Prime Meridian Holding Co - Quarter Report: 2014 September (Form 10-Q)

Large accelerated filer

Accelerate filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2014

¨	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)


1897 Capital Circle NE, Second Floor, Tallahassee, Florida		32308
(Address of principal executive offices)		(Zip Code)

(850) 907-2301

(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. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). x Yes ¨ No

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of November 10, 2014: 1,821,405

INDEX


	PAGE
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets September 30, 2014 (unaudited) and December 31, 2013		2

Condensed Consolidated Statements of Operations Three and Nine Months ended September 30, 2014 and 2013 (unaudited)		3

Condensed Consolidated Statement of Comprehensive Income Three and Nine months ended September 30, 2014 and 2013 (unaudited)		4

Condensed Consolidated Statements of Stockholders’ Equity Nine Months ended September 30, 2014 and 2013 (unaudited)		5

Condensed Consolidated Statements of Cash Flows Nine Months ended September 30, 2014 and 2013 (unaudited)		6

Notes to Condensed Consolidated Financial Statements (unaudited)		7-25

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26-36

Item 3. Quantitative and Qualitative Disclosures About Market Risk		37

Item 4. Controls and Procedures		37-38

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		38

Item 1A. Risk Factors		38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		38

Item 3. Defaults Upon Senior Securities		38

Item 4. Mine Safety Disclosures		38

Item 5. Other Information		38

Item 6. Exhibits		39

Signatures		40

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)


	September 30, 2014		December 31, 2013
	(Unaudited)
Assets

Cash and due from banks	$	4,617		5,033
Federal funds sold		0		147
Interest-bearing deposits		3,430		28,986

Total cash and cash equivalents		8,047		34,166

Securities available for sale		43,238		44,071
Loans held for sale		1,971		150
Loans, net of allowance for loan losses of $2,028 and $1,734		143,736		121,220
Federal Home Loan Bank stock		186		204
Premises and equipment, net		3,630		3,757
Deferred tax asset		274		426
Accrued interest receivable		571		516
Bank-owned life insurance		1,601		1,562
Capitalized offering costs		0		218
Other real estate owned		872		0
Other assets		339		183

Total assets	$	204,465		206,473

Liabilities and Stockholders’ Equity

Liabilities:
Noninterest-bearing demand deposits		45,324		59,011
Savings, NOW and money-market deposits		120,871		109,760
Time deposits		13,078		14,594

Total deposits		179,273		183,365
Other borrowings		2,692		5,719
Official checks		981		636
Other liabilities		587		392

Total liabilities		183,533		190,112

Stockholders’ equity:
Preferred stock, undesignated; 1,000,000 shares authorized, none issued or outstanding		0		0
Common stock, $.01 par value; 9,000,000 shares authorized, 1,821,405 and 1,498,937 issued and outstanding		18		15
Additional paid-in capital		18,628		14,929
Retained earnings		2,192		1,732
Accumulated other comprehensive income (loss)		94		(315	)

Total stockholders’ equity		20,932		16,361

Total liabilities and stockholders’ equity	$	204,465		206,473

See Accompanying Notes to Condensed Consolidated Financial Statements.

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Condensed Consolidated Statements of Earnings (Unaudited)

(in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Interest income:
Loans	$	1,836		1,556		5,171		4,453
Securities		230		190		680		605
Other		12		17		54		39

Total interest income		2,078		1,763		5,905		5,097

Interest expense:
Deposits		154		150		468		491
Other borrowings		7		15		29		43

Total interest expense		161		165		497		534

Net interest income		1,917		1,598		5,408		4,563

Provision for loan losses		206		80		797		403

Net interest income after provision for loan losses		1,711		1,518		4,611		4,160

Noninterest income:
Service charges and fees on deposit accounts		32		25		107		71
Gain on sale of SBA loans		0		0		0		246
Mortgage banking revenue		107		76		235		263
Income from bank-owned life insurance		13		16		39		42
Gain on sale of securities available for sale		18		14		18		14
Other income		37		30		112		83

Total noninterest income		207		161		511		719

Noninterest expenses:
Salaries and employee benefits		829		674		2,454		1,944
Occupancy and equipment		243		256		664		662
Professional fees		65		15		326		103
Other		326		297		1,003		862

Total noninterest expense		1,463		1,242		4,447		3,571

Earnings before income taxes		455		437		675		1,308

Income taxes		160		150		215		457

Net earnings	$	295		287		460		851

Basic earnings per share	$	0.17		0.19		0.28		0.57

Diluted earnings per share	$	0.17		0.19		0.27		0.56

Cash dividends per common share	$	0		0		0		0

See Accompanying Notes to Condensed Consolidated Financial Statements.

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Net earnings	$	295			287			460			851

Other comprehensive income:
Change in unrealized gain (loss) on securities:
Unrealized (loss) gain arising during the period		27			44			668			(1,159	)
Reclassification adjustment for realized gains		(18	)		(14	)		(18	)		(14	)

Net change in unrealized (loss) gain		9			30			650			(1,173	)

Deferred income taxes on above change		(3	)		(11	)		(241	)		434

Total other comprehensive income (loss)		6			19			409			(739	)

Comprehensive income		301			306			869			112

See Accompanying Notes to Condensed Consolidated Financial Statements.

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Condensed Consolidated Statements of Stockholders’ Equity

Nine Months Ended September 30, 2014 and 2013

(Dollars in thousands)


					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income			Total Stockholders’ Equity



	Common Stock
	Shares		Amount
Balance at December 31, 2012		1,496,106	$	15		14,896		583		545			16,039
Net earnings for the nine months ended September 30, 2013 (unaudited)		0		0		0		851		0			851
Net change in unrealized gain on securities available for sale (unaudited)		0		0		0		0		(739	)		(739	)
Common stock issued as compensation to directors (unaudited)		2,128		0		23		0		0			23
Stock-based compensation (unaudited)		0		0		2		0		0			2

Balance at September 30, 2013 (unaudited)		1,498,234	$	15		14,921		1,434		(194	)		16,176

Balance at December 31, 2013		1,498,937	$	15		14,929		1,732		(315	)		16,361
Net earnings for the nine months Ended September 30, 2014 (unaudited)		0		0		0		460		0			460
Net change in unrealized loss on securities available for sale (unaudited)		0		0		0		0		409			409
Proceeds from sale of common stock, net of $327,000 in offering costs (unaudited)		320,456		3		3,675		0		0			3,678
Common stock issued as compensation to directors (unaudited)		2,012		0		23		0		0			23
Stock-based compensation (unaudited)		0		0		1		0		0			1

Balance at September 30, 2014 (unaudited)		1,821,405	$	18		18,628		2,192		94			20,932

See Accompanying Notes to Condensed Consolidated Financial Statements.

