Company Quick10K Filing
Prime Meridian Holding
Price21.00 EPS1
Shares3 P/E26
MCap66 P/FCF83
Net Debt-84 EBIT4
TEV-18 TEV/EBIT-4
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-10
10-Q 2020-06-30 Filed 2020-08-11
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-03-24
10-Q 2019-09-30 Filed 2019-11-13
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-03-21
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-14
10-K 2017-12-31 Filed 2018-03-20
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-10
10-Q 2017-03-31 Filed 2017-05-15
10-K 2016-12-31 Filed 2017-03-21
10-Q 2016-09-30 Filed 2016-11-10
10-Q 2016-06-30 Filed 2016-08-11
10-Q 2016-03-31 Filed 2016-05-12
10-K 2015-12-31 Filed 2016-03-22
10-Q 2015-09-30 Filed 2015-11-12
10-Q 2015-06-30 Filed 2015-08-12
10-Q 2015-03-31 Filed 2015-05-12
10-K 2014-12-31 Filed 2015-03-26
10-Q 2014-09-30 Filed 2014-11-13
10-Q 2014-06-30 Filed 2014-08-13
10-Q 2014-03-31 Filed 2014-05-13
10-K 2013-12-31 Filed 2014-03-28
8-K 2020-11-10
8-K 2020-11-09
8-K 2020-09-30
8-K 2020-09-21
8-K 2020-09-17
8-K 2020-08-26
8-K 2020-08-20
8-K 2020-06-30
8-K 2020-06-30
8-K 2020-06-18
8-K 2020-05-07
8-K 2020-05-06
8-K 2020-04-16
8-K 2020-03-31
8-K 2020-03-12
8-K 2020-02-03
8-K 2020-01-30
8-K 2019-10-28
8-K 2019-10-28
8-K 2019-08-08
8-K 2019-07-30
8-K 2019-05-16
8-K 2019-05-02
8-K 2019-04-30
8-K 2019-04-30
8-K 2019-02-21
8-K 2019-01-31
8-K 2019-01-30
8-K 2019-01-17
8-K 2018-12-11
8-K 2018-11-19
8-K 2018-10-25
8-K 2018-10-25
8-K 2018-08-14
8-K 2018-08-06
8-K 2018-07-26
8-K 2018-07-19
8-K 2018-07-19
8-K 2018-07-10
8-K 2018-05-03
8-K 2018-05-03
8-K 2018-04-24
8-K 2018-04-06
8-K 2018-03-13
8-K 2018-01-25

PMHG 10Q Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex_201167.htm
EX-31.2 ex_201168.htm
EX-32.1 ex_201169.htm

Prime Meridian Holding Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
4853882911949702014201620182020
Assets, Equity
1.00.80.60.40.20.02018201820192020
Rev, G Profit, Net Income
352311-1-13-252014201620182020
Ops, Inv, Fin

10-Q 1 pmhg20200930_10q.htm FORM 10-Q pmhg20190331_10q.htm
 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended

  September 30, 2020

 

or

 

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

 

For the transition period from

 

to

 

 

Commission File Number:

        333-191801

 

PRIME MERIDIAN HOLDING COMPANY


(Exact Name of registrant as specified in its charter)

 

Florida

 

27-2980805                         

 

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number) 

   

1471 Timberlane Road; Tallahassee, Florida

 

32312              

 

(Address of principal executive offices)

(Zip Code)           

 

(850) 907-2300


(Registrant’s telephone number, including area code)

 

Not Applicable


(Former name, former address and former fiscal year, if changed since last report)

 

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 such filing requirements for the past 90 days. ☐ Yes☑ No

 

Explanatory Note: Prime Meridian Holding Company has filed, on a voluntary basis, all Securities Exchange Act of 1934 reports for the preceding 12 months.

 

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 (§232.405 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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one) 

Large accelerated filer:     ☐ Accelerated filer:                       ☐
Nonaccelerated 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.    ☐

 

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

 

Title of each class

None.

