-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U4k7yP2cPLFbRtTfgUC2t5tCoI2Ad1sKJ3Zq9FACXbRnjrs9Bp7iyE+qzkxGs6so xDbvjVZOzntHZ53X2z9LIw== 0001047469-97-004148.txt : 19971113 0001047469-97-004148.hdr.sgml : 19971113 ACCESSION NUMBER: 0001047469-97-004148 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREMIER FINANCIAL BANCORP INC CENTRAL INDEX KEY: 0000887919 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 611206757 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20908 FILM NUMBER: 97715160 BUSINESS ADDRESS: STREET 1: 120 N HAMILTON ST STREET 2: P O BOX 9 CITY: GEORGETOWN STATE: KY ZIP: 40324 BUSINESS PHONE: 6067963001 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number 0-20908 PREMIER FINANCIAL BANCORP, INC. (Exact name of registrant as specified in its charter) KENTUCKY 61-1206757 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 120 N. HAMILTON STREET GEORGETOWN, KENTUCKY 40324 (address of principal executive officer) (Zip Code) Registrant's telephone number (502) 863-7500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to filing requirements for the past 90 days. Yes X No -------- ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common stock - 4,209,090 shares outstanding at November 12, 1997. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The accompanying information has not been audited by independent public accountants; however, in the opinion of management such information reflects all adjustments necessary for a fair presentation of the results for the interim period. All such adjustments are of a normal and recurring nature. 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 generally accepted accounting principles or those normally made in the registrant's annual Form 10-K filing. Accordingly, the reader of the Form 10-Q may wish to refer to the registrant's Form 10-K for the year ended December 31, 1996 for further information in this regard.
Index to consolidated financial statements: Consolidated Balance Sheets . . . . . . . . . . . 3 Consolidated Statements of Income . . . . . . . . 4 Consolidated Statements of Cash Flows . . . . . . 5 Notes to Consolidated Financial Statements. . . . 6
Page 2 PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
September 30 December 31 1997 1996 (Unaudited) (*) ASSETS Cash and due from banks $ 9,045 $ 7,134 Federal funds sold 4,619 10,635 Investment securities: Available for sale 163,977 21,827 Held to maturity 21,301 20,993 Loans $250,059 $219,632 Less: Unearned interest (2,252) (2,045) Allowance for loan losses (2,842) (2,523) -------- -------- Net loans $244,965 $215,064 FHLB and Federal Reserve stock 2,707 1,543 Premises and equipment, net 5,116 3,800 Goodwill 5,218 5,490 Other assets 11,504 6,079 -------- -------- TOTAL ASSETS $468,452 $292,565 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing $ 25,959 $ 25,031 Time deposits, $100,000 and over 36,896 33,651 Other interest bearing 191,132 176,892 -------- -------- Total deposits $253,987 $235,574 Agreements to repurchase securities 116,023 5,599 Federal Home Loan Bank advances 21,056 9,377 Other liabilities 6,430 2,151 -------- -------- Total liabilities $397,496 $252,701 Mandatorily redeemable capital securities of subsidiary trust $ 28,750 $ 0 STOCKHOLDERS' EQUITY: Preferred stock, no par value; 1,000,000 shares authorized; none issued or outstanding $ 0 $ 0 Common stock, no par value; 10,000,000 shares authorized; 4,209,090 shares at September 30, 1997 and December 31, 1996, issued and outstanding 978 978 Surplus 32,941 32,941 Retained earnings 8,082 6,112 Net unrealized gains (losses) on securities 205 (167) available for sale -------- -------- Total stockholders' equity $ 42,206 $ 39,864 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $468,452 $292,565
See accompanying notes to the consolidated financial statements. *Derived from audited financial statements. Page 3 PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS) (UNAUDITED)
