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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2021

☐	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 ☑ No □.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§230.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No □.

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

Large accelerated filer □		Accelerated filer □
Non-accelerated filer ☑	Smaller reporting company ☑	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. □

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, no par value		PFBI		The Nasdaq Stock Market LLC

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

Common stock, no par value, – 14,715,620 shares outstanding at April 28, 2021

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PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2021

INDEX TO REPORT

Part I - Financial Information
Item 1 – Financial Statements	3
Item 2 – Management’s Discussion and Analysis	39
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	50
Item 4 – Controls and Procedures	50
Part II - Other Information	51
Item 1 – Legal Proceedings	51
Item 1A – Risk Factors	51
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3 – Defaults Upon Senior Securities	51
Item 4 – Mine Safety Disclosures	51
Item 5 – Other Information	51
Item 6 – Exhibits	52
Signatures	53

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PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2021

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, and the impairment of goodwill. 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, 2020 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 Statement of Changes in Stockholders’ Equity	7
Consolidated Statements of Cash Flows	8
Notes to Consolidated Financial Statements	9

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2021 AND DECEMBER 31, 2020

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

	(UNAUDITED)
	March 31, 2021			December 31, 2020
ASSETS
Cash and due from banks	$	24,076		$	24,961
Interest bearing bank balances		153,468			174,209
Federal funds sold		7,665			11,306
Cash and cash equivalents		185,209			210,476
Securities available for sale		492,464			421,190
Loans		1,261,908			1,214,378
Allowance for loan losses		(14,027	)		(13,516	)
Net loans		1,247,881			1,200,862
Federal Home Loan Bank stock, at cost		4,166			4,166
Premises and equipment, net		34,539			35,287
Other real estate owned, net		13,011			13,215
Interest receivable		6,192			5,991
Goodwill		47,640			47,640
Other intangible assets		4,202			4,424
Other assets		2,484			2,571
Total assets	$	2,037,788		$	1,945,822

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing	$	528,637		$	487,675
Time deposits, $250 and over		66,089			63,602
Other interest bearing		1,101,713			1,082,463
Total deposits		1,696,439			1,633,740
Securities sold under agreements to repurchase		39,980			33,827
Subordinated debt		5,485			5,475
Interest payable		272			360
Other liabilities		49,933			12,513
Total liabilities		1,792,109			1,685,915

Stockholders' equity
Common stock, no par value; 30,000,000 shares authorized; 14,706,608 shares issued and outstanding at March 31, 2021, and 14,674,379 shares issued and outstanding at December 31, 2020		134,322			134,110
Retained earnings		106,017			116,378
Accumulated other comprehensive income		5,340			9,419
Total stockholders' equity		245,679			259,907
Total liabilities and stockholders' equity	$	2,037,788		$	1,945,822

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

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

	Three Months Ended March 31,
	2021		2020
Interest income
Loans, including fees	$	15,448	$	15,754
Securities available for sale
Taxable		1,329		2,543
Tax-exempt		171		89
Federal funds sold and other		39		258
Total interest income		16,987		18,644

Interest expense
Deposits		765		2,165
Repurchase agreements and other		12		24
FHLB advances		-		30
Subordinated debt		60		83
Total interest expense		837		2,302

Net interest income		16,150		16,342
Provision for loan losses		648		1,000
Net interest income after provision for loan losses		15,502		15,342

Non-interest income
Service charges on deposit accounts		733		1,106
Electronic banking income		1,007		818
Security gains		1,096		-
Secondary market mortgage income		111		66
Other		197		259
		3,144		2,249
Non-interest expenses
Salaries and employee benefits		4,615		5,408
Occupancy and equipment expenses		1,789		1,725
Outside data processing		1,717		1,531
Professional fees		403		244
Taxes, other than payroll, property and income		131		275
Write-downs, expenses, sales of other real estate owned, net		164		68
Amortization of intangibles		222		242
FDIC insurance		127		(4	)
Other expenses		1,022		1,248
		10,190		10,737
Income before income taxes		8,456		6,854
Provision for income taxes		1,906		1,486

Net income	$	6,550	$	5,368

Net income per share:
Basic	$	0.45	$	0.37
Diluted		0.44		0.36

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

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

	Three Months Ended March 31,
	2021			2020
Net income	$	6,550		$	5,368

Other comprehensive income (loss):
Unrealized gains (losses) arising during the period		(4,067	)		6,892
Reclassification of realized amount		(1,096	)		-
Net change in unrealized gain (loss) on securities		(5,163	)		6,892
Less tax impact		1,084			(1,447	)
Other comprehensive income (loss)		(4,079	)		5,445

Comprehensive income	$	2,471		$	10,813

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

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

	Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (loss)		Total
Balances, January 1, 2020	$	133,795	$	102,743		$	3,703	$	240,241
Net income		-		5,368			-		5,368
Other comprehensive income		-		-			5,445		5,445
Cash dividends paid ($0.15 per share)		-		(2,200	)		-		(2,200	)
Stock options exercised		31		-			-		31
Stock based compensation expense		40		-			-		40
Balances, March 31, 2020	$	133,866	$	105,911		$	9,148	$	248,925

