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Prime Meridian Holding Co - Quarter Report: 2023 September (Form 10-Q)

pmhg20230930_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, 2023

 

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)

 

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 (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.

Large accelerated filer:     ☐Accelerated filer:                       ☐
Non-accelerated filer:         ☒ Smaller reporting company:     ☒
 Emerging growth company:     ☐

 

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

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of November 1, 2023: 3,259,281

 

 

 

 

 

INDEX

 

PART I. FINANCIAL INFORMATION

PAGE

   

Item 1. Financial Statements

 
   

Condensed Consolidated Balance Sheets September 30, 2023 (unaudited) and December 31, 2022

2

   

Condensed Consolidated Statements of Earnings Three and Nine Months ended September 30, 2023 and 2022 (unaudited)

3

   

Condensed Consolidated Statements of Comprehensive Income (Loss) Three and Nine Months ended September 30, 2023 and 2022 (unaudited)

4

   

Condensed Consolidated Statements of Stockholders’ Equity Three and Nine Months ended September 30, 2023 and 2022 (unaudited)

5-6

   

Condensed Consolidated Statements of Cash Flows Nine Months ended September 30, 2023 and 2022 (unaudited)

7

   

Notes to Condensed Consolidated Financial Statements (unaudited)

8-28

   

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

29-39

   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

39

   

Item 4. Controls and Procedures

40

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

41

   

Item 1A. Risk Factors

41

   

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

41

   

Item 3. Defaults Upon Senior Securities

41

   

Item 4. Mine Safety Disclosures

41

   

Item 5. Other Information

41

   

Item 6. Exhibits

42

   

Signatures

43

   

Certifications

 

 

 

 

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Condensed Consolidated Balance Sheets

 

  

September 30,

  

December 31,

 
  

2023

  

2022

 

(in thousands)

 

(Unaudited)

     

Assets

        

Cash and due from banks

 $9,839  $8,119 

Federal funds sold

  8,257   19,259 

Interest-bearing deposits

  4,308   12,410 

Total cash and cash equivalents

  22,404   39,788 

Debt securities available for sale at fair value (amortized cost of $138,607 and $142,797)

  123,838   129,436 

Debt securities held to maturity (fair value of $9,662 and $9,917)

  11,838   11,805 

Loans held for sale

  5,182   7,058 

Loans, net of allowance for credit losses of $4,899 and $7,145

  628,974   588,715 

Federal Home Loan Bank stock

  1,758   463 

Premises and equipment, net

  7,613   8,022 

Right of use operating lease asset

  2,879   3,044 

Accrued interest receivable

  2,671   2,385 

Bank-owned life insurance

  16,822   16,532 

Other real estate owned

  117   - 

Other assets

  7,889   7,924 

Total assets

 $831,985  $815,172 
         

Liabilities and Stockholders' Equity

        

Liabilities:

        

Noninterest-bearing demand deposits

 $193,439  $197,987 

Savings, NOW and money-market deposits

  451,492   493,439 

Time deposits

  77,876   40,109 

Total deposits

  722,807   731,535 

Other borrowings

  -   4,275 

Federal Home Loan Bank advances

  25,000   - 

Official checks

  717   4,090 

Operating lease liability

  3,062   3,208 

Other liabilities, net

  5,612   5,011 

Total liabilities

  757,198   748,119 

Stockholders' equity:

        

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

  -   - 

Common stock, $.01 par value; 9,000,000 shares authorized, 3,263,733 and 3,164,491 issued and outstanding

  33   32 

Additional paid-in capital

  40,376   39,718 

Retained earnings

  45,404   37,278 

Accumulated other comprehensive loss

  (11,026)  (9,975)

Total stockholders' equity

  74,787   67,053 

Total liabilities and stockholders' equity

 $831,985  $815,172 

 

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)

 

2023

   

2022

   

2023

   

2022

 

Interest income:

                               

Loans

  $ 9,019     $ 6,755     $ 25,633     $ 18,568  

Debt securities

    919       878       2,777       2,000  

Other

    244       649       650       1,104  

Total interest income

    10,182       8,282       29,060       21,672  

Interest expense:

                               

Deposits

    2,691       624       6,141       1,442  

Other borrowings and FHLB advances

    304       56       824       127  

Total interest expense

    2,995       680       6,965       1,569  

Net interest income

    7,187       7,602       22,095       20,103  

Credit loss expense

    175       241       743       601  

Net interest income after credit loss expense

    7,012       7,361       21,352       19,502  

Noninterest income:

                               

Service charges and fees on deposit accounts

    92       78       261       219  

Debit card/ATM revenue, net

    137       132       437       404  

Mortgage banking revenue, net

    121       116       250       420  

Income from bank-owned life insurance

    100       96       290       285  

Other income

    49       61       165       177  

Total noninterest income

    499       483       1,403       1,505  

Noninterest expense:

                               

Salaries and employee benefits

    2,864       2,367       8,359       6,765  

Occupancy and equipment

    427       413       1,235       1,217  

Professional fees

    149       124       416       400  

Marketing

    215       195       688       575  

FDIC assessment

    104       95       275       303  

Software maintenance, amortization and other

    341       310       912       837  

Other

    623       581       1,814       1,650  

Total noninterest expense

    4,723       4,085       13,699       11,747  

Earnings before income taxes

    2,788       3,759       9,056       9,260  

Income taxes

    668       928       2,178       2,221  

Net earnings

  $ 2,120     $ 2,831     $ 6,878     $ 7,039  
                                 

Earnings per common share:

                               

Basic

  $ 0.66     $ 0.90     $ 2.15     $ 2.23  

Diluted

    0.66       0.89       2.13       2.21  

Cash dividends per common share

    -       -       0.22       0.18  

 

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

3

 

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

 

 

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 

(in thousands)

 

2023

   

2022

   

2023

   

2022

 

Net earnings

  $ 2,120     $ 2,831     $ 6,878     $ 7,039  

Other comprehensive loss:

                               

Change in unrealized loss on debt securities available for sale-

                               

Unrealized loss arising during the period

    (2,172 )     (5,018 )     (1,408 )     (13,780 )

Deferred income tax benefit on above change

    551       1,272       357       3,493  

Total other comprehensive loss

    (1,621 )     (3,746 )     (1,051 )     (10,287 )

Comprehensive income (loss)

  $ 499     $ (915 )   $ 5,827     $ (3,248 )

 

 

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, 2023 and 2022

 

                                   

Accumulated

         
                   

Additional

           

Other

   

Total

 
   

Common Stock

   

Paid-in

   

Retained

   

Comprehensive

   

Stockholders'

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Loss

   

Equity

 

(dollars in thousands)

                                               

Balance at December 31, 2021

    3,129,046     $ 31     $ 38,909     $ 28,164     $ (73 )   $ 67,031  

Net earnings for the three months ended March 31, 2022 (unaudited)

    -       -       -       2,241       -       2,241  

Dividends paid (unaudited)

    -       -       -       (567 )     -       (567 )

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

    -       -       -       -       (3,258 )     (3,258 )

Stock options exercised (unaudited)

    12,240       -       210       -       -       210  

Common stock issued as compensation to directors (unaudited)

    1,189       -       31       -       -       31  

Issuance of restricted stock (unaudited)

    7,786       -       -       -       -       -  

Stock-based compensation (unaudited)

    -       -       73       -       -       73  

Balance at March 31, 2022 (unaudited)

    3,150,261     $ 31     $ 39,223     $ 29,838     $ (3,331 )   $ 65,761  

Net earnings for the three months ended June 30, 2022 (unaudited)

    -       -       -       1,967       -       1,967  

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

    -       -       -       -       (3,283 )     (3,283 )

Stock options exercised (unaudited)

    4,000       -       80       -       -       80  

Common stock issued as compensation to directors (unaudited)

    1,047       -       29       -       -       29  

Stock-based compensation (unaudited)

    -       -       75       -       -       75  

Balance at June 30, 2022 (unaudited)

    3,155,308     $ 31     $ 39,407     $ 31,805     $ (6,614 )   $ 64,629  

Net earnings for the three months ended September 30, 2022 (unaudited)

    -       -       -       2,831       -       2,831  

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

    -       -       -       -       (3,746 )     (3,746 )

Stock options exercised (unaudited)

    4,000       -       80       -       -       80  

Common stock issued as compensation to directors (unaudited)

    1,250       -       32       -       -       32  

Issuance of restricted stock (unaudited)

    2,417       -       -       -       -       -  

Stock-based compensation (unaudited)

    -       -       78       -       -       78  

Balance at September 30, 2022 (unaudited)

    3,162,975     $ 31     $ 39,597     $ 34,636     $ (10,360 )   $ 63,904  

 

 

5

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Condensed Consolidated Statements of Stockholders' Equity

 

Three and Nine Months ended September 30, 2023 and 2022

 

 

 

                                   

Accumulated

         
                   

Additional

           

Other

   

Total

 
   

Common Stock

   

Paid-in

   

Retained

   

Comprehensive

   

Stockholders'

 
   

Shares

   

Amount

   

Capital

   

Earnings

   

Loss

   

Equity

 

Balance at December 31, 2022

    3,164,491     $ 32     $ 39,718     $ 37,278     $ (9,975 )   $ 67,053  

Impact of adopting ASC 326 (net of tax)

    -       -       -       1,946       -       1,946  

Net earnings for the three months ended March 31, 2023 (unaudited)

    -       -       -       2,501       -       2,501  

Dividends paid (unaudited)

    -       -       -       (698 )     -       (698 )

Net change in unrealized loss on debt securities available for sale, net of income taxes (unaudited)

    -       -       -       -       1,478       1,478  

Stock options exercised (unaudited)

    15,867       -       273       -       -       273  

Common stock issued as compensation to directors (unaudited)

    1,573       -       40       -       -       40  

Issuance of restricted stock (unaudited)

    3,834       -       -       -       -       -  

Stock-based compensation (unaudited)

    -       -       83       -       -       83  

Balance at March 31, 2023 (unaudited)

    3,185,765     $ 32     $ 40,114     $ 41,027     $ (8,497 )   $ 72,676  

Net earnings for the three months ended June 30, 2023 (unaudited)

    -       -       -       2,257       -       2,257  

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

    -       -       -       -       (908 )     (908 )

Stock options exercised (unaudited)

    2,750       -       56       -       -       56  

Common stock issued as compensation to directors (unaudited)

    1,537       -       40       -       -       40  

Stock-based compensation (unaudited)

    -       -       49       -       -       49  

Balance at June 30, 2023 (unaudited)

    3,190,052     $ 32     $ 40,259     $ 43,284     $ (9,405 )   $ 74,170  

Net earnings for the three months ended September 30, 2023 (unaudited)

    -       -       -       2,120       -       2,120  

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

    -       -       -       -       (1,621 )     (1,621 )

Common stock issued as compensation to directors (unaudited)

    1,764       -       40       -       -       40  

Issuance of restricted stock (unaudited)

    71,917       1       (1 )     -       -       -  

Stock-based compensation (unaudited)

    -       -       78       -       -       78  

Balance at September 30, 2023 (unaudited)

    3,263,733     $ 33     $ 40,376     $ 45,404     $ (11,026 )   $ 74,787  

 

 

6

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY 

Condensed Consolidated Statements of Cash Flow (Unaudited)

 

   

Nine Months Ended September 30,

 

(in thousands)

 

2023

   

2022

 

Cash flows from operating activities:

               