Trading Symbol(s)

N/A

Name of exchange on which registered

N/A

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of November 5, 2020: 3,119,271

 

 

 

 

 

INDEX

 

PART I. FINANCIAL INFORMATION

PAGE

   

Item 1. Financial Statements

 
   

Condensed Consolidated Balance Sheets September 30, 2020 (unaudited) and December 31, 2019

2

   

Condensed Consolidated Statements of Earnings Three and Nine Months ended September 30, 2020 and 2019 (unaudited)

3

   

Condensed Consolidated Statements of Comprehensive Income Three and Nine Months ended September 30, 2020 and 2019 (unaudited)

4

   

Condensed Consolidated Statements of Stockholders’ Equity Three and Nine Months ended September 30, 2020 and 2019 (unaudited)

5-6

   

Condensed Consolidated Statements of Cash Flows Nine Months ended September 30, 2020 and 2019 (unaudited)

7

   

Notes to Condensed Consolidated Financial Statements (unaudited)

8-26

   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

27-38

   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

38

   

Item 4. Controls and Procedures

39

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

40

   

Item 1A. Risk Factors

40

   

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

40

   

Item 3. Defaults Upon Senior Securities

40

   

Item 4. Mine Safety Disclosures

40

   

Item 5. Other Information

40

   

Item 6. Exhibits

41-42

   

Signatures

43

   

Certifications

 

 

 

 

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Condensed Consolidated Balance Sheets

 

   

September 30,

   

December 31,

 
   

2020

   

2019

 
(in thousands)     (Unaudited)          

Assets

               

Cash and due from banks

  $ 7,540     $ 9,024  

Federal funds sold

    12,191       24,613  

Interest-bearing deposits

    36,273       41,445  

Total cash and cash equivalents

    56,004       75,082  

Debt securities available for sale

    61,060       61,333  

Loans held for sale

    14,900       6,193  

Loans, net of allowance for loan losses of $5,833 and $4,414

    465,642       337,710  

Federal Home Loan Bank stock

    493       404  

Premises and equipment, net

    8,210       7,744  
Right of use lease asset     3,517       3,669  

Accrued interest receivable

    1,879       1,137  

Bank-owned life insurance

    6,621       6,501  
Other real estate owned     234       -  

Other assets

    2,103       1,088  

Total assets

  $ 620,663     $ 500,861  
                 

Liabilities and Stockholders' Equity

               

Liabilities:

               

Noninterest-bearing demand deposits

  $ 150,494     $ 96,807  

Savings, NOW and money-market deposits

    340,931       272,283  

Time deposits

    63,822       69,174  

Total deposits

    555,247       438,264  
Other borrowings     -       1,254  

Official checks

    1,577       606  
Operating lease liability     3,625       3,758  

Other liabilities

    1,563       1,111  

Total liabilities

    562,012       444,993  

Stockholders' equity:

               

Preferred stock, undesignated; 1,000,000 shares authorized, none issued or outstanding

    -       -  

Common stock, $.01 par value; 9,000,000 shares authorized, 3,117,842 and 3,191,288 issued and outstanding

    31       32  

Additional paid-in capital

    38,492       39,456  

Retained earnings

    18,714       16,180  

Accumulated other comprehensive income

    1,414       200  

Total stockholders' equity

    58,651       55,868  

Total liabilities and stockholders' equity

  $ 620,663     $ 500,861  

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

 

2

 

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Condensed Consolidated Statements of Earnings (Unaudited)

  

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(in thousands, except per share amounts)

 

2020

   

2019

   

2020

   

2019

 

Interest income:

                               

Loans

  $ 5,101     $ 4,179     $ 14,374     $ 11,951  
Securities     311       338       1,123       967  
Other     43       402       337       1,111  

Total interest income

    5,455       4,919       15,834       14,029  

Interest expense:

                               
Deposits     710       934       2,346       2,598  

Other borrowings

    -       5       31       5  
Total interest expense     710       939       2,377       2,603  

Net interest income

    4,745       3,980       13,457       11,426  
Provision for loan losses     621       241       2,484       585  

Net interest income after provision for loan losses

    4,124       3,739       10,973       10,841  

Noninterest income:

                               

Service charges and fees on deposit accounts

    48       74       156       213  

Debit card/ATM revenue, net

    91       67       251       193  

Mortgage banking revenue

    224       151       591       454  

Income from bank-owned life insurance

    40       46       120       136  

Gain on sale of debt securities available for sale

    -       -       -       7  

Other income

    167       32       233       104  

Total noninterest income

    570       370       1351       1,107  

Noninterest expense:

                               

Salaries and employee benefits

    1,498       1,575       4,662       4,711  
Occupancy and equipment     377       373       1,096       1,075  

Professional fees

    89       79       263       262  

Marketing

    97       172       398       565  

FDIC assessment

    68       6       187       93  

Software maintenance, amortization and other

    205       188       599       507  
Other     415       436       1,301       1,305  

Total noninterest expense

    2,749       2,829       8,506       8,518  

Earnings before income taxes

    1,945       1,280       3,818       3,430  

Income taxes

    464       316       901       835  

Net earnings

  $ 1,481     $ 964     $ 2,917     $ 2,595  
                                 

Earnings per common share:

                               