	Common Stock		Retained Earnings			Accumulated Other Comprehensive Income (loss)			Total
Balances, January 1, 2021	$	134,110	$	116,378		$	9,419		$	259,907
Net income		-		6,550			-			6,550
Other comprehensive income (loss)		-		-			(4,079	)		(4,079	)
Cash dividends paid ($1.15 per share)		-		(16,911	)		-			(16,911	)
Stock options exercised		191		-			-			191
Stock based compensation expense		21		-			-			21
Balances, March 31, 2021	$	134,322	$	106,017		$	5,340		$	245,679

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PREMIER FINANCIAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2021 AND 2020

(UNAUDITED, DOLLARS IN THOUSANDS)

	2021			2020
Cash flows from operating activities
Net income	$	6,550		$	5,368
Adjustments to reconcile net income to net cash from operating activities
Depreciation		520			460
Provision for loan losses		648			1,000
Amortization, net of accretion		1,141			94
Writedowns of other real estate owned, net		21			14
Stock compensation expense		21			40
Gain on the disposition of securities available for sale		(1,096	)		-
Changes in:
Interest receivable		(201	)		(493	)
Other assets		87			434
Interest payable		(88	)		(47	)
Other liabilities		1,803			455
Net cash from operating activities		9,406			7,325

Cash flows from investing activities
Purchases of securities available for sale		(112,295	)		(47,360	)
Proceeds from maturities and calls of securities available for sale		47,024			40,458
Proceeds from the sale of securities available for sale		25,526			-
Redemption of FHLB stock		-			136
Net change in loans		(47,340	)		8,960
Purchases of premises and equipment, net		(71	)		(181	)
Proceeds from sales of other real estate acquired through foreclosure		349			380
Net cash from (used in) investing activities		(86,807	)		2,393

Cash flows from financing activities
Net change in deposits		62,701			(33,390	)
Net change in agreements to repurchase securities		6,153			(734	)
Advances from FHLB		-			5,000
Repayment of FHLB advances		-			(3,400	)
Proceeds from stock option exercises		191			31
Common stock dividends paid		(16,911	)		(2,200	)
Net cash from (used in) financing activities		52,134			(34,693	)

Net change in cash and cash equivalents		(25,267	)		(24,975	)

Cash and cash equivalents at beginning of period		210,476			95,056

Cash and cash equivalents at end of period	$	185,209		$	70,081

Supplemental disclosures of cash flow information:
Cash paid during period for interest	$	925		$	2,349
Loans transferred to real estate acquired through foreclosure		166			891
Security purchases settled in subsequent period		37,000			-
Operating right-of-use asset resulting from lease liability		(299	)		171

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1 - BASIS OF PRESENTATION

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

					March 31, 2021
		Year			Net Income
Subsidiary	Location	Acquired	Assets		Qtr
Citizens Deposit Bank & Trust	Vanceburg, Kentucky	1991	$	635,866	$	1,874
Premier Bank, Inc.	Huntington, West Virginia	1998		1,394,858		5,165
Parent and Intercompany Eliminations				7,064		(489)
Consolidated Total			$	2,037,788	$	6,550

All significant intercompany transactions and balances have been eliminated.

Estimates in the Financial Statements: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions based on available information. These estimates are, to a large degree, dependent upon our accounting policies. The selection and application of these accounting policies involve judgments, estimates, and uncertainties that are susceptible to change. Those accounting policies that management believes are the most important to the presentation and understanding of our financial condition and results of operations include the allowance for loan losses, business combinations and impairment of goodwill, and the identification and evaluation of impaired loans. The estimates and assumptions used in these calculations affect the amounts reported in the financial statements and the disclosures provided. At this time, management does not believe there exists any impairment to goodwill and intangible assets, long-lived assets, or available-for-sale securities due to the COVID-19 pandemic. The effects of government measures to curb the spread of the COVID-19 virus on the local or national economy are uncertain and could cause assumptions and conditions to change in the near term. In the event that changes to assumptions or conditions from what was originally estimated were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood.

Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU replaces the measurement for credit losses from a probable incurred estimate with an expected future loss estimate, which is referred to as the “current expected credit loss” or “CECL”. The standard pertains to financial assets measured at amortized cost such as loans, debt securities classified as held-to-maturity, and certain other contracts, in which organizations will now use forward-looking information to enhance their credit loss estimates on these assets. The largest impact will be on the allowance for loan and lease losses. The Company has formed a committee to oversee the steps required in the adoption of the new current expected credit loss method. The committee has selected a third-party vendor to assist in data analysis and modeling as well as the required disclosures. Management is currently evaluating the impact of the adoption of this guidance on the Company’s financial statements. Upon adoption, an initial cumulative increase in the allowance for loan losses is currently anticipated by management along with a corresponding decrease in capital as permitted by the standard. However, due to the complexity of the calculation and evolving guidance on adoption management has not yet determined the one-time adjustment. On July 17, 2019, the Financial Accounting Standards Board (“FASB”) voted for a proposal to extend the implementation deadline for smaller reporting companies like Premier. The proposal extends the implementation deadline for Premier for a period of three-years until January 1, 2023. The proposal was approved on October 16, 2019.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 2 - SECURITIES

