dec 31, 2011		Provision for loan losses			Loans charged-off		Recoveries		Balance June 30, 2012
Residential real estate	$	2,134	$	221		$	119	$	32	$	2,268
Multifamily real estate		284		143			-		-		427
Commercial real estate:
Owner occupied		918		76			15		-		979
Non owner occupied		2,381		(37	)		41		3		2,306
Commercial and industrial		1,880		1,095			992		1		1,984
Consumer		298		98			139		53		310
All other		1,900		104			474		58		1,588
Total	$	9,795	$	1,700		$	1,780	$	147	$	9,862

13

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 June 30, 2013 was as follows:

Loan Class	Balance March 31, 2013		Provision for loan losses			Loans charged-off		Recoveries		Balance June 30, 2013
Residential real estate	$	2,066	$	386		$	85	$	4	$	2,371
Multifamily real estate		347		82			-		-		429
Commercial real estate:
Owner occupied		1,191		(97	)		-		-		1,094
Non owner occupied		1,967		1			-		-		1,968
Commercial and industrial		4,096		(23	)		2		2		4,073
Consumer		174		66			16		9		233
All other		2,501		(485	)		38		52		2,030
Total	$	12,342	$	(70	)	$	141	$	67	$	12,198

Activity in the allowance for loan losses by portfolio segment for the three months ending June 30, 2012 was as follows:

Loan Class	Balance March 31, 2012		Provision for loan losses			Loans charged-off		Recoveries		Balance June 30, 2012
Residential real estate	$	2,368	$	(55	)	$	54	$	9	$	2,268
Multifamily real estate		434		(7	)		-		-		427
Commercial real estate:
Owner occupied		1,024		(45	)		-		-		979
Non owner occupied		2,321		(15	)		3		3		2,306
Commercial and industrial		2,422		551			990		1		1,984
Consumer		305		51			73		27		310
All other		1,437		270			139		20		1,588
Total	$	10,311	$	750		$	1,259	$	60	$	9,862

14

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

The Company holds purchased loans for which there was, at their 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 June 30, 2013 and December 31, 2012.

	2013		2012
Residential real estate	$	193	$	202
Multifamily real estate		1,341		3,173
Commercial real estate
Owner occupied		263		271
Non owner occupied		5,792		5,896
Commercial and industrial		518		511
All other		4,493		4,496
Total carrying amount	$	12,600	$	14,549
Carrying amount, net of allowance	$	12,100	$	14,049

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses for the six-months ended June 30, 2013 or the six-months ended June 30, 2012.

For the majority of these loans, the Company cannot reasonably estimate the cash flows expected to be collected on the loans and therefore has continued to account for the 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.

During 2012, the Company determined that the cash flows from borrowers on a limited number of purchased loans could be reasonably estimated.  As such, a portion of the non-accretable difference was reclassified to accretable yield and is being recognized as interest income over the remaining life of the loan(s).

15

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  3–LOANS - continued

The accretable yield, or income expected to be collected, on the purchased loans above is as follows at June 30, 2013 and June 30, 2012.  There was no accretable yield on the purchased loans above prior to October 1, 2012.

	2013			2012
Balance at January 1	$	635		$	-
New loans purchased		-			-
Accretion of income		(18	)		-
Reclassifications from non-accretable difference		-			-
Disposals		-			-
Balance at June 30	$	617		$	-

16

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 June 30, 2013 and December 31 2012.  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.

June 30, 2013	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
Residential real estate	$	3,027	$	2,702	$	68
Multifamily real estate		5,514		4,233		596
Commercial real estate
Owner occupied		1,039		851		408
Non owner occupied		3,206		2,081		643
Commercial and industrial		9,893		8,198		31
Consumer		199		184		15
All other		12,454		5,034		402
Total	$	35,332	$	23,283	$	2,163

December 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	$	3,145	$	2,813	$	208
Multifamily real estate		5,501		4,390		227
Commercial real estate
Owner occupied		1,153		976		783
Non owner occupied		3,207		2,174		74
Commercial and industrial		11,407		9,897		555
Consumer		278		267		-
All other		5,468		5,289		2,043
Total	$	30,159	$	25,806	$	3,890

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.

17

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 June 30, 2013 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	$	213,139	$	3,862	$	1,783	$	5,645	$	207,494
Multifamily real estate		35,281		346		4,222		4,568		30,713
Commercial real estate:
Owner occupied		93,927		2,343		789		3,132		90,795
Non owner occupied		179,308		666		2,469		3,135		176,173
Commercial and industrial		94,775		3,137		3,328		6,465		88,310
Consumer		26,087		395		92		487		25,600
All other		71,760		232		5,356		5,588		66,172
Total	$	714,277	$	10,981	$	18,039	$	29,020	$	685,257

The following table presents the aging of the recorded investment in past due loans as of December 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	$	214,743	$	9,356	$	2,040	$	11,396	$	203,347
Multifamily real estate		28,673		695		3,893		4,588		24,085
Commercial real estate:
Owner occupied		91,902		6,212		1,129		7,341		84,561
Non owner occupied		178,849		5,267		2,248		7,515		171,334
Commercial and industrial		84,430		2,306		2,485		4,791		79,639
Consumer		28,128		602		176		778		27,350
All other		77,900		468		7,332		7,800		70,100
Total	$	704,625	$	24,906	$	19,303	$	44,209	$	660,416

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 the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2013:

	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	$	232	$	2,139	$	-	$	2,371	$	3,892	$	209,054	$	193	$	213,139
Multifamily real estate		-		429		-		429		1,651		32,289		1,341		35,281
Commercial real estate:
Owner occupied		35		1,059		-		1,094		2,310		91,354		263		93,927
Non-owner occupied		362		1,606		-		1,968		1,287		172,229		5,792		179,308
Commercial and industrial		2,871		1,202		-		4,073		7,442		86,815		518		94,775
Consumer		-		233		-		233		-		26,087		-		26,087
All other		150		1,380		500		2,030		5,006		62,261		4,493		71,760
Total	$	3,650	$	8,048	$	500	$	12,198	$	21,588	$	680,089	$	12,600	$	714,277

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, 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	$	358	$	1,805	$	-	$	2,163	$	4,609	$	209,932	$	202	$	214,743
Multifamily real estate		-		331		-		331		1,670		23,830		3,173		28,673
Commercial real estate:
Owner occupied		74		1,043		-		1,117		2,511		89,120		271		91,902
Non-owner occupied		362		1,526		-		1,888		2,627		170,326		5,896		178,849
Commercial and industrial		2,173		873		-		3,046		10,799		73,120		511		84,430
Consumer		-		244		-		244		-		28,128		-		28,128
All other		375		1,824		500		2,699		4,271		69,133		4,496		77,900
Total	$	3,342	$	7,646	$	500	$	11,488	$	26,487	$	663,589	$	14,549	$	704,625

19

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 June 30, 2013.  The table includes $7,845 of loans acquired with deteriorated credit quality that the Company cannot reasonably estimate cash flows such that they are accounted for on the cost recovery method and are still individually evaluated for impairment.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential  real estate	$	1,515	$	1,328	$	-
Multifamily real estate		4,170		2,992		-
Commercial real estate
Owner occupied		2,697		2,026		-
Non owner occupied		2,625		1,533		-
Commercial and industrial		1,960		849		-
All other		4,414		4,395		-
		17,381		13,123		-
With an allowance recorded:
Residential  real estate	$	2,772	$	2,757	$	232
Commercial real estate
Owner occupied		547		547		35
Non owner occupied		809		790		362
Commercial and industrial		7,666		7,111		2,871
All other		12,503		5,104		650
		24,297		16,309		4,150
Total	$	41,678	$	29,432	$	4,150

20

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, 2012.  The table includes $9,421 of loans acquired with deteriorated credit quality that the Company cannot reasonably estimate cash flows such that they are accounted for on the cost recovery method and are still individually evaluated for impairment.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential  real estate	$	1,886	$	1,714	$	-
Multifamily real estate		6,332		4,533		-
Commercial real estate
Owner occupied		2,876		2,196		-
Non owner occupied		3,912		2,916		-
Commercial and industrial		2,031		837		-
All other		3,426		3,427		-
		20,463		15,623		-
With an allowance recorded:
Residential  real estate	$	3,118	$	3,097	$	358
Commercial real estate
Owner occupied		586		586		74
Non owner occupied		809		789		362
Commercial and industrial		10,771		10,473		2,173
All other		5,517		5,340		875
		20,801		20,285		3,842
Total	$	41,264	$	35,908	$	3,842

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 the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the six months ended June 30, 2013 and June 30, 2012.   The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Six months ended June 30, 2013						Six months ended June 30, 2012
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	$	4,486	$	98	$	97	$	10,165	$	318	$	304
Multifamily real estate		4,006		796		796		7,334		1,350		1,341
Commercial real estate:
Owner occupied		2,655		88		71		8,612		938		923
Non-owner occupied		2,801		17		17		11,479		55		51
Commercial and industrial		10,082		40		40		9,055		240		233
Consumer		-		-		-		37		1		1
All other		9,393		161		161		7,896		194		183
Total	$	33,423	$	1,200	$	1,182	$	54,578	$	3,096	$	3,036

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 June 30, 2013 and      June 30, 2012.   The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Three months ended June 30, 2013						Three months ended June 30, 2012
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	$	4,323	$	48	$	47	$	10,209	$	189	$	181
Multifamily real estate		3,743		766		766		4,850		43		37
Commercial real estate:
Owner occupied		2,592		49		42		7,619		44		38
Non-owner occupied		2,349		16		16		11,432		20		25
Commercial and industrial		9,468		36		36		11,473		133		126
Consumer		-		-		-		36		1		1
All other		9,706		79		79		6,696		98		101
Total	$	32,181	$	994	$	986	$	52,315	$	528	$	509

22

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 determination of an insignificant delay in payment is evaluated based on the facts and circumstances of the individual borrower(s).

The following table presents TDR’s as of June 30, 2013 and December 31, 2012:

June 30, 2013	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential  real estate	$	852	$	306	$	1,158
Commercial real estate
Owner occupied		-		4,361		4,361
Non owner occupied		-		3,308		3,308
Commercial and industrial		1,655		854		2,509
All other		16		2,167		2,183
Total	$	2,523	$	10,996	$	13,519

December 31, 2012	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential  real estate	$	1,020	$	240	$	1,260
Commercial real estate
Owner occupied		-		4,224		4,224
Non owner occupied		-		4,920		4,920
Commercial and industrial		2		2,525		2,527
All other		-		2,197		2,197
Total	$	1,022	$	14,106	$	15,128

At June 30, 2013 $789,000 in specific reserves was allocated to loans that had restructured terms.  At December 31, 2012 $220,000 in specific reserves was allocated to loans that had restructured terms.

23

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 six months ended June 30, 2013 and June 30, 2012:

	Six months ended June 30, 2013						Six months ended June 30, 2012
Loan Class	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial and industrial		-	$	-	$	-		2	$	1,999	$	1,999
All other		1		16		16		-		-		-
Total		1	$	16	$	16		2	$	1,999	$	1,999

The troubled debt restructurings described above did not increase the allowance for loan losses during the six months ending June 30, 2013 and increased the allowance for loan losses by $40,000 during the six months ending June 30, 2012.

There were no TDR’s that occurred during the three months ended June 30, 2013 or June 30, 2012.

During the three months and six months ended June 30, 2013 there were no TDR’s for which there was a payment default within twelve months following the modification. During the three months and six months ended June 30, 2012 there were no TDR’s for which there was 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.

24

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.

25

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 June 30, 2013, 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	$	195,461	$	9,300	$	8,296	$	82	$	213,139
Multifamily real estate		28,634		1,241		5,406		-		35,281
Commercial real estate:
Owner occupied		81,698		7,257		4,972		-		93,927
Non-owner occupied		169,137		5,343		4,828		-		179,308
Commercial and industrial		85,152		641		8,940		42		94,775
Consumer		25,874		152		61		-		26,087
All other		57,251		665		13,383		461		71,760
Total	$	643,207	$	24,599	$	45,886	$	585	$	714,277

As of December 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	$	195,210	$	10,115	$	9,327	$	91	$	214,743
Multifamily real estate		19,747		1,912		7,014		-		28,673
Commercial real estate:
Owner occupied		74,529		8,994		8,379		-		91,902
Non-owner occupied		163,337		7,685		7,827		-		178,849
Commercial and industrial		70,180		2,739		11,508		3		84,430
Consumer		27,931		123		74		-		28,128
All other		64,009		814		12,386		691		77,900
Total	$	614,943	$	32,382	$	56,515	$	785	$	704,625

26

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  4 - STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS

The Company’s principal source of funds for dividend payments to shareholders is dividends received from the subsidiary Banks.  Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies.  Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, as defined, combined with the retained net profits of the preceding two years, subject to the capital requirements and additional restrictions as discussed below.  During 2013 the Banks could, without prior approval, declare dividends to Premier of approximately $2.1 million plus any 2013 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  June 30, 2013 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:

	June 30, 2013			December 31, 2012			Regulatory Minimum Requirements			To Be Considered Well Capitalized
Tier I Capital (to Risk-Weighted Assets)		16.7	%		16.1	%		4.0	%		6.0	%
Total Capital (to Risk-Weighted Assets)		17.9	%		17.4	%		8.0	%		10.0	%
Tier I Capital (to Average Assets)		10.5	%		10.0	%		4.0	%		5.0	%

As of June 30, 2013, 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.

27

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  5 – 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 $22,252,000 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.

Premier sought and obtained regulatory permission to participate in the U.S. Treasury’s auction to sell its investment in Premier’s Series A Preferred Stock.  In the auction, Premier successfully bid to repurchase 10,252 shares of the 22,252 outstanding shares and on August 10, 2012 the 10,252 shares repurchased at the auction closing price of $901.03.

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 andthe 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  5 – 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 June 30, 2013, the Warrant has not yet been exercised.  Since the Series A Preferred Stock was disposed of by the U.S. Treasury, Premier has the right to repurchase the Warrant at its appraised value.  If Premier chooses not to repurchase the Warrant, the U.S. Treasury may liquidate the Warrant at its current market price.

NOTE  6 – 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 20, 2013, 52,900 incentive stock options were granted out of the 2012 Long Term Incentive Plan at an exercise price of $11.39, the closing market price of Premier’s common stock on the grant date.  These options vest in three equal annual installments ending on March 20, 2016.  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’s common stock 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.

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:

	2013			2012			2011
Risk-free interest rate		1.96	%		2.31	%		3.58	%
Expected option life (yrs)		10.00			10.00			10.00
Expected stock price volatility		35.24	%		34.93	%		30.01	%
Dividend yield		3.86	%		2.68	%		4.03	%
Weighted average fair value of options granted during the year	$	2.85		$	2.34		$	1.63

29

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  6 – 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 by annualizing the current quarterly dividend on the Company’s common stock at the time of the option grant or by using historical dividends and dividend yields during the time the Company was restricted from paying dividends by its primary regulator.

Compensation expense of $87,000 was recorded for the first six months of 2013 compared to $85,000 for the first six months of 2012.  For the three months ended June 30, $41,000 was recorded for 2013 while $57,000 was recorded for 2012.  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 $191,000 at June 30, 2013. This unrecognized expense is expected to be recognized over the next 32 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 six months ended June 30:

	- - - - - - 2013 - - - - - -					- - - - - - 2012 - - - - - -
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding at beginning of year		392,366		$	9.24		350,949		$	10.77
Grants		52,900			11.39		105,700			7.47
Exercises		(48,617	)		7.65		-			-
Forfeitures or expired		(12,201	)		8.03		(4,332	)		7.70
Outstanding at June 30,		384,448		$	9.70		452,317		$	9.19
Exercisable at June 30,		242,898					268,364
Weighted average remaining life of options outstanding		6.5					7.0
Weighted average fair value of options granted during the year	$	2.85				$	2.34

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  6 – STOCK COMPENSATION EXPENSE - continued

Additional information regarding stock options outstanding and exercisable at June 30, 2013, 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		227,415	$	7.48	$	1,038		136,965		6.6	$	7.59	$	610
$10.01 to $12.50		72,933		11.46		42		21,833		1.6		11.62		9
$12.51 to $15.00		60,600		13.46		-		60,600		4.2		13.46		-
$15.01 to $17.50		23,500		16.00		-		23,500		2.6		16.00		-
Outstanding - Jun 30, 2013		384,448		9.70	$	1,080		242,898		5.2		10.23	$	619

NOTE  7 – 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 and six months ended June 30, 2013 and 2012 is presented below:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Basic earnings per share
Income available to common stockholders	$	2,944	$	1,786	$	5,283	$	4,311
Weighted average common shares outstanding		7,980,923		7,937,143		7,971,859		7,937,143
Earnings per share	$	0.37	$	0.23	$	0.66	$	0.54
Diluted earnings per share
Income available to common stockholders	$	2,944	$	1,786	$	5,283	$	4,311
Weighted average common shares outstanding		7,980,923		7,937,143		7,971,859		7,937,143
Add dilutive effects of potential additional common stock		451,072		202,258		439,194		144,075
Weighted average common and dilutive potential common shares outstanding		8,431,995		8,139,401		8,411,053		8,081,218
Earnings per share assuming dilution	$	0.35	$	0.22	$	0.63	$	0.53

Stock options for 84,100 and 405,349 shares of common stock were not considered in computing diluted earnings per share for the six months ended June 30, 2013 and 2012 because they were antidilutive.  Stock options for 84,100 and 202,449 shares of common stock were not considered in computing diluted earnings per share for the three months ended June 30, 2013 and 2012 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  8 – 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  8 – FAIR VALUE - continued

The carrying amounts and estimated fair values of financial instruments at June 30, 2013 were as follows:

				Fair Value Measurements at June 30, 2013 Using
	Carrying Amount			Level 1			Level 2			Level 3		Total
Financial assets
Cash and due from banks	$	66,064		$	66,064		$	-		$	-	$	66,064
Federal funds sold		4,266			4,266			-			-		4,266
Securities available for sale		258,120			-			257,980			140		258,120
Loans held for sale		247			-			-			247		247
Loans, net		702,079			-			-			703,276		703,276
Federal Home Loan Bank stock		4,183			n/a			n/a			n/a		n/a
Interest receivable		3,107			-			699			2,408		3,107
Financial liabilities
Deposits	$	(932,944	)	$	(585,486	)	$	(349,296	)	$	-	$	(934,782	)
Securities sold under agreements to repurchase		(8,515	)		-			(8,515	)		-		(8,515	)
Other borrowed funds		(15,000	)		-			(14,975	)		-		(14,975	)
Interest payable		(430	)		(5	)		(425	)		-		(430	)

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

				Fair Value Measurements at December 31, 2012 Using
	Carrying Amount			Level 1			Level 2			Level 3		Total
Financial assets
Cash and due from banks	$	66,009		$	66,009		$	-		$	-	$	66,009
Federal funds sold		4,236			4,236			-			-		4,236
Securities available for sale		283,975			-			283,835			140		283,975
Loans held for sale		200			-			-			200		200
Loans, net		693,137			-			-			691,519		691,519
Federal Home Loan Bank stock		4,181			n/a			n/a			n/a		n/a
Interest receivable		3,403			-			827			2,576		3,403
Financial liabilities
Deposits	$	(930,583	)	$	(577,274	)	$	(356,730	)	$	-	$	(934,004	)
Securities sold under agreements to repurchase		(26,102	)		-			(26,102	)		-		(26,102	)
Other borrowed funds		(16,049	)		-			(16,022	)		-		(16,022	)
Interest payable		(489	)		(6	)		(483	)		-		(489	)

33

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  8 – 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  June 30, 2013 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	$	38,224	$	-	$	38,224	$	-
U. S. agency CMO’s - residential		204,118		-		204,118		-
Total mortgage-backed securities of government sponsored agencies		242,342		-		242,342		-
U. S. government sponsored agency securities		6,969		-		6,969		-
Obligations of states and political subdivisions		6,747		-		6,607		140
Other securities		2,062		-		2,062		-
Total available for sale	$	258,120	$	-	$	257,980	$	140

			Fair Value Measurements at  December 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	$	37,100	$	-	$	37,100	$	-
U. S. agency CMO’s - residential		212,847		-		212,847		-
Total mortgage-backed securities of government sponsored agencies		249,947		-		249,947		-
U. S. government sponsored agency securities		22,244		-		22,244		-
Obligations of states and political subdivisions		7,860		-		7,720		140
Other securities		3,924		-		3,924		-
Total available for sale	$	283,975	$	-	$	283,835	$	140

34

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  8 – 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  8 – FAIR VALUE - continued

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis at June 30, 2013 are summarized below:

			Fair Value Measurements at June 30, 2013 Using
	Carrying Value		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	$	2,525	$	-	$	-	$	2,525
Commercial Real Estate
Owner Occupied		512		-		-		512
Non-owner Occupied		428		-		-		428
Commercial and Industrial		4,240		-		-		4,240
All Other		4,454		-		-		4,454
Total impaired loans		12,159	$	-	$	-	$	12,159
Other real estate owned:
Commercial Real Estate
Non-owner Occupied		490		-		-		490
All Other		7,211		-		-		7,211
Total OREO	$	7,701	$	-	$	-	$	7,701

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $16,309,000 at June 30, 2013 with a valuation allowance of $4,150,000 and a carrying amount of $20,285,000 at December 31, 2012 with a valuation allowance of $3,842,000, resulting in a provision for loan losses of $483,000 for the six months ended June 30, 2013, compared to a $1,000 provision for loan losses for the six months ended June 30, 2012;  and a negative $429,000 provision for loan losses for the three months ended June 30, 2013, compared to a negative $527,000 provision for loan losses for the three months ended June 30, 2012.  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 $7,701,000 which is made up of the outstanding balance of $9,296,000 net of a valuation allowance of $1,595,000 at June 30, 2013. There were no additional write downs during the six months ended June 30, 2013, compared to $85,000 of additional write downs during the six months ended June 30, 2012.  For the three months ended June 30, 2013 no additional write downs were recorded compared to $41,000 of write downs during the three months ended   June 30, 2012.  At December 31, 2012, other real estate owned had a net carrying amount of $7,968,000, made up of the outstanding balance of $9,945,000, net of a valuation allowance of $1,977,000.