Three Months Ended Nine Months Ended September 30 September 30 September 30 September 30 1997 1996 1997 1996 INTEREST INCOME: Loans, including fees $6,070 $5,292 $17,410 $11,421 Investment securities - Taxable 2,748 526 4,154 1,280 Tax-exempt 264 174 767 341 Federal funds sold and other 38 117 369 297 ------ ------ ------- ------- Total interest income $9,120 $6,109 $22,700 $13,339 INTEREST EXPENSE: Deposits $2,943 $2,574 $8,378 $5,656 Debt and other borrowings 1,881 187 2,699 354 Capital Trust securities 714 0 898 0 ------ ------ ------- ------- Total interest expense $5,538 $2,761 $11,975 $6,010 Net interest income $3,582 $3,348 $10,725 $7,329 Provision for possible loan losses (492) (159) (949) (347) ------ ------ ------- ------- Net interest income after provision for possible loan losses $3,090 $3,189 $9,776 $6,982 NON-INTEREST INCOME: Service charges $ 273 $ 219 $ 747 $ 543 Insurance commissions 105 83 340 216 Investment securities gains (losses) 1,164 2 1,172 2 Other 97 90 529 285 ------ ------ ------- ------- $1,639 $394 $2,788 $1,046 NON-INTEREST EXPENSES: Salaries and employee benefits $1,207 $1,093 $3,634 $2,585 Occupancy and equipment expenses 383 255 1,007 539 Other expenses 1,303 676 2,666 1,608 ------ ------ ------- ------- $2,893 $2,024 $7,307 $4,732 Income before income taxes $1,836 $1,559 $5,257 $3,296 Provision for income taxes 571 506 1,602 998 ------ ------ ------- ------- NET INCOME $1,265 $1,053 $3,655 $2,298 Primary earnings per share $ .30 $ 0.25 $ .87 $ 0.77 Fully diluted earnings per share $ .30 $ 0.25 $ .87 $ 0.77 Weighted average shares outstanding 4,209 4,209 4,209 2,974
See accompanying notes to the consolidated financial statements. Page 4 PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Nine Months Ended September 30 September 30 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,655 $ 2,298 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 567 169 Provision for loan losses 949 347 Investment securities losses (gains), net ( 1,172) (2) Federal Home Loan Bank stock dividends (91) 0 Changes in: Other assets (5,558) (45) Other liabilities 4,279 862 --------- -------- Net cash provided by operating activities $ 2,629 $ 3,629 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of securities available for sale $(286,390) $(22,214) Proceeds from sales of securities available for sale 141,483 12,593 Proceeds from maturities of securities available for sale 4,407 6,050 Purchases of investment securities held to maturity (3,555) (1,221) Proceeds from maturities of securities held to maturity 3,232 2,077 Purchase of Federal Home Loan Bank stock (1,073) 0 Net change in federal funds sold 6,016 40 Net change in loans (30,850) (17,510) Purchases of bank premises and equipment, net (1,569) (571) Cash paid to purchase subsidiary, net of cash received 0 (12,427) --------- -------- Net cash used in investing activities $(168,299) $(33,183) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in deposits $ 18,413 $ 11,010 Net change in agreements to repurchase securities and federal funds purchased 110,424 (1,242) Net change in Federal Home Loan Bank advances 11,679 (26) Proceeds from issuance of Capital Trust preferred certificates 28,750 0 Repayment of debt 0 (5,000) Net proceeds from issuance of common stock 0 27,077 Dividends paid (1,685) (1,291) --------- -------- Net cash provided by financing activities $ 167,581 $ 30,528 Net increase in cash and cash equivalents $ 1,911 $ 974 Cash and cash equivalents at beginning of period 7,134 6,340 --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,045 $ 7,314
See accompanying notes to the consolidated financial statements. Page 5 PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Premier Financial Bancorp, Inc. (the Corporation) and its wholly-owned subsidiaries, Georgetown Bancorp, Inc., Georgetown, Kentucky, Citizens Deposit Bank & Trust, Vanceburg, Kentucky, Bank of Germantown, Germantown, Kentucky, Citizens Bank, Sharpsburg, Kentucky and Farmers Deposit Bank, Eminence, Kentucky. In addition, the Company has a data processing service subsidiary, Premier Data Services, Inc., Vanceburg, Kentucky and the newly formed PFBI Capital Trust subsidiary discussed in Note 5. All material intercompany transactions and balances have been eliminated. 