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2014			2013
Cash flows from operating activities:
Net earnings	$	460			851
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		297			258
Provision for loan losses		797			403
Net amortization of deferred loan fees		(7	)		(65	)
Deferred income taxes		(89	)		(163	)
Gain on sale of securities available for sale		(18	)		(14	)
Amortization of premiums, discounts on securities available for sale		349			349
Gain on sale of loans held for sale		(207	)		2,114
Proceeds from the sale of loans held for sale		10,565			(246	)
Loan originated as held for sale		(12,179	)		(1,868	)
Stock issued as compensation		23			23
Stock-based compensation expense		1			2
Income from bank-owned life insurance		(39	)		(42	)
Net increase in accrued interest receivable		(55	)		(56	)
Net decrease in other assets and capitalized offering costs		62			330
Net increase (decrease) in other liabilities and official checks		540			(221	)

Net cash provided by operating activities		500			1,655

Cash flows from investing activities:
Loan originations, net of principal repayments		(24,178	)		(22,720	)
Purchase of securities available for sale		(8,628	)		(8,093	)
Principal repayments of securities available for sale		6,087			6,526
Maturities and calls of securities available for sale		1,748			0
Proceeds from sale of securities available for sale		1,945			1,494
Redemption of Federal Home Loan Bank stock		18			5
Purchase of premises and equipment		(170	)		(581	)

Net cash used in investing activities		(23,178	)		(23,369	)

Cash flows from financing activities:
Net (decrease) increase in deposits		(4,092	)		20,993
(Decrease) increase in other borrowings		(3,027	)		44
Net proceeds from sale of common stock		3,678			0

Net cash provided by financing activities		(3,441	)		21,037

Net decrease in cash and cash equivalents		(26,119	)		(677	)

Cash and cash equivalents at beginning of period		34,166			26,498

Cash and cash equivalents at end of period	$	8,047			25,821

Supplemental disclosure of cash flow information

Cash paid during the period for:
Interest	$	498			539

Income taxes	$	361			161

Noncash transactions:
Accumulated other comprehensive (loss) income, net change in unrealized (loss) gain on sale of securities available for sale, net of taxes	$	409			(739	)

Transfer of loans to other real estate owned	$	872			0

See Accompanying Notes to Condensed Consolidated Financial Statements.

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited)

(1)

General

Prime Meridian Holding Company (the “Holding Company”) owns 100% of the outstanding common stock of Prime Meridian Bank (the “Bank”) (collectively the “Company”). The Holding Company’s primary activity is the operation of the Bank. The Bank is a state (Florida)-chartered commercial bank. 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 customers through its banking offices located in Tallahassee, Florida.

In the opinion of management, the accompanying condensed consolidated financial statements of the Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at September 30, 2014, and the results of operations for the three and nine month periods ended September 30, 2014 and 2013. The results of operations for the three and nine months ended September 30, 2014, are not necessarily indicative of the results to be expected for the full year.

Comprehensive Income (Loss). Accounting principles generally accepted in the United States of America (“GAAP”) generally require 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 available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheet, such items along with net earnings, are components of comprehensive income. The only component of other comprehensive income (loss) is the net change in the unrealized gains (loss) on the securities available for sale.

Share-Based Compensation. The Company expenses the fair value of any stock options granted. The Company recognizes share-based compensation in the statements of earnings as the options vest.

Other Real Estate Owned. Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of the new cost basis or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other real estate owned expenses.

Mortgage Banking Revenue. Mortgage banking revenue includes gains on the sale of loans originated for sale. The Company recognizes mortgage banking revenue from mortgage loans originated in the consolidated statements of earnings upon sale of the loans.

(continued)

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(1)

General, Continued

Recent Accounting Standards Update. In January 2014, the FASB issued ASU 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, which is intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. These amendments clarify that an insubstance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additional disclosures are required. The amendments are effective beginning January 1, 2015. Upon adoption, this guidance is not expected to impact the Bank’s financial statements.

In June 2014, FASB issued ASU 2014-11, Transfers and Servicing – Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. ASU 2014-11 requires, among other things, two accounting changes. First, the amendments in this update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. Second, for repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. ASU 2014-11 is effective for the first interim or annual period beginning after December 15, 2014. The adoption of this guidance is not expected to have any impact on the Company’s consolidated financial statements.

In June 2014, FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. ASU 2014-12 requires, among other things, that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASU 2014-12 is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. The adoption of this guidance is not expected to have any impact on the Company’s consolidated financial statements.

Recent Regulatory Developments

Basel III Rules. On July 2, 2013, the Board of Governors of the Federal Reserve (“FRB”) approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Bank. The rules require a new common equity

(continued)

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The final rules also raise the required minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. The final rules also implement strict eligibility criteria for regulatory capital instruments. On July 9, 2013, the FDIC also approved, as an interim final rule, the regulatory capital requirements for U.S. banks, following the actions of the FRB. The FDIC’s rule is identical in substance to the final rules issued by the FRB.

The phase-in period for the final rules will begin for the Bank on January 1, 2015, with full compliance with all of the final rule’s requirements phased in over a multi-year schedule. The Bank is currently evaluating the provisions of the final rules and their expected impact on the Bank.

(continued)

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(2)

Securities Available for Sale

Securities are classified according to management’s intent. The carrying amount of securities and approximate fair values are as follows (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
*At September 30, 2014:*
U.S. Government agency securities	$	6,947		14		(133	)		6,828
Municipal securities		10,079		124		(61	)		10,142
Mortgage-backed securities		26,061		304		(97	)		26,268

	$	43,087		442		(291	)		43,238

*At December 31, 2013:*
U.S. Government agency securities		7,290		8		(329	)		6,969
Municipal securities		9,139		14		(269	)		8,884
Mortgage-backed securities		26,225		253		(198	)		26,280
Asset-backed securities		1,916		22		0			1,938

	$	44,570		297		(796	)		44,071

Securities with gross unrealized losses at September 30, 2014, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows (in thousands):


	Less Than Twelve Months				Over Twelve Months
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
Securities Available for Sale:
U.S. Government agency securities	$	0		0		133		5,915
Municipal securities		0		0		61		3,059
Mortgage-backed securities		42		12,607		55		1,794

	$	42		12,607		249		10,768

The unrealized losses at September 30, 2014 on twenty-two securities 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.

(continued)

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(2)

Securities Available for Sale, Continued

Securities available for sale measured at fair value on a recurring basis are summarized below (in thousands):


			Fair Value Measurements Using
	Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
*At September 30, 2014:*
U.S. Government agency securities	$	6,828		0		6,828		0
Municipal securities		10,142		0		10,142		0
Mortgage-backed securities		26,268		0		26,268		0

	$	43,238		0		43,238		0

*At December 31, 2013:*
U.S. Government agency securities		6,969		0		6,969		0
Municipal securities		8,884		0		8,884		0
Mortgage-backed securities		26,280		0		26,280		0
Asset-backed securities		1,938		0		1,938		0

	$	44,071		0		44,071		0

During the nine months ended September 30, 2014 and 2013, no securities were transferred in or out of Level 1, Level 2 or Level 3.