36

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  8 – FAIR VALUE - continued

The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at June 30, 2013 are summarized below:

	June 30, 2013		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Residential Real Estate	$	2,525	sales comparison	adjustment for differences between the comparable sales		0.8%-16.7%(9.0%)
Commercial Real Estate
Owner Occupied		512	sales comparison	adjustment for limited salability of specialized property		40.0%-70.0%(44.1%)
Non-owner Occupied		428	sales comparison	adjustment for limited salability of specialized property		50.5%-50.5%(50.5%)
Commercial and Industrial		4,240	sales comparison	adjustment for limited salability of specialized property		0.0%-80.5%(57.0%)
All Other		4,454	sales comparison	adjustment for percentage of completion of construction		10.0%-91.4%(66.2%)
Total impaired loans		12,159
Other real estate owned:
Commercial Real Estate
Non-owner Occupied		490	sales comparison	adjustment for differences between the comparable sales		1.9%-1.9%(1.9%)
All Other		7,211	sales comparison	adjustment for estimated realizable value		4.7%-15.9%(12.6%)
Total OREO	$	7,701

37

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  8 – FAIR VALUE - continued

Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2012 are summarized below:

			Fair Value Measurements at December 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)
Assets:
Impaired loans:
Residential Real Estate	$	2,739	$	-	$	-	$	2,739
Commercial Real Estate
Owner Occupied		512		-		-		512
Non-owner Occupied		427		-		-		427
Commercial and Industrial		8,300		-		-		8,300
All Other		4,465		-		-		4,465
Total impaired loans		16,443	$	-	$	-	$	16,443
Other real estate owned:
Residential Real Estate	$	255	$	-	$	-	$	255
Commercial Real Estate
Owner Occupied		250		-		-		250
Non-owner Occupied		1,031		-		-		1,031
All Other		6,432		-		-		6,432
Total OREO	$	7,968	$	-	$	-	$	7,968

38

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  8 – FAIR VALUE - continued

The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at December 31, 2012 are summarized below:

	December 31, 2012		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Residential Real Estate	$	2,739	sales comparison	adjustment for differences between the comparable sales		0.8%-76.8%(10.5%)
Commercial Real Estate
Owner Occupied		512	sales comparison	adjustment for limited salability of specialized property		40.0%-70.0%(44.1%)
Non-owner Occupied		427	sales comparison	adjustment for limited salability of specialized property		59.0%-59.0%(59.0%)
Commercial and Industrial		8,300	sales comparison	adjustment for limited salability of specialized property		0.0%-70.0%(44.3%)
All Other		4,465	sales comparison	adjustment for percentage of completion of construction		64.0%-91.4%(64.8%)
Total impaired loans		16,443
Other real estate owned:
Residential Real Estate	$	255	sales comparison	adjustment for differences between the comparable sales		0.0%-62.3%(44.1%)
Commercial Real Estate
Owner Occupied		250	sales comparison	adjustment for estimated realizable value		0.0%-17.9%(7.2%)
Non-owner Occupied		1,031	sales comparison	adjustment for differences between the comparable sales		82.7%-82.7%(82.7%)
All Other		6,432	sales comparison	adjustment for estimated realizable value		4.7%-16.6%(12.7%)
Total OREO	$	7,968

39

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  9 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table details the changes in the single component of accumulated other comprehensive income for the six months ended June 30, 2013:

Accumulated Other Comprehensive Income	Unrealized Gain on Securities Available for Sale
Balance, December 31, 2012	$	6,576
Reclassification adjustments to net income:
Realized gain on disposition of securities		(148	)
Provision for income taxes		50
Unrealized losses arising during the period, net of tax		(3,570	)
Balance, June 30, 2013	$	2,908

The following table details the changes in the single component of accumulated other comprehensive income for the three months ended June 30, 2013:

Accumulated Other Comprehensive Income	Unrealized Gain on Securities Available for Sale
Balance, March 31, 2013	$	6,096
Unrealized losses arising during the period, net of tax		(3,188	)
Balance, June 30, 2013	$	2,908

40

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2013

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 six months ended June 30, 2013 was $5,613,000, or $0.63 per diluted share, compared to net income of $4,922,000, or $0.53 per diluted share, for the six months ended June 30, 2012.  The increase in net income in 2013 is largely due to a decrease in total interest expense, a decrease in the provision for loan losses, and decreases in staff costs, occupancy and equipment expenses, professional fees and collection costs.  These decreases in expenses more than offset decreases in interest income and non-interest income.  The annualized returns on average common shareholders’ equity and average assets were approximately 7.81% and 1.00% for the six months ended June 30, 2013 compared to 6.76% and 0.86% for the same period in 2012.

Net income for the three months ended June 30, 2013 was $3,109,000, or $0.35 per diluted share, compared to net income of $2,092,000, or $0.22 per diluted share for the three months ended June 30, 2012.  The increase in income in 2013 is largely due to an increase in total interest income, a decrease in total interest expense, a decrease in the provision for loan losses, and decreases in non-interest expenses which more than offset a decrease in non-interest income.  The annualized returns on common shareholders’ equity and average assets were approximately 8.72% and 1.11% for the three months ended June 30, 2013 compared to 5.62% and 0.73% for the same period in 2012.

41

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2013

Net interest income for the six months ended June 30, 2013 totaled $21.23 million, down $1.49 million, or 6.6%, from the $22.73 million of net interest income earned in the first six months of 2012, as the decrease in total interest income exceeded the decrease in total interest expense.  Interest income in 2013 decreased by $2.44 million, or 9.3%, largely due to a decrease in interest and fees on loans.  In the first six months of 2013, interest income on loans decreased by $1.90 million, or 8.5%, compared to the same period in 2012.  In 2012, interest income on loans included $2.10 million from the recognition of deferred interest and purchase discounts on non-accrual loans liquidated during the first quarter of 2012 while in 2013, interest income on loans included $770,000 of similar income on non-accrual loans liquidated during the second quarter of 2013. The timing of these liquidations is difficult to predict, which creates fluctuations in reported loan interest income.  Otherwise, interest income on loans would have decreased by $567,000 in the first six months of 2013 due to lower yields on a higher average balance of loans outstanding.  Interest earned on investments decreased by $538,000, or 14.4%, due to lower average yields on a lower average volume of investments.  Interest earned on federal funds sold and interest bearing bank balances decreased by $4,000, largely due to a lower average volume of assets held in this category.

Partially offsetting the decrease in interest income in the first six months of 2013 was $946,000 of interest expense savings.  Interest expense decreased in total during the first six months of 2013 by $946,000, or 27.5%, when compared to the same six months of 2012.  Interest expense on deposits decreased by $827,000, or 27.8%, largely due to a continuing decrease in rates paid on deposits combined with a lower average balance of interest-bearing deposits outstanding.  Interest expense on repurchase agreements and other short-term borrowings decreased by $30,000, largely due to lower rates paid and a lower average balance outstanding.  All FHLB advances were repaid in 2012 saving $41,000 of interest expense in the first six months of 2013 compared to 2012.  Interest expense on other borrowings decreased by $49,000, or 12.7%, in the first six months of 2013 compared to the first six months of 2012, largely due to a decrease in the average amount of borrowings outstanding.

The Federal Reserve System Board of Governors’ policy to maintain the federal funds rate at 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 the lower interest income by lowering the rates paid on its deposits and repurchase agreements with customers.  However, with the recognition of additional loan interest income upon the liquidation of non-accrual loans in 2012 coupled with the lower amount of decrease in the rates paid on deposit accounts versus the decrease in earning asset yields,  Premier’s overall net interest margin decreased in the first six months of 2013.  Premier’s net interest margin during the first six months of 2013 was 4.16% compared to 4.38% for the same period in 2012.  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 period.  These events cannot be predicted with certainty and may positively or negatively affect the comparison of interest income on loans in future periods.

42

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2013

Additional information on Premier’s net interest income for the first six months of 2013 and 2012 is contained in the following table.

PREMIER FINANCIAL BANCORP, INC.
AVERAGE CONSOLIDATED BALANCE SHEETS
AND NET INTEREST INCOME ANALYSIS
	Six Months Ended June 30, 2013								Six Months Ended June 30, 2012
	Balance			Interest		Yield/Rate			Balance			Interest		Yield/Rate
Assets
Interest Earning Assets
Federal funds sold and other	$	53,220		$	72		0.27	%	$	65,767		$	76		0.23	%
Securities available for sale
Taxable		271,044			3,110		2.30			291,631			3,620		2.48
Tax-exempt		5,944			84		4.28			7,647			112		4.44
Total investment securities		276,988			3,194		2.34			299,278			3,732		2.53
Total loans		703,214			20,466		5.87			677,189			22,364		6.62
Total interest-earning assets		1,033,422			23,732		4.63	%		1,042,234			26,172		5.05	%
Allowance for loan losses		(12,159	)							(10,039	)
Cash and due from banks		26,791								28,689
Other assets		68,902								75,598
Total assets	$	1,116,956							$	1,136,482
Liabilities and Equity
Interest-bearing liabilities
Interest-bearing deposits	$	739,503			2,145		0.58		$	745,796			2,972		0.80
Short-term borrowings		14,919			18		0.24			21,323			48		0.45
FHLB advances		-			-		-			3,757			41		2.19
Other borrowings		15,509			336		4.37			17,482			385		4.42
Total interest-bearing liabilities		769,931			2,499		0.65	%		788,358			3,446		0.88	%
Non-interest bearing deposits		196,818								195,866
Other liabilities		3,659								4,185
Shareholders’ equity		146,548								148,073
Total liabilities and equity	$	1,116,956							$	1,136,482
Net interest earnings				$	21,233							$	22,726
Net interest spread							3.98	%							4.17	%
Net interest margin							4.16	%							4.38	%

43

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2013

Additional information on Premier’s net interest income for the second quarter of 2013 and second quarter of 2012 is contained in the following table.

PREMIER FINANCIAL BANCORP, INC.
AVERAGE CONSOLIDATED BALANCE SHEETS
AND NET INTEREST INCOME ANALYSIS
	Three Months Ended June 30, 2013								Three Months Ended June 30, 2012
	Balance			Interest		Yield/Rate			Balance			Interest		Yield/Rate
Assets
Interest Earning Assets
Federal funds sold and other	$	57,782		$	42		0.28	%	$	66,149		$	44		0.27	%
Securities available for sale
Taxable		264,356			1,528		2.31			300,694			1,829		2.43
Tax-exempt		5,852			41		4.25			7,608			56		4.46
Total investment securities		270,208			1,569		2.36			308,302			1,885		2.48
Total loans		704,780			10,706		6.09			674,332			10,027		5.96
Total interest-earning assets		1,032,770			12,317		4.79	%		1,048,783			11,956		4.58	%
Allowance for loan losses		(12,478	)							(10,244	)
Cash and due from banks		26,963								28,937
Other assets		68,625								74,931
Total assets	$	1,115,880							$	1,142,407
Liabilities and Equity
Interest-bearing liabilities
Interest-bearing deposits	$	741,436			1,054		0.57		$	752,332			1,437		0.77
Short-term borrowings		10,241			6		0.23			20,260			22		0.44
FHLB advances		-			-		-			12			-		0.00
Other borrowings		15,262			164		4.31			17,323			189		4.38
Total interest-bearing liabilities		766,939			1,224		0.64	%		789,927			1,648		0.84	%
Non-interest bearing deposits		198,372								198,816
Other liabilities		3,560								4,474
Shareholders’ equity		147,009								149,190
Total liabilities and equity	$	1,115,880							$	1,142,407
Net interest earnings				$	11,093							$	10,308
Net interest spread							4.15	%							3.74	%
Net interest margin							4.31	%							3.95	%

Net interest income for the quarter ending June 30, 2013 totaled 11.09 million, up $784,000, or 7.6%, from the $10.31 million of net interest income earned in the second quarter of 2012.  Interest income in the second quarter of 2013 increased by $361,000, or 3.0%, as an increase in interest income on loans more than offset a decrease in interest income on investments.  Interest income on loans increased by $679,000, or 6.8%.  In the second quarter of 2013, interest income on loans included $770,000 from the recognition of deferred interest and purchase discounts on non-accrual loans liquidated during the quarter.  When a loan that has been discounted as a result being purchased in a business acquisition is paid-off, any remaining discount is recognized as interest income on loans.  These events cannot be predicted with certainty and may positively or negatively affect interest income on loans in future periods, which creates fluctuations in reported loan interest income.  Otherwise, interest income on loans would have decreased by $91,000 in the second quarter of 2013  due to lower yields on a higher average balance of loans outstanding.  Interest earned on investments decreased by $316,000, or 16.8%, due to lower average yields on a lower average volume of investments.  Average investment balances have decreased as maturing funds have been placed into loans or used to satisfy deposit withdrawals.  Interest earned on federal funds sold and interest bearing bank balances decreased by $2,000, largely due to a lower average volume of assets held in this category.

44

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2013

Also adding to the increase in net interest income, interest expense decreased in total during the second quarter of 2013 by $424,000, or 25.7%, when compared to the same quarter of 2012.  Interest expense on deposits decreased by $383,000, or 26.7%, largely due to a continuing decrease in the rates paid combined with a lower average balance of interest-bearing deposits outstanding.  Interest expense on repurchase agreements and other short-term borrowings decreased by $16,000, again largely due to a decrease in the interest rates paid combined with a lower average balance outstanding.  Interest expense on other borrowings decreased by $25,000, or 13.2%, in the second quarter of 2013 compared to the second quarter of 2012, 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.  New fixed rate loans are also pricing lower than loans originated in prior periods.  Premier has tried to offset the lower interest earning yields by lowering the rates paid on its deposits and repurchase agreements with customers.  During the second quarter of 2013, the decrease in the rates paid on deposits outpaced the lower yields on investments.  This interest savings along with the increase in interest income on loans from the liquidation of non-accrual loans during the quarter has improved Premier’s overall net interest margin.  Premier’s net interest margin during the second quarter of 2013 was 4.31% compared to 3.95% for the same period in 2012.

Non-interest income increased by $77,000, or 2.4%, to $3,226,000 for the first six months of 2013 compared to the same period of 2012.  However, this increase included a $148,000 gain on the disposition of an investment security that was called during the first six months of 2013.  Excluding this gain, service charges of deposit accounts decreased by $67,000, or 3.9%, and electronic banking income (income from debit/credit cards, ATM fees and internet banking charges) decreased by $23,000, or 2.3%.  The decrease in service charges on deposit accounts is largely due to a decrease in customer overdraft activity as customers reduced their propensity to incur overdraft charges as they managed their checking accounts more closely.  These decreases were partially offset by a $13,000, or 10.2%, increase in income from selling mortgages in the secondary market and a $6,000 increase in income from other sources.  The increase in secondary market mortgage income is largely due to the stabilization of requirements for customers to qualify for mortgages that are eligible for sale in the secondary market and an increase in customer demand for refinancing existing mortgage loans during the first quarter compared to one-year ago.

For the quarter ending June 30, 2013, non-interest income decreased by $51,000 to $1,581,000 compared to $1,632,000 recognized during the same quarter of 2012.  Service charges on deposit accounts decreased by $26,000, or 3.0%, electronic banking income decreased by $5,000, or 1.0%, and secondary market mortgage income decreased by $56,000, or 54.4%.  These decreases were partially offset by a $36,000 increase in income from other sources.  The decrease in secondary market mortgage income was largely the result of diminished activity.  The recent increase in longer-term interest rates in the second quarter of 2013 has resulted in lower demand for mortgage refinancing.

45

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2013

Non-interest expenses for the first six months of 2013 totaled $15.20 million, or 2.74% of average assets on an annualized basis, compared to $16.66 million, or 2.95% of average assets for the same period of 2012.  The 1.46 million decrease in non-interest expenses in 2013 when compared to the first six months of 2012 is largely due to a $587,000, or 68.8% decrease in loan collection expenses, namely foreclosure and other loan collection expenses associated with the liquidation of non-accrual loans during the first quarter of 2012.  Also contributing to the decrease in non-interest expenses during the first six months of 2013 was a $384,000, or 4.9%, decrease in staff costs following the decrease in the number employees resulting from the internal bank mergers to form Premier Bank, Inc. in 2011 and to consolidate the Kentucky and Ohio operations under Citizens Deposit Bank and Trust in the second half of 2012.  Other decreases in non-interest expense during the first six months of 2013 include an $119,000, or 5.2%, decrease in occupancy and equipment expense, a $70,000, or 4.0%, decrease in data processing costs, a $139,000, or 23.8%, decrease in professional fees,  a $69,000, or 14.3%, decrease in FDIC insurance expense, and a $43,000, or 12.4%, decrease in core deposit amortization expense.  Occupancy expense decreased largely due to lower rent expense and leasehold improvement depreciation from the consolidation of rented facilities.  Equipment expense decreased largely due to lower software subscription expenditures and lower depreciation and maintenance expense, partially offset by the write-off of obsolete equipment.  Data processing costs decreased due to lower amounts paid for electronic banking processing and the processing of checks and other items.  Professional fees decreased as a result of lower legal and audit costs partially offset by an increase in consulting costs.  FDIC insurance expense decreased largely due to savings realized by consolidating the Kentucky and Ohio operations under Citizens Deposit Bank and Trust in the second half of 2012.  Core deposit amortization expense decreased as Premier utilizes an accelerated method to amortize its core deposit intangible asset.  These expense decreases more than offset an $89,000, or 17.6%, increase in expenses and writedowns on other real estate owned (OREO), and a $17,000, or 4.9%, increase in taxes not on income.  The increase in expenses on OREO is largely due to a decrease in rental income earned from an OREO property that was sold in late 2012 which more than offset a decrease in OREO writedown expense.  The increase in taxes not on income is largely due to an increase in amount subject to Virginia’s franchise tax resulting from the formation of Premier Bank partially offset by a decrease in Ohio’s franchise tax.

Non-interest expenses for the second quarter of 2013 totaled $7.81 million, or 2.81% of average assets on an annualized basis, compared to $8.07 million, or 2.84% of average assets for the same period of 2012.  The $257,000 decrease in non-interest expenses in the second quarter of 2013 when compared to the second quarter of 2012 is largely due to a general decrease in operating costs across all major expense categories.  FDIC insurance expense decreased by $39,000, or 16.3%, largely due to savings realized by consolidating the Kentucky and Ohio operations under Citizens Deposit Bank and Trust in the second half of 2012.  Collection expenses decreased by $55,000, or 28.9%, largely due to lower costs incurred in the Company’s Washington market.  Taxes not on income decreased by $39,000, or 20.5%, largely due to decreases in amounts subject to Ohio’s and West Virginia’s franchise tax partially offset by an increase in Virginia’ franchise tax.  Otherwise, staff costs decreased by $13,000, or 0.4%.  Occupancy and equipment costs decreased by $18,000, or 1.6%.  Outside data processing decreased by $18,000, or 2.1%.  Professional fees decreased by $11,000, or 3.7%.  OREO expenses decreased by $21,000, or 7.2%.

46

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2013

Income tax expense was $3.15 million for the first six months of 2013 compared to $2.59 million for the first six months of 2012.  The effective tax rate for the six months ended June 30, 2013 was 35.9% compared to 34.5% for the same period in 2012.  For the quarter ending June 30, 2013, income tax expense was $1.83 million, a 37.0% effective tax rate, compared to $1.03 million (a 33.0% effective tax rate) for the same period of 2012.  The increase in income tax expense can be primarily attributed to the increase in pre-tax income detailed above, while the increases in the effective income tax rate are largely due to increases in the amount of income subject to state income taxes and the Company’s taxable income reaching the phase-in threshold of the 35% Federal corporate income tax rate.