2. PENDING BUSINESS COMBINATION On May 28, 1997, the Corporation entered into an Agreement and Plan of Merger with The Sabina Bank ("Sabina"), Sabina, Ohio, whereby the Corporation will exchange 476,300 common shares for all the issued and outstanding shares of Sabina in a business combination anticipated to be accounted for as a pooling of interests. At September 30, 1997, Sabina had total assets of $36.1 million and total shareholders' equity of $4.6 million. The share exchange is expected to be completed in November 1997. On October 31, 1997, the Corporation entered into an Agreement and Plan of Merger with Ohio River Bank ("Ohio River"), Ironton, Ohio, whereby the Corporation will exchange 300,000 common shares for all the issued and outstanding shares of Ohio River in a business combination anticipated to be accounted for as a pooling of interests. At September 30, 1997, Ohio River had total assets of $39.6 million and total shareholders' equity of $4.2 million. The share exchange is expected to be completed in the first quarter of 1998. Summarized results of operations of the separate companies and on a proforma basis for the nine months ended September 30, 1997 and for the year ended December 31, 1996 are as follows:
Nine Months Ended September 30, 1997 Premier Ohio Financial The Sabina River Bancorp Bank Bank Proforma (In Thousands) Net interest income after provision for loan losses $9,776 $1,132 $877 $11,785 Noninterest income 2,788 160 108 3,056 Noninterest expenses 7,307 1,047 891 9,245 Net income $3,655 $ 201 $ 94 $ 3,950
Page 6 PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. PENDING BUSINESS COMBINATION (CONTINUED)
Year Ended December 31, 1996 Premier Ohio Financial The Sabina River Bancorp Bank Bank Proforma (In Thousands) Net interest income after provision for loan losses $10,262 $1,404 $ 852 $12,518 Noninterest income 1,484 237 97 1,818 Noninterest expenses 6,793 1,282 1,155 9,230 Net income (loss) $ 3,436 $ 288 $ (206) $3,518
3. INVESTMENT SECURITIES Amortized cost and fair value of investment securities, by category, at September 30, 1997 are summarized as follows:
Amortized Unrealized Unrealized Fair Cost Gains Losses Value Available for sale: U.S. Treasury securities $ 138,368 $466 $ (1) $138,833 U.S. agency securities 21,272 27 (74) 21,225 Obligations of states and political subdivisions 1,128 0 (5) 1,123 Preferred stock 2,000 0 0 2,000 Other equity securities 900 0 (104) 796 ---------- ---- ----- -------- Total available for sale $ 163,668 $493 $(184) $163,977 Held to maturity: U.S. Treasury securities $ 1,651 $ 3 $ 0 $ 1,654 U.S. agency securities 4,729 13 (2) 4,740 Obligations of states and political subdivisions 14,715 358 (5) 15,068 Asset-backed securities 206 2 0 208 ---------- ---- ----- -------- Total held to maturity $ 21,301 $376 $ (7) $ 21,670
Page 7 PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENT SECURITIES (CONTINUED) Amortized cost and fair value of investment securities, by category, at December 31, 1996 are summarized as follows:
Amortized Unrealized Unrealized Fair Cost Gains Losses Value Available for sale: U.S. Treasury securities $ 4,098 $ 5 $ (9) $ 4,094 U.S. agency securities 13,440 40 (157) 13,323 Obligations of states and political subdivisions 1,584 40 (2) 1,622 Preferred stock 2,000 0 0 2,000 Other equity securities 900 0 (112) 788 -------- ------ ------- ------- Total available for sale $ 22,022 $ 85 $ (280) $21,827 Held to maturity: U.S. Treasury securities $ 2,058 $ 6 $ (9) $ 2,055 U.S. agency securities 6,329 18 (26) 6,321 Obligations of states and political subdivisions 12,190 250 (60) 12,380 Asset-backed securities 416 4 (4) 416 -------- ------ ------- ------- Total held to maturity $ 20,993 $ 278 $ (99) $21,172
4. ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses are as follows:
Three Months Ended Nine Months Ended September 30 September 30 September 30 September 30 1997 1996 1997 1996 Balance, beginning of period $ 2,607 $ 1,871 $ 2,523 $ 1,735 Reserve acquired through purchase of subsidiary 0 812 0 812 Net charge-offs (257) (249) (630) (301) Provision for loan losses 492 159 949 347 Balance, end of period $ 2,842 $ 2,593 $ 2,842 $ 2,593 -------- -------- -------- --------
