--Premier Financial Bancorp, Inc. Letterhead--
VIA OVERNIGHT MAIL
May 20, 2005
Paul Cline, Senior Accountant
United States Securities and Exchange Commission
450 Fifth Street, NW
Mail Stop 4-8
Washington, DC 20549
Re: Premier Financial Bancorp, Inc. Form 10-K
Filed March 31, 2005
File No. 000-20908
Dear Mr. Cline:
We are in receipt of your letter dated May 10, 2005. We appreciate the
Securities and Exchange Commission's assistance in our compliance with the
disclosure requirements of our Annual Report on Form 10-K and your specific
comments in that regard. We acknowledge that Premier Financial Bancorp, Inc.
(Premier) is responsible for the adequacy and accuracy of the disclosures in its
filing; that staff comments or changes to disclosures in response to staff
comments do not foreclose the Commission from taking any action with respect to
the filing; and that Premier may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
You have noted that in our loan summary table it appears that we have not
reported any deferred loan origination income or costs in 2004, 2003, or 2002.
We reported any deferred loan origination fees and costs included with the
balances reported for the individual loan types detailed in the table. We
believe this is the proper method of disclosing these deferred balances.
(Statement of Financial Accounting Standards 91 [SFAS 91], paragraph 21)
The amount included in the caption entitled "Unearned income" in the "Loan
Summary" table relates to the Rule of 78's method of recognizing interest income
on consumer loans. The method has been phased-out over time by Premier and the
remaining unearned income has since become immaterial. At December 31, 2004, the
amount of this unearned income totaled $6,481. Due to its immateriality,
beginning with the 2002 Annual Report on Form 10-K, Premier has combined the
remaining unearned income with the loans reported in the caption "Other" loans
for all periods ending on December 31, 2001 and after. To assist you in
assessing their immateriality, the following table presents the remaining
unearned income at December 31 for the periods in which the disclosure is
combined (rounded to the nearest thousand):
- --------------------- ----------------- ----------------- -----------------
2004 2003 2002 2001
- --------------------- ----------------- ----------------- -----------------
$6,000 $12,000 $19,000 $80,000
- --------------------- ----------------- ----------------- -----------------
You have also asked us to supplementally provide a schedule quantifying our loan
origination fees and costs incurred, deferred and amortized in 2002, 2003 and
2004. As more fully discussed below, we believe that due to the nature of our
community bank operations, the deferral and subsequent amortization of loan
origination fees and costs, as prescribed by SFAS 91, would not produce results
that would be materially different than the results actually reported in our
Annual Reports on Form 10-K. We also believe that SFAS 91 permits us to exclude
these disclosures if the results of adoption are immaterial (SFAS 91, paragraph
28).
To demonstrate that the application of SFAS 91 would be immaterial to the
financial statements of Premier taken as a whole we note the following:
1.) Premier's bank subsidaries generally charge an origination fee in
amount that approximates the cost of originating the loan. This is a pricing
strategy that helps us compete with the larger regional banks in our market that
may charge a lower rate of interest on their loans but charge a very high
origination fee. We provide the customer an alternative by charging a lower
origination fee and a slightly higher interest rate on the loan. Based upon this
strategy, we believe that the application of SFAS 91 would result in deferring
similar amounts of fees and costs and amortizing into income similar amounts of
fees and costs and therefore the related disclosures would be immaterial.
2.) Premier owned six individual banks at December 31, 2004. One of
these banks does defer loan origination fees and costs in accordance with SFAS
91 and has since its inception in 1995. As a basis for judging overall
immateriality, at December 31, 2004 the effect deferring loan fees and costs at
this bank was a net deferred cost of $1,205. At December 31, 2003, the effect
was a net deferred fee of $12,637, and at December 31, 2002 the effect was a net
deferred fee of $20,440. For comparative purposes, total interest and fees on
loans reported for this bank totaled $2,987,484 in 2004, $2,904,939 in 2003, and
$3,072,186 in 2002. We believe the effect of adoption of SFAS 91at this bank
does not produce materially different results than the results at our other
banks.
3.) An analysis of the aggregate loan origination fees and estimated
direct loan origination costs of the five other banks produced the following
results:
-------- --------------- ----------------- -----------------
Estimated Costs Incurred to
Year Fees Recorded Originate Loans Net Fees (Cost)
-------- --------------- ----------------- -----------------
2004 $437,000 $488,000 $(51,000)
-------- --------------- ----------------- -----------------
2003 $488,000 $473,000 $15,000
-------- --------------- ----------------- -----------------
2002 $541,000 $502,000 $39,000
-------- --------------- ----------------- -----------------
We believe these amounts and the changes in these amounts to be immaterial to
the overall presentation of Premier's financial statements, to the individual
line items included in those financial statements and to the discussion and
analysis of the changes in Premier's financial condition and results of
operations. We hope that in your evaluation of the analysis, you will
concur with our conclusion.
Should an analysis of a subsequent period produce results that we believe to
be material, Premier would then adopt FAS 91 on a prospective basis and discuss
the impact of adoption in the footnotes to the financial statements and in the
management's discussion and analysis.
I hope that you find our response and analysis satisfactory to your request. If
you should have any questions or need additional information, please contact me
at 304-525-1600.
Sincerely,
/s/ Brien M. Chase
Brien M. Chase
Vice President and Chief Financial Officer
Premier Financial Bancorp, Inc.