PREMIER FINANCIAL BANCORP, INC. 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. Furthermore, uncertainty related to future economic conditions resulting from government actions designed to curb the spread of the COVID-19 virus may affect Premier's operations more or less than currently estimated. These important factors include, but are not limited to, those set forth in Premier's Annual Report on Form 10-K for the year endedDecember 31, 2020 , under Item 1A - Risk Factors and the following: 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) as well as state and local emergency orders related to COVID-19, 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 or lack thereof, Premier's ability to control costs, and new accounting pronouncements, all of which are difficult to predict and many of which are beyond the control of Premier. The words "may," "could," "should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "plan," "project," "predict," "continue" and similar expressions are intended to identify forward-looking statements.
A. Results of Operations
A financial institution's primary sources of revenue are generated by interest income on loans, investments and other earning assets, while its major expenses are produced by the funding of these assets with interest bearing liabilities. Effective management of these sources and uses of funds is essential in attaining a financial institution's optimal profitability while maintaining a minimum amount of interest rate risk and credit risk. Net income for the three months endedMarch 31, 2021 was$6,550,000 , or$0.44 per diluted share, compared to net income of$5,368,000 , or$0.36 per diluted share for the three months endedMarch 31, 2020 . The increase in net income in the first three months of 2021 is largely due to$1,096,000 of gains on the sale of securities, a$352,000 decrease in the provision for loan losses, and a$547,000 decrease in non-interest expenses. These items more than offset a$192,000 decrease in net interest income and a$201,000 decrease in non-interest income. The decrease in net interest income is a combination of larger decreases in both interest income and interest expense, while the decrease in non-interest expense was mainly due to a reduction of staff costs. The decrease in the provision for loan losses related primarily to a higher portion of the provision for loan losses recorded during the first quarter of 2020 attributed to additional identified credit risk in the loan portfolio related to anticipated consequences of the national economic shutdown designed to curb the spread of the novel corona virus of 2019 ("COVID-19") compared to the COVID-19 portion of the loan loss provision recorded in the first quarter of 2021. The annualized returns on average common shareholders' equity and average assets were approximately 10.30% and 1.35% for the three months endedMarch 31, 2021 compared to 8.76% and 1.22% for the same period in 2020.
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PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2021
Net interest income for the quarter ended March 31, 2021 totaled $16.150
million , down $192,000 , or 1.2%, from the $16.342 million of net interest income
earned in the first quarter of 2020. Interest income in 2021 decreased by
$1,657,000 , or 8.9%, largely due to a $1,132,000 , or 43.0%, decrease in interest
income on investment securities. Interest income on investment securities
decreased in the first quarter of 2021 largely due to lower average yields with
a higher outstanding average balance. The decrease in the average yield earned
is largely due to accelerated prepayments of mortgage-backed securities which
resulted in a corresponding higher rate of purchase premium amortization on
these securities as well as a significantly lower reinvestment yield on the
accelerated prepayment funds and investments purchased with funds from the
growth in deposit balances and customer repurchase agreements. In addition to
the decrease in interest income on investment securities, interest income on
loans decreased $306,000 , or 1.9%, compared to the first quarter of 2020.
Interest income on loans in the first quarter of 2021 included approximately
$506,000 of income from deferred interest and discounts recognized on loans that
paid off during the quarter compared to approximately $75,000 of interest income
of this kind recognized during the first quarter of 2020. Excluding this loan
income recognition, interest income on loans decreased by $737,000 , or 4.7%, in
the first quarter of 2021, largely due to a lower average yield earned, although
on a higher average balance of loans outstanding during the first quarter of
2021 when compared to the first quarter of 2020. Premier's participation in the
Small Business Administration's ("SBA") Paycheck Protection Program ("PPP")
resulted in $98,298,000 of loans outstanding at the end of the first quarter of
2021. These loans increased the three-month average loans outstanding by
approximately $81,343,000 in the first quarter of 2021 while no PPP loans were
outstanding during the first quarter of 2020. Interest income from
interest-bearing bank balances and federal funds sold decreased by $219,000 , or
84.9%, largely due to a significant decrease in the yield earned on these
balances in 2021 compared to the yield earned in 2020 resulting from decreases
in the short-term interest rate policy of the Federal Reserve Board of
Governors.