(continued)

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(2)

Securities Available for Sale, Continued

The scheduled maturities of securities are as follows (in thousands):


	Amortized Cost		Fair Value
*At September 30, 2014:*
Due in less than one year	$	1,090		1,109
Due five to ten years		8,667		8,583
Due after ten years		7,269		7,278
Mortgage-backed securities		26,061		26,268

	$	43,087		43,238

(3)

Loans

The segments of loans are as follows (in thousands):


	At September 30, 2014			At December 31, 2013
Real estate mortgage loans:
Commercial	$	49,172			44,796
Residential and home equity		48,189			38,571
Construction		18,226			12,933

Total real estate mortgage loans		115,587			96,300

Commercial loans		27,856			24,651
Consumer and other loans		2,383			2,072

Total loans		145,826			123,023

Less:
Net deferred loan fees		(62	)		(69	)
Allowance for loan losses		(2,028	)		(1,734	)

Loans, net	$	143,736			121,220

(continued)

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)

Loans, Continued

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


	Real Estate Mortgage Loans								Commercial Loans			Consumer and Other Loans
	Commercial			Residential and Home Equity		Construction			Commercial Loans			Consumer and Other Loans			Total
*Three-Month Period Ended September 30, 2014:*
Beginning balance	$	1,049			523		274			478			21			2,345
Provision (credit) for loan losses		152			134		(26	)		(66	)		12			206
Net (charge-offs) recoveries		(531	)		0		0			10			(2	)		(523	)

Ending balance	$	670			657		248			422			31			2,028

*Three-Month Period Ended September 30, 2013:*
Beginning balance	$	549			483		163			318			21			1,534
Provision (credit) for loan losses		21			47		16			(1	)		(3	)		80
Net recoveries		0			0		0			8			0			8

Ending balance	$	570			530		179			325			18			1,622

*Nine-Month Period Ended September 30, 2014:*
Beginning balance		604			545		175			387			23			1,734
Provision (credit) for loan losses		598			112		73			4			10			797
Net (charge-offs) recoveries		(532	)		0		0			31			(2	)		(503	)

Ending balance	$	670			657		248			422			31			2,028

*Nine-Month Period Ended September 30, 2013:*
Beginning balance		352			226		237			405			23			1,243
Provision (credit) for loan losses		218			304		(11	)		(103	)		(5	)		403
Net (charge-offs) recoveries		0			0		(47	)		23			0			(24	)

Ending balance	$	570			530		179			325			18			1,622

(continued)


		13

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)

Loans, Continued


	Real Estate Mortgage Loans						Commercial Loans		Consumer and Other Loans		Total
	Commercial		Residential and Home Equity		Construction		Commercial Loans		Consumer and Other Loans		Total
*At September 30, 2014:*
Individually evaluated for impairment:
Recorded investment	$	0		0		0		240		2		242

Balance in allowance for loan losses	$	0		0		0		77		2		79

Collectively evaluated for impairment:
Recorded investment	$	49,172		48,189		18,226		27,616		2,381		145,584

Balance in allowance for loan losses	$	670		657		248		345		29		1,949

*At December 31, 2013:*
Individually evaluated for impairment:
Recorded investment	$	0		36		0		346		0		382

Balance in allowance for loan losses	$	0		23		0		82		0		105

Collectively evaluated for impairment:
Recorded investment	$	44,796		38,535		12,933		24,305		2,072		122,641

Balance in allowance for loan losses	$	604		522		175		305		23		1,629

(continued)

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 portfolio segments and classes are identified by the Company as follows:

Real Estate Mortgage Loans. Real estate mortgage loans are typically divided into three classes: Commercial, residential and home equity, and construction loans. The real estate mortgage loans are as follows:

Commercial Real Estate Loans. 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 is 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 an index. At times, a rate may be fixed for longer than five years. As part of our credit underwriting standards, the Bank 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, the overall strength of 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 flow and evaluate collateral value. Currently, the collateral securing our commercial real estate loans include 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 residential real estate loan portfolio.

Residential Real Estate Loans. We offer first and second one-to-four family mortgage loans and home equity lines of credit; the collateral for these loans is generally on the clients’ owner-occupied residences. Although these types of loans present lower levels of risk than commercial real estate loans, risks still do 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. 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 or 5-year adjustable rate mortgages; while 15-year or 30-year fixed-rate loans are generally sold to the secondary market.

(continued)

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)

Loans, Continued

Construction Loans. Typically, these loans have a term of one to two years and the interest is paid monthly. 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 Bank offers a wide range of commercial loans, including business term loans, equipment financing, and lines of credit to small and midsized businesses. 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 borrowers’ 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. Valuation of business 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. 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 allow for timely retirement of debt, unless secured by liquid collateral or as otherwise justified.

(continued)

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)

Loans, Continued

Consumer Loans and Other. These loans are made for various consumer purposes, such as the financing of automobiles, boats, and recreational vehicles. The payment structure of these loans is normally on an installment basis. The risk associated with this category of loans stems from the reduced collateral value for a defaulted loan; the collateral may not provide an adequate source of repayment of the principal. The underwriting on these loans is primarily based on the borrowers’ financial condition. In many cases, these are unsecured credits that subject us to risk when the borrower’s financial condition declines or deteriorates. Based upon our current trend in consumer loans, management does not anticipate consumer loans will become a substantial component of our loan portfolio at any time in the foreseeable future. Consumer loans are made at fixed- and variable-interest rates and are based on the appropriate amortization for the asset and purpose.

The following summarizes the loan credit quality (in thousands):


	Pass		Special Mentioned		Substandard		Doubtful		Loss		Total
*At September 30, 2014:*
Real estate mortgage loans:
Commercial	$	47,143		0		2,029		0		0		49,172
Residential and home equity		44,214		2,294		1,681		0		0		48,189
Construction		18,142		76		8		0		0		18,226
Commercial loans		26,783		421		652		0		0		27,856
Consumer and other loans		2,300		32		51		0		0		2,383

Total	$	138,582		2,823		4,421		0		0		145,826

*At December 31, 2013:*
Real estate mortgage loans:
Commercial		40,901		1,804		2,091		0		0		44,796
Residential and home equity		36,461		1,346		764		0		0		38,571
Construction		12,528		396		9		0		0		12,933
Commercial loans		23,919		509		223		0		0		24,651
Consumer and other loans		1,914		38		120		0		0		2,072

Total	$	115,723		4,093		3,207		0		0		123,023

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 loans individually by classifying the loans as to credit risk. Loans classified as substandard or special mention are reviewed quarterly by the Company for further deterioration or improvement to determine if they are appropriately classified and whether there is any impairment. All loans are graded upon initial issuance. Furthermore, construction loans, nonowner occupied commercial real estate loans, and commercial loan relationships in excess of $500,000 are reviewed at least annually. The Company determines the appropriate loan grade during the renewal process and reevaluates the loan grade in situations when a loan becomes past due.

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)

Loans, Continued

Loans excluded from the review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the client contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard or even charged-off. The Company uses the following definitions for risk ratings:

Pass – A Pass loan’s primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary.

Special Mention – A Special Mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard – A Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – A loan classified Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss – A loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not necessarily preclude the potential for recovery, but rather signifies it is no longer practical to defer writing off the asset.

(continued)

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)

Loans, Continued

Age analysis of past-due loans is as follows (in thousands):


	Accruing Loans
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Nonaccrual Loans		Total Loans
*At September 30, 2014:*
Real estate mortgage loans:
Commercial	$	0		0		0		0		49,172		0		49,172
Residential and home equity		0		0		0		0		48,189		0		48,189
Construction		0		0		0		0		18,226		0		18,226
Commercial loans		109		0		0		109		27,747		0		27,856
Consumer and other loans		9		0		0		9		2,372		2		2,383

Total	$	118		0		0		118		145,706		2		145,826

*At December 31, 2013:*
Real estate mortgage loans:
Commercial		0		0		0		0		44,796		0		44,796
Residential and home equity		0		0		0		0		38,571		0		38,571
Construction		0		0		0		0		12,933		0		12,933
Commercial loans		38		0		0		38		24,613		0		24,651
Consumer and other loans		0		0		0		0		2,072		0		2,072

Total	$	38		0		0		38		122,985		0		123,023

The following summarizes the amount of impaired loans (in thousands):