Basic

  $ 0.47     $ 0.31     $ 0.92     $ 0.83  

Diluted

    0.47       0.31       0.92       0.83  

Cash dividends per common share(1)

    -       -       0.12       0.12  

 

(1) Annual cash dividends were paid during the first quarters of 2019 and 2020 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

3

 

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(in thousands)

 

2020

   

2019

   

2020

   

2019

 

Net earnings

  $ 1,481     $ 964     $ 2,917     $ 2,595  

Other comprehensive income:

                               

Change in unrealized gain on debt securities available for sale:

                               

Unrealized gain arising during the period

    79       173       1,626       1,254  
Reclassification adjustment for realized gain     -       -       -       (7 )

Net change in unrealized gain

    79       173       1,626       1,247  

Deferred income tax expense on above change

    (21 )     (44 )     (412 )     (316 )

Total other comprehensive income

    58       129       1,214       931  

Comprehensive income

  $ 1,539     $ 1,093     $ 4,131     $ 3,526  

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

4

 

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Condensed Consolidated Statements of Stockholders' Equity

 

Three and Nine Months Ended September 30, 2019

 

                                   

Accumulated

         
                   

Additional

           

Other

   

Total

 
   

Common Stock

   

Paid-in

   

Retained

   

Comprehensive

   

Stockholders'

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Income (Loss)

   

Equity

 

(dollars in thousands)

                                               

Balance at December 31, 2018

    3,138,945     $ 31     $ 38,330     $ 13,015     $ (556 )   $ 50,820  

Net earnings for the three months ended March 31, 2019 (unaudited)

    -       -       -       867       -       867  

Dividends paid (unaudited)

    -       -       -       (377 )     -       (377 )

Net change in unrealized gain on debt securities available for sale, net of income tax expense (unaudited)

    -       -       -       -       320       320  

Common stock issued as compensation to directors (unaudited)

    595       -       12       -       -       12  

Issuance of restricted stock (unaudited)

    3,600       -       -       -       -       -  

Stock-based compensation (unaudited)

    -       -       42       -       -       42  

Balance at March 31, 2019 (unaudited)

    3,143,140     $ 31     $ 38,384     $ 13,505     $ (236 )   $ 51,684  

Net earnings for the three months ended June 30, 2019 (unaudited)

    -       -       -       764       -       764  

Net change in unrealized gain on debt securities available for sale, net of income tax expense (unaudited)

    -       -       -       -       482       482  

Stock options exercised (unaudited)

    300       -       3       -       -       3  

Common stock issued as compensation to directors (unaudited)

    1,016       -       19       -       -       19  

Stock-based compensation (unaudited)

    -       -       44       -       -       44  

Balance at June 30, 2019 (unaudited)

    3,144,456     $ 31     $ 38,450     $ 14,269     $ 246     $ 52,996  

Net earnings for the three months ended September 30, 2019 (unaudited)

    -       -       -       964       -       964  

Private Placement Offering net of cost

    44,600       1       872       -       -       873  

Net change in unrealized gain on debt securities available for sale, net of income tax expense (unaudited)

    -       -       -       -       129       129  

Common stock issued as compensation to directors (unaudited)

    975       -       20       -       -       20  

Stock-based compensation (unaudited)

    -       -       45       -       -       45  

Balance at September 30, 2019 (unaudited)

    3,190,031     $ 32     $ 39,387     $ 15,233     $ 375     $ 55,027  

 

 

 

 

5

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Condensed Consolidated Statements of Stockholders' Equity

 

Three and Nine Months Ended September 30, 2020

 

                                   

Accumulated

         
                   

Additional

           

Other

   

Total

 
   

Common Stock

   

Paid-in

   

Retained

   

Comprehensive

   

Stockholders'

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Income (Loss)

   

Equity

 

(dollars in thousands)

                                               

Balance at December 31, 2019 (unaudited)

    3,191,288     $ 32     $ 39,456     $ 16,180     $ 200     $ 55,868  

Net earnings for the three months ended March 31, 2020 (unaudited)

    -       -       -       716       -       716  

Dividends paid (unaudited)

    -       -       -       (383 )     -       (383 )

Net change in unrealized gain on debt securities available for sale, net of income tax expense (unaudited)

    -       -       -       -       611       611  

Stock options exercised (unaudited)

    2,000       -       25       -       -       25  

Common stock retirement (unaudited)

    (82,784 )     (1 )     (1,216 )     -       -       (1,217 )

Common stock issued as compensation to directors (unaudited)

    995       -       20       -       -       20  

Issuance of restricted stock (unaudited)

    3,835       -       -       -       -       -  

Stock-based compensation (unaudited)