Net earnings

  $ 6,878     $ 7,039  

Adjustments to reconcile net earnings to net cash provided by operating activities:

               

Depreciation and amortization

    540       504  

Credit loss expense

    743       601  

Net amortization (accretion) of deferred loan fees

    207       (604 )

Net amortization of discounts on debt securities

    (208 )     (3 )

Gain on sale of loans held for sale

    (250 )     (420 )

Proceeds from the sale of loans held for sale

    48,454       71,336  

Loans originated as held for sale

    (46,328 )     (68,059 )

Stock issued as compensation to directors

    120       92  

Stock-based compensation expense

    210       226  

Income from bank-owned life insurance

    (290 )     (285 )

Net increase in accrued interest receivable

    (286 )     (627 )

Net change in operating leases

    19       19  

Net increase in other assets

    (268 )     (1,578 )

Net (decrease) increase in other liabilities and official checks

    (2,776 )     1,438  

Net cash provided by operating activities

    6,765       9,679  

Cash flows from investing activities:

               

Loan originations, net of principal repayments

    (38,716 )     (75,676 )

Purchase of debt securities available for sale

    (1,206 )     (80,188 )

Purchase of debt securities held to maturity

    -       (12,677 )

Principal repayments of debt securities available for sale

    5,559       9,383  

Maturities and calls of debt securities available for sale

    12       6  

Purchase of Federal Home Loan Bank stock

    (1,295 )     (97 )

Purchase of premises and equipment

    (131 )     (711 )

Net cash used in investing activities

    (35,777 )     (159,960 )

Cash flows from financing activities:

               

Net decrease in deposits

    (8,728 )     (7,528 )

Change in other borrowings

    (4,275 )     550  

Increase in Federal Home Loan Bank advances

    25,000       -  

Proceeds from stock options exercised

    329       370  

Common stock dividends paid

    (698 )     (567 )

Net cash provided by (used in) financing activities

    11,628       (7,175 )

Net decrease in cash and cash equivalents

    (17,384 )     (157,456 )

Cash and cash equivalents at beginning of period

    39,788       233,473  

Cash and cash equivalents at end of period

  $ 22,404     $ 76,017  

Supplemental disclosure of cash flow information

               

Cash paid during the period:

               

Interest

  $ 6,719     $ 1,559  

Income taxes

  $ 2,387     $ 2,641  

Noncash transactions:

               

Accumulated other comprehensive loss, net change in unrealized loss on debt securities available for sale, net of income tax benefit

  $ (1,051 )   $ (10,287 )

Impact of adopting ASC 326 (net of tax)

  $ 1,946     $ -  

Loans transferred to other real estate owned

  $ 117     $ -  

 

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 of America (“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 condensed consolidated financial position and condensed 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, 2022, included in our Annual Report on Form 10-K filed with the SEC on March 9, 2023. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year or any future period.

 

Comprehensive Income (Loss). 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 (loss). The only component of other comprehensive loss is the net change in the unrealized loss 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.

 

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 variable 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. 

 

Other Real Estate Owned. Foreclosed assets acquired through or in lieu of loan foreclosure are held for sale and are initially recorded at fair value less estimated cost to sell.  Any write-down to fair value at the time of transfer to foreclosed assets is charged to the allowance for credit losses.  Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell.  Costs of improvements are capitalized up to the fair value of the property, whereas costs relating to holding foreclosed assets and subsequent adjustments to the value are charged to operations in credit resolution-related expenses in the consolidated statements of income. 

 

(continued)

 

8

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

 

(1)

General, Continued

 

Adoption of New Accounting Standard

 

The Company adopted ASU 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”), effective on January 1, 2023. The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans and debt securities held to maturity. It also applies to certain off-balance sheet credit exposures, including loan commitments, standby letters of credit, financial guarantees, and other similar instruments. ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses as well as the credit quality and underwriting standards of a Company’s loan portfolio. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities and purchased financial assets with credit deterioration.

 

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet (“OBS”) credit exposures. Results for reporting periods beginning after December 31, 2022 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a one-time cumulative-effect adjustment to the allowance for credit losses ("ACL") of $2.6 million which was recognized through a $1.9 million adjustment to retained earnings, net of taxes. This adjustment brought the beginning balance of the ACL to $4.5 million as of January 1, 2023.  The Company determined that there was no adjustment required for unfunded commitments. 

 

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to December 31, 2022. As of January 1, 2023, the Company did not have any other-than-temporarily impaired debt securities. Therefore, upon adoption of ASC 326, the Company determined that an ACL on debt securities was not necessary. The following table illustrates the impact of the adoption of ASC 326 on the Company’s condensed consolidated balance sheet.

 

 

 

  

January 1, 2023

 
  

As Reported Under ASC 326

  

Pre-ASC 326 Adoption

  

Impact of ASC 326 Adoption

 
  

(In thousands)

 

Assets:

            

Allowance for credit losses on loans

 $4,539  $7,145  $(2,606)

Deferred tax asset (other assets)

 $-  $-  $660 
             

Equity:

            

Retained earnings (impact of adopting ASC 326, net of taxes)

 $-  $-  $1,946 

 

 

 

(continued)

 

9

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

(1)

General, Continued

 


Summary of Significant Accounting Policies

 

The following is a summary of the Company's significant accounting policies with respect to ASC 326:

 

ACL - Debt Securities Available for Sale. Management uses a systematic methodology to determine its ACL for debt securities available for sale. Each quarter management evaluates impairment where there has been a decline in fair value below the amortized cost basis to determine whether there is a credit loss associated with the decline in fair value. The Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. If either one of the criteria regarding intent or requirement to sell is met, an ACL is established to reflect the difference between the debt security's amortized cost basis and its fair value. For debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which the fair value is less than the amortized cost basis, among various other factors, including the nature of the collateral, potential future changes in collateral values, default rates, delinquency rates, third-party guarantees, credit ratings, interest rate changes since purchase, volatility of the debt security's fair value and historical loss information for financial assets secured with similar collateral among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the debt security are compared to the amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis, an ACL is recorded, which is limited by the amount that the fair value is less than the amortized cost basis. Credit losses are calculated individually, rather than collectively. Any impairment that has not been recorded through an ACL is recognized in other comprehensive loss.

 

Changes in the ACL are recorded as credit loss expense. Losses are charged against the ACL when management believes the collectability of the debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

 

Management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the debt securities available for sale and does not record an ACL on accrued interest receivable. As of September 30, 2023, the accrued interest receivable for debt securities available for sale recognized in accrued interest receivable was $554,000.

 

ACL Debt Securities Held to Maturity. The Company measures expected credit losses on debt securities held to maturity on a collective basis by major security type. U.S. agency mortgage-backed securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. Taxable municipal securities are highly rated by major credit agencies. A debt security is placed on nonaccrual status at the time any principal or interest payments become ninety days delinquent. Interest accrued but not received for a debt security placed on nonaccrual is reversed against interest income. During the three and nine-month periods ended  September 30, 2023, there were no debt securities placed on nonaccrual.  The accrued interest receivable for debt securities held to maturity recognized in accrued interest receivable was $81,000.

 

ACL - Loans. The ACL reflects management's estimate of losses that will result from the inability of our borrowers to make required loan payments. The Company records loans charged-off against the ACL and subsequent recoveries, if any, increase the ACL when they are recognized.

 

Management uses systematic methodologies to determine its ACL for loans and certain OBS credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. Management estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national, state and local unemployment rates, commercial real estate price index, housing price index and national retail sales index (see discussion regarding qualitative factors below).

 

The Company's estimate of its ACL involves a high degree of judgment; therefore, management's process for determining expected credit losses may result in a range of expected credit losses. The Company's ACL recorded in the balance sheet reflects management's best estimate within the range of expected credit losses. The Company recognizes in earnings the amount needed to adjust the ACL for management's current estimate of expected credit losses. The Company's ACL is calculated using collectively evaluated and individually evaluated loans.

 

The ACL is measured on a collective pool basis when similar risk characteristics exist. Loans with similar risk characteristics are grouped into homogenous segments for analysis. The Company’s ACL is measured based on call report segment as these types of loans exhibit similar risk characteristics. The identified loan classes are as follows:

 

 

Commercial real estate

 

Residential and home equity

 

Construction

 

Commercial

 

Consumer and other

 

The ACL for each class is measured through the use of the weighted-average remaining maturity (“WARM”) method. The FASB recognizes the WARM method as an acceptable approach for computing the ACL. In accordance with the WARM method, an annualized loss rate based on a combination of both the Company's and peers' historical loss rates ("historical loss") is applied to the amortized cost of an asset or pool of assets over the remaining expected life. Included in its systematic methodology to determine its ACL, management considers the need to qualitatively adjust model results for risk factors that are not considered within the Company’s loss estimation process but are nonetheless relevant in assessing the expected credit losses within our loan pools.

 

(continued)

10

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

(1)

General, Continued

 

These qualitative factors ("Q-Factors") may increase or decrease management's estimate of expected credit losses by a calculated percentage based upon the estimated level of risk. The various risks that may be considered in making Q-Factor adjustments include, among other things, the impact of 1) changes in lending policies and procedures, including changes in underwriting standards; 2) changes in international, national, regional and local economic conditions; 3) changes in the volume and severity of past due and nonaccrual status; 4) the effect of any concentrations of credit and changes in the levels of such concentrations; 5) changes in the experience, depth, and ability of lending management; 6) changes in nature and volume of the portfolio; 7) trends in underlying collateral values; and 8) changes in the quality of the loan review system on the level of estimated credit losses.

 

The annual historical loss factors, adjusted for Q-Factors and management’s reasonable and supportable forecasts, are applied to the amortized loan balances over each subsequent period and aggregated to arrive at the ACL for loans collectively evaluated. The amortized loan balances are adjusted based on management’s estimate of loan repayments in future periods. Management has determined that the appropriate historical loss period is fifteen years based on the composition of the current loan portfolio. Additionally, management has determined that the Company’s reasonable and supportable forecast period is one year.

 

When a loan no longer shares similar risk characteristics with its segment, the asset is assessed to determine whether it should be included in another segment or should be individually evaluated. Under ASC 326-20-35-6, the Company has adopted the collateral maintenance practical expedient to measure the ACL based on the fair value of collateral. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining ACL. An ACL is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for selling costs, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss to the extent as their credit profile improves and that the repayment terms were not considered to be unique to the asset.

 

Management measures expected credit losses over the contractual term of a loan. When determining the contractual term, the Company considers expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

 

 

Management has a reasonable expectation at the reporting date that a restructuring will be executed with an individual borrower.

 

The extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

 

The Company follows its nonaccrual policy by reversing contractual interest income in the statements of earnings when the Company places a loan on nonaccrual status. Therefore, management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the portfolio and does not record an ACL on accrued interest receivable. As of September 30, 2023, the accrued interest receivable for loans recorded in accrued interest receivable was $2,036,000.

 

The Company has a variety of assets that have a component that qualifies as an OBS exposure. These primarily include undrawn portions of revolving lines of credit and construction loans. Management has determined that a majority of the Company's off-balance-sheet credit exposures are not unconditionally cancellable. Management used its judgement to determine funding rates. Management applied the funding rates, along with the loss factor rate determined for each pooled loan segment, to unfunded loan commitments, excluding unconditionally cancellable exposures and letters of credit, to arrive at the reserve for unfunded loan commitments. Any adjustment to the ACL for unfunded commitments will be recognized through the ACL in the statements of earnings. As of September 30, 2023, a liability of $4,000 was recorded for expected credit losses on unfunded commitments. 

