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 September 30, 2014

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

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, – 8,115,444 shares outstanding at October 31, 2014

PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, 2014

INDEX TO REPORT

Part I - Financial Information
Item 1 – Financial Statements	3
Item 2 – Management’s Discussion and Analysis	43
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	58
Item 4 – Controls and Procedures	58
Part II - Other Information	59
Item 1 – Legal Proceedings	59
Item 1A – Risk Factors	59
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3 – Defaults Upon Senior Securities	59
Item 4 – Mine Safety Disclosures	59
Item 5 – Other Information	59
Item 6 – Exhibits	59
Signatures -	60

2.

PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, 2014

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

The accompanying information has not been audited by an independent registered public accounting firm; 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 registered public accounting firm.

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, 2013 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

SEPTEMBER 30, 2014 AND DECEMBER 31, 2013

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	(UNAUDITED)
	2014			2013
ASSETS
Cash and due from banks	$	35,275		$	27,378
Interest bearing bank balances		38,765			36,606
Federal funds sold		7,877			12,777
Cash and cash equivalents		81,917			76,761
Securities available for sale		253,559			218,066
Loans held for sale		395			77
Loans		854,394			740,770
Allowance for loan losses		(10,180	)		(11,027	)
Net loans		844,214			729,743
Federal Home Loan Bank stock, at cost		3,895			4,183
Premises and equipment, net		21,142			17,798
Other real estate owned		12,574			13,524
Interest receivable		3,342			3,132
Goodwill		33,796			29,875
Other intangible assets		3,258			2,121
Deferred taxes		1,800			4,439
Other assets		1,476			460
Total assets	$	1,261,368		$	1,100,179
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing	$	242,215		$	210,193
Time deposits, $100,000 and over		182,011			146,905
Other interest bearing		652,770			566,925
Total deposits		1,076,996			924,023
Securities sold under agreements to repurchase		13,155			11,319
FHLB advances		5,000			-
Other borrowed funds		12,330			13,800
Interest payable		443			383
Other liabilities		5,210			3,714
Total liabilities		1,113,134			953,239
Stockholders' equity
Preferred stock, no par value; $1,000 per share liquidation preference,
5% cumulative, 1,000,000 shares authorized; 5,000 shares issued and outstanding at September 30, 2014, and 12,000 shares issued and outstanding at December 31, 2013		5,000			11,955
Common stock, no par value; 20,000,000 shares authorized; 8,115,444 shares issued and outstanding at September 30, 2014, and 8,038,345 shares issued and outstanding at December 31, 2013		74,364			73,589
Retained earnings		67,611			62,021
Accumulated other comprehensive income (loss)		1,259			(625	)
Total stockholders' equity		148,234			146,940
Total liabilities and stockholders' equity	$	1,261,368		$	1,100,179

4.

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Interest income
Loans, including fees	$	12,056		$	11,615		$	34,981		$	32,081
Securities available for sale
Taxable		1,365			1,501			4,080			4,611
Tax-exempt		59			36			157			120
Federal funds sold and other		46			40			142			112
Total interest income		13,526			13,192			39,360			36,924
Interest expense
Deposits		953			994			2,800			3,139
Repurchase agreements and other		8			9			24			27
Other borrowings		139			162			427			498
Total interest expense		1,100			1,165			3,251			3,664
Net interest income		12,426			12,027			36,109			33,260
Provision for loan losses		536			50			147			550
Net interest income after provision for loan losses		11,890			11,977			35,962			32,710
Non-interest income
Service charges on deposit accounts		924			883			2,562			2,519
Electronic banking income		647			514			1,797			1,501
Secondary market mortgage income		73			70			142			211
Gain on disposition of securities		28			72			28			220
Other		186			219			493			533
		1,858			1,758			5,022			4,984
Non-interest expenses
Salaries and employee benefits		4,400			3,741			13,257			11,178
Occupancy and equipment expenses		1,281			1,070			3,741			3,252
Outside data processing		1,079			836			2,977			2,511
Professional fees		(104	)		356			641			801
Taxes, other than payroll, property and income		203			149			507			512
Write-downs, expenses, sales of other real estate owned, net		450			160			56			756
Amortization of intangibles		225			152			593			456
FDIC insurance		247			212			708			624
Loan collection expenses		63			114			257			380
Other expenses		984			789			2,834			2,305
		8,828			7,579			25,571			22,775
Income before income taxes		4,920			6,156			15,413			14,919
Provision for income taxes		1,769			2,230			5,492			5,380
Net income	$	3,151		$	3,926		$	9,921		$	9,539
Preferred stock dividends and accretion		(205	)		(165	)		(535	)		(495	)
Net income available to common stockholders	$	2,946		$	3,761		$	9,386		$	9,044
Net income per share:
Basic	$	0.36		$	0.47		$	1.16		$	1.13
Diluted		0.34			0.44			1.09			1.07

5.

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net income	$	3,151		$	3,926		$	9,921		$	9,539
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale arising during the period		(577	)		(730	)		2,882			(6,139	)
Reclassification of realized gain on the disposition of securities		(28	)		(72	)		(28	)		(220	)
Net change in unrealized gain (loss) on securities available for sale		(605	)		(802	)		2,854			(6,359	)
Less tax impact		206			273			(970	)		2,162
Other comprehensive income (loss)		(399	)		(529	)		1,884			(4,197	)
Comprehensive income	$	2,752		$	3,397		$	11,805		$	5,342

6.

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(UNAUDITED, DOLLARS IN THOUSANDS)

	2014			2013
Cash flows from operating activities
Net income	$	9,921		$	9,539
Adjustments to reconcile net income to net cash from operating activities
Depreciation		1,151			997
Provision for loan losses		147			550
Amortization (accretion), net		627			(608	)
OREO writedowns (gains on sales), net		(679	)		(61	)
Stock compensation expense		208			128
Loans originated for sale		(5,167	)		(9,919	)
Secondary market loans sold		4,991			9,639
Secondary market income		(142	)		(211	)
Gain on disposition of securities		(28	)		(220	)
Changes in :
Interest receivable		461			408
Other assets		1,180			1,287
Interest payable		(74	)		(77	)
Other liabilities		981			568
Net cash from operating activities		13,577			12,020
Cash flows from investing activities
Purchases of securities available for sale		(36,435	)		(27,230	)
Proceeds from the sale of securities available for sale		4,842			149
Proceeds from maturities and calls of securities available for sale		36,654			62,533
Redemption of FHLB stock		408			-
Net change in loans		(20,249	)		(26,622	)
Acquisition of subsidiary, net of cash received		40,973			-
Purchases of premises and equipment, net		(725	)		(891	)
Improvements to OREO property		(189	)		(1,571	)
Proceeds from sales of other real estate acquired through foreclosure		3,370			2,721
Net cash from investing activities		28,649			9,089
Cash flows from financing activities
Net change in deposits		(31,373	)		(6,247	)
Net change in agreements to repurchase securities		1,836			(11,531	)
Net change in federal funds purchased		-			2,219
Net change in short-term Federal Home Loan Bank advances		5,000			5,000
Redemption of Preferred Stock		(7,000	)		-
Repayment of other borrowed funds		(1,814	)		(1,649	)
Proceeds from stock option exercises		567			444
Common stock dividends paid		(3,796	)		(2,640	)
Preferred stock dividends paid		(490	)		(450	)
Net cash from financing activities		(37,070	)		(14,854	)
Net change in cash and cash equivalents		5,156			6,255
Cash and cash equivalents at beginning of period		76,761			70,245
Cash and cash equivalents at end of period	$	81,917		$	76,500

7.

PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

(UNAUDITED, DOLLARS IN THOUSANDS)

	2014		2013
Supplemental disclosures of cash flow information:
Cash paid during period for interest	$	3,325	$	3,741
Cash paid during period for income taxes		4,179		4,336
Loans transferred to real estate acquired through foreclosure		1,552		1,462

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”):

					September 30, 2014
		Year	Total		Net Income
Subsidiary	Location	Acquired	Assets		Qtr			YTD
Citizens Deposit Bank & Trust	Vanceburg, Kentucky	1991	$	372,951	$	1,130		$	3,390
Premier Bank, Inc.	Huntington, West Virginia	1998		880,810		2,578			7,665
Parent and Intercompany Eliminations				7,607		(557	)		(1,134	)
Consolidated Total			$	1,261,368	$	3,151		$	9,921

All significant intercompany transactions and balances have been eliminated.

Recently Issued Accounting Pronouncements

In January 2014, FASB issued Accounting Standards Update 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force). The ASU clarifies when an insubstance repossession or foreclosure occurs and a creditor is considered to have received physical possession of real estate property collateralizing a consumer mortgage loan. Specifically, the new ASU requires a creditor to reclassify a collateralized consumer mortgage loan to real estate property upon obtaining legal title to the real estate collateral, or the borrower voluntarily conveying all interest in the real estate property to the lender to satisfy the loan through a deed in lieu of foreclosure or similar legal agreement. Additional disclosures are required detailing the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgages collateralized by real estate property that are in the process of foreclosure. The new guidance is effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2014. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements, but will result in additional disclosures.

In May 2014, FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU creates a new topic, Topic 606, to provide guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2016. Early adoption is not permitted. Management is currently evaluating the impact of the adoption of this guidance on 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 September 30, 2014 are summarized as follows:

2014	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. sponsored agency MBS - residential	$	54,390	$	539	$	(74	)	$	54,855
U. S. sponsored agency CMO’s - residential		151,665		2,415		(1,280	)		152,800
Total mortgage-backed securities of government sponsored agencies		206,055		2,954		(1,354	)		207,655
U. S. government sponsored agency securities		34,827		60		(51	)		34,836
Obligations of states and political subdivisions		10,769		299		-			11,068
Total available for sale	$	251,651	$	3,313	$	(1,405	)	$	253,559

Amortized cost and fair value of investment securities, by category, at December 31, 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	$	27,681	$	463	$	(321	)	$	27,823
U. S. sponsored agency CMO’s - residential		178,000		1,167		(2,445	)		176,722
Total mortgage-backed securities of government sponsored agencies		205,681		1,630		(2,766	)		204,545
U. S. government sponsored agency securities		7,058		30		(107	)		6,981
Obligations of states and political subdivisions		6,275		265		-			6,540
Total available for sale	$	219,014	$	1,925	$	(2,873	)	$	218,066

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 September 30, 2014 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	$	11,473	$	11,490
Due after one year through five years		23,492		23,734
Due after five years through ten years		9,431		9,456
Due after ten years		1,200		1,224
Mortgage-backed securities of government sponsored agencies		206,055		207,655
Total available for sale	$	251,651	$	253,559

Proceeds from the sale of securities were $4,842,000 and $149,000 during the first nine months of 2014 and 2013, while a $28,000 gain and a $72,000 gain was recognized on the sale of those securities, respectively.  In addition, a $148,000 gain was recognized from calls of securities during the first nine months of 2013.

Securities with unrealized losses at September 30, 2014 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. government sponsored agency securities	$	7,928	$	(51	)		-		-		$	7,928	$	(51	)
U.S government sponsored agency MBS – residential		27,807		(60	)		3,998		(14	)		31,805		(74	)
U.S government sponsored agency CMO – residential		21,651		(240	)		26,533		(1,040	)		48,184		(1,280	)
Total temporarily impaired	$	57,386	$	(351	)	$	30,531	$	(1,054	)	$	87,917	$	(1,405	)

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, 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 securities	$	3,890	$	(107	)	$	-	$	-	$	3,890	$	(107	)
U.S government sponsored agency MBS’s – residential		13,797		(321	)		-		-		13,797		(321	)
U.S government sponsored agency CMO’s – residential		102,341		(2,445	)		-		-		102,341		(2,445	)
Total temporarily impaired	$	120,028	$	(2,873	)	$	-	$	-	$	120,028	$	(2,873	)

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 September 30, 2014 and December 31, 2013 are price changes resulting from changes in the interest rate environment and are considered to be 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 September 30, 2014 and December 31, 2013 are summarized as follows:

	2014		2013
Residential real estate	$	278,586	$	216,081
Multifamily real estate		30,315		38,456
Commercial real estate:
Owner occupied		103,457		90,539
Non owner occupied		212,811		208,756
Commercial and industrial		103,764		85,301
Consumer		34,230		25,113
All other		91,231		76,524
	$	854,394	$	740,770

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 nine months ended September 30, 2014 was as follows:

Loan Class	Balance Dec 31, 2013		Provision for loan losses			Loans charged-off		Recoveries		Balance Sept 30, 2014
Residential real estate	$	2,694	$	(419	)	$	308	$	55	$	2,022
Multifamily real estate		417		(137	)		-		-		280
Commercial real estate:
Owner occupied		1,407		112			207		-		1,312
Non owner occupied		2,037		310			323		-		2,024
Commercial and industrial		2,184		(335	)		111		11		1,749
Consumer		297		(12	)		105		45		225
All other		1,991		628			267		216		2,568
Total	$	11,027	$	147		$	1,321	$	327	$	10,180

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

Loan Class	Balance Dec 31, 2012		Provision for loan losses			Loans charged-off		Recoveries		Balance Sept 30, 2013
Residential real estate	$	2,163	$	571		$	191	$	10	$	2,553
Multifamily real estate		331		43			-		-		374
Commercial real estate:
Owner occupied		1,117		96			67		299		1,445
Non owner occupied		1,888		209			-		-		2,097
Commercial and industrial		3,046		215			12		87		3,336
Consumer		244		87			123		47		255
All other		2,699		(671	)		202		286		2,112
Total	$	11,488	$	550		$	595	$	729	$	12,172

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 ended September 30, 2014 was as follows:

Loan Class	Balance June 30, 2014		Provision for loan losses			Loans charged-off		Recoveries		Balance Sept 30, 2014
Residential real estate	$	2,140	$	(28	)	$	137	$	47	$	2,022
Multifamily real estate		311		(31	)		-		-		280
Commercial real estate:
Owner occupied		1,364		73			125		-		1,312
Non owner occupied		2,270		(246	)		-		-		2,024
Commercial and industrial		1,489		281			27		6		1,749
Consumer		232		21			46		18		225
All other		2,071		466			63		94		2,568
Total	$	9,877	$	536		$	398	$	165	$	10,180

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

Loan Class	Balance June 30, 2013		Provision for loan losses			Loans charged-off		Recoveries		Balance Sept 30, 2013
Residential real estate	$	2,371	$	213		$	35	$	4	$	2,553
Multifamily real estate		429		(55	)		-		-		374
Commercial real estate:
Owner occupied		1,094		351			-		-		1,445
Non owner occupied		1,968		129			-		-		2,097
Commercial and industrial		4,073		(772	)		-		35		3,336
Consumer		233		60			60		22		255
All other		2,030		124			108		66		2,112
Total	$	12,198	$	50		$	203	$	127	$	12,172

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 Impaired 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 September 30, 2014 and December 31, 2013.

	2014		2013
Residential real estate	$	-	$	183
Multifamily real estate		515		1,229
Commercial real estate
Owner occupied		245		250
Non owner occupied		5,728		6,782
Commercial and industrial		327		496
All other		5,117		4,623
Total carrying amount	$	11,932	$	13,563
Carrying amount, net of allowance	$	10,937	$	12,931

For those purchased loans disclosed above, the Company increased the allowance for loan losses by $400,000 for the three and nine months ended September 30, 2014.  The Company did not increase the allowance for loan losses for purchased impaired loans during the nine months ended September 30, 2013.

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 those 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 on those loans accounted for using the cost recovery method.  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.

The Company has determined that the cash flows from borrowers on a limited number of purchased loans can 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 September 30, 2014 and September 30, 2013.

	2014			2013
Balance at January 1	$	217		$	635
New loans purchased		-			-
Accretion of income		(9	)		(22	)
Income recognized upon full loan repayment		-			(415	)
Reclassifications from non-accretable difference		-			23
Disposals		-			-
Balance at September 30	$	208		$	221

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 September 30, 2014 and December 31 2013.  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.

September 30, 2014	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
Residential real estate	$	2,105	$	1,898	$	1,973
Multifamily real estate		1,933		1,176		1,355
Commercial real estate
Owner occupied		2,347		2,073		5
Non owner occupied		2,061		1,887		26
Commercial and industrial		2,574		1,284		106
Consumer		267		232		60
All other		12,596		5,162		481
Total	$	23,883	$	13,712	$	4,006

December 31, 2013	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
Residential real estate	$	2,021	$	1,725	$	1,737
Multifamily real estate		3,282		1,889		1,369
Commercial real estate
Owner occupied		1,364		1,147		1,387
Non owner occupied		2,683		1,973		3,739
Commercial and industrial		6,838		4,961		84
Consumer		167		148		16
All other		12,212		4,798		146
Total	$	28,567	$	16,641	$	8,478

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 September 30, 2014 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	$	278,586	$	6,827	$	3,068	$	9,895	$	268,691
Multifamily real estate		30,315		330		2,016		2,346		27,969
Commercial real estate:
Owner occupied		103,457		543		1,464		2,007		101,450
Non owner occupied		212,811		3,892		1,665		5,557		207,254
Commercial and industrial		103,764		175		1,181		1,356		102,408
Consumer		34,230		530		130		660		33,570
All other		91,231		4,210		5,595		9,805		81,426
Total	$	854,394	$	16,507	$	15,119	$	31,626	$	822,768

The table above includes approximately $2,352,000 of loans 30-89 days past due and $1,003,000 of loans greater than 90 days past due that were acquired via the purchase of the Bank of Gassaway on April 4, 2014.  See Note 9 below for additional details on purchase of the Bank of Gassaway.

The following table presents the aging of the recorded investment in past due loans as of December 31, 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	$	216,081	$	4,770	$	2,431	$	7,201	$	208,880
Multifamily real estate		38,456		367		2,688		3,055		35,401
Commercial real estate:
Owner occupied		90,539		516		2,073		2,589		87,950
Non owner occupied		208,756		278		5,478		5,756		203,000
Commercial and industrial		85,301		1,433		1,438		2,871		82,430
Consumer		25,113		421		82		503		24,610
All other		76,524		2,510		4,881		7,391		69,133
Total	$	740,770	$	10,295	$	19,071	$	29,366	$	711,404

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 September 30, 2014:

	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	$	-	$	2,022	$	-	$	2,022	$	2,076	$	276,510	$	-	$	278,586
Multifamily real estate		26		254		-		280		1,800		28,000		515		30,315
Commercial real estate:
Owner occupied		125		1,187		-		1,312		2,104		101,108		245		103,457
Non-owner occupied		14		2,010		-		2,024		3,151		203,932		5,728		212,811
Commercial and industrial		368		1,286		95		1,749		1,190		102,247		327		103,764
Consumer		-		225		-		225		-		34,230		-		34,230
All other		-		1,668		900		2,568		2,572		83,542		5,117		91,231
Total	$	533	$	8,652	$	995	$	10,180	$	12,893	$	829,569	$	11,932	$	854,394

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 December 31, 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	$	138	$	2,556	$	-	$	2,694	$	2,787	$	213,111	$	183	$	216,081
Multifamily real estate		-		417		-		417		1,822		35,405		1,229		38,456
Commercial real estate:
Owner occupied		170		1,237		-		1,407		2,386		87,903		250		90,539
Non-owner occupied		362		1,675		-		2,037		1,024		200,950		6,782		208,756
Commercial and industrial		1,088		964		132		2,184		4,270		80,535		496		85,301
Consumer		-		297		-		297		-		25,113		-		25,113
All other		102		1,389		500		1,991		3,279		68,622		4,623		76,524
Total	$	1,860	$	8,535	$	632	$	11,027	$	15,568	$	711,639	$	13,563	$	740,770

19.

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 September 30, 2014, the table above includes approximately $88,167,000 of loans acquired from the purchase of the Bank of Gassaway reported as collectively evaluated for impairment with no loans deemed by management to be reported as individually evaluated for impairment or acquired with deteriorated credit quality.

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 September 30, 2014.  The table includes $5,980,000 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	$	2,128	$	2,076	$	-
Multifamily real estate		2,715		1,957		-
Commercial real estate
Owner occupied		1,896		1,702		-
Non owner occupied		2,628		2,548		-
Commercial and industrial		1,021		273		-
All other		2,608		2,572		-
		12,996		11,128		-
With an allowance recorded:
Multifamily real estate	$	364	$	358	$	26
Commercial real estate
Owner occupied		515		515		125
Non owner occupied		602		602		14
Commercial and industrial		1,502		1,152		463
All other		12,514		5,118		900
		15,497		7,745		1,528
Total	$	28,493	$	18,873	$	1,528

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, 2013.  The table includes $7,483,000 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	$	1,513	$	1,314	$	-
Multifamily real estate		4,449		3,051		-
Commercial real estate
Owner occupied		2,601		1,986		-
Non owner occupied		1,861		1,184		-
Commercial and industrial		809		49		-
All other		3,185		3,167		-
		14,418		10,751		-
With an allowance recorded:
Residential  real estate	$	1,668	$	1,656	$	138
Commercial real estate
Owner occupied		515		515		170
Non owner occupied		810		790		362
Commercial and industrial		5,543		4,604		1,220
All other		12,132		4,735		602
		20,668		12,300		2,492
Total	$	35,086	$	23,051	$	2,492

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 nine months ended September 30, 2014 and September 30, 2013.   The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Nine months ended Sept. 30, 2014						Nine months ended Sept. 30, 2013
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	$	2,421	$	209	$	209	$	4,303	$	140	$	140
Multifamily real estate		2,518		746		746		4,247		828		828
Commercial real estate:
Owner occupied		2,171		39		30		2,620		136		119
Non-owner occupied		1,388		644		634		2,603		9		9
Commercial and industrial		2,152		546		546		9,184		44		44
All other		7,624		126		126		8,620		214		214
Total	$	18,274	$	2,310	$	2,291	$	31,577	$	1,371	$	1,354

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 September 30, 2014 and September 30, 2013.   The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Three months ended Sept. 30, 2014						Three months ended Sept. 30, 2013
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	$	2,166	$	148	$	148	$	3,920	$	42	$	42
Multifamily real estate		2,328		19		19		3,981		32		27
Commercial real estate:
Owner occupied		2,080		10		9		2,544		40		38
Non-owner occupied		1,679		17		7		2,166		-		-
Commercial and industrial		1,337		4		4		7,223		3		3
All other		7,475		45		45		7,900		54		17
Total	$	17,065	$	243	$	232	$	27,734	$	171	$	127

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 September 30, 2014 and December 31, 2013:

September 30, 2014	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential  real estate	$	15	$	195	$	210
Commercial real estate
Non owner occupied		-		479		479
Commercial and industrial		-		779		779
All other		-		1,838		1,838
Total	$	15	$	3,291	$	3,306

December 31, 2013	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential  real estate	$	23	$	296	$	319
Commercial real estate
Non owner occupied		-		506		506
Commercial and industrial		-		831		831
Consumer		-		5		5
All other		-		2,017		2,017
Total	$	23	$	3,655	$	3,678

At September 30, 2014 and December 31, 2013 there were no specific reserves 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 nine months ended September 30, 2014 and September 30, 2013:

	Nine months ended Sept. 30, 2014						Nine months ended Sept. 30, 2013
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
All other		-	$	-	$	-		1	$	16	$	16
Total		-	$	-	$	-		1	$	16	$	16

The troubled debt restructurings described above did not increase the allowance for loan losses during the period ended September 30, 2014 and did not increase the allowance for loan losses during the period ended September 30, 2013.