	With No Related Allowance Recorded				With an Allowance Recorded						Total
	Recorded Investment		Unpaid Contractual Principal Balance		Recorded Investment		Unpaid Contractual Principal Balance		Related Allowance		Recorded Investment		Unpaid Contractual Principal Balance		Related Allowance
*At September 30, 2014:*
Commercial loans		0		0		240		240		77		240		240		77
Consumer & Other		0		0		2		2		2		2		2		2

Total	$	0		0		242		242		79		242		242		79

*At December 31, 2013:*
Residential and home equity		0		0		36		36		23		36		36		23
Commercial loans		27		27		319		319		82		346		346		82

Total	$	27		27		355		355		105		382		382		105

(continued)

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)

Loans, Continued

The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands):


	Three Months Ended September 30,
	2014						2013
	Average Recorded Investment		Interest Income Recognized		Interest Income Received		Average Recorded Investment		Interest Income Recognized		Interest Income Received
Commercial real estate	$	1,403		0		0		0		0		0
Residential and home equity		35		1		1		0		0		0
Commercial loans		211		3		3		124		0		0

Total	$	1,649		4		4		124		0		0


	Nine Months Ended September 30,
	2014						2013
	Average Recorded Investment		Interest Income Recognized		Interest Income Received		Average Recorded Investment		Interest Income Recognized		Interest Income Received
Commercial real estate	$	987		0		0		0		0		0
Residential and home equity		35		2		2		37		2		2
Construction		0		0		0		0		0		0
Commercial loans		215		9		10		163		13		13

Total	$	1,237		11		12		200		15		15

There were no loans measured at fair value on a nonrecurring basis at September 30, 2014 and December 31, 2013.

(continued)

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)

Loans, Continued

There were no loans determined to be troubled debt restructuring (“TDR”) entered into during the three months ended September 30, 2014 and 2013 and the nine months ended September 30, 2013. The following is a summary of loans determined to be TDR’s entered into during the nine months ended September 30, 2014:


	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Residential and home equity-
Modified payment schedule for six months		1	$	35	$	35

The allowance for loan losses on all loans that have been restructured and are considered TDR’s is included in the Bank’s specific reserve. The specific reserve is determined on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if the loan is collateral-dependent. TDR’s that have subsequently defaulted are considered collateral-dependent. There were no TDR’s that subsequently defaulted during the nine months ended September 30, 2014, which were restructured during the same period.

(4)

Other Real Estate Owned

Other real estate owned which is measured at fair value at September 30, 2014 on a nonrecurring basis is as follows (in thousands):


	At Year End										Losses Recorded During the Year
	Total		Level I		Level 2		Level 3		Total Losses		Losses Recorded During the Year
September 30, 2014	$	872		0		0		872		0		0

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(5)

Regulatory Capital

Banks are required to maintain certain minimum regulatory capital requirements. The Bank is considered to be well-capitalized. The following is a summary at September 30, 2014 of the regulatory capital requirements to be considered “well capitalized” and the Bank’s capital on a percentage basis:


	Bank			Regulatory Requirement
Tier I capital to total average assets		9.05	%		6.00	%
Tier I capital to risk-weighted assets		12.64	%		8.00	%
Total capital to risk-weighted assets		13.84	%		10.00	%

(continued)

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(6)

Earnings Per Share

Earnings per share has been computed on the basis of the weighted-average number of shares of common stock outstanding. Basic earnings per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period. For the three and nine-months ended September 30, 2014 and September 30, 2013 outstanding stock options are considered dilutive securities for purposes of calculating diluted EPS which was computed using the treasury stock method (dollars in thousands, except per share amounts):


	2014						2013
	Earnings		Weighted- Average Shares		Per Share Amount		Earnings		Weighted- Average Shares		Per Share Amount
*Three Months Ended September 30:*
Basic EPS:
Net earnings (loss)	$	295		1,785,900	$	0.17	$	287		1,498,113	$	0.19
Effect of dilutive securities-
Incremental shares from assumed conversion of options				1,793						1,900

Diluted EPS:
Net earnings (loss)	$	295		1,787,693	$	0.17	$	287		1,500,013	$	0.19

*Nine Months Ended September 30:*
Basic EPS:
Net earnings (loss)	$	460		1,671,877	$	0.28	$	851		1,497,490	$	0.57
Effect of dilutive securities-
Incremental shares from assumed conversion of options				15,446						15,618

Diluted EPS:
Net earnings (loss)	$	460		1,687,323	$	0.27	$	851		1,513,108	$	0.56

(7)

Stock-Based Compensation

The 2007 Stock Option Plan provides for certain key employees and directors of the Company to have the option to purchase shares of the Company’s common stock. Under this Plan, the total number of shares which may be issued is 152,905. All options granted have ten-year terms and vest over periods up to five years. As of September 30, 2014, there were 18,905 shares available for grant.

(continued)

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(7)

Stock-Based Compensation, Continued

A summary of the activity in the Company’s Stock Option Plan is as follows:


	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2012		136,000		$	10.00
Options granted		2,500		$	10.72
Options forfeited		(4,500	)	$	10.00
Outstanding at September 30, 2013		134,000		$	10.01

Outstanding at December 31, 2013		134,000		$	10.01

Outstanding at September 30, 2014		134,000		$	10.01		4.4 years

Exercisable at September 30, 2014		131,000		$	10.00		4.3 years	$	328,000

At September 30, 2014, there was $3,000 of total unrecognized compensation expense related to nonvested share-based compensation arrangements granted under the plans. The cost is expected to be recognized over a weighted-average period of twenty-two months. The total fair value of shares vesting and recognized as compensation expense was $1,000 and $2,000 for the nine months ended September 30, 2014 and 2013, respectively. There was no associated income tax benefit recognized for the periods ending September 30, 2014 and September 30, 2013.

The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:


	Nine Months Ended September 30,
	2013
Weighted-average risk-free interest rate		1.13	%
Expected dividend yield		0
Expected stock volatility		11.37	%
Expected life in years		6.5
Per share fair value of options issued during the year	$	1.17

(continued)

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(7)

Stock-Based Compensation, Continued

The Company used the guidance in Staff Accounting Bulletin No. 107 to determine the estimated life of options issued. Expected volatility is based on volatility of similar companies’ common stock. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is based on the Company’s history and expectation of dividend payouts.

(8)

Fair Value of Financial Instruments

The estimated fair values and fair value measurement method with respect to the Company’s financial instruments were as follows (in thousands):


	At September 30, 2014						At December 31, 2013
	Carrying Amount		Fair Value		Level		Carrying Amount		Fair Value		Level
Financial assets:
Cash and cash equivalents	$	8,047		8,047		1		34,166		34,166		1
Securities available for sale		43,238		43,238		2		44,071		44,071		2
Loans held for sale		1,971		1,971		3		150		150		3
Loans, net		143,736		140,724		3		121,220		121,964		3
Federal Home Loan Bank stock		186		186		3		204		204		3
Accrued interest receivable		571		571		3		516		516		3

Financial liabilities:
Deposits		179,273		179,329		3		183,225		183,295		3
Other borrowings		2,692		2,692		3		5,719		5,719		3

Discussion regarding the assumptions used to compute the estimated fair values of financial instruments can be found in Note 1 to the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.

(9)

Common Stock Offering

The Company filed a Registration Statement with the Securities and Exchange Commission which was effective on December 11, 2013. The Company is offering up to 1,200,000 shares of common stock for $12.50 per share. The Registration Statement was amended effective June 27, 2014, and the offering has been extended to December 31, 2014. As of September 30, 2014, the Company has sold 320,456 shares of common stock for net proceeds of $3.7 million.