Amortized cost and fair value of investment securities, by category, at March 31, 2021 are summarized as follows:

2021	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. sponsored agency MBS - residential	$	259,484	$	7,414	$	(560	)	$	266,338
U. S. sponsored agency CMO’s - residential		22,869		696		-			23,565
Total mortgage-backed securities of government sponsored agencies		282,353		8,110		(560	)		289,903
U. S. government sponsored agency securities		140,342		121		(1,553	)		138,910
Obligations of states and political subdivisions		57,692		945		(400	)		58,237
Other securities		5,317		97		-			5,414
Total available for sale	$	485,704	$	9,273	$	(2,513	)	$	492,464

Amortized cost and fair value of investment securities, by category, at December 31, 2020 are summarized as follows:

2020	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Available for sale
Mortgage-backed securities
U. S. sponsored agency MBS - residential	$	318,315	$	9,777	$	(292	)	$	327,800
U. S. sponsored agency CMO’s - residential		29,264		812		-			30,076
Total mortgage-backed securities of government sponsored agencies		347,579		10,589		(292	)		357,876
U. S. government sponsored agency securities		2,490		136		-			2,626
Obligations of states and political subdivisions		53,639		1,361		-			55,000
Other securities		5,559		129		-			5,688
Total available for sale	$	409,267	$	12,215	$	(292	)	$	421,190

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 2 - SECURITIES - continued

The amortized cost and fair value of securities at March 31, 2021 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	$	18,208	$	18,340
Due after one year through five years		24,682		25,086
Due after five years through ten years		146,043		144,781
Due after ten years		14,418		14,354
Mortgage-backed securities of government sponsored agencies		282,353		289,903
Total available for sale	$	485,704	$	492,464

During the first three months of 2021 Premier sold $25.5 million of mortgage-backed securities and realized gains upon the sales totaling $1,096,000. There were no sales of securities during the first three months of 2020.

Securities with unrealized losses at March 31, 2021 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	$	66,447	$	(1,553	)	$	-	$	-	$	66,447	$	(1,553	)
U.S government sponsored agency MBS – residential		66,994		(560	)		-		-		66,994		(560	)
Obligations of states and political subdivisions		15,333		(400	)		-		-		15,333		(400	)
Total temporarily impaired	$	148,774	$	(2,513	)	$	-	$	-	$	148,774	$	(2,513	)

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 2 - SECURITIES - continued

Securities with unrealized losses at December 31, 2020 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

	Less than 12 Months					12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

U.S government sponsored agency MBS – residential	$	58,207	$	(292	)	$	-	$	-	$	58,207	$	(292	)
Total temporarily impaired	$	58,207	$	(292	)	$	-	$	-	$	58,207	$	(292	)

The investment portfolio is predominately high credit quality interest-bearing bonds with defined maturity dates backed by the U.S. Government or Government sponsored entities. The unrealized losses at March 31, 2021 and December 31, 2020 are price changes resulting from changes in the interest rate environment and are considered to be temporary declines in the value of the securities. Management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery. Their fair value is expected to recover as the bonds approach their maturity date and/or market conditions improve.

NOTE 3 – LOANS

Major classifications of loans at March 31, 2021 and December 31, 2020 are summarized as follows:

	2021		2020
Residential real estate	$	379,679	$	378,659
Multifamily real estate		33,414		37,978
Commercial real estate:
Owner occupied		174,206		164,706
Non-owner occupied		332,765		329,031
Commercial and industrial		87,223		90,062
SBA PPP		98,298		61,169
Consumer		22,005		23,984
Construction and land		98,794		92,648
All other		35,524		36,141
	$	1,261,908	$	1,214,378

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS - continued

Activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2021 was as follows:

Loan Class	Balance Dec 31, 2020		Provision (credit) for loan losses			Loans charged-off			Recoveries		Balance March 31, 2021

Residential real estate	$	2,071	$	99		$	(60	)	$	1	$	2,111
Multifamily real estate		184		(18	)		-			-		166
Commercial real estate:
Owner occupied		2,874		95			-			1		2,970
Non-owner occupied		5,129		499			-			-		5,628
Commercial and industrial		1,538		(95	)		(63	)		5		1,385
Consumer		226		1			(26	)		4		205
Construction and land		946		74			-			2		1,022
All other		548		(7	)		(28	)		27		540
Total	$	13,516	$	648		$	(177	)	$	40	$	14,027

Activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2020 was as follows:

Loan Class	Balance Dec 31, 2019		Provision (credit) for loan losses			Loans charged-off			Recoveries		Balance March 31, 2020

Residential real estate	$	1,711	$	216		$	(93	)	$	4	$	1,838
Multifamily real estate		1,954		150			-			-		2,104
Commercial real estate:
Owner occupied		2,441		342			(566	)		3		2,220
Non-owner occupied		3,184		479			(24	)		3		3,642
Commercial and industrial		1,767		22			-			28		1,817
Consumer		281		2			(69	)		27		241
Construction and land		1,724		(349	)		-			37		1,412
All other		480		138			(74	)		38		582
Total	$	13,542	$	1,000		$	(826	)	$	140	$	13,856

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS - continued

Purchased 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 March 31, 2021 and December 31, 2020.