During the three and nine months ended September 30, 2014 and the three and nine months ended September 30, 2013, there were no TDR’s for which there as a payment default within twelve months following the modification.

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

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 September 30, 2014 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	$	263,920	$	7,940	$	6,711	$	15	$	278,586
Multifamily real estate		27,106		894		2,315		-		30,315
Commercial real estate:
Owner occupied		94,219		5,770		3,468		-		103,457
Non-owner occupied		201,056		6,739		5,016		-		212,811
Commercial and industrial		99,758		2,224		1,753		29		103,764
Consumer		33,808		315		107		-		34,230
All other		77,313		5,604		8,314		-		91,231
Total	$	797,180	$	29,486	$	27,684	$	44	$	854,394

The table above includes approximately $76,637,000 of loans risk rated as “pass”, $2,653,000 of loans risk rated as “special mention”, $1,957,000 of loans risk rated as “substandard” and no loans risk rated as doubtful that were acquired via the purchase of the Bank of Gassaway on April 4, 2014.  See Note 9 below for additional details on purchase of the Bank of Gassaway.

As of December 31, 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	$	202,789	$	6,204	$	7,065	$	23	$	216,081
Multifamily real estate		34,487		918		3,051		-		38,456
Commercial real estate:
Owner occupied		79,694		7,431		3,348		66		90,539
Non-owner occupied		196,338		8,569		3,849		-		208,756
Commercial and industrial		78,205		2,269		4,753		74		85,301
Consumer		24,772		204		137		-		25,113
All other		62,180		5,947		8,285		112		76,524
Total	$	678,465	$	31,542	$	30,488	$	275	$	740,770

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 2014 the Banks could, without prior approval, declare dividends to Premier of approximately $3.8 million plus any 2014 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 September 30, 2014 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:

	Sept. 30, 2014			December 31, 2013			Regulatory Minimum Requirements			To Be Considered Well Capitalized
Tier I Capital (to Risk-Weighted Assets)		14.0	%		16.9	%		4.0	%		6.0	%
Total Capital (to Risk-Weighted Assets)		15.2	%		18.2	%		8.0	%		10.0	%
Tier I Capital (to Average Assets)		9.2	%		11.0	%		4.0	%		5.0	%

As of September 30, 2014, 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 628,588 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 were repurchased at the auction closing price of $901.03.

Premier sought and obtained regulatory permission to redeem 7,000 of the 12,000 outstanding shares at the $1,000.00 per share face value plus any accrued dividends due through but not including the redemption date.  The redemption date was set by the board of directors to be September 26, 2014 and the redemption occurred on that date.  The redemption payment included $39,861.10 of accrued and unpaid dividends to the Series A Preferred holders.

Premier sought and in October 2014 obtained regulatory permission to redeem the final 5,000 outstanding shares at the $1,000.00 per share face value plus any accrued dividends due through but not including the redemption date.  The redemption date was set by the board of directors to be November 14, 2014.  The redemption payment will include $62,500.00 of accrued and unpaid dividends to the Series A Preferred holders.

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 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.  Under terms of the Warrant, the exercise price and the number of shares that can be purchased are adjusted based upon certain events including common stock dividends paid to shareholders that exceed the $0.11 per share regular quarterly dividend paid by Premier at the time the Warrant was issued.  Due to dividends paid in 2014 that were either special cash dividends or dividends that exceeded the $0.11 regular quarterly cash dividend per share defined in the terms of the Warrant, the Warrant has been adjusted as of September 30, 2014 to permit the purchase of 634,684 shares of the Company’s common stock at an exercise price of $5.26 per share. As of September 30, 2014, 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.

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

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 19, 2014, 46,300 incentive stock options were granted out of the 2012 Long Term Incentive Plan at an exercise price of $14.43, the closing market price of Premier’s common stock on the grant date.  These options vest in three equal annual installments ending on March 19, 2017.  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.

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:

	2014			2013
Risk-free interest rate		2.78	%		1.96	%
Expected option life (yrs)		10.00			10.00
Expected stock price volatility		31.19	%		35.24	%
Dividend yield		3.33	%		3.86	%
Weighted average fair value of options granted	$	3.74		$	2.85

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

On April 16, 2014, 6,000 shares of Premier’s common stock were granted to Robert W. Walker as stock-based bonus compensation under the 2012 Long-term Incentive Plan.  The fair value of the stock at the time of the grant was $14.20 per share based upon the closing price of Premier’s stock of the date of grant and $85,000 of stock-based compensation was recorded as a result.

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

Stock-based compensation expense of $208,000 was recorded for the first nine months of 2014 compared to $128,000 for the first nine months of 2013.  For the three months ended September 30, $38,000 was recorded for 2014 while $41,000 was recorded for 2013.  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 $148,000 at September 30, 2014. This unrecognized expense is expected to be recognized over the next 29 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 nine months ended September 30:

	- - - - - - 2014 - - - - - -					- - - - - - 2013 - - - - - -
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding at beginning of year		354,281		$	9.84		392,366		$	9.24
Grants		46,300			14.43		52,900			11.39
Exercises		(77,896	)		8.52		(60,043	)		7.63
Forfeitures or expired		(8,133	)		9.27		(12,401	)		7.90
Outstanding at September 30,		314,552		$	10.86		372,822		$	9.76
Exercisable at September 30,		209,299					231,272
Weighted average remaining life of options outstanding		6.1					6.2
Weighted average fair value of options granted during the year	$	3.74				$	2.85

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

Additional information regarding stock options outstanding and exercisable at September 30, 2014, 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		136,049	$	7.51	$	970		108,356		6.4	$	7.52	$	771
$10.01 to $12.50		55,603		11.44		178		24,343		4.7		11.50		77
$12.51 to $15.00		99,400		13.91		72		53,100		2.9		13.46		63
$15.01 to $17.50		23,500		16.00		0		23,500		1.4		16.00		-
Outstanding - Sept 30, 2014		314,552		10.86	$	1,220		209,299		4.8		10.44	$	911

31.

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 nine months ended September 30, 2014 and 2013 is presented below:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Basic earnings per share
Income available to common stockholders	$	2,946	$	3,761	$	9,386	$	9,044
Weighted average common shares outstanding		8,108,722		8,015,954		8,077,428		7,986,719
Earnings per share	$	0.36	$	0.47	$	1.16	$	1.13
Diluted earnings per share
Income available to common stockholders	$	2,946	$	3,761	$	9,386	$	9,044
Weighted average common shares outstanding		8,108,722		8,015,954		8,077,428		7,986,719
Add dilutive effects of potential additional common stock		512,166		440,326		506,420		439,271
Weighted average common and dilutive potential common shares outstanding		8,620,888		8,456,280		8,583,848		8,425,990
Earnings per share assuming dilution	$	0.34	$	0.44	$	1.09	$	1.07

Stock options for 23,500 and 84,100 shares of common stock were not considered in computing diluted earnings per share for the nine months ended September 30, 2014 and 2013 because they were antidilutive.  Stock options for 23,500 and 84,100 shares of common stock were not considered in computing diluted earnings per share for the three months ended September 30, 2014 and 2013 because they were antidilutive.

32.

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.

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 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).

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

The carrying amounts and estimated fair values of financial instruments at September 30, 2014 were as follows:

				Fair Value Measurements at September 30, 2014 Using
	Carrying Amount			Level 1			Level 2			Level 3		Total
Financial assets
Cash and due from banks	$	74,040		$	74,040		$	-		$	-	$	74,040
Federal funds sold		7,877			7,877			-			-		7,877
Securities available for sale		253,559			-			253,419			140		253,559
Loans held for sale		395			-			-			395		395
Loans, net		844,214			-			-			845,396		845,396
Federal Home Loan Bank stock		3,895			n/a			n/a			n/a		n/a
Interest receivable		3,342			-			822			2,520		3,342
Financial liabilities
Deposits	$	(1,076,996	)	$	(703,039	)	$	(373,551	)	$	-	$	(1,076,590	)
Securities sold under agreements to repurchase		(13,155	)		-			(13,155	)		-		(13,155	)
FHLB advances		(5,000	)		(5,000	)		-			-		(5,000	)
Other borrowed funds		(12,330	)		-			(12,373	)		-		(12,373	)
Interest payable		(443	)		(6	)		(437	)		-		(443	)

The carrying amounts and estimated fair values of financial instruments at December 31, 2013 were as follows:

				Fair Value Measurements at December 31, 2013 Using
	Carrying Amount			Level 1			Level 2			Level 3		Total
Financial assets
Cash and due from banks	$	63,984		$	63,984		$	-		$	-	$	63,984
Federal funds sold		12,777			12,777			-			-		12,777
Securities available for sale		218,066			-			217,926			140		218,066
Loans held for sale		77			-			-			77		77
Loans, net		729,743			-			-			725,588		725,588
Federal Home Loan Bank stock		4,183			n/a			n/a			n/a		n/a
Interest receivable		3,132			-			593			2,539		3,132
Financial liabilities
Deposits	$	(924,023	)	$	(592,664	)	$	(332,475	)	$	-	$	(925,139	)
Securities sold under agreements to repurchase		(11,319	)		-			(11,319	)		-		(11,319	)
Other borrowed funds		(13,800	)		-			(13,811	)		-		(13,811	)
Interest payable		(383	)		(5	)		(378	)		-		(383	)

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

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 September 30, 2014 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	$	54,855	$	-	$	54,855	$	-
U. S. agency CMO’s - residential		152,800		-		152,800		-
Total mortgage-backed securities of government sponsored agencies		207,655		-		207,655		-
U. S. government sponsored agency securities		34,836		-		34,836		-
Obligations of states and political subdivisions		11,068		-		10,928		140
Total available for sale	$	253,559	$	-	$	253,419	$	140

			Fair Value Measurements at  December 31, 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	$	27,823	$	-	$	27,823	$	-
U. S. agency CMO’s		176,722		-		176,722		-
Total mortgage-backed securities of government sponsored agencies		204,545		-		204,545		-
U. S. government sponsored agency securities		6,981		-		6,981		-
Obligations of states and political subdivisions		6,540		-		6,400		140
Total securities available for sale	$	218,066	$	-	$	217,926	$	140
Mortgage-backed securities

There were no transfers between Level 1 and Level 2 during 2014 or 2013.

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

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.

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

Assets and liabilities measured at fair value on a non-recurring basis at September 30, 2014 are summarized below:

			Fair Value Measurements at September 30, 2014 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:
Multifamily residential	$	332	$	-	$	-	$	332
Commercial real estate
Owner occupied		390		-		-		390
Non-owner occupied		588		-		-		588
Commercial and industrial		689		-		-		689
All other		4,218		-		-		4,218
Total impaired loans		6,217	$	-	$	-	$	6,217
Other real estate owned:
Commercial real estate
Non-owner occupied	$	2,003		-		-	$	2,003
All other		8,353		-		-		8,353
Total OREO	$	10,356	$	-	$	-	$	10,356

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $6,217,000 at September 30, 2014 made up of an outstanding balance of $7,745,000, net of a valuation allowance of $1,528,000.  At December 31, 2013, impaired loans had a carrying amount of $9,808,000, made up of an outstanding balance of $12,300,000, net of a valuation allowance of $2,492,000.  The change resulted in a negative provision for loan losses of $473,000 for the nine months ended September 30, 2014, compared to a $187,000 provision for loan losses for the nine months ended September 30, 2013; and an additional $413,000 provision for loan losses for the three months ended September 30, 2014, compared to a negative $296,000 provision for loan losses for the three months ended September 30, 2013.  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 $10,356,000 which is made up of the outstanding balance of $12,788,000 net of a valuation allowance of $2,432,000 at September 30, 2014. There were $380,000 of additional write downs during the nine months ended September 30, 2014, compared to no additional write downs during the nine months ended September 30, 2013.  For the three months ended September 30, 2014 there were $100,000 of additional write downs compared to no additional write downs during the three months ended September 30, 2013. At December 31, 2013, other real estate owned had a net carrying amount of $8,786,000, made up of the outstanding balance of $11,163,000, net of a valuation allowance of $2,377,000.

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

The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at September 30, 2014 are summarized below:

	September 30, 2014		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Multifamily residential	$	332	sales comparison	adjustment for differences between the comparable sales	36.8%-36.8%(36.8%)
Commercial real estate
Owner occupied		390	sales comparison	adjustment for limited salability of specialized property	44.8%-72.4%(64.4%)
Non-owner occupied		588	sales comparison	adjustment for differences between the comparable sales	16.9%-16.9%(16.9%)
Commercial and industrial		689	sales comparison	adjustment for limited salability of specialized property	8.0%-41.2%(26.5%)
All other		4,218	sales comparison	adjustment for percentage of completion of construction	56.8%-56.8%(56.8%)
Total impaired loans		6,217
Other real estate owned:
Commercial real estate
Non-owner occupied	$	2,003	sales comparison	adjustment for differences between the comparable sales	29.6%-29.6%(29.6%)
All other		8,353	sales comparison	adjustment for estimated realizable value	24.6%-50.2%(45.0%)
Total OREO	$	10,356

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

Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2013 are summarized below:

			Fair Value Measurements at December 31, 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	$	1,518	$	-	$	-	$	1,518
Commercial real estate
Owner occupied		345		-		-		345
Non-owner occupied		428		-		-		428
Commercial and industrial		3,384		-		-		3,384
All other		4,133		-		-		4,133
Total impaired loans		9,808	$	-	$	-	$	9,808
Other real estate owned:
Commercial real estate
Non-owner occupied		290		-		-		290
All other		8,496		-		-		8,496
Total OREO	$	8,786	$	-	$	-	$	8,786

39.

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, 2013 are summarized below:

	December 31,  2013		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Residential real estate	$	1,518	sales comparison	adjustment for differences between the comparable sales	0.8%-63.5%(11.9%)
Commercial real estate
Owner occupied		345	sales comparison	adjustment for limited salability of specialized property	62.5%-70.0%(64.0%)
Non-owner occupied		428	sales comparison	adjustment for limited salability of specialized property	50.6%-50.6%(50.6%)
Commercial and industrial		3,384	sales comparison	adjustment for limited salability of specialized property	25.0%-65.5%(57.8%)
All other		4,133	sales comparison	adjustment for percentage of completion of construction	57.6%-99.3%(57.7%)
Total impaired loans		9,808
Other real estate owned:
Commercial real estate
Non-owner occupied		290	sales comparison	adjustment for differences between the comparable sales	42.7%-42.7%(42.7%)
All other		8,496	sales comparison	adjustment for estimated realizable value	9.5%-24.6%(12.5%)
Total OREO	$	8,786

40.

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  9 – ACQUISITION OF BANK OF GASSAWAY

Effective with the close of business on April 4, 2014, Premier completed its purchase of the Bank of Gassaway (“Gassaway”), a $201.52 million bank headquartered in Gassaway, West Virginia.  Under terms of an amended and restated agreement of merger dated January 3, 2014, Premier Bank, Inc., a wholly owned subsidiary of Premier, paid $20.25 million in cash for the Bank of Gassaway and merged Gassaway’s five branch locations into its operating systems.  The purchase price resulted in approximately $3.92 million in goodwill and $1.73 million in core deposit intangible, none of which is deductible for tax purposes.  The core deposit intangible will be amortized using an accelerated method.  The following table presents estimated amortization of the Gassaway core deposit intangible for each of the next five years.

2014	$	243
2015		279
2016		226
2017		193
2018		186
2019 and thereafter		603
Total core deposit intangible acquired	$	1,730

United States generally accepted accounting principles (“U.S. GAAP”) provides up to twelve months following the date of acquisition in which management can finalize the fair values of acquired assets and assumed liabilities. Material events that occur during the measurement period will be analyzed to determine if the new information reflected facts and circumstances that existed on the acquisition date. The measurement period ends as soon as the Company receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns more information is unobtainable. The measurement period is limited to one year from the acquisition date. Once management has finalized the fair values of acquired assets and assumed liabilities within this twelve month period, management considers such values to be the “Day One Fair Values”.

Net assets acquired via the acquisition are shown in the table below.

	Gassaway
Cash and due from banks	$	61,223
Securities available for sale		38,741
Loans, net		95,094
Goodwill and other intangible assets		5,651
Other assets		5,089
Total assets acquired		205,798
Deposits		(184,555	)
Other liabilities		(993	)
Total liabilities assumed		(185,548	)
Net assets acquired	$	20,250

41.

PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE  9 – ACQUISITION OF BANK OF GASSAWAY - continued

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows.  Non-impaired loans with a fair value of $95,094,000 had gross contractual amounts receivable of $97,588,000 on the date of acquisition.

42.

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2014

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.

Effective with the close of business on April 4, 2014, Premier completed its purchase of the Bank of Gassaway (“Gassaway”), a $201.52 million bank headquartered in Gassaway, West Virginia.  Under terms of an amended and restated agreement of merger dated January 3, 2014, Premier Bank, Inc., a wholly owned subsidiary of Premier, paid $20.25 million in cash for the Bank of Gassaway and merged Gassaway’s five branch locations into its operating systems.  The balances and results of operations of Gassaway are included in Premier’s balances and operating results only since the date of acquisition.

Net income for the nine months ended September 30, 2014 was $9,921,000, or $1.09 per diluted share, compared to net income of $9,539,000, or $1.07 per diluted share, for the nine months ended September 30, 2013.  The increase in income in 2014 is largely due to an increase in interest income on loans, a decrease in interest expense, an increase in non-interest income, and a decrease in the provision for loan losses, all of which more than offset an increase in non-interest expenses.  The increase in interest income on loans as well as the increase in non-interest income and non-interest expenses in the first nine months of 2014 is largely due to the operations of the five branches acquired from the purchase of Gassaway, which are only included in the financial results since the April 4, 2014 acquisition date.  The annualized returns on average common shareholders’ equity and average assets were approximately 8.75% and 1.07% for the nine months ended September 30, 2014 compared to 8.85% and 1.13% for the same period of 2013.

43.

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2014

Net income for the three months ended September 30, 2014 was $3,151,000, or $0.34 per diluted share, compared to net income of $3,926,000, or $0.44 per diluted share for the three months ended September 30, 2013.  The decrease in net income is largely due to a higher amount of deferred interest and purchase discounts recognized on loans liquidated in the third quarter of 2013 compared to the third quarter of 2014.  In the third quarter of 2013, $1,809,000 of deferred interest and purchase discounts was recognized in interest income as a result of loans liquidated during the quarter, compared to $518,000 of deferred interest and purchase discounts recognized as income on loans liquidated during the third quarter of 2014.  Otherwise, when compared to the third quarter of 2013, a $1,690,000 increase in net interest income and a $100,000 increase in non-interest income in the third quarter of 2014 were substantially offset by a $1,249,000 increase in non-interest expenses and a $486,000 increase in the provision for loan losses.  The annualized returns on common shareholders’ equity and average assets were approximately 8.18% and 0.99% for the three months ended September 30, 2014 compared to 11.14% and 1.42% for the same period of 2013.

Net interest income for the nine months ended September 30, 2014 totaled $36.11 million, up $2.85 million, or 8.57%, from the $33.26 million of net interest income earned in the first nine months of 2013, as an increase in interest income was complemented by a decrease in interest expense.  Interest income in 2014 increased by $2.44 million, or 6.6%, largely due to a $2.90 million increase in interest income on loans.  In the first nine months of 2014, interest income on loans included approximately $2.81 million of income from loans acquired via the purchase of Gassaway.  Also included in interest income on loans in the first nine months of 2014 was approximately $2.37 million of income recognized from purchase discounts and deferred interest income collected on non-accrual loans liquidated during the first nine months of 2014, compared to approximately $2.58 million of similar income on loans liquidated during the first nine months of 2013. The timing of these liquidations is difficult to predict, which creates fluctuations in reported loan interest income.  Excluding the income from liquidation of these non-accrual loans, interest income on loans increased by $3.11 million, or 9.7%, largely due to the additional interest income on loans acquired from the Gassaway purchase.  Interest income on investments decreased by $494,000, or 10.4% due to a lower average volume of investments and a slightly lower average yield on those investments.  Interest earned on federal funds sold and interest bearing bank balances increased by $30,000, largely due to a higher average volume of assets held in this category resulting from the funds added from the Gassaway purchase.

Complementing the increase in interest income in the first nine months of 2014 was $413,000 of interest expense savings.  Interest expense decreased in total during the first nine months of 2014 by $413,000, or 11.3%, when compared to the same nine months of 2013.  This decrease includes the addition of $183,000 of interest expense on the interest-bearing deposits and other borrowings assumed from the Gassaway purchase.  Interest expense on deposits decreased by $339,000, or 10.8%, largely due to the continuing decrease in rates paid on deposits.  This decrease in interest expense includes $173,000 of additional interest expense from the Gassaway purchase.  Otherwise, interest expense in the first nine months of 2014 would have decreased by $512,000, or 16.3%, when compared to the same nine months of 2013.  Interest expense on repurchase agreements and other short-term borrowings decreased by $3,000, largely due to a lower average balance outstanding.  Interest expense on other borrowings decreased by $71,000, or 14.3%, in the first nine months of 2014 compared to the first nine months of 2013, largely due to a decrease in the average amount of borrowings outstanding which more than offset an additional $10,000 of interest expense from the borrowing assumed from the Gassaway purchase.

44.

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2014

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.  As a result, Premier’s overall net interest margin decreased in the first nine months of 2014.  Premier’s net interest margin during the first nine months of 2014 was 4.28% compared to 4.32% for the same period in 2013.  A portion of the interest income on loans is the result of recognizing into interest income the remaining fair value discounts on loans acquired via a business acquisition if that loan 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.  Also impacting the comparison of Premier’s net interest margin in 2014 with its net interest margin in 2013 are the assets and liabilities acquired via the Gassaway purchase which generated additional net interest income in the second and third quarters of 2014 but not necessarily at the same net interest margin as Premier’s historical yields.