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

Management’s discussion and analysis is presented to aid the reader in understanding and evaluating the financial condition and results of operations of Prime Meridian Holding Company, and its wholly-owned subsidiary, Prime Meridian Bank. This discussion and analysis should be read with the condensed consolidated financial statements, the footnotes thereto, and the other financial data included in this report and in our annual report on Form 10-K for the year ended December 31, 2013. Results of operations for the three and nine month periods ended September 30, 2014, are not necessarily indicative of results that may be attained for any other period. The following discussion and analysis presents our financial condition and results of operations on a consolidated basis, however, because we conduct all of our material business operations through the Bank, the discussion and analysis relates to activities primarily conducted at the subsidiary level.

Certain information in this report may include “forward-looking statements” as defined by federal securities law. Words such as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “project,” “is confident that,” and similar expressions are intended to identify these forward-looking statements. These forward-looking statements involve risk and uncertainty and a variety of factors could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. We do not have a policy of updating or revising forward-looking statements except as otherwise required by law, and silence by management over time should not be construed to mean that actual events are occurring as estimated in such forward-looking statements.

Our ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on our and our subsidiary’s operations include, but are not limited to, changes in:

•

local, regional, and national economic and business conditions;

•

banking laws, compliance, and the regulatory environment;

•

U.S. and global securities markets, public debt markets, and other capital markets;

•

monetary and fiscal policies of the U.S. Government;

•

litigation, tax, and other regulatory matters;

•

demand for banking services, both loan and deposit products in our market area;

•

quality and composition of our loan or investment portfolios;

•

risks inherent in making loans such as repayment risk and fluctuating collateral values;

•

competition;

•

attraction and retention of key personnel, including our management team and directors;

•

technology, product delivery channels, and end user demands and acceptance of new products;

•

consumer spending, borrowing and savings habits;

•

any failure or breach of our operational systems, information systems or infrastructure, or those of our third party vendors and other service providers, including cyber-attacks;

•

application and interpretation of accounting principles and guidelines;

•

natural disasters, public unrest, adverse weather, public health and other conditions impacting our or our clients’ operations; and

•

other economic, competitive, governmental, regulatory, or technological factors affecting us

General

Prime Meridian Holding Company (“PMHC” or the “Company”) was incorporated as a Florida corporation on May 25, 2010, and is the one-bank holding company for, and sole shareholder of, Prime Meridian Bank (the “Bank”). The Bank opened for business on February 4, 2008, and was acquired by the Company on September 16, 2010. PMHC has no significant operations other than owning the stock of the Bank. The Bank offers a broad array of commercial and retail banking services through two full-service offices located in Tallahassee, Florida and through its online banking platform.

As a one-bank holding company, we generate most of our revenue from interest on loans and investments. Our primary source of funding for our loans is deposits. Our largest expenses are interest on those deposits and salaries and employee benefits. We measure our performance through our net interest margin, return on average assets, and return on average equity, while maintaining appropriate regulatory leverage and risk-based capital ratios.

The following table shows selected information for the periods ended or at the dates indicated:


	At or for the
	Nine Months Ended September 30, 2014			Year Ended December 31, 2013			Nine Months Ended September 30, 2013

Average equity as a percentage of average assets		8.98	%		8.79	%		8.95	%

Equity to total assets at end of period		10.24	%		7.92	%		8.50	%

Return on average assets⁽¹⁾		0.29	%		0.62	%		0.63	%

Return on average equity⁽¹⁾		3.23	%		7.08	%		7.03	%

Noninterest expenses to average assets		2.10	%		2.63	%		1.98	%

Nonperforming loans to total loans at end of period		0.00	%		0.00	%		0.00	%

⁽¹⁾	Annualized for the nine months ended September 30, 2014 and September 30, 2013.

Comparison of Financial Condition at September 30, 2014 and December 31, 2013

General. Total assets were $204.5 million at September 30, 2014, a decrease of $2.0 million, or 1.0%, from December 31, 2013. Total deposits at September 30, 2014 were $179.3 million, a decrease of $4.1 million, or 2.2%, from December 31, 2013. The decrease in total assets and deposits relates primarily to a political action committee account that has withdrawn over $21.0 million since December 31, 2013 in connection with campaign funding. Net loans grew to $143.7 million at September 30, 2014, a $22.5 million, or 18.6%, increase from December 31, 2013. Despite a continued and general softness in overall loan demand, we have successfully grown our loan portfolio by increasing our market share in the community.

Loans. Our primary earning asset is our loan portfolio and our primary source of income is the interest earned on the loan portfolio. Our loan portfolio consists of commercial real estate loans, construction loans, and commercial loans made to small-to-medium sized companies and their owners, as well as residential real estate loans, including first and second mortgages, and consumer loans.

We work diligently to attract new lending clients through direct solicitation by our loan officers, utilizing relationship networks from existing clients, competitive pricing, and innovative structure. Evidence of this effort is seen in the organic growth in our loans. As of September 30, 2014, the Bank’s net loans were $143.7 million, representing 70.3% of total assets, compared to $121.2 million at December 31, 2013, or 58.7% of total assets. These loans were priced based upon the degree of risk, collateral, loan amount, and maturity. We have no loans to foreign borrowers.

We generally place loans on nonaccrual status when they become 90 days or more past due, unless they are well secured and in the process of collection. We also place loans on nonaccrual status if they are less than 90 days past due if the collection of principal or interest is in doubt. When a loan is placed on nonaccrual status, any interest previously accrued, but not collected, is reversed from income.

Accounting standards require the Bank to identify loans as impaired loans when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. These standards require that impaired loans be valued at the present value of expected future cash flows, discounted at the loan’s effective interest rate, using one of the following methods: the observable market price of the loan or the fair value of the underlying collateral if the loan is collateral dependent. We implement these standards in our monthly review of the adequacy of the allowance for loan losses, and identify and value impaired loans in accordance with regulatory guidance on these standards. Five loans totaling $242,000 were deemed to be impaired under the Bank’s policy at September 30, 2014, compared to eight loans totaling $382,000 at December 31, 2013. During the three months ended September 30, 2014, the Bank reported actual charge-offs of $533,000. Of this amount, $531,000 relates to an impaired commercial real estate loan in the original amount of $1.4 million. The remaining balance of $872,000 was moved to other real estate owned. Net charge-offs for the three months ended September 30, 2014 was $523,000.

Our goal is to maintain a high quality of loans through sound underwriting and lending practices. As of September 30, 2014 and December 31, 2013, approximately 79.3% and 78.3%, respectively, of the total loan portfolio was collateralized by commercial and residential real estate mortgages.

Deposits. The major source of the Bank’s funds for lending and other investment purposes are deposits. Total deposits were $179.3 million at September 30, 2014, compared to $183.4 million at December 31, 2013. Although the Bank continues to make good progress in increasing its deposit base, the decline in total deposits reflects withdrawals of more than $21.0 million from a political action committee account since the end of 2013 related to campaign funding for the November 2014 election. Our new deposit growth was not able to fully offset the effect of this one account.

Borrowings. The Bank has an agreement with the Federal Home Loan Bank of Atlanta (“FHLB”) and pledges its qualified loans as collateral which would allow the Bank, as of September 30, 2014, to borrow up to $30.9 million. There were no advances outstanding at September 30, 2014. We have entered into a repurchase agreement with a client that requires the Company to pledge securities as collateral for borrowing under the agreement. At September 30, 2014 and December 31, 2013, the outstanding balance of such borrowings totaled $2.7 million and $5.7 million, respectively. For the same time periods, the Company pledged securities with a market value of $3.0 million and $5.9 million as collateral for the agreement.