Substantially offsetting the decrease in interest income in the first quarter of
2021 was a $1,465,000 , or 63.6%, decrease in interest expense, compared to the
first quarter of 2020. Interest expense on deposits decreased by $1,400,000 , or
64.7%, in the first quarter of 2021, largely due to a lower average rate paid on
interest-bearing deposits outstanding in 2021, although on a higher average
balance of interest-bearing deposit balances outstanding in 2021. Average
interest-bearing deposit balances were up $34.3 million , or 3.1%, in the first
quarter of 2021 compared to the first quarter of 2020. The average interest
rate paid on interest-bearing deposits decreased by 51 basis points from 0.78%
in the first quarter of 2020 to 0.27% in the first quarter of 2021, as Premier
eliminated its interest rate specials on certificates of deposit and lowered the
interest rate paid on all deposit products in response to decreases in the
short-term interst rate policy of the Federal Reserve Board of Governors.
Similarly, interest expense paid on short-term borrowings, primarily customer
repurchase agreements, decreased by $12,000 , or 50.0%, in 2021. The interest
expense decrease was largely due to a 35 basis point decrease in the average
rate paid on short-term borrowings, partially offset by a 79.7% increase in the
average balance outstanding during the first quarter of 2021. Also contributing
to the overall 63.6% decrease in interest expense during the first quarter of
2021 was a $30,000 , 100%, decrease in interest expense on Federal Home Loan Bank
("FHLB") borrowings and a $23,000 , or 27.7%, decrease in interest expense on
Premier's subordinated debt. All FHLB borrowings were repaid in 2020 resulting
in no interest expense during the first quarter of 2021. Premier's subordinated
debt features a variable interest rate indexed to the short-term three-month
LIBOR interest rate, which was lower in the first quarter of 2021 in conjunction
with the decrease in short-term interest rate policy by the Federal Reserve
Board of Governors.
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PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2021
Premier's net interest margin during the first three months of 2021 was 3.59%
compared to 4.00% for the same period in 2020. A portion of the interest income
on loans is the result of recognizing deferred interest income on loans that
paid-off during the period. Excluding this income, Premier's net interest
margin during the first three months of 2021 would have been 3.48% compared to
3.98% for the same period in 2020. As shown in the table below, Premier's yield
earned on federal funds sold and interest-bearing bank balances decreased to
0.10% in the first three months of 2021, from the 1.46% earned in the first
quarter of 2020. The average yield earned on securities available for sale
decreased to 1.41% in the first three months of 2021, from the 2.73% earned in
the first quarter of 2020. The average yield earned on total loans outstanding
decreased to 5.08% from the 5.35% average yield earned in the first three months
of 2020. The average yield on loans in the first three months of 2021 benefited
from the $506,000 of interest income earned from deferred interest and discounts
recognized on loans that paid off during the quarter. The $506,000 added 16
basis points to the average loan yield in the first quarter of 2021. Earning
asset yields have decreased generally in response to decreases in long-term
interest rates driven by economic uncertainty resulting from worldwide
governmental actions intended to curb the spread of the COVID-19 virus. The
Federal Reserve Board of Governors also dramatically reduced its the short-term
interest rate policy as a means to stimulate the economy of the United States
responsive to COVID-19 governmental actions. As new loans have been made with
lower interest rates, some borrowers have requested interest rate lowering
adjustments on their existing loans with Premier. Premier has been very
selective in granting these loan interest rate concessions. Nevertheless, the
impact of both on the average loan yield in the first quarter of 2021 has been a
decrease of approximately 27 basis points when compared to the first quarter of
2020.
Similar to the decrease in earning asset yields, the average rate paid on
interest bearing liabilities decreased in the first three months of 2021 from
0.81% during the first three months of 2020 to 0.29% in the first three months
of 2021. Driving this decrease, the average rates paid on interest-bearing
deposits decreased from 0.78% in the first three months to 2020 to 0.27% during
the first three months of 2021, largely due to lower rates paid on maturing
certificates of deposits as well as immediate rate reductions on savings
deposits and transaction based interest bearing deposits. Decreases in
short-term rates resulting from actions by the Federal Reserve Board of
Governors to reduce the targeted federal funds rate to a range of 0.00% to 0.25%
plus an inflow of funds from direct stimulus payments from the U.S. Treasury to
deposit account holders in an effort to offset some of the negative effects of
COVID-19 governmental restrictions on non-essential businesses, have combined to
result in a decrease in the competition for bank deposit rates. Furthermore,
the average rate paid on Premier's variable rate subordinated debentures
decreased from 6.14% in the first three months of 2020 to 4.44% in the first
three months of 2021 due to decreases in short-term rates. The overall effect
was to decrease Premier's net interest spread by 27 basis points to 3.48% and
decrease Premier's net interest margin by 41 basis points to 3.59% in the first
three months of 2021 when compared to the first three months of 2020.