47

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2013

B.         Financial Position

Total assets at June 30, 2013 decreased by $15.8 million to just under $1.105 billion from the $1.121 billion at December 31, 2012.  However, earning assets decreased by only $11.5 from the $1.031 billion at year-end 2012 to end the quarter at $1.019 billion.  The decrease in total assets was largely due to a decrease in securities available for sale and cash and due from banks partially offset by an increase in net loans outstanding and interest bearing bank balances (see below).

Cash and due from banks at June 30, 2013 was $27.9 million, a $4.6 million decrease from the $32.5 million at December 31, 2012.  Interest bearing bank balances increased by $4.6 million from the $33.5 million reported at December 31, 2012, while federal funds sold remained relatively unchanged at $4.3 million at June 30, 2013.  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 six months of 2013 was largely in response to a reallocation of some of Premier’s surplus cash and due from banks on hand at December 31, 2012 into an interest earning asset.

Securities available for sale totaled $258.1 million at June 30, 2013, a $25.9 million decrease from the $284.0 million at December 31, 2012.  The decrease was largely due to monthly principal payments on Premier’s mortgage backed securities portfolio which returns approximately $4.6 million per month in cash flow to be reinvested, used to fund loans, or satisfy deposit and customer repurchase agreement withdrawals.  In addition, Premier received additional funds from maturing and called securities.  Not all of these funds were reinvested in the investment portfolio.  During the first six months of 2013, some of these funds were used to satisfy customer repurchase agreement withdrawals (see below) and fund the increase in loans.  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 June 30, 2013 and December 31, 2012 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 June 30, 2013 were $714.3 million compared to $704.6 million at December 31, 2012, an increase of approximately $9.7 million, or 1.4%.  The increase in loans was largely due to new loan demand, primarily commercial loans, during the second quarter of 2013 which more than offset a decrease in loans during the first three months of 2013, largely due to payoffs, transfers of loans to OREO upon foreclosure and principal payments on loans.

Deposits totaled $932.9 million as of June 30, 2013, a $2.3 million increase from the $930.6 million in deposits at December 31, 2012.  The overall increase in deposits is due to a $5.0 million, or 3.5%, increase in certificates of deposit over $100,000, a $9.7 million, or 4.6%, increase in savings and money market accounts and a $1.1 million, or 0.6%, increase in non-interest bearing deposit accounts.  These increases were partially offset by an $11.2 million, or 5.3%, decrease in certificates of deposit and individual retirement accounts (IRA’s) under $100k and a $2.3 million or 1.4% decrease in in interest bearing transaction accounts.  Contrary to the growth in total deposits, repurchase agreements with corporate and public entity customers decreased in the first six months of 2013, declining by $17.6 million to $8.5 million as of June 30, 2013.  Customer repurchase agreement balances are highly sensitive to interest rates and the decrease in balance outstanding at June 30, 2013 was largely due to a lowering of the rate paid by Premier on this kind of short-term liability.  Other borrowed funds decreased by $1.0 million during the first six months of 2013 due to regularly scheduled principal payments plus accelerated principal payments.

48

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2013

The following table sets forth information with respect to the Company’s nonperforming assets at June 30, 2013 and December 31, 2012.

	(In Thousands)
	2013			2012
Non-accrual loans	$	23,283		$	25,806
Accruing loans which are contractually past due 90 days or more		2,163			3,890
Accruing restructured loans		10,773			14,106
Total non-performing loans		36,219			43,802
Other real estate acquired through foreclosure (OREO)		13,556			13,366
Total non-performing assets	$	49,775		$	57,168
Non-performing loans as a percentage of total loans		5.07	%		6.22	%
Non-performing assets as a percentage of total assets		4.50	%		5.10	%

Total non-performing loans have decreased since year-end, largely due to a $3.3 million decrease in in restructured loans performing in accordance with their modified terms and a $2.5 million decrease in non-accrual loans.  Also affecting the decrease in non-performing loans was a $1.7 million decrease in accruing loans past due 90 days or more.  During the first six months of 2013, a total of $3.0 million of loans have been placed on non-accrual status, including a $1.7 million restructured loan that became significantly past due.  These increases in non-accrual loans were more than offset by approximately $4.9 million of payments and payoffs received on non-accrual loans during that time.  The remaining $622,000 decrease in non-accrual loans was due to charge-offs and transfers to other real estate owned (“OREO”).  The change in OREO during the first six months of 2013 is largely due to foreclosures and expenditures for improvements to existing OREO properties of approximately $1.9 million partially offset by sales of $1.7 million of OREO properties.  There have been no additional writedowns on OREO property during the first six months of 2013 while writedowns of $85,000 were recorded during the same period of 2012.  The writedowns in the first six months of 2012 were more than offset by $123,000 of gains on the disposition of OREO sold which compares to approximately $74,000 of gains recorded on the disposition of OREO sold during the first six months of 2013. The significant level of non-accrual loans and OREO is primarily due to the non-performing assets that came with the acquisition of Abigail Adams and its two subsidiary banks (the “Acquired Banks”).

49

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2013

At December 31, 2012, the Acquired Banks accounted for $28.4 million, or 49.7%, of Premier’s non-performing assets while at June 30, 2013 the Acquired Banks accounted for $29.2 million, or 58.6% 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 June 30, 2013 and December 31, 2012 and the discounted net carrying value of those non-performing assets.

NON-PERFORMING ASSETS AT ACQUIRED SUBSIDIARY BANKS
(Dollars in thousands)
	June 30, 2013				December 31, 2012
	Face Value		Discounted Net Carrying Value		Face Value		Discounted Net Carrying Value
Non-performing Assets
Non-accrual loans	$	19,016	$	9,442	$	12,338	$	9,874
Loans 90+ days past due		1,678		1,628		1,458		1,423
Restructured loans		7,957		7,656		7,871		7,565
Other real estate owned		10,996		10,456		10,152		9,573
Total non-performing assets	$	39,647	$	29,182	$	31,819	$	28,435
(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.

50

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2013

Gross charge-offs totaled $392,000 during the first six months of 2013.  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 six months of 2013 totaled $602,000 resulting in net recoveries for the first six months of 2013 of $210,000.  These amounts compare to the $1.78 million of gross charge-offs and $147,000 of recoveries recorded during the first six months of 2012, resulting in a net charge of $1.63 million to the allowance for loan losses.  During the second quarter of 2012, Premier charged-off loans and portions of loans that had previously been identified as impaired whereby management determined that any eventual liquidation of collateral would be insufficient to repay the entire amount due on the loans.  The recoveries in 2013 are largely the result of downpayments and continuing monthly payments toward the collection on two loans that were charge-off in prior years.  The allowance for loan losses at June 30, 2013 was 1.71% of total loans compared to 1.63% at December 31, 2012.  The increase in the ratio is largely due the $210,000 of net recoveries recorded during the first six months of 2013, plus the $500,000 of provision for loan losses expensed during that time.

During the second quarter of 2013, Premier recorded $70,000 of negative provision for loan losses compared to $750,000 of additional provision for loans losses during the same quarter of 2012.  The decrease in the provision for loan losses was the result of management’s updated assessment of the level of credit risk in the loan portfolio in accordance with Premier’s policies regarding the estimation of probable incurred losses in the loan portfolio and the adequacy of the allowance for loan losses, including updated historical charge-off ratios, the level of net recoveries in 2013, payments received on impaired loans previously identified with specific reserve allocations as well as increases in specific reserve allocations on existing loans.

During the first six months of 2013, Premier recorded $500,000 of provision expense which compares to $1.7 million of provision expense recorded during the first six months of 2012.  During the first six months of 2012, Premier charged-off $1.78 million of loans and portions of loans that had previously been identified as impaired whereby management determined that any eventual liquidation of collateral would be insufficient to repay the entire amount due on the loans compared to gross charge-offs of $392,000 during the first six months of 2013.

The allowance for loan losses allocated to loans individually evaluated for impairment increased from $3.3 million at December 31, 2012 to $4.2 million at March 31, 2013 and then decreased to $3.7 million at June 30, 2013, largely due to payments received on impaired loans during the second quarter of 2013.  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 2013 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 provision for loan losses was 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. 

51

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2013

 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 has occurred, 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 further 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.

52

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2013

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, 2012.  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, 2012.  There have been no significant changes in the application of these accounting policies since December 31, 2012.

Management believes that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time.

D.         Liquidity

Liquidity objectives for the Company can be expressed in terms of maintaining sufficient cash flows to meet both existing and unplanned obligations in a cost effective manner.  Adequate liquidity allows the Company to meet the demands of both the borrower and the depositor on a timely basis, as well as pursuing other business opportunities as they arise.  Thus, liquidity management embodies both an asset and liability aspect while attempting to maximize profitability. In order to provide for funds on a current and long-term basis, the Company’s subsidiary banks rely primarily on the following sources:

1. Core deposits consisting of both consumer and commercial deposits and certificates of deposit of $100,000 or more.  Management believes that the majority of its $100,000 or more certificates of deposit are no more volatile than its other deposits.  This is due to the nature of the markets in which the subsidiaries operate.

2. Cash flow generated by repayment of loans and interest.

3. Arrangements with correspondent banks for purchase of unsecured federal funds.

4. The sale of securities under repurchase agreements and borrowing from the Federal Home Loan Bank.

5. Maintenance of an adequate available-for-sale security portfolio.  The Company owns $258.1 million of securities at fair value as of June 30, 2013.

53

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

JUNE 30, 2013

The cash flow statements for the periods presented in the financial statements provide an indication of the Company’s sources and uses of cash as well as an indication of the ability of the Company to maintain an adequate level of liquidity.

E.         Capital

At June 30, 2013, total shareholders’ equity of $144.6 million was 13.1% of total assets.  This compares to total shareholders’ equity of $144.3 million or 12.9% of total assets on    December 31, 2012.

Tier I capital totaled $113.7 million at June 30, 2013, which represents a Tier I leverage ratio of 10.5%.  This ratio is up slightly from the 10.0% at December 31, 2012 as the growth in Tier I capital was divided by a lower base of total assets at June 30, 2013.

Book value per common share was $16.57 at June 30, 2013, and $16.63 at December 31, 2012.  The decrease in book value per share was largely the result of additional shares issued during the second quarter as a result of the exercise of employee stock options.  Book value per share was also reduced by the $3.7 million of other comprehensive loss for the first six months of 2013 related to the after tax decrease in the market value of investment securities available for sale, which decreased book value by approximately $0.46 per share, and the $0.22 per share cash dividends to common shareholders declared and paid during the first six months of 2013.  These decreases offset the $0.63 per share earned during the first six months of 2013, including an approximate $0.04 per share reduction for the $330,000 of preferred stock dividends accrued and related accretion.

54

PREMIER FINANCIAL BANCORP, INC.

JUNE 30, 2013

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 2012 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 2012 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.

55

PREMIER FINANCIAL BANCORP, INC.

JUNE 30, 2013

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, 2012 for disclosures with respect to Premier’s risk factors at December 31, 2012. There have been no material changes since year-end 2012 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

56

PREMIER FINANCIAL BANCORP, INC.

JUNE 30, 2013

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PREMIER FINANCIAL BANCORP, INC.

Date: August 8, 2013                                     /s/ Robert W. Walker                                                                               

Robert W. Walker

President & Chief Executive Officer

Date: August 8, 2013                                     /s/ Brien M. Chase                                                                                   

Brien M. Chase

Senior Vice President & Chief Financial Officer

57

EX-31.1

Exhibit 31.1

PRINCIPAL EXECUTIVE OFFICER CERTIFICATION

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Robert W. Walker, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Premier Financial Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this  report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and;

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 8, 2013

/s/ Robert W. Walker                                           

Robert W. Walker

President & Chief Executive Officer

EX-31.2

Exhibit 31.2

PRINCIPAL FINANCIAL OFFICER CERTIFICATION

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Brien M. Chase, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Premier Financial Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this  report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and;

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 8, 2013

/s/ Brien M. Chase                                                      

Brien M. Chase

Senior Vice President & Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Premier Financial Bancorp, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),  we,  Robert W. Walker and Brien M. Chase, Chief Executive Officer and Chief Financial Officer, respectively, of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

· The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

· The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:  /s/Robert W. Walker                                                                     

Robert W. Walker

President and Chief Executive Officer

By:  /s/ Brien M. Chase                                                                       

Brien M. Chase

Senior Vice President and Chief Financial Officer

Date: August 8, 2013

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SECURITIES (Tables)

6 Months Ended

Jun. 30, 2013

SECURITIES [Abstract]

Amortized Cost and Fair Value of Investment Securities, by Category

Amortized cost and fair value of investment securities, by category, at June 30, 2013 are summarized as follows:

2013	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. sponsored agency MBS - residential	$	37,366	$	1,035	$	(177	)	$	38,224
U. S. sponsored agency CMO’s - residential		201,458		3,690		(1,030	)		204,118
Total mortgage-backed securities of government sponsored agencies		238,824		4,725		(1,207	)		242,342
U. S. government sponsored agency securities		7,070		23		(124	)		6,969
Obligations of states and political subdivisions		6,447		300		-			6,747
Other securities		1,373		761		(72	)		2,062
Total available for sale	$	253,714	$	5,809	$	(1,403	)	$	258,120

Amortized cost and fair value of investment securities, by category, at December 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	$	35,172	$	1,928	$	-		$	37,100
U. S. sponsored agency CMO’s - residential		206,466		6,392		(11	)		212,847
Total mortgage-backed securities of government sponsored agencies		241,638		8,320		(11	)		249,947
U. S. government sponsored agency securities		22,062		182		-			22,244
Obligations of states and political subdivisions		7,419		441		-			7,860
Other securities		2,892		1,105		(73	)		3,924
Total available for sale	$	274,011	$	10,048	$	(84	)	$	283,975

Amortized Cost and Fair Value of Securities by Contractual Maturity

The amortized cost and fair value of securities at June 30, 2013 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	$	1,748	$	1,708
Due after one year through five years		8,346		8,647
Due after five years through ten years		3,997		3,873
Due after ten years		377		790
Corporate preferred securities		422		760
Mortgage-backed securities of government sponsored agencies		238,824		242,342
Total available for sale	$	253,714	$	258,120

Securities in Continuous Unrealized Loss Position

Securities with unrealized losses at June 30, 2013 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 MBS – residential	$	10,415	$	(177	)	$	-	$	-		$	10,415	$	(177	)
U.S government sponsored agency CMO – residential		46,143		(1,030	)		-		-			46,143		(1,030	)
U.S government sponsored agency securities		3,873		(124	)		-		-			3,873		(124	)
Other securities		-		-			4		(72	)		4		(72	)
Total temporarily impaired	$	60,431	$	(1,331	)	$	4	$	(72	)	$	60,435	$	(1,403	)

Securities with unrealized losses at December 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 CMO – residential	$	2,077	$	(11	)	$	-	$	-		$	2,077	$	(11	)
Other securities		-		-			4		(73	)		4		(73	)
Total temporarily impaired	$	2,077	$	(11	)	$	4	$	(73	)	$	2,081	$	(84	)

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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Interest income
Loans, including fees	$ 10,706	$ 10,027	$ 20,466	$ 22,364
Securities available for sale
Taxable	1,528	1,829	3,110	3,620
Tax-exempt	41	56	84	112
Federal funds sold and other	42	44	72	76
Total interest income	12,317	11,956	23,732	26,172
Interest expense
Deposits	1,054	1,437	2,145	2,972
Repurchase agreements and other	6	22	18	48
FHLB advances and other borrowings	164	189	336	426
Total interest expense	1,224	1,648	2,499	3,446
Net interest income	11,093	10,308	21,233	22,726
Provision for loan losses	(70)	750	500	1,700
Net interest income after provision for loan losses	11,163	9,558	20,733	21,026
Non-interest income
Service charges on deposit accounts	847	873	1,636	1,703
Electronic banking income	517	522	987	1,010
Secondary market mortgage income	47	103	141	128
Gain on disposition of securities	0	0	148	0
Other	170	134	314	308
Total non-interest income	1,581	1,632	3,226	3,149
Non-interest expenses
Salaries and employee benefits	3,845	3,858	7,437	7,821
Occupancy and equipment expenses	1,103	1,121	2,182	2,301
Outside data processing	855	873	1,675	1,745
Professional fees	289	300	445	584
Taxes, other than payroll, property and income	151	190	363	345
Write-downs, expenses, sales of other real estate owned, net	272	293	596	507
Amortization of intangibles	152	174	304	347
FDIC insurance	200	239	412	481
Loan collection expenses	129	184	266	853
Other expenses	813	834	1,516	1,676
Total non-interest expenses	7,809	8,066	15,196	16,660
Income before income taxes	4,935	3,124	8,763	7,515
Provision for income taxes	1,826	1,032	3,150	2,593
Net income	3,109	2,092	5,613	4,922
Preferred stock dividends and accretion	165	306	330	611
Net income available to common stockholders	$ 2,944	$ 1,786	$ 5,283	$ 4,311
Net income per share:
Basic (in dollars per share)	$ 0.37	$ 0.23	$ 0.66	$ 0.54
Diluted (in dollars per share)	$ 0.35	$ 0.22	$ 0.63	$ 0.53

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STOCKHOLDERS' EQUITY AND REGULATORY MATTERS

6 Months Ended

Jun. 30, 2013

STOCKHOLDERS' EQUITY AND REGULATORY MATTERS [Abstract]

STOCKHOLDERS' EQUITY AND REGULATORY MATTERS

NOTE  4 - STOCKHOLDERS’ EQUITY AND REGULATORY MATTERS

The Company’s principal source of funds for dividend payments to shareholders is dividends received from the subsidiary Banks.  Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies.  Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, as defined, combined with the retained net profits of the preceding two years, subject to the capital requirements and additional restrictions as discussed below.  During 2013 the Banks could, without prior approval, declare dividends to Premier of approximately $2.1 million plus any 2013 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  June 30, 2013 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:

	June 30, 2013			December 31, 2012			Regulatory Minimum Requirements			To Be Considered Well Capitalized
Tier I Capital (to Risk-Weighted Assets)		16.7	%		16.1	%		4.0	%		6.0	%
Total Capital (to Risk-Weighted Assets)		17.9	%		17.4	%		8.0	%		10.0	%
Tier I Capital (to Average Assets)		10.5	%		10.0	%		4.0	%		5.0	%

As of June 30, 2013, 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.

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BASIS OF PRESENTATION (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Consolidation, Wholly Owned Subsidiaries [Line Items]
Total Assets	$ 1,104,949		$ 1,104,949		$ 1,120,787
Net Income	3,109	2,092	5,613	4,922
Citizens Deposit Bank & Trust [Member] | Vanceburg, Kentucky [Member]
Consolidation, Wholly Owned Subsidiaries [Line Items]
Year Acquired			1991
Total Assets	369,124		369,124
Net Income	1,178		2,359
Premier Bank, Inc. [Member] | Huntington, West Virginia [Member]
Consolidation, Wholly Owned Subsidiaries [Line Items]
Year Acquired			1998
Total Assets	728,006		728,006
Net Income	2,387		4,152
Parent and Intercompany Eliminations [Member]
Consolidation, Wholly Owned Subsidiaries [Line Items]
Total Assets	7,819		7,819
Net Income	$ (456)		$ (898)

XML

LOANS (Tables)

6 Months Ended

Jun. 30, 2013

LOANS [Abstract]

Major Classifications of Loans

Major classifications of loans at June 30, 2013 and December 31, 2012 are summarized as follows:

	2013		2012
Residential real estate	$	213,139	$	214,743
Multifamily real estate		35,281		28,673
Commercial real estate:
Owner occupied		93,927		91,902
Non owner occupied		179,308		178,849
Commercial and industrial		94,775		84,430
Consumer		26,087		28,128
All other		71,760		77,900
	$	714,277	$	704,625

Activity in the Allowance for Loan Losses by Portfolio Segment

Activity in the allowance for loan losses by portfolio segment for the six months ending June 30, 2013 was as follows:

Loan Class	Balance Dec 31, 2012		Provision for loan losses			Loans charged-off		Recoveries		Balance June 30, 2013
Residential real estate	$	2,163	$	358		$	156	$	6	$	2,371
Multifamily real estate		331		98			-		-		429
Commercial real estate:
Owner occupied		1,117		(255	)		67		299		1,094
Non owner occupied		1,888		80			-		-		1,968
Commercial and industrial		3,046		987			12		52		4,073
Consumer		244		27			63		25		233
All other		2,699		(795	)		94		220		2,030
Total	$	11,488	$	500		$	392	$	602	$	12,198

Activity in the allowance for loan losses by portfolio segment for the six months ending June 30, 2012 was as follows:

Loan Class	Balance Dec 31, 2011		Provision for loan losses			Loans charged-off		Recoveries		Balance June 30, 2012
Residential real estate	$	2,134	$	221		$	119	$	32	$	2,268
Multifamily real estate		284		143			-		-		427
Commercial real estate:
Owner occupied		918		76			15		-		979
Non owner occupied		2,381		(37	)		41		3		2,306
Commercial and industrial		1,880		1,095			992		1		1,984
Consumer		298		98			139		53		310
All other		1,900		104			474		58		1,588
Total	$	9,795	$	1,700		$	1,780	$	147	$	9,862

Activity in the allowance for loan losses by portfolio segment for the three months ending June 30, 2013 was as follows:

Loan Class	Balance March 31, 2013		Provision for loan losses			Loans charged-off		Recoveries		Balance June 30, 2013
Residential real estate	$	2,066	$	386		$	85	$	4	$	2,371
Multifamily real estate		347		82			-		-		429
Commercial real estate:
Owner occupied		1,191		(97	)		-		-		1,094
Non owner occupied		1,967		1			-		-		1,968
Commercial and industrial		4,096		(23	)		2		2		4,073
Consumer		174		66			16		9		233
All other		2,501		(485	)		38		52		2,030
Total	$	12,342	$	(70	)	$	141	$	67	$	12,198

Activity in the allowance for loan losses by portfolio segment for the three months ending June 30, 2012 was as follows:

Loan Class	Balance March 31, 2012		Provision for loan losses			Loans charged-off		Recoveries		Balance June 30, 2012
Residential real estate	$	2,368	$	(55	)	$	54	$	9	$	2,268
Multifamily real estate		434		(7	)		-		-		427
Commercial real estate:
Owner occupied		1,024		(45	)		-		-		979
Non owner occupied		2,321		(15	)		3		3		2,306
Commercial and industrial		2,422		551			990		1		1,984
Consumer		305		51			73		27		310
All other		1,437		270			139		20		1,588
Total	$	10,311	$	750		$	1,259	$	60	$	9,862

Purchased Loans

The carrying amount of those loans is as follows at June 30, 2013 and December 31, 2012.