    -       -       51       -       -       51  

Balance at March 31, 2020 (unaudited)

    3,115,334     $ 31     $ 38,336     $ 16,513     $ 811     $ 55,691  

Net earnings for the three months ended June 30, 2020 (unaudited)

    -       -       -       720       -       720  

Net change in unrealized gain on debt securities available for sale, net of income tax expense (unaudited)

    -       -       -       -       545       545  

Common stock issued as compensation to directors (unaudited)

    1,165       -       21       -       -       21  

Stock-based compensation (unaudited)

    -       -       55       -       -       55  

Balance at June 30, 2020 (unaudited)

    3,116,499     $ 31     $ 38,412     $ 17,233     $ 1,356     $ 57,032  
Net earnings for the three months ended September 30, 2020 (unaudited)     -       -       -       1,481       -       1,481  

Net change in unrealized gain on debt securities available for sale, net of income tax expense (unaudited)

    -       -       -       -       58       58  

Common stock issued as compensation to directors (unaudited)

    1,343       -       25       -       -       25  

Stock-based compensation (unaudited)

    -       -       55       -       -       55  

Balance at September 30, 2020 (unaudited)

    3,117,842     $ 31     $ 38,492     $ 18,714     $ 1,414     $ 58,651  

 

 

 

 

6

 

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Condensed Consolidated Statements of Cash Flow (Unaudited)

 

   

Nine Months Ended

 
   

September 30,

 

(in thousands)

 

2020

   

2019

 

Cash flows from operating activities:

               

Net earnings

  $ 2,917     $ 2,595  

Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:

               

Depreciation and amortization

    496       499  

Provision for loan losses

    2,484       585  

Net amortization of deferred loan costs (fees)

    5       (68 )

Gain on sale of debt securities available for sale

    -       (7 )

Amortization of premiums and discounts on debt securities available for sale

    313       218  

Gain on sale of loans held for sale

    (591 )     (454 )

Proceeds from the sale of loans held for sale

    107,456       63,996  

Loans originated as held for sale

    (115,572 )     (66,682 )

Stock-based compensation expense

    227       182  

Income from bank-owned life insurance

    (120 )     (136 )

Net increase in accrued interest receivable

    (742 )     (39 )

Net change in operating leases

    19       82  

Net increase in other assets

    (1,427 )     (143 )

Net increase in other liabilities and official checks

    1,423       173  

Net cash (used in) provided by operating activities

    (3,112 )     801  

Cash flows from investing activities:

               

Loan originations, net of principal repayments

    (130,655 )     (26,211 )

Purchase of debt securities available for sale

    (13,726 )     (20,740 )

Principal repayments of debt securities available for sale

    11,963       4,721  

Proceeds from sale of debt securities available for sale

    -       4,245  

Maturities and calls of debt securities available for sale

    3,349       2,421  

Purchase of Federal Home Loan Bank stock

    (89 )     (49 )

Purchase of premises and equipment

    (962 )     (3,630 )

Net cash used in investing activities

    (130,120 )     (39,243 )

Cash flows from financing activities:

               

Net increase in deposits

    116,983       72,130  
Change in other borrowings     (1,254 )     2,053  

Proceeds from stock options exercised

    25       3  
Common stock retirement     (1,217 )     873  

Common stock dividends paid

    (383 )     (377 )

Net cash provided by financing activities

    114,154       74,682  

Net (decrease) increase in cash and cash equivalents

    (19,078 )     36,240  

Cash and cash equivalents at beginning of period

    75,082       48,038  

Cash and cash equivalents at end of period

  $ 56,004     $ 84,278  

Supplemental disclosure of cash flow information

               

Cash paid during the period:

               

Interest

  $ 2,399     $ 2,594  

Income taxes

  $ 1,025     $ 1,065  

Noncash transactions:

               

Accumulated other comprehensive income, net change in unrealized gain on debt securities available for sale, net of taxes

  $ 1,214     $ 931  
Loans transferred to other real estate owned   $ 234     $ -  
Right of use lease assets obtained in exchange for operating lease liabilities   $ -     $ 3,818  
                 

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

7

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

 

(1)

General

 

Prime Meridian Holding Company (“PMHG”) owns 100% of the outstanding common stock of Prime Meridian Bank (the "Bank") (collectively the "Company"). PMHG’s primary activity is the operation of the Bank. The Bank is a Florida state-chartered commercial bank, and the deposit accounts of the Bank are insured up to the applicable limits by the Federal Deposit Insurance Corporation ("FDIC"). The Bank offers a variety of community banking services to individual and corporate clients through its four banking offices located in Tallahassee, Crawfordville, and Lakeland, Florida and its online banking platform.