45.

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2014

Additional information on Premier’s net interest income for the first nine months of 2014 and first nine months of 2013 is contained in the following table.

PREMIER FINANCIAL BANCORP, INC.
AVERAGE CONSOLIDATED BALANCE SHEETS
AND NET INTEREST INCOME ANALYSIS
	Nine Months Ended Sept. 30, 2014								Nine Months Ended Sept. 30, 2013
	Balance			Interest		Yield/Rate			Balance			Interest		Yield/Rate
Assets
Interest Earning Assets
Federal funds sold and other	$	69,041		$	142		0.27	%	$	52,367		$	112		0.29	%
Securities available for sale
Taxable		246,487			4,080		2.21			263,657			4,611		2.33
Tax-exempt		7,914			157		4.01			5,570			120		4.35
Total investment securities		254,401			4,237		2.26			269,227			4,731		2.37
Total loans		806,487			34,981		5.80			709,119			32,081		6.05
Total interest-earning assets		1,129,929			39,360		4.67			1,030,713			36,924		4.80	%
Allowance for loan losses		(10,291	)							(12,211	)
Cash and due from banks		31,577								26,691
Other assets		75,929								69,139
Total assets	$	1,227,144							$	1,114,332
Liabilities and Equity
Interest-bearing liabilities
Interest-bearing deposits	$	800,713			2,800		0.47		$	736,632			3,139		0.57
Short-term borrowings		12,408			23		0.25			14,000			27		0.26
FHLB advances		1,117			1		0.12			1,136			1		0.12
Other borrowings		13,094			427		4.36			15,227			497		4.36
Total interest-bearing liabilities		827,332			3,251		0.53	%		766,995			3,664		0.64	%
Non-interest bearing deposits		241,043								196,862
Other liabilities		5,572								3,796
Stockholders’ equity		153,197								146,679
Total liabilities and equity	$	1,227,144							$	1,114,332
Net interest earnings				$	36,109							$	33,260
Net interest spread							4.14	%							4.16	%
Net interest margin							4.28	%							4.32	%

.

46.

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2014

Additional information on Premier’s net interest income for the third quarter of 2014 and third quarter of 2013 is contained in the following table.

PREMIER FINANCIAL BANCORP, INC.
AVERAGE CONSOLIDATED BALANCE SHEETS
AND NET INTEREST INCOME ANALYSIS
	Three Months Ended Sept. 30, 2014								Three Months Ended Sept. 30, 2013
	Balance			Interest		Yield/Rate			Balance			Interest		Yield/Rate
Assets
Interest Earning Assets
Federal funds sold and other	$	64,780		$	46		0.28	%	$	50,689		$	40		0.32	%
Securities available for sale
Taxable		260,276			1,365		2.10			249,124			1,501		2.41
Tax-exempt		9,303			59		3.84			4,834			36		4.51
Total investment securities		269,579			1,424		2.16			253,958			1,537		2.45
Total loans		841,888			12,056		5.68			720,736			11,615		6.39
Total interest-earning assets		1,176,247			13,526		4.58			1,025,383			13,192		5.12	%
Allowance for loan losses		(9,870	)							(12,313	)
Cash and due from banks		33,336								26,494
Other assets		79,104								69,606
Total assets	$	1,278,817							$	1,109,170
Liabilities and Equity
Interest-bearing liabilities
Interest-bearing deposits	$	831,589			953		0.45		$	730,984			994		0.54
Short-term borrowings		11,668			7		0.24			12,192			9		0.29
FHLB advances		3,315			1		0.12			3,371			1		0.12
Other borrowings		12,610			139		4.37			14,672			161		4.35
Total interest-bearing liabilities		859,182			1,100		0.51	%		761,219			1,165		0.61	%
Non-interest bearing deposits		257,323								196,949
Other liabilities		6,666								4,065
Stockholders’ equity		155,646								146,937
Total liabilities and equity	$	1,278,817							$	1,109,170
Net interest earnings				$	12,426							$	12,027
Net interest spread							4.07	%							4.51	%
Net interest margin							4.21	%							4.67	%

47.

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2014

Net interest income for the quarter ended September 30, 2014 totaled $12.43 million, up $399,000, or 3.3%, from the $12.03 million of net interest income earned in the third quarter of 2013.  Interest income in the third quarter of 2014 increased by $334,000, or 2.5%, as an increase in interest income on loans more than offset a decrease in interest income on investments.  Interest income on loans increased by $441,000, or 3.8%.  In the third quarter of 2014, interest income on loans included an increase of approximately $1.44 million from the loans acquired from the Gassaway purchase.  Partially offsetting this increase was a decrease in the amount of deferred interest and purchase discounts recognized on loans liquidated during the third quarter of 2014 compared to the third quarter of 2013.  In the third quarter of 2013, $1.81 million of deferred interest and purchase discounts was recognized in interest income as a result of loans liquidated during the quarter, compared to $518,000 of deferred interest and purchase discounts recognized as income on loans liquidated during the third quarter of 2014.  When a loan that has been discounted as a result of being purchased in a business acquisition is paid off, any remaining discount is recognized as interest income on loans.  Furthermore, when a loan is placed on non-accrual status, interest income is deferred and any interest payments received are used to reduce the investment in the loan.  When the loan is paid off, the deferred interest is then recognized as interest income on the loan.  These events cannot be predicted with certainty and may positively or negatively affect the comparison of interest income on loans in future periods.  Interest earned on investments decreased by $113,000, or 7.4%, in the third quarter of 2014, largely due to lower average yields on the investment portfolio although on a higher average of investments as a result of the purchase of Gassaway.  Interest earned on federal funds sold and interest bearing bank balances increased by $6,000, largely due to a higher average volume of assets held in this category as a result of the Gassaway purchase.

Also adding to the increase in net interest income, interest expense decreased in total during the third quarter of 2014 by $65,000, or 5.6%, when compared to the same quarter of 2013.  Interest expense on deposits decreased by $41,000, or 4.1%, largely due to a continuing decrease in the average rates paid on interest-bearing deposits.  This decrease in interest expense includes $90,000 of additional interest expense on deposits from the Gassaway purchase.  Otherwise, interest expense on deposits in the third quarter of 2014 would have decreased by $131,000, or 13.2%, when compared to the third quarter of 2013.  Interest expense on repurchase agreements and other short-term borrowings decreased by $1,000, largely due to a decrease in repurchase agreement balances.  Interest expense on other borrowings decreased by $23,000, or 14.2%, in the third quarter of 2014 compared to the third quarter of 2013, largely due to a decrease in the average amount of borrowings outstanding, which more than offset the $5,000 additional interest expense incurred on the borrowings assumed in the Gassaway purchase.  The Board of Governors’ policy to reduce the federal funds rate to nearly zero, coupled with the U.S. Treasury continuing to buy 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 third quarter of 2014, the decrease in the yields earned on loans, partially due to the decrease in interest income recognized on loans liquidated during the second quarter of 2014, outpaced the lower average rate paid on deposits.  The effect was to lower Premier’s overall net interest margin.  Premier’s net interest margin during the third quarter of 2014 was 4.21% compared to 4.67% for the same period in 2013.

48.

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2014

Non-interest income increased by $38,000, or 0.8%, to 5,022,000 for the first nine months of 2014 compared to the same period of 2013.  However, this increase includes a $192,000 decrease in the net gains on the disposition of investment securities in 2014 compared to 2013.  Excluding these gains in both years, non-interest income increased by $230,000, or 4.8%, in the first nine months of 2014 compared to the same period of 2013, largely due to the inclusion of the Gassaway operations in 2014.  Electronic banking income (income from debit/credit cards, ATM fees and internet banking charges) increased by $296,000, or 19.7%, largely due to the inclusion of the Gassaway operations since the bank’s acquisition date.  Service charges on deposit accounts increased by $43,000, or 1.7%, as the increase in revenue from the Gassaway operations was largely offset by decreases in customer overdraft activity, as customers reduced their propensity to incur overdraft charges as they managed their checking accounts more closely.  Income from selling mortgages in the secondary market decreased by $69,000, or 32.7%, largely due to a decrease in customer demand for refinancing existing mortgage loans compared to one-year ago as a result of an increase in long-term mortgage rates, while other non-interest income decreased by $40,000, or 7.5%.

For the quarter ending September 30, 2014, non-interest income increased by $100,000 to $1,858,000 compared to $1,758,000 recognized during the same quarter of 2013.  Service charges on deposit accounts increased by $41,000, or 4.6%, and electronic banking income increased by $133,000, or 25.9%, largely due to the inclusion of the operations of Gassaway in 2014.  Secondary market mortgage income increased by $3,000 in 2014, largely the result of a slight increase in activity compared to the same period in 2013.  Other non-interest income decreased by $33,000 and net gains on the disposition of investment securities decreased by $44,000 in the third quarter of 2014 when compared to the same quarter in 2013.

Non-interest expenses for the first nine months of 2014 totaled $25.57 million, or 2.79% of average assets on an annualized basis, compared to $22.78 million, or 2.73% of average assets for the same period of 2013.  The $2.79 million increase in non-interest expenses in 2014 when compared to the first nine months of 2013 is largely due to the inclusion of the operations of Gassaway since its purchase early in the second quarter of 2014.  Staff costs increased by $2.1 million, or 18.6%, due to a $1.14 million, or 12.6%, increase in salaries and wages (net of deferred loan costs) and a $938,000, or 45.0%, increase in benefit plan costs, namely employee medical insurance benefits.  Occupancy and equipment expenses increased by $489,000, or 15.0%, largely due to the costs associated with operating the five branches from the Gassaway purchase plus additional expenditures on facilities maintenance and information technology maintenance and software.  Outside data processing increased by $466,000, or 18.6%, largely due to the additional costs associated with the Gassaway operations.  Amortization of intangibles increased by $137,000 due to the addition of a core deposit intangible asset from the Gassaway purchase.  FDIC insurance increased by $84,000, largely due to the increase in the assessment base as a result of the Gassaway purchase.  Other expenses increased by $529,000, largely due to increased supply costs, direct data system conversion costs incurred and other expenses related to the acquisition of Gassaway, plus an increase in marketing expenses and loan operation expenses.  Decreases in non-interest expense during the first nine months of 2014 include a $700,000 decrease in expenses and writedowns on other real estate owned (OREO), a $160,000 decrease in professional fees, and a $123,000 decrease in loan collection expenses.  OREO expenses decreased largely due to $1.2 million of net gains recognized on the sale of OREO properties during 2014, net of $543,000 of additional write downs on other OREO still owned, and a slight decrease in the amount of expenses related to the maintenance of OREO properties that were either sold in 2013 or under construction in 2013.  Professional fees decreased by $160,000, or 20.0%, due to lower legal expenditures and lower consulting costs in 2014.

49.

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2014

Non-interest expenses for the third quarter of 2014 totaled $8.83 million, or 2.74% of average assets on an annualized basis, compared to $7.58 million, or 2.71% of average assets for the same period of 2013.  The $1.25 million increase in non-interest expenses in the third quarter of 2014 when compared to the second quarter of 2013 is largely due to the inclusion of the operations of Gassaway in 2014.  However, the ratio of non-interest expenses to average assets on an annualized basis was fairly consistent from the third quarter of 2013 at 2.71% (before the Gassaway purchase) to the third quarter of 2014 at 2.74% (including the Gassaway purchase).  Staff costs increased by $659,000, or 17.6%, due a $435,000, or 14.4%, increase in salaries and wages (net of deferred loan costs) and a $225,000, or 31.8%, increase in benefit plan costs, namely employee medical insurance benefits.  Occupancy and equipment expenses increased by $211,000, or 19.7%, largely due to the costs associated with operating the five branches from the Gassaway purchase.  Outside data processing increased by $243,000, or 29.1%, largely due to the additional costs associated with the Gassaway operations.  Taxes not on income increased by $54,000, or 36.2%, largely due to an increase in the Ohio based financial institutions tax.  OREO expenses increased by $290,000 largely due to an increase in the amount of expenses related to the maintenance of OREO properties plus additional writedowns of the carrying value of properties that have not been sold.  Amortization of intangibles increased by $73,000 due to the addition of a core deposit intangible asset from the Gassaway purchase.  FDIC insurance increased by $35,000, largely due to the increase in the assessment base as a result of the Gassaway purchase.  Other expenses increased by $195,000, largely due to increased operating expenses related to the acquisition of Gassaway plus an increase in marketing expenses and loan operation expenses.  Decreases in non-interest expense during the third quarter of 2014 include a $460,000 decrease in professional fees and a $51,000 decrease in loan collection expenses.  Professional fees decreased largely due to the reimbursement of $275,000 paid for legal related matters earlier in 2014 compared to a higher level of legal fees incurred in the third quarter of 2013 and a decrease in the amount of accounting and audit expense.

Income tax expense was $5.49 million for the first nine months of 2014 compared to $5.38 million for the first nine months of 2013.  The effective tax rate for the nine months ended September 30, 2014 was 35.6% compared to 36.1% for the same period in 2013.  For the quarter ended September 30, 2014, income tax expense was $1.74 million, a 36.0% effective tax rate, compared to $2.23 million (a 36.2% effective tax rate) for the same period in 2013.  The increase in income tax expense during the first nine months of 2014 can be primarily attributed to the increase in pre-tax income detailed above coupled with an increase in the effective income tax rate in 2013 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.  The decrease in income tax expense during the third quarter of 2014 when compared to the same quarter of 2013 can be primarily attributed to the decrease in pre-tax income for the quarter as detailed above.

50.

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2014

B.         Financial Position

Total assets at September 30, 2014 increased by $161.2 million to $1.261 billion from the $1.100 billion at December 31, 2013.  Earning assets increased by $146.1 million from the $1.012 billion at year-end 2013 to end the quarter at $1.158 billion.  The increase in total assets and earning assets was largely due to the acquisition of Gassaway, which added approximately $185.5 million in total assets (net of the $20.3 million cash purchase price) and $160.3 million in earning assets, including $95.1 million in loans, $38.7 million in investment securities, $41.0 million in liquid assets (net of the $20.3 million cash purchase price) and $3.8 million in premises and equipment.  Premier also recorded approximately $5.7 million in intangible assets including goodwill and core deposit intangible.   Since the acquisition, total assets have decreased by $24.4 million primarily because cash and cash equivalents were reduced to satisfy a 3.4% decrease in deposit balances.  See Note 9 to the financial statements for more information on the acquisition of Gassaway.

Cash and due from banks at September 30, 2014 was $35.3 million, a $7.9 million increase from the $27.4 million at December 31, 2013.  Interest bearing bank balances increased by $2.2 million from the $36.6 million reported at December 31, 2013, while federal funds sold decreased by $4.9 million to 7.9 million at September 30, 2014.  Gassaway added approximately $41.0 million in cash and cash equivalents, net of the $20.25 million purchase price.  However, since the acquisition cash and cash equivalents have decreased in total by $35.8 million to help satisfy approximately $31.6 million in deposit withdrawals and $18.5 million of loan growth.  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.

Securities available for sale totaled $253.6 million at September 30, 2014, a $35.5 million increase from the $218.1 million at December 31, 2013.  The increase was largely due to the $38.7 million of investment securities acquired via the Gassaway purchase.  In addition to these securities, $36.4 million of investment security purchases in 2014 have been offset by $36.7 million of proceeds from monthly principal payments on Premier’s mortgage backed securities portfolio and securities maturing during the year.  In addition, to help provide funding for loan growth during the year, Premier sold approximately $4.8 million of investment securities during the third quarter of 2014 which yielded a $28,000 gain from the sale.  The securities added to the portfolio as a result of the Gassaway purchase were predominantly fixed maturity U.S. Government sponsored agency securities, recorded at fair value on the date of acquisition.  These securities complemented Premier’s existing mix of securities of predominantly mortgage-backed securities as illustrated in the tables in Note 2 to the financial statements.  The investment portfolio is predominantly high quality residential mortgage backed securities backed by the U.S. Government or Government sponsored agencies.  Any unrealized losses on securities within the portfolio at September 30, 2014 and December 31, 2013 are believed to be price changes resulting from increases in long-term interest rates since the security was purchased 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.

51.

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2014

Total loans at September 30, 2014 were $854.4 million compared to $740.8 million at December 31, 2013, an increase of approximately $113.6 million, or 15.3%.  The increase in loans was largely due to the $95.1 million of loans acquired via the Gassaway purchase.  These loans were recorded at fair value, incorporating estimated credit risk and interest rate yield adjustments into the recorded value.  As such, under current accounting guidance, no increase in the allowance for loan losses was recorded as a result of the Gassaway purchase.  The loans acquired via the Gassaway purchase will be monitored for any deterioration in credit quality in the future under Premier’s loan underwriting and credit monitoring standards and any provisions for loan losses will be charged to future operations.  Excluding the loans added via the Gassaway purchase, total loans increased by approximately $18.5 million, or 2.5%, during the first nine months of 2014.  Loan demand has exceeded reductions in outstanding loans due to loan payoffs, transfers of loans to OREO upon foreclosure and principal payments on loans.  Loan payoffs during the first quarter of 2014 included $4.9 million of payoffs on non-accrual loans which resulted in recognizing approximately $1.6 million of interest income deferred while the loans were on non-accrual status and $232,000 of remaining purchase discounts associated with the loans.  During the third quarter of 2014, additional loans paid off which resulted in approximately $285,000 of additional deferred interest and $234,000 of purchase discounts recognized in interest income.  The timing of these liquidations is difficult to predict, which can create fluctuations in reported loan interest income.

Deposits totaled $1.077 billion as of Septembrer 30, 2014, a $153.0 million increase from the $924.0 million in deposits at December 31, 2013.  The increase in deposits is primarily due to the $184.6 million of deposit balances assumed in the Gassaway purchase.  Excluding the acquired deposits, total deposits have decreased by approximately $31.6 million since year-end 2013.  The deposits assumed in the Gassaway purchase included the proceeds of the purchase price of the bank placed on deposit with Gassaway by the seller at closing.  Since closing, a significant portion of the purchase proceeds was withdrawn from the bank prior to June 30, 2014, as anticipated, while the remainder was withdrawn from the bank prior to September 30, 2014.  The remaining amount of net deposit withdrawals has been largely commercial depositors who have withdrawn their liquidity for business purposes.  Repurchase agreements with corporate and public entity customers increased in the first nine months of 2014 by approximately $1.8 million, or 16.2%.  During the third quarter of 2014, Premier borrowed $5.0 million in short-term advances from the Federal Home Loan Bank to help fund the strong loan demand during the quarter.  Other borrowed funds decreased by $1,470,000 during the first nine months of 2014 as $1.8 million of principal payments was partially offset by $344,000 of long-term borrowings assumed in the Gassaway purchase.

52.

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2014

The following table sets forth information with respect to the Company’s nonperforming assets at September 30, 2014 and December 31, 2013.

	(In Thousands)
	2014			2013
Non-accrual loans	$	13,712		$	16,641
Accruing loans which are contractually past due 90 days or more		4,006			8,478
Accruing restructured loans		3,291			3,655
Total non-performing loans		21,009			28,774
Other real estate acquired through foreclosure (OREO)		12,574			13,524
Total non-performing assets	$	33,583		$	42,298
Non-performing loans as a percentage of total loans		2.46	%		3.88	%
Non-performing assets as a percentage of total assets		2.66	%		3.84	%

Total non-performing loans have decreased since year-end, largely due to $4.9 million of payoffs on non-accrual loans during the first quarter of 2014.  These non-accrual loan payoffs have been partially offset by additional loans placed on non-accrual status primarily during the second and third quarters of 2014.  Also affecting the decrease in non-performing loans was a $4.5 million decrease in loans past due 90 days or more and a $364,000 decrease in restructured loans that have been performing as agreed.  The cumulative effect has been a $7.8 million decrease in total non-performing loans since December 31, 2013.  Total non-performing assets have decreased since year-end, largely due to the reduction in non-performing loans plus a $950,000 decrease in other real estate acquired through foreclosure (OREO).  A significant portion of the non-performing assets are legacy assets that came with the acquisition of Abigail Adams National Bancorp and its two subsidiary banks in October 2009 (“Abigail Adams”.)  Management continues to work its various plans to liquidate these assets or bring them to a current performing status.  It is important to note that the table above includes non-performing loans obtained via the purchase of Gassaway.  Premier added no OREO as a result of the purchase of Gassaway and a minimal amount of loans on non-accrual status were added to the loan portfolio as of the acquisition date.  Since acquisition, Premier has reduced the amount of past due loans attributable to the Gassaway purchase. See Note 3 to the financial statements for more information on the past due status of loans acquired via the Gassaway purchase.

Many of the non-accrual loans obtained from the Abigail Adams acquisition 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 Abigail Adams 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.

53.

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2014

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.

Gross charge-offs totaled $1,321,000 during the first nine months of 2014, due in part to thepartial charge-off of previously identified impaired loans that were foreclosed upon and placed into OREO.  Any collections on charged-off loans, or partially charged-off loans, would be presented in future financial statements as recoveries of the amounts charged against the allowance.  Recoveries recorded during the first nine months of 2014 totaled $327,000, resulting in net charge-offs for the first nine months of 2014 of $994,000.  This amount compares to $134,000 of net recoveries recorded in the first nine months of 2013.  The allowance for loan losses at September 30, 2014 was 1.19% of total loans compared to 1.49% at December 31, 2013.  The decrease in the ratio is largely due to the $95.1 million increase in total loans from the Gassaway purchase.  These loans were recorded at fair value, incorporating estimated credit risk and interest rate yield adjustments into the recorded value.  As such, under current accounting guidance, no increase in the allowance for loan losses was recorded as a result of the Gassaway purchase.  Excluding the initial $95.1 million in loans from the Gassaway purchase, the allowance for loan losses would be 1.34% of the remaining loans in the portfolio.  The remaining decrease in the ratio since year-end is largely due to the decrease in the amount of allowance allocated to loans individually evaluated for impairment due to payoffs received or recording a partial charge-off upon foreclosure and transfer of the remaining loan balance to OREO.

During the first six months of 2014, Premier reversed a portion of its allowance for loan losses into income by recording a $389,000 negative provision for loan losses, while in the third quarter of 2014, Premier added $536,000 to the allowance for loan losses resulting in a net provision for loan losses of $147,000 for the first nine months of 2014.  The negative provision for loan losses was largely the result of specific reserves allocated to impaired loans that ultimately paid in full during the first quarter of 2014.  As a result, the specific reserves were no longer needed and reversed into income.  During the third quarter of 2014, a $536,000 provision was recorded largely due to an increase in the specific allocation on a purchased impaired loan in the process of foreclosure and as a result of specific allocations on loans downgraded to impaired status during the quarter.  The allowance for loan losses allocated to loans individually evaluated for impairment decreased from $2.5 million at December 31, 2013 to $1.5 million at September 30, 2014, which included a $300,000 partial charge-off of a previously identified impaired loan that was foreclosed upon and placed into OREO during the first quarter of 2014.