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PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2021 Additional information on Premier's net interest income for the first quarter of 2021 and first quarter of 2020 is contained in the following table.
PREMIER FINANCIAL BANCORP , INC. AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS Three Months Ended March 31, 2021 Three Months Ended March 31, 2020 Balance Interest Yield/Rate Balance Interest Yield/Rate
Assets Interest Earning Assets Federal funds sold and other$ 157,024 $ 39 0.10 %$ 71,171 $ 258 1.46 % Securities available for sale Taxable 404,485 1,329 1.31 374,278 2,543 2.72 Tax-exempt 34,282 171 2.53 14,780 89 3.05 Total investment securities 438,767 1,500 1.41 389,058 2,632 2.73 Total loans 1,232,698 15,448 5.08 1,184,383 15,754 5.35 Total interest-earning assets 1,828,489 16,987 3.77 % 1,644,612 18,644 4.56 % Allowance for loan losses (13,719 ) (13,593 ) Cash and due from banks 23,705 22,674 Other assets 106,385 106,876 Total assets$ 1,944,860 $ 1,760,569 Liabilities and Equity Interest-bearing liabilities Interest-bearing deposits$ 1,145,310 765 0.27 %$ 1,110,990 2,165 0.78 % Short-term borrowings 35,664 12 0.14 19,847 24 0.49 FHLB Advances - - - 4,149 30 2.91 Subordinated debt 5,478 60 4.44 5,440 83 6.14 Total interest-bearing liabilities 1,186,452 837 0.29 % 1,140,426 2,302 0.81 % Non-interest bearing deposits 493,016 363,560 Other liabilities 11,035 11,400 Stockholders' equity 254,357 245,183 Total liabilities and equity$ 1,944,860 $ 1,760,569 Net interest earnings$ 16,150 $ 16,342 Net interest spread 3.48 % 3.75 % Net interest margin 3.59 % 4.00 % 42
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PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2021
Non-interest income increased by $895,000 , or 39.8%, to $3,144,000 for the first
three months of 2021 compared to the same three months of 2020, mainly due to a
gain on the sale of securities. During the first quarter of 2021 Premier sold
$25.5 million of mortgage-backed securities and realized gains upon the sales
totaling $1,096,000 . In reviewing its investment portfolio, Premier identified
some mortgage-backed securities that had short-term projected weighted average
remaining lives and proportionately significant unrealized market value gains.
Rather than hold the securities until their full maturity, Premier decided to
liquidate these securities, realize the market value gains, and reinvest the
proceeds. Otherwise, non-interest income decreased by $201,000 , or 8.9%, in the
first quarter of 2021 when compared to the first quarter of 2020. Service
charges on deposit accounts decreased by $373,000 , or 33.7% in the first quarter
of 2021, insurance agency commission income decreased by $33,000 , or 39.1%,
while other non-interest income decreased by $29,000 , or 16.7%, when compared to
the first quarter of 2020. These decreases were partially offset by a $189,000 ,
or 23.1%, increase in electronic banking income (income from debit/credit cards,
ATM fees and internet banking charges) and a $45,000 , or 68.2%, increase in
secondary market mortgage income.
More than offsetting the $201,000 decrease in non-interest income excluding
gains on investment securities, non-interest expense decreased by $547,000 , or
5.1% in the first quarter of 2021 compared to the first quarter of 2020.
Non-interest expenses for the first quarter of 2021 totaled $10,190,000 , or
2.12% of average assets on an annualized basis, compared to $10,737,000 , or
2.45% of average assets for the same period of 2020. The $547,000 , or 5.1%
decrease in non-interest expenses was largely due to a $793,000 , or 14.7%,
decrease in staff costs, a $144,000 , or 52.4% decrease in taxes not on income, a
$76,000 , or 66.1%, decrease in loan collection expenses, a $20,000 , or 8.3%,
decrease in the amortization of intangible assets, and a net $150,000 decrease
in other operating expenses. These decreases were partially offset by a
$64,000 , or 3.7%, increase in occupancy and equipment expenses, a $186,000 , or
12.1%, increase in outside data processing costs, a $159,000 , or 65.2%, increase
in professional fees, a $96,000 increase in OREO expenses and writedowns, and a
$131,000 , increase in FDIC insurance expense. Staff costs decreased, due in
part to reductions in overall staff counts, but also due to a $288,000 , or
91.7%, increase in the deferral of staff costs related to loan originations
resulting primarily from the volume of PPP loans originated during the first
quarter of 2021. Taxes not on income decreased due to a change in the taxation
of banks in the Commonwealth of Kentucky , from an equity based franchise tax to
a state imposed income tax. Professional fees increased, primarily due to
expenses related to negotiating a definitive merger agreement with Peoples
Bancorp Inc. FDIC insurance expense increased in the first quarter of 2021, as
Premier had utilized FDIC based community bank assessment credits to fully
offset the first quarter 2020 FDIC insurance premium.