 

The accounting and financial reporting policies of the Company conform, in all material respects, to accounting principles generally accepted in the United States (“GAAP”) and to general practices within the banking industry. The condensed consolidated financial statements in the Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all necessary adjustments for a fair presentation of the Company’s consolidated financial position and consolidated results of operations. All adjustments were of a normal and recurring nature. The condensed consolidated financial statements have been prepared in accordance with GAAP and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (the “SEC”). Accordingly, the condensed consolidated financial statements do not include all information and footnotes required by GAAP for complete financial presentation and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2019, included in our Annual Report on Form 10-K filed with the SEC on March 24, 2020. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year or any future period.

 

Comprehensive Income. GAAP generally requires that recognized revenue, expenses, gains and losses be included in earnings. Although certain changes in assets and liabilities, such as unrealized gains and losses on debt securities available for sale, are reported as a separate component of the equity section of the condensed consolidated balance sheet, such items along with net earnings, are components of comprehensive income. The only component of other comprehensive income is the net change in the unrealized gain on debt securities available for sale.

 

Stock-Based Compensation. The Company expenses the fair value of stock options and restricted stock granted. The Company recognizes stock-based compensation expense in the condensed consolidated statements of earnings over the vesting period.

 

Mortgage Banking Revenue. Mortgage banking revenue includes gains and losses on the sale of mortgage loans originated for sale and wholesale brokerage fees, net of commissions and deferred loan costs. The Company recognizes mortgage banking revenue from mortgage loans originated in the condensed consolidated statements of earnings upon sale of the loans.

 

Debit Card / ATM Revenue. Debit card/ATM revenue primarily includes interchange income from client use of consumer and business debit cards. Interchange income is paid by a merchant bank to the card-issuing bank through the interchange network. Interchange fees are set by the credit card associations and based on cardholder purchase volumes and purchase types. Also included in debit card/ATM revenue are ATM foreign fee income and ATM non-client ACH credits. This revenue line is shown net of debit card fees and ATM program expenses.

 

Reclassifications. Certain reclassifications of prior period amounts have been made to conform to the current period presentation.

 

Derivatives. The Company enters into interest rate swaps in order to provide commercial loan clients the ability to swap from variable to fixed interest rates.  Under these agreements, the Company enters into a fixed-rate loan with a client in addition to a swap agreement.  This swap agreement effectively converts the client’s variable rate loan into a fixed rate.  The Company then enters into a matching swap agreement with a third-party dealer in order to offset its exposure on the client swap.  The Company does not use derivatives for trading purposes. The derivative transactions are considered instruments with no hedging designation, otherwise known as stand-alone derivatives. 

 

Recent Accounting Standards Update.

 

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments-Credit Losses (Topic 326). The ASU improves financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by the Company. The ASU requires the Company to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The Company will continue to use judgment to determine which loss estimation method is appropriate for its circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization's portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the condensed consolidated financial statements. Additionally, the ASU amends the accounting for credit losses on debt securities available for sale and purchased financial assets with credit deterioration. The new guidance was originally set to be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.  However, on October 16, 2019, FASB approved an Accounting Standards Update that grants private companies, non-for-profit organizations and certain small public companies until January, 2023 to implement this ASU. The Company is classified as a small reporting company who would qualify for this additional time to implement this ASU.  The Company is still in the process of determining the effect of the ASU on its condensed consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). ASU 2018-13 removes, modifies, and adds certain disclosure requirements associated with fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods, within those fiscal years, beginning after December 15, 2019. The removed and modified disclosures will be adopted on a prospective basis. Early adoption was permitted upon issuance of this ASU. The implementation had no significant impact on the Company's condensed consolidated Financial Statements.

 

(continued)

 

8

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

 

(2)

Debt Securities Available for Sale

 

Debt securities are classified according to management's intent. The amortized cost of debt securities and fair values are as follows:

 

           

Gross

   

Gross

         
   

Amortized

   

Unrealized

   

Unrealized

   

Fair

 
   

Cost

   

Gains

   

Losses

   

Value

 

(in thousands)

                               

At September 30, 2020

                               

U.S. Government agency securities

  $ 169     $ 3     $ -     $ 172  

Municipal securities

    10,959       627       -       11,586  

Mortgage-backed securities

    42,694       1,379       (28 )     44,045  

Asset-backed securities

    5,343       -       (86 )     5,257  

Total

  $ 59,165     $ 2,009     $ (114 )   $ 61,060  
                                 

At December 31, 2019

                               

U.S. Government agency securities

  $ 408     $ -     $ (1 )   $ 407  

Municipal securities

    9,332       81       (72 )     9,341  

Mortgage-backed securities

    45,499       401       (97 )     45,803  
Asset-backed securities     5,825       14       (57 )     5,782  

Total

  $ 61,064     $ 496     $ (227 )   $ 61,333  

 

The following table summarizes the sale of debt securities available for sale.