	2013		2012
Residential real estate	$	193	$	202
Multifamily real estate		1,341		3,173
Commercial real estate
Owner occupied		263		271
Non owner occupied		5,792		5,896
Commercial and industrial		518		511
All other		4,493		4,496
Total carrying amount	$	12,600	$	14,549
Carrying amount, net of allowance	$	12,100	$	14,049

Purchase Loans Accretable Yield, or Income Expected to be Collected

The accretable yield, or income expected to be collected, on the purchased loans above is as follows at June 30, 2013 and June 30, 2012.  There was no accretable yield on the purchased loans above prior to October 1, 2012.

	2013			2012
Balance at January 1	$	635		$	-
New loans purchased		-			-
Accretion of income		(18	)		-
Reclassifications from non-accretable difference		-			-
Disposals		-			-
Balance at June 30	$	617		$	-

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 June 30, 2013 and December 31 2012.  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.

June 30, 2013	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
Residential real estate	$	3,027	$	2,702	$	68
Multifamily real estate		5,514		4,233		596
Commercial real estate
Owner occupied		1,039		851		408
Non owner occupied		3,206		2,081		643
Commercial and industrial		9,893		8,198		31
Consumer		199		184		15
All other		12,454		5,034		402
Total	$	35,332	$	23,283	$	2,163

December 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	$	3,145	$	2,813	$	208
Multifamily real estate		5,501		4,390		227
Commercial real estate
Owner occupied		1,153		976		783
Non owner occupied		3,207		2,174		74
Commercial and industrial		11,407		9,897		555
Consumer		278		267		-
All other		5,468		5,289		2,043
Total	$	30,159	$	25,806	$	3,890

Aging of Recorded Investment in Past Due Loans by Loan Class

The following table presents the aging of the recorded investment in past due loans as of June 30, 2013 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	$	213,139	$	3,862	$	1,783	$	5,645	$	207,494
Multifamily real estate		35,281		346		4,222		4,568		30,713
Commercial real estate:
Owner occupied		93,927		2,343		789		3,132		90,795
Non owner occupied		179,308		666		2,469		3,135		176,173
Commercial and industrial		94,775		3,137		3,328		6,465		88,310
Consumer		26,087		395		92		487		25,600
All other		71,760		232		5,356		5,588		66,172
Total	$	714,277	$	10,981	$	18,039	$	29,020	$	685,257

The following table presents the aging of the recorded investment in past due loans as of December 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	$	214,743	$	9,356	$	2,040	$	11,396	$	203,347
Multifamily real estate		28,673		695		3,893		4,588		24,085
Commercial real estate:
Owner occupied		91,902		6,212		1,129		7,341		84,561
Non owner occupied		178,849		5,267		2,248		7,515		171,334
Commercial and industrial		84,430		2,306		2,485		4,791		79,639
Consumer		28,128		602		176		778		27,350
All other		77,900		468		7,332		7,800		70,100
Total	$	704,625	$	24,906	$	19,303	$	44,209	$	660,416

Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment Based on Impairment Method

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 June 30, 2013:

	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	$	232	$	2,139	$	-	$	2,371	$	3,892	$	209,054	$	193	$	213,139
Multifamily real estate		-		429		-		429		1,651		32,289		1,341		35,281
Commercial real estate:
Owner occupied		35		1,059		-		1,094		2,310		91,354		263		93,927
Non-owner occupied		362		1,606		-		1,968		1,287		172,229		5,792		179,308
Commercial and industrial		2,871		1,202		-		4,073		7,442		86,815		518		94,775
Consumer		-		233		-		233		-		26,087		-		26,087
All other		150		1,380		500		2,030		5,006		62,261		4,493		71,760
Total	$	3,650	$	8,048	$	500	$	12,198	$	21,588	$	680,089	$	12,600	$	714,277

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, 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	$	358	$	1,805	$	-	$	2,163	$	4,609	$	209,932	$	202	$	214,743
Multifamily real estate		-		331		-		331		1,670		23,830		3,173		28,673
Commercial real estate:
Owner occupied		74		1,043		-		1,117		2,511		89,120		271		91,902
Non-owner occupied		362		1,526		-		1,888		2,627		170,326		5,896		178,849
Commercial and industrial		2,173		873		-		3,046		10,799		73,120		511		84,430
Consumer		-		244		-		244		-		28,128		-		28,128
All other		375		1,824		500		2,699		4,271		69,133		4,496		77,900
Total	$	3,342	$	7,646	$	500	$	11,488	$	26,487	$	663,589	$	14,549	$	704,625

Loans Individually Evaluated for Impairment by Class of Loans

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2013.  The table includes $7,845 of loans acquired with deteriorated credit quality that the Company cannot reasonably estimate cash flows such that they are accounted for on the cost recovery method and are still individually evaluated for impairment.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential  real estate	$	1,515	$	1,328	$	-
Multifamily real estate		4,170		2,992		-
Commercial real estate
Owner occupied		2,697		2,026		-
Non owner occupied		2,625		1,533		-
Commercial and industrial		1,960		849		-
All other		4,414		4,395		-
		17,381		13,123		-
With an allowance recorded:
Residential  real estate	$	2,772	$	2,757	$	232
Commercial real estate
Owner occupied		547		547		35
Non owner occupied		809		790		362
Commercial and industrial		7,666		7,111		2,871
All other		12,503		5,104		650
		24,297		16,309		4,150
Total	$	41,678	$	29,432	$	4,150

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2012.  The table includes $9,421 of loans acquired with deteriorated credit quality that the Company cannot reasonably estimate cash flows such that they are accounted for on the cost recovery method and are still individually evaluated for impairment.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential  real estate	$	1,886	$	1,714	$	-
Multifamily real estate		6,332		4,533		-
Commercial real estate
Owner occupied		2,876		2,196		-
Non owner occupied		3,912		2,916		-
Commercial and industrial		2,031		837		-
All other		3,426		3,427		-
		20,463		15,623		-
With an allowance recorded:
Residential  real estate	$	3,118	$	3,097	$	358
Commercial real estate
Owner occupied		586		586		74
Non owner occupied		809		789		362
Commercial and industrial		10,771		10,473		2,173
All other		5,517		5,340		875
		20,801		20,285		3,842
Total	$	41,264	$	35,908	$	3,842

The Average Balance of Loans Individually Evaluated for Impairment and Interest Income Recognized

The following table presents the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the six months ended June 30, 2013 and June 30, 2012.   The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Six months ended June 30, 2013						Six months ended June 30, 2012
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	$	4,486	$	98	$	97	$	10,165	$	318	$	304
Multifamily real estate		4,006		796		796		7,334		1,350		1,341
Commercial real estate:
Owner occupied		2,655		88		71		8,612		938		923
Non-owner occupied		2,801		17		17		11,479		55		51
Commercial and industrial		10,082		40		40		9,055		240		233
Consumer		-		-		-		37		1		1
All other		9,393		161		161		7,896		194		183
Total	$	33,423	$	1,200	$	1,182	$	54,578	$	3,096	$	3,036

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 June 30, 2013 and June 30, 2012.   The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Three months ended June 30, 2013						Three months ended June 30, 2012
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	$	4,323	$	48	$	47	$	10,209	$	189	$	181
Multifamily real estate		3,743		766		766		4,850		43		37
Commercial real estate:
Owner occupied		2,592		49		42		7,619		44		38
Non-owner occupied		2,349		16		16		11,432		20		25
Commercial and industrial		9,468		36		36		11,473		133		126
Consumer		-		-		-		36		1		1
All other		9,706		79		79		6,696		98		101
Total	$	32,181	$	994	$	986	$	52,315	$	528	$	509

Troubled Debt Restructurings

The following table presents TDR’s as of June 30, 2013 and December 31, 2012:

June 30, 2013	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential  real estate	$	852	$	306	$	1,158
Commercial real estate
Owner occupied		-		4,361		4,361
Non owner occupied		-		3,308		3,308
Commercial and industrial		1,655		854		2,509
All other		16		2,167		2,183
Total	$	2,523	$	10,996	$	13,519

December 31, 2012	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential  real estate	$	1,020	$	240	$	1,260
Commercial real estate
Owner occupied		-		4,224		4,224
Non owner occupied		-		4,920		4,920
Commercial and industrial		2		2,525		2,527
All other		-		2,197		2,197
Total	$	1,022	$	14,106	$	15,128

Troubled Debt Restructuring During the Period

The following table presents TDR’s that occurred during the six months ended June 30, 2013 and June 30, 2012:

	Six months ended June 30, 2013						Six months ended June 30, 2012
Loan Class	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial and industrial		-	$	-	$	-		2	$	1,999	$	1,999
All other		1		16		16		-		-		-
Total		1	$	16	$	16		2	$	1,999	$	1,999

Risk Category of Loans by Class of Loans

As of June 30, 2013, 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	$	195,461	$	9,300	$	8,296	$	82	$	213,139
Multifamily real estate		28,634		1,241		5,406		-		35,281
Commercial real estate:
Owner occupied		81,698		7,257		4,972		-		93,927
Non-owner occupied		169,137		5,343		4,828		-		179,308
Commercial and industrial		85,152		641		8,940		42		94,775
Consumer		25,874		152		61		-		26,087
All other		57,251		665		13,383		461		71,760
Total	$	643,207	$	24,599	$	45,886	$	585	$	714,277

As of December 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	$	195,210	$	10,115	$	9,327	$	91	$	214,743
Multifamily real estate		19,747		1,912		7,014		-		28,673
Commercial real estate:
Owner occupied		74,529		8,994		8,379		-		91,902
Non-owner occupied		163,337		7,685		7,827		-		178,849
Commercial and industrial		70,180		2,739		11,508		3		84,430
Consumer		27,931		123		74		-		28,128
All other		64,009		814		12,386		691		77,900
Total	$	614,943	$	32,382	$	56,515	$	785	$	704,625

XML

FAIR VALUE, Assets and Liabilities Measured at Fair Value on Nonrecurring Basis (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Other real estate owned: [Abstract]
Total OREO	$ 7,701		$ 7,701		$ 7,968
Impaired Loans Additional Disclosure [Abstract]
Recorded investment in impaired loans carried at fair value	16,309		16,309		20,285
Valuation allowance for impaired loans	4,150		4,150		3,842
Impaired collateral dependent loans, provision for loan losses	429	(527)	483	1
Other Real Estate Owned Additional Disclosure [Abstract]
Recorded investment in other real estate owned carried at fair value - gross	9,296		9,296		9,945
Valuation allowance for other real estate owned	1,595		1,595		1,977
Write downs	0	41	0	85
Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Impaired loans: [Abstract]
Residential Real Estate	0		0		0
Owner Occupied Commercial Real Estate	0		0		0
Non-owner Occupied Commercial Real Estate	0		0		0
Commercial and Industrial	0		0		0
All Other	0		0		0
Total impaired loans	0		0		0
Other real estate owned: [Abstract]
Residential Real Estate					0
Owner occupied commercial real estate					0
Non-owner occupied commercial real estate	0		0		0
All Other	0		0		0
Total OREO	0		0		0
Nonrecurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Impaired loans: [Abstract]
Residential Real Estate	0		0		0
Owner Occupied Commercial Real Estate	0		0		0
Non-owner Occupied Commercial Real Estate	0		0		0
Commercial and Industrial	0		0		0
All Other	0		0		0
Total impaired loans	0		0		0
Other real estate owned: [Abstract]
Residential Real Estate					0
Owner occupied commercial real estate					0
Non-owner occupied commercial real estate	0		0		0
All Other	0		0		0
Total OREO	0		0		0
Nonrecurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Impaired loans: [Abstract]
Residential Real Estate	2,525		2,525		2,739
Owner Occupied Commercial Real Estate	512		512		512
Non-owner Occupied Commercial Real Estate	428		428		427
Commercial and Industrial	4,240		4,240		8,300
All Other	4,454		4,454		4,465
Total impaired loans	12,159		12,159		16,443
Other real estate owned: [Abstract]
Residential Real Estate					255
Owner occupied commercial real estate					250
Non-owner occupied commercial real estate	490		490		1,031
All Other	7,211		7,211		6,432
Total OREO	7,701		7,701		7,968
Nonrecurring [Member] | Carrying Amount [Member]
Impaired loans: [Abstract]
Residential Real Estate	2,525		2,525		2,739
Owner Occupied Commercial Real Estate	512		512		512
Non-owner Occupied Commercial Real Estate	428		428		427
Commercial and Industrial	4,240		4,240		8,300
All Other	4,454		4,454		4,465
Total impaired loans	12,159		12,159		16,443
Other real estate owned: [Abstract]
Residential Real Estate					255
Owner occupied commercial real estate					250
Non-owner occupied commercial real estate	490		490		1,031
All Other	7,211		7,211		6,432
Total OREO	$ 7,701		$ 7,701		$ 7,968

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LOANS, Risk Category of Loans by Class of Loans, Credit Quality Indicators (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Accounts, notes, loans and financing receivable [Line Items]
Loans	$ 714,277	$ 704,625
Residential Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	213,139	214,743
Multifamily Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	35,281	28,673
Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	93,927	91,902
Non Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	179,308	178,849
Commercial and Industrial [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	94,775	84,430
Consumer [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	26,087	28,128
All Other [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	71,760	77,900
Pass [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	643,207	614,943
Pass [Member] | Residential Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	195,461	195,210
Pass [Member] | Multifamily Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	28,634	19,747
Pass [Member] | Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	81,698	74,529
Pass [Member] | Non Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	169,137	163,337
Pass [Member] | Commercial and Industrial [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	85,152	70,180
Pass [Member] | Consumer [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	25,874	27,931
Pass [Member] | All Other [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	57,251	64,009
Special Mention [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	24,599	32,382
Special Mention [Member] | Residential Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	9,300	10,115
Special Mention [Member] | Multifamily Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	1,241	1,912
Special Mention [Member] | Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	7,257	8,994
Special Mention [Member] | Non Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	5,343	7,685
Special Mention [Member] | Commercial and Industrial [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	641	2,739
Special Mention [Member] | Consumer [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	152	123
Special Mention [Member] | All Other [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	665	814
Substandard [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	45,886	56,515
Substandard [Member] | Residential Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	8,296	9,327
Substandard [Member] | Multifamily Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	5,406	7,014
Substandard [Member] | Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	4,972	8,379
Substandard [Member] | Non Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	4,828	7,827
Substandard [Member] | Commercial and Industrial [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	8,940	11,508
Substandard [Member] | Consumer [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	61	74
Substandard [Member] | All Other [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	13,383	12,386
Doubtful [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	585	785
Doubtful [Member] | Residential Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	82	91
Doubtful [Member] | Multifamily Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	0	0
Doubtful [Member] | Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	0	0
Doubtful [Member] | Non Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	0	0
Doubtful [Member] | Commercial and Industrial [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	42	3
Doubtful [Member] | Consumer [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	0	0
Doubtful [Member] | All Other [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	$ 461	$ 691

XML

SECURITIES, With Unrealized Losses (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Continuous Unrealized Loss Position, Fair Value [Abstract]
Less than 12 Months, Fair Value	$ 60,431	$ 2,077
Less than 12 Months, Unrealized Loss	(1,331)	(11)
12 Months or More, Fair Value	4	4
12 Months or More, Unrealized Loss	(72)	(73)
Total Fair Value	60,435	2,081
Total Unrealized Loss	(1,403)	(84)
U. S. government sponsored agency securities [Member]
Continuous Unrealized Loss Position, Fair Value [Abstract]
Less than 12 Months, Fair Value	3,873
Less than 12 Months, Unrealized Loss	(124)
12 Months or More, Fair Value	0
12 Months or More, Unrealized Loss	0
Total Fair Value	3,873
Total Unrealized Loss	(124)
U. S. sponsored agency CMO's - residential [Member]
Continuous Unrealized Loss Position, Fair Value [Abstract]
Less than 12 Months, Fair Value	46,143	2,077
Less than 12 Months, Unrealized Loss	(1,030)	(11)
12 Months or More, Fair Value	0	0
12 Months or More, Unrealized Loss	0	0
Total Fair Value	46,143	2,077
Total Unrealized Loss	(1,030)	(11)
Other securities [Member]
Continuous Unrealized Loss Position, Fair Value [Abstract]
Less than 12 Months, Fair Value	0	0
Less than 12 Months, Unrealized Loss	0	0
12 Months or More, Fair Value	4	4
12 Months or More, Unrealized Loss	(72)	(73)
Total Fair Value	4	4
Total Unrealized Loss	(72)	(73)
U. S. sponsored agency MBS - residential [Member]
Continuous Unrealized Loss Position, Fair Value [Abstract]
Less than 12 Months, Fair Value	10,415
Less than 12 Months, Unrealized Loss	(177)
12 Months or More, Fair Value	0
12 Months or More, Unrealized Loss	0
Total Fair Value	10,415
Total Unrealized Loss	$ (177)

XML

SECURITIES, By Contractual Maturity (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Amortized cost of securities by contractual maturity [Abstract]
Due in one year or less	$ 1,748
Due after one year through five years	8,346
Due after five years through ten years	3,997
Due after ten years	377
Corporate preferred securities	422
Mortgage-backed securities of government sponsored agencies	238,824
Available for sale, Amortized Cost	253,714
Fair value of securities by contractual maturity [Abstract]
Due in one year or less	1,708
Due after one year through five years	8,647
Due after five years through ten years	3,873
Due after ten years	790
Corporate preferred securities	760
Mortgage backed securities of government sponsored agencies	242,342
Available for sale, Fair Value	258,120		283,975
Gain recognized from call of securities	$ 148	$ 0

XML

FAIR VALUE, Carrying Amount and Estimated Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Carrying Amount [Member]
Financial assets [Abstract]
Cash and due from banks	$ 66,064	$ 66,009
Federal funds sold	4,266	4,236
Securities available for sale	258,120	283,975
Loans held for sale	247	200
Loans, net	702,079	693,137
Federal Home Loan Bank stock	4,183	4,181
Interest receivable	3,107	3,403
Financial liabilities [Abstract]
Deposits	(932,944)	(930,583)
Securities sold under agreements to repurchase	(8,515)	(26,102)
Other borrowed funds	(15,000)	(16,049)
Interest payable	(430)	(489)
Fair Value [Member]
Financial assets [Abstract]
Cash and due from banks	66,064	66,009
Federal funds sold	4,266	4,236
Securities available for sale	258,120	283,975
Loans held for sale	247	200
Loans, net	703,276	691,519
Interest receivable	3,107	3,403
Financial liabilities [Abstract]
Deposits	(934,782)	(934,004)
Securities sold under agreements to repurchase	(8,515)	(26,102)
Other borrowed funds	(14,975)	(16,022)
Interest payable	(430)	(489)
Fair Value [Member] | Level 1 [Member]
Financial assets [Abstract]
Cash and due from banks	66,064	66,009
Federal funds sold	4,266	4,236
Securities available for sale	0	0
Loans held for sale	0	0
Loans, net	0	0
Interest receivable	0	0
Financial liabilities [Abstract]
Deposits	(585,486)	(577,274)
Securities sold under agreements to repurchase	0	0
Other borrowed funds	0	0
Interest payable	(5)	(6)
Fair Value [Member] | Level 2 [Member]
Financial assets [Abstract]
Cash and due from banks	0	0
Federal funds sold	0	0
Securities available for sale	257,980	283,835
Loans held for sale	0	0
Loans, net	0	0
Interest receivable	699	827
Financial liabilities [Abstract]
Deposits	(349,296)	(356,730)
Securities sold under agreements to repurchase	(8,515)	(26,102)
Other borrowed funds	(14,975)	(16,022)
Interest payable	(425)	(483)
Fair Value [Member] | Level 3 [Member]
Financial assets [Abstract]
Cash and due from banks	0	0
Federal funds sold	0	0
Securities available for sale	140	140
Loans held for sale	247	200
Loans, net	703,276	691,519
Interest receivable	2,408	2,576
Financial liabilities [Abstract]
Deposits	0	0
Securities sold under agreements to repurchase	0	0
Other borrowed funds	0	0
Interest payable	$ 0	$ 0

