A N N UA L R E P O R T | 2016
B OA R D O F
D I R E C TO R S
P R I M E M E R I D I A N H O L D I N G
CO M PA N Y
Sammie D. Dixon, Jr.
President
Chief Executive Officer
R. Randy Guemple
Executive Vice President
Chief Financial Officer
Chris L. Jensen, Jr.
Executive Vice President
Richard A. Weidner
Chairman
William D. Crona
Steven L. Evans
Kathleen C. Jones
Robert H. Kirby
Frank L. Langston
Todd A. Patterson, D.O.
L. Collins Proctor
Garrison A. Rolle, M.D.
Steven D. Smith
Marjorie R. Turnbull
TryMyBank.com
MAIN OFFICE
1897 Capital Circle NE
Tallahassee, FL 32308
TIMBERLANE
1471 Timberlane Road, Suite 124
Tallahassee, FL 32312
Telephone: (850) 907-2301
Telephone: (850) 907-2300
CRAWFORDVILLE
2201 Crawfordville Hwy.
Crawfordville, FL 32327
Telephone: (850) 926-4320
Dear Fellow Shareholders,
In 2016, the Company hit several important milestones. The Bank surpassed $300 million in total
assets, exceeded $12 million in total revenue, and completed construction of its permanent office in
Crawfordville.
Loan and deposit growth remain strong. Our team’s ongoing commitment to client service resulted
in additional opportunities for new business.
As of December 31, 2016, total assets were $303.9 million, with total deposits measuring
$275.3 million. This compares to $244.0 million in total assets and $217.6 million in total deposits at
December 31, 2015. The Bank remains “well capitalized” and total Company capital was
$27.1 million at December 31, 2016.
At its January 2017 meeting, the Board of Directors declared a cash dividend of $0.07 per share on
its common stock to all Company shareholders as of record date February 16, 2017.
We believe this dividend continues to be an important step in Prime Meridian Holding Company’s
long-term strategy to enhance shareholder value.
Other highlights include:
• Net income increased 30.3% to $2.2 million from 2015 to 2016, boosted by strong growth in
both net interest income and noninterest income.
• Mortgage banking revenue, which consists of both origination fee income and gains (losses) on
the sale of mortgage loans, increased 71.3% to $935,000 in 2016 and continues to represent a
growing source of revenue for the Company.
• Total assets increased 24.5% during 2016 to $303.9 million.
• Year over year, the Company reported strong growth in both its net loan portfolio and total
deposits. Net loans grew 19.1%, or $35.7 million, to $222.8 million, while total deposits grew
$57.8 million or 26.6% to $275.3 million.
• For the year ended December 31, 2016, the Return on Average Assets was 0.81%, the Return
on Average Equity was 8.51%, and the net interest margin was 3.74%.
• Since entering the Crawfordville, FL market in September, 2015, our Crawfordville office has
collected nearly $30 million in deposits as of December 31, 2016.
• Prime Meridian Bank was ranked No. 20 nationally by American Banker Magazine as one of
the “Best Banks to Work For.”
On behalf of the Company’s shareholders, we are proud of Prime Meridian’s accomplishments over
the previous year. It is with great pleasure that we present the enclosed 2016 Annual Report.
Warm regards,
Sammie D. Dixon, Jr.
President and Chief Executive Officer
Richard A. Weidner, CPA
Chairman of the Board
Vote your shares online or by phone. See enclosed Proxy Card for instructions.
2016 BY T H E N U M B E R S
$303.9 TOTAL ASSETS (IN MILLIONS)
AS OF DEC. 31, 2016
OF THE COMPANY
$2.2 2016 NET INCOME
(IN MILLIONS)
E X E C U T I V E
MA N AG E M E N T
P R I M E M E R I D I A N B A N K
$222.8 LOANS, NET OF ALLOWANCE
AS OF DEC. 31, 2016
(IN MILLIONS)
Sammie D. Dixon, Jr.
President
Chief Executive Officer
71.3% PERCENT INCREASE IN
MORTGAGE BANKING
REVENUE OVER 2016
28 NUMBER OF CONSECUTIVE
QUARTERS RANKED 5 STARS
BY BAUER FINANCIAL
20 RANKING (NATIONALLY)
BEST BANKS TO WORK FOR
AMERICAN BANKER MAGAZINE
R. Randy Guemple
Executive Vice President
Chief Financial Officer
Chris L. Jensen, Jr.