Page 8 PREMIER FINANCIAL BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. CAPITAL SECURITIES OF SUBSIDIARY TRUST Mandatorily Redeemable Capital Securities of Subsidiary Trust ("Capital Securities") represent preferred beneficial interests in the assets of PFBI Capital Trust ("Trust"). The Trust holds certain 9.75% junior subordinated debentures due June 30, 2027 issued by the Corporation on June 9, 1997. Distributions on the Capital Securities will be payable at an annual rate of 9.75% of the stated liquidation amount of $25 per Capital Security, payable quarterly. Cash distributions on the Capital Securities are made to the extent interest on the debentures is received by the Trust. In the event of certain changes or amendments to regulatory requirements or federal tax rules, the Capital Securities are redeemable in whole. Otherwise, the Capital Securities are generally redeemable in whole or in part on or after June 30, 2002 at 100% of the liquidation amount. 6. RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) 128, "Earnings Per Share". SFAS 128 simplifies the standards for computing earnings per share (EPS) previously found in APB No. 15, "Earnings Per Share", and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the financial statements for all entities with complex capital structures. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly to fully diluted EPS under APB Opinion No. 15. SFAS 128 is effective for the Corporation's year ending December 31, 1997 and is not expected to have a material impact on the financial statements. In February 1997, the Financial Accounting Standards Board issued SFAS No. 129, "Disclosure of Information about Capital Structure". SFAS No. 129 establishes standards for disclosing information about an entity's capital structure. SFAS 129 is effective for financial statements for the periods ending after December 15, 1997. The Corporation will adopt SFAS 129 in the year ending December 31, 1997 and has not yet determined the effect of the adoption. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income". SFAS 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. The adoption of SFAS No. 130 is effective for the Corporation in 1999. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information". SFAS No. 131 requires publicly-held companies to report financial and other information about key revenue-producing segments of the entity for which such information is available and it utilized by the chief operation decision maker. Specific information to be reported for individual segments includes profit or loss, certain revenue and expense items and total assets. A reconciliation of segment financial information to amounts reported in the financial statements is also to be provided. SFAS No. 131 is effective for the Corporation in 1999. Page 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A. Financial Condition and Results of Operations Net income for the nine months ended September 30, 1997 of $3,655,000 or $.87 per share was 59% higher than the $2,298,000 or $.77 per share recorded for the same period in 1996. This increase was due largely to the increase of $2,794,000 in net interest income reflecting the growth in the average assets of the Corporation of approximately $164.8 million to $364.8 million compared to $200.0 million for the same period in 1996. The growth in average assets was the result of the acquisition of Farmers Deposit Bank of Eminence, Kentucky in July, 1996, the issuance of Trust Preferred Securities and repurchase agreements near the end of the second quarter of 1997, and the continued growth of the Corporation's other banks. For the three months ended September 30, 1997, net income totaled $1,265,000 or $.30 per share compared to $1,053,000 or $.25 per share for the same period in 1996. Total assets were $468.5 million at September 30, 1997 compared to $292.6 million at December 31, 1996, an increase of $175.9 million. The increase is primarily attributed to the issuance of Trust Preferred Securities ($28.8 million), an increase in repurchase agreements ($110 million) and the growth of the Corporation's subsidiary banks ($31 million). In an effort to minimize the adverse impact on net interest income until a permanent investment is made of the funds from the issuance of the Trust Preferred Securities, the Corporation initiated an investment strategy