	2021		2020
Residential real estate	$	2,025	$	2,092
Commercial real estate
Owner occupied		680		1,012
Non-owner occupied		2,006		2,357
Commercial and industrial		14		16
Consumer		8		9
Construction and land		337		368
All other		38		110
Total carrying amount	$	5,108	$	5,964
Contractual principal balance	$	8,060	$	9,267

Carrying amount, net of allowance	$	5,108	$	5,964

For those purchased loans disclosed above, the Company did not increase the allowance for loan losses during the three-months ended March 31, 2021 and March 31, 2020.

For those purchased loans disclosed above, where the Company can reasonably estimate the cash flows expected to be collected on the loans, a portion of the purchase discount is 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 is being recognized as interest income over the remaining life of the loan.

Where the Company cannot reasonably estimate the cash flows expected to be collected on the loans, it 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.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS - continued

The accretable yield, or income expected to be collected, on the purchased loans above is as follows at March 31, 2021 and March 31, 2020.

	2021			2020
Balance at January 1	$	277		$	619
New loans purchased		-			-
Accretion of income		(87	)		(36	)
Loans placed on non-accrual		(5	)		-
Income recognized upon full repayment		-			(7	)
Reclassifications from non-accretable difference		219			-
Disposals		-			-
Balance at March 31	$	404		$	576

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS - continued

Past Due and Non-performing Loans

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2021 and December 31, 2020. The recorded investment in non-accrual loans is less than the principal owed on non-accrual loans due to discounts applied to the carrying value of the loan at time of their acquisition and interest payments made by the borrower which have been used to reduce the recorded investment in the loan rather than recognized as interest income.

March 31, 2021	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing

Residential real estate	$	4,506	$	3,562	$	807
Commercial real estate
Owner occupied		3,861		3,602		94
Non-owner occupied		5,367		4,216		7
Commercial and industrial		1,066		490		-
Consumer		147		85		1
Construction and land		11		9		-
Total	$	14,958	$	11,964	$	909

December 31, 2020	Principal Owed on Non-accrual Loans		Recorded Investment in Non-accrual Loans		Loans Past Due Over 90 Days, still accruing

Residential real estate	$	5,144	$	3,955	$	1,348
Commercial real estate
Owner occupied		2,601		2,103		7
Non-owner occupied		3,305		2,230		975
Commercial and industrial		1,173		604		-
Consumer		168		94		1
Construction and land		12		10		1
Total	$	12,403	$	8,996	$	2,332

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

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS - continued

The following table presents the aging of the recorded investment in past due loans as of March 31, 2021 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	$	379,679	$	2,763	$	2,512	$	5,275	$	374,404
Multifamily real estate		33,414		-		-		-		33,414
Commercial real estate:
Owner occupied		174,206		1,999		580		2,579		171,627
Non-owner occupied		332,765		988		935		1,923		330,842
Commercial and industrial		87,223		30		367		397		86,826
SBA PPP		98,298		-		-		-		98,298
Consumer		22,005		144		13		157		21,848
Construction and land		98,794		-		4		4		98,790
All other		35,524		-		-		-		35,524
Total	$	1,261,908	$	5,924	$	4,411	$	10,335	$	1,251,573

The following table presents the aging of the recorded investment in past due loans as of December 31, 2020 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	$	378,659	$	3,978	$	3,190	$	7,168	$	371,491
Multifamily real estate		37,978		32		-		32		37,946
Commercial real estate:
Owner occupied		164,706		1,197		814		2,011		162,695
Non-owner occupied		329,031		987		2,196		3,183		325,848
Commercial and industrial		90,062		75		476		551		89,511
SBA PPP		61,169		-		-		-		61,169
Consumer		23,984		190		38		228		23,756
Construction and land		92,648		-		5		5		92,643
All other		36,141		23		-		23		36,118
Total	$	1,214,378	$	6,482	$	6,719	$	13,201	$	1,201,177

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS - continued

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2021:

	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	$	-	$	2,111	$	-	$	2,111	$	56	$	377,598	$	2,025	$	379,679
Multifamily real estate		-		166		-		166		-		33,414		-		33,414
Commercial real estate:
Owner occupied		291		2,679		-		2,970		3,797		169,729		680		174,206
Non-owner occupied		653		4,975		-		5,628		4,123		326,636		2,006		332,765
Commercial and industrial		277		1,108		-		1,385		400		86,809		14		87,223
SBA PPP		-		-		-		-		-		98,298		-		98,298
Consumer		-		205		-		205		-		21,997		8		22,005
Construction and land		-		1,022		-		1,022		-		98,457		337		98,794
All other		-		540		-		540		-		35,486		38		35,524
Total	$	1,221	$	12,806	$	-	$	14,027	$	8,376	$	1,248,424	$	5,108	$	1,261,908

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, 2020:

	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	$	-	$	2,071	$	-	$	2,071	$	57	$	376,510	$	2,092	$	378,659
Multifamily real estate		-		184		-		184		-		37,978		-		37,978
Commercial real estate:
Owner occupied		240		2,634		-		2,874		1,981		161,713		1,012		164,706
Non-owner occupied		385		4,744		-		5,129		1,843		324,831		2,357		329,031
Commercial and industrial		374		1,164		-		1,538		548		89,498		16		90,062
SBA PPP		-		-		-		-		-		61,169		-		61,169
Consumer		-		226		-		226		-		23,975		9		23,984
Construction and land		-		946		-		946		-		92,280		368		92,648
All other		-		548		-		548		-		36,031		110		36,141
Total	$	999	$	12,517	$	-	$	13,516	$	4,429	$	1,203,985	$	5,964	$	1,214,378

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS - continued

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

The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2021. The table includes $71,000 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	$	172	$	56	$	-
Commercial real estate
Owner occupied		3,547		3,305		-
Non-owner occupied		1,320		421		-
Commercial and industrial		509		-		-
		5,548		3,782		-
With an allowance recorded:
Commercial real estate
Owner occupied		508		492		291
Non-owner occupied		4,019		3,773		653
Commercial and industrial		440		400		277
		4,967		4,665		1,221
Total	$	10,515	$	8,447	$	1,221

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS - continued

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2020. The table includes $689,000 of loans acquired with deteriorated credit quality for which 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	$	175	$	57	$	-
Commercial real estate
Owner occupied		2,295		1,815		-
Non-owner occupied		1,638		743		-
Commercial and industrial		509		-		-
		4,617		2,615		-
With an allowance recorded:
Commercial real estate
Owner occupied	$	506	$	490	$	240
Non-owner occupied		1,638		1,465		385
Commercial and industrial		581		548		374
		2,725		2,503		999
Total	$	7,342	$	5,118	$	999

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS - continued

The following table presents the average balance of loans individually evaluated for impairment and interest income recognized on these loans for the three months ended March 31, 2021 and March 31, 2020. The table includes loans acquired with deteriorated credit quality that are still individually evaluated for impairment.

	Three months ended March 31, 2021						Three months ended March 31, 2020
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	$	57	$	-	$	-	$	62	$	-	$	-
Multifamily real estate		-		-		-		3,761		-		-
Commercial real estate:
Owner occupied		3,050		152		152		2,408		3		3
Non-owner occupied		3,201		-		-		4,362		36		36
Commercial and industrial		474		1		1		726		1		1
Construction and land		-		-		-		378		-		-
Total	$	6,782	$	153	$	153	$	11,697	$	40	$	40

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS - continued

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 March 31, 2021 and December 31, 2020:

March 31, 2021	TDR’s on Non-accrual		Other TDR’s		Total TDR’s

Residential real estate	$	1	$	215	$	216
Commercial real estate
Owner occupied		-		189		189
Non-owner occupied		856		-		856
Total	$	857	$	404	$	1,261

December 31, 2020	TDR’s on Non-accrual		Other TDR’s		Total TDR’s

Residential real estate	$	19	$	203	$	222
Commercial real estate
Owner occupied		-		195		195
Non-owner occupied		856		-		856
Total	$	875	$	398	$	1,273

At March 31, 2021, $306,000 in specific reserves was allocated to loans that had restructured terms resulting in a provision for loan losses of $30,000 for the three months ended March 31, 2021, compared to $203,000 in provision for loan losses on restructured loans during the three months ended March 31, 2020. At December 31, 2020, $276,000 in specific reserves was allocated to loans that had restructured terms. There were no commitments to lend additional amounts to these borrowers.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS - continued

There were no TDR’s that occurred during the three months ended March 31, 2021 or the three months ended March 31, 2020.

During the three months ended March 31, 2021 and the three months ended March 31, 2020, there were no TDR’s for which there was a payment default within twelve months following the modification.

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

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020. Provisions of the CARES Act permit certain loan payment modifications by banks that would normally be considered TDR’s to be exempt from the TDR rules. To date, management has exercised these provisions of the CARES Act on some loan modifications on an individually requested basis.

The following table presents the status of the remaining loans as of March 31, 2021 and December 31, 2020 with some degree of payment modification under the CARES Act.

March 31, 2021	Modified to Interest Only Payment		Modified to Defer Principal and Interest Payment		Total
Commercial real estate
Owner occupied	$	967	$	5,108	$	6,075
Non-owner occupied		3,839		12,293		16,132
Construction and land		5,769		-		5,769
Total	$	10,575	$	17,401	$	27,976

December 31, 2020	Modified to Interest Only Payment		Modified to Defer Principal and Interest Payment		Total

Residential real estate	$	560	$	338	$	898
Multifamily real estate		667		-		667
Commercial real estate
Owner occupied		10,567		396		10,963
Non-owner occupied		17,659		214		17,873
Construction and industrial		-		898		898
Consumer		7		19		26
Construction and land		2,472		3,849		6,321
Total	$	31,932	$	5,714	$	37,646

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS - continued

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 by residential real estate, on a monthly basis. For consumer loans, including consumer loans secured by residential real estate, and smaller balance non-homogeneous loans, the analysis involves monitoring the performing status of the loan. At the time such loans become past due by 90 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.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS - continued