Executive Vice President
Senior Lender
Susan Payne Turner
Executive Vice President
Chief Risk Officer
M E M B E R
RATED 5-STARS BauerFinancial.com
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Prime Meridian Holding Company
Tallahassee, Florida:
We have audited the accompanying consolidated balance sheets of Prime Meridian Holding
Company and Subsidiary (the "Company") as of December 31, 2016 and 2015, and the related
consolidated statements of earnings, comprehensive income, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company at December 31, 2016 and 2015, and the
results of its operations and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
HACKER, JOHNSON & SMITH PA
Tampa, Florida
March 21, 2017
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
($ in thousands, except per share amounts)
Assets
Cash and due from banks
Federal funds sold
Interest-bearing deposits
Total cash and cash equivalents
Securities available for sale
Loans held for sale
Loans, net of allowance for loan losses of $2,876 and $2,473
Federal Home Loan Bank stock
Premises and equipment, net
Deferred tax asset
Accrued interest receivable
Bank-owned life insurance
Other assets
Total assets
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing demand deposits
Savings, NOW and money-market deposits
Time deposits
Total deposits
Official checks
Other liabilities
Total liabilities
Commitments and contingencies (Notes 4, 8 and 15)
Stockholders' equity:
Preferred stock, undesignated; 1,000,000 shares authorized,
none issued or outstanding
Common stock, $.01 par value; 9,000,000 shares authorized,
2,004,707 and 1,975,329 issued and outstanding
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income
Total stockholders' equity
Total liabilities and stockholders' equity
See Accompanying Notes to Consolidated Financial Statements.
2
December 31, ,
2016
2015
$ 4,817
25,963
5,385
3,528
4,657
244
36,165
8,429
33,103
3,291
222,768
220
4,929
533
798
1,711
423
38,063
2,722
187,076
189
4,222
368
692
1,662
621
$ 303,941
244,044
61,856
192,768
20,723
50,158
144,801
22,614
275,347
217,573
632
880
744
794
276,859
219,111
0
0
20
20,732
6,563
(233)
20
20,415
4,442
56
27,082
24,933
$ 303,941
244,044
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Earnings
(In thousands, except per share amounts)
Interest income:
Loans
Securities
Other
Total interest income
Interest expense:
Deposits
Other borrowings
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income:
Service charges and fees on deposit accounts
Mortgage banking revenue
Income from bank-owned life insurance
Gain on sale of securities available for sale
Other income
Total noninterest income
Noninterest expenses:
Salaries and employee benefits
Occupancy and equipment
Professional fees
Advertising
FDIC/State Assessment
Software maintenance, amortization and other
Other
Total noninterest expenses
Earnings before income taxes
Income taxes
Net earnings
Basic earnings per share
Diluted earnings per share
See Accompanying Notes to Consolidated Financial Statements.
3
Year Ended December 31,
2016
2015
$ 9,956
700
117
8,359
883
47
10,773
9,289
829
1
830
9,943
424
9,519
250
935
49
102
294
1,630
4,131
907
346
487
152
501
1,188
697
20
717
8,572
433
8,139
152
546
49
95
228
1,070
3,523
799
375
425
114
413
1,012
7,712
6,661
3,437
2,548
1,217
844
$ 2,220
1,704
$ 1.12
0.88
$ 1.11
0.87
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
(In thousands)
Net earnings
Other comprehensive (loss) gain:
Change in unrealized gain on securities:
Unrealized (loss) gain arising during the year
Reclassification adjustment for realized gains
Net change in unrealized gain
Deferred income taxes on above change
Year Ended December 31,
2016
2015
$ 2,220
1,704
(358)
(102)
98
(95)
(460)
3
171
(1)
Total other comprehensive (loss) income
(289)
2
Comprehensive income
$ 1,931
1,706
See Accompanying Notes to Consolidated Financial Statements.