Capital Adequacy. Stockholder’s equity was $20.9 million at September 30, 2014, compared to $16.4 million at December 31,

2013. As of September 30, 2014, no dividends on shares of our common stock had been paid or declared. On December 11, 2013, PMHC commenced a public offering of up to 1,200,000 shares of its common stock for $12.50 per share in order to raise additional capital. This offering is continuing on an ongoing basis through December 31, 2014. PMHC has sold 320,456 shares for net proceeds of $3.7 million as of September 30, 2014.

As of September 30, 2014, the Bank was considered to be “well capitalized” with a 9.05% Tier 1 leverage capital ratio, a 12.64% Tier 1 risk-based capital ratio, and a 13.84% total risk-based capital ratio, above the minimum ratios to be considered “well capitalized.”

Results of Operations

Net interest income constitutes the principal source of income for the Bank and results from the excess of interest income on interest-earning assets over interest expense on interest-bearing liabilities. The principal interest-earning assets are investment securities and loans receivable. Interest-bearing liabilities primarily consist of time deposits, interest-bearing checking accounts, savings deposits, money-market accounts, and other borrowings. Funds attracted by these interest-bearing liabilities are invested in interest-earning assets. Accordingly, net interest income depends upon the volume of average interest-earning assets and average interest-bearing liabilities and the interest rates earned or paid on these assets and liabilities.

The following tables sets forth information regarding: (i) the total dollar amount of interest and dividend income of the Bank from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average costs; (iii) net interest income; (iv) interest-rate spread; (v) net interest margin; and (vi) weighted-average yields and rates. Yields and costs were derived by dividing annualized income or expense by the average balance of assets or liabilities. The yields and costs depicted in the table include the amortization of fees, which are considered to constitute adjustments to yields (dollars in thousands). As shown in the table for the three-month periods, the decrease in yield on loans was offset by higher yields on securities, resulting in a higher yield on total interest-earning assets. This combined with lower rates on interest-bearing liabilities and a higher ratio of interest-earning assets to interest-bearing liabilities have resulted in a higher interest-rate spread and net interest margin for the period.


	Three Months Ended September 30,
	2014								2013
	Average Balance			Interest and Dividends		Average Yield/ Rate			Average Balance			Interest and Dividends		Average Yield/ Rate
Interest-earning assets:
Loans⁽¹⁾	$	139,433		$	1,820		5.22	%	$	116,205		$	1,556		5.36	%
Mortgage loans held for sale		1,355			16		4.72			0			0		0
Securities		42,623			230		2.16			42,485			190		1.79
Other ⁽²⁾		18,280			12		0.26			20,567			17		0.33

Total interest-earning assets		201,691			2,078		4.12			179,257			1,763		3.93

Noninterest-earning assets		8,310								7,273

Total assets	$	210,001							$	186,530

Interest-bearing liabilities:
Savings, NOW and money-market deposits		119,041			130		0.44			103,459			122		0.47
Time deposits <$100,000		3,436			4		0.47			3,738			6		0.64
Time deposits >$100,000		10,103			20		0.79			11,551			22		0.76

Deposits		132,580			154		0.46			118,748			150		0.51
Other borrowings		2,730			7		1.03			5,794			15		1.04

Total interest-bearing liabilities		135,310			161		0.48			124,542			165		0.53

Noninterest-bearing deposits		53,771								45,713
Noninterest-bearing liabilities		254								260
Stockholders’ equity		20,666								16,015

Total liabilities and stockholders’ equity	$	210,001							$	186,530

Net interest income				$	1,917								1,598

Interest-rate spread							3.64	%							3.41	%

Net interest margin ⁽³⁾							3.80	%							3.57	%

Ratio of average interest-earning assets to average interest-bearing liabilities		149.06	%							143.93	%

⁽¹⁾	Includes nonaccrual loans.

⁽²⁾	Other interest-earning assets included Federal funds sold and Federal Home Loan Bank stock.

⁽³⁾	Net interest margin is net interest income divided by total interest-earning assets, annualized.

As shown in the table for the nine-month periods, the decrease in yield on total interest earning assets was offset by lower rates on interest-bearing liabilities and a higher ratio of interest-earning assets to interest-bearing liabilities, thereby resulting in a slightly higher interest-rate spread and net interest margin for the period.


	Nine Months Ended September 30,
	2014								2013
	Average Balance			Interest and Dividends		Average Yield/ Rate			Average Balance			Interest and Dividends		Average Yield/ Rate
Interest-earning assets:
Loans⁽¹⁾	$	131,425		$	5,145		5.22	%	$	110,048		$	4,453		5.40	%
Mortgage loans held for sale		629			26		5.51			0			0		0
Securities		42,955			680		2.11			43,491			605		1.85
Other ⁽²⁾		28,355			54		0.25			18,750			39		0.28

Total interest-earning assets		203,364			5,905		3.87			172,289			5,097		3.94

Noninterest-earning assets		8,156								8,246

Total assets	$	211,520							$	180,535

Interest-bearing liabilities:
Savings, NOW and money-market deposits		117,597			400		0.45			102,897			399		0.52
Time deposits <$100,000		3,572			13		0.49			3,529			19		0.72
Time deposits >$100,000		10,428			55		0.70			12,177			73		0.80

Deposits		131,597			468		0.47			118,603			491		0.55
Other borrowings		3,908			29		0.99			5,780			43		0.99

Total interest-bearing liabilities		135,505			497		0.49			124,383			535		0.57

Noninterest-bearing deposits		56,942								39,322
Noninterest-bearing liabilities		89								693
Stockholders’ equity		18,984								16,137

Total liabilities and stockholders’ equity	$	211,520							$	180,535

Net interest income				$	5,408							$	4,562

Interest-rate spread							3.38	%							3.37	%

Net interest margin ⁽³⁾							3.55	%							3.53	%

Ratio of average interest-earning assets to average interest-bearing liabilities		150.08	%							138.51	%

⁽¹⁾	Includes nonaccrual loans.

⁽²⁾	Other interest-earning assets included Federal funds sold and Federal Home Loan Bank stock.

⁽³⁾	Net interest margin is net interest income divided by total interest-earning assets, annualized.

Comparison of Operating Results for the Three Months Ended September 30, 2014 and 2013

Net Income. For the three months ended September 30, 2014, we reported net earnings of $295,000, or $0.17 per basic and diluted share, compared to net earnings of $287,000, or $0.19 per basic and diluted share, for the three months ended September 30, 2013.

Net Interest Income. Our operating results depend primarily on our net interest income, which is the difference between interest and dividend income on interest-earning assets such as loans and securities, and interest expense on interest-bearing liabilities such as deposits and borrowings. Net interest income was $1.9 million for the three months ended September 30, 2014, compared to $1.6 million for the three months ended September 30, 2013.

Interest Income. Despite generally lower yields on loans since 2011, interest income increased to $2.1 million for the three months ended September 30, 2014, a $315,000, or 17.9%, increase over the three months ended September 30, 2013. The increase was driven by an increase in average loans from $116.2 million for the quarter ended September 30, 2013 to $139.4 million for the quarter ended September 30, 2014. Higher yields on securities also contributed $40,000 to the increase in total interest income.