 

 

 

(continued)

 

11

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

 

(2)

Debt Securities 

 

Debt securities are classified according to management's intent. Our investments in U.S. agency mortgage-backed securities are with government-sponsored enterprises (GSEs) such as Federal National Mortgage Association, Government National Mortgage Association, Federal Home Loan Bank, and Federal Home Loan Mortgage Corporation. 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, 2023

                

Debt Securities Available for Sale

                

U.S. Government treasury and agency securities

 $48,398  $-  $(1,872) $46,526 

Municipal securities

  22,278   -   (2,971)  19,307 

U.S. agency mortgage-backed securities

  64,786   6   (9,885)  54,907 

Asset-backed securities

  3,145   -   (47)  3,098 

Total

 $138,607  $6  $(14,775) $123,838 
                 

Debt Securities Held to Maturity

                

Municipal securities

 $9,246  $-  $(1,922) $7,324 

U.S. agency mortgage-backed securities

  2,592   -   (254)  2,338 

Total

 $11,838  $-  $(2,176) $9,662 
                 

At December 31, 2022

                

Debt Securities Available for Sale

                

U.S. Government treasury and agency securities

 $48,124  $-  $(2,219) $45,905 

Municipal securities

  22,338   -   (2,874)  19,464 

U.S. agency mortgage-backed securities

  68,633   -   (8,131)  60,502 

Asset-backed securities

  3,702   -   (137)  3,565 

Total

 $142,797  $-  $(13,361) $129,436 
                 

Debt Securities Held to Maturity

                

Municipal securities

 $9,215  $-  $(1,695) $7,520 

U.S. agency mortgage-backed securities

  2,590   -   (193)  2,397 

Total

 $11,805  $-  $(1,888) $9,917 

 

There were no debt securities available for sale sold during the three and nine months ended September 30, 2023 and 2022.

 

 

(continued)

12

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(2)

Debt Securities, Continued

 

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

  

More Than Twelve Months

 
  

Gross

      

Gross

     
  

Unrealized

  

Fair

  

Unrealized

  

Fair

 
  

Losses

  

Value

  

Losses

  

Value

 

(in thousands)

                

At September 30, 2023

                

Debt Securities Available for Sale

                

U.S. Government treasury and agency securities

 $-  $-  $(1,872) $46,526 

Municipal securities

  (7)  380   (2,964)  18,927 

U.S. agency mortgage-backed securities

  -   -   (9,885)  53,695 

Asset-backed securities

  -   -   (47)  3,098 

Total

 $(7) $380  $(14,768) $122,246 
                 

Debt Securities Held to Maturity

                

Municipal securities

 $(79) $916  $(1,843) $6,408 

U.S. agency mortgage-backed securities

  -   -   (254)  2,338 

Total

 $(79) $916  $(2,097) $8,746 
                 

At December 31, 2022

                

Debt Securities Available for Sale

                

U.S. Government treasury and agency securities

 $(1,384) $40,926  $(835) $4,979 

Municipal securities

  (999)  11,436   (1,875)  8,028 

U.S. agency mortgage-backed securities

  (3,246)  36,939   (4,885)  23,563 

Asset-backed securities

  (102)  2,461   (35)  1,104 

Total

 $(5,731) $91,762  $(7,630) $37,674 
                 

Debt Securities Held to Maturity

                

Municipal securities

 $(1,695) $7,520  $-  $- 

U.S. agency mortgage-backed securities

  (193)  2,397   -   - 

Total

 $(1,888) $9,917  $-  $- 

 

The unrealized losses at September 30, 2023 and December 31, 2022 on 105 and 106 debt securities, respectively, were caused by market conditions such as interest rate movements, and not changes in credit quality. It is expected that the debt securities would not be settled at a price less than the par value of the debt securities. 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 debt securities until a market price recovery or maturity, these debt securities are not considered other-than-temporarily impaired. Therefore, at September 30, 2023, no ACL on debt securities has been recorded.

 

Management evaluates debt securities for impairment where there has been a decline in fair value below the amortized cost basis of a debt security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Credit losses are calculated individually and collectively, using a discounted cash flow method, whereby management compares the present value of expected cash flows with the amortized cost basis of the debt security.

 

Any credit loss component would be recognized through a credit loss expense. Consideration is given to (1) the financial condition and near-term prospects of the issuer including looking at default and delinquency rates, (2) the outlook for receiving the contractual cash flows of the debt securities, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third party guarantees, and (8) collateral values. In analyzing an issuer's financial condition, management considers whether the debt securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer's financial condition, and the issuer's anticipated ability to pay the contractual cash flows of the debt securities. The Company determined that the U.S. government agency and treasury securities (including mortgage-backed securities) have a zero expected credit loss. All of the government agency securities have the full faith and credit backing of the United States government or one of its agencies. Municipal securities and asset-backed securities that do not have a zero expected credit loss are evaluated quarterly by a third-party resource to determine whether there is a credit loss associated with a decline in fair value. At September 30, 2023 and December 31, 2022, all municipal and asset-backed securities were rated as investment grade. All debt securities in an unrealized loss position as of  September 30, 2023 continue to perform as scheduled and we do not believe that there is a credit loss or that a credit loss expense is necessary. At September 30, 2023, no debt securities are on nonaccrual. Also, as part of our evaluation of our intent and ability to hold investments for a period of time sufficient to allow for any anticipated recovery in the market, we consider our investment strategy, cash flow needs, liquidity position, capital adequacy and interest rate risk position. We do not currently intend to sell the debt securities within the portfolio, and it is not more-likely-than-not that we will be required to sell the debt securities.

 

 

 

(continued)

13

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

(2)

Debt Securities, Continued

 

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, 2023

                

Debt Securities Available for Sale

                

U.S. Government treasury and agency securities

 $46,526  $-  $46,526  $- 

Municipal securities

  19,307   -   19,307   - 

U.S. agency mortgage-backed securities

  54,907   -   54,907   - 

Asset-backed securities

  3,098   -   3,098   - 

Total

 $123,838  $-  $123,838  $- 
                 

At December 31, 2022

                

Debt Securities Available for Sale

                

U.S. Government treasury and agency securities

 $45,905  $-  $45,905  $- 

Municipal securities

  19,464   -   19,464   - 

U.S. agency mortgage-backed securities

  60,502   -   60,502   - 

Asset-backed securities

  3,565   -   3,565   - 

Total

 $129,436  $-  $129,436  $- 

 

The scheduled maturities of debt securities are as follows:

 

  

Debt Securities Available for Sale

  

Debt Securities Held to Maturity

 
  

Amortized

  

Fair

  

Amortized

  

Fair

 
  

Cost

  

Value

  

Cost

  

Value

 

(in thousands)

                

Due in less than one year

 $37,319  $36,574  $-  $- 

Due in one to five years

  13,110   12,261   -   - 

Due in five to ten years

  17,930   15,104   2,043   1,868 

Due after ten years

  5,462   4,992   7,203   5,456 

U.S. agency mortgage-backed securities

  64,786   54,907   2,592   2,338 

Total

 $138,607  $123,838  $11,838  $9,662 
                 

 

At  September 30, 2023 and December 31, 2022, debt securities with a fair value of $15.6 million and $13.3 million, respectively, were pledged as collateral for public deposits.  

(continued)

 

14

 

 

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:

 

         

(in thousands)

 

At September 30, 2023

  

At December 31, 2022

 

Real estate mortgage loans:

        

Commercial

 $216,266  $202,263 

Residential and home equity

  249,448   224,211 

Construction

  74,708   75,151 

Total real estate mortgage loans

  540,422   501,625 
         

Commercial loans

  87,881   86,308 

Consumer and other loans

  5,679   7,698 

Total loans

  633,982   595,631 
         

Add (deduct):

        

Net deferred loan (fees) costs

  (109)  229 

Allowance for credit losses

  (4,899)  (7,145)

Loans, net

 $628,974  $588,715 

 

 

 

(continued)

 

15

 

 

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. Commercial loans that are secured by nonowner-occupied commercial real estate are underwritten by assessing the property’s current and future income potential and appraised value.  For both owner-occupied and nonowner-occupied commercial loans, the maturity is generally limited to three to five years; however, payments may be structured on a longer amortization basis. Typically, interest rates on these types of loans are fixed for five years or less after which they may 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, 7-year, or 10-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. 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 allow for timely retirement of debt, unless secured by liquid collateral or as otherwise justified. 

 

 

(continued)

 

16

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

 Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

(3)

Loans, Continued

 

Consumer and Other Loans. 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 borrower's 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 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, owner-occupied and nonowner-occupied commercial real estate loans, and commercial loan relationships in excess of $1 million 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.

 

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)

 

17

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

(3)

Loans, Continued

 

The following table presents loan balances classified by credit quality indicator, loan type and based on year of origination as of September 30, 2023.

 

  

Term Loans by Origination Year

         

(in thousands)

 2023  2022  2021  2020  2019  Prior  Revolving Loans  Total 

Commercial Real Estate Loans

                                

Pass

 $22,856  $57,195  $33,314  $42,183  $12,688  $41,642  $4,386  $214,264 

Special mention

  -   -   -   -   -   1,752   -   1,752 

Substandard

  -   -   -   250   -   -   -   250 

Total commercial real estate loans

 $22,856  $57,195  $33,314  $42,433  $12,688  $43,394  $4,386  $216,266 

Year-to-date gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Residential and Home Equity Loans

                                

Pass

 $36,426  $51,574  $58,007  $30,952  $11,994  $29,724  $28,309  $246,986 

Special mention

  -   -   1,398   273   -   204   362   2,237 

Substandard

  -   -   181   -   -   -   44   225 

Total residential loans

 $36,426  $51,574  $59,586  $31,225  $11,994  $29,928  $28,715  $249,448 

Year-to-date gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Construction Loans

                                

Pass

 $23,789  $24,998  $14,945  $1,441  $2,319  $1,855  $4,755  $74,102 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   222   -   384   -   -   -   606 

Total construction loans

 $23,789  $25,220  $14,945  $1,825  $2,319  $1,855  $4,755  $74,708 

Year-to-date gross charge-offs

 $-  $-  $-  $386  $-  $-  $-  $386 
                                 

Commercial Loans

                                

Pass

 $8,534  $12,641  $8,052  $3,819  $5,048  $5,646  $43,734  $87,474 

Special mention

  37   -   1   52   204   38   -   332 

Substandard

  -   -   -   -   -   -   75   75 

Total commercial loans

 $8,571  $12,641  $8,053  $3,871  $5,252  $5,684  $43,809  $87,881 

Year-to-date gross charge-offs

 $-  $-  $-  $-  $-  $-  $-  $- 
                                 

Consumer & Other Loans

                                

Pass

 $1,274  $749  $296  $127  $361  $195  $2,677  $5,679 

Special mention

  -   -   -   -   -   -   -   - 

Substandard

  -   -   -   -   -   -   -   - 

Total consumer & other loans

 $1,274  $749  $296  $127  $361  $195  $2,677  $5,679 

Year-to-date gross charge-offs

 $37  $-  $-  $-  $-  $-  $-  $37 

 

(continued)

 

18

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

(3)

Loans, Continued

 

The following table summarizes the risk rating of loans at December 31, 2022:

 

 

  

Real Estate Mortgage Loans

             
      

Residential

          

Consumer

     
      

and Home

      

Commercial

  

and Other

     