As of March 31, 2021, 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	$	366,902	$	2,950	$	9,827	$	-	$	379,679
Multifamily real estate		30,955		2,459		-		-		33,414
Commercial real estate:
Owner occupied		165,784		4,540		3,882		-		174,206
Non-owner occupied		303,662		24,348		4,755		-		332,765
Commercial and industrial		82,656		3,291		1,276		-		87,223
SBA PPP		98,298		-		-		-		98,298
Consumer		21,866		-		139		-		22,005
Construction and land		94,093		4,639		62		-		98,794
All other		35,498		26		-		-		35,524
Total	$	1,199,714	$	42,253	$	19,941	$	-	$	1,261,908

As of December 31, 2020, 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	$	365,397	$	3,093	$	10,169	$	-	$	378,659
Multifamily real estate		35,412		2,566		-		-		37,978
Commercial real estate:
Owner occupied		155,707		4,686		4,313		-		164,706
Non-owner occupied		312,139		13,959		2,933		-		329,031
Commercial and industrial		84,948		3,747		1,367		-		90,062
SBA PPP		61,169		-		-		-		61,169
Consumer		23,837		5		142		-		23,984
Construction and land		88,587		3,833		228		-		92,648
All other		36,141		-		-		-		36,141
Total	$	1,163,337	$	31,889	$	19,152	$	-	$	1,214,378

As of March 31, 2021 and December 31, 2020, there were no loans with payment deferrals under the CARES Act that were delinquent or on nonaccrual status. As of March 31, 2021, two non-owner occupied loans totaling $15,918,000 were risk rated special mention. As of December 31, 2020, one non-owner occupied loan totaling $3,839,000 was risk rated special mention and one residential real estate loan totaling $38,000 was risk rated substandard. The Company evaluates its deferred loans after a deferral period expires to determine if a further deferment should be granted and if a downgrade in risk rating is appropriate. Otherwise, loans are returned to their original payment terms.

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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 2021 the Banks could, without prior approval, declare dividends to the Company of approximately $12.3 million plus any 2021 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.

In 2020, the Company elected to adopt the regulatory capital simplification rules permitting bank holding companies of Premier’s size to utilize one measure of regulatory capital, the Community Bank Leverage Ratio ("CBLR"), to determine regulatory capital adequacy. The CBLR requires a higher amount of Tier 1 capital to average assets than the standard leverage ratio for a financial institution to be considered well capitalized. However, meeting this higher standard eliminates the need to compute and monitor the Tier 1 risk-based capital ratio, the Common Equity Tier 1 risk-based capital ratio and the total risk-based capital ratio as well as maintain the 2.50% regulatory capital buffer necessary to avoid limitations on equity distributions and discretionary bonus payments. Other criteria required to be able to utilize the CBLR as the sole measure of capital adequacy include 1.) total assets less than $10.0 billion, 2.) trading assets and liabilities equal to less than 5.0% of total assets and 3.) off-balance sheet exposures, such as the unused portion of conditionally cancellable lines of credit, equal to less than 25% of total assets. Premier and its subsidiary Banks meet all three of these criteria and have elected to utilize the CBLR as their measure of regulatory capital adequacy. Under interim guidance issued in June 2020, a CBLR of Total Tier 1 capital to quarterly average assets must be at least 8.50% in year 2021 and at least 9.00% in year 2022.

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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 - continued

Premier’s Tier 1 capital totaled $197.8 million at March 31, 2021, which represents a community bank leverage ratio 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.

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

		March 31, 2021				December 31, 2020				Regulatory Minimum Requirements				To Be Considered Well Capitalized
Tier 1 Capital to average assets (CBLR):			10.50	%			11.30	%			8.50	%			8.50	%

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 5 – PREMISES AND EQUIPMENT

The Company leases certain banking facilities and equipment under various agreements with original terms providing for fixed monthly payments over periods generally ranging from two to sixteen years, including renewal options. Certain leases contain renewal options and rent escalation clauses calling for rent increases over the term of the lease. Short-term leases of equipment are recognized on a straight-line basis over the lease term. As of March 31, 2021, the weighted average remaining lease term for operating leases was 8.5 years and the weighted average discount rate used in the measurement of operating lease liabilities was 1.15%.

Total lease expense for the three months ended March 31, 2021, was $338,000, which is included in net occupancy and equipment expense, consisting of $36,000 short-term lease expense and $302,000 of operating lease expense.

Total lease expense for the three months ended March 31, 2020, was $332,000, which is included in net occupancy and equipment expense, consisting of $38,000 short-term lease expense and $294,000 of operating lease expense.

The following table summarizes the future minimum rental commitments under operating leases:

2021	$	844
2022		1,069
2023		805
2024		680
2025		681
2026 and Thereafter		2,813
Total undiscounted cash flows		6,892
Discounted cash flows		(469	)
Total lease liability	$	6,423

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 6 - EARNINGS PER SHARE

A reconciliation of the numerators and denominators of the earnings per common share and earnings per common share assuming dilution computations for the three months ended March 31, 2021 and 2020 is presented below:

	Three Months Ended March 31,
	2021		2020
Basic earnings per share
Income available to common stockholders	$	6,550	$	5,368
Weighted average common shares outstanding		14,696,958		14,658,998
Earnings per share	$	0.45	$	0.37