54.

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2014

The $147,000 of provision for loan losses during the first nine months of 2014 compares to $550,000 of provision expense during the first nine months of 2013.  During the first nine months of 2013, the additional calculated provision amounts in the allowance for loan losses related to loan growth were substantially offset by additions to the allowance from recoveries of loans previously charged-off and overall reductions in specific allocations for impaired loans resulting from principal reduction or improved collateral positions.  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.  Also in the first quarter of 2013, Premier received $535,000 of payments on loans previously charged off (loan recoveries) which added to the balance of the allowance for loan losses.  The recoveries partially offset the estimated increase in the overall credit risk in the loan portfolio resulting largely from specific reserve allocations on impaired loans.  During the third quarter of 2014, Premier recorded $536,000 of provision for loan losses compared to $50,000 of provision for loan losses during the same quarter of 2013.   In 2013, the allowance for loan losses allocated to loans individually evaluated for impairment decreased to $3.3 million at September 30, 2013, largely due to payments received on impaired loans during the second and third quarters of 2013.  As a result, Premier reduced its third quarter 2013 provision for loan losses to $50,000.

The provisions for loan losses in 2013 and 2014 fluctuated from quarter to quarter and were the result of management’s updated assessment of the level of credit risk in the loan portfolio.  The assessments are made 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.  These include updated historical charge-off ratios, the level of net recoveries in 2013, payments received on impaired loans previously identified with specific reserve allocations and increases in specific reserve allocations on existing loans.  Premier’s policies regarding management’s estimation of probable incurred losses in the loan portfolio and the adequacy of the allowance for loan losses, are in accordance with accounting principles generally accepted in the United States of America.  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.  Premier continues to monitor and evaluate 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 markets in West Virginia, Ohio and Kentucky. With the concentrations of commercial real estate loans acquired in the Washington, DC and Richmond, Virginia markets, fluctuations in commercial real estate values will also be monitored. For additional details on the activity in the allowance for loan losses, impaired loans, past due and non-accrual loans and restructured loans, see Note 3 to the consolidated financial statements.

55.

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2014

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, 2013.  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, 2013.  There have been no significant changes in the application of these accounting policies since December 31, 2013.

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 $253.6 million of securities at fair value as of September 30, 2014.

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.

56.

PREMIER FINANCIAL BANCORP, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SEPTEMBER 30, 2014

E.         Capital

At September 30, 2014, total shareholders’ equity of $148.2 million was 11.8% of total assets.  This compares to total shareholders’ equity of $146.9 million, or 13.4% of total assets on December 31, 2013.  While total shareholders’ equity increased in the first nine months of 2014, the ratio to total assets decreased as a result of the Gassaway acquisition as well as the redemption of $7.0 million of Premier’s Series A Preferred Stock.  Per the terms of the acquisition, Premier Bank paid cash to the sellers and no equity was issued by the Company.  As a result, total assets increased by approximately $185.5 million (on acquisition date) with no increase in total shareholders’ equity.  The increase in shareholders’ equity was largely due to the $9.9 million of net income during the first nine months of 2014, substantially offset by the redemption of $7.0 million of Premier’s Series A Preferred Stock, which occurred on September 26, 2014.  Other items affecting shareholders’ equity include decreases from year-to-date dividends declared on Premier’s common stock and Series A Preferred Stock and a $1.9 million, net of tax, increase in the market value of the investment portfolio available for sale.

The acquisition of Gassaway and redemption of Premier’s Series A Preferred Stock had a similar impact on Premier’s regulatory capital ratios.  Tier I capital totaled $114.6 million at September 30, 2014, which represents a Tier I leverage ratio of 9.2%, compared to Tier I capital at December 31, 2013 of $119.9 million.  While total shareholders’ equity increased, Tier I capital decreased as result of the $7.0 million redemption and the increase in intangible assets recorded as part of the Gassaway purchase, both of which more than offset the growth in shareholders’ equity detailed above.  Therefore the leverage ratio at September 30, 2014 was lower than the 11.0% leverage ratio at December 31, 2013 as the decrease in Tier I capital was divided by a higher base of average total assets at September 30, 2014.

Book value per common share was $17.65 at September 30, 2014, and $16.79 at December 31, 2013.  The increase in book value per share was largely the result of the $1.09 per share earned during the first six months of 2014, including an approximate $0.06 per share reduction for the $535,000 of preferred stock dividends and related accretion.  This increase was partially offset by the $0.11 per share special cash dividend to common shareholders declared and paid during January 2014 and by the $0.12 per share quarterly cash dividend to common shareholders declared and paid during the first three quarters of 2014.  Also increasing book value per share was the $1,884,000 of other comprehensive income for the first nine months of 2014 related to the after tax increase in the market value of investment securities available for sale, which increased book value by approximately $0.23 per share.

57.

PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, 2014

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 2013 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 2013 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 third 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.

58.

PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, 2014

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, 2013 for disclosures with respect to Premier’s risk factors at December 31, 2013. There have been no material changes since year-end 2013 in the specified risk factors disclosed in the Annual Report on Form 10-K.

Item 2.          Unregistered Sales of Equity Securities and Use of ProceedsNone

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

59.

PREMIER FINANCIAL BANCORP, INC.

SEPTEMBER 30, 2014

SIGNATURES

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

PREMIER FINANCIAL BANCORP, INC.

Date: November 6, 2014                                 /s/ Robert W. Walker                                   

Robert W. Walker

President & Chief Executive Officer

Date: November 6, 2014                                 /s/ Brien M. Chase                                       

Brien M. Chase

Senior Vice President & Chief Financial Officer

60.

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: November 6, 2014

/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: November 6, 2014

/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 September 30, 2014 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: November 6, 2014

XML

STOCKHOLDERS' EQUITY AND REGULATORY MATTERS (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
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	$ 3.8
Tier I Capital (to Risk-Weighted Assets) (in hundredths)	14.00%	16.90%
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)	15.20%	18.20%
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)	9.20%	11.00%
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%

XML

FAIR VALUE, Assets and Liabilities Measured at Fair Value on Nonrecurring Basis (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Impaired Loans Additional Disclosure [Abstract]
Outstanding balance	$ 7,745		$ 7,745		$ 12,300
Valuation allowance for impaired loans	1,528		1,528		2,492
Impaired collateral dependent loans, provision for loan losses	413	(296)	(473)	187
Other Real Estate Owned Additional Disclosure [Abstract]
Recorded investment in other real estate owned carried at fair value - gross	12,788		12,788		11,163
Valuation allowance for other real estate owned	2,432		2,432		2,377
Write downs	100	0	380	0
Nonrecurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Impaired loans: [Abstract]
Residential Real Estate					0
Multifamily Residential	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]
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
Multifamily Residential	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]
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					1,518
Multifamily Residential	332		332
Owner Occupied Commercial Real Estate	390		390		345
Non-owner Occupied Commercial Real Estate	588		588		428
Commercial and Industrial	689		689		3,384
All Other	4,218		4,218		4,133
Total impaired loans	6,217		6,217		9,808
Other real estate owned: [Abstract]
Non-owner Occupied Commercial Real Estate	2,003		2,003		290
All Other	8,353		8,353		8,496
Total OREO	10,356		10,356		8,786
Nonrecurring [Member] | Carrying Amount [Member]
Impaired loans: [Abstract]
Residential Real Estate					1,518
Multifamily Residential	332		332
Owner Occupied Commercial Real Estate	390		390		345
Non-owner Occupied Commercial Real Estate	588		588		428
Commercial and Industrial	689		689		3,384
All Other	4,218		4,218		4,133
Total impaired loans	6,217		6,217		9,808
Other real estate owned: [Abstract]
Non-owner Occupied Commercial Real Estate	2,003		2,003		290
All Other	8,353		8,353		8,496
Total OREO	$ 10,356		$ 10,356		$ 8,786

XML

FAIR VALUE, Carrying Amount and Estimated Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Financial assets [Abstract]
Securities available for sale	$ 253,559	$ 218,066
Financial liabilities [Abstract]
FHLB advances	5,000	0
Level 1 [Member]
Financial assets [Abstract]
Cash and due from banks	74,040	63,984
Federal funds sold	7,877	12,777
Securities available for sale	0	0
Loans held for sale	0	0
Loans, net	0	0
Interest receivable	0	0
Financial liabilities [Abstract]
Deposits	(703,039)	(592,664)
Securities sold under agreements to repurchase	0	0
FHLB advances	(5,000)
Other borrowed funds	0	0
Interest payable	(6)	(5)
Level 2 [Member]
Financial assets [Abstract]
Cash and due from banks	0	0
Federal funds sold	0	0
Securities available for sale	253,419	217,926
Loans held for sale	0	0
Loans, net	0	0
Interest receivable	822	593
Financial liabilities [Abstract]
Deposits	(373,551)	(332,475)
Securities sold under agreements to repurchase	(13,155)	(11,319)
FHLB advances	0
Other borrowed funds	(12,373)	(13,811)
Interest payable	(437)	(378)
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	395	77
Loans, net	845,396	725,588
Interest receivable	2,520	2,539
Financial liabilities [Abstract]
Deposits	0	0
Securities sold under agreements to repurchase	0	0
FHLB advances	0
Other borrowed funds	0	0
Interest payable	0	0
Carrying Amount [Member]
Financial assets [Abstract]
Cash and due from banks	74,040	63,984
Federal funds sold	7,877	12,777
Securities available for sale	253,559	218,066
Loans held for sale	395	77
Loans, net	844,214	729,743
Federal Home Loan Bank stock	3,895	4,183
Interest receivable	3,342	3,132
Financial liabilities [Abstract]
Deposits	(1,076,996)	(924,023)
Securities sold under agreements to repurchase	(13,155)	(11,319)
FHLB advances	(5,000)
Other borrowed funds	(12,330)	(13,800)
Interest payable	(443)	(383)
Fair Value [Member]
Financial assets [Abstract]
Cash and due from banks	74,040	63,984
Federal funds sold	7,877	12,777
Securities available for sale	253,559	218,066
Loans held for sale	395	77
Loans, net	845,396	725,588
Interest receivable	3,342	3,132
Financial liabilities [Abstract]
Deposits	(1,076,590)	(925,139)
Securities sold under agreements to repurchase	(13,155)	(11,319)
FHLB advances	(5,000)
Other borrowed funds	(12,373)	(13,811)
Interest payable	$ (443)	$ (383)

XML

LOANS, Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment Based on Impairment Method (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Jun. 30, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Dec. 31, 2012
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	$ 533		$ 1,860
Collectively evaluated for impairment, allowance for loan losses	8,652		8,535
Acquired with deteriorated credit quality, allowance for loan losses	995		632
Total allowance for loan losses	10,180	9,877	11,027	12,172	12,198	11,488
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	12,893		15,568
Collectively evaluated for impairment, loan balances	829,569		711,639
Acquired with deteriorated credit quality, loan balances	11,932		13,563
Total Loans	854,394		740,770
Bank of Gassaway [Member]
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	0
Collectively evaluated for impairment, allowance for loan losses	88,167
Residential Real Estate [Member]
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	0		138
Collectively evaluated for impairment, allowance for loan losses	2,022		2,556
Acquired with deteriorated credit quality, allowance for loan losses	0		0
Total allowance for loan losses	2,022	2,140	2,694	2,553	2,371	2,163
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	2,076		2,787
Collectively evaluated for impairment, loan balances	276,510		213,111
Acquired with deteriorated credit quality, loan balances	0		183
Total Loans	278,586		216,081
Multifamily Real Estate [Member]
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	26		0
Collectively evaluated for impairment, allowance for loan losses	254		417
Acquired with deteriorated credit quality, allowance for loan losses	0		0
Total allowance for loan losses	280	311	417	374	429	331
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	1,800		1,822
Collectively evaluated for impairment, loan balances	28,000		35,405
Acquired with deteriorated credit quality, loan balances	515		1,229
Total Loans	30,315		38,456
Owner Occupied Commercial Real Estate [Member]
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	125		170
Collectively evaluated for impairment, allowance for loan losses	1,187		1,237
Acquired with deteriorated credit quality, allowance for loan losses	0		0
Total allowance for loan losses	1,312	1,364	1,407	1,445	1,094	1,117
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	2,104		2,386
Collectively evaluated for impairment, loan balances	101,108		87,903
Acquired with deteriorated credit quality, loan balances	245		250
Total Loans	103,457		90,539
Non Owner Occupied Commercial Real Estate [Member]
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	14		362
Collectively evaluated for impairment, allowance for loan losses	2,010		1,675
Acquired with deteriorated credit quality, allowance for loan losses	0		0
Total allowance for loan losses	2,024	2,270	2,037	2,097	1,968	1,888
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	3,151		1,024
Collectively evaluated for impairment, loan balances	203,932		200,950
Acquired with deteriorated credit quality, loan balances	5,728		6,782
Total Loans	212,811		208,756
Commercial and Industrial [Member]
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	368		1,088
Collectively evaluated for impairment, allowance for loan losses	1,286		964
Acquired with deteriorated credit quality, allowance for loan losses	95		132
Total allowance for loan losses	1,749	1,489	2,184	3,336	4,073	3,046
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	1,190		4,270
Collectively evaluated for impairment, loan balances	102,247		80,535
Acquired with deteriorated credit quality, loan balances	327		496
Total Loans	103,764		85,301
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	225		297
Acquired with deteriorated credit quality, allowance for loan losses	0		0
Total allowance for loan losses	225	232	297	255	233	244
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	0		0
Collectively evaluated for impairment, loan balances	34,230		25,113
Acquired with deteriorated credit quality, loan balances	0		0
Total Loans	34,230		25,113
All Other [Member]
Allowance for Loan Losses [Abstract]
Individually evaluated for impairment, allowance for loan losses	0		102
Collectively evaluated for impairment, allowance for loan losses	1,668		1,389
Acquired with deteriorated credit quality, allowance for loan losses	900		500
Total allowance for loan losses	2,568	2,071	1,991	2,112	2,030	2,699
Loans Balances [Abstract]
Individually evaluated for impairment, loan balances	2,572		3,279
Collectively evaluated for impairment, loan balances	83,542		68,622
Acquired with deteriorated credit quality, loan balances	5,117		4,623
Total Loans	$ 91,231		$ 76,524

XML

SECURITIES (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Available-for-sale Investment securities [Abstract]
Amortized Cost	$ 251,651	$ 219,014
Unrealized Gains	3,313	1,925
Unrealized Losses	(1,405)	(2,873)
Available for sale, Fair Value	253,559	218,066
U. S. Government Sponsored Agency MBS - residential [Member]
Available-for-sale Investment securities [Abstract]
Amortized Cost	54,390	27,681
Unrealized Gains	539	463
Unrealized Losses	(74)	(321)
Available for sale, Fair Value	54,855	27,823
U. S. sponsored agency CMO's - residential [Member]
Available-for-sale Investment securities [Abstract]
Amortized Cost	151,665	178,000
Unrealized Gains	2,415	1,167
Unrealized Losses	(1,280)	(2,445)
Available for sale, Fair Value	152,800	176,722
Total mortgage-backed securities of government sponsored agencies [Member]
Available-for-sale Investment securities [Abstract]
Amortized Cost	206,055	205,681
Unrealized Gains	2,954	1,630
Unrealized Losses	(1,354)	(2,766)
Available for sale, Fair Value	207,655	204,545
U. S. Government Sponsored Agency Securities [Member]
Available-for-sale Investment securities [Abstract]
Amortized Cost	34,827	7,058
Unrealized Gains	60	30
Unrealized Losses	(51)	(107)
Available for sale, Fair Value	34,836	6,981
Obligations of states and political subdivisions [Member]
Available-for-sale Investment securities [Abstract]
Amortized Cost	10,769	6,275
Unrealized Gains	299	265
Unrealized Losses	0	0
Available for sale, Fair Value	$ 11,068	$ 6,540

XML

ACQUISITION OF BANK OF GASSAWAY (Details) (Bank of Gassaway [Member], USD $) In Thousands, unless otherwise specified	0 Months Ended
	Apr. 04, 2014 Branch
Bank of Gassaway [Member]
Business Acquisition [Line Items]
Purchase price of entity acquired	$ 20,250
Cash paid for purchase consideration	20,250
Number of branch locations merged in operating system	5
Goodwill not deductible for tax purposes	3,920
Core deposit intangible not deductible for tax purpose	1,730
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
2014	243
2015	279
2016	226
2017	193
2018	186
2019 and thereafter	603
Total core deposit intangible acquired	1,730
Estimated fair values of assets acquired and liabilities assumed net [Abstract]
Cash and due from banks	61,223
Securities available for sale	38,741
Loans, net	95,094
Goodwill and other intangible assets	5,651
Other assets	5,089
Total assets acquired	205,798
Deposits	(184,555)
Other liabilities	(993)
Total liabilities assumed	(185,548)
Net assets acquired	20,250
Contractual amount of loans acquired	$ 97,588

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STOCK COMPENSATION EXPENSE, Assumptions (Details) (USD $)	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Assumptions used in the black-scholes option-pricing model [Abstract]
Risk-free interest rate (in hundredths)	2.78%	1.96%
Expected option life (yrs)	10 years	10 years
Expected stock price volatility (in hundredths)	31.19%	35.24%
Dividend yield (in hundredths)	3.33%	3.86%
Weighted average fair value of options granted (in dollars per share)	$ 3.74	$ 2.85

XML

LOANS, TDR Modified During Period (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 Loan	Sep. 30, 2013 Loan
Troubled Debt Restructuring Activity [Line Items]
Number of Loans			0	1
Pre-Modification Outstanding Recorded Investment			$ 0	$ 16
Post-Modification Outstanding Recorded Investment			0	16
Increase in allowance for loan losses due to troubled debt restructuring			0	0
Defaults within 12 months after modification	0	0	0	0
All Other [Member]
Troubled Debt Restructuring Activity [Line Items]
Number of Loans			0	1
Pre-Modification Outstanding Recorded Investment			0	16
Post-Modification Outstanding Recorded Investment			$ 0	$ 16

XML

FAIR VALUE, Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Securities available for sale
Available for sale, Fair Value	$ 253,559	$ 218,066
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Securities available for sale
Available for sale, Fair Value	0	0
Significant Other Observable Inputs (Level 2) [Member]
Securities available for sale
Available for sale, Fair Value	253,419	217,926
Significant Unobservable Inputs (Level 3) [Member]
Securities available for sale
Available for sale, Fair Value	140	140
Carrying Value [Member]
Securities available for sale
Available for sale, Fair Value	253,559	218,066
Fair Value [Member]
Securities available for sale
Available for sale, Fair Value	253,559	218,066
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
Available for sale, Fair Value	0	0
Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Securities available for sale
U. S. agency MBS - residential	54,855	27,823
U. S. agency CMO's - residential	152,800	176,722
Total mortgage-backed securities of government sponsored agencies	207,655	204,545
U. S. government sponsored agency securities	34,836	6,981
Obligations of states and political subdivisions	10,928	6,400
Available for sale, Fair Value	253,419	217,926
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
Available for sale, Fair Value	140	140
Recurring [Member] | Carrying Value [Member]
Securities available for sale
U. S. agency MBS - residential	54,855	27,823
U. S. agency CMO's - residential	152,800	176,722
Total mortgage-backed securities of government sponsored agencies	207,655	204,545
U. S. government sponsored agency securities	34,836	6,981
Obligations of states and political subdivisions	11,068	6,540
Available for sale, Fair Value	$ 253,559	$ 218,066

XML

LOANS

9 Months Ended

Sep. 30, 2014

LOANS [Abstract]

LOANS

NOTE  3 - LOANS

Major classifications of loans at September 30, 2014 and December 31, 2013 are summarized as follows:

	2014		2013
Residential real estate	$	278,586	$	216,081
Multifamily real estate		30,315		38,456
Commercial real estate:
Owner occupied		103,457		90,539
Non owner occupied		212,811		208,756
Commercial and industrial		103,764		85,301
Consumer		34,230		25,113
All other		91,231		76,524
	$	854,394	$	740,770

Activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2014 was as follows:

Loan Class	Balance Dec 31, 2013		Provision for loan losses			Loans charged- off		Recoveries		Balance Sept 30, 2014
Residential real estate	$	2,694	$	(419	)	$	308	$	55	$	2,022
Multifamily real estate		417		(137	)		-		-		280
Commercial real estate:
Owner occupied		1,407		112			207		-		1,312
Non owner occupied		2,037		310			323		-		2,024
Commercial and industrial		2,184		(335	)		111		11		1,749
Consumer		297		(12	)		105		45		225
All other		1,991		628			267		216		2,568
Total	$	11,027	$	147		$	1,321	$	327	$	10,180

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

Loan Class	Balance Dec 31, 2012		Provision for loan losses			Loans charged- off		Recoveries		Balance Sept 30, 2013
Residential real estate	$	2,163	$	571		$	191	$	10	$	2,553
Multifamily real estate		331		43			-		-		374
Commercial real estate:
Owner occupied		1,117		96			67		299		1,445
Non owner occupied		1,888		209			-		-		2,097
Commercial and industrial		3,046		215			12		87		3,336
Consumer		244		87			123		47		255
All other		2,699		(671	)		202		286		2,112
Total	$	11,488	$	550		$	595	$	729	$	12,172

Activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2014 was as follows:

Loan Class	Balance June 30, 2014		Provision for loan losses			Loans charged- off		Recoveries		Balance Sept 30, 2014
Residential real estate	$	2,140	$	(28	)	$	137	$	47	$	2,022
Multifamily real estate		311		(31	)		-		-		280
Commercial real estate:
Owner occupied		1,364		73			125		-		1,312
Non owner occupied		2,270		(246	)		-		-		2,024
Commercial and industrial		1,489		281			27		6		1,749
Consumer		232		21			46		18		225
All other		2,071		466			63		94		2,568
Total	$	9,877	$	536		$	398	$	165	$	10,180

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

Loan Class	Balance June 30, 2013		Provision for loan losses			Loans charged- off		Recoveries		Balance Sept 30, 2013
Residential real estate	$	2,371	$	213		$	35	$	4	$	2,553
Multifamily real estate		429		(55	)		-		-		374
Commercial real estate:
Owner occupied		1,094		351			-		-		1,445
Non owner occupied		1,968		129			-		-		2,097
Commercial and industrial		4,073		(772	)		-		35		3,336
Consumer		233		60			60		22		255
All other		2,030		124			108		66		2,112
Total	$	12,198	$	50		$	203	$	127	$	12,172

Purchased Impaired 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 September 30, 2014 and December 31, 2013.