(in thousands)

 

Commercial

  

Equity

  

Construction

  

Loans

  

Loans

  

Total

 

At December 31, 2022

                        

Grade:

                        

Pass

 $200,192  $221,552  $74,516  $85,874  $7,696  $589,830 

Special mention

  1,794   2,616   635   368   2   5,415 

Substandard

  277   43   -   66   -   386 

Doubtful

  -   -   -   -   -   - 

Loss

  -   -   -   -   -   - 

Total

 $202,263  $224,211  $75,151  $86,308  $7,698  $595,631 

 

 

A loan is defined as a past due loan when one full or partial payment is past due or a contractual maturity is over 30 days past due.  Age analysis of past due loans is as follows:

 

  

Accruing Loans

         
          

Greater Than

                 
  

30-59 Days

  

60-89 Days

  

90 Days

  

Total Past

      

Nonaccrual

  

Total

 

(in thousands)

 

Past Due

  

Past Due

  

Past Due

  

Due

  

Current

  

Loans

  

Loans

 

At September 30, 2023

                            

Real estate mortgage loans:

                            

Commercial

 $-  $-  $-  $-  $216,016  $250  $216,266 

Residential and home equity

  350   409   367   1,126   248,141   181   249,448 

Construction

  -   -   -   -   74,102   606   74,708 

Commercial loans

  282   19   -   301   87,505   75   87,881 

Consumer and other loans

  -   -   -   -   5,679   -   5,679 

Total

 $632  $428  $367  $1,427  $631,443  $1,112  $633,982 
                             

At December 31, 2022

                            

Real estate mortgage loans:

                            

Commercial

 $-  $-  $-  $-  $201,986  $277  $202,263 

Residential and home equity

  1,383   413   349   2,145   222,066   -   224,211 

Construction

  651   -   55   706   74,445   -   75,151 

Commercial loans

  293   160   -   453   85,789   66   86,308 

Consumer and other loans

  -   -   -   -   7,698   -   7,698 

Total

 $2,327  $573  $404  $3,304  $591,984  $343  $595,631 

 

 

 

(continued)

19

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

(3)

Loans, Continued

 

Loans are generally placed on nonaccrual status if principal or interest payments become 90 days past due and/or management deems the collectability of the principal and/or interest to be doubtful.  Loans are returned to accrual status when the principal and interest amounts contractually due are brought current or when future payments are reasonably assured. The following table presents the amortized cost basis of loans in nonaccrual status and loans past due over 90 days and still on accrual by class of loans and the related ACL, if any, as of September 30, 2023.  

 

                 
                 

(in thousands)

 

Total Nonaccrual Loans

  

Nonaccrual Loans with No ACL

  

Nonaccrual Loans with ACL

  

90+ Days Still Accruing

 

At September 30, 2023

                

Commercial real estate

 $250  $250  $-  $- 

Residential and home equity

  181   181   -   367 

Construction

  606   606   -   - 

Commercial

  75   -   75   - 

Total

 $1,112  $1,037  $75  $367 

 

 

The following table presents the amortized cost basis of impaired loans and their associated allowance, if any, as of  December 31, 2022. 

 

  

With No Related

                         
  

Allowance Recorded

  

With an Allowance Recorded

  

Total

 
      

Unpaid

      

Unpaid

          

Unpaid

     
      

Contractual

      

Contractual

          

Contractual

     
  

Recorded

  

Principal

  

Recorded

  

Principal

  

Related

  

Recorded

  

Principal

  

Related

 

(in thousands)

 

Investment

  

Balance

  

Investment

  

Balance

  

Allowance

  

Investment

  

Balance

  

Allowance

 

At December 31, 2022

                                

Commercial real estate

 $277  $277  $-  $-  $-  $277  $277  $- 

Commercial

  -   -   66   66   14   66   66   14 

Consumer and other loans

  2   2   -   -   -   2   2   - 

Total

 $279  $279  $66  $66  $14  $345  $345  $14 

 

 

The restructuring of a loan exists if the creditor grants a modification as a result of financial hardship. A loan modification  may include an extension of repayment terms which would not normally be granted, a reduction in interest rate or the forgiveness of principal and/or accrued interest. The Company entered into no new restructured loans during the three and nine months ended September 30, 2023 and 2022.

 

 

(continued)

 

20

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

 

 

 

(4)

Allowance for Credit Losses

 

Activity in the ACL is summarized as follows:

 

  Loans         
  

Real Estate Mortgage Loans

                     

(in thousands)

 

Commercial

  

Residential and Home Equity

  

Construction

  

Commercial Loans

  

Consumer and Other Loans

  

Total Funded Loans

  

Unfunded Commitments

  

Total

 

Three Month Period Ended September 30, 2023

                                

Beginning balance

 $1,586  $1,811  $544  $771  $17  $4,729  $48  $4,777 

Credit loss expense (income)

  75   121   (31)  41   13   219   (44)  175 

Charge-offs

  -   -   (40)  -   (15)  (55)  -   (55)

Recoveries

  -   -   -   5   1   6   -   6 

Ending balance

 $1,661  $1,932  $473  $817  $16  $4,899  $4  $4,903 
                                 

Three Month Period Ended September 30, 2022

                                

Beginning balance

 $2,051  $2,430  $867  $1,143  $120  $6,611   -  $6,611 

Provision (credit) for loan losses

  227   110   4   (57)  (43)  241   -   241 

Net recoveries

  -   -   -   -   9   9   -   9 

Ending balance

 $2,278  $2,540  $871  $1,086  $86  $6,861  $-  $6,861 
                                 

Nine Month Period Ended September 30, 2023

                                

Beginning balance

 $2,303  $2,607  $922  $1,223  $90  $7,145  $-  $7,145 

Impact of adopting ASC 326

  (740)  (892)  (403)  (504)  (67)  (2,606)  -   (2,606)

Credit loss expense

  98   217   340   60   24   739   4   743 

Charge-offs

  -   -   (386)  -   (37)  (423)  -   (423)

Recoveries

  -   -   -   38   6   44   -   44 

Ending balance

 $1,661  $1,932  $473  $817  $16  $4,899  $4  $4,903 
                                 

Nine Month Period Ended September 30, 2022

                                

Beginning balance

 $1,762  $2,139  $857  $1,125  $91  $5,974   -  $5,974 

Provision (Credit) for loan losses

  516   401   14   (338)  8   601   -   601 

Net recoveries (charge-offs)

  -   -   -   299   (13)  286   -   286 

Ending balance

 $2,278  $2,540  $871  $1,086  $86  $6,861  $-  $6,861 

 

Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses under the incurred loss methodology.  The following table is a disclosure related to the allowance for loan losses in prior periods. 

 

  

Real Estate Mortgage Loans

             
      

Residential

          

Consumer

     
      

and Home

      

Commercial

  

and Other

     

(in thousands)

 

Commercial

  

Equity

  

Construction

  

Loans

  

Loans

  

Total

 

At December 31, 2022

                        

Individually evaluated for impairment:

                        

Recorded investment

 $277  $-  $-  $66  $2  $345 

Balance in allowance for loan losses

 $-  $-  $-  $14  $-  $14 
                         

Collectively evaluated for impairment:

                        

Recorded investment

 $201,986  $224,211  $75,151  $86,242  $7,696  $595,286 

Balance in allowance for loan losses

 $2,303  $2,607  $922  $1,209  $90  $7,131 

 

 

 

 

 

(continued)

21

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

 

(5)

Regulatory Capital

 

The Bank is subject to various regulatory capital requirements administered by the banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

 

The Bank is subject to the Basel III capital level threshold requirements under the Prompt Corrective Action regulations. These regulations were designed to ensure that banks maintain strong capital positions even in the event of severe economic downturns or unforeseen losses.

 

The Bank is subject to the capital conservation buffer rules which place limitations on distributions, including dividend payments, and certain discretionary bonus payments to executive officers. In order to avoid these limitations, a bank must hold a capital conservation buffer above its minimum risk-based capital requirements. As of September 30, 2023, the Bank’s capital conservation buffer exceeded the minimum requirement.

 

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and percentages (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of  September 30, 2023, that the Bank meets all capital adequacy requirements to which it is subject.

 

As of September 30, 2023, the Bank is well capitalized under the regulatory framework for prompt corrective action. To be categorized as adequately capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage percentages as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category. The Bank’s actual capital amounts and percentages are also presented in the following table.

 

          

For Capital Adequacy

  

For Well Capitalized

 
  

Actual

  

Purposes

  

Purposes

 

(dollars in thousands)

 

Amount

  

Percentage

  

Amount

  

Percentage

  

Amount

  

Percentage

 

As of September 30, 2023

                        

Tier 1 Leverage Capital

 $84,540   10.18% $33,207   4.00% $41,509   5.00%

Common Equity Tier 1 Risk-based Capital

  84,540   13.23   28,765   4.50   41,549   6.50 

Tier 1 Risk-based Capital

  84,540   13.23   38,353   6.00   51,138   8.00 

Total Risk-based Capital

  89,443   13.99   51,138   8.00   63,922   10.00 
                         

As of December 31, 2022

                        

Tier 1 Leverage Capital

 $81,100   9.70% $33,461   4.00% $41,826   5.00%

Common Equity Tier 1 Risk-based Capital

  81,100   12.90   28,290   4.50   40,863   6.50 

Tier 1 Risk-based Capital

  81,100   12.90   37,720   6.00   50,294   8.00 

Total Risk-based Capital

  88,245   14.04   50,294   8.00   62,867   10.00 

 

 

(continued)

 

22

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

 

(6)

Earnings Per Share

 

Earnings per share, (“EPS”) have been computed on the basis of the weighted-average number of shares of common stock outstanding. For the three and nine months ended September 30, 2023 and 2022, outstanding stock options are considered dilutive securities for purposes of calculating diluted EPS which was computed using the treasury stock method.

 

  

2023

  

2022

 
      

Weighted-

  

Per

      

Weighted-

  

Per

 
      

Average

  

Share

      

Average

  

Share

 

(dollars in thousands, except per share amounts)

 

Earnings

  

Shares

  

Amount

  

Earnings

  

Shares

  

Amount

 

Three Months Ending September 30:

                        

Basic EPS:

                        

Net earnings

 $2,120   3,214,323  $0.66  $2,831   3,159,526  $0.90 

Effect of dilutive securities-incremental shares from assumed conversion of stock options

      21,597           37,756     

Diluted EPS:

                        

Net earnings

 $2,120   3,235,920  $0.66  $2,831   3,197,282  $0.89 
                         

Nine Months Ending September 30:

                        

Basic EPS:

                        

Net earnings

 $6,878   3,193,302  $2.15  $7,039   3,151,689  $2.23 

Effect of dilutive securities-incremental shares from assumed conversion of stock options

      28,650           39,904     

Diluted EPS:

                        

Net earnings

 $6,878   3,221,952  $2.13  $7,039   3,191,593  $2.21 

 

 

 

 

 

(continued)

 

23

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

 

(7)

Stock Benefit Plans

 

2015 Stock Incentive Compensation Plan 

 

The 2015 Stock Incentive Compensation Plan (the “2015 Plan”) permits the Company to grant the Company’s key employees and directors stock options, restricted stock, stock appreciation rights, performance shares, and phantom stock. Under the 2015 Plan, the number of shares which may be issued is 500,000 and limited to no more than 15% of the issued and outstanding shares of the Company's common stock at that time.  This is determined annually.