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(in thousands)

 

2020

   

2019

   

2020

   

2019

 

Proceeds from sale of debt securities

  $ -     $ -     $ -     $ 4,245  

Gross gains

    -       -       -       27  

Gross losses

    -       -       -       (20 )

Net gain on sale of debt securities

  $ -     $ -     $ -     $ 7  

 

Debt securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:

 

   

Less Than Twelve Months

   

Over Twelve Months

 
   

Gross

           

Gross

         
   

Unrealized

   

Fair

   

Unrealized

   

Fair

 
   

Losses

   

Value

   

Losses

   

Value

 

(in thousands)

                               

At September 30, 2020

                               

Mortgage-backed securities

  $ (19 )   $ 4,234     $ (9 )   $ 1,633  
Asset-backed securities     (9 )     1,692       (77 )     3,565  

Total

  $ (28 )   $ 5,926     $ (86 )   $ 5,198  
                                 

At December 31, 2019

                               

U.S. Government agency securities

  $ (1 )   $ 407     $ -     $ -  

Municipal securities

    (72 )     3,814       -       -  

Mortgage-backed securities

    (56 )     4,629       (41 )     4,115  

Asset-backed securities

    (57 )     3,901       -       -  

Total

  $ (186 )   $ 12,751     $ (41 )   $ 4,115  

 

(continued)

 

9

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

(2)

Debt Securities Available for Sale, Continued

 

The unrealized losses at September 30, 2020 and December 31, 2019 on ten and thirteen securities, respectively, were caused by market conditions. It is expected that the securities would not be settled at a price less than the par value of the investments. Because the decline in fair value is attributable to market conditions and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired. Debt securities available for sale measured at fair value on a recurring basis are summarized below:

 

           

Fair Value Measurements Using

 
           

Quoted Prices

                 
           

In Active

   

Significant

         
           

Markets for

   

Other

   

Significant

 
           

Identical

   

Observable

   

Unobservable

 
   

Fair

   

Assets

   

Inputs

   

Inputs

 
   

Value

   

(Level 1)

   

(Level 2)

   

(Level 3)

 

(in thousands)

                               

At September 30, 2020

                               

U.S. Government agency securities

  $ 172     $ -     $ 172     $ -  

Municipal securities

    11,586       -       11,586       -  
Mortgage-backed securities     44,045       -       44,045       -  
Asset-backed securities     5,257       -       5,257       -  

Total

  $ 61,060     $ -     $ 61,060     $ -  
                                 

At December 31, 2019

                               

U.S. Government agency securities

  $ 407     $ -     $ 407     $ -  

Municipal securities

    9,341       -       9,341       -  

Mortgage-backed securities

    45,803       -       45,803       -  

Asset-backed securities

    5,782       -       5,782       -  

Total

  $ 61,333     $ -     $ 61,333     $ -  

 

The scheduled maturities of debt securities are as follows:

 

   

At September 30, 2020

 
   

Amortized

   

Fair

 
   

Cost

   

Value

 

(in thousands)

               

Due in one to five years

  $ 169     $ 172  

Due in five to ten years

    3,567       3,837  

Due after ten years

    12,735       13,006  

Mortgage-backed securities

    42,694       44,045  

Total

  $ 59,165     $ 61,060  

 

(continued)

 

10

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

 

(3)

Loans

 

Segments and classes of loans, excluding loans held for sale, are as follows:

 

   

At September 30,

   

At December 31,

 

(in thousands)

 

2020

   

2019

 

Real estate mortgage loans:

               

Commercial

  $ 126,840     $ 94,728  

Residential and home equity

    145,894       135,913  

Construction

    36,996       33,583  

Total real estate mortgage loans

    309,730       264,224  
                 

Commercial loans

    156,787       69,770  

Consumer and other loans

    6,572       7,631  

Total loans

    473,089       341,625  
                 

Add (deduct):

               

Net deferred loan (fees) costs

    (1,614 )     499  

Allowance for loan losses

    (5,833 )     (4,414 )

Loans, net

  $ 465,642     $ 337,710  

 

(continued)

 

11

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

(3)

Loans, Continued

 

An analysis of the change in allowance for loan losses follows:

 

 

   

Real Estate Mortgage Loans

                                 
           

Residential

                   