XML

LOANS, Individually Evaluated For Impairment (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
LOANS [Abstract]
Purchased financing receivable individually evaluated for impairment	$ 7,845	$ 9,421
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	41,678	41,264
Recorded Investment	29,432	35,908
Allowance for Loan Losses Allocated	4,150	3,842
With no related allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	17,381	20,463
Recorded Investment	13,123	15,623
Allowance for Loan Losses Allocated	0	0
With an allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	24,297	20,801
Recorded Investment	16,309	20,285
Allowance for Loan Losses Allocated	4,150	3,842
Residential Real Estate [Member] | With no related allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	1,515	1,886
Recorded Investment	1,328	1,714
Allowance for Loan Losses Allocated	0	0
Residential Real Estate [Member] | With an allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	2,772	3,118
Recorded Investment	2,757	3,097
Allowance for Loan Losses Allocated	232	358
Multifamily real estate [Member] | With no related allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	4,170	6,332
Recorded Investment	2,992	4,533
Allowance for Loan Losses Allocated	0	0
Owner Occupied Commercial Real Estate [Member] | With no related allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	2,697	2,876
Recorded Investment	2,026	2,196
Allowance for Loan Losses Allocated	0	0
Owner Occupied Commercial Real Estate [Member] | With an allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	547	586
Recorded Investment	547	586
Allowance for Loan Losses Allocated	35	74
Non Owner Occupied Commercial Real Estate [Member] | With no related allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	2,625	3,912
Recorded Investment	1,533	2,916
Allowance for Loan Losses Allocated	0	0
Non Owner Occupied Commercial Real Estate [Member] | With an allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	809	809
Recorded Investment	790	789
Allowance for Loan Losses Allocated	362	362
Commercial and Industrial [Member] | With no related allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	1,960	2,031
Recorded Investment	849	837
Allowance for Loan Losses Allocated	0	0
Commercial and Industrial [Member] | With an allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	7,666	10,771
Recorded Investment	7,111	10,473
Allowance for Loan Losses Allocated	2,871	2,173
All Other [Member] | With no related allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	4,414	3,426
Recorded Investment	4,395	3,427
Allowance for Loan Losses Allocated	0	0
All Other [Member] | With an allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	12,503	5,517
Recorded Investment	5,104	5,340
Allowance for Loan Losses Allocated	$ 650	$ 875

XML

PREFERRED STOCK (Details) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended	12 Months Ended	0 Months Ended	6 Months Ended			0 Months Ended
	Jun. 30, 2013	Dec. 31, 2012	Oct. 02, 2009 Series A Preferred Stock [Member]	Jun. 30, 2013 Series A Preferred Stock [Member]	Jun. 30, 2013 Series A Preferred Stock [Member] Before November 14, 2014 [Member]	Jun. 30, 2013 Series A Preferred Stock [Member] After November 14, 2014 [Member]	Oct. 02, 2009 Warrants [Member]	Aug. 10, 2012 Fixed Rate Cumulative Perpetual Preferred Stock [Member]	Jun. 30, 2013 Fixed Rate Cumulative Perpetual Preferred Stock [Member] Loan Director Period
Class of Stock [Line Items]
Preferred stock issued (in shares)	12,000	12,000	22,252
Preferred stock, par value (in dollars per share)			$ 0
Liquidation preference (in dollars per share)			$ 1,000
Term of warrant							10 years
Numbers of common stock to be purchased with warrants (in shares)							628,587
Par value of common stock called by warrants (in dollars per share)	$ 0	$ 0					$ 0
Exercise price of warrants (in dollars per share)							$ 5.31
Value of preferred stock issued			$ 22,252
Accrued dividend rate (in hundredths)	5.00%	5.00%			5.00%	9.00%
Percentage of stock redeemable at the option of issuer (in hundredths)				100.00%
Preferred stock auctioned by US Treasury (in shares)								22,252
Preferred stock repurchased (in shares)								10,252
Auction purchase price per share (in dollars per share)								$ 901.03
Numbers of dividend periods allowed to be missed before additional directors are added									6
Numbers of directors to potentially be added to the Board									2
Number of dividend periods paid to end the preferred stockholders rights to additional board members									4
Number of dividend periods deferred to date									2

XML

FAIR VALUE, Asset Quantitative Information (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	$ 12,159	$ 16,443
Impaired Loans [Member] | Residential Real Estate [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	2,525	2,739
Impaired Loans [Member] | Residential Real Estate [Member] | Sales Comparison [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	0.80%	0.80%
Impaired Loans [Member] | Residential Real Estate [Member] | Sales Comparison [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	16.70%	76.80%
Impaired Loans [Member] | Residential Real Estate [Member] | Sales Comparison [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	9.00%	10.50%
Impaired Loans [Member] | Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	512	512
Impaired Loans [Member] | Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	40.00%	40.00%
Impaired Loans [Member] | Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	70.00%	70.00%
Impaired Loans [Member] | Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	44.10%	44.10%
Impaired Loans [Member] | Non Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	428	427
Impaired Loans [Member] | Non Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	50.50%	59.00%
Impaired Loans [Member] | Non Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	50.50%	59.00%
Impaired Loans [Member] | Non Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	50.50%	59.00%
Impaired Loans [Member] | Commercial and Industrial [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	4,240	8,300
Impaired Loans [Member] | Commercial and Industrial [Member] | Sales Comparison [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	0.00%	0.00%
Impaired Loans [Member] | Commercial and Industrial [Member] | Sales Comparison [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	80.50%	70.00%
Impaired Loans [Member] | Commercial and Industrial [Member] | Sales Comparison [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	57.00%	44.30%
Impaired Loans [Member] | All Other [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	4,454	4,465
Impaired Loans [Member] | All Other [Member] | Sales Comparison [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	10.00%	64.00%
Impaired Loans [Member] | All Other [Member] | Sales Comparison [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	91.40%	91.40%
Impaired Loans [Member] | All Other [Member] | Sales Comparison [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	66.20%	64.80%
Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	7,701	7,968
Other Real Estate Owned [Member] | Residential Real Estate [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value		255
Other Real Estate Owned [Member] | Residential Real Estate [Member] | Sales Comparison [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)		0.00%
Other Real Estate Owned [Member] | Residential Real Estate [Member] | Sales Comparison [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)		62.30%
Other Real Estate Owned [Member] | Residential Real Estate [Member] | Sales Comparison [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)		44.10%
Other Real Estate Owned [Member] | Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value		250
Other Real Estate Owned [Member] | Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)		0.00%
Other Real Estate Owned [Member] | Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)		17.90%
Other Real Estate Owned [Member] | Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)		7.20%
Other Real Estate Owned [Member] | Non Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	490	1,031
Other Real Estate Owned [Member] | Non Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	1.90%	82.70%
Other Real Estate Owned [Member] | Non Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	1.90%	82.70%
Other Real Estate Owned [Member] | Non Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	1.90%	82.70%
Other Real Estate Owned [Member] | All Other [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	$ 7,211	$ 6,432
Other Real Estate Owned [Member] | All Other [Member] | Sales Comparison [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	4.70%	4.70%
Other Real Estate Owned [Member] | All Other [Member] | Sales Comparison [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	15.90%	16.60%
Other Real Estate Owned [Member] | All Other [Member] | Sales Comparison [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	12.60%	12.70%

XML

LOANS, Past Due And Non-performing Loans (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	$ 35,332	$ 30,159
Recorded Investment in Non-accrual Loans	23,283	25,806
Loans Past Due Over 90 Days, still accruing	2,163	3,890
Residential Real Estate [Member]
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	3,027	3,145
Recorded Investment in Non-accrual Loans	2,702	2,813
Loans Past Due Over 90 Days, still accruing	68	208
Multifamily Real Estate [Member]
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	5,514	5,501
Recorded Investment in Non-accrual Loans	4,233	4,390
Loans Past Due Over 90 Days, still accruing	596	227
Owner Occupied Commercial Real Estate [Member]
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	1,039	1,153
Recorded Investment in Non-accrual Loans	851	976
Loans Past Due Over 90 Days, still accruing	408	783
Non Owner Occupied Commercial Real Estate [Member]
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	3,206	3,207
Recorded Investment in Non-accrual Loans	2,081	2,174
Loans Past Due Over 90 Days, still accruing	643	74
Commercial and Industrial [Member]
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	9,893	11,407
Recorded Investment in Non-accrual Loans	8,198	9,897
Loans Past Due Over 90 Days, still accruing	31	555
Consumer [Member]
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	199	278
Recorded Investment in Non-accrual Loans	184	267
Loans Past Due Over 90 Days, still accruing	15	0
All Other [Member]
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	12,454	5,468
Recorded Investment in Non-accrual Loans	5,034	5,289
Loans Past Due Over 90 Days, still accruing	$ 402	$ 2,043

XML

STOCK COMPENSATION EXPENSE, Stock Options Activity (Details) (USD $)	3 Months Ended			6 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2011	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2011
Stock options activity [Roll Forward]
Outstanding at beginning of year (in shares)	392,366	350,949		392,366	350,949
Grants (in shares)	52,900	105,700	102,000	52,900	105,700
Exercises (in shares)				(48,617)	0
Forfeitures or expired (in shares)				(12,201)	(4,332)
Outstanding at end of period (in shares)				384,448	452,317
Exercisable at end of period (in shares)				242,898	268,364
Weighted Average Exercise Price [Abstract]
Outstanding at beginning of year (in dollars per share)	$ 9.24	$ 10.77		$ 9.24	$ 10.77
Grants (in dollars per share)	$ 11.39	$ 7.47	$ 6.95	$ 11.39	$ 7.47
Exercises (in dollars per share)				$ 7.65	$ 0
Forfeitures or expired (in dollars per share)				$ 8.03	$ 7.70
Outstanding at end of period (in dollars per share)				$ 9.70	$ 9.19
Weighted average remaining life of options outstanding				6 years 6 months	7 years
Weighted average fair value of options granted during the year (in dollars per share)				$ 2.85	$ 2.34	$ 1.63

XML

SECURITIES (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Available-for-sale Investment securities [Abstract]
Amortized Cost	$ 253,714	$ 274,011
Unrealized Gains	5,809	10,048
Unrealized Losses	(1,403)	(84)
Fair Value	258,120	283,975
U. S. sponsored agency MBS - residential [Member]
Available-for-sale Investment securities [Abstract]
Amortized Cost	37,366	35,172
Unrealized Gains	1,035	1,928
Unrealized Losses	(177)	0
Fair Value	38,224	37,100
U. S. sponsored agency CMO's - residential [Member]
Available-for-sale Investment securities [Abstract]
Amortized Cost	201,458	206,466
Unrealized Gains	3,690	6,392
Unrealized Losses	(1,030)	(11)
Fair Value	204,118	212,847
Total mortgage-backed securities of government sponsored agencies [Member]
Available-for-sale Investment securities [Abstract]
Amortized Cost	238,824	241,638
Unrealized Gains	4,725	8,320
Unrealized Losses	(1,207)	(11)
Fair Value	242,342	249,947
U. S. government sponsored agency securities [Member]
Available-for-sale Investment securities [Abstract]
Amortized Cost	7,070	22,062
Unrealized Gains	23	182
Unrealized Losses	(124)	0
Fair Value	6,969	22,244
Obligations of states and political subdivisions [Member]
Available-for-sale Investment securities [Abstract]
Amortized Cost	6,447	7,419
Unrealized Gains	300	441
Unrealized Losses	0	0
Fair Value	6,747	7,860
Other securities [Member]
Available-for-sale Investment securities [Abstract]
Amortized Cost	1,373	2,892
Unrealized Gains	761	1,105
Unrealized Losses	(72)	(73)
Fair Value	$ 2,062	$ 3,924

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities
Net income	$ 5,613	$ 4,922
Adjustments to reconcile net income to net cash from operating activities
Depreciation	677	731
Provision for loan losses	500	1,700
Amortization (accretion), net	131	(1,121)
OREO writedowns (gains on sales), net	(74)	(38)
Stock compensation expense	87	85
Loans originated for sale	(6,703)	(7,084)
Secondary market loans sold	6,797	7,061
Secondary market income	(141)	(128)
Gain on disposition of securities	(148)	0
Changes in :
Interest receivable	296	50
Other assets	205	3,796
Interest payable	(59)	(116)
Other liabilities	148	226
Net cash from operating activities	7,329	10,084
Cash flows from investing activities
Purchases of securities available for sale	(27,230)	(57,685)
Proceeds from maturities and calls of securities available for sale	46,900	31,736
Redemption of FRB and FHLB stock, (net of purchases)	0	811
Net change in loans	(9,401)	18,400
Purchases of premises and equipment, net	(345)	(533)
Proceeds from sales of other real estate owned, net	766	1,782
Net cash from investing activities	10,690	(5,489)
Cash flows from financing activities
Net change in deposits	2,386	24,857
Net change in agreements to repurchase securities	(17,587)	(3,498)
Repayment of Federal Home Loan Bank advances	0	(10,036)
Repayment of other borrowed funds	(1,049)	(1,036)
Proceeds from stock options exercised	372	0
Common stock dividends paid	(1,756)	0
Preferred stock dividends paid	(300)	(556)
Net cash from financing activities	(17,934)	9,731
Net change in cash and cash equivalents	85	14,326
Cash and cash equivalents at beginning of period	70,245	82,888
Cash and cash equivalents at end of period	70,330	97,214
Supplemental disclosures of cash flow information:
Cash paid during period for interest	2,559	3,562
Cash paid during period for income taxes	3,376	(623)
Loans transferred to real estate acquired through foreclosure	$ 882	$ 2,837

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SECURITIES

6 Months Ended

Jun. 30, 2013

SECURITIES [Abstract]

SECURITIES

NOTE  2 –SECURITIES

Amortized cost and fair value of investment securities, by category, at June 30, 2013 are summarized as follows:

2013	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. sponsored agency MBS - residential	$	37,366	$	1,035	$	(177	)	$	38,224
U. S. sponsored agency CMO’s - residential		201,458		3,690		(1,030	)		204,118
Total mortgage-backed securities of government sponsored agencies		238,824		4,725		(1,207	)		242,342
U. S. government sponsored agency securities		7,070		23		(124	)		6,969
Obligations of states and political subdivisions		6,447		300		-			6,747
Other securities		1,373		761		(72	)		2,062
Total available for sale	$	253,714	$	5,809	$	(1,403	)	$	258,120

Amortized cost and fair value of investment securities, by category, at December 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	$	35,172	$	1,928	$	-		$	37,100
U. S. sponsored agency CMO’s - residential		206,466		6,392		(11	)		212,847
Total mortgage-backed securities of government sponsored agencies		241,638		8,320		(11	)		249,947
U. S. government sponsored agency securities		22,062		182		-			22,244
Obligations of states and political subdivisions		7,419		441		-			7,860
Other securities		2,892		1,105		(73	)		3,924
Total available for sale	$	274,011	$	10,048	$	(84	)	$	283,975

The amortized cost and fair value of securities at June 30, 2013 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	$	1,748	$	1,708
Due after one year through five years		8,346		8,647
Due after five years through ten years		3,997		3,873
Due after ten years		377		790
Corporate preferred securities		422		760
Mortgage-backed securities of government sponsored agencies		238,824		242,342
Total available for sale	$	253,714	$	258,120

A $148,000 gain was recognized from calls of securities during the first six months of 2013 while no gains on securities were recorded during the first six months of 2012.  There were no sales of securities during the first six months of 2013 or 2012.

Securities with unrealized losses at June 30, 2013 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 MBS – residential	$	10,415	$	(177	)	$	-	$	-		$	10,415	$	(177	)
U.S government sponsored agency CMO – residential		46,143		(1,030	)		-		-			46,143		(1,030	)
U.S government sponsored agency securities		3,873		(124	)		-		-			3,873		(124	)
Other securities		-		-			4		(72	)		4		(72	)
Total temporarily impaired	$	60,431	$	(1,331	)	$	4	$	(72	)	$	60,435	$	(1,403	)

Securities with unrealized losses at December 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 CMO – residential	$	2,077	$	(11	)	$	-	$	-		$	2,077	$	(11	)
Other securities		-		-			4		(73	)		4		(73	)
Total temporarily impaired	$	2,077	$	(11	)	$	4	$	(73	)	$	2,081	$	(84	)

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 June 30, 2013 and December 31, 2012 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.

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PREFERRED STOCK

6 Months Ended

Jun. 30, 2013

PREFERRED STOCK [Abstract]

PREFERRED STOCK

NOTE  5 – 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 $22,252,000 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.

Premier sought and obtained regulatory permission to participate in the U.S. Treasury’s auction to sell its investment in Premier’s Series A Preferred Stock.  In the auction, Premier successfully bid to repurchase 10,252 shares of the 22,252 outstanding shares and on August 10, 2012 the 10,252 shares repurchased at the auction closing price of $901.03.

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 andthe 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.

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 June 30, 2013, the Warrant has not yet been exercised.  Since the Series A Preferred Stock was disposed of by the U.S. Treasury, Premier has the right to repurchase the Warrant at its appraised value.  If Premier chooses not to repurchase the Warrant, the U.S. Treasury may liquidate the Warrant at its current market price.

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LOANS

6 Months Ended

Jun. 30, 2013

LOANS [Abstract]

LOANS

NOTE  3 - LOANS

Major classifications of loans at June 30, 2013 and December 31, 2012 are summarized as follows:

	2013		2012
Residential real estate	$	213,139	$	214,743
Multifamily real estate		35,281		28,673
Commercial real estate:
Owner occupied		93,927		91,902
Non owner occupied		179,308		178,849
Commercial and industrial		94,775		84,430
Consumer		26,087		28,128
All other		71,760		77,900
	$	714,277	$	704,625

Activity in the allowance for loan losses by portfolio segment for the six months ending June 30, 2013 was as follows:

Loan Class	Balance Dec 31, 2012		Provision for loan losses			Loans charged-off		Recoveries		Balance June 30, 2013
Residential real estate	$	2,163	$	358		$	156	$	6	$	2,371
Multifamily real estate		331		98			-		-		429
Commercial real estate:
Owner occupied		1,117		(255	)		67		299		1,094
Non owner occupied		1,888		80			-		-		1,968
Commercial and industrial		3,046		987			12		52		4,073
Consumer		244		27			63		25		233
All other		2,699		(795	)		94		220		2,030
Total	$	11,488	$	500		$	392	$	602	$	12,198

Activity in the allowance for loan losses by portfolio segment for the six months ending June 30, 2012 was as follows:

Loan Class	Balance Dec 31, 2011		Provision for loan losses			Loans charged-off		Recoveries		Balance June 30, 2012
Residential real estate	$	2,134	$	221		$	119	$	32	$	2,268
Multifamily real estate		284		143			-		-		427
Commercial real estate:
Owner occupied		918		76			15		-		979
Non owner occupied		2,381		(37	)		41		3		2,306
Commercial and industrial		1,880		1,095			992		1		1,984
Consumer		298		98			139		53		310
All other		1,900		104			474		58		1,588
Total	$	9,795	$	1,700		$	1,780	$	147	$	9,862

Activity in the allowance for loan losses by portfolio segment for the three months ending June 30, 2013 was as follows:

Loan Class	Balance March 31, 2013		Provision for loan losses			Loans charged-off		Recoveries		Balance June 30, 2013
Residential real estate	$	2,066	$	386		$	85	$	4	$	2,371
Multifamily real estate		347		82			-		-		429
Commercial real estate:
Owner occupied		1,191		(97	)		-		-		1,094
Non owner occupied		1,967		1			-		-		1,968
Commercial and industrial		4,096		(23	)		2		2		4,073
Consumer		174		66			16		9		233
All other		2,501		(485	)		38		52		2,030
Total	$	12,342	$	(70	)	$	141	$	67	$	12,198

Activity in the allowance for loan losses by portfolio segment for the three months ending June 30, 2012 was as follows:

Loan Class	Balance March 31, 2012		Provision for loan losses			Loans charged-off		Recoveries		Balance June 30, 2012
Residential real estate	$	2,368	$	(55	)	$	54	$	9	$	2,268
Multifamily real estate		434		(7	)		-		-		427
Commercial real estate:
Owner occupied		1,024		(45	)		-		-		979
Non owner occupied		2,321		(15	)		3		3		2,306
Commercial and industrial		2,422		551			990		1		1,984
Consumer		305		51			73		27		310
All other		1,437		270			139		20		1,588
Total	$	10,311	$	750		$	1,259	$	60	$	9,862

Purchased Loans

The Company holds purchased loans for which there was, at their 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 June 30, 2013 and December 31, 2012.