at the end of the second quarter of 1997 of selling approximately $110 million of short term (60 days) repurchase agreements and investing the proceeds in 2 to 5 year U.S. Treasury and agency securities with a weighted average interest rate of approximately 1% higher than the weighted average rate paid on the repurchase agreements. The Corporation's policy is to unwind its position when the spread between the weighted average interest rate of the repurchase agreements and the weighted average rate on the underlying securities falls below 50 basis points. During the third quarter of 1997, the spread fell below 50 basis points, the Corporation unwound its position and recognized a net gain of $1,164,000 on the sale of the underlying securities in the arbitrage portfolio. The spread subsequently increased to more than 50 basis points and the Corporation reestablished its position. Although the Corporation's investment strategy to minimize the adverse impact on net interest income has been successful, the Corporation's net interest margin and return on average assets have been significantly reduced by its implementation. The net interest margin for the nine months ended September 30, 1997 was 4.32% compared to 5.43% for the first nine months of 1996 and 5.32% for all of 1996. The return on average shareholders' equity and return on average assets were 11.9% and 1.34%, respectively, for the nine months ended September 30, 1997, compared to 12.7% and 1.50%, respectively for the same period in 1996. Page 10 Non-interest income increased $1,742,000 to $2,788,000 for the first nine months of 1997 compared to $1,046,000 for the first nine months of 1996. Non-interest income increased $1,245,000 to $1,639,000 for the three months ended September 30, 1997 compared to $394,000 for the same period in 1996. The increases are primarily due to the gains realized on the sale of securities totaling $1,164,000 during the third quarter of 1997. Also contributing to these increases was the growth and expansion of the Corporation's business and its customer base, including higher insurance commissions, income from the sale of loans and an overall increase in service charges. Additionally, non-interest income of $415,000 was recorded at Farmers Deposit Bank during 1996 prior to it being acquired by the Corporation and is not included in the Corporation's consolidated statement of income for the nine months ended September 30, 1996. Non-interest expenses were $7,307,000 or 2.67% of average assets on an annualized basis during the first nine months of 1997 compared to $4,732,000 or 3.15% of average assets during the same period of 1996. Non-interest expenses increased $869,000 during the three months ended September 30, 1997 to $2,893,000 compared to $2,024,000 for the three months ended September 30, 1996. Salaries and employee benefits increased from $1,093,000 and $2,585,000 for the three and nine months ended September 30, 1996, respectively, to $1,207,000 and $3,634,000 for the three and nine months ended September 30, 1997, respectively. Also increasing were other operating expenses from $676,000 and $1,608,000 for the three and nine months ended September 30, 1996 to $1,303,000 and $2,666,000 for the same periods in 1997, and occupancy expenses from $255,000 and $539,000 for the three and nine months ended September 30, 1996 to $383,000 and $1,007,000 for the three and nine months ended September 30, 1997. The increase in other operating expenses is primarily attributable to the acquisition expenses incurred in connection with the acquisition of The Sabina Bank, Sabina, Ohio. The other increases in non-interest expenses are attributable to the expansion of the Corporation's business and the exclusion from the Corporation's statement of income for the nine months ended September 30, 1997 of $1,108,000 of non-interest expenses incurred at Farmers Deposit Bank prior to it being acquired in 1996 in a business combination accounted for as a purchase. The following table sets forth information with respect to the Corporation's non-performing assets at the dates indicated. No loans were recorded as restructured loans within the meaning of SFAS No. 15 at the dates indicated.