Diluted earnings per share
Income available to common stockholders	$	6,550	$	5,368
Weighted average common shares outstanding		14,696,958		14,658,998
Add dilutive effects of potential additional common stock		88,397		67,473
Weighted average common and dilutive potential common shares outstanding		14,785,355		14,726,471
Earnings per share assuming dilution	$	0.44	$	0.36

There were no stock options considered antidilutive for the three months ended March 31, 2021. Stock options for 72,075 shares of common stock were not considered in computing diluted earnings per share for the three months ended March 31, 2020 because they were antidilutive.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 7 - 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 deposits that reprice frequently and fully. Fair values of time deposits with other banks are based on current rates for similar time deposits using the remaining time to maturity. It was not practicable to determine the fair value of Federal Home Loan Bank stock due to the restrictions placed on its transferability. For deposits and variable rate deposits with infrequent repricing, fair value is based on discounted cash flows using current market rates applied to the estimated life. Fair values for loans is measured at the exit price notion by using the discounted cash flow or collateral value but also incorporates additional factors such as using economic factors, credit risk, and market rates and conditions. 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).

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 7 - FAIR VALUE - continued

The carrying amounts and estimated fair values of financial instruments at March 31, 2021 were as follows:

	Carrying		Fair Value Measurements at March 31, 2021 Using
	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and due from banks	$	177,544	$	177,194	$	350	$	-	$	177,544
Federal funds sold		7,665		7,665		-		-		7,665
Securities available for sale		492,464		-		492,464		-		492,464
Loans, net		1,247,881		-		-		1,256,402		1,256,402
Interest receivable		6,192		-		1,569		4,623		6,192

Financial liabilities
Deposits	$	1,696,439	$	1,384,212	$	313,159	$	-	$	1,697,371
Securities sold under agreements to repurchase		39,980		-		39,980		-		39,980
Subordinated debt		5,485		-		5,378		-		5,378
Interest payable		272		4		268		-		272

The carrying amounts and estimated fair values of financial instruments at December 31, 2020 were as follows:

	Carrying		Fair Value Measurements at December 31, 2020 Using
	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and due from banks	$	199,170	$	198,820	$	350	$	-	$	199,170
Federal funds sold		11,306		11,306		-		-		11,306
Securities available for sale		421,190		-		421,190		-		421,190
Loans, net		1,200,862		-		-		1,209,579		1,209,579
Interest receivable		5,991		-		1,301		4,690		5,991

Financial liabilities
Deposits	$	1,633,740	$	1,308,188	$	327,448	$	-	$	1,635,636
Securities sold under agreements to repurchase		33,827		-		33,827		-		33,827
Subordinated debt		5,475		-		5,366		-		5,366
Interest payable		360		4		356		-		360

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 7 - FAIR VALUE - continued

Assets and Liabilities Measured on a Recurring Basis

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

			Fair Value Measurements at March 31, 2021 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	$	266,338	$	-	$	266,338	$	-
U. S. agency CMO’s - residential		23,565		-		23,565		-
Total mortgage-backed securities of government sponsored agencies		289,903		-		289,903		-
U. S. government sponsored agency securities		138,910		-		138,910		-
Obligations of states and political subdivisions		58,237		-		58,237		-
Other securities		5,414		-		5,414		-
Total securities available for sale	$	492,464	$	-	$	492,464	$	-

			Fair Value Measurements at December 31, 2020 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	$	327,800	$	-	$	327,800	$	-
U. S. agency CMO’s		30,076		-		30,076		-
Total mortgage-backed securities of government sponsored agencies		357,876		-		357,876		-
U. S. government sponsored agency securities		2,626		-		2,626		-
Obligations of states and political subdivisions		55,000		-		55,000		-
Other securities		5,688		-		5,688		-
Total securities available for sale	$	421,190	$	-	$	421,190	$	-

There were no transfers between Level 1 and Level 2 during 2021 or 2020.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 7 - 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 collateral appraisals. Real estate 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. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports. Management periodically evaluates the appraised collateral values and will discount the collateral’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, management’s expertise and knowledge of the client and client’s business, or other factors unique to the collateral. To the extent an adjusted collateral 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. Management may obtain additional updated appraisals depending on the length of time since 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 write-down.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 7 - FAIR VALUE - continued

Assets and liabilities measured at fair value on a non-recurring basis at March 31, 2021 are summarized below:

			Fair Value Measurements at March 31, 2021 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:
Commercial real estate
Owner occupied	$	201	$	-	$	-	$	201
Non-owner occupied		3,120		-		-		3,120
Commercial and industrial		123		-		-		123
Total impaired loans	$	3,444	$	-	$	-	$	3,444

Other real estate owned:
Residential real estate	$	128	$	-	$	-	$	128
Multifamily real estate		10,843		-		-		10,843
Commercial real estate
Owner occupied		817		-		-		817
Construction and land		400		-		-		400
Total OREO	$	12,188	$	-	$	-	$	12,188

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a recorded investment of $4,665,000 at March 31, 2021 with a valuation allowance of $1,221,000 resulting in a provision for loan losses of $31,000 for the three months ended March 31, 2021, compared to a $182,000 provision for loan losses for the three months ended March 31, 2020. At December 31, 2020, impaired loans had a recorded investment of $2,503,000 with a valuation allowance of $999,000. 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 $12,188,000 which is made up of the outstanding balance of $14,229,000 net of a valuation allowance of $2,041,000 at March 31, 2021. There were no write downs during the three months ended March 31, 2021 and $25,000 of write downs were recorded during the three months ended March 31, 2020. At December 31, 2020, other real estate owned had a net carrying amount of $12,273,000, made up of the outstanding balance of $14,320,000, net of a valuation allowance of $2,047,000.