	2013		2012
Residential real estate	$	193	$	202
Multifamily real estate		1,341		3,173
Commercial real estate
Owner occupied		263		271
Non owner occupied		5,792		5,896
Commercial and industrial		518		511
All other		4,493		4,496
Total carrying amount	$	12,600	$	14,549
Carrying amount, net of allowance	$	12,100	$	14,049

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses for the six-months ended June 30, 2013 or the six-months ended June 30, 2012.

For the majority of these loans, the Company cannot reasonably estimate the cash flows expected to be collected on the loans and therefore has continued to account for the 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.

During 2012, the Company determined that the cash flows from borrowers on a limited number of purchased loans could be reasonably estimated.  As such, a portion of the non-accretable difference was reclassified to accretable yield and is being recognized as interest income over the remaining life of the loan(s).

The accretable yield, or income expected to be collected, on the purchased loans above is as follows at June 30, 2013 and June 30, 2012.  There was no accretable yield on the purchased loans above prior to October 1, 2012.

	2013			2012
Balance at January 1	$	635		$	-
New loans purchased		-			-
Accretion of income		(18	)		-
Reclassifications from non-accretable difference		-			-
Disposals		-			-
Balance at June 30	$	617		$	-

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 June 30, 2013 and December 31 2012.  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.

June 30, 2013	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
Residential real estate	$	3,027	$	2,702	$	68
Multifamily real estate		5,514		4,233		596
Commercial real estate
Owner occupied		1,039		851		408
Non owner occupied		3,206		2,081		643
Commercial and industrial		9,893		8,198		31
Consumer		199		184		15
All other		12,454		5,034		402
Total	$	35,332	$	23,283	$	2,163

December 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	$	3,145	$	2,813	$	208
Multifamily real estate		5,501		4,390		227
Commercial real estate
Owner occupied		1,153		976		783
Non owner occupied		3,207		2,174		74
Commercial and industrial		11,407		9,897		555
Consumer		278		267		-
All other		5,468		5,289		2,043
Total	$	30,159	$	25,806	$	3,890

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.

The following table presents the aging of the recorded investment in past due loans as of June 30, 2013 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	$	213,139	$	3,862	$	1,783	$	5,645	$	207,494
Multifamily real estate		35,281		346		4,222		4,568		30,713
Commercial real estate:
Owner occupied		93,927		2,343		789		3,132		90,795
Non owner occupied		179,308		666		2,469		3,135		176,173
Commercial and industrial		94,775		3,137		3,328		6,465		88,310
Consumer		26,087		395		92		487		25,600
All other		71,760		232		5,356		5,588		66,172
Total	$	714,277	$	10,981	$	18,039	$	29,020	$	685,257

The following table presents the aging of the recorded investment in past due loans as of December 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	$	214,743	$	9,356	$	2,040	$	11,396	$	203,347
Multifamily real estate		28,673		695		3,893		4,588		24,085
Commercial real estate:
Owner occupied		91,902		6,212		1,129		7,341		84,561
Non owner occupied		178,849		5,267		2,248		7,515		171,334
Commercial and industrial		84,430		2,306		2,485		4,791		79,639
Consumer		28,128		602		176		778		27,350
All other		77,900		468		7,332		7,800		70,100
Total	$	704,625	$	24,906	$	19,303	$	44,209	$	660,416

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 June 30, 2013:

	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	$	232	$	2,139	$	-	$	2,371	$	3,892	$	209,054	$	193	$	213,139
Multifamily real estate		-		429		-		429		1,651		32,289		1,341		35,281
Commercial real estate:
Owner occupied		35		1,059		-		1,094		2,310		91,354		263		93,927
Non-owner occupied		362		1,606		-		1,968		1,287		172,229		5,792		179,308
Commercial and industrial		2,871		1,202		-		4,073		7,442		86,815		518		94,775
Consumer		-		233		-		233		-		26,087		-		26,087
All other		150		1,380		500		2,030		5,006		62,261		4,493		71,760
Total	$	3,650	$	8,048	$	500	$	12,198	$	21,588	$	680,089	$	12,600	$	714,277

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, 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	$	358	$	1,805	$	-	$	2,163	$	4,609	$	209,932	$	202	$	214,743
Multifamily real estate		-		331		-		331		1,670		23,830		3,173		28,673
Commercial real estate:
Owner occupied		74		1,043		-		1,117		2,511		89,120		271		91,902
Non-owner occupied		362		1,526		-		1,888		2,627		170,326		5,896		178,849
Commercial and industrial		2,173		873		-		3,046		10,799		73,120		511		84,430
Consumer		-		244		-		244		-		28,128		-		28,128
All other		375		1,824		500		2,699		4,271		69,133		4,496		77,900
Total	$	3,342	$	7,646	$	500	$	11,488	$	26,487	$	663,589	$	14,549	$	704,625

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 June 30, 2013.  The table includes $7,845 of loans acquired with deteriorated credit quality that the Company cannot reasonably estimate cash flows such that they are accounted for on the cost recovery method and are still individually evaluated for impairment.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential  real estate	$	1,515	$	1,328	$	-
Multifamily real estate		4,170		2,992		-
Commercial real estate
Owner occupied		2,697		2,026		-
Non owner occupied		2,625		1,533		-
Commercial and industrial		1,960		849		-
All other		4,414		4,395		-
		17,381		13,123		-
With an allowance recorded:
Residential  real estate	$	2,772	$	2,757	$	232
Commercial real estate
Owner occupied		547		547		35
Non owner occupied		809		790		362
Commercial and industrial		7,666		7,111		2,871
All other		12,503		5,104		650
		24,297		16,309		4,150
Total	$	41,678	$	29,432	$	4,150

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2012.  The table includes $9,421 of loans acquired with deteriorated credit quality that the Company cannot reasonably estimate cash flows such that they are accounted for on the cost recovery method and are still individually evaluated for impairment.

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Residential  real estate	$	1,886	$	1,714	$	-
Multifamily real estate		6,332		4,533		-
Commercial real estate
Owner occupied		2,876		2,196		-
Non owner occupied		3,912		2,916		-
Commercial and industrial		2,031		837		-
All other		3,426		3,427		-
		20,463		15,623		-
With an allowance recorded:
Residential  real estate	$	3,118	$	3,097	$	358
Commercial real estate
Owner occupied		586		586		74
Non owner occupied		809		789		362
Commercial and industrial		10,771		10,473		2,173
All other		5,517		5,340		875
		20,801		20,285		3,842
Total	$	41,264	$	35,908	$	3,842

The following table presents the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the six months ended June 30, 2013 and June 30, 2012.   The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Six months ended June 30, 2013						Six months ended June 30, 2012
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	$	4,486	$	98	$	97	$	10,165	$	318	$	304
Multifamily real estate		4,006		796		796		7,334		1,350		1,341
Commercial real estate:
Owner occupied		2,655		88		71		8,612		938		923
Non-owner occupied		2,801		17		17		11,479		55		51
Commercial and industrial		10,082		40		40		9,055		240		233
Consumer		-		-		-		37		1		1
All other		9,393		161		161		7,896		194		183
Total	$	33,423	$	1,200	$	1,182	$	54,578	$	3,096	$	3,036

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 June 30, 2013 and      June 30, 2012.   The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Three months ended June 30, 2013						Three months ended June 30, 2012
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	$	4,323	$	48	$	47	$	10,209	$	189	$	181
Multifamily real estate		3,743		766		766		4,850		43		37
Commercial real estate:
Owner occupied		2,592		49		42		7,619		44		38
Non-owner occupied		2,349		16		16		11,432		20		25
Commercial and industrial		9,468		36		36		11,473		133		126
Consumer		-		-		-		36		1		1
All other		9,706		79		79		6,696		98		101
Total	$	32,181	$	994	$	986	$	52,315	$	528	$	509

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 determination of an insignificant delay in payment is evaluated based on the facts and circumstances of the individual borrower(s).

The following table presents TDR’s as of June 30, 2013 and December 31, 2012:

June 30, 2013	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential  real estate	$	852	$	306	$	1,158
Commercial real estate
Owner occupied		-		4,361		4,361
Non owner occupied		-		3,308		3,308
Commercial and industrial		1,655		854		2,509
All other		16		2,167		2,183
Total	$	2,523	$	10,996	$	13,519

December 31, 2012	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential  real estate	$	1,020	$	240	$	1,260
Commercial real estate
Owner occupied		-		4,224		4,224
Non owner occupied		-		4,920		4,920
Commercial and industrial		2		2,525		2,527
All other		-		2,197		2,197
Total	$	1,022	$	14,106	$	15,128

At June 30, 2013 $789,000 in specific reserves was allocated to loans that had restructured terms.  At December 31, 2012 $220,000 in specific reserves was allocated to loans that had restructured terms.

The following table presents TDR’s that occurred during the six months ended June 30, 2013 and June 30, 2012:

	Six months ended June 30, 2013						Six months ended June 30, 2012
Loan Class	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial and industrial		-	$	-	$	-		2	$	1,999	$	1,999
All other		1		16		16		-		-		-
Total		1	$	16	$	16		2	$	1,999	$	1,999

The troubled debt restructurings described above did not increase the allowance for loan losses during the six months ending June 30, 2013 and increased the allowance for loan losses by $40,000 during the six months ending June 30, 2012.

There were no TDR’s that occurred during the three months ended June 30, 2013 or June 30, 2012.

During the three months and six months ended June 30, 2013 there were no TDR’s for which there was a payment default within twelve months following the modification. During the three months and six months ended June 30, 2012 there were no TDR’s for which there was 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.

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.

As of June 30, 2013, 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	$	195,461	$	9,300	$	8,296	$	82	$	213,139
Multifamily real estate		28,634		1,241		5,406		-		35,281
Commercial real estate:
Owner occupied		81,698		7,257		4,972		-		93,927
Non-owner occupied		169,137		5,343		4,828		-		179,308
Commercial and industrial		85,152		641		8,940		42		94,775
Consumer		25,874		152		61		-		26,087
All other		57,251		665		13,383		461		71,760
Total	$	643,207	$	24,599	$	45,886	$	585	$	714,277

As of December 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	$	195,210	$	10,115	$	9,327	$	91	$	214,743
Multifamily real estate		19,747		1,912		7,014		-		28,673
Commercial real estate:
Owner occupied		74,529		8,994		8,379		-		91,902
Non-owner occupied		163,337		7,685		7,827		-		178,849
Commercial and industrial		70,180		2,739		11,508		3		84,430
Consumer		27,931		123		74		-		28,128
All other		64,009		814		12,386		691		77,900
Total	$	614,943	$	32,382	$	56,515	$	785	$	704,625

XML

STOCK COMPENSATION EXPENSE (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2011
STOCK COMPENSATION EXPENSE [Abstract]
Award vesting period, description			three equal annual installments	three equal annual installments	three equal annual installments
Stock option vesting periods			3 years	3 years	3 years
Compensation expense	$ 41	$ 57	$ 87	$ 85
Unrecognized stock-based compensation expense	$ 191		$ 191
Unrecognized stock-based compensation, period of recognition			32 months

XML

LOANS, Major Classifications of Loans (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 714,277	$ 704,625
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	213,139	214,743
Multifamily Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	35,281	28,673
Owner Occupied Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	93,927	91,902
Non Owner Occupied Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	179,308	178,849
Commercial and Industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	94,775	84,430
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	26,087	28,128
All Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 71,760	$ 77,900

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LOANS, Past Due Aging Analysis (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Aging of recorded investment in past due loans [Abstract]
Total Loans	$ 714,277	$ 704,625
30-89 Days Past Due	10,981	24,906
Greater than 90 days past due	18,039	19,303
Total Past Due	29,020	44,209
Loans Not Past Due	685,257	660,416
Residential Real Estate [Member]
Aging of recorded investment in past due loans [Abstract]
Total Loans	213,139	214,743
30-89 Days Past Due	3,862	9,356
Greater than 90 days past due	1,783	2,040
Total Past Due	5,645	11,396
Loans Not Past Due	207,494	203,347
Multifamily Real Estate [Member]
Aging of recorded investment in past due loans [Abstract]
Total Loans	35,281	28,673
30-89 Days Past Due	346	695
Greater than 90 days past due	4,222	3,893
Total Past Due	4,568	4,588
Loans Not Past Due	30,713	24,085
Owner Occupied Commercial Real Estate [Member]
Aging of recorded investment in past due loans [Abstract]
Total Loans	93,927	91,902
30-89 Days Past Due	2,343	6,212
Greater than 90 days past due	789	1,129
Total Past Due	3,132	7,341
Loans Not Past Due	90,795	84,561
Non Owner Occupied Commercial Real Estate [Member]
Aging of recorded investment in past due loans [Abstract]
Total Loans	179,308	178,849
30-89 Days Past Due	666	5,267
Greater than 90 days past due	2,469	2,248
Total Past Due	3,135	7,515
Loans Not Past Due	176,173	171,334
Commercial and Industrial [Member]
Aging of recorded investment in past due loans [Abstract]
Total Loans	94,775	84,430
30-89 Days Past Due	3,137	2,306
Greater than 90 days past due	3,328	2,485
Total Past Due	6,465	4,791
Loans Not Past Due	88,310	79,639
Consumer [Member]
Aging of recorded investment in past due loans [Abstract]
Total Loans	26,087	28,128
30-89 Days Past Due	395	602
Greater than 90 days past due	92	176
Total Past Due	487	778
Loans Not Past Due	25,600	27,350
All Other [Member]
Aging of recorded investment in past due loans [Abstract]
Total Loans	71,760	77,900
30-89 Days Past Due	232	468
Greater than 90 days past due	5,356	7,332
Total Past Due	5,588	7,800
Loans Not Past Due	$ 66,172	$ 70,100

XML

LOANS, TDR Modified During Period (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013 Loan	Jun. 30, 2012 Loan
Troubled Debt Restructuring Activity [Line Items]
Number of Loans	1	2
Pre-Modification Outstanding Recorded Investment	$ 16	$ 1,999
Post-Modification Outstanding Recorded Investment	16	1,999
Increase in allowance for loan losses due to troubled debt restructuring	0	40,000
Commercial And Industrial [Member]
Troubled Debt Restructuring Activity [Line Items]
Number of Loans	0	2
Pre-Modification Outstanding Recorded Investment	0	1,999
Post-Modification Outstanding Recorded Investment	0	1,999
All Other [Member]
Troubled Debt Restructuring Activity [Line Items]
Number of Loans	1	0
Pre-Modification Outstanding Recorded Investment	16	0
Post-Modification Outstanding Recorded Investment	$ 16	$ 0

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (Details) (USD $) In Thousands, unless otherwise specified			3 Months Ended	6 Months Ended
	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2013 Unrealized Gain on Securities Available for Sale [Member]	Jun. 30, 2013 Unrealized Gain on Securities Available for Sale [Member]
Accumulated other comprehensive income loss net of tax [Roll Forward]
Balance at beginning of period	$ 2,908	$ 6,576	$ 6,096	$ 6,576
Reclassification adjustment to net income [Abstract]
Realized gain on disposition of securities				(148)
Provision for income taxes				50
Unrealized losses arising during the period, net of tax			(3,188)	(3,570)
Balance at end of period	$ 2,908	$ 6,576	$ 2,908	$ 2,908

XML

EARNINGS PER SHARE (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Basic earnings per share [Abstract]
Income available to common stockholders	$ 2,944	$ 1,786	$ 5,283	$ 4,311
Weighted average common shares outstanding (in shares)	7,980,923	7,937,143	7,971,859	7,937,143
Earnings per share (in dollars per share)	$ 0.37	$ 0.23	$ 0.66	$ 0.54
Diluted earnings per shares [Abstract]
Income available to common stockholders	$ 2,944	$ 1,786	$ 5,283	$ 4,311
Weighted average common shares outstanding (in shares)	7,980,923	7,937,143	7,971,859	7,937,143
Add dilutive effects of potential additional common stock (in shares)	451,072	202,258	439,194	144,075
Weighted average common and dilutive potential common shares outstanding (in shares)	8,431,995	8,139,401	8,411,053	8,081,218
Earnings per share assuming dilution (in dollars per share)	$ 0.35	$ 0.22	$ 0.63	$ 0.53
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Securities not considered in computing diluted earnings per share (in shares)	84,100	202,449	84,100	405,349

XML

CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Stockholders' equity
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, liquidation preference	$ 12,000	$ 12,000
Preferred stock, dividend rate (in hundredths)	5.00%	5.00%
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Preferred stock, shares issued (in shares)	12,000	12,000
Preferred stock, shares outstanding (in shares)	12,000	12,000
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares issued (in shares)	8,011,310	7,962,693
Common stock, shares outstanding (in shares)	8,011,310	7,962,693

XML

FAIR VALUE

6 Months Ended

Jun. 30, 2013

FAIR VALUE [Abstract]

FAIR VALUE

NOTE  8 – 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).

The carrying amounts and estimated fair values of financial instruments at June 30, 2013 were as follows:

				Fair Value Measurements at June 30, 2013 Using
	Carrying Amount			Level 1			Level 2			Level 3		Total
Financial assets
Cash and due from banks	$	66,064		$	66,064		$	-		$	-	$	66,064
Federal funds sold		4,266			4,266			-			-		4,266
Securities available for sale		258,120			-			257,980			140		258,120
Loans held for sale		247			-			-			247		247
Loans, net		702,079			-			-			703,276		703,276
Federal Home Loan Bank stock		4,183			n/a			n/a			n/a		n/a
Interest receivable		3,107			-			699			2,408		3,107
Financial liabilities
Deposits	$	(932,944	)	$	(585,486	)	$	(349,296	)	$	-	$	(934,782	)
Securities sold under agreements to repurchase		(8,515	)		-			(8,515	)		-		(8,515	)
Other borrowed funds		(15,000	)		-			(14,975	)		-		(14,975	)
Interest payable		(430	)		(5	)		(425	)		-		(430	)

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

				Fair Value Measurements at December 31, 2012 Using
	Carrying Amount			Level 1			Level 2			Level 3		Total
Financial assets
Cash and due from banks	$	66,009		$	66,009		$	-		$	-	$	66,009
Federal funds sold		4,236			4,236			-			-		4,236
Securities available for sale		283,975			-			283,835			140		283,975
Loans held for sale		200			-			-			200		200
Loans, net		693,137			-			-			691,519		691,519
Federal Home Loan Bank stock		4,181			n/a			n/a			n/a		n/a
Interest receivable		3,403			-			827			2,576		3,403
Financial liabilities
Deposits	$	(930,583	)	$	(577,274	)	$	(356,730	)	$	-	$	(934,004	)
Securities sold under agreements to repurchase		(26,102	)		-			(26,102	)		-		(26,102	)
Other borrowed funds		(16,049	)		-			(16,022	)		-		(16,022	)
Interest payable		(489	)		(6	)		(483	)		-		(489	)

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  June 30, 2013 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	$	38,224	$	-	$	38,224	$	-
U. S. agency CMO’s - residential		204,118		-		204,118		-
Total mortgage-backed securities of government sponsored agencies		242,342		-		242,342		-
U. S. government sponsored agency securities		6,969		-		6,969		-
Obligations of states and political subdivisions		6,747		-		6,607		140
Other securities		2,062		-		2,062		-
Total available for sale	$	258,120	$	-	$	257,980	$	140

			Fair Value Measurements at  December 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	$	37,100	$	-	$	37,100	$	-
U. S. agency CMO’s - residential		212,847		-		212,847		-
Total mortgage-backed securities of government sponsored agencies		249,947		-		249,947		-
U. S. government sponsored agency securities		22,244		-		22,244		-
Obligations of states and political subdivisions		7,860		-		7,720		140
Other securities		3,924		-		3,924		-
Total available for sale	$	283,975	$	-	$	283,835	$	140

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.