September 30 December 31 December 31 1997 1996 1995 (In Thousands) Non-accrual loans $ 472 $ 423 $ 592 Accruing loans which are contractually past due 90 days or more 1,171 528 456 -------- ------ -------- Total non-performing loans $ 1,643 $ 951 $ 1,048 Other real estate acquired through foreclosure 1,058 485 132 -------- ------ -------- Total non-performing assets $ 2,701 $1,436 $ 1,180 Non-performing loans as a percentage of total net loans .66% .44% .93% Non-performing assets as a percentage of total assets .58% .49% .76%
Page 11 Although the Corporation's non-performing loans as a percentage of total net loans increased from .44% at December 31, 1996 to .66% at September 30, 1997 and non-performing assets to total assets increased from .49% at December 31, 1996 to .58% at September 30, 1997, non-performing loans and non-performing assets at September 30, 1997 as a percentage of total net loans and total assets, respectively, remain below the December 31, 1995 levels of .93% and .76%, respectively. The provision for possible loan losses increased from $159,000 for the three months ended September 30, 1996 to $492,000 for the three months ended September 30, 1997 and from $347,000 to $949,000 for the first nine months of 1996 compared to 1997. These increases were necessary to provide for possible losses on the $35 million increase in net loans outstanding from September 30, 1996 to September 30, 1997 and to replenish the allowance for loan losses due to an increase in net charge-offs from $301,000 for the nine months ended September 30, 1996 to $630,000 for the same period in 1997. The allowance for loan losses at September 30, 1997 of $2,842,000 represented 1.15% of total loans outstanding. Income tax expense was $1,602,000 for the first nine months of 1997 compared to $998,000 for the same period in 1996. Income tax expense for 1997 was higher than 1996 almost entirely due to the higher income before taxes since the effective tax rate for 1997 of 30.5% is comparable to the 30.3% for the same period in 1996. B. Liquidity Liquidity for a financial institution 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. In order to provide for funds on a current and long-term basis, the Company primarily relies on the following sources: 1. Core deposits consisting of both consumer and commercial deposits and certificates of deposit of $100,000 or more. 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 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. Page 12 C. Capital At September 30, 1997, total shareholders' equity of $42.2 million equaled 9.01% of total consolidated assets. Tier I capital totaled $49.3 million at September 30, 1997, which represents a Tier I leverage ratio of 10.65%. In June 1997, the Corporation issued $28.8 million of 9.75% Mandatorily Redeemable Capital Securities of Subsidiary Trust. These securities will qualify as Tier I capital up to an amount not to exceed 25% of Tier I capital and the portion that exceeds the 25% limitation will qualify as Tier 2 or supplementary capital of the Corporation. The issuance of these securities and resultant increase in capital will allow the Corporation to target larger financial institutions as potential acquisitions. The Company declared a first quarter dividend of $.125 per share, or $526,136, payable March 31, 1997 to shareholders of record as of March 20, 1997, a second quarter dividend of $.125 per share, or $526,136 payable June 30, 1997 to shareholders of record as of June 20, 1997 and increased the dividend in the third quarter to $.15 per share, or $631,363, payable September 30, 1997 to shareholders of record as of September 23, 1997. Page 13 PART II - OTHER INFORMATION
Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION OF DOCUMENT 27 Financial Data Schedules
Page 14 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 13, 1997 /s/ Marshall T. Reynolds ------------------------------- Marshall T. Reynolds Chairman of the Board Date: November 13, 1997 /s/ J. Howell Kelly ------------------------------- J. Howell Kelly President & Chief Executive Officer Page 15 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 9,045 0 4,619 0 163,977 21,301 21,670 247,807 2,842 468,452 253,987 135,488 6,430 30,341 0 0 978 41,228 468,452 17,410 4,921 369 22,700 8,378 11,975 10,725 949 1,172 7,307 5,257 5,257 0 0 3,655 .87 .87 4.32 472 1,171 0 0 2,523 795 165 2,842 2,842 0 0 Computed on a Tax-Equivalent basis.
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