	2014		2013
Residential real estate	$	-	$	183
Multifamily real estate		515		1,229
Commercial real estate
Owner occupied		245		250
Non owner occupied		5,728		6,782
Commercial and industrial		327		496
All other		5,117		4,623
Total carrying amount	$	11,932	$	13,563
Carrying amount, net of allowance	$	10,937	$	12,931

For those purchased loans disclosed above, the Company increased the allowance for loan losses by $400,000 for the three and nine months ended September 30, 2014.  The Company did not increase the allowance for loan losses for purchased impaired loans during the nine months ended September 30, 2013.

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 those 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 on those loans accounted for using the cost recovery method.  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.

The Company has determined that the cash flows from borrowers on a limited number of purchased loans can 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 September 30, 2014 and September 30, 2013.

	2014			2013
Balance at January 1	$	217		$	635
New loans purchased		-			-
Accretion of income		(9	)		(22	)
Income recognized upon full loan repayment		-			(415	)
Reclassifications from non-accretable difference		-			23
Disposals		-			-
Balance at September 30	$	208		$	221

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 September 30, 2014 and December 31 2013.  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.

September 30, 2014	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
Residential  real estate	$	2,105	$	1,898	$	1,973
Multifamily real estate		1,933		1,176		1,355
Commercial real estate
Owner occupied		2,347		2,073		5
Non owner occupied		2,061		1,887		26
Commercial and industrial		2,574		1,284		106
Consumer		267		232		60
All other		12,596		5,162		481
Total	$	23,883	$	13,712	$	4,006

December 31, 2013	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
Residential  real estate	$	2,021	$	1,725	$	1,737
Multifamily real estate		3,282		1,889		1,369
Commercial real estate
Owner occupied		1,364		1,147		1,387
Non owner occupied		2,683		1,973		3,739
Commercial and industrial		6,838		4,961		84
Consumer		167		148		16
All other		12,212		4,798		146
Total	$	28,567	$	16,641	$	8,478

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 September 30, 2014 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	$	278,586	$	6,827	$	3,068	$	9,895	$	268,691
Multifamily real estate		30,315		330		2,016		2,346		27,969
Commercial real estate:
Owner occupied		103,457		543		1,464		2,007		101,450
Non owner occupied		212,811		3,892		1,665		5,557		207,254
Commercial and industrial		103,764		175		1,181		1,356		102,408
Consumer		34,230		530		130		660		33,570
All other		91,231		4,210		5,595		9,805		81,426
Total	$	854,394	$	16,507	$	15,119	$	31,626	$	822,768

The table above includes approximately $2,352,000 of loans 30-89 days past due and $1,003,000 of loans greater than 90 days past due that were acquired via the purchase of the Bank of Gassaway on April 4, 2014.  See Note 9 below for additional details on purchase of the Bank of Gassaway.

The following table presents the aging of the recorded investment in past due loans as of December 31, 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	$	216,081	$	4,770	$	2,431	$	7,201	$	208,880
Multifamily real estate		38,456		367		2,688		3,055		35,401
Commercial real estate:
Owner occupied		90,539		516		2,073		2,589		87,950
Non owner occupied		208,756		278		5,478		5,756		203,000
Commercial and industrial		85,301		1,433		1,438		2,871		82,430
Consumer		25,113		421		82		503		24,610
All other		76,524		2,510		4,881		7,391		69,133
Total	$	740,770	$	10,295	$	19,071	$	29,366	$	711,404

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 September 30, 2014:

	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	$	-	$	2,022	$	-	$	2,022	$	2,076	$	276,510	$	-	$	278,586
Multifamily real estate		26		254		-		280		1,800		28,000		515		30,315
Commercial real estate:
Owner occupied		125		1,187		-		1,312		2,104		101,108		245		103,457
Non-owner occupied		14		2,010		-		2,024		3,151		203,932		5,728		212,811
Commercial and industrial		368		1,286		95		1,749		1,190		102,247		327		103,764
Consumer		-		225		-		225		-		34,230		-		34,230
All other		-		1,668		900		2,568		2,572		83,542		5,117		91,231
Total	$	533	$	8,652	$	995	$	10,180	$	12,893	$	829,569	$	11,932	$	854,394

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 December 31, 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	$	138	$	2,556	$	-	$	2,694	$	2,787	$	213,111	$	183	$	216,081
Multifamily real estate		-		417		-		417		1,822		35,405		1,229		38,456
Commercial real estate:
Owner occupied		170		1,237		-		1,407		2,386		87,903		250		90,539
Non-owner occupied		362		1,675		-		2,037		1,024		200,950		6,782		208,756
Commercial and industrial		1,088		964		132		2,184		4,270		80,535		496		85,301
Consumer		-		297		-		297		-		25,113		-		25,113
All other		102		1,389		500		1,991		3,279		68,622		4,623		76,524
Total	$	1,860	$	8,535	$	632	$	11,027	$	15,568	$	711,639	$	13,563	$	740,770

As of September 30, 2014, the table above includes approximately $88,167,000 of loans acquired from the purchase of the Bank of Gassaway reported as collectively evaluated for impairment with no loans deemed by management to be reported as individually evaluated for impairment or acquired with deteriorated credit quality.

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 September 30, 2014.  The table includes $5,980,000 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	$	2,128	$	2,076	$	-
Multifamily real estate		2,715		1,957		-
Commercial real estate
Owner occupied		1,896		1,702		-
Non owner occupied		2,628		2,548		-
Commercial and industrial		1,021		273		-
All other		2,608		2,572		-
		12,996		11,128		-
With an allowance recorded:
Multifamily real estate	$	364	$	358	$	26
Commercial real estate
Owner occupied		515		515		125
Non owner occupied		602		602		14
Commercial and industrial		1,502		1,152		463
All other		12,514		5,118		900
		15,497		7,745		1,528
Total	$	28,493	$	18,873	$	1,528

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2013.  The table includes $7,483,000 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	$	1,513	$	1,314	$	-
Multifamily real estate		4,449		3,051		-
Commercial real estate
Owner occupied		2,601		1,986		-
Non owner occupied		1,861		1,184		-
Commercial and industrial		809		49		-
All other		3,185		3,167		-
		14,418		10,751		-
With an allowance recorded:
Residential  real estate	$	1,668	$	1,656	$	138
Commercial real estate
Owner occupied		515		515		170
Non owner occupied		810		790		362
Commercial and industrial		5,543		4,604		1,220
All other		12,132		4,735		602
		20,668		12,300		2,492
Total	$	35,086	$	23,051	$	2,492

The following table presents the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the nine months ended September 30, 2014 and September 30, 2013.   The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Nine months ended Sept. 30, 2014						Nine months ended Sept. 30, 2013
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	$	2,421	$	209	$	209	$	4,303	$	140	$	140
Multifamily real estate		2,518		746		746		4,247		828		828
Commercial real estate:
Owner occupied		2,171		39		30		2,620		136		119
Non-owner occupied		1,388		644		634		2,603		9		9
Commercial and industrial		2,152		546		546		9,184		44		44
All other		7,624		126		126		8,620		214		214
Total	$	18,274	$	2,310	$	2,291	$	31,577	$	1,371	$	1,354

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 September 30, 2014 and September 30, 2013.   The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Three months ended Sept. 30, 2014						Three months ended Sept. 30, 2013
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	$	2,166	$	148	$	148	$	3,920	$	42	$	42
Multifamily real estate		2,328		19		19		3,981		32		27
Commercial real estate:
Owner occupied		2,080		10		9		2,544		40		38
Non-owner occupied		1,679		17		7		2,166		-		-
Commercial and industrial		1,337		4		4		7,223		3		3
All other		7,475		45		45		7,900		54		17
Total	$	17,065	$	243	$	232	$	27,734	$	171	$	127

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 September 30, 2014 and December 31, 2013:

September 30, 2014	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential  real estate	$	15	$	195	$	210
Commercial real estate
Non owner occupied		-		479		479
Commercial and industrial		-		779		779
All other		-		1,838		1,838
Total	$	15	$	3,291	$	3,306

December 31, 2013	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential  real estate	$	23	$	296	$	319
Commercial real estate
Non owner occupied		-		506		506
Commercial and industrial		-		831		831
Consumer		-		5		5
All other		-		2,017		2,017
Total	$	23	$	3,655	$	3,678

At September 30, 2014 and December 31, 2013 there were no specific reserves allocated to loans that had restructured terms.

The following table presents TDR’s that occurred during the nine months ended September 30, 2014 and September 30, 2013:

	Nine months ended Sept. 30, 2014						Nine months ended Sept. 30, 2013
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
All other		-	$	-	$	-		1	$	16	$	16
Total		-	$	-	$	-		1	$	16	$	16

The troubled debt restructurings described above did not increase the allowance for loan losses during the period ended September 30, 2014 and did not increase the allowance for loan losses during the period ended September 30, 2013.

During the three and nine months ended September 30, 2014 and the three and nine months ended September 30, 2013, there were no TDR’s for which there as a payment default within twelve months following the modification.

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

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 September 30, 2014 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	$	263,920	$	7,940	$	6,711	$	15	$	278,586
Multifamily real estate		27,106		894		2,315		-		30,315
Commercial real estate:
Owner occupied		94,219		5,770		3,468		-		103,457
Non-owner occupied		201,056		6,739		5,016		-		212,811
Commercial and industrial		99,758		2,224		1,753		29		103,764
Consumer		33,808		315		107		-		34,230
All other		77,313		5,604		8,314		-		91,231
Total	$	797,180	$	29,486	$	27,684	$	44	$	854,394

The table above includes approximately $76,637,000 of loans risk rated as “pass”, $2,653,000 of loans risk rated as “special mention”, $1,957,000 of loans risk rated as “substandard” and no loans risk rated as doubtful that were acquired via the purchase of the Bank of Gassaway on April 4, 2014.  See Note 9 below for additional details on purchase of the Bank of Gassaway.

As of December 31, 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	$	202,789	$	6,204	$	7,065	$	23	$	216,081
Multifamily real estate		34,487		918		3,051		-		38,456
Commercial real estate:
Owner occupied		79,694		7,431		3,348		66		90,539
Non-owner occupied		196,338		8,569		3,849		-		208,756
Commercial and industrial		78,205		2,269		4,753		74		85,301
Consumer		24,772		204		137		-		25,113
All other		62,180		5,947		8,285		112		76,524
Total	$	678,465	$	31,542	$	30,488	$	275	$	740,770

XML

STOCK COMPENSATION EXPENSE, Stock Options Activity (Details) (USD $)	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Stock options activity [Roll Forward]
Outstanding at beginning of year (in shares)	354,281	392,366
Grants (in shares)	46,300	52,900
Exercises (in shares)	(77,896)	(60,043)
Forfeitures or expired (in shares)	(8,133)	(12,401)
Outstanding at end of period (in shares)	314,552	372,822
Exercisable at end of period (in shares)	209,299	231,272
Weighted Average Exercise Price [Abstract]
Outstanding at beginning of year (in dollars per share)	$ 9.84	$ 9.24
Grants (in dollars per share)	$ 14.43	$ 11.39
Exercises (in dollars per share)	$ 8.52	$ 7.63
Forfeitures or expired (in dollars per share)	$ 9.27	$ 7.90
Outstanding at end of period (in dollars per share)	$ 10.86	$ 9.76
Weighted average remaining life of options outstanding	6 years 1 month 6 days	6 years 2 months 12 days
Weighted average fair value of options granted during the year (in dollars per share)	$ 3.74	$ 2.85

XML

LOANS, Activity in The Allowance For Loan Losses by Portfolio Segment (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	$ 9,877	$ 12,198	$ 11,027	$ 11,488
Provision for loan losses	536	50	147	550
Loans charged-off	398	203	1,321	595
Recoveries	165	127	327	729
Balance, end of period	10,180	12,172	10,180	12,172
Residential Real Estate [Member]
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	2,140	2,371	2,694	2,163
Provision for loan losses	(28)	213	(419)	571
Loans charged-off	137	35	308	191
Recoveries	47	4	55	10
Balance, end of period	2,022	2,553	2,022	2,553
Multifamily Real Estate [Member]
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	311	429	417	331
Provision for loan losses	(31)	(55)	(137)	43
Loans charged-off	0	0	0	0
Recoveries	0	0	0	0
Balance, end of period	280	374	280	374
Owner Occupied Commercial Real Estate [Member]
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	1,364	1,094	1,407	1,117
Provision for loan losses	73	351	112	96
Loans charged-off	125	0	207	67
Recoveries	0	0	0	299
Balance, end of period	1,312	1,445	1,312	1,445
Non Owner Occupied Commercial Real Estate [Member]
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	2,270	1,968	2,037	1,888
Provision for loan losses	(246)	129	310	209
Loans charged-off	0	0	323	0
Recoveries	0	0	0	0
Balance, end of period	2,024	2,097	2,024	2,097
Commercial and Industrial [Member]
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	1,489	4,073	2,184	3,046
Provision for loan losses	281	(772)	(335)	215
Loans charged-off	27	0	111	12
Recoveries	6	35	11	87
Balance, end of period	1,749	3,336	1,749	3,336
Consumer [Member]
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	232	233	297	244
Provision for loan losses	21	60	(12)	87
Loans charged-off	46	60	105	123
Recoveries	18	22	45	47
Balance, end of period	225	255	225	255
All Other [Member]
Activity in the allowance for loan losses by portfolio segment [Roll Forward]
Balance, beginning of period	2,071	2,030	1,991	2,699
Provision for loan losses	466	124	628	(671)
Loans charged-off	63	108	267	202
Recoveries	94	66	216	286
Balance, end of period	$ 2,568	$ 2,112	$ 2,568	$ 2,112

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LOANS, Major Classifications of Loans (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 854,394	$ 740,770
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	278,586	216,081
Multifamily Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	30,315	38,456
Owner Occupied Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	103,457	90,539
Non Owner Occupied Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	212,811	208,756
Commercial and Industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	103,764	85,301
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	34,230	25,113
All Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 91,231	$ 76,524

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STOCK COMPENSATION EXPENSE, Authorized Stock Options By Exercise Price Range (Details) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2014
Share-based Compensation, Shares Granted under Stock Option Plans, Exercise Price Range [Line Items]
Outstanding, Number(in shares)	314,552
Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 10.86
Outstanding, Aggregate Intrinsic Value	$ 1,220
Currently Exercisable, Number (in shares)	209,299
Currently Exercisable, Weighted Average Remaining Contractual Life	4 years 9 months 18 days
Currently Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 10.44
Currently Exercisable, Aggregate Intrinsic Value	911
$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
Outstanding, Number(in shares)	136,049
Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 7.51
Outstanding, Aggregate Intrinsic Value	970
Currently Exercisable, Number (in shares)	108,356
Currently Exercisable, Weighted Average Remaining Contractual Life	6 years 4 months 24 days
Currently Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 7.52
Currently Exercisable, Aggregate Intrinsic Value	771
$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
Outstanding, Number(in shares)	55,603
Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 11.44
Outstanding, Aggregate Intrinsic Value	178
Currently Exercisable, Number (in shares)	24,343
Currently Exercisable, Weighted Average Remaining Contractual Life	4 years 8 months 12 days
Currently Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 11.50
Currently Exercisable, Aggregate Intrinsic Value	77
$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
Outstanding, Number(in shares)	99,400
Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 13.91
Outstanding, Aggregate Intrinsic Value	72
Currently Exercisable, Number (in shares)	53,100
Currently Exercisable, Weighted Average Remaining Contractual Life	2 years 10 months 24 days
Currently Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 13.46
Currently Exercisable, Aggregate Intrinsic Value	63
$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
Outstanding, Number(in shares)	23,500
Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 16.00
Outstanding, Aggregate Intrinsic Value	0
Currently Exercisable, Number (in shares)	23,500
Currently Exercisable, Weighted Average Remaining Contractual Life	1 year 4 months 24 days
Currently Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 16.00
Currently Exercisable, Aggregate Intrinsic Value	$ 0

XML

LOANS, Purchased Loans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Purchased loans [Abstract]
Loans And Leases Receivable Purchased With Deteriorated Credit Quality	$ 11,932	$ 11,932		$ 13,563
Carrying amount, net of allowance	10,937	10,937		12,931
Increase in allowance for loan losses related to purchased loans	400	400	0
Accretable Yield [Roll Forward]
Beginning Balance		217	635
New loans purchased		0	0
Accretion of income		(9)	(22)
Income recognized upon full loan repayment		0	(415)
Reclassifications from non-accretable difference		0	23
Disposals		0	0
Ending Balance	208	208	221
Residential Real Estate [Member]
Purchased loans [Abstract]
Loans And Leases Receivable Purchased With Deteriorated Credit Quality	0	0		183
Multifamily Real Estate [Member]
Purchased loans [Abstract]
Loans And Leases Receivable Purchased With Deteriorated Credit Quality	515	515		1,229
Owner Occupied Commercial Real Estate [Member]
Purchased loans [Abstract]
Loans And Leases Receivable Purchased With Deteriorated Credit Quality	245	245		250
Non Owner Occupied Commercial Real Estate [Member]
Purchased loans [Abstract]
Loans And Leases Receivable Purchased With Deteriorated Credit Quality	5,728	5,728		6,782
Commercial and Industrial [Member]
Purchased loans [Abstract]
Loans And Leases Receivable Purchased With Deteriorated Credit Quality	327	327		496
All Other [Member]
Purchased loans [Abstract]
Loans And Leases Receivable Purchased With Deteriorated Credit Quality	$ 5,117	$ 5,117		$ 4,623

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LOANS, Past Due And Non-performing Loans (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	$ 23,883	$ 28,567
Recorded Investment in Non-accrual Loans	13,712	16,641
Loans Past Due Over 90 Days, still accruing	4,006	8,478
Residential Real Estate [Member]
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	2,105	2,021
Recorded Investment in Non-accrual Loans	1,898	1,725
Loans Past Due Over 90 Days, still accruing	1,973	1,737
Multifamily Real Estate [Member]
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	1,933	3,282
Recorded Investment in Non-accrual Loans	1,176	1,889
Loans Past Due Over 90 Days, still accruing	1,355	1,369
Owner Occupied Commercial Real Estate [Member]
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	2,347	1,364
Recorded Investment in Non-accrual Loans	2,073	1,147
Loans Past Due Over 90 Days, still accruing	5	1,387
Non Owner Occupied Commercial Real Estate [Member]
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	2,061	2,683
Recorded Investment in Non-accrual Loans	1,887	1,973
Loans Past Due Over 90 Days, still accruing	26	3,739
Commercial and Industrial [Member]
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	2,574	6,838
Recorded Investment in Non-accrual Loans	1,284	4,961
Loans Past Due Over 90 Days, still accruing	106	84
Consumer [Member]
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	267	167
Recorded Investment in Non-accrual Loans	232	148
Loans Past Due Over 90 Days, still accruing	60	16
All Other [Member]
Past due and non-performing loans [Abstract]
Principal Owed on Non-accrual Loans	12,596	12,212
Recorded Investment in Non-accrual Loans	5,162	4,798
Loans Past Due Over 90 Days, still accruing	$ 481	$ 146

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SECURITIES

9 Months Ended

Sep. 30, 2014

SECURITIES [Abstract]

SECURITIES

NOTE  2 –SECURITIES

Amortized cost and fair value of investment securities, by category, at September 30, 2014 are summarized as follows:

2014	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. sponsored agency MBS - residential	$	54,390	$	539	$	(74	)	$	54,855
U. S. sponsored agency CMO’s - residential		151,665		2,415		(1,280	)		152,800
Total mortgage-backed securities of government sponsored agencies		206,055		2,954		(1,354	)		207,655
U. S. government sponsored agency securities		34,827		60		(51	)		34,836
Obligations of states and political subdivisions		10,769		299		-			11,068
Total available for sale	$	251,651	$	3,313	$	(1,405	)	$	253,559

Amortized cost and fair value of investment securities, by category, at December 31, 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	$	27,681	$	463	$	(321	)	$	27,823
U. S. sponsored agency CMO’s - residential		178,000		1,167		(2,445	)		176,722
Total mortgage-backed securities of government sponsored agencies		205,681		1,630		(2,766	)		204,545
U. S. government sponsored agency securities		7,058		30		(107	)		6,981
Obligations of states and political subdivisions		6,275		265		-			6,540
Total available for sale	$	219,014	$	1,925	$	(2,873	)	$	218,066

The amortized cost and fair value of securities at September 30, 2014 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	$	11,473	$	11,490
Due after one year through five years		23,492		23,734
Due after five years through ten years		9,431		9,456
Due after ten years		1,200		1,224
Mortgage-backed securities of government sponsored agencies		206,055		207,655
Total available for sale	$	251,651	$	253,559

Proceeds from the sale of securities were $4,842,000 and $149,000 during the first nine months of 2014 and 2013, while a $28,000 gain and a $72,000 gain was recognized on the sale of those securities, respectively.  In addition, a $148,000 gain was recognized from calls of securities during the first nine months of 2013.