Consumer

                 
           

and Home

           

Commercial

   

and Other

   

Unallocated

         

(in thousands)

 

Commercial

   

Equity

   

Construction

   

Loans

   

Loans

   

Reserves

   

Total

 

Three Month Period Ended September 30, 2020

                                                       

Beginning balance

  $ 1,213     $ 1,637     $ 514     $ 1,536     $ 112     $ 236     $ 5,248  

Provision (credit) for loan losses

    208       48       (63 )     95       10       323       621  

Net (charge-offs) recoveries

    -               -       8       (44 )     -       (36 )

Ending balance

  $ 1,421     $ 1,685     $ 451     $ 1,639     $ 78     $ 559     $ 5,833  

Three Month Period Ended September 30, 2019

                                                       

Beginning balance

  $ 813     $ 1,458     $ 425     $ 1,225     $ 85     $ -     $ 4,006  

Provision (credit) for loan losses

    48       17       76       76       24       -       241  

Net (charge-offs) recoveries

    -       -       -       (260 )     (5 )     -       (265 )

Ending balance

  $ 861     $ 1,475     $ 501     $ 1,041     $ 104     $ -     $ 3,982  
                                                         

Nine Month Period Ended September 30, 2020

                                                       

Beginning balance

  $ 1,046     $ 1,573     $ 415     $ 1,284     $ 96     $ -     $ 4,414  

Provision (credit) for loan losses

    375       160       36       1,323       31       559       2,484  

Net (charge-offs) recoveries

    -       (48 )     -       (968 )     (49 )     -       (1,065 )

Ending balance

  $ 1,421     $ 1,685     $ 451     $ 1,639     $ 78     $ 559     $ 5,833  

Nine Month Period Ended September 30, 2019

                                                       

Beginning balance

  $ 917     $ 1,397     $ 391     $ 876     $ 80     $ -     $ 3,661  

Provision (credit) for loan losses

    (56 )     78       110       423       30       -       585  

Net (charge-offs) recoveries

    -       -       -       (258 )     (6 )     -       (264 )

Ending balance

  $ 861     $ 1,475     $ 501     $ 1,041     $ 104     $ -     $ 3,982  
                                                         

At September 30, 2020

                                                       

Individually evaluated for impairment:

                                                       

Recorded investment

  $ -     $ 667     $ -     $ 648     $ -     $ -     $ 1,315  

Balance in allowance for loan losses

  $ -     $ -     $ -     $ 258     $ -     $ -     $ 258  

Collectively evaluated for impairment:

                                                       

Recorded investment

  $ 126,840     $ 145,227     $ 36,996     $ 156,139     $ 6,572     $ -     $ 471,774  

Balance in allowance for loan losses

  $ 1,421     $ 1,685     $ 451     $ 1,381     $ 78     $ 559     $ 5,575  
                                                         

At December 31, 2019

                                                       

Individually evaluated for impairment:

                                                       

Recorded investment

  $ 611     $ 965     $ -     $ 1,631     $ 13     $ -     $ 3,220  

Balance in allowance for loan losses

  $ -     $ 15     $ -     $ 386     $ 13     $ -     $ 414  

Collectively evaluated for impairment:

                                                       

Recorded investment

  $ 94,117     $ 134,948     $ 33,583     $ 68,139     $ 7,618     $ -     $ 338,405  

Balance in allowance for loan losses

  $ 1,046     $ 1,558     $ 415     $ 898     $ 83     $ -     $ 4,000  

 

 

(continued)

 

12

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

(3)

Loans, Continued

 

The Company has divided the loan portfolio into three portfolio segments and five portfolio classes, each with different risk characteristics and methodologies for assessing risk. All loans are underwritten based upon standards set forth in the policies approved by the Company’s Board of Directors. The Company identifies the portfolio segments and classes as follows:

 

Real Estate Mortgage Loans. Real estate mortgage loans are typically divided into three classes: commercial, residential and home equity, and construction loans.

 

Commercial. Loans of this type are typically our more complex loans. This category of real estate loans is comprised of loans secured by mortgages on commercial property that are typically owner-occupied, but also includes nonowner-occupied investment properties. Commercial loans that are secured by owner-occupied commercial real estate are repaid through operating cash flows of the borrower. The maturity for this type of loan is generally limited to three to five years; however, payments may be structured on a longer amortization basis. Typically, interest rates on our commercial real estate loans are fixed for five years or less after which they adjust based upon a predetermined spread over a market index rate. At times, a rate may be fixed for longer than five years. As part of our credit underwriting standards, the Company typically requires personal guarantees from the principal owners of the business supported by a review of the principal owners’ personal financial statements and tax returns. As part of the enterprise risk management process, it is understood that risks associated with commercial real estate loans include fluctuations in real estate values, the overall strength of the borrower and the economy, new job creation trends, tenant vacancy rates, environmental contamination, and the quality of the borrowers’ management. In order to mitigate and limit these risks, we analyze the borrowers’ cash flows and evaluate collateral value. Currently, the collateral securing our commercial real estate loans includes a variety of property types, such as office, warehouse, and retail facilities. Other types include multifamily properties, hotels, mixed-use residential and commercial properties. Generally, commercial real estate loans present a higher risk profile than our consumer real estate loan portfolio.