 

As of September 30, 2023 105,496 shares are available to be issued under the 2015 Stock Plan as restricted stock, underlying options, or otherwise. A summary of the stock option activity for the nine months ended September 30, 2023 and 2022 is as follows:

 

          

Weighted-

     
      

Weighted-

  

Average

     
      

Average

  

Remaining

  

Aggregate

 
  

Number of

  

Exercise

  

Contractual

  

Intrinsic

 
  

Options

  

Price

  

Term (years)

  

Value

 

Outstanding at December 31, 2021

  268,657  $20.23         

Options exercised

  (20,240)  (18.35)        

Options forfeited

  (150)  (20.09)        

Options granted

  3,500   25.37         

Outstanding at September 30, 2022

  251,767  $20.38         

Options forfeited

  (400)  (20.09)        

Outstanding at December 31, 2022

  251,367  $19.99         

Options exercised

  (18,617)  (20.09)        

Options forfeited

  (50)  (20.09)        

Outstanding at September 30, 2023

  232,700  $20.68   2.91  $419,000 

Exercisable at September 30, 2023

  214,700  $20.22   2.67  $412,000 

 

The fair value of shares vested and recognized as compensation expense was $78,000 for the three months ended September 30, 2023 and 2022, and $210,000 and $226,000 for the nine months ended September 30, 2023 and 2022, respectively. These amounts include expense recognized on restricted common stock shares of $66,000 and $33,000 for the three months ended September 30, 2023 and 2022, respectively, and $142,000 and $93,000 for the nine months ended September 30, 2023 and 2022, respectively. The deferred tax benefit related to stock options was $1,000 and $5,000 for the three months ended September 30, 2023 and 2022, respectively, and $6,000 and $14,000 for the nine months ended September 30, 2023 and 2022, respectively. At September 30, 2023, there was $112,000 in unrecognized compensation expense related to unvested stock options granted under the 2015 Plan, with an average remaining vesting period of 3.22 years.  

 

 

(continued) 

 

24

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

(7)

Stock Benefit Plans, Continued

 

Restricted Stock   

 

During the nine months ended September 30, 2023 and 2022, the Company issued 75,751 and 10,203 restricted common stock shares, respectively, to some of its executives and employees. The restricted stock awards are on a three to five year vesting schedule.  Holders of restricted stock have the right to vote and the right to receive dividends declared on common stock, if any. A summary of restricted stock transactions follows:

 

 

      

Wtd-Avg

     
      

Grant-Date

     
  

Number of

  

Fair Value

  

Grant-Date Fair

 
  

Shares

  

per Share

  

Value

 

Non-vested restricted stock outstanding at December 31, 2021

  7,838  $18.88  $148,000 

Non-vested restricted stock granted

  10,203  $27.85   284,000 

Restricted stock shares vested in 2022

  (3,838)  (18.98)  (73,000)

Non-vested restricted stock outstanding at September 30, 2022 and December 31, 2022

  14,203  $25.30  $359,000 

Non-vested restricted stock granted

  75,751  $22.68  $1,718,000 

Restricted stock shares vested in 2023

  (6,040)  (24.06)  (145,000)

Non-vested restricted stock outstanding at September 30, 2023

  83,914  $23.02  $1,932,000 

 

At September 30, 2023, the Company had $1,838,000 in unrecognized expense related to unvested restricted shares to be recognized over a weighted-average period of 4.49 years.

 

Director s’ Plan
 
In 2012, the Company’s Board of Directors and shareholders adopted the Directors’ Plan. The Directors’ Plan permits the Company’s and the Bank’s non-employee directors to elect to receive any compensation to be paid to them in shares of the Company’s common stock. Pursuant to the Directors’ Plan, each non-employee director is permitted to make an election to receive shares of stock instead of cash. To encourage directors to elect to receive stock, the Directors’ Plan provides that if a director elects to receive stock, he or she will receive in common stock 110% of the amount of cash fees set by the Board or the Compensation Committee. The value of stock to be awarded pursuant to the Directors’ Plan will be the closing price of a share of common stock as traded on the Over-the-Counter Bulletin Board, or a price set by the Board or its Compensation Committee, acting in good faith, but in no case less than fair market value. The maximum number of shares to be issued pursuant to the Directors’ Plan is limited to 74,805 shares. For the three months ended September 30, 2023 and 2022  our directors received 1,764 and 1,250 shares of common stock, respectively, in lieu of cash fees calculated at 110% to be $40,000 and $32,000, respectively. For the nine months ended September 30, 2023 and 2022  our directors received 4,874 and 3,486 shares of common stock, respectively, in lieu of cash fees calculated at 110% to be $120,000 and $92,000, respectively.  At  September 30, 2023, 31,488 shares remained available for grant.  
 
 

(8)

Other Borrowings

 

In 2020, the Company entered into a Promissory Note (the "Note") and a Security Agreement with Thomasville National Bank ("TNB"). Pursuant to the Note, the Company obtained a $15 million revolving line of credit with a 5-year term. The interest rate on the line of credit adjusts daily to the then-current Wall Street Journal Prime Rate. At September 30, 2023, the interest rate was 8.50%. Pursuant to the Security Agreement, the Company has pledged to TNB all of the outstanding shares of common stock of the Company's wholly-owned subsidiary, the Bank. At September 30, 2023 and December 31, 2022, the Company had an outstanding loan balance under this line of credit of $0 and $4,275,000, respectively. 

 

The Company incurred $0 and $80,000 in interest expense related to the $15 million revolving line of credit for the three and nine months ended September 30, 2023, compared to $56,000 and $127,000 for the three and nine months ended September 30, 2022, respectively. 

 

25

 
 

(9)

Federal Home Loan Bank Advances

 

Federal Home Loan Bank of Atlanta (“FHLB”) advances are collateralized by a blanket lien on qualifying residential real estate, commercial real estate, home equity lines of credit and multi-family loans. Under this blanket lien, the Company could borrow up to $102.6 million at  September 30, 2023.  The Company had $25 million in FHLB advances at  September 30, 2023 and no advances at  December 31, 2022.  The following table details rate and maturity information for FHLB advances as of  September 30, 2023

(dollars in thousands)

        

Maturity Year

 

Interest Rate

  

Amount

 

2023

  5.47% - 5.53%  $10,000 

2024

  4.48% - 4.83%   10,000 

2025

  4.18%  5,000 
      $25,000 

 

The Company incurred $304,000 and $744,000 in interest expense related to FHLB advances for the three and nine months ended September 30, 2023, compared to $0 for the three and nine months ended September 30, 2022

 

 

(10)

Derivative Financial Instruments

 

The Company has entered into interest rate swaps in order to provide commercial real estate loan clients the ability to swap from variable to fixed interest rates.  Under these agreements, the Company enters into a variable rate loan with a client at a specified index (Wall Street Journal Prime Lending Rate) in addition to a borrower 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 counterparty in order to offset its exposure on the borrower swap. These interest rate swaps are considered derivative financial instruments.  These derivative instruments involve both credit and market risk.  The notional amounts are amounts on which calculations, payments, and the value of the derivatives are based.  Notional amounts do not represent direct credit exposures.  Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any, over the life of the contract.  Such differences, which represent the fair value of the derivative instruments, are included in “other assets” and “other liabilities” on the Company’s condensed consolidated balance sheets, and the net change in each of these financial statement line items in the accompanying condensed consolidated statements of cash flows.  The derivative transactions are considered instruments with no hedging designation, otherwise known as stand-alone derivatives.   

 

         
  

At September 30, 2023

  

At December 31, 2022

 

(dollars in thousands)

        

Notional amount - interest rate swaps:

        

Stand-alone derivatives

 $19,641  $20,084 
         

Weighted-average pay rate - interest rate swaps

  3.68%  3.68%

Weighted-average receive rate - interest rate swaps

  3.00%  3.00%

Weighted-average maturity (in years) - interest rate swaps

  11.8   12.6 
         

Net realized fair value adjustments:

        

Stand-alone derivatives - interest rate swaps (other assets)

 $2,786  $2,352 

Stand-alone derivatives - interest rate swaps (other liabilities)

 $(2,786) $(2,352)

 

The Company is party to a collateral support agreement with its dealer counterparty.  Such agreement requires that the Company or the dealer counterparty to maintain collateral based on the fair values of derivative instruments.  In the event of default by a counterparty the non-defaulting counterparty would be entitled to the collateral. The Company does not require borrower counterparties to post cash collateral based on the fair values of borrower interest rate swaps.  In the event of default of a borrower counterparty wherein the fair value of the derivative instrument is owed to the Company, the fair value is collected through a real property foreclosure or liquidation.     

 

26

 
 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

 

(11)

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:

 

      

At September 30, 2023

  

At December 31, 2022

 
      

Carrying

  

Fair

  

Carrying

  

Fair

 

(in thousands)

 

Level

  

Amount

  

Value

  

Amount

  

Value

 

Financial assets:

                    

Cash and cash equivalents

  1  $22,404  $22,404  $39,788  $39,788 

Debt securities available for sale

  2   123,838   123,838   129,436   129,436 

Debt securities held to maturity

  2   11,838   9,662   11,805   9,917 

Loans held for sale

  3   5,182   5,263   7,058   7,170 

Loans, net

  3   628,974   549,133   588,715   548,166 

Federal Home Loan Bank stock

  3   1,758   1,758   463   463 

Accrued interest receivable

  3   2,671   2,671   2,385   2,385 

Bank-owned life insurance

  3   16,822   16,822   16,532   16,532 

Derivative contract assets

  2   2,786   2,786   2,352   2,352 
                     

Financial liabilities:

                    

Deposits

  3   722,807   723,396   731,535   731,506 

FHLB Advances

  3   25,000   24,847   -   - 

Other borrowings

  3   -   -   4,275   4,275 

Derivative contract liabilities

  2   2,786   2,786   2,352   2,352 
                     

Off-Balance Sheet Items

  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, 2022.

 

27

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

 

(12)

Off-Balance Sheet Financial Instruments

 

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its clients. These financial instruments are commitments to extend credit, construction loans in process, unused lines of credit, standby letters of credit, and guaranteed accounts and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the condensed consolidated balance sheets. The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.

 

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for available lines of credit, construction loans in process and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.

 

Commitments to extend credit, construction loans in process and unused lines of credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each client’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty.

 

Standby letters of credit are written conditional commitments issued by the Company to guarantee the performance of a client to a third party. These letters of credit are primarily issued to support third-party borrowing arrangements and generally have expiration dates within one year of issuance. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to clients. 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. Some of the Company’s standby letters of credit are secured by collateral and those secured letters of credit totaled $481,000 at  September 30, 2023.

 

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, Card Assets and its issuing bank, First Arkansas Bank & Trust. As a part of this agreement, we are responsible for the established credit limit on certain accounts 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 and commitments to extend credit typically result in loans with a market interest rate when funded.

 

As of September 30, 2023, net credit loss expense of $4,000 was included in the ACL for an unfunded loan commitment.  This portion of credit loss expense has been recorded in other liabilities.  

 

The maximum potential amount of future payments we could be required to make for off-balance sheet financial instruments is represented by the dollar amount disclosed in the table below.

 

  

At September 30, 2023

 

(in thousands)

    

Commitments to extend credit

 $9,728 

Construction loans in process

 $42,906 

Unused lines of credit

 $83,304 

Standby financial letters of credit

 $2,225 

Guaranteed accounts

 $1,338 

 

(continued)

 

28

 

 

PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY

 

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, 2022. Results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of results that may be attained for any other period. The following discussion and analysis present 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 relate 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;

 

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

 

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

 

application and interpretation of accounting principles and guidelines.