Securities with unrealized losses at September 30, 2014 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. government sponsored agency securities	$	7,928	$	(51	)		-		-		$	7,928	$	(51	)
U.S government sponsored agency MBS – residential		27,807		(60	)		3,998		(14	)		31,805		(74	)
U.S government sponsored agency CMO – residential		21,651		(240	)		26,533		(1,040	)		48,184		(1,280	)
Total temporarily impaired	$	57,386	$	(351	)	$	30,531	$	(1,054	)	$	87,917	$	(1,405	)

Securities with unrealized losses at December 31, 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 securities	$	3,890	$	(107	)	$	-	$	-	$	3,890	$	(107	)
U.S government sponsored agency MBS’s – residential		13,797		(321	)		-		-		13,797		(321	)
U.S government sponsored agency CMO’s – residential		102,341		(2,445	)		-		-		102,341		(2,445	)
Total temporarily impaired	$	120,028	$	(2,873	)	$	-	$	-	$	120,028	$	(2,873	)

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 September 30, 2014 and December 31, 2013 are price changes resulting from changes in the interest rate environment and are considered to be 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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LOANS, Past Due Aging Analysis (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Aging of recorded investment in past due loans [Abstract]
Total Loans	$ 854,394	$ 740,770
30-89 Days Past Due	16,507	10,295
Greater than 90 days past due	15,119	19,071
Total Past Due	31,626	29,366
Loans Not Past Due	822,768	711,404
Bank of Gassaway [Member]
Aging of recorded investment in past due loans [Abstract]
30-89 Days Past Due	2,352
Greater than 90 days past due	1,003
Residential Real Estate [Member]
Aging of recorded investment in past due loans [Abstract]
Total Loans	278,586	216,081
30-89 Days Past Due	6,827	4,770
Greater than 90 days past due	3,068	2,431
Total Past Due	9,895	7,201
Loans Not Past Due	268,691	208,880
Multifamily Real Estate [Member]
Aging of recorded investment in past due loans [Abstract]
Total Loans	30,315	38,456
30-89 Days Past Due	330	367
Greater than 90 days past due	2,016	2,688
Total Past Due	2,346	3,055
Loans Not Past Due	27,969	35,401
Owner Occupied Commercial Real Estate [Member]
Aging of recorded investment in past due loans [Abstract]
Total Loans	103,457	90,539
30-89 Days Past Due	543	516
Greater than 90 days past due	1,464	2,073
Total Past Due	2,007	2,589
Loans Not Past Due	101,450	87,950
Non Owner Occupied Commercial Real Estate [Member]
Aging of recorded investment in past due loans [Abstract]
Total Loans	212,811	208,756
30-89 Days Past Due	3,892	278
Greater than 90 days past due	1,665	5,478
Total Past Due	5,557	5,756
Loans Not Past Due	207,254	203,000
Commercial and Industrial [Member]
Aging of recorded investment in past due loans [Abstract]
Total Loans	103,764	85,301
30-89 Days Past Due	175	1,433
Greater than 90 days past due	1,181	1,438
Total Past Due	1,356	2,871
Loans Not Past Due	102,408	82,430
Consumer [Member]
Aging of recorded investment in past due loans [Abstract]
Total Loans	34,230	25,113
30-89 Days Past Due	530	421
Greater than 90 days past due	130	82
Total Past Due	660	503
Loans Not Past Due	33,570	24,610
All Other [Member]
Aging of recorded investment in past due loans [Abstract]
Total Loans	91,231	76,524
30-89 Days Past Due	4,210	2,510
Greater than 90 days past due	5,595	4,881
Total Past Due	9,805	7,391
Loans Not Past Due	$ 81,426	$ 69,133

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PREFERRED STOCK (Details) (USD $)	9 Months Ended	12 Months Ended	0 Months Ended	9 Months Ended			9 Months Ended		0 Months Ended		0 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Oct. 02, 2009 Series A Preferred Stock [Member]	Sep. 30, 2014 Series A Preferred Stock [Member]	Sep. 26, 2014 Series A Preferred Stock [Member]	Nov. 14, 2014 Series A Preferred Stock [Member] Subsequent Event [Member]	Sep. 30, 2014 Series A Preferred Stock [Member] Before November 14, 2014 [Member]	Sep. 30, 2014 Series A Preferred Stock [Member] After November 14, 2014 [Member]	Oct. 02, 2009 Warrants [Member]	Sep. 30, 2014 Warrants [Member]	Aug. 10, 2012 Fixed Rate Cumulative Perpetual Preferred Stock [Member]	Sep. 30, 2014 Fixed Rate Cumulative Perpetual Preferred Stock [Member] Period Director
Class of Stock [Line Items]
Preferred stock issued (in shares)	5,000	12,000	22,252		12,000	5,000
Preferred stock, par value (in dollars per share)			$ 0
Liquidation preference (in dollars per share)	$ 1,000	$ 1,000	$ 1,000
Term of warrant									10 years
Numbers of common stock to be purchased with warrants (in shares)									628,588	634,684
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	$ 5.26
Value of preferred stock issued			$ 22,252,000
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
Preferred stock redeemable shares (in shares)					7,000	5,000
Preferred stock redemption price (in dollars per share)					$ 1,000.00	$ 1,000.00
Accrued and unpaid dividends on preferred stock					$ 39,861.10	$ 62,500.00
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
Common stock quarterly cash dividends paid (in dollars per share)									$ 0.11

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CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
ASSETS
Cash and due from banks	$ 35,275	$ 27,378
Interest bearing bank balances	38,765	36,606
Federal funds sold	7,877	12,777
Cash and cash equivalents	81,917	76,761
Securities available for sale	253,559	218,066
Loans held for sale	395	77
Loans	854,394	740,770
Allowance for loan losses	(10,180)	(11,027)
Net loans	844,214	729,743
Federal Home Loan Bank stock, at cost	3,895	4,183
Premises and equipment, net	21,142	17,798
Other real estate owned	12,574	13,524
Interest receivable	3,342	3,132
Goodwill	33,796	29,875
Other intangible assets	3,258	2,121
Deferred taxes	1,800	4,439
Other assets	1,476	460
Total assets	1,261,368	1,100,179
Deposits
Non-interest bearing	242,215	210,193
Time deposits, $100,000 and over	182,011	146,905
Other interest bearing	652,770	566,925
Total deposits	1,076,996	924,023
Securities sold under agreements to repurchase	13,155	11,319
FHLB advances	5,000	0
Other borrowed funds	12,330	13,800
Interest payable	443	383
Other liabilities	5,210	3,714
Total liabilities	1,113,134	953,239
Stockholders' equity
Preferred stock, no par value; $1,000 per share liquidation preference, 5% cumulative, 1,000,000 shares authorized; 5,000 shares issued and outstanding at September 30, 2014, and 12,000 shares issued and outstanding at December 31, 2013	5,000	11,955
Common stock, no par value; 20,000,000 shares authorized; 8,115,444 shares issued and outstanding at September 30, 2014, and 8,038,345 shares issued and outstanding at December 31, 2013	74,364	73,589
Retained earnings	67,611	62,021
Accumulated other comprehensive income (loss)	1,259	(625)
Total stockholders' equity	148,234	146,940
Total liabilities and stockholders' equity	$ 1,261,368	$ 1,100,179

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EARNINGS PER SHARE (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Basic earnings per share [Abstract]
Income available to common stockholders	$ 2,946	$ 3,761	$ 9,386	$ 9,044
Weighted average common shares outstanding (in shares)	8,108,722	8,015,954	8,077,428	7,986,719
Earnings per share (in dollars per share)	$ 0.36	$ 0.47	$ 1.16	$ 1.13
Diluted earnings per share [Abstract]
Income available to common stockholders	$ 2,946	$ 3,761	$ 9,386	$ 9,044
Weighted average common shares outstanding (in shares)	8,108,722	8,015,954	8,077,428	7,986,719
Add dilutive effects of potential additional common stock (in shares)	512,166	440,326	506,420	439,271
Weighted average common and dilutive potential common shares outstanding (in shares)	8,620,888	8,456,280	8,583,848	8,425,990
Earnings per share assuming dilution (in dollars per share)	$ 0.34	$ 0.44	$ 1.09	$ 1.07
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)	23,500	84,100	23,500	84,100

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities
Net income	$ 9,921	$ 9,539
Adjustments to reconcile net income to net cash from operating activities
Depreciation	1,151	997
Provision for loan losses	147	550
Amortization (accretion), net	627	(608)
OREO writedowns (gains on sales), net	(679)	(61)
Stock compensation expense	208	128
Loans originated for sale	(5,167)	(9,919)
Secondary market loans sold	4,991	9,639
Secondary market income	(142)	(211)
Gain on disposition of securities	(28)	(220)
Changes in:
Interest receivable	461	408
Other assets	1,180	1,287
Interest payable	(74)	(77)
Other liabilities	981	568
Net cash from operating activities	13,577	12,020
Cash flows from investing activities
Purchases of securities available for sale	(36,435)	(27,230)
Proceeds from the sale of securities available for sale	4,842	149
Proceeds from maturities and calls of securities available for sale	36,654	62,533
Redemption of FHLB stock	408	0
Net change in loans	(20,249)	(26,622)
Acquisition of subsidiary, net of cash received	40,973	0
Purchases of premises and equipment, net	(725)	(891)
Improvements to OREO property	(189)	(1,571)
Proceeds from sales of other real estate acquired through foreclosure	3,370	2,721
Net cash from investing activities	28,649	9,089
Cash flows from financing activities
Net change in deposits	(31,373)	(6,247)
Net change in agreements to repurchase securities	1,836	(11,531)
Net change in federal funds purchased	0	2,219
Net change in short-term Federal Home Loan Bank advances	5,000	5,000
Redemption of Preferred Stock	(7,000)	0
Repayment of other borrowed funds	(1,814)	(1,649)
Proceeds from stock option exercises	567	444
Common stock dividends paid	(3,796)	(2,640)
Preferred stock dividends paid	(490)	(450)
Net cash from financing activities	(37,070)	(14,854)
Net change in cash and cash equivalents	5,156	6,255
Cash and cash equivalents at beginning of period	76,761	70,245
Cash and cash equivalents at end of period	81,917	76,500
Supplemental disclosures of cash flow information:
Cash paid during period for interest	3,325	3,741
Cash paid during period for income taxes	4,179	4,336
Loans transferred to real estate acquired through foreclosure	$ 1,552	$ 1,462

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LOANS, Average Balance of Loans Individually Evaluated For Impairment (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Financing receivable average balance individually evaluated for impairment [Line Items]
Average Recorded Investment	$ 17,065	$ 27,734	$ 18,274	$ 31,577
Interest Income Recognized	243	171	2,310	1,371
Cash Basis Interest Recognized	232	127	2,291	1,354
Residential Real Estate [Member]
Financing receivable average balance individually evaluated for impairment [Line Items]
Average Recorded Investment	2,166	3,920	2,421	4,303
Interest Income Recognized	148	42	209	140
Cash Basis Interest Recognized	148	42	209	140
Multifamily Real Estate [Member]
Financing receivable average balance individually evaluated for impairment [Line Items]
Average Recorded Investment	2,328	3,981	2,518	4,247
Interest Income Recognized	19	32	746	828
Cash Basis Interest Recognized	19	27	746	828
Owner Occupied Commercial Real Estate [Member]
Financing receivable average balance individually evaluated for impairment [Line Items]
Average Recorded Investment	2,080	2,544	2,171	2,620
Interest Income Recognized	10	40	39	136
Cash Basis Interest Recognized	9	38	30	119
Non Owner Occupied Commercial Real Estate [Member]
Financing receivable average balance individually evaluated for impairment [Line Items]
Average Recorded Investment	1,679	2,166	1,388	2,603
Interest Income Recognized	17	0	644	9
Cash Basis Interest Recognized	7	0	634	9
Commercial and Industrial [Member]
Financing receivable average balance individually evaluated for impairment [Line Items]
Average Recorded Investment	1,337	7,223	2,152	9,184
Interest Income Recognized	4	3	546	44
Cash Basis Interest Recognized	4	3	546	44
All Other [Member]
Financing receivable average balance individually evaluated for impairment [Line Items]
Average Recorded Investment	7,475	7,900	7,624	8,620
Interest Income Recognized	45	54	126	214
Cash Basis Interest Recognized	$ 45	$ 17	$ 126	$ 214

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FAIR VALUE (Tables)

9 Months Ended

Sep. 30, 2014

FAIR VALUE [Abstract]

Carrying Amounts and Estimated Fair Values of Financial Instruments

The carrying amounts and estimated fair values of financial instruments at September 30, 2014 were as follows:

				Fair Value Measurements at September 30, 2014 Using
	Carrying Amount			Level 1			Level 2			Level 3			Total
Financial assets
Cash and due from banks	$	74,040		$	74,040		$	-		$	-		$	74,040
Federal funds sold		7,877			7,877			-			-			7,877
Securities available for sale		253,559			-			253,419			140			253,559
Loans held for sale		395			-			-			395			395
Loans, net		844,214			-			-			845,396			845,396
Federal Home Loan Bank stock		3,895			n/	a		n/	a		n/	a		n/	a
Interest receivable		3,342			-			822			2,520			3,342
Financial liabilities
Deposits	$	(1,076,996	)	$	(703,039	)	$	(373,551	)	$	-		$	(1,076,590	)
Securities sold under agreements to repurchase		(13,155	)		-			(13,155	)		-			(13,155	)
FHLB advances		(5,000	)		(5,000	)		-			-			(5,000	)
Other borrowed funds		(12,330	)		-			(12,373	)		-			(12,373	)
Interest payable		(443	)		(6	)		(437	)		-			(443	)

The carrying amounts and estimated fair values of financial instruments at December 31, 2013 were as follows:

				Fair Value Measurements at December 31, 2013 Using
	Carrying Amount			Level 1			Level 2			Level 3			Total
Financial assets
Cash and due from banks	$	63,984		$	63,984		$	-		$	-		$	63,984
Federal funds sold		12,777			12,777			-			-			12,777
Securities available for sale		218,066			-			217,926			140			218,066
Loans held for sale		77			-			-			77			77
Loans, net		729,743			-			-			725,588			725,588
Federal Home Loan Bank stock		4,183			n/	a		n/	a		n/	a		n/	a
Interest receivable		3,132			-			593			2,539			3,132
Financial liabilities
Deposits	$	(924,023	)	$	(592,664	)	$	(332,475	)	$	-		$	(925,139	)
Securities sold under agreements to repurchase		(11,319	)		-			(11,319	)		-			(11,319	)
Other borrowed funds		(13,800	)		-			(13,811	)		-			(13,811	)
Interest payable		(383	)		(5	)		(378	)		-			(383	)

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 September 30, 2014 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	$	54,855	$	-	$	54,855	$	-
U. S. agency CMO’s - residential		152,800		-		152,800		-
Total mortgage-backed securities of government sponsored agencies		207,655		-		207,655		-
U. S. government sponsored agency securities		34,836		-		34,836		-
Obligations of states and political subdivisions		11,068		-		10,928		140
Total available for sale	$	253,559	$	-	$	253,419	$	140

			Fair Value Measurements at December 31, 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	$	27,823	$	-	$	27,823	$	-
U. S. agency CMO’s		176,722		-		176,722		-
Total mortgage-backed securities of government sponsored agencies		204,545		-		204,545		-
U. S. government sponsored agency securities		6,981		-		6,981		-
Obligations of states and political subdivisions		6,540		-		6,400		140
Total securities available for sale	$	218,066	$	-	$	217,926	$	140
Mortgage-backed securities

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 September 30, 2014 are summarized below:

			Fair Value Measurements at September 30, 2014 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:
Multifamily residential	$	332	$	-	$	-	$	332
Commercial real estate
Owner occupied		390		-		-		390
Non-owner occupied		588		-		-		588
Commercial and industrial		689		-		-		689
All other		4,218		-		-		4,218
Total impaired loans		6,217	$	-	$	-	$	6,217
Other real estate owned:
Commercial real estate
Non-owner occupied	$	2,003		-		-	$	2,003
All other		8,353		-		-		8,353
Total OREO	$	10,356	$	-	$	-	$	10,356

Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2013 are summarized below:

			Fair Value Measurements at December 31, 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	$	1,518	$	-	$	-	$	1,518
Commercial real estate
Owner occupied		345		-		-		345
Non-owner occupied		428		-		-		428
Commercial and industrial		3,384		-		-		3,384
All other		4,133		-		-		4,133
Total impaired loans		9,808	$	-	$	-	$	9,808
Other real estate owned:
Commercial real estate
Non-owner occupied		290		-		-		290
All other		8,496		-		-		8,496
Total OREO	$	8,786	$	-	$	-	$	8,786

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 September 30, 2014 are summarized below:

	September 30, 2014		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Multifamily residential	$	332	sales comparison	adjustment for differences between the comparable sales		36.8%-36.8% (36.8	%)
Commercial real estate
Owner occupied		390	sales comparison	adjustment for limited salability of specialized property		44.8%-72.4% (64.4	%)
Non-owner occupied		588	sales comparison	adjustment for differences between the comparable sales		16.9%-16.9% (16.9	%)
Commercial and industrial		689	sales comparison	adjustment for limited salability of specialized property		8.0%-41.2% (26.5	%)
All other		4,218	sales comparison	adjustment for percentage of completion of construction		56.8%-56.8% (56.8	%)
Total impaired loans		6,217
Other real estate owned:
Commercial real estate
Non-owner occupied	$	2,003	sales comparison	adjustment for differences between the comparable sales		29.6%-29.6% (29.6	%)
All other		8,353	sales comparison	adjustment for estimated realizable value		24.6%-50.2% (45.0	%)
Total OREO	$	10,356

The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at December 31, 2013 are summarized below:

	December 31, 2013		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Residential real estate	$	1,518	sales comparison	adjustment for differences between the comparable sales		0.8%-63.5% (11.9	%)
Commercial real estate
Owner occupied		345	sales comparison	adjustment for limited salability of specialized property		62.5%-70.0% (64.0	%)
Non-owner occupied		428	sales comparison	adjustment for limited salability of specialized property		50.6%-50.6% (50.6	%)
Commercial and industrial		3,384	sales comparison	adjustment for limited salability of specialized property		25.0%-65.5% (57.8	%)
All other		4,133	sales comparison	adjustment for percentage of completion of construction		57.6%-99.3% (57.7	%)
Total impaired loans		9,808
Other real estate owned:
Commercial real estate
Non-owner occupied		290	sales comparison	adjustment for differences between the comparable sales		42.7%-42.7% (42.7	%)
All other		8,496	sales comparison	adjustment for estimated realizable value		9.5%-24.6% (12.5	%)
Total OREO	$	8,786

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LOANS, Troubled Debt Restructurings (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Financing Receivable, Modifications [Line Items]
TDR's on Non-accrual	$ 15	$ 23
Other TDR's	3,291	3,655
Total TDR's	3,306	3,678
Specific reserves allocated to loans that have restructured terms	0	0
Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
TDR's on Non-accrual	15	23
Other TDR's	195	296
Total TDR's	210	319
Non Owner Occupied Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
TDR's on Non-accrual	0	0
Other TDR's	479	506
Total TDR's	479	506
Commercial And Industrial [Member]
Financing Receivable, Modifications [Line Items]
TDR's on Non-accrual	0	0
Other TDR's	779	831
Total TDR's	779	831
Consumer [Member]
Financing Receivable, Modifications [Line Items]
TDR's on Non-accrual		0
Other TDR's		5
Total TDR's		5
All Other [Member]
Financing Receivable, Modifications [Line Items]
TDR's on Non-accrual	0	0
Other TDR's	1,838	2,017
Total TDR's	$ 1,838	$ 2,017

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BASIS OF PRESENTATION (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Consolidation, Wholly Owned Subsidiaries [Line Items]
Total Assets	$ 1,261,368		$ 1,261,368		$ 1,100,179
Net Income	3,151	3,926	9,921	9,539
Citizens Deposit Bank & Trust [Member] | Vanceburg, Kentucky [Member]
Consolidation, Wholly Owned Subsidiaries [Line Items]
Year Acquired			1991
Total Assets	372,951		372,951
Net Income	1,130		3,390
Premier Bank, Inc. [Member] | Huntington, West Virginia [Member]
Consolidation, Wholly Owned Subsidiaries [Line Items]
Year Acquired			1998
Total Assets	880,810		880,810
Net Income	2,578		7,665
Parent and Intercompany Eliminations [Member]
Consolidation, Wholly Owned Subsidiaries [Line Items]
Total Assets	7,607		7,607
Net Income	$ (557)		$ (1,134)

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BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2014

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”):

		Year	Total		September 30, 2014 Net Income
Subsidiary	Location	Acquired	Assets		Qtr			YTD
Citizens Deposit Bank & Trust	Vanceburg, Kentucky	1991	$	372,951	$	1,130		$	3,390
Premier Bank, Inc.	Huntington, West Virginia	1998		880,810		2,578			7,665
Parent and Intercompany Eliminations				7,607		(557	)		(1,134	)
Consolidated Total			$	1,261,368	$	3,151		$	9,921

All significant intercompany transactions and balances have been eliminated.

Recently Issued Accounting Pronouncements

In January 2014, FASB issued Accounting Standards Update 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force). The ASU clarifies when an insubstance repossession or foreclosure occurs and a creditor is considered to have received physical possession of real estate property collateralizing a consumer mortgage loan. Specifically, the new ASU requires a creditor to reclassify a collateralized consumer mortgage loan to real estate property upon obtaining legal title to the real estate collateral, or the borrower voluntarily conveying all interest in the real estate property to the lender to satisfy the loan through a deed in lieu of foreclosure or similar legal agreement. Additional disclosures are required detailing the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgages collateralized by real estate property that are in the process of foreclosure. The new guidance is effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2014. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements, but will result in additional disclosures.

In May 2014, FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU creates a new topic, Topic 606, to provide guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2016. Early adoption is not permitted. Management is currently evaluating the impact of the adoption of this guidance on the Company’s financial statements.