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis at June 30, 2013 are summarized below:

			Fair Value Measurements at June 30, 2013 Using
	Carrying Value		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	$	2,525	$	-	$	-	$	2,525
Commercial Real Estate
Owner Occupied		512		-		-		512
Non-owner Occupied		428		-		-		428
Commercial and Industrial		4,240		-		-		4,240
All Other		4,454		-		-		4,454
Total impaired loans		12,159	$	-	$	-	$	12,159
Other real estate owned:
Commercial Real Estate
Non-owner Occupied		490		-		-		490
All Other		7,211		-		-		7,211
Total OREO	$	7,701	$	-	$	-	$	7,701

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $16,309,000 at June 30, 2013 with a valuation allowance of $4,150,000 and a carrying amount of $20,285,000 at December 31, 2012 with a valuation allowance of $3,842,000, resulting in a provision for loan losses of $483,000 for the six months ended June 30, 2013, compared to a $1,000 provision for loan losses for the six months ended June 30, 2012;  and a negative $429,000 provision for loan losses for the three months ended June 30, 2013, compared to a negative $527,000 provision for loan losses for the three months ended June 30, 2012.  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 $7,701,000 which is made up of the outstanding balance of $9,296,000 net of a valuation allowance of $1,595,000 at June 30, 2013. There were no additional write downs during the six months ended June 30, 2013, compared to $85,000 of additional write downs during the six months ended June 30, 2012.  For the three months ended June 30, 2013 no additional write downs were recorded compared to $41,000 of write downs during the three months ended   June 30, 2012.  At December 31, 2012, other real estate owned had a net carrying amount of $7,968,000, made up of the outstanding balance of $9,945,000, net of a valuation allowance of $1,977,000.

The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at June 30, 2013 are summarized below:

	June 30, 2013		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Residential Real Estate	$	2,525	sales comparison	adjustment for differences between the comparable sales		0.8%-16.7%(9.0%)
Commercial Real Estate
Owner Occupied		512	sales comparison	adjustment for limited salability of specialized property		40.0%-70.0%(44.1%)
Non-owner Occupied		428	sales comparison	adjustment for limited salability of specialized property		50.5%-50.5%(50.5%)
Commercial and Industrial		4,240	sales comparison	adjustment for limited salability of specialized property		0.0%-80.5%(57.0%)
All Other		4,454	sales comparison	adjustment for percentage of completion of construction		10.0%-91.4%(66.2%)
Total impaired loans		12,159
Other real estate owned:
Commercial Real Estate
Non-owner Occupied		490	sales comparison	adjustment for differences between the comparable sales		1.9%-1.9%(1.9%)
All Other		7,211	sales comparison	adjustment for estimated realizable value		4.7%-15.9%(12.6%)
Total OREO	$	7,701

Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2012 are summarized below:

			Fair Value Measurements at December 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)
Assets:
Impaired loans:
Residential Real Estate	$	2,739	$	-	$	-	$	2,739
Commercial Real Estate
Owner Occupied		512		-		-		512
Non-owner Occupied		427		-		-		427
Commercial and Industrial		8,300		-		-		8,300
All Other		4,465		-		-		4,465
Total impaired loans		16,443	$	-	$	-	$	16,443
Other real estate owned:
Residential Real Estate	$	255	$	-	$	-	$	255
Commercial Real Estate
Owner Occupied		250		-		-		250
Non-owner Occupied		1,031		-		-		1,031
All Other		6,432		-		-		6,432
Total OREO	$	7,968	$	-	$	-	$	7,968

The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at December 31, 2012 are summarized below:

	December 31, 2012		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Residential Real Estate	$	2,739	sales comparison	adjustment for differences between the comparable sales		0.8%-76.8%(10.5%)
Commercial Real Estate
Owner Occupied		512	sales comparison	adjustment for limited salability of specialized property		40.0%-70.0%(44.1%)
Non-owner Occupied		427	sales comparison	adjustment for limited salability of specialized property		59.0%-59.0%(59.0%)
Commercial and Industrial		8,300	sales comparison	adjustment for limited salability of specialized property		0.0%-70.0%(44.3%)
All Other		4,465	sales comparison	adjustment for percentage of completion of construction		64.0%-91.4%(64.8%)
Total impaired loans		16,443
Other real estate owned:
Residential Real Estate	$	255	sales comparison	adjustment for differences between the comparable sales		0.0%-62.3%(44.1%)
Commercial Real Estate
Owner Occupied		250	sales comparison	adjustment for estimated realizable value		0.0%-17.9%(7.2%)
Non-owner Occupied		1,031	sales comparison	adjustment for differences between the comparable sales		82.7%-82.7%(82.7%)
All Other		6,432	sales comparison	adjustment for estimated realizable value		4.7%-16.6%(12.7%)
Total OREO	$	7,968

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net income	$ 3,109	$ 2,092	$ 5,613	$ 4,922
Other comprehensive income:
Unrealized gains (losses) arising during the period	(4,830)	786	(5,409)	1,792
Reclassification of realized amount	0	0	(148)	0
Net change in unrealized gain (loss) on securities	(4,830)	786	(5,557)	1,792
Less tax impact	1,642	267	1,889	609
Other comprehensive income (loss)	(3,188)	519	(3,668)	1,183
Comprehensive income (loss)	$ (79)	$ 2,611	$ 1,945	$ 6,105

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CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
ASSETS
Cash and due from banks	$ 27,903	$ 32,473
Interest bearing bank balances	38,161	33,536
Federal funds sold	4,266	4,236
Cash and cash equivalents	70,330	70,245
Securities available for sale	258,120	283,975
Loans held for sale	247	200
Loans	714,277	704,625
Allowance for loan losses	(12,198)	(11,488)
Net loans	702,079	693,137
Federal Home Loan Bank stock, at cost	4,183	4,181
Premises and equipment, net	15,620	15,952
Real estate and other property acquired through foreclosure	13,556	13,366
Interest receivable	3,107	3,403
Goodwill	29,875	29,875
Other intangible assets	2,417	2,721
Deferred taxes	3,817	2,624
Other assets	1,598	1,108
Total assets	1,104,949	1,120,787
Deposits
Non-interest bearing	199,222	198,084
Time deposits, $100,000 and over	151,547	146,198
Other interest bearing	582,475	586,301
Total deposits	932,944	930,583
Securities sold under agreements to repurchase	8,515	26,102
Other borrowed funds	15,000	16,049
Interest payable	430	489
Other liabilities	3,416	3,268
Total liabilities	960,305	976,491
Stockholders' equity
Preferred stock, no par value; $12,000 liquidation preference, 5% cumulative, 1,000,000 shares authorized; 12,000 shares issued and outstanding	11,926	11,896
Common stock, no par value; 20,000,000 shares authorized; 8,011,310 shares issued and outstanding at June 30, 2013 and 7,962,693 shares issued and outstanding at December 31, 2012	73,308	72,849
Retained earnings	56,502	52,975
Accumulated other comprehensive income	2,908	6,576
Total stockholders' equity	144,644	144,296
Total liabilities and stockholders' equity	$ 1,104,949	$ 1,120,787

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LOANS, Activity in The Allowance For Loan Losses by Portfolio Segment (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	$ 12,342	$ 10,311	$ 11,488	$ 9,795
Provision for loan losses	(70)	750	500	1,700
Loans charged-off	141	1,259	392	1,780
Recoveries	67	60	602	147
Balance, end of period	12,198	9,862	12,198	9,862
Residential Real Estate [Member]
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	2,066	2,368	2,163	2,134
Provision for loan losses	386	(55)	358	221
Loans charged-off	85	54	156	119
Recoveries	4	9	6	32
Balance, end of period	2,371	2,268	2,371	2,268
Multifamily Real Estate [Member]
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	347	434	331	284
Provision for loan losses	82	(7)	98	143
Loans charged-off	0	0	0	0
Recoveries	0	0	0	0
Balance, end of period	429	427	429	427
Owner Occupied Commercial Real Estate [Member]
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	1,191	1,024	1,117	918
Provision for loan losses	(97)	(45)	(255)	76
Loans charged-off	0	0	67	15
Recoveries	0	0	299	0
Balance, end of period	1,094	979	1,094	979
Non Owner Occupied Commercial Real Estate [Member]
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	1,967	2,321	1,888	2,381
Provision for loan losses	1	(15)	80	(37)
Loans charged-off	0	3	0	41
Recoveries	0	3	0	3
Balance, end of period	1,968	2,306	1,968	2,306
Commercial and Industrial [Member]
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	4,096	2,422	3,046	1,880
Provision for loan losses	(23)	551	987	1,095
Loans charged-off	2	990	12	992
Recoveries	2	1	52	1
Balance, end of period	4,073	1,984	4,073	1,984
Consumer [Member]
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	174	305	244	298
Provision for loan losses	66	51	27	98
Loans charged-off	16	73	63	139
Recoveries	9	27	25	53
Balance, end of period	233	310	233	310
All Other [Member]
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	2,501	1,437	2,699	1,900
Provision for loan losses	(485)	270	(795)	104
Loans charged-off	38	139	94	474
Recoveries	52	20	220	58
Balance, end of period	$ 2,030	$ 1,588	$ 2,030	$ 1,588

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables)

6 Months Ended

Jun. 30, 2013

ACCUMULATED OTHER COMPREHENSIVE INCOME [Abstract]

Schedule of Accumulated Other Comprehensive Income (Loss)

The following table details the changes in the single component of accumulated other comprehensive income for the six months ended June 30, 2013:

Accumulated Other Comprehensive Income	Unrealized Gain on Securities Available for Sale
Balance, December 31, 2012	$	6,576
Reclassification adjustments to net income:
Realized gain on disposition of securities		(148	)
Provision for income taxes		50
Unrealized losses arising during the period, net of tax		(3,570	)
Balance, June 30, 2013	$	2,908

The following table details the changes in the single component of accumulated other comprehensive income for the three months ended June 30, 2013:

Accumulated Other Comprehensive Income	Unrealized Gain on Securities Available for Sale
Balance, March 31, 2013	$	6,096
Unrealized losses arising during the period, net of tax		(3,188	)
Balance, June 30, 2013	$	2,908

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STOCK COMPENSATION EXPENSE, Authorized Stock Options By Exercise Price Range (Details) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Share-based Compensation, Shares Granted under Stock Option Plans, Exercise Price Range [Line Items]
Number of shares outstanding (in shares)	384,448
Weighted average exercise price of shares outstanding (in dollars per share)	$ 9.7
Aggregate intrinsic value	$ 1,080
Number of exercisable options (in shares)	242,898
Weighted average remaining contractual life	5 years 2 months 12 days
Weighted average exercise price of shares exercisable (in dollars per share)	$ 10.23
Aggregate intrinsic value of exercisable shares	619
$6.50 to $10.00 [Member]
Share-based Compensation, Shares Granted under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, lower range limit (in dollars per share)	$ 6.50
Range of Exercise Prices, upper range limit (in dollars per share)	$ 10.00
Number of shares outstanding (in shares)	227,415
Weighted average exercise price of shares outstanding (in dollars per share)	$ 7.48
Aggregate intrinsic value	1,038
Number of exercisable options (in shares)	136,965
Weighted average remaining contractual life	6 years 7 months 6 days
Weighted average exercise price of shares exercisable (in dollars per share)	$ 7.59
Aggregate intrinsic value of exercisable shares	610
$10.01 to $12.50 [Member]
Share-based Compensation, Shares Granted under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, lower range limit (in dollars per share)	$ 10.01
Range of Exercise Prices, upper range limit (in dollars per share)	$ 12.50
Number of shares outstanding (in shares)	72,933
Weighted average exercise price of shares outstanding (in dollars per share)	$ 11.46
Aggregate intrinsic value	42
Number of exercisable options (in shares)	21,833
Weighted average remaining contractual life	1 year 7 months 6 days
Weighted average exercise price of shares exercisable (in dollars per share)	$ 11.62
Aggregate intrinsic value of exercisable shares	9
$12.51 to $15.00 [Member]
Share-based Compensation, Shares Granted under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, lower range limit (in dollars per share)	$ 12.51
Range of Exercise Prices, upper range limit (in dollars per share)	$ 15.00
Number of shares outstanding (in shares)	60,600
Weighted average exercise price of shares outstanding (in dollars per share)	$ 13.46
Aggregate intrinsic value	0
Number of exercisable options (in shares)	60,600
Weighted average remaining contractual life	4 years 2 months 12 days
Weighted average exercise price of shares exercisable (in dollars per share)	$ 13.46
Aggregate intrinsic value of exercisable shares	0
$15.01 to $17.50 [Member]
Share-based Compensation, Shares Granted under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, lower range limit (in dollars per share)	$ 15.01
Range of Exercise Prices, upper range limit (in dollars per share)	$ 17.50
Number of shares outstanding (in shares)	23,500
Weighted average exercise price of shares outstanding (in dollars per share)	$ 16
Aggregate intrinsic value	0
Number of exercisable options (in shares)	23,500
Weighted average remaining contractual life	2 years 7 months 6 days
Weighted average exercise price of shares exercisable (in dollars per share)	$ 16
Aggregate intrinsic value of exercisable shares	$ 0

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STOCKHOLDERS' EQUITY AND REGULATORY MATTERS (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
STOCKHOLDERS' EQUITY AND REGULATORY MATTERS [Abstract]
Number of previous years retained profit taken for dividend calculation	2 years
Funds available for dividends without prior approval	$ 2.10
Tier I Capital (to Risk-Weighted Assets) (in hundredths)	16.70%	16.10%
Tier I Capital (to Risk-Weighted Assets), Regulatory Minimum Requirements (in hundredths)	4.00%
Tier I Capital (to Risk-Weighted Assets), To Be Considered Well Capitalized (in hundredths)	6.00%
Total Capital (to Risk-Weighted Assets) (in hundredths)	17.90%	17.40%
Total Capital (to Risk-Weighted Assets), Regulatory Minimum Requirements (in hundredths)	8.00%
Total Capital (to Risk-Weighted Assets), To Be Considered Well Capitalized (in hundredths)	10.00%
Tier I Capital (to Average Assets) (in hundredths)	10.50%	10.00%
Tier I Capital (to Average Assets), Regulatory Minimum Requirements (in hundredths)	4.00%
Tier I Capital (to Average Assets), To Be Considered Well Capitalized (in hundredths)	5.00%

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LOANS, Average Balance of Loans Individually Evaluated For Impairment (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Financing receivable average balance individually evaluated for impairment [Line Items]
Average Recorded Investment	$ 32,181	$ 52,315	$ 33,423	$ 54,578
Interest Income Recognized	994	528	1,200	3,096
Cash Basis Interest Recognized	986	509	1,182	3,036
Residential Real Estate [Member]
Financing receivable average balance individually evaluated for impairment [Line Items]
Average Recorded Investment	4,323	10,209	4,486	10,165
Interest Income Recognized	48	189	98	318
Cash Basis Interest Recognized	47	181	97	304
Multifamily Real Estate [Member]
Financing receivable average balance individually evaluated for impairment [Line Items]
Average Recorded Investment	3,743	4,850	4,006	7,334
Interest Income Recognized	766	43	796	1,350
Cash Basis Interest Recognized	766	37	796	1,341
Owner Occupied Commercial Real Estate [Member]
Financing receivable average balance individually evaluated for impairment [Line Items]
Average Recorded Investment	2,592	7,619	2,655	8,612
Interest Income Recognized	49	44	88	938
Cash Basis Interest Recognized	42	38	71	923
Non Owner Occupied Commercial Real Estate [Member]
Financing receivable average balance individually evaluated for impairment [Line Items]
Average Recorded Investment	2,349	11,432	2,801	11,479
Interest Income Recognized	16	20	17	55
Cash Basis Interest Recognized	16	25	17	51
Commercial and Industrial [Member]
Financing receivable average balance individually evaluated for impairment [Line Items]
Average Recorded Investment	9,468	11,473	10,082	9,055
Interest Income Recognized	36	133	40	240
Cash Basis Interest Recognized	36	126	40	233
Consumer [Member]
Financing receivable average balance individually evaluated for impairment [Line Items]
Average Recorded Investment	0	36	0	37
Interest Income Recognized	0	1	0	1
Cash Basis Interest Recognized	0	1	0	1
All Other [Member]
Financing receivable average balance individually evaluated for impairment [Line Items]
Average Recorded Investment	9,706	6,696	9,393	7,896
Interest Income Recognized	79	98	161	194
Cash Basis Interest Recognized	$ 79	$ 101	$ 161	$ 183

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LOANS, Troubled Debt Restructurings (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Financing Receivable, Modifications [Line Items]
TDR's on Non-accrual	$ 2,523	$ 1,022
Other TDR's	10,996	14,106
Total TDR's	13,519	15,128
Specific reserves allocated to loans that have restructured terms	789	220
Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
TDR's on Non-accrual	852	1,020
Other TDR's	306	240
Total TDR's	1,158	1,260
Owner Occupied Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
TDR's on Non-accrual	0	0
Other TDR's	4,361	4,224
Total TDR's	4,361	4,224
Non Owner Occupied Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
TDR's on Non-accrual	0	0
Other TDR's	3,308	4,920
Total TDR's	3,308	4,920
Commercial And Industrial [Member]
Financing Receivable, Modifications [Line Items]
TDR's on Non-accrual	1,655	2
Other TDR's	854	2,525
Total TDR's	2,509	2,527
All Other [Member]
Financing Receivable, Modifications [Line Items]
TDR's on Non-accrual	16	0
Other TDR's	2,167	2,197
Total TDR's	$ 2,183	$ 2,197

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EARNINGS PER SHARE

6 Months Ended

Jun. 30, 2013

EARNINGS PER SHARE [Abstract]

EARNINGS PER SHARE

NOTE  7 – 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 and six months ended June 30, 2013 and 2012 is presented below:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Basic earnings per share
Income available to common stockholders	$	2,944	$	1,786	$	5,283	$	4,311
Weighted average common shares outstanding		7,980,923		7,937,143		7,971,859		7,937,143
Earnings per share	$	0.37	$	0.23	$	0.66	$	0.54
Diluted earnings per share
Income available to common stockholders	$	2,944	$	1,786	$	5,283	$	4,311
Weighted average common shares outstanding		7,980,923		7,937,143		7,971,859		7,937,143
Add dilutive effects of potential additional common stock		451,072		202,258		439,194		144,075
Weighted average common and dilutive potential common shares outstanding		8,431,995		8,139,401		8,411,053		8,081,218
Earnings per share assuming dilution	$	0.35	$	0.22	$	0.63	$	0.53

Stock options for 84,100 and 405,349 shares of common stock were not considered in computing diluted earnings per share for the six months ended June 30, 2013 and 2012 because they were antidilutive.  Stock options for 84,100 and 202,449 shares of common stock were not considered in computing diluted earnings per share for the three months ended June 30, 2013 and 2012 because they were antidilutive.

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LOANS, Purchased Loans (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Purchased loans [Abstract]
Loans And Leases Receivable Purchased With Deteriorated Credit Quality	$ 12,600		$ 14,549
Loans And Leases Receivable Purchased with Deteriorated Credit Quality Net Of Allowance	12,100		14,049
Accretable Yield [Roll Forward]
Beginning Balance	635	0
New loans purchased	0	0
Accretion of income	(18)	0
Reclassifications from non-accretable difference	0	0
Disposals	0	0
Ending Balance	617	0
Residential Real Estate [Member]
Purchased loans [Abstract]
Loans And Leases Receivable Purchased With Deteriorated Credit Quality	193		202
Multifamily Real Estate [Member]
Purchased loans [Abstract]
Loans And Leases Receivable Purchased With Deteriorated Credit Quality	1,341		3,173
Owner Occupied Commercial Real Estate [Member]
Purchased loans [Abstract]
Loans And Leases Receivable Purchased With Deteriorated Credit Quality	263		271
Non Owner Occupied Commercial Real Estate [Member]
Purchased loans [Abstract]
Loans And Leases Receivable Purchased With Deteriorated Credit Quality	5,792		5,896
Commercial and Industrial [Member]
Purchased loans [Abstract]
Loans And Leases Receivable Purchased With Deteriorated Credit Quality	518		511
All Other [Member]
Purchased loans [Abstract]
Loans And Leases Receivable Purchased With Deteriorated Credit Quality	$ 4,493		$ 4,496

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STOCK COMPENSATION EXPENSE, Assumptions (Details) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2011
Assumptions used in the black-scholes option-pricing model [Abstract]
Risk-free interest rate (in hundredths)	1.96%	2.31%	3.58%
Expected option life	10 years	10 years	10 years
Expected stock price volatility (in hundredths)	35.24%	34.93%	30.01%
Dividend yield (in hundredths)	3.86%	2.68%	4.03%
Weighted average fair value of options granted during the year (in dollars per share)	$ 2.85	$ 2.34	$ 1.63

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BASIS OF PRESENTATION (Tables)

6 Months Ended

Jun. 30, 2013

BASIS OF PRESENTATION [Abstract]

Accounts of the Company and its Wholly Owned Subsidiaries

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

					June 30, 2013
		Year	Total		Net Income
Subsidiary	Location	Acquired	Assets		QTD			YTD
Citizens Deposit Bank & Trust	Vanceburg, Kentucky	1991	$	369,124	$	1,178		$	2,359
Premier Bank, Inc.	Huntington, West Virginia	1998		728,006		2,387			4,152
Parent and Intercompany Eliminations				7,819		(456	)		(898	)
Consolidated Total			$	1,104,949	$	3,109		$	5,613

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STOCK COMPENSATION EXPENSE

6 Months Ended

Jun. 30, 2013

STOCK COMPENSATION EXPENSE [Abstract]

STOCK COMPENSATION EXPENSE

NOTE  6 – 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 20, 2013, 52,900 incentive stock options were granted out of the 2012 Long Term Incentive Plan at an exercise price of $11.39, the closing market price of Premier’s common stock on the grant date.  These options vest in three equal annual installments ending on March 20, 2016.  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’s common stock 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.