Interest Expense. Interest expense was $161,000 for the three months ended September 30, 2014, compared to $165,000 for the three months ended September 30, 2013. The decrease in interest expense is due to a lower interest rate environment and a shift from interest-bearing to noninterest-bearing deposits. During 2014 and 2013, the Bank aggressively managed interest paid on deposits, decreasing the average rate paid on deposits from 0.51% in the three months ended September 30, 2013 to 0.46% in the three months ended September 30, 2014. Furthermore, the average balance of noninterest-bearing deposits to the average balance of total deposits increased from 27.3% during the three months ended September 30, 2013 to 29.9% during the three months ended September 30, 2014.

The combination of higher average loan balances, a higher yield on securities, a shift in deposit mix to noninterest-bearing deposits, and a decrease in overall deposit funding costs resulted in a 24 basis point increase in the Bank’s net interest margin from 3.57% for the three months ended September 30, 2013, to 3.80% for the same period in 2014.

Provision for Loan Losses. The provision for loan losses is charged to earnings to increase the total loan loss allowance to a level deemed appropriate by management. The provision is based upon the volume and type of lending conducted by the Bank, industry standards, general economic conditions, particularly as they relate to our market area, and other factors related to the collectability of the loan portfolio. The provision for loan losses for the three months ended September 30, 2014 was $206,000, compared to $80,000 for the three months ended September 30, 2013. The increase in the provision relates to strong loan growth from the second quarter of 2014 to the third quarter of 2014, compared to the same periods in 2013. Management believes that the allowance for loan losses, which was $2.0 million or 1.39% of total loans, at September 30, 2014, to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above mentioned factors affecting the loan portfolio. While management believes the estimates and assumptions used in its determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future losses will not exceed the amount of the established allowance for loan losses, or that any increased allowance for loan losses that may be required will not adversely impact our financial condition and results of operations. In addition, the determination of the amount of our allowance for loan losses is subject to review by bank regulators, as part of the routine examination process, which may result in additions to our provision for loan losses based upon their judgment of information available to them at the time of their examination.

Noninterest income. Noninterest income consists of revenues generated from a broad range of financial services and activities, primarily service charges and fees on deposit accounts, gain on sale of SBA loans, mortgage banking revenue, gain on sale of securities available for sale, and income from bank-owned life insurance. Noninterest income for the three months ended September 30, 2014 totaled $207,000, an increase of $46,000, or 28.6%, from the three months ended September 30, 2013. The increase primarily reflects higher service charges and fees on deposit accounts and increases in mortgage banking revenue.

Noninterest expense. Noninterest expense increased $221,000 from $1.2 million for the three months ended September 30, 2013, to $1.5 million for the three months ended September 30, 2014. The increase was primarily due to a $155,000 increase in salaries and employee benefits and a $50,000 increase in professional fees. Full-time equivalent employees have increased from thirty-four at September 30, 2013 to forty-one at September 30, 2014, as the Bank continues to position itself for future expansion, while higher professional fees relates to increased legal and accounting expenses associated with SEC reporting.

Income Taxes. Income tax expense is based on amounts reported in the statements of operations, after adjustments for nontaxable income and nondeductible expenses, and consists of taxes currently due plus deferred taxes on temporary differences in the recognition of income and expense for tax and financial statement purposes. Income tax expense was $160,000 for the three months ended September 30, 2014, compared to income tax expense of $150,000 for the three months ended September 30, 2013. The higher provision relates to higher earnings for the quarter.

Comparison of Operating Results for the Nine Months Ended September 30, 2014 and 2013

Net Income. For the nine months ended September 30, 2014, we reported net earnings of $460,000, or $0.28 per basic and $0.27 per diluted share, compared to net earnings of $851,000, or $0.57 per basic and $0.56 per diluted share, for the nine months ended September 30, 2013.

Net Interest Income. Our operating results depend primarily on our net interest income, which is the difference between interest and dividend income on interest-earning assets such as loans and securities, and interest expense on interest-bearing liabilities such as deposits and borrowings. Net interest income was $5.4 million for the nine months ended September 30, 2014, compared to $4.6 million for the nine months ended September 30, 2013.

Interest Income. Despite generally lower yields on loans since 2011, interest income increased to $5.9 million for the nine months ended September 30, 2014, a $808,000, or 15.9%, increase over the nine months ended September 30, 2013. The increase was driven by an increase in average loans from $110.0 million for the nine months ended September 30, 2013 to $131.4 million for the nine months ended September 30, 2014. Higher yields on securities also contributed $75,000 to the increase in total interest income.

Interest Expense. Interest expense was $497,000 for the nine months ended September 30, 2014, compared to $534,000 for the nine months ended September 30, 2013. The decrease in interest expense is due to a lower interest rate environment and a shift from interest-bearing to noninterest-bearing deposits. During 2014 and 2013, the Bank aggressively managed interest paid on deposits, decreasing the average rate paid on deposits from 0.55% in the nine months ended September 30, 2013 to 0.47% in the nine months ended September 30, 2014. Furthermore, the average balance of noninterest-bearing deposits to the average balance of total deposits

increased from 23.4% during the nine months ended September 30, 2013 to 31.8% during the nine months ended September 30, 2014.

The combination of higher average loan balances, a shift in deposit mix to noninterest-bearing deposits, and a decrease in overall deposit funding costs resulted in a two basis point increase in the Bank’s net interest margin from 3.53% for the nine months ended September 30, 2013, to 3.55% for the same period in 2014.

Provision for Loan Losses. The provision for loan losses is charged to earnings to increase the total loan loss allowance to a level deemed appropriate by management. The provision is based upon the volume and type of lending conducted by the Bank, industry standards, general economic conditions, particularly as they relate to our market area, and other factors related to the collectability of the loan portfolio. The provision for loan losses for the nine months ended September 30, 2014 was $797,000, compared to $403,000 for the nine months ended September 30, 2013. The increase in the provision relates primarily to a $504,000 reserve taken during the second quarter for an impaired $1.4 million commercial real estate loan. The reserve associated with this particular loan was charged off in the most recent quarter, with the remaining balance of $872,000 moved to other real estate owned. Management believes that the allowance for loan losses, which was $2.0 million or 1.39% of total loans, at September 30, 2014, to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above mentioned factors affecting the loan portfolio. While management believes the estimates and assumptions used in its determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future losses will not exceed the amount of the established allowance for loan losses, or that any increased allowance for loan losses that may be required will not adversely impact our financial condition and results of operations. In addition, the determination of the amount of our allowance for loan losses is subject to review by bank regulators, as part of the routine examination process, which may result in additions to our provision for loan losses based upon their judgment of information available to them at the time of their examination.

Noninterest income. For the nine months ended September 30, 2014, noninterest income was $511,000, a $208,000, or 28.9%, decrease from the nine months ended September 30, 2013. Increases in service charges and fees on deposit accounts and other income were offset by lower mortgage banking revenue, lower income on bank-owned life insurance, and no income from gain on sale of SBA loans compared to a gain of $246,000 on the sale of an SBA loan that was reported in 2013.

Noninterest expense. Noninterest expense increased $876,000, or 24.5%, from $3.6 million for the nine months ended September 30, 2013, to $4.4 million for the nine months ended September 30, 2014. The increase is primarily attributable to higher payroll expenses and professional fees. Full-time equivalent employees have increased from thirty-four at September 30, 2013 to forty-one at September 31, 2014, as the Bank continues to position itself for growth, while the increase in professional fees relates to increased legal and accounting expenses associated with SEC reporting.