Income tax expense was $1,906,000 for the first three months of 2021 compared to
$1,486,000 for the first three months of 2020. The increase in income tax
expense is largely due to the increase in pretax income described above. In
addition, the effective tax rate for the three months ended March 31, 2021
increased to 22.5%, compared to a 21.7% effective tax rate for the same period
in 2020 due to the change in the taxation of banks in the Commonwealth of
Kentucky , from an equity based franchise tax to a state imposed income tax.
As an essential business, Premier has taken steps to modify its normal business
operations to include keeping branches open with appropriate "social distancing"
measures; utilizing permitted guidance provided by federal and state banking
supervisory regulators to assist borrowers to avoid defaulting on their loans;
and robustly participating in the U.S. Treasury's and Small Business
Administration's Payroll Protection Program. These efforts may or may not
enhance Premier's business model or future results of operations.
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PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2021
B. Financial Condition
Total assets at March 31, 2021 increased by $92.0 million to $2.038 billion from
the $1.946 billion at December 31, 2020 . The increase in total assets since
year-end is largely due to a $71.3 million increase in securities available for
sale and a $47.5 million increase in total loans, partially offset by a $20.7
million decrease in interest bearing bank balances. Earning assets increased by
$94.4 million from the $1.825 billion at year-end 2020 to end the quarter at
$1.920 billion .
Cash and due from banks at March 31, 2021 was $24.1 million , a $885,000 decrease
from the $25.0 million at December 31, 2020 . Interest bearing bank balances
decreased by $20.7 million from the $174.2 million reported at December 31,
2020 . Federal funds sold decreased by $3.6 million to $7.7 million at March 31,
2021 . 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 $492.5 million at March 31, 2021 , a $71.3
million increase from the $421.2 million at December 31, 2020 . The increase was
largely due to the purchase of $149.3 million of investment securities. This
increase more than offset $47.0 million of proceeds from monthly principal
payments on Premier's mortgage backed securities portfolio and securities that
matured or were called during the quarter. Also during the first quarter of
2021, Premier sold $25.5 million of mortgage-backed securities and realized
gains upon the sales totaling $1,096,000 . In reviewing its investment
portfolio, Premier identified some mortgage-backed securities that had
short-term projected weighted average remaining lives and proportionately
significant unrealized market value gains. Rather than hold the securities
until their full maturity, Premier decided to liquidate these securities,
realize the market value gains, and reinvest the proceeds. The investment
portfolio is predominately 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 March 31, 2021 and December 31,
2020 are believed to be price changes resulting from changes in the long-term
interest rate environment and management anticipates receiving all principal and
interest on these investments as they come due. Additional details on
investment activities can be found in the Consolidated Statements of Cash Flows.
Total loans at March 31, 2021 were $1.262 billion compared to $1.214 billion at
December 31, 2020 , an increase of approximately $47.5 million , or 3.9%. Premier
generated $37.1 million of new PPP loans, net of deferred fees and forgiveness
payments received, during the first quarter of 2021 plus another $10.4 million ,
or 0.9%, increase in traditional loans as new loans generated during the quarter
exceeded payoffs and principal payments received. Owner-occupied loans
increased by $9.5 million , or 5.8%, non-owner occupied loans increased by $3.7
million , or 1.1%, construction and land development loans increased by $6.1
million , or 6.6%, and residential real estate loans increased by $1.0 million ,
or 0.3%. These increases were partially offset by a decreases in multifamily
residential loans, down $4.6 million , or 12.0%, commercial and industrial loans,
down $2.8 million , or 3.2% and consumer loans, down $2.0 million , or 8.3%. Loan
payoffs during the first quarter of 2021 resulted in recognizing approximately
$331,000 of remaining net fair value discounts associated with the loans as well
as $175,000 of deferred loan interest income.