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:

	2013			2012			2011
Risk-free interest rate		1.96	%		2.31	%		3.58	%
Expected option life (yrs)		10.00			10.00			10.00
Expected stock price volatility		35.24	%		34.93	%		30.01	%
Dividend yield		3.86	%		2.68	%		4.03	%
Weighted average fair value of options granted during the year	$	2.85		$	2.34		$	1.63

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 by annualizing the current quarterly dividend on the Company’s common stock at the time of the option grant or by using historical dividends and dividend yields during the time the Company was restricted from paying dividends by its primary regulator.

Compensation expense of $87,000 was recorded for the first six months of 2013 compared to $85,000 for the first six months of 2012.  For the three months ended June 30, $41,000 was recorded for 2013 while $57,000 was recorded for 2012.  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 $191,000 at June 30, 2013. This unrecognized expense is expected to be recognized over the next 32 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 six months ended June 30:

	- - - - - - 2013 - - - - - -					- - - - - - 2012 - - - - - -
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding at beginning of year		392,366		$	9.24		350,949		$	10.77
Grants		52,900			11.39		105,700			7.47
Exercises		(48,617	)		7.65		-			-
Forfeitures or expired		(12,201	)		8.03		(4,332	)		7.70
Outstanding at June 30,		384,448		$	9.70		452,317		$	9.19
Exercisable at June 30,		242,898					268,364
Weighted average remaining life of options outstanding		6.5					7.0
Weighted average fair value of options granted during the year	$	2.85				$	2.34

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

Additional information regarding stock options outstanding and exercisable at June 30, 2013, 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		227,415	$	7.48	$	1,038		136,965		6.6	$	7.59	$	610
$10.01 to $12.50		72,933		11.46		42		21,833		1.6		11.62		9
$12.51 to $15.00		60,600		13.46		-		60,600		4.2		13.46		-
$15.01 to $17.50		23,500		16.00		-		23,500		2.6		16.00		-
Outstanding - Jun 30, 2013		384,448		9.70	$	1,080		242,898		5.2		10.23	$	619

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BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2013

BASIS OF PRESENTATION [Abstract]

BASIS OF PRESENTATION

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”):

					June 30, 2013
		Year	Total		Net Income
Subsidiary	Location	Acquired	Assets		QTD			YTD
Citizens Deposit Bank & Trust	Vanceburg, Kentucky	1991	$	369,124	$	1,178		$	2,359
Premier Bank, Inc.	Huntington, West Virginia	1998		728,006		2,387			4,152
Parent and Intercompany Eliminations				7,819		(456	)		(898	)
Consolidated Total			$	1,104,949	$	3,109		$	5,613

All significant intercompany transactions and balances have been eliminated.

Recently Issued Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued ASU 2013-02, “Comprehensive Income (Topic 220):  Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (AOCI).”  The amendment requires an entity to present the reclassification adjustments out of AOCI and into net income for each component reported. These amounts may be disclosed before-tax or after-tax, and must be disclosed in either the income statement or the notes to the financial statements. This update is intended to supplement changes made in 2012 to increase the prominence of items reported in other comprehensive income. The standard became effective for the Company on January 1, 2013.  The adoption of this guidance resulted in the disclosures in Note 9 below and did not have a material impact upon the Company’s financial statements.

In July 2012, the FASB amended existing guidance relating to testing indefinite-lived intangible assets for impairment.  The amendment permits an assessment of qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired.  If, after assessing the totality of events and circumstances, it is concluded that it is not more likely than not that the indefinite-lived intangible asset is impaired, then no further action is required.  However, after the same assessment, if it is concluded that it is more likely than not that the indefinite-lived intangible asset is impaired, then a quantitative impairment test should be performed whereby the fair value of the indefinite-lived intangible asset is compared to the carrying amount.  The amendments in this guidance are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.  Early adoption is permitted.  The adoption of this guidance is not expected to have a material impact upon the Company’s financial statements.

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FAIR VALUE, Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Carrying Value [Member]
Securities available for sale
Total available for sale	$ 258,120	$ 283,975
Fair Value [Member]
Securities available for sale
Total available for sale	258,120	283,975
Fair Value [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Securities available for sale
Total available for sale	0	0
Fair Value [Member] | Significant Other Observable Inputs (Level 2) [Member]
Securities available for sale
Total available for sale	257,980	283,835
Fair Value [Member] | Significant Unobservable Inputs (Level 3) [Member]
Securities available for sale
Total available for sale	140	140
Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Securities available for sale
U. S. agency MBS - residential	0	0
U. S. agency CMO's - residential	0	0
Total mortgage-backed securities of government sponsored agencies	0	0
U. S. government sponsored agency securities	0	0
Obligations of states and political subdivisions	0	0
Other securities	0	0
Total available for sale	0	0
Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Securities available for sale
U. S. agency MBS - residential	38,224	37,100
U. S. agency CMO's - residential	204,118	212,847
Total mortgage-backed securities of government sponsored agencies	242,342	249,947
U. S. government sponsored agency securities	6,969	22,244
Obligations of states and political subdivisions	6,607	7,720
Other securities	2,062	3,924
Total available for sale	257,980	283,835
Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Securities available for sale
U. S. agency MBS - residential	0	0
U. S. agency CMO's - residential	0	0
Total mortgage-backed securities of government sponsored agencies	0	0
U. S. government sponsored agency securities	0	0
Obligations of states and political subdivisions	140	140
Other securities	0	0
Total available for sale	140	140
Recurring [Member] | Carrying Value [Member]
Securities available for sale
U. S. agency MBS - residential	38,224	37,100
U. S. agency CMO's - residential	204,118	212,847
Total mortgage-backed securities of government sponsored agencies	242,342	249,947
U. S. government sponsored agency securities	6,969	22,244
Obligations of states and political subdivisions	6,747	7,860
Other securities	2,062	3,924
Total available for sale	$ 258,120	$ 283,975

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LOANS, Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment Based on Impairment Method (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	$ 3,650		$ 3,342
Collectively evaluated for impairment, allowance for loan losses	8,048		7,646
Acquired with deteriorated credit quality, allowance for loan losses	500		500
Total allowance for loan losses	12,198	12,342	11,488	9,862	10,311	9,795
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	21,588		26,487
Collectively evaluated for impairment, loan balances	680,089		663,589
Acquired with deteriorated credit quality, loan balances	12,600		14,549
Total Loans	714,277		704,625
Residential Real Estate [Member]
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	232		358
Collectively evaluated for impairment, allowance for loan losses	2,139		1,805
Acquired with deteriorated credit quality, allowance for loan losses	0		0
Total allowance for loan losses	2,371		2,163
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	3,892		4,609
Collectively evaluated for impairment, loan balances	209,054		209,932
Acquired with deteriorated credit quality, loan balances	193		202
Total Loans	213,139		214,743
Multifamily Real Estate [Member]
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	0		0
Collectively evaluated for impairment, allowance for loan losses	429		331
Acquired with deteriorated credit quality, allowance for loan losses	0		0
Total allowance for loan losses	429		331
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	1,651		1,670
Collectively evaluated for impairment, loan balances	32,289		23,830
Acquired with deteriorated credit quality, loan balances	1,341		3,173
Total Loans	35,281		28,673
Owner Occupied Commercial Real Estate [Member]
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	35		74
Collectively evaluated for impairment, allowance for loan losses	1,059		1,043
Acquired with deteriorated credit quality, allowance for loan losses	0		0
Total allowance for loan losses	1,094		1,117
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	2,310		2,511
Collectively evaluated for impairment, loan balances	91,354		89,120
Acquired with deteriorated credit quality, loan balances	263		271
Total Loans	93,927		91,902
Non Owner Occupied Commercial Real Estate [Member]
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	362		362
Collectively evaluated for impairment, allowance for loan losses	1,606		1,526
Acquired with deteriorated credit quality, allowance for loan losses	0		0
Total allowance for loan losses	1,968		1,888
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	1,287		2,627
Collectively evaluated for impairment, loan balances	172,229		170,326
Acquired with deteriorated credit quality, loan balances	5,792		5,896
Total Loans	179,308		178,849
Commercial and Industrial [Member]
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	2,871		2,173
Collectively evaluated for impairment, allowance for loan losses	1,202		873
Acquired with deteriorated credit quality, allowance for loan losses	0		0
Total allowance for loan losses	4,073		3,046
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	7,442		10,799
Collectively evaluated for impairment, loan balances	86,815		73,120
Acquired with deteriorated credit quality, loan balances	518		511
Total Loans	94,775		84,430
Consumer [Member]
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	0		0
Collectively evaluated for impairment, allowance for loan losses	233		244
Acquired with deteriorated credit quality, allowance for loan losses	0		0
Total allowance for loan losses	233		244
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	0		0
Collectively evaluated for impairment, loan balances	26,087		28,128
Acquired with deteriorated credit quality, loan balances	0		0
Total Loans	26,087		28,128
All Other [Member]
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	150		375
Collectively evaluated for impairment, allowance for loan losses	1,380		1,824
Acquired with deteriorated credit quality, allowance for loan losses	500		500
Total allowance for loan losses	2,030		2,699
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	5,006		4,271
Collectively evaluated for impairment, loan balances	62,261		69,133
Acquired with deteriorated credit quality, loan balances	4,493		4,496
Total Loans	$ 71,760		$ 77,900

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STOCKHOLDERS' EQUITY AND REGULATORY MATTERS (Tables)

6 Months Ended

Jun. 30, 2013

STOCKHOLDERS' EQUITY AND REGULATORY MATTERS [Abstract]

Summary of Regulatory Capital Ratios

Shown below is a summary of regulatory capital ratios for the Company:

	June 30, 2013			December 31, 2012			Regulatory Minimum Requirements			To Be Considered Well Capitalized
Tier I Capital (to Risk-Weighted Assets)		16.7	%		16.1	%		4.0	%		6.0	%
Total Capital (to Risk-Weighted Assets)		17.9	%		17.4	%		8.0	%		10.0	%
Tier I Capital (to Average Assets)		10.5	%		10.0	%		4.0	%		5.0	%

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ACCUMULATED OTHER COMPREHENSIVE INCOME

6 Months Ended

Jun. 30, 2013

ACCUMULATED OTHER COMPREHENSIVE INCOME [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME

NOTE  9 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table details the changes in the single component of accumulated other comprehensive income for the six months ended June 30, 2013:

Accumulated Other Comprehensive Income	Unrealized Gain on Securities Available for Sale
Balance, December 31, 2012	$	6,576
Reclassification adjustments to net income:
Realized gain on disposition of securities		(148	)
Provision for income taxes		50
Unrealized losses arising during the period, net of tax		(3,570	)
Balance, June 30, 2013	$	2,908

The following table details the changes in the single component of accumulated other comprehensive income for the three months ended June 30, 2013:

Accumulated Other Comprehensive Income	Unrealized Gain on Securities Available for Sale
Balance, March 31, 2013	$	6,096
Unrealized losses arising during the period, net of tax		(3,188	)
Balance, June 30, 2013	$	2,908

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FAIR VALUE (Tables)

6 Months Ended

Jun. 30, 2013

FAIR VALUE [Abstract]

Carrying Amounts and Estimated Fair Values of Financial Instruments

The carrying amounts and estimated fair values of financial instruments at June 30, 2013 were as follows:

				Fair Value Measurements at June 30, 2013 Using
	Carrying Amount			Level 1			Level 2			Level 3		Total
Financial assets
Cash and due from banks	$	66,064		$	66,064		$	-		$	-	$	66,064
Federal funds sold		4,266			4,266			-			-		4,266
Securities available for sale		258,120			-			257,980			140		258,120
Loans held for sale		247			-			-			247		247
Loans, net		702,079			-			-			703,276		703,276
Federal Home Loan Bank stock		4,183			n/a			n/a			n/a		n/a
Interest receivable		3,107			-			699			2,408		3,107
Financial liabilities
Deposits	$	(932,944	)	$	(585,486	)	$	(349,296	)	$	-	$	(934,782	)
Securities sold under agreements to repurchase		(8,515	)		-			(8,515	)		-		(8,515	)
Other borrowed funds		(15,000	)		-			(14,975	)		-		(14,975	)
Interest payable		(430	)		(5	)		(425	)		-		(430	)

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

				Fair Value Measurements at December 31, 2012 Using
	Carrying Amount			Level 1			Level 2			Level 3		Total
Financial assets
Cash and due from banks	$	66,009		$	66,009		$	-		$	-	$	66,009
Federal funds sold		4,236			4,236			-			-		4,236
Securities available for sale		283,975			-			283,835			140		283,975
Loans held for sale		200			-			-			200		200
Loans, net		693,137			-			-			691,519		691,519
Federal Home Loan Bank stock		4,181			n/a			n/a			n/a		n/a
Interest receivable		3,403			-			827			2,576		3,403
Financial liabilities
Deposits	$	(930,583	)	$	(577,274	)	$	(356,730	)	$	-	$	(934,004	)
Securities sold under agreements to repurchase		(26,102	)		-			(26,102	)		-		(26,102	)
Other borrowed funds		(16,049	)		-			(16,022	)		-		(16,022	)
Interest payable		(489	)		(6	)		(483	)		-		(489	)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

			Fair Value Measurements at  June 30, 2013 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	$	38,224	$	-	$	38,224	$	-
U. S. agency CMO’s - residential		204,118		-		204,118		-
Total mortgage-backed securities of government sponsored agencies		242,342		-		242,342		-
U. S. government sponsored agency securities		6,969		-		6,969		-
Obligations of states and political subdivisions		6,747		-		6,607		140
Other securities		2,062		-		2,062		-
Total available for sale	$	258,120	$	-	$	257,980	$	140

			Fair Value Measurements at  December 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	$	37,100	$	-	$	37,100	$	-
U. S. agency CMO’s - residential		212,847		-		212,847		-
Total mortgage-backed securities of government sponsored agencies		249,947		-		249,947		-
U. S. government sponsored agency securities		22,244		-		22,244		-
Obligations of states and political subdivisions		7,860		-		7,720		140
Other securities		3,924		-		3,924		-
Total available for sale	$	283,975	$	-	$	283,835	$	140

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis at June 30, 2013 are summarized below:

			Fair Value Measurements at June 30, 2013 Using
	Carrying Value		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	$	2,525	$	-	$	-	$	2,525
Commercial Real Estate
Owner Occupied		512		-		-		512
Non-owner Occupied		428		-		-		428
Commercial and Industrial		4,240		-		-		4,240
All Other		4,454		-		-		4,454
Total impaired loans		12,159	$	-	$	-	$	12,159
Other real estate owned:
Commercial Real Estate
Non-owner Occupied		490		-		-		490
All Other		7,211		-		-		7,211
Total OREO	$	7,701	$	-	$	-	$	7,701

Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2012 are summarized below:

			Fair Value Measurements at December 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)
Assets:
Impaired loans:
Residential Real Estate	$	2,739	$	-	$	-	$	2,739
Commercial Real Estate
Owner Occupied		512		-		-		512
Non-owner Occupied		427		-		-		427
Commercial and Industrial		8,300		-		-		8,300
All Other		4,465		-		-		4,465
Total impaired loans		16,443	$	-	$	-	$	16,443
Other real estate owned:
Residential Real Estate	$	255	$	-	$	-	$	255
Commercial Real Estate
Owner Occupied		250		-		-		250
Non-owner Occupied		1,031		-		-		1,031
All Other		6,432		-		-		6,432
Total OREO	$	7,968	$	-	$	-	$	7,968

Fair Value Inputs, Assets, Quantitative Information

The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at June 30, 2013 are summarized below:

	June 30, 2013		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Residential Real Estate	$	2,525	sales comparison	adjustment for differences between the comparable sales		0.8%-16.7%(9.0%)
Commercial Real Estate
Owner Occupied		512	sales comparison	adjustment for limited salability of specialized property		40.0%-70.0%(44.1%)
Non-owner Occupied		428	sales comparison	adjustment for limited salability of specialized property		50.5%-50.5%(50.5%)
Commercial and Industrial		4,240	sales comparison	adjustment for limited salability of specialized property		0.0%-80.5%(57.0%)
All Other		4,454	sales comparison	adjustment for percentage of completion of construction		10.0%-91.4%(66.2%)
Total impaired loans		12,159
Other real estate owned:
Commercial Real Estate
Non-owner Occupied		490	sales comparison	adjustment for differences between the comparable sales		1.9%-1.9%(1.9%)
All Other		7,211	sales comparison	adjustment for estimated realizable value		4.7%-15.9%(12.6%)
Total OREO	$	7,701

The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at December 31, 2012 are summarized below:

	December 31, 2012		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Residential Real Estate	$	2,739	sales comparison	adjustment for differences between the comparable sales		0.8%-76.8%(10.5%)
Commercial Real Estate
Owner Occupied		512	sales comparison	adjustment for limited salability of specialized property		40.0%-70.0%(44.1%)
Non-owner Occupied		427	sales comparison	adjustment for limited salability of specialized property		59.0%-59.0%(59.0%)
Commercial and Industrial		8,300	sales comparison	adjustment for limited salability of specialized property		0.0%-70.0%(44.3%)
All Other		4,465	sales comparison	adjustment for percentage of completion of construction		64.0%-91.4%(64.8%)
Total impaired loans		16,443
Other real estate owned:
Residential Real Estate	$	255	sales comparison	adjustment for differences between the comparable sales		0.0%-62.3%(44.1%)
Commercial Real Estate
Owner Occupied		250	sales comparison	adjustment for estimated realizable value		0.0%-17.9%(7.2%)
Non-owner Occupied		1,031	sales comparison	adjustment for differences between the comparable sales		82.7%-82.7%(82.7%)
All Other		6,432	sales comparison	adjustment for estimated realizable value		4.7%-16.6%(12.7%)
Total OREO	$	7,968

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STOCK COMPENSATION EXPENSE (Tables)

6 Months Ended

Jun. 30, 2013

STOCK COMPENSATION EXPENSE [Abstract]

Assumption Used in the Black-Scholes Option-pricing Model

The assumptions used in the Black-Scholes option-pricing model are as follows:

	2013			2012			2011
Risk-free interest rate		1.96	%		2.31	%		3.58	%
Expected option life (yrs)		10.00			10.00			10.00
Expected stock price volatility		35.24	%		34.93	%		30.01	%
Dividend yield		3.86	%		2.68	%		4.03	%
Weighted average fair value of options granted during the year	$	2.85		$	2.34		$	1.63

Summary of Stock Option Activity

A summary of the Company’s stock option activity and related information is presented below for the six months ended June 30:

	- - - - - - 2013 - - - - - -					- - - - - - 2012 - - - - - -
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding at beginning of year		392,366		$	9.24		350,949		$	10.77
Grants		52,900			11.39		105,700			7.47
Exercises		(48,617	)		7.65		-			-
Forfeitures or expired		(12,201	)		8.03		(4,332	)		7.70
Outstanding at June 30,		384,448		$	9.70		452,317		$	9.19
Exercisable at June 30,		242,898					268,364
Weighted average remaining life of options outstanding		6.5					7.0
Weighted average fair value of options granted during the year	$	2.85				$	2.34

Stock Option Activity by Range of Exercise Prices

Additional information regarding stock options outstanding and exercisable at June 30, 2013, 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		227,415	$	7.48	$	1,038		136,965		6.6	$	7.59	$	610
$10.01 to $12.50		72,933		11.46		42		21,833		1.6		11.62		9
$12.51 to $15.00		60,600		13.46		-		60,600		4.2		13.46		-
$15.01 to $17.50		23,500		16.00		-		23,500		2.6		16.00		-
Outstanding - Jun 30, 2013		384,448		9.70	$	1,080		242,898		5.2		10.23	$	619

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Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 01, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	PREMIER FINANCIAL BANCORP INC
Entity Central Index Key	0000887919
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		8,011,310
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2013

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EARNINGS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2013

EARNINGS PER SHARE [Abstract]

Reconciliation of Numerators and Denominators of the 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 and six months ended June 30, 2013 and 2012 is presented below:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Basic earnings per share
Income available to common stockholders	$	2,944	$	1,786	$	5,283	$	4,311
Weighted average common shares outstanding		7,980,923		7,937,143		7,971,859		7,937,143
Earnings per share	$	0.37	$	0.23	$	0.66	$	0.54
Diluted earnings per share
Income available to common stockholders	$	2,944	$	1,786	$	5,283	$	4,311
Weighted average common shares outstanding		7,980,923		7,937,143		7,971,859		7,937,143
Add dilutive effects of potential additional common stock		451,072		202,258		439,194		144,075
Weighted average common and dilutive potential common shares outstanding		8,431,995		8,139,401		8,411,053		8,081,218
Earnings per share assuming dilution	$	0.35	$	0.22	$	0.63	$	0.53