Income Taxes. Income tax expense is based on amounts reported in the statements of operations, after adjustments for nontaxable income and nondeductible expenses, and consists of taxes currently due plus deferred taxes on temporary differences in the recognition of income and expense for tax and financial statement purposes. The income tax expense was $215,000 for the nine months ended September 30, 2014, compared to income tax expense of $457,000 for the nine months ended September 30, 2013. The lower expense resulted from lower earnings for the nine month period.

Liquidity

As a commercial bank, we are expected to maintain an adequate liquidity reserve. Liquidity refers to our ability to maintain cash flow that is adequate to fund operations and meet present and future financial obligations through either the sale or maturity of existing assets or by obtaining additional funding through liability management. The liquidity reserve may consist of cash on hand, cash on demand deposit with correspondent banks, other investments, and short-term marketable securities such as federal funds sold, United States securities, or securities guaranteed by the United States. Some of our securities are pledged to collateralize certain deposits through our participation in the State of Florida’s Qualified Public Deposit Program (“QPD”). We believe that the sources of available liquidity are adequate to meet all reasonably immediate short-term and intermediate-term demands. The market value of securities pledged to the QPD Program as of September 30, 2014, was $2.5 million.

At September 30, 2014, total deposits were $179.3 million, of which $9.7 million were in certificates of deposits of $100,000 or more. Also, as a member of the FHLB, we have access to approximately $30.9 million of available lines of credit secured by qualifying collateral as of September 30, 2014, in addition to $8.7 million in lines of credit we maintain with correspondent banks. As of September 30, 2014, we had no outstanding balances on such lines of credit.

Off-Balance Sheet Arrangements

In the normal course of business, we enter into various transactions that are not included in our consolidated balance sheets. These transactions include commitments to extend credit in the ordinary course of business to approved clients, construction loans in process, unused lines of credit, guaranteed accounts, and standby letters of credit. These instruments may involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

Generally, loan commitments have been granted on a temporary basis for working capital or commercial real estate financing requirements or may be reflective of loans in various stages of funding. These commitments are recorded on our financial statements as they are funded. Commitments typically have fixed expiration dates or other termination clauses and may require payment of a fee. Loan commitments include unused commitments for open-end lines secured by one-to-four family residential properties and commercial properties, commitments to fund loans secured by commercial real estate, construction loans, business lines of credit and other unused commitments.

Guaranteed accounts are irrevocable standby letters of credit issued by us to guarantee a client’s credit line with our third party credit card company, First Arkansas Bank & Trust. As a part of this agreement, we are responsible for the established credit limit on the particular account plus 10%. The maximum potential amount of future payments we could be required to make is represented by the dollar amount disclosed in the table below.

Standby letters of credit are written conditional commitments issued by us to guarantee the client will fulfill his or her contractual financial obligations to a third party. In the event the client does not perform in accordance with the terms of the agreement with the third party, we would be required to fund the commitment. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, we would be entitled to seek recovery from the client.

We minimize our exposure to loss under loan commitments and standby letters of credit by subjecting them to credit approval and monitoring procedures, as well as by generally charging fees for issuing them. The effect on our revenues, expenses, cash flows,

and liquidity of the unused portions of these commitments cannot be reasonably predicted because there is no guarantee that the lines of credit will be used.

The following is a summary of the total contractual amount of commitments outstanding as of the respective dates (dollars in thousands):


	September 30, 2014
Commitments to extend credit	$	2,365
Construction loans in process		10,091
Unused lines of credit		23,217
Standby financial letters of credit		1,011
Guaranteed accounts		90

Total of off-balance sheet instruments	$	36,774

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We maintain controls and procedures designed to ensure that information required to be disclosed in the reports that PMHC files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon management’s evaluation of those controls and procedures performed within the 90 days preceding the filing of this Report, our Principal Executive Officer and Principal Financial Officer concluded that, subject to the limitations noted below, the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms.

We intend to continually review and evaluate the design and effectiveness of PMHC’s disclosure controls and procedures and to improve the Company’s controls and procedures over time and to correct any deficiencies that we may discover in the future. The goal is to ensure that senior management has timely access to all material financial and nonfinancial information concerning the Company’s business. While we believe the present design of the disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure controls and procedures.

(b) Changes in Internal Controls

We have made no significant changes in our internal controls over financial reporting during the quarter ended September 30, 2014, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

(c) Limitations on the Effectiveness of Controls

Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time,

controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are a party to various matters incidental to the conduct of a banking business. Presently, we believe that we are not a party to any legal proceedings in which resolution would have a material adverse effect on our business, prospects, financial condition, liquidity, results of operations, cash flows, or capital levels.

Item 1A. Risk Factors

Not Required for Smaller Reporting Companies.

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

During the quarter ended September 30, 2014, we sold no securities which were not registered under the Securities Act of 1933 and did not repurchase any of our securities.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

The following exhibits are filed with or incorporated by reference into this Report.


Exhibit Number	Description of Exhibit	Incorporated by Reference From or Filed Herewith

3.1	Articles of Incorporation	Exhibit 3.1 to Registration Statement on Form S-1 filed on October 18, 2013

3.2	Bylaws	Exhibit 3.2 to Registration Statement on Form S-1 filed on October 18, 2013

4.1	Specimen Common Stock Certificate	Exhibit 4.1 to Registration Statement on Form S-1 filed on October 18, 2013

4.2	2010 Articles of Share Exchange	Exhibit 4.2 to Registration Statement on Form S-1 filed on October 18, 2013

10.1	2007 Stock Option Plan	Exhibit 10.1 to Registration Statement on Form S-1 filed on October 18, 2013

10.2	Form of Non-Qualified Stock Option Agreement Under 2007 Plan	Exhibit 10.2 to Registration Statement on Form S-1 filed on October 18, 2013

10.3	Form of Incentive Stock Option Agreement Under 2007 Plan	Exhibit 10.3 to Registration Statement on Form S-1 filed on October 18, 2013

10.4	2012 Directors’ Compensation Plan	Exhibit 10.4 to Registration Statement on Form S-1 filed on October 18, 2013

10.5	Lease for Branch Location on Timberlane Road	Exhibit 10.5 to Registration Statement on Form S-1 filed on October 18, 2013

10.6	Agreement for Loan Review Services with Carr, Riggs & Ingram, LLC	Exhibit 10.6 to Registration Statement on Form S-1 filed on October 18, 2013

31.1	Certification Under Section 302 of Sarbanes-Oxley by Sammie D. Dixon, Jr., Principal Executive Officer	Filed herewith

31.2	Certification Under Section 302 of Sarbanes-Oxley by Kathleen C. Jones, Principal Financial Officer	Filed herewith

32.1	Certification by the Chief Executive Officer and the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley	Filed herewith

99.1	Charter of the Audit Committee	Exhibit 99.1 to Form 10-K filed on March 28, 2014

99.2	Charter of the Compensation Committee	Exhibit 99.2 to Form 10-K filed on March 28, 2014

101.INS	XBRL Instance Document	Filed herewith

101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith

101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document	Filed herewith

101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	PRIME MERIDIAN HOLDING COMPANY

November 13, 2014
Date	By:	/s/ Sammie D. Dixon, Jr.
		Sammie D. Dixon, Jr.
		Chief Executive Officer, President
		and Principal Executive Officer

November 13, 2014
Date	By:	/s/ Kathleen C. Jones
		Kathleen C. Jones
		Chief Financial Officer, Executive Vice President,
		and Principal Financial Officer