Premises and equipment decreased by $748,000 , largely due to normal quarterly
depreciation of fixed assets. Other intangible assets decreased by $222,000 ,
due to the amortization of core deposit intangibles.
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PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2021
Deposits totaled $1.696 billion as of March 31, 2021 , a $62.7 million , or 3.8%,
increase from the $1.634 billion in deposits at December 31, 2020 . The overall
increase in deposits is largely due to a $41.0 million , or 8.4% increase in
non-interest bearing deposits, a $26.3 million , or 5.7% increase in savings and
money market deposits, and an $8.8 million , or 2.5% increase in interest bearing
transaction deposits. Partially offsetting these increases, certificates of
deposit ("CD") balances decreased by $13.3 million , or 4.1%. The decrease in
certificate of deposit balances is primarily the result of significant decreases
in traditional CD rates, as management has lowered offering rates in response to
decreases in market short-term and long-term interest rates. As certificates of
deposit mature, depositors are either seeking higher deposit rates from other
competitive depository institutions or are transferring their balances to more
liquid interest-bearing deposit accounts such as NOW, money market and savings
deposits as a means to keep immediate access to their funds during the
uncertainty of employment or economic conditions. Much of the SBA's round two
PPP loan program proceeds were originally deposited with Premier's subsidiary
banks, giving rise to an increase in deposit balances. Furthermore, government
based economic stimulus checks to individuals have resulted in increases in
retail based deposit balances. Repurchase agreements with corporate and public
entity customers increased by $6.2 million , or 18.2%. Subordinated debentures
increased by $10,000 since year-end 2020, due to the the accretion of purchase
accounting fair value adjustments applied to the $6.186 million face value of
the subordinated debentures. Other liabilities increased by $37.4 million ,
largely due to $37.0 million of investment security purchases during the last
days of March 2021 for which the purchase proceeds were not required to be
remitted until April 2021 .
The following table sets forth information with respect to the Company's
nonperforming assets at
(In Thousands)
2021 2020
Non-accrual loans $ 11,964 $ 8,996
Accruing loans which are contractually past due 90 days or more 909 2,332
Accruing restructured loans 404 398
Total non-performing loans 13,277 11,726
Other real estate acquired through foreclosure (OREO) 13,011 13,215
Total non-performing assets $
26,288
Non-performing loans as a percentage of total loans
1.05 % 0.97 %
Non-performing assets as a percentage of total assets
1.29 % 1.28 %
Total non-performing loans have increased since year-end, largely due to a$3.0 million increase in non-accrual loans partially offset by a$1.4 million decrease in loans past due 90 days or more. Total non-performing assets have increased since year-end, largely due to the increase in non-performing loans partially offset by a$204,000 decrease in other real estate owned acquired through foreclosure ("OREO"). Other real estate owned decreased by$204,000 , or 1.5%, largely due to the sale of a few small residential real estate properties.
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PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2021
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 $177,000 during the first three months of 2021,
largely due to a few commercial and industrial and residential real estate loan
charge-offs. 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
three months of 2021 totaled $40,000 , resulting in net charge-offs for the first
quarter of 2021 of $137,000 . This compares to $686,000 of net charge-offs
recorded in the first quarter of 2020. The allowance for loan losses at March
31, 2021 was $14.0 million , or 1.11% of total loans, compared to $13.5 million ,
or 1.11% of total loans at December 31, 2020 . The PPP loans outstanding at
March 31, 2021 and December 31, 2020 have a 100% guarantee by the SBA and,
therefore, no allowance for loan losses is allocated to these loans. Excluding
the PPP loans, the $14.0 million allowance at March 31, 2021 is 1.21% of the
total remaining non-PPP portfolio loans while the $13.5 million allowance at
December 31, 2020 is 1.17% of the total remaining non-PPP portfolio loans.