 

29

 

 

GENERAL

 

Prime Meridian Holding Company (“PMHG”) 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”) (collectively, the “Company”). The Bank opened for business on February 4, 2008 and was acquired by PMHG on September 16, 2010. PMHG 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 four full-service offices located in Tallahassee, Crawfordville, and Lakeland, 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

   

Year

   

Nine Months

 
   

Ended

   

Ended

   

Ended

 
   

September 30, 2023

   

December 31, 2022

   

September 30, 2022

 

Average equity as a percentage of average assets

    8.93 %     8.67 %     7.66 %

Equity to total assets at end of period

    8.99       8.23       7.68  

Return on average assets(1)

    1.12       1.14       1.09  

Return on average equity(1)

    12.57       14.77       14.25  

Noninterest expense to average assets(1)

    2.24       1.91       1.82  

Nonperforming loans to total loans at end of period

    0.23       0.13       0.18  

Nonperforming assets to total assets at end of period

    0.19       0.09       0.12  

 

(1) Annualized for the nine months ended September 30, 2023 and 2022.

 

CRITICAL ACCOUNTING POLICIES

 

The preparation of our Consolidated Financial Statements in accordance with GAAP and reporting practices applicable to the Banking industry requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities. Actual results could differ from these estimates and result in material changes in our consolidated financial position and consolidated results of operations and related disclosures. Understanding our accounting policies is fundamental to understanding our consolidated financial position and consolidated results of operations. Accordingly, our significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in Note 1 in this Quarterly Report on Form 10-Q and in Note 1 of our Annual Report on Form 10-K for the year ended December 31, 2022. As discussed in Note 1 of this Form 10-Q, our policy related to the allowance for credit losses "ACL" changed on January 1, 2023 in connection with adoption of ASC 326. The amount of the ACL represents management's best estimates of current expected credit losses considering available information relevant to assessing exposure to credit loss over the contractual term of the instrument. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts of the collectability of the loan portfolio. The CECL model differs from the incurred loss model previously required in that the measurement of potential loss is required to be the life of the loan and is largely based on historical loss experience by loan type. Adjustments to historical loss information may be made based on an assessment of internal and external influences on credit quality not fully reflected in the quantitative components of the allowance model. These influences may include macroeconomic conditions, recent observable asset quality trends, regional market conditions, employment levels, and loan growth. Based upon management's assessment of these factors, the Company may apply qualitative adjustments to the allowance. While management utilizes its best judgment and information available, the adequacy of our allowance accounts is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets.

 

 

 

 

30

 

FINANCIAL CONDITION

 

Average assets totaled $823.3 million and $857.9 million for the three months ended September 30, 2023 and 2022, respectively, representing a period over period decrease of $34.6 million, or 4.0%.  Average assets totaled $817.2 million and $860.4 million for the nine months ended September 30, 2023 and 2022, respectively, representing a period over period decrease of $43.2 million, or 5.0%. The decrease in average assets stemmed from a reduction in cash driven by lower deposit balances.  Management believes that the primary drivers behind deposit run-off was more competitive pricing at certain banks and higher yielding alternative investments, such as Treasury Bills. 

 

Investment Securities. Our primary objective in managing our investment portfolio is to maintain a portfolio of high quality, highly liquid investments yielding competitive returns. We use the investment securities portfolio for several purposes. It serves as a vehicle to manage interest rate and prepayment risk, to generate interest income, to provide liquidity to meet funding requirements, and to provide collateral for pledging to secure the deposit of public funds at the Bank. At September 30, 2023, our debt securities available for sale and held to maturity investment portfolios included highly rated U.S. government treasury and agency securities, U.S. agency mortgage-backed securities, asset-backed securities, and municipal securities.  As of the same date, the combined portfolio had a fair market value of $133.5 million and an amortized cost value of $150.4 million. At September 30, 2023 and December 31, 2022, our investment securities portfolio represented approximately 16.3% and 17.3% of our total assets, respectively. The average yield on the average balance of investment securities for the nine months ended September 30, 2023 was 2.65%, compared to 2.21% for the comparable period in 2022.   

 

Loans. Our primary interest-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 and home equity loans, including first and second mortgages, and consumer and other loans. Our goal is to maintain a high-quality portfolio of loans through sound underwriting and lending practices. 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. Our loans are priced based upon the degree of risk, collateral, loan amount, and maturity.  At September 30, 2023 our net loan portfolio totaled $629.0 million compared to $589.0 million at December 31, 2022.

 

Nonperforming assets.  Overall, credit quality remains stable. At September 30, 2023, the Company had five nonperforming loans and one loan in other real estate owned totaling $1.23 million compared to two nonperforming loans totaling $343,000 at December 31, 2022.  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.

 

Allowance for Credit Losses. Management’s policy is to maintain the ACL at a level sufficient to absorb expected credit losses in the loan and debt securities portfolio as of the balance sheet date. The allowance is increased by credit loss expense and decreased by charge-offs, net of recoveries. The Bank reported credit loss expense of $175,000 for the quarter ended September 30, 2023 and $743,000 for the nine months ended September 30, 2023, which included $4,000 in net expense related to off-balance sheet commitments. The Company implemented the provisions of the Current Expected Credit Losses ("CECL") accounting standard January 1, 2023, resulting in a $2.6 million decrease to the ACL.  Management believes the ACL, which was $4.9 million, or 0.77%, of gross loans at September 30, 2023 is adequate to cover expected credit losses in the loan portfolio.  

 

Deposits. Deposits are the major source of the Company’s funds for lending and other investment purposes. Total deposits at September 30, 2023 were $722.8 million, a decrease of $8.7 million, or 1.2%, from December 31, 2022. Average deposit balances for the nine-month period ending September 30, 2023 were down $68.9 million, or 8.8%, from the same period a year ago. The decrease is primarily attributed to some clients moving deposits to higher-paying banks and alternative higher-yielding investments. The average balance of noninterest-bearing deposits accounted for 27.4% of the average balance of total deposits for the nine months ended September 30, 2023, compared to 27.1% for the nine months ended September 30, 2022.  The Bank's core deposit base is well diversified with a fairly balanced volume distribution between commercial (50%) and retail (41%) deposit accounts at September 30, 2023. Public fund accounts made up the remaining 9%. The Bank's estimated uninsured deposits were $253.1 million, or 35.0% of total deposits, including collateralized public fund accounts and $192.5 million, or 29.2% of total deposits, at September 30, 2023, excluding collateralized public fund accounts.  Given the current interest rate environment, management is closely monitoring potential future volatility in deposit balances. 

 

Borrowings. The Bank has an agreement with FHLB and pledges its qualified loans as collateral which would allow the Bank, as of September 30, 2023, to borrow up to $102.6 million. At September 30, 2023, the Bank had $25 million in FHLB advances. In addition, the Bank maintains unsecured lines of credit with correspondent banks that totaled $59.0 million at September 30, 2023. There were no outstanding balances under these unsecured lines of credit at September 30, 2023. 

 

In 2020, the Company entered into a Promissory Note and a Security Agreement with TNB. Pursuant to the Note, the Company obtained a $15 million revolving line of credit with a 5-year term. The interest rate adjusts daily to the then-current Wall Street Journal Prime Rate and was 8.50% at September 30, 2023. Pursuant to the Security Agreement, the Company has pledged to TNB all of the outstanding shares of common stock of the Bank. At September 30, 2023, the Company had a zero balance under this line.

 

 

 

31

 

 

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. Interest-bearing liabilities primarily consist of time deposits, interest-bearing checking accounts, savings deposits, and money-market accounts. 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 as well as the interest rates earned or paid on these assets and liabilities. The following tables set forth information regarding: (i) the total dollar amount of interest and dividend income of the Company 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.

 

As shown in the following tables, for the three months ended September 30, 2023, the Company's net interest margin declined 3 basis points to 3.68% when compared to the same period last year.  For the nine months ended September 30, 2023, the Company's net interest margin improved 0.51 basis points due to a change in the earning asset mix and higher yields which outpaced the higher cost of funds. Management anticipates that the volume of net interest income and the net interest margin will be challenged the rest of the year due to industry-wide pressure for overall liquidity maintenance and funding demands.

 

   

For the Three Months Ended September 30,

 
   

2023

   

2022

 
           

Interest

                   

Interest

         
   

Average

   

and

   

Yield/

   

Average

   

and

   

Yield/

 

(dollars in thousands)

 

Balance

   

Dividends

   

Rate(5)

   

Balance

   

Dividends

   

Rate(5)

 

Interest-earning assets:

                                               

Loans(1)

  $ 620,297     $ 8,939       5.76 %   $ 555,764     $ 6,646       4.78 %

Loans held for sale

    5,850       80       5.47       9,869       109       4.42  

Debt securities

    137,731       919       2.67       144,710       878       2.43  

Other(2)

    17,398       244       5.61       108,875       649       2.38  

Total interest-earning assets

    781,276     $ 10,182       5.21 %     819,218     $ 8,282       4.04 %

Noninterest-earning assets

    42,065                       38,699                  

Total assets

  $ 823,341                     $ 857,917                  
                                                 

Interest-bearing liabilities:

                                               

Savings, NOW and money-market deposits

  $ 449,396     $ 2,089       1.86 %   $ 527,408     $ 570       0.43 %

Time deposits

    73,071       602       3.30       38,244       54       0.56  

Total interest-bearing deposits

    522,467       2,691       2.06       565,652       624       0.44  

Other borrowings

    24,582       304       4.95       4,125       56       5.43  

Total interest-bearing liabilities

    547,049     $ 2,995       2.19 %     569,777     $ 680       0.48 %

Noninterest-bearing deposits

    192,686                       214,462                  

Noninterest-bearing liabilities

    8,644                       7,787                  

Stockholders' equity

    74,962                       65,891                  

Total liabilities and stockholders' equity

  $ 823,341                     $ 857,917                  
                                                 

Net earning assets

  $ 234,227                     $ 249,441                  

Net interest income

          $ 7,187                     $ 7,602          

Interest rate spread (3)

                    3.02 %                     3.56 %

Net interest margin(4)

                    3.68 %                     3.71 %
                                                 

Ratio of interest-earning assets to average interest-bearing liabilities

    142.82 %                     143.78 %                

 

(1) Includes nonaccrual loans

(2) Other interest-earning assets includes federal funds sold, interest-bearing deposits and FHLB stock.

(3) Interest rate spread is the difference between the total interest-earning asset yield and the rate paid on total interest-bearing liabilities. 

(4) Net interest margin is net interest income divided by total average interest-earning assets, annualized on a 30/360 basis.