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CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Stockholders' equity
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, liquidation preference per share (in dollars per share)	$ 1,000	$ 1,000
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)	5,000	12,000
Preferred stock, shares outstanding (in shares)	5,000	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)	8,115,444	8,038,345
Common stock, shares outstanding (in shares)	8,115,444	8,038,345

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SECURITIES (Tables)

9 Months Ended

Sep. 30, 2014

SECURITIES [Abstract]

Amortized Cost and Fair Value of Investment Securities, by Category

Amortized cost and fair value of investment securities, by category, at September 30, 2014 are summarized as follows:

2014	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. sponsored agency MBS - residential	$	54,390	$	539	$	(74	)	$	54,855
U. S. sponsored agency CMO’s - residential		151,665		2,415		(1,280	)		152,800
Total mortgage-backed securities of government sponsored agencies		206,055		2,954		(1,354	)		207,655
U. S. government sponsored agency securities		34,827		60		(51	)		34,836
Obligations of states and political subdivisions		10,769		299		-			11,068
Total available for sale	$	251,651	$	3,313	$	(1,405	)	$	253,559

Amortized cost and fair value of investment securities, by category, at December 31, 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	$	27,681	$	463	$	(321	)	$	27,823
U. S. sponsored agency CMO’s - residential		178,000		1,167		(2,445	)		176,722
Total mortgage-backed securities of government sponsored agencies		205,681		1,630		(2,766	)		204,545
U. S. government sponsored agency securities		7,058		30		(107	)		6,981
Obligations of states and political subdivisions		6,275		265		-			6,540
Total available for sale	$	219,014	$	1,925	$	(2,873	)	$	218,066

Amortized Cost and Fair Value of Securities by Contractual Maturity

The amortized cost and fair value of securities at September 30, 2014 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	$	11,473	$	11,490
Due after one year through five years		23,492		23,734
Due after five years through ten years		9,431		9,456
Due after ten years		1,200		1,224
Mortgage-backed securities of government sponsored agencies		206,055		207,655
Total available for sale	$	251,651	$	253,559

Securities in Continuous Unrealized Loss Position

Securities with unrealized losses at September 30, 2014 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. government sponsored agency securities	$	7,928	$	(51	)		-		-		$	7,928	$	(51	)
U.S government sponsored agency MBS – residential		27,807		(60	)		3,998		(14	)		31,805		(74	)
U.S government sponsored agency CMO – residential		21,651		(240	)		26,533		(1,040	)		48,184		(1,280	)
Total temporarily impaired	$	57,386	$	(351	)	$	30,531	$	(1,054	)	$	87,917	$	(1,405	)

Securities with unrealized losses at December 31, 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 securities	$	3,890	$	(107	)	$	-	$	-	$	3,890	$	(107	)
U.S government sponsored agency MBS’s – residential		13,797		(321	)		-		-		13,797		(321	)
U.S government sponsored agency CMO’s – residential		102,341		(2,445	)		-		-		102,341		(2,445	)
Total temporarily impaired	$	120,028	$	(2,873	)	$	-	$	-	$	120,028	$	(2,873	)

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Oct. 31, 2014
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	Accelerated Filer
Entity Common Stock, Shares Outstanding		8,115,444
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2014

XML

LOANS (Tables)

9 Months Ended

Sep. 30, 2014

LOANS [Abstract]

Major Classifications of Loans

Major classifications of loans at September 30, 2014 and December 31, 2013 are summarized as follows:

	2014		2013
Residential real estate	$	278,586	$	216,081
Multifamily real estate		30,315		38,456
Commercial real estate:
Owner occupied		103,457		90,539
Non owner occupied		212,811		208,756
Commercial and industrial		103,764		85,301
Consumer		34,230		25,113
All other		91,231		76,524
	$	854,394	$	740,770

Activity in the Allowance for Loan Losses by Portfolio Segment

Activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2014 was as follows:

Loan Class	Balance Dec 31, 2013		Provision for loan losses			Loans charged- off		Recoveries		Balance Sept 30, 2014
Residential real estate	$	2,694	$	(419	)	$	308	$	55	$	2,022
Multifamily real estate		417		(137	)		-		-		280
Commercial real estate:
Owner occupied		1,407		112			207		-		1,312
Non owner occupied		2,037		310			323		-		2,024
Commercial and industrial		2,184		(335	)		111		11		1,749
Consumer		297		(12	)		105		45		225
All other		1,991		628			267		216		2,568
Total	$	11,027	$	147		$	1,321	$	327	$	10,180

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

Loan Class	Balance Dec 31, 2012		Provision for loan losses			Loans charged- off		Recoveries		Balance Sept 30, 2013
Residential real estate	$	2,163	$	571		$	191	$	10	$	2,553
Multifamily real estate		331		43			-		-		374
Commercial real estate:
Owner occupied		1,117		96			67		299		1,445
Non owner occupied		1,888		209			-		-		2,097
Commercial and industrial		3,046		215			12		87		3,336
Consumer		244		87			123		47		255
All other		2,699		(671	)		202		286		2,112
Total	$	11,488	$	550		$	595	$	729	$	12,172

Activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2014 was as follows:

Loan Class	Balance June 30, 2014		Provision for loan losses			Loans charged- off		Recoveries		Balance Sept 30, 2014
Residential real estate	$	2,140	$	(28	)	$	137	$	47	$	2,022
Multifamily real estate		311		(31	)		-		-		280
Commercial real estate:
Owner occupied		1,364		73			125		-		1,312
Non owner occupied		2,270		(246	)		-		-		2,024
Commercial and industrial		1,489		281			27		6		1,749
Consumer		232		21			46		18		225
All other		2,071		466			63		94		2,568
Total	$	9,877	$	536		$	398	$	165	$	10,180

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

Loan Class	Balance June 30, 2013		Provision for loan losses			Loans charged- off		Recoveries		Balance Sept 30, 2013
Residential real estate	$	2,371	$	213		$	35	$	4	$	2,553
Multifamily real estate		429		(55	)		-		-		374
Commercial real estate:
Owner occupied		1,094		351			-		-		1,445
Non owner occupied		1,968		129			-		-		2,097
Commercial and industrial		4,073		(772	)		-		35		3,336
Consumer		233		60			60		22		255
All other		2,030		124			108		66		2,112
Total	$	12,198	$	50		$	203	$	127	$	12,172

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 September 30, 2014 and December 31, 2013.

	2014		2013
Residential real estate	$	-	$	183
Multifamily real estate		515		1,229
Commercial real estate
Owner occupied		245		250
Non owner occupied		5,728		6,782
Commercial and industrial		327		496
All other		5,117		4,623
Total carrying amount	$	11,932	$	13,563
Carrying amount, net of allowance	$	10,937	$	12,931

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 September 30, 2014 and September 30, 2013.

	2014			2013
Balance at January 1	$	217		$	635
New loans purchased		-			-
Accretion of income		(9	)		(22	)
Income recognized upon full loan repayment		-			(415	)
Reclassifications from non-accretable difference		-			23
Disposals		-			-
Balance at September 30	$	208		$	221

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 September 30, 2014 and December 31 2013.  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.

September 30, 2014	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
Residential  real estate	$	2,105	$	1,898	$	1,973
Multifamily real estate		1,933		1,176		1,355
Commercial real estate
Owner occupied		2,347		2,073		5
Non owner occupied		2,061		1,887		26
Commercial and industrial		2,574		1,284		106
Consumer		267		232		60
All other		12,596		5,162		481
Total	$	23,883	$	13,712	$	4,006

December 31, 2013	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing
Residential  real estate	$	2,021	$	1,725	$	1,737
Multifamily real estate		3,282		1,889		1,369
Commercial real estate
Owner occupied		1,364		1,147		1,387
Non owner occupied		2,683		1,973		3,739
Commercial and industrial		6,838		4,961		84
Consumer		167		148		16
All other		12,212		4,798		146
Total	$	28,567	$	16,641	$	8,478

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 September 30, 2014 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	$	278,586	$	6,827	$	3,068	$	9,895	$	268,691
Multifamily real estate		30,315		330		2,016		2,346		27,969
Commercial real estate:
Owner occupied		103,457		543		1,464		2,007		101,450
Non owner occupied		212,811		3,892		1,665		5,557		207,254
Commercial and industrial		103,764		175		1,181		1,356		102,408
Consumer		34,230		530		130		660		33,570
All other		91,231		4,210		5,595		9,805		81,426
Total	$	854,394	$	16,507	$	15,119	$	31,626	$	822,768

The following table presents the aging of the recorded investment in past due loans as of December 31, 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	$	216,081	$	4,770	$	2,431	$	7,201	$	208,880
Multifamily real estate		38,456		367		2,688		3,055		35,401
Commercial real estate:
Owner occupied		90,539		516		2,073		2,589		87,950
Non owner occupied		208,756		278		5,478		5,756		203,000
Commercial and industrial		85,301		1,433		1,438		2,871		82,430
Consumer		25,113		421		82		503		24,610
All other		76,524		2,510		4,881		7,391		69,133
Total	$	740,770	$	10,295	$	19,071	$	29,366	$	711,404

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 September 30, 2014:

	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	$	-	$	2,022	$	-	$	2,022	$	2,076	$	276,510	$	-	$	278,586
Multifamily real estate		26		254		-		280		1,800		28,000		515		30,315
Commercial real estate:
Owner occupied		125		1,187		-		1,312		2,104		101,108		245		103,457
Non-owner occupied		14		2,010		-		2,024		3,151		203,932		5,728		212,811
Commercial and industrial		368		1,286		95		1,749		1,190		102,247		327		103,764
Consumer		-		225		-		225		-		34,230		-		34,230
All other		-		1,668		900		2,568		2,572		83,542		5,117		91,231
Total	$	533	$	8,652	$	995	$	10,180	$	12,893	$	829,569	$	11,932	$	854,394

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 December 31, 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	$	138	$	2,556	$	-	$	2,694	$	2,787	$	213,111	$	183	$	216,081
Multifamily real estate		-		417		-		417		1,822		35,405		1,229		38,456
Commercial real estate:
Owner occupied		170		1,237		-		1,407		2,386		87,903		250		90,539
Non-owner occupied		362		1,675		-		2,037		1,024		200,950		6,782		208,756
Commercial and industrial		1,088		964		132		2,184		4,270		80,535		496		85,301
Consumer		-		297		-		297		-		25,113		-		25,113
All other		102		1,389		500		1,991		3,279		68,622		4,623		76,524
Total	$	1,860	$	8,535	$	632	$	11,027	$	15,568	$	711,639	$	13,563	$	740,770

Loans Individually Evaluated for Impairment by Class of Loans

The following table presents loans individually evaluated for impairment by class of loans as of September 30, 2014.  The table includes $5,980,000 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	$	2,128	$	2,076	$	-
Multifamily real estate		2,715		1,957		-
Commercial real estate
Owner occupied		1,896		1,702		-
Non owner occupied		2,628		2,548		-
Commercial and industrial		1,021		273		-
All other		2,608		2,572		-
		12,996		11,128		-
With an allowance recorded:
Multifamily real estate	$	364	$	358	$	26
Commercial real estate
Owner occupied		515		515		125
Non owner occupied		602		602		14
Commercial and industrial		1,502		1,152		463
All other		12,514		5,118		900
		15,497		7,745		1,528
Total	$	28,493	$	18,873	$	1,528

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2013.  The table includes $7,483,000 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	$	1,513	$	1,314	$	-
Multifamily real estate		4,449		3,051		-
Commercial real estate
Owner occupied		2,601		1,986		-
Non owner occupied		1,861		1,184		-
Commercial and industrial		809		49		-
All other		3,185		3,167		-
		14,418		10,751		-
With an allowance recorded:
Residential  real estate	$	1,668	$	1,656	$	138
Commercial real estate
Owner occupied		515		515		170
Non owner occupied		810		790		362
Commercial and industrial		5,543		4,604		1,220
All other		12,132		4,735		602
		20,668		12,300		2,492
Total	$	35,086	$	23,051	$	2,492

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 nine months ended September 30, 2014 and September 30, 2013.   The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Nine months ended Sept. 30, 2014						Nine months ended Sept. 30, 2013
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	$	2,421	$	209	$	209	$	4,303	$	140	$	140
Multifamily real estate		2,518		746		746		4,247		828		828
Commercial real estate:
Owner occupied		2,171		39		30		2,620		136		119
Non-owner occupied		1,388		644		634		2,603		9		9
Commercial and industrial		2,152		546		546		9,184		44		44
All other		7,624		126		126		8,620		214		214
Total	$	18,274	$	2,310	$	2,291	$	31,577	$	1,371	$	1,354

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 September 30, 2014 and September 30, 2013.   The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Three months ended Sept. 30, 2014						Three months ended Sept. 30, 2013
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	$	2,166	$	148	$	148	$	3,920	$	42	$	42
Multifamily real estate		2,328		19		19		3,981		32		27
Commercial real estate:
Owner occupied		2,080		10		9		2,544		40		38
Non-owner occupied		1,679		17		7		2,166		-		-
Commercial and industrial		1,337		4		4		7,223		3		3
All other		7,475		45		45		7,900		54		17
Total	$	17,065	$	243	$	232	$	27,734	$	171	$	127

Troubled Debt Restructurings

The following table presents TDR’s as of September 30, 2014 and December 31, 2013:

September 30, 2014	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential  real estate	$	15	$	195	$	210
Commercial real estate
Non owner occupied		-		479		479
Commercial and industrial		-		779		779
All other		-		1,838		1,838
Total	$	15	$	3,291	$	3,306

December 31, 2013	TDR’s on Non-accrual		Other TDR’s		Total TDR’s
Residential  real estate	$	23	$	296	$	319
Commercial real estate
Non owner occupied		-		506		506
Commercial and industrial		-		831		831
Consumer		-		5		5
All other		-		2,017		2,017
Total	$	23	$	3,655	$	3,678

Troubled Debt Restructuring During the Period

The following table presents TDR’s that occurred during the nine months ended September 30, 2014 and September 30, 2013:

	Nine months ended Sept. 30, 2014						Nine months ended Sept. 30, 2013
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
All other		-	$	-	$	-		1	$	16	$	16
Total		-	$	-	$	-		1	$	16	$	16

Risk Category of Loans by Class of Loans

As of September 30, 2014 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	$	263,920	$	7,940	$	6,711	$	15	$	278,586
Multifamily real estate		27,106		894		2,315		-		30,315
Commercial real estate:
Owner occupied		94,219		5,770		3,468		-		103,457
Non-owner occupied		201,056		6,739		5,016		-		212,811
Commercial and industrial		99,758		2,224		1,753		29		103,764
Consumer		33,808		315		107		-		34,230
All other		77,313		5,604		8,314		-		91,231
Total	$	797,180	$	29,486	$	27,684	$	44	$	854,394

As of December 31, 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	$	202,789	$	6,204	$	7,065	$	23	$	216,081
Multifamily real estate		34,487		918		3,051		-		38,456
Commercial real estate:
Owner occupied		79,694		7,431		3,348		66		90,539
Non-owner occupied		196,338		8,569		3,849		-		208,756
Commercial and industrial		78,205		2,269		4,753		74		85,301
Consumer		24,772		204		137		-		25,113
All other		62,180		5,947		8,285		112		76,524
Total	$	678,465	$	31,542	$	30,488	$	275	$	740,770

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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Interest income
Loans, including fees	$ 12,056	$ 11,615	$ 34,981	$ 32,081
Securities available for sale
Taxable	1,365	1,501	4,080	4,611
Tax-exempt	59	36	157	120
Federal funds sold and other	46	40	142	112
Total interest income	13,526	13,192	39,360	36,924
Interest expense
Deposits	953	994	2,800	3,139
Repurchase agreements and other	8	9	24	27
Other borrowings	139	162	427	498
Total interest expense	1,100	1,165	3,251	3,664
Net interest income	12,426	12,027	36,109	33,260
Provision for loan losses	536	50	147	550
Net interest income after provision for loan losses	11,890	11,977	35,962	32,710
Non-interest income
Service charges on deposit accounts	924	883	2,562	2,519
Electronic banking income	647	514	1,797	1,501
Secondary market mortgage income	73	70	142	211
Gain on disposition of securities	28	72	28	220
Other	186	219	493	533
Total non-interest income	1,858	1,758	5,022	4,984
Non-interest expenses
Salaries and employee benefits	4,400	3,741	13,257	11,178
Occupancy and equipment expenses	1,281	1,070	3,741	3,252
Outside data processing	1,079	836	2,977	2,511
Professional fees	(104)	356	641	801
Taxes, other than payroll, property and income	203	149	507	512
Write-downs, expenses, sales of other real estate owned, net	450	160	56	756
Amortization of intangibles	225	152	593	456
FDIC insurance	247	212	708	624
Loan collection expenses	63	114	257	380
Other expenses	984	789	2,834	2,305
Total non-interest expenses	8,828	7,579	25,571	22,775
Income before income taxes	4,920	6,156	15,413	14,919
Provision for income taxes	1,769	2,230	5,492	5,380
Net income	3,151	3,926	9,921	9,539
Preferred stock dividends and accretion	(205)	(165)	(535)	(495)
Net income available to common stockholders	$ 2,946	$ 3,761	$ 9,386	$ 9,044
Net income per share:
Basic (in dollars per share)	$ 0.36	$ 0.47	$ 1.16	$ 1.13
Diluted (in dollars per share)	$ 0.34	$ 0.44	$ 1.09	$ 1.07

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STOCK COMPENSATION EXPENSE

9 Months Ended

Sep. 30, 2014

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 19, 2014, 46,300 incentive stock options were granted out of the 2012 Long Term Incentive Plan at an exercise price of $14.43, the closing market price of Premier’s common stock on the grant date.  These options vest in three equal annual installments ending on March 19, 2017.  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.

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:

	2014			2013
Risk-free interest rate		2.78	%		1.96	%
Expected option life (yrs)		10.00			10.00
Expected stock price volatility		31.19	%		35.24	%
Dividend yield		3.33	%		3.86	%
Weighted average fair value of options granted	$	3.74		$	2.85

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

On April 16, 2014, 6,000 shares of Premier’s common stock were granted to Robert W. Walker as stock-based bonus compensation under the 2012 Long-term Incentive Plan.  The fair value of the stock at the time of the grant was $14.20 per share based upon the closing price of Premier’s stock of the date of grant and $85,000 of stock-based compensation was recorded as a result.

Stock-based compensation expense of $208,000 was recorded for the first nine months of 2014 compared to $128,000 for the first nine months of 2013.  For the three months ended September 30, $38,000 was recorded for 2014 while $41,000 was recorded for 2013.  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 $148,000 at September 30, 2014. This unrecognized expense is expected to be recognized over the next 29 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 nine months ended September 30:

	2014					2013
				Weighted Average Exercise					Weighted Average Exercise
	Options			Price		Options			Price
Outstanding at beginning of year		354,281		$	9.84		392,366		$	9.24
Grants		46,300			14.43		52,900			11.39
Exercises		(77,896	)		8.52		(60,043	)		7.63
Forfeitures or expired		(8,133	)		9.27		(12,401	)		7.90
Outstanding at September 30,		314,552		$	10.86		372,822		$	9.76
Exercisable at September 30,		209,299					231,272
Weighted average remaining life of options outstanding		6.1					6.2
Weighted average fair value of options granted during the year	$	3.74				$	2.85

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

Additional information regarding stock options outstanding and exercisable at September 30, 2014, 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		136,049	$	7.51	$	970		108,356		6.4	$	7.52	$	771
$	10.01 to $12.50		55,603		11.44		178		24,343		4.7		11.50		77
$	12.51 to $15.00		99,400		13.91		72		53,100		2.9		13.46		63
$	15.01 to $17.50		23,500		16.00		0		23,500		1.4		16.00		-
Outstanding - Sept 30, 2014			314,552		10.86	$	1,220		209,299		4.8		10.44	$	911

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PREFERRED STOCK

9 Months Ended

Sep. 30, 2014

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 628,588 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 were repurchased at the auction closing price of $901.03.

Premier sought and obtained regulatory permission to redeem 7,000 of the 12,000 outstanding shares at the $1,000.00 per share face value plus any accrued dividends due through but not including the redemption date.  The redemption date was set by the board of directors to be September 26, 2014 and the redemption occurred on that date.  The redemption payment included $39,861.10 of accrued and unpaid dividends to the Series A Preferred holders.

Premier sought and in October 2014 obtained regulatory permission to redeem the final 5,000 outstanding shares at the $1,000.00 per share face value plus any accrued dividends due through but not including the redemption date.  The redemption date was set by the board of directors to be November 14, 2014.  The redemption payment will include $62,500.00 of accrued and unpaid dividends to the Series A Preferred holders.

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.  Under terms of the Warrant, the exercise price and the number of shares that can be purchased are adjusted based upon certain events including common stock dividends paid to shareholders that exceed the $0.11 per share regular quarterly dividend paid by Premier at the time the Warrant was issued.  Due to dividends paid in 2014 that were either special cash dividends or dividends that exceeded the $0.11 regular quarterly cash dividend per share defined in the terms of the Warrant, the Warrant has been adjusted as of September 30, 2014 to permit the purchase of 634,684 shares of the Company’s common stock at an exercise price of $5.26 per share. As of September 30, 2014, 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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ACQUISITION OF BANK OF GASSAWAY (Tables)

9 Months Ended

Sep. 30, 2014

ACQUISITION OF BANK OF GASSAWAY [Abstract]

Estimated Amortization of Core Deposit Intangible from Acquisition

The following table presents estimated amortization of the Gassaway core deposit intangible for each of the next five years.

2014	$	243
2015		279
2016		226
2017		193
2018		186
2019 and thereafter		603
Total core deposit intangible acquired	$	1,730

Schedule of Net Assets Acquired Via the Acquisition

Net assets acquired via the acquisition are shown in the table below.

	Gassaway
Cash and due from banks	$	61,223
Securities available for sale		38,741
Loans, net		95,094
Goodwill and other intangible assets		5,651
Other assets		5,089
Total assets acquired		205,798
Deposits		(184,555	)
Other liabilities		(993	)
Total liabilities assumed		(185,548	)
Net assets acquired	$	20,250

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STOCKHOLDERS' EQUITY AND REGULATORY MATTERS (Tables)

9 Months Ended

Sep. 30, 2014

STOCKHOLDERS' EQUITY AND REGULATORY MATTERS [Abstract]

Summary of Regulatory Capital Ratios

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

	Sept. 30, 2014			December 31, 2013			Regulatory Minimum Requirements			To Be Considered Well Capitalized
Tier I Capital (to Risk-Weighted Assets)		14.0	%		16.9	%		4.0	%		6.0	%
Total Capital (to Risk-Weighted Assets)		15.2	%		18.2	%		8.0	%		10.0	%
Tier I Capital (to Average Assets)		9.2	%		11.0	%		4.0	%		5.0	%

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ACQUISITION OF BANK OF GASSAWAY

9 Months Ended

Sep. 30, 2014

ACQUISITION OF BANK OF GASSAWAY [Abstract]

ACQUISITION OF BANK OF GASSAWAY

NOTE  9 – ACQUISITION OF BANK OF GASSAWAY

Effective with the close of business on April 4, 2014, Premier completed its purchase of the Bank of Gassaway (“Gassaway”), a $201.52 million bank headquartered in Gassaway, West Virginia.  Under terms of an amended and restated agreement of merger dated January 3, 2014, Premier Bank, Inc., a wholly owned subsidiary of Premier, paid $20.25 million in cash for the Bank of Gassaway and merged Gassaway’s five branch locations into its operating systems.  The purchase price resulted in approximately $3.92 million in goodwill and $1.73 million in core deposit intangible, none of which is deductible for tax purposes.  The core deposit intangible will be amortized using an accelerated method.  The following table presents estimated amortization of the Gassaway core deposit intangible for each of the next five years.

2014	$	243
2015		279
2016		226
2017		193
2018		186
2019 and thereafter		603
Total core deposit intangible acquired	$	1,730

United States generally accepted accounting principles (“U.S. GAAP”) provides up to twelve months following the date of acquisition in which management can finalize the fair values of acquired assets and assumed liabilities. Material events that occur during the measurement period will be analyzed to determine if the new information reflected facts and circumstances that existed on the acquisition date. The measurement period ends as soon as the Company receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns more information is unobtainable. The measurement period is limited to one year from the acquisition date. Once management has finalized the fair values of acquired assets and assumed liabilities within this twelve month period, management considers such values to be the “Day One Fair Values”.