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 7 - FAIR VALUE - continued

The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at March 31, 2021 are summarized below:

	March 31, 2021		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Commercial real estate
Owner occupied	$	201	sales comparison	adjustment for estimated realizable value	79.0%-79.0% (79.0%)
Non-owner occupied		3,120	income approach	adjustment for differences in net operating income expectations	19.2%-37.4% (22.7%)
Commercial and industrial		123	sales comparison	adjustment for estimated realizable value	62.5%-84.4% (66.0%)
Total impaired loans	$	3,444

Other real estate owned:
Residential real estate	$	128	sales comparison	adjustment for estimated realizable value	2.0%-59.8% (28.9%)
Multifamily real estate		10,843	income approach	adjustment for differences in net operating income expectations	41.9%-70.3% (45.4%)
Commercial real estate
Owner occupied		817	sales comparison	adjustment for estimated realizable value	22.1%-28.5% (26.3%)
Construction and land		400	sales comparison	adjustment for estimated realizable value	50.3%-98.6% (80.5%)
Total OREO	$	12,188

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 7 - FAIR VALUE - continued

Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2020 are summarized below:

			Fair Value Measurements at December 31, 2020 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:
Commercial real estate
Owner occupied	$	250	$	-	$	-	$	250
Non-owner occupied		1,080		-		-		1,080
Commercial and industrial		174		-		-		174
Total impaired loans	$	1,504	$	-	$	-	$	1,504

Other real estate owned:
Residential real estate	$	206	$	-	$	-	$	206
Multifamily real estate		10,838		-		-		10,838
Commercial real estate
Owner occupied		829		-		-		829
Construction and land		400		-		-		400
Total OREO	$	12,273	$	-	$	-	$	12,273

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 7 - FAIR VALUE - continued

The significant unobservable inputs related to assets and liabilities measured at fair value on a non-recurring basis at December 31, 2020 are summarized below:

	December 31, 2020		Valuation Techniques	Unobservable Inputs	Range (Weighted Avg)
Impaired loans:
Commercial real estate
Owner occupied	$	250	sales comparison	adjustment for estimated realizable value	73.8%-73.8% (73.8%)
Non-owner occupied		1,080	income approach	adjustment for differences in net operating income expectations	14.7%-37.4% (25.2%)
Commercial and industrial		174	sales comparison	adjustment for estimated realizable value	50.0%-85.0% (62.0%)
Total impaired loans	$	1,504

Other real estate owned:
Residential real estate	$	206	sales comparison	adjustment for estimated realizable value	0.2%-59.8% (18.1%)
Multifamily real estate		10,838	income approach	adjustment for differences in net operating income expectations	42.0%-70.4% (45.5%)
Commercial real estate
Owner occupied		829	sales comparison	adjustment for estimated realizable value	22.1%-26.8% (25.2%)
Construction and land		400	sales comparison	adjustment for estimated realizable value	50.3%-98.6% (80.5%)
Total OREO	$	12,273

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PREMIER FINANCIAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 8 - MERGER AGREEMENT

On March 26, 2021, the Company entered into an Agreement and Plan of Merger ("Merger Agreement") with Peoples Bancorp, Inc. (“Peoples”). The Merger Agreement provides for a business combination whereby Premier Financial will merge with and into Peoples (the “Merger”), with Peoples as the surviving corporation in the Merger. Under the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of Premier common stock, issued and outstanding immediately prior to the Effective Time (except for Treasury Shares and Dissenting Shares, both as provided for in the Merger Agreement), will be converted, in accordance with the procedures set forth in the Merger Agreement, into 0.58 (the “Exchange Ratio”) of common shares, no par value, of Peoples. The Merger Agreement contains certain termination rights for both Peoples and Premier Financial, and further provides that, upon termination of the Merger Agreement under specified circumstances, Premier Financial may be required to pay Peoples a termination fee of $11,000,000. The Merger is expected to close in the third quarter of 2021, pending satisfaction of various closing conditions, including, but not limited to: (1) adoption of the Merger Agreement by the shareholders of Peoples and Premier Financial; (2) authorization for listing on Nasdaq of the Peoples Common Shares to be issued in the Merger; (3) the receipt of required regulatory approvals, including the approval of the Board of Governors of the Federal Reserve System and the Ohio Division of Financial Institutions; (4) effectiveness of the registration statement on Form S-4 for the Peoples Common Shares to be issued in the Merger; and (5) the absence of any order, injunction or other legal restraint preventing or making illegal the completion of the Merger or any of the other transactions contemplated by the Merger Agreement.

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PREMIER FINANCIAL BANCORP, INC.

MARCH 31, 2021

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. 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 ended December 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 ended March 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 ended March 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 ended March 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

PREMIER FINANCIAL BANCORP INC 10-Q