(5) Annualized

 

32

 

   

For the Nine Months Ended September 30,

 
   

2023

   

2022

 
           

Interest

                   

Interest

         
   

Average

   

and

   

Yield/

   

Average

   

and

   

Yield/

 

(dollars in thousands)

 

Balance

   

Dividends

   

Rate(5)

   

Balance

   

Dividends

   

Rate(5)

 

Interest-earning assets:

                                               

Loans(1)

  $ 611,946     $ 25,361       5.53 %   $ 519,975     $ 18,242       4.68 %

Loans held for sale

    7,215       272       5.03       10,529       326       4.13  

Debt securities

    139,886       2,777       2.65       120,675       2,000       2.21  

Other(2)

    21,271       650       4.07       169,402       1,104       0.87  

Total interest-earning assets

    780,318     $ 29,060       4.97 %     820,581     $ 21,672       3.52 %

Noninterest-earning assets

    36,898                       39,792                  

Total assets

  $ 817,216                     $ 860,373                  
                                                 

Interest-bearing liabilities:

                                               

Savings, NOW and money-market deposits

  $ 461,649     $ 5,061       1.46 %   $ 527,077     $ 1,263       0.32 %

Time deposits

    56,901       1,080       2.53       43,552       179       0.55  

Total interest-bearing deposits

    518,550       6,141       1.58       570,629       1,442       0.34  

Other borrowings

    20,034       824       5.48       3,960       127       4.28  

Total interest-bearing liabilities

    538,584     $ 6,965       1.72 %     574,589     $ 1,569       0.36 %

Noninterest-bearing deposits

    195,689                       212,507                  

Noninterest-bearing liabilities

    10,005                       7,401                  

Stockholders' equity

    72,938                       65,876                  

Total liabilities and stockholders' equity

  $ 817,216                     $ 860,373                  
                                                 

Net earning assets

  $ 241,734                     $ 245,992                  

Net interest income

          $ 22,095                     $ 20,103          

Interest rate spread (3)

                    3.25 %                     3.16 %

Net interest margin(4)

                    3.78 %                     3.27 %
                                                 

Ratio of interest-earning assets to average interest-bearing liabilities

    144.88 %                     142.81 %                

 

(1) Includes nonaccrual loans

(2) Other interest-earning assets include federal funds sold, interest-bearing deposits and FHLB stock.

(3) Interest rate spread is the difference between the total interest-earning asset yield and the rate paid on total interest-bearing liabilities. 

(4) Net interest margin is net interest income divided by total average interest-earning assets, annualized on a 30/360 basis.

(5) Annualized 

 

33

 

Comparison of Operating Results for the THREE MONTHS ENDED September 30, 2023 AND 2022

 

Earnings Summary

                               

(dollars in thousands)

                               
                   

Change 3Q'23 vs. 3Q'22

 
   

3Q'23

   

3Q'22

   

Amount

   

Percentage

 

Net Interest Income

  $ 7,187     $ 7,602     $ (415 )     (5.5 )%

Credit loss expense

    175       241       (66 )     (27.4 )

Noninterest income

    499       483       16       3.3  

Noninterest expense

    4,723       4,085       638       15.6  

Income Taxes

    668       928       (260 )     (28.0 )

Net earnings

  $ 2,120     $ 2,831     $ (711 )     (25.1 )%

 

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 debt securities, and interest expense on interest-bearing liabilities such as deposits and other borrowings.

 

Interest income

                               

(dollars in thousands)

                               
                   

Change 3Q'23 vs. 3Q'22

 
   

3Q'23

   

3Q'22

   

Amount

   

Percentage

 

Interest income:

                               

Loans

  $ 9,019     $ 6,755     $ 2,264       33.5 %

Debt securities

    919       878       41       4.7  

Other

    244       649       (405 )     (62.4 )

Total interest income

    10,182       8,282       1,900       22.9 %

Interest expense:

                               

Deposits

    2,691       624       2,067       331.3 %

Other borrowings and FHLB advances

    304       56       248       442.9  

Total interest expense

    2,995       680       2,315       340.4  

Net interest income

  $ 7,187     $ 7,602     $ (415 )     (5.5 )%

 

Net interest income for the third quarter of 2023 was negatively impacted by a narrowing net interest rate spread due to rising rates. Average interest earnings assets were down 4.6% from the third quarter of 2022 and the Company's net interest margin ("NIM") for the third quarter of 2023 was 3.68%, compared to 3.71% for the third quarter of 2022. 

 

Credit Loss Expense

 

The Company adopted ASC 326 effective January 1, 2023 using the modified retrospective method for loans and off-balance-sheet (“OBS”) credit exposures. Results for reporting periods beginning after December 31, 2022 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a one-time cumulative-effect adjustment to the ACL of $2.6 million which was recognized through a $1.9 million adjustment to retained earnings, net of taxes. This adjustment brought the beginning balance of the ACL to $4.5 million as of January 1, 2023. 

 

Credit loss expense is charged to earnings to increase the ACL to a level deemed appropriate by management. The expense is based upon the volume and type of lending conducted by the Company, industry standards, general economic conditions, particularly as they relate to our market areas, and other factors related to our historic loss experience and the collectability of the loan portfolio. The Company recorded credit loss expense of $175,000 for the third quarter of 2023 compared to $241,000 for the third quarter of 2022.  The decrease in credit loss expense is mostly attributed to a lower level of loan growth in 2023. Loan balances increased $14.5 million during the third quarter of 2023 compared to $28.6 million during the third quarter of 2022.

 

The ACL to total loans was 0.77% at  September 30, 2023 compared to 1.20% at December 31, 2022. While management believes the estimates and assumptions used in its determination of the adequacy of the ACL 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 ACL, or that any increases to the ACL that may be required will not adversely impact our financial condition and results of operations. In addition, the determination of the amount of our ACL is subject to review by bank regulators, as part of the routine examination process, which may result in additions to our ACL based upon their judgment of information available to them at the time of examination.     

 

34

 

Noninterest income

                               

(dollars in thousands)

                 

Change 3Q'23 vs. 3Q'22

 
   

3Q'23

   

3Q'22

   

Amount

   

Percentage

 

Service charges and fees on deposit accounts

  $ 92     $ 78     $ 14       17.9 %

Debit card/ATM revenue, net

    137       132       5       3.8  

Mortgage banking revenue, net

    121       116       5       4.3  

Income from bank-owned life insurance

    100       96       4       4.2  

Other income

    49       61       (12 )     (19.7 )

Total noninterest income

  $ 499     $ 483     $ 16       3.3 %

 

Noninterest income was up $16,000, or 3.3%, over the third quarter of 2022.  Compared to the same period a year ago, all categories of noninterest income increased with the exception of other income which decreased due to a drop in various fee accounts, including wire fees, custodial services and Certificate of Deposit Account Registry Service ("CDAR") fees.  

 

Noninterest expense

                               

(dollars in thousands)

                 

Change 3Q'23 vs. 3Q'22

 
   

3Q'23

   

3Q'22

   

Amount

   

Percentage

 

Salaries and employee benefits

  $ 2,864     $ 2,367     $ 497       21.0 %

Occupancy and equipment

    427       413       14       3.4  

Professional fees

    149       124       25       20.2  

Marketing

    215       195       20       10.3  

FDIC Assessment

    104       95       9       9.5  

Software maintenance and amortization

    341       310       31       10.0  

Other

    623       581       42       7.2  

Total noninterest expense

  $ 4,723     $ 4,085     $ 638       15.6 %

 

Comparing the three-month periods ending September 30, 2023 and 2022, the primary driver of higher noninterest expense in 2023 is salaries and employee benefits. The Company reported 109 FTEs at September 30, 2023 compared to 106 FTEs at September 30, 2022.  In addition to higher headcount, the impact of annual raises that were effective March 1, 2023, lower deferred loan costs (due to a smaller number of loan originations and renewals)  and higher incentive accrual were primary contributors to the overall increase.  The Company's efficiency ratio was 61.45% in the third quarter of 2023.

 

Income Taxes

 

Income taxes are based on amounts reported in the condensed consolidated statements of earnings after adjustments for nontaxable income and nondeductible expenses and consist of taxes currently due plus deferred taxes on temporary differences in the recognition of income and expense for tax and financial statement purposes. Income taxes were $668,000 for the three months ended September 30, 2023, compared to income taxes of $928,000 for the three months ended September 30, 2022 with the decrease attributed to lower pre-tax earnings. 

 

35

 

Comparison of Operating Results for the NINE MONTHS ENDED sEptember 30, 2023 AND 2022

 

Earnings Summary

                               

(dollars in thousands)

                               
   

Nine Months Ended

   

Change 2023 vs. 2022

 
   

September 30, 2023

   

September 30, 2022

   

Amount

   

Percentage

 

Net Interest Income

  $ 22,095     $ 20,103     $ 1,992       9.9 %

Credit loss expense

    743       601       142       23.6  

Noninterest income

    1,403       1,505       (102 )     (6.8 )

Noninterest expense

    13,699       11,747       1,952       16.6  

Income Taxes

    2,178       2,221       (43 )     (1.9 )

Net earnings

  $ 6,878     $ 7,039     $ (161 )     (2.3 )%

 

Interest income

                               

(dollars in thousands)

                               
   

Nine Months Ended

   

Change 2023 vs. 2022

 
   

September 30, 2023

   

September 30, 2022

   

Amount

   

Percentage

 

Interest income:

                               

Loans

  $ 25,633     $ 18,568     $ 7,065       38.0 %

Debt securities

    2,777       2,000       777       38.9  

Other

    650       1,104       (454 )     (41.1 )

Total interest income

    29,060       21,672       7,388       34.1 %

Interest expense:

                               

Deposits

    6,141       1,442       4,699       325.9 %

Other borrowings and FHLB advances

    824       127       697       548.8  

Total interest expense

    6,965       1,569       5,396       343.9  

Net interest income

  $ 22,095     $ 20,103     $ 1,992       9.9 %

 

Comparing the nine months ended September 30, 2023 and 2022, a change in the earnings asset mix and higher yields on interest-earning assets drove the improvement in net interest income, outpacing the effect of higher funding costs.  The average yield on interest-earning assets increased 145 basis points to 4.97% when compared to the same period a year ago, while the average cost of interest-bearing liabilities increased 136 basis points over the same time period.  When compared to the nine months ended September 30, 2022, the average balance of interest-earning assets declined $40.3 million, or 4.9%, and the average balance of interest-bearing liabilities decreased $36.0 million or 6.3%. 

 

Credit Loss Expense

 

Credit loss expense is charged to earnings to increase the ACL to a level deemed appropriate by management. The expense is based upon the volume and type of lending conducted by the Company, industry standards, general economic conditions, particularly as they relate to our market areas, and other factors related to our historic loss experience and the collectability of the loan portfolio. For the nine months ended September 30, 2023, the Company reported credit loss expense of $743,000 compared to credit loss expense of $601,000 for the same period in 2022.  The higher level of credit loss expense in 2023 was impacted by $286,000 in net recoveries in 2022 compared to $379,000 in net charge-offs in 2023.  

 

 

 

 

36

 

Noninterest income

                               

(dollars in thousands)

 

Nine Months Ended

   

Change 2023 vs. 2022

 
   

September 30, 2023

   

September 30, 2022

   

Amount

   

Percentage

 

Service charges and fees on deposit accounts

  $ 261     $ 219     $ 42       19.2 %

Debit card/ATM revenue, net

    437       404       33       8.2  

Mortgage banking revenue, net

    250       420       (170 )     (40.5 )

Income from bank-owned life insurance

    290       285       5       1.8  

Other income

    165       177       (12 )     (6.8 )

Total noninterest income

  $ 1,403     $ 1,505     $ (102 )     (6.8 )%

 

Comparing the nine-month periods in 2023 and 2022, the 40.5%, or $170,000 decline in mortgage banking revenue was the key driver of a 6.8%, or $102,000, decline in noninterest income in 2023.  Modest increases in service charges and fees on deposit accounts and debit card/ATM revenue helped offset the decrease in mortgage revenue. 