 

Residential and Home Equity. The Company offers first and second one-to-four family mortgage loans and home equity lines of credit; the collateral for these loans is generally the clients' owner-occupied residences. Although these types of loans present lower levels of risk than commercial real estate loans, risks do still exist because of possible fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrowers' financial condition. The nonowner-occupied investment properties are more similar in risk to commercial real estate loans, and therefore, are underwritten by assessing the property’s income potential and appraised value. In both cases, we underwrite the borrower’s financial condition and evaluate his or her global cash flow position. Borrowers may be affected by numerous factors, including job loss, illness, or other personal hardship. As part of our product mix, the Bank offers both portfolio and secondary market mortgages; portfolio loans generally are based on a 1-year, 3-year, 5-year, or 7-year adjustable rate mortgage; while 15-year or 30-year fixed-rate loans are generally sold in the secondary market.

 

Construction. Typically, these loans have a construction period of one to two years and the interest is paid monthly. Once the construction period terminates, some of these loans convert to a term loan with a maturity of one to ten years. This portion of our loan portfolio includes loans to small and midsized businesses to construct owner-user properties, loans to developers of commercial real estate investment properties, and residential developments. This type of loan is also made to individual clients for construction of single-family homes in our market area. An independent appraisal is used to determine the value of the collateral and confirm that the ratio of the loan principal to the value of the collateral will not exceed policies of the Bank. As the construction project progresses, loan proceeds are requested by the borrower to complete phases of construction and funding is only disbursed after the project has been inspected by a third-party inspector or experienced construction lender. Risks associated with construction loans include fluctuations in the value of real estate, project completion risk, and changes in market trends. The ability of the construction loan borrower to finance the loan or sell the property upon completion of the project is another risk factor that also may be affected by changes in market trends since the initial funding of the loan.

 

Commercial Loans. The Company offers a wide range of commercial loans, including business term loans, equipment financing, lines of credit, and U.S. Small Business Administration (SBA) loans, including Paycheck Protection Program ("PPP") loans. Small-to-medium sized businesses, retail, and professional establishments, make up our target market for commercial loans. Our Relationship Managers primarily underwrite these loans based on the borrower's ability to service the loan from cash flow. Lines of credit and loans secured by accounts receivable and/or inventory are monitored periodically by our staff. Loans secured by "all business assets," or a "blanket lien" are typically only made to highly qualified borrowers due to the nonspecific nature of the collateral and do not require a formal valuation of the business collateral. When commercial loans are secured by specifically identified collateral, then the valuation of the collateral is generally supported by an appraisal, purchase order, or third-party physical inspection. Personal guarantees of the principals of business borrowers are usually required. Equipment loans generally have a term of five years or less and may have a fixed or variable rate; we use conservative margins when pricing these loans. Working capital loans generally do not exceed one year and typically, they are secured by accounts receivable, inventory, and personal guarantees of the principals of the business. The Bank currently offers SBA 504 and SBA 7A loans. SBA 504 loans provide financing for major fixed assets such as real estate and equipment while SBA 7A loans are generally used to establish a new business or assist in the acquisition, operation, or expansion of an existing business. With both SBA loan programs, there are set eligibility requirements and underwriting standards outlined by SBA that can change as the government alters its fiscal policy. Significant factors affecting a commercial borrower's creditworthiness include the quality of management and the ability both to evaluate changes in the supply and demand characteristics affecting the business' markets for products and services and to respond effectively to such changes. These loans may be made unsecured or secured, but most are made on a secured basis. Risks associated with our commercial loan portfolio include local, regional, and national market conditions. Other factors of risk could include changes in the borrower's management and fluctuations in collateral value. Additionally, there may be refinancing risk if a commercial loan includes a balloon payment which must be refinanced or paid off at loan maturity. In reference to our risk management process, our commercial loan portfolio presents a higher risk profile than our consumer real estate and consumer loan portfolios. Therefore, we require that all loans to businesses must have a clearly stated and reasonable payment plan to