Net assets acquired via the acquisition are shown in the table below.

	Gassaway
Cash and due from banks	$	61,223
Securities available for sale		38,741
Loans, net		95,094
Goodwill and other intangible assets		5,651
Other assets		5,089
Total assets acquired		205,798
Deposits		(184,555	)
Other liabilities		(993	)
Total liabilities assumed		(185,548	)
Net assets acquired	$	20,250

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows.  Non-impaired loans with a fair value of $95,094,000 had gross contractual amounts receivable of $97,588,000 on the date of acquisition.

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2014

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 nine months ended September 30, 2014 and 2013 is presented below:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Basic earnings per share
Income available to common stockholders	$	2,946	$	3,761	$	9,386	$	9,044
Weighted average common shares outstanding		8,108,722		8,015,954		8,077,428		7,986,719
Earnings per share	$	0.36	$	0.47	$	1.16	$	1.13
Diluted earnings per share
Income available to common stockholders	$	2,946	$	3,761	$	9,386	$	9,044
Weighted average common shares outstanding		8,108,722		8,015,954		8,077,428		7,986,719
Add dilutive effects of potential additional common stock		512,166		440,326		506,420		439,271
Weighted average common and dilutive potential common shares outstanding		8,620,888		8,456,280		8,583,848		8,425,990
Earnings per share assuming dilution	$	0.34	$	0.44	$	1.09	$	1.07

Stock options for 23,500 and 84,100 shares of common stock were not considered in computing diluted earnings per share for the nine months ended September 30, 2014 and 2013 because they were antidilutive.  Stock options for 23,500 and 84,100 shares of common stock were not considered in computing diluted earnings per share for the three months ended September 30, 2014 and 2013 because they were antidilutive.

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FAIR VALUE

9 Months Ended

Sep. 30, 2014

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.

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 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 September 30, 2014 were as follows:

				Fair Value Measurements at September 30, 2014 Using
	Carrying Amount			Level 1			Level 2			Level 3			Total
Financial assets
Cash and due from banks	$	74,040		$	74,040		$	-		$	-		$	74,040
Federal funds sold		7,877			7,877			-			-			7,877
Securities available for sale		253,559			-			253,419			140			253,559
Loans held for sale		395			-			-			395			395
Loans, net		844,214			-			-			845,396			845,396
Federal Home Loan Bank stock		3,895			n/	a		n/	a		n/	a		n/	a
Interest receivable		3,342			-			822			2,520			3,342
Financial liabilities
Deposits	$	(1,076,996	)	$	(703,039	)	$	(373,551	)	$	-		$	(1,076,590	)
Securities sold under agreements to repurchase		(13,155	)		-			(13,155	)		-			(13,155	)
FHLB advances		(5,000	)		(5,000	)		-			-			(5,000	)
Other borrowed funds		(12,330	)		-			(12,373	)		-			(12,373	)
Interest payable		(443	)		(6	)		(437	)		-			(443	)

The carrying amounts and estimated fair values of financial instruments at December 31, 2013 were as follows:

				Fair Value Measurements at December 31, 2013 Using
	Carrying Amount			Level 1			Level 2			Level 3			Total
Financial assets
Cash and due from banks	$	63,984		$	63,984		$	-		$	-		$	63,984
Federal funds sold		12,777			12,777			-			-			12,777
Securities available for sale		218,066			-			217,926			140			218,066
Loans held for sale		77			-			-			77			77
Loans, net		729,743			-			-			725,588			725,588
Federal Home Loan Bank stock		4,183			n/	a		n/	a		n/	a		n/	a
Interest receivable		3,132			-			593			2,539			3,132
Financial liabilities
Deposits	$	(924,023	)	$	(592,664	)	$	(332,475	)	$	-		$	(925,139	)
Securities sold under agreements to repurchase		(11,319	)		-			(11,319	)		-			(11,319	)
Other borrowed funds		(13,800	)		-			(13,811	)		-			(13,811	)
Interest payable		(383	)		(5	)		(378	)		-			(383	)

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 September 30, 2014 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	$	54,855	$	-	$	54,855	$	-
U. S. agency CMO’s - residential		152,800		-		152,800		-
Total mortgage-backed securities of government sponsored agencies		207,655		-		207,655		-
U. S. government sponsored agency securities		34,836		-		34,836		-
Obligations of states and political subdivisions		11,068		-		10,928		140
Total available for sale	$	253,559	$	-	$	253,419	$	140

			Fair Value Measurements at December 31, 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	$	27,823	$	-	$	27,823	$	-
U. S. agency CMO’s		176,722		-		176,722		-
Total mortgage-backed securities of government sponsored agencies		204,545		-		204,545		-
U. S. government sponsored agency securities		6,981		-		6,981		-
Obligations of states and political subdivisions		6,540		-		6,400		140
Total securities available for sale	$	218,066	$	-	$	217,926	$	140
Mortgage-backed securities

There were no transfers between Level 1 and Level 2 during 2014 or 2013.

Assets and Liabilities Measured on a Non-Recurring Basis

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 at fair value on a non-recurring basis at September 30, 2014 are summarized below:

			Fair Value Measurements at September 30, 2014 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:
Multifamily residential	$	332	$	-	$	-	$	332
Commercial real estate
Owner occupied		390		-		-		390
Non-owner occupied		588		-		-		588
Commercial and industrial		689		-		-		689
All other		4,218		-		-		4,218
Total impaired loans		6,217	$	-	$	-	$	6,217
Other real estate owned:
Commercial real estate
Non-owner occupied	$	2,003		-		-	$	2,003
All other		8,353		-		-		8,353
Total OREO	$	10,356	$	-	$	-	$	10,356

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $6,217,000 at September 30, 2014 made up of an outstanding balance of $7,745,000, net of a valuation allowance of $1,528,000.  At December 31, 2013, impaired loans had a carrying amount of $9,808,000, made up of an outstanding balance of $12,300,000, net of a valuation allowance of $2,492,000.  The change resulted in a negative provision for loan losses of $473,000 for the nine months ended September 30, 2014, compared to a $187,000 provision for loan losses for the nine months ended September 30, 2013; and an additional $413,000 provision for loan losses for the three months ended September 30, 2014, compared to a negative $296,000 provision for loan losses for the three months ended September 30, 2013.  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 $10,356,000 which is made up of the outstanding balance of $12,788,000 net of a valuation allowance of $2,432,000 at September 30, 2014. There were $380,000 of additional write downs during the nine months ended September 30, 2014, compared to no additional write downs during the nine months ended September 30, 2013.  For the three months ended September 30, 2014 there were $100,000 of additional write downs compared to no additional write downs during the three months ended September 30, 2013. At December 31, 2013, other real estate owned had a net carrying amount of $8,786,000, made up of the outstanding balance of $11,163,000, net of a valuation allowance of $2,377,000.

The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at September 30, 2014 are summarized below:

	September 30, 2014		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Multifamily residential	$	332	sales comparison	adjustment for differences between the comparable sales		36.8%-36.8% (36.8	%)
Commercial real estate
Owner occupied		390	sales comparison	adjustment for limited salability of specialized property		44.8%-72.4% (64.4	%)
Non-owner occupied		588	sales comparison	adjustment for differences between the comparable sales		16.9%-16.9% (16.9	%)
Commercial and industrial		689	sales comparison	adjustment for limited salability of specialized property		8.0%-41.2% (26.5	%)
All other		4,218	sales comparison	adjustment for percentage of completion of construction		56.8%-56.8% (56.8	%)
Total impaired loans		6,217
Other real estate owned:
Commercial real estate
Non-owner occupied	$	2,003	sales comparison	adjustment for differences between the comparable sales		29.6%-29.6% (29.6	%)
All other		8,353	sales comparison	adjustment for estimated realizable value		24.6%-50.2% (45.0	%)
Total OREO	$	10,356

Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2013 are summarized below:

			Fair Value Measurements at December 31, 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	$	1,518	$	-	$	-	$	1,518
Commercial real estate
Owner occupied		345		-		-		345
Non-owner occupied		428		-		-		428
Commercial and industrial		3,384		-		-		3,384
All other		4,133		-		-		4,133
Total impaired loans		9,808	$	-	$	-	$	9,808
Other real estate owned:
Commercial real estate
Non-owner occupied		290		-		-		290
All other		8,496		-		-		8,496
Total OREO	$	8,786	$	-	$	-	$	8,786

The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at December 31, 2013 are summarized below:

	December 31, 2013		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Residential real estate	$	1,518	sales comparison	adjustment for differences between the comparable sales		0.8%-63.5% (11.9	%)
Commercial real estate
Owner occupied		345	sales comparison	adjustment for limited salability of specialized property		62.5%-70.0% (64.0	%)
Non-owner occupied		428	sales comparison	adjustment for limited salability of specialized property		50.6%-50.6% (50.6	%)
Commercial and industrial		3,384	sales comparison	adjustment for limited salability of specialized property		25.0%-65.5% (57.8	%)
All other		4,133	sales comparison	adjustment for percentage of completion of construction		57.6%-99.3% (57.7	%)
Total impaired loans		9,808
Other real estate owned:
Commercial real estate
Non-owner occupied		290	sales comparison	adjustment for differences between the comparable sales		42.7%-42.7% (42.7	%)
All other		8,496	sales comparison	adjustment for estimated realizable value		9.5%-24.6% (12.5	%)
Total OREO	$	8,786

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BASIS OF PRESENTATION (Tables)

9 Months Ended

Sep. 30, 2014

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”):

		Year	Total		September 30, 2014 Net Income
Subsidiary	Location	Acquired	Assets		Qtr			YTD
Citizens Deposit Bank & Trust	Vanceburg, Kentucky	1991	$	372,951	$	1,130		$	3,390
Premier Bank, Inc.	Huntington, West Virginia	1998		880,810		2,578			7,665
Parent and Intercompany Eliminations				7,607		(557	)		(1,134	)
Consolidated Total			$	1,261,368	$	3,151		$	9,921

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LOANS, Individually Evaluated For Impairment (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
LOANS [Abstract]
Purchased financing receivable individually evaluated for impairment	$ 5,980	$ 7,483
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	28,493	35,086
Recorded Investment	18,873	23,051
Allowance for Loan Losses Allocated	1,528	2,492
With no related allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	12,996	14,418
Recorded Investment	11,128	10,751
Allowance for Loan Losses Allocated	0	0
With an allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	15,497	20,668
Recorded Investment	7,745	12,300
Allowance for Loan Losses Allocated	1,528	2,492
Residential Real Estate [Member] | With no related allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	2,128	1,513
Recorded Investment	2,076	1,314
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		1,668
Recorded Investment		1,656
Allowance for Loan Losses Allocated		138
Multifamily real estate [Member] | With no related allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	2,715	4,449
Recorded Investment	1,957	3,051
Allowance for Loan Losses Allocated	0	0
Multifamily real estate [Member] | With an allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	364
Recorded Investment	358
Allowance for Loan Losses Allocated	26
Owner Occupied Commercial Real Estate [Member] | With no related allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	1,896	2,601
Recorded Investment	1,702	1,986
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	515	515
Recorded Investment	515	515
Allowance for Loan Losses Allocated	125	170
Non Owner Occupied Commercial Real Estate [Member] | With no related allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	2,628	1,861
Recorded Investment	2,548	1,184
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	602	810
Recorded Investment	602	790
Allowance for Loan Losses Allocated	14	362
Commercial and Industrial [Member] | With no related allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	1,021	809
Recorded Investment	273	49
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	1,502	5,543
Recorded Investment	1,152	4,604
Allowance for Loan Losses Allocated	463	1,220
All Other [Member] | With no related allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	2,608	3,185
Recorded Investment	2,572	3,167
Allowance for Loan Losses Allocated	0	0
All Other [Member] | With an allowance recorded: [Member]
Loans individually evaluated for impairment [Abstract]
Unpaid Principal Balance	12,514	12,132
Recorded Investment	5,118	4,735
Allowance for Loan Losses Allocated	$ 900	$ 602

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2014

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 nine months ended September 30, 2014 and 2013 is presented below:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Basic earnings per share
Income available to common stockholders	$	2,946	$	3,761	$	9,386	$	9,044
Weighted average common shares outstanding		8,108,722		8,015,954		8,077,428		7,986,719
Earnings per share	$	0.36	$	0.47	$	1.16	$	1.13
Diluted earnings per share
Income available to common stockholders	$	2,946	$	3,761	$	9,386	$	9,044
Weighted average common shares outstanding		8,108,722		8,015,954		8,077,428		7,986,719
Add dilutive effects of potential additional common stock		512,166		440,326		506,420		439,271
Weighted average common and dilutive potential common shares outstanding		8,620,888		8,456,280		8,583,848		8,425,990
Earnings per share assuming dilution	$	0.34	$	0.44	$	1.09	$	1.07

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SECURITIES, By Contractual Maturity (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Amortized cost of available-for-sale securities by contractual maturity [Abstract]
Due in one year or less	$ 11,473
Due after one year through five years	23,492
Due after five years through ten years	9,431
Due after ten years	1,200
Mortgage-backed securities of government sponsored agencies	206,055
Available for sale, Amortized Cost	251,651
Fair value of available-for-sale securities by contractual maturity [Abstract]
Due in one year or less	11,490
Due after one year through five years	23,734
Due after five years through ten years	9,456
Due after ten years	1,224
Mortgage backed securities of government sponsored agencies	207,655
Available for sale, Fair Value	253,559		218,066
Proceeds from the sale of securities	4,842	149
Gain on disposition of securities	28	72
Gain recognized from call of securities		$ 148

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FAIR VALUE, Asset Quantitative Information (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	$ 6,217	$ 9,808
Impaired Loans [Member] | Residential Real Estate [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value		1,518
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%
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)		63.50%
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)		11.90%
Impaired Loans [Member] | Multifamily Real Estate [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	332
Impaired Loans [Member] | Multifamily Real Estate [Member] | Sales Comparison [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	36.80%
Impaired Loans [Member] | Multifamily Real Estate [Member] | Sales Comparison [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	36.80%
Impaired Loans [Member] | Multifamily Real Estate [Member] | Sales Comparison [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	36.80%
Impaired Loans [Member] | Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	390	345
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)	44.80%	62.50%
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)	72.40%	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)	64.40%	64.00%
Impaired Loans [Member] | Non Owner Occupied Commercial Real Estate [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	588	428
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)	16.90%	50.60%
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)	16.90%	50.60%
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)	16.90%	50.60%
Impaired Loans [Member] | Commercial and Industrial [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	689	3,384
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)	8.00%	25.00%
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)	41.20%	65.50%
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)	26.50%	57.80%
Impaired Loans [Member] | All Other [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	4,218	4,133
Impaired Loans [Member] | All Other [Member] | Sales Comparison [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	56.80%	57.60%
Impaired Loans [Member] | All Other [Member] | Sales Comparison [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Comparability of sales (in hundredths)	56.80%	99.30%
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)	56.80%	57.70%
Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	10,356	8,786
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	2,003	290
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)	29.60%	42.70%
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)	29.60%	42.70%
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)	29.60%	42.70%
Other Real Estate Owned [Member] | All Other [Member] | Sales Comparison [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Asset fair value	$ 8,353	$ 8,496
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)	24.60%	9.50%
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)	50.20%	24.60%
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)	45.00%	12.50%

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STOCK COMPENSATION EXPENSE (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended		3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Jun. 30, 2014 2012 Long Term Incentive Plan [Member] Robert W. Walker [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period, description			three equal annual installments	three equal annual installments
Stock option vesting periods			3 years	3 years
Grants (in shares)			46,300	52,900	6,000
Fair value of stock options granted (in dollars per share)			$ 3.74	$ 2.85	$ 14.20
Compensation expense	$ 38	$ 41	$ 208	$ 128	$ 85
Unrecognized stock-based compensation expense	$ 148		$ 148
Unrecognized stock-based compensation, period of recognition			29 months

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net income	$ 3,151	$ 3,926	$ 9,921	$ 9,539
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale arising during the period	(577)	(730)	2,882	(6,139)
Reclassification of realized gain on the disposition of securities	(28)	(72)	(28)	(220)
Net change in unrealized gain (loss) on securities available for sale	(605)	(802)	2,854	(6,359)
Less tax impact	206	273	(970)	2,162
Other comprehensive income (loss)	(399)	(529)	1,884	(4,197)
Comprehensive income	$ 2,752	$ 3,397	$ 11,805	$ 5,342

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STOCKHOLDERS' EQUITY AND REGULATORY MATTERS

9 Months Ended

Sep. 30, 2014

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 2014 the Banks could, without prior approval, declare dividends to Premier of approximately $3.8 million plus any 2014 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 September 30, 2014 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:

	Sept. 30, 2014			December 31, 2013			Regulatory Minimum Requirements			To Be Considered Well Capitalized
Tier I Capital (to Risk-Weighted Assets)		14.0	%		16.9	%		4.0	%		6.0	%
Total Capital (to Risk-Weighted Assets)		15.2	%		18.2	%		8.0	%		10.0	%
Tier I Capital (to Average Assets)		9.2	%		11.0	%		4.0	%		5.0	%

As of September 30, 2014, 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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SECURITIES, With Unrealized Losses (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Continuous Unrealized Loss Position, Fair Value [Abstract]
Less than 12 Months, Fair Value	$ 57,386	$ 120,028
12 Months or More, Fair Value	30,531	0
Total Fair Value	87,917	120,028
Less than 12 Months, Unrealized Loss	(351)	(2,873)
12 Months or More, Unrealized Loss	(1,054)	0
Total Unrealized Loss	(1,405)	(2,873)
U. S. Government Sponsored Agency Securities [Member]
Continuous Unrealized Loss Position, Fair Value [Abstract]
Less than 12 Months, Fair Value	7,928	3,890
12 Months or More, Fair Value	0	0
Total Fair Value	7,928	3,890
Less than 12 Months, Unrealized Loss	(51)	(107)
12 Months or More, Unrealized Loss	0	0
Total Unrealized Loss	(51)	(107)
U. S. Government Sponsored Agency MBS - residential [Member]
Continuous Unrealized Loss Position, Fair Value [Abstract]
Less than 12 Months, Fair Value	27,807	13,797
12 Months or More, Fair Value	3,998	0
Total Fair Value	31,805	13,797
Less than 12 Months, Unrealized Loss	(60)	(321)
12 Months or More, Unrealized Loss	(14)	0
Total Unrealized Loss	(74)	(321)
U. S. Government Sponsored Agency CMO's - residential [Member]
Continuous Unrealized Loss Position, Fair Value [Abstract]
Less than 12 Months, Fair Value	21,651	102,341
12 Months or More, Fair Value	26,533	0
Total Fair Value	48,184	102,341
Less than 12 Months, Unrealized Loss	(240)	(2,445)
12 Months or More, Unrealized Loss	(1,040)	0
Total Unrealized Loss	$ (1,280)	$ (2,445)

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LOANS, Risk Category of Loans by Class of Loans, Credit Quality Indicators (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Accounts, notes, loans and financing receivable [Line Items]
Loans	$ 854,394	$ 740,770
Residential Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	278,586	216,081
Multifamily Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	30,315	38,456
Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	103,457	90,539
Non Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	212,811	208,756
Commercial and Industrial [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	103,764	85,301
Consumer [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	34,230	25,113
All Other [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	91,231	76,524
Pass [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	797,180	678,465
Pass [Member] | Bank of Gassaway [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	76,637
Pass [Member] | Residential Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	263,920	202,789
Pass [Member] | Multifamily Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	27,106	34,487
Pass [Member] | Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	94,219	79,694
Pass [Member] | Non Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	201,056	196,338
Pass [Member] | Commercial and Industrial [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	99,758	78,205
Pass [Member] | Consumer [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	33,808	24,772
Pass [Member] | All Other [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	77,313	62,180
Special Mention [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	29,486	31,542
Special Mention [Member] | Bank of Gassaway [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	2,653
Special Mention [Member] | Residential Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	7,940	6,204
Special Mention [Member] | Multifamily Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	894	918
Special Mention [Member] | Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	5,770	7,431
Special Mention [Member] | Non Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	6,739	8,569
Special Mention [Member] | Commercial and Industrial [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	2,224	2,269
Special Mention [Member] | Consumer [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	315	204
Special Mention [Member] | All Other [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	5,604	5,947
Substandard [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	27,684	30,488
Substandard [Member] | Bank of Gassaway [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	1,957
Substandard [Member] | Residential Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	6,711	7,065
Substandard [Member] | Multifamily Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	2,315	3,051
Substandard [Member] | Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	3,468	3,348
Substandard [Member] | Non Owner Occupied Commercial Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	5,016	3,849
Substandard [Member] | Commercial and Industrial [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	1,753	4,753
Substandard [Member] | Consumer [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	107	137
Substandard [Member] | All Other [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	8,314	8,285
Doubtful [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	44	275
Doubtful [Member] | Bank of Gassaway [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	0
Doubtful [Member] | Residential Real Estate [Member]
Accounts, notes, loans and financing receivable [Line Items]
Loans	15	23
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	66
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	29	74
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	$ 0	$ 112

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STOCK COMPENSATION EXPENSE (Tables)

9 Months Ended

Sep. 30, 2014

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:

	2014			2013
Risk-free interest rate		2.78	%		1.96	%
Expected option life (yrs)		10.00			10.00
Expected stock price volatility		31.19	%		35.24	%
Dividend yield		3.33	%		3.86	%
Weighted average fair value of options granted	$	3.74		$	2.85

Summary of Stock Option Activity

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

	2014					2013
				Weighted Average Exercise					Weighted Average Exercise
	Options			Price		Options			Price
Outstanding at beginning of year		354,281		$	9.84		392,366		$	9.24
Grants		46,300			14.43		52,900			11.39
Exercises		(77,896	)		8.52		(60,043	)		7.63
Forfeitures or expired		(8,133	)		9.27		(12,401	)		7.90
Outstanding at September 30,		314,552		$	10.86		372,822		$	9.76
Exercisable at September 30,		209,299					231,272
Weighted average remaining life of options outstanding		6.1					6.2
Weighted average fair value of options granted during the year	$	3.74				$	2.85

Stock Option Activity by Range of Exercise Prices

Additional information regarding stock options outstanding and exercisable at September 30, 2014, 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		136,049	$	7.51	$	970		108,356		6.4	$	7.52	$	771
$	10.01 to $12.50		55,603		11.44		178		24,343		4.7		11.50		77
$	12.51 to $15.00		99,400		13.91		72		53,100		2.9		13.46		63
$	15.01 to $17.50		23,500		16.00		0		23,500		1.4		16.00		-
Outstanding - Sept 30, 2014			314,552		10.86	$	1,220		209,299		4.8		10.44	$	911