 

Noninterest expense

                               

(dollars in thousands)

 

Nine Months Ended

   

Change 2023 vs. 2022

 
   

September 30, 2023

   

September 30, 2022

   

Amount

   

Percentage

 

Salaries and employee benefits

  $ 8,359     $ 6,765     $ 1,594       23.6 %

Occupancy and equipment

    1,235       1,217       18       1.5  

Professional fees

    416       400       16       4.0  

Marketing

    688       575       113       19.7  

FDIC Assessment

    275       303       (28 )     (9.2 )

Software maintenance and amortization

    912       837       75       9.0  

Other

    1,814       1,650       164       9.9  

Total noninterest expense

  $ 13,699     $ 11,747     $ 1,952       16.6 %

 

Comparing the nine months ended September 30, 2023 and 2022, the primary driver of higher noninterest expense is salaries and employee benefits.  The Company reported 109 FTEs at September 30, 2023 compared to 106 FTEs at September 30, 2022.  In addition to higher headcount, the impact of annual raises that were effective March 1, 2023, less deferred loan costs (due to a lower number of loan originations and renewals in 2023) and higher incentive accrual were primary contributors to the overall increase.   Increases in marketing and other noninterest expense reflect the needs of a growing company.  The Company's efficiency ratio was 58.3% for the nine months ended September 30, 2023, compared to 54.4% for the nine months ended September 30, 2022. 

 
Income Taxes
 
Income taxes are based on amounts reported in the condensed consolidated statements of earnings after adjustments for nontaxable income and nondeductible expenses and consist of taxes currently due plus deferred taxes on temporary differences in the recognition of income and expense for tax and financial statement purposes. Income taxes were $2,178,000 for the nine months ended September 30, 2023, compared to income taxes of $2,221,000 for the nine months ended September 30, 2022 with the decrease attributed to lower pre-tax earnings in 2023.

 

37

 

LIQUIDITY

 

Liquidity describes our ability to meet financial obligations, including lending commitments and contingencies, which arise during the normal course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of the Company’s clients, as well as meet current and planned expenditures. Management monitors the liquidity position daily.

 

Our liquidity is derived primarily from our deposit base, scheduled amortization and prepayments of loans and debt securities, funds provided by operations, and capital. Additionally, as a commercial bank, we are expected to maintain an adequate liquidity position. The liquidity position may consist of cash on hand, cash on demand deposit with correspondent banks, federal funds sold, and unpledged debt securities such as United States government treasury and agency securities, U.S. agency mortgage-backed securities, asset-backed securities, and municipal securities. Some of our securities are pledged to collateralize certain deposits through our participation in the State of Florida’s QPD program. The market value of debt securities pledged to the QPD program was $15.6 million at September 30, 2023 and $13.3 million at December 31, 2022At September 30, 2023, on-balance sheet liquidity (consisting of cash and cash equivalents and debt securities at fair value eligible for pledging) was $140.2 million, compared to $165.8 million at December 31, 2022. 

 

The Bank also has external sources of funds through the FHLB and unsecured lines of credit with correspondent banks. At September 30, 2023, the Bank had access to approximately $102.6 million of available lines of credit secured by qualifying collateral with the FHLB, in addition to $59.0 million in unsecured lines of credit maintained with correspondent banks.  The Bank had $25 million in FHLB advances at September 30, 2023. The Company also has a $15 million revolving line of credit with TNB that matures in August 2025. As of September 30, 2023, the Company had a zero outstanding balance under this line. At September 30, 2023, available secured and unsecured borrowing capacity was $176.6 million.  When combined with maximum available brokered and wholesale funding capacity of $208.0 million, off balance sheet funding sources totaled $384.6 million.

 

Our core deposits consist of noninterest-bearing accounts, NOW accounts, money-market accounts, time deposits $250,000 or less, and savings accounts. We closely monitor our level of certificates of deposit greater than $250,000 and other large deposits. At September 30, 2023, total deposits were $722.8 million, of which $38.1 million were in certificates of deposits greater than $250,000, excluding Individual Retirement Accounts (IRAs). Deposit balances decreased $8.7 million, or 1.2%, since December 31, 2022, mostly attributed to a shift in some consumer interest-bearing deposits to higher-paying Banks and higher yielding alternative investments.  At September 30, 2023, the Bank's estimated uninsured deposits were $253.1 million, or 35.0% of total deposits, including collateralized public fund accounts and $192.5 million, or 29.2% of total deposits, excluding collateralized public fund accounts.

 

At September 30, 2023, total liquidity sources of $524.8 million, or 72.6% of total deposits, represent 207% of estimated uninsured deposits, excluding collateralized public fund accounts. 

 

We maintain a Contingency Funding Plan (“CFP”) that identifies liquidity needs and weighs alternate courses of action designed to address those needs in emergency situations. We perform a monthly cash flow analysis and stress test the CFP to evaluate the expected funding needs and funding capacity during a liquidity stress event. We believe that the sources of available liquidity are adequate to meet all reasonably immediate short-term and intermediate-term demands and do not know of any trends, events, or uncertainties that may result in a significant adverse effect on our liquidity position.

 

CAPITAL RESOURCES

 

Stockholders’ equity was $74.8 million at September 30, 2023 compared to $67.1 million at December 31, 2022. The $7.7 million increase in equity is attributed to year-to-date net income of $6.9 million and the $1.9 million tax-effected positive impact of adopting CECL, partially offset by common stock dividends of $698,000 ($0.22 per common share) and a $1.1 million unfavorable change in the accumulated other comprehensive loss on debt securities available for sale.  In 2020, the Company obtained a $15 million 5-year revolving line of credit with TNB. At its discretion, the Company may take draws on that line and may contribute the proceeds as capital to the Bank.  At September 30, 2023, the Company had a zero balance under this line of credit.  

 

At September 30, 2023, the Bank was considered to be “well capitalized” under the FDIC’s Prompt Corrective Action regulations.

 

The following is a summary at September 30, 2023 and December 31, 2022 of the regulatory capital requirements to be “well capitalized” and the Bank’s capital position.

 

                   

For Capital Adequacy

   

For Well Capitalized

 
   

Actual

   

Purposes

   

Purposes

 

(dollars in thousands)

 

Amount

   

Percentage

   

Amount

   

Percentage

   

Amount

   

Percentage

 

As of September 30, 2023

                                               

Tier 1 Leverage Capital

  $ 84,540       10.18 %   $ 33,207       4.00 %   $ 41,509       5.00 %

Common Equity Tier 1 Risk-based Capital

    84,540       13.23       28,765       4.50       41,549       6.50  

Tier 1 Risk-based Capital

    84,540       13.23       38,353       6.00       51,138       8.00  

Total Risk-based Capital

    89,443       13.99       51,138       8.00       63,922       10.00  
                                                 

As of December 31, 2022

                                               

Tier 1 Leverage Capital

  $ 81,100       9.70 %   $ 33,461       4.00 %   $ 41,826       5.00 %

Common Equity Tier 1 Risk-based Capital

    81,100       12.90       28,290       4.50       40,863       6.50  

Tier 1 Risk-based Capital

    81,100       12.90       37,720       6.00       50,294       8.00  

Total Risk-based Capital

    88,245       14.04       50,294       8.00       62,867       10.00  

 

 

38

 

 

The Bank is also subject to the following capital level threshold requirements under the FDIC’s Prompt Corrective Action regulations.

 

   

Threshold Ratios

Capital Category

 

Total Risk-Based Capital Ratio

 

Tier 1 Risk-Based Capital Ratio

 

Common Equity Tier 1 Risk-Based Capital Ratio

 

Tier 1 Leverage Capital Ratio

                 

Well capitalized

 

10.00%

 

8.00%

 

6.50%

 

5.00%

                 

Adequately Capitalized

 

8.00%

 

6.00%

 

4.50%

 

4.00%

                 

Undercapitalized

 

< 8.00%

 

< 6.00%

 

< 4.50%

 

< 4.00%

                 

Significantly Undercapitalized

 

< 6.00%

 

< 4.00%

 

< 3.00%

 

< 3.00%

                 

Critically Undercapitalized

 

Tangible Equity/Total Assets ≤ 2%

 

Until such time as PMHG has $3 billion in total consolidated assets, it will not be subject to any consolidated capital requirements.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

Refer to Note 12 in the notes to condensed consolidated financial statements included in this Form 10-Q for the period ending September 30, 2023 for a discussion of off-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable

 

39

 

 

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 the Company 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 PMHG 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 the Company’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, 2023 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 errors 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.

 

40

 

 

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 operation, cash flows, or capital levels.

 

Item 1A. Risk Factors

 

While the Company attempts to identify, manage, and mitigate risks and uncertainties associated with its business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 describes some of the risks and uncertainties associated with our business. These risks and uncertainties have the potential to materially affect our cash flows, results of operations, and financial condition.  The Company has updated one risk factor since the publication of our Form 10-K for the year ended December 31, 2022.

 

The Florida property insurance market is in crises and the inability of our borrowers to obtain insurance on properties securing our loans may adversely affect the value of the collateral, the performance of our loan portfolio, and our ability to make loans secured by real estate.

Florida is susceptible to hurricanes, tropical storms and related flooding and wind damage and other similar weather events. Such events can disrupt operations, result in damage to properties and negatively affect the local economies in our markets. As a result of the potential for such weather events, many of our clients have incurred significantly higher insurance premiums, or been unable to secure insurance, on their properties. This may adversely affect real estate sales and values in our markets and leave our borrowers without funds to repay their loans in the event of destructive weather events. Such events could result in a decline in loan originations, a decline in the value or destruction of properties securing loans and a decrease in credit quality, negatively impacting our business and results of operations.

 

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

 

During the third quarter of 2023, the Company issued 1,764 shares to members of its Board of Directors in lieu of cash fees calculated at 110% to be $40,000.  Additionally, the Company issued 71,917 restricted stock shares to certain employees. These shares were all issued in accordance with SEC Rule 701 and the intrastate exemption from registration pursuant to Section 3(a)(11) of the Securities Act of 1933, because the Company is doing business within the State of Florida and each acquirer and offeree of securities is a director of the Company and resides within the State of Florida. 

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.

 

41

 

 

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

         
3.3   First Amendment to Bylaws dated December 17, 2015   Exhibit 3.3 to Form 10-Q filed on August 11, 2016
         
3.4   Second Amendment to Bylaws dated January 17, 2019   Exhibit 3.4 to Form 8-K filed on January 18, 2019
         
    3.5   Third Amendment to Bylaws dated February 19, 2021   Exhibit 3.5 to Form 8-K filed on February 18, 2021
         

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, 201

         

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 Clint F. Weber, 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

         

101.INS

 

Inline XBRL Instance Document

 

Filed herewith

         

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

Filed herewith

         

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

Filed herewith

         

101.DEF

 

Inline XBRL Taxonomy Extension Definitions Linkbase  Document

 

Filed herewith

         

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

Filed herewith

         

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase  Document

 

Filed herewith

         
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).    

 

*     Furnished, not filed, for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

 

42

 

 

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 7, 2023

   

 

  /s/ Sammie. D. Dixon, Jr.
     

Date

 

Sammie D. Dixon, Jr.

 

 

Vice Chairman, Chief Executive Officer, President,

 

 

and Principal Executive Officer

November 7, 2023    

 

By:

/s/ Clint F. Weber

     

Date

 

Clint F. Weber

 

 

Chief Financial Officer, Executive Vice President,

Principal Accounting Officer and Principal Financial Officer

 

 

 

 

 

 

 

 

43