During the first quarter of 2021, Premier recorded $648,000 of provision for
loan losses. This provision compares to $1,000,000 of provision for loan losses
recorded during the same quarter of 2020. A significant portion of the
provision for loan losses recorded during the first quarter of 2020 was
primarily to provide for an estimate of additional identified credit risk in the
loan portfolio due to uncertainty related to future economic conditions
resulting from government actions designed to curb the spread of the COVID-19
virus. Premier added approximately $514,000 to its qualitative credit risk
analysis of the loan portfolio related to loans originated to various industries
believed to be more susceptible to future credit risk resulting from an economic
slowdown, such as lodging, restaurants, amusement, personal services and retail
stores during the first quarter of 2020. During the remainder of 2020 and into
the first quarter of 2021, Premier refined its estimates on the qualitative
credit risk analysis of the loan portfolio related to COVID-19 and added
approximately $250,000 of additional provision during the first quarter of 2021
to the estimated $2.5 million of qualitative credit risk analysis related to
COVID-19 at year-end 2020. The remaining provision expense in the first quarter
of 2021 was related primarily to specific reserves allocated to impaired
commercial real estate secured loans. The level of provision expense is
determined under Premier's internal analysis of evaluating credit risk. The
provisions for loan losses recorded in 2020 and 2021 were made in accordance
with Premier's policies regarding management's estimation of probable incurred
losses in the loan portfolio and the adequacy of the allowance for loan losses,
which are in accordance with accounting principles generally accepted in the
United States of America . 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. With the
concentrations of commercial real estate loans in the Washington, DC , Richmond,
Virginia , and Cincinnati, Ohio markets, fluctuations in commercial real estate
values will be monitored. Premier also continues to monitor the impact of
declines in the coal mining industry that may have a larger impact in the
southern area of West Virginia and the decrease in the level of drilling
activity in the oil & gas industry, which may have a larger impact in the
central area of West Virginia .
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MARCH 31, 2021
A resulting decline in employment could increase non-performing assets from
loans originated in these areas. In each of the last five years, Premier sold
some OREO properties at a gain while other OREO properties have required
subsequent write-downs to net realizable values. These factors are considered in
determining the adequacy of the allowance for loan losses. 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 .
C. Critical Accounting Policies
The Company follows financial accounting and reporting policies that are in accordance with generally accepted accounting principles inthe 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 endedDecember 31, 2020 . 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 two 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 and the identification and evaluation of impaired loans. A detailed description of these accounting policies is contained in the Company's annual report on Form 10-K for the year endedDecember 31, 2020 . There have been no significant changes in the application of these accounting policies sinceDecember 31, 2020 . Management believes that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate given the factual circumstances at the time.
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PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2021
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
majority of its
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
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.
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PREMIER FINANCIAL BANCORP, INC.
MARCH 31, 2021
E. Capital
At March 31, 2021 , total stockholders' equity of $245.7 million was 12.1% of
total assets. This compares to total stockholders' equity of $259.9 million , or
13.4% of total assets on December 31, 2020 . The decrease in stockholders'
equity was largely due to the normal quarterly $0.15 per share cash dividend
declared and paid during the first quarter of 2021 and also a $1.00 per share
special cash dividend declared in January 2021 and paid in February 2021 . The
dividends combined to reduce stockholders' equity by $16.9 million .
Furthermore, a decrease in the market value of the investment portfolio
available for sale reduced stockholders' equity by $4.1 million , net of tax.
These decreases in stockholders' equity were partially offset by the $6.6
million of net income earned during the first quarter of 2021 and approximately
$191,000 of contributed capital from the exercise of employee stock options
during the first quarter.
Premier's Tier 1 capital totaled $197.8 million at March 31, 2021 , which
represents a community bank leverage ratio ("CBLR") of 10.50%. Premier's wholly
owned subsidiary Premier Bank, Inc. maintained a CBLR of 10.67% at March 31,
2021 , well in excess of the 8.50%% required to be considered well capitalized
under the prompt corrective action framework. Premier's other wholly owned
subsidiary bank, Citizens Deposit Bank maintained a CBLR of 8.44% at March 31,
2021 . The ratio is slightly below the required 8.50%; however the bank has
until the quarter immediately following the quarter it falls below the required
minimum to restore the ratio to the required percentage.
Book value per common share was $16.71 at March 31, 2021 and $17.71 at December
31, 2020 . The decrease in book value per share was largely due to the $1.00 per
share special cash dividend and the $0.15 per share quarterly cash dividend to
common shareholders declared and paid during the first quarter of 2021. Also
reducing Premier's book value per share at March 31, 2021 was the $4.1 million
of other comprehensive loss for the first three months of 2021 related to the
decrease in the market value of investment securities available for sale, which
decreased book value by approximately $0.28 per share. The decrease was
partially offset by the $0.44 per share earned during the first quarter.
49
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Table of Contents
PREMIER FINANCIAL BANCORP, INC. MARCH 31, 2021
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