4
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2016 and 2015
($ in thousands, except share amounts)
Common Stock
Amount
Shares
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
(Loss)
Total
Stockholders'
Equity
Balance at December 31, 2014
1,941,617
$ 19
20,056
2,738
Net earnings
0
0
0
1,704
Net change in unrealized gain
on available for sale securities,
net of income taxes of $1
0
0
0
Proceeds from stock options
exercised
30,540
Common stock issued as
compensation to directors
3,172
1
0
305
39
0
0
0
54
0
2
0
0
22,867
1,704
2
306
39
Stock-based compensation
0
0
15
0
0
15
Balance at December 31, 2015
1,975,329 20 20,415
4,442
56
24,933
Net earnings
Dividends paid
Net change in unrealized gain
on available for sale securities,
net of income tax benefit of $171
0
0
0
Proceeds from stock options
exercised
25,450
Common stock issued as
compensation to directors
3,928
0
0
0
0
2,220 0
2,220
(99)
0
(99)
0
0
0
0
261
55
0
0
0
(289)
(289)
0
0
261
55
Stock-based compensation
0 0 1 0 0
1
Balance at December 31, 2016
2,004,707 $ 20
20,732
6,563
(233)
27,082
See Accompanying Notes to Consolidated Financial Statements.
5
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
Year Ended
December 31,
2015
2016
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization
Provision for loan losses
Net amortization of deferred loan fees
Deferred income taxes
Gain on sale of securities available for sale
Amortization of premiums, discounts on securities available for sale
Gain on sale of loans held for sale
Proceeds from the sale of loans held for sale
Loan originated as held for sale
Stock issued as compensation to directors
Stock-based compensation expense
Income from bank-owned life insurance
Net increase in accrued interest receivable
Net decrease (increase) in other assets
Net (decrease) increase in other liabilities and official checks
$ 2,220 1,704
528
424
(64)
6
(102)
430
(813)
49,739
(49,495)
55
1
(49)
(106)
198
(26)
446
433
(346)
(7)
(95)
425
(488)
30,319
(30,682)
39
15
(49)
(68)
(303)
717
Net cash provided by operating activities
2,946
2,060
Cash flows from investing activities:
Loan originations, net of principal repayments
Purchase of securities available for sale
Principal repayments of securities available for sale
Proceeds from the sales of securities available for sale
Maturities and calls of securities available for sale
Purchase of Federal Home Loan Bank stock
Purchase of premises and equipment
Net cash used in investing activities
Cash flows from financing activities:
Net increase in deposits
Decrease in other borrowings
Proceeds from stock options exercised
Cash dividends paid
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
(36,052)
(13,425)
7,892
8,248
1,457
(31)
(1,235)
(35,294)
(12,978)
10,252
4,691
2,042
(3)
(1,105)
(33,146)
(32,395)
57,774
0
261
(99)
33,602
(2,699)
306
0
57,936
31,209
27,736
874
8,429
7,555
Cash and cash equivalents at end of year
$ 36,165
8,429
6
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
(In thousands)
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest
Income taxes
Noncash transaction-
Year Ended
December 31,
2015
2016
$ 830
713
$ 1,030
989
Accumulated other comprehensive (loss) income, net change
in unrealized gain on sale of securities available for sale,
net of taxes
$ (289)
2
See Accompanying Notes to Consolidated Financial Statements.
7
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
At December 31, 2016 and 2015 and for the Years Then Ended
(1) Summary of Significant Accounting Policies
Organization. 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. 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 three banking offices located in
Tallahassee and Crawfordville, Florida and its online banking platform.
The following is a description of the significant accounting policies and practices followed by the Company,
which conform to accounting principles generally accepted in the United States of America ("GAAP") and
prevailing practices within the banking industry.
Use of Estimates. In preparing consolidated financial statements in conformity with GAAP, management is
required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date
of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. A material estimate that is particularly susceptible to significant
change in the near term relates to the determination of the allowance for loan losses.
Principles of Consolidation. The consolidated financial statements include the accounts of PMHG and the Bank.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents. For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and balances due from banks, federal funds sold and interest-bearing deposits due from
banks, all of which have original maturities of less than ninety days.
At December 31, 2016 and 2015, the Company was required by law or regulation to maintain cash reserves with
the Federal Reserve Bank, in noninterest-bearing accounts with other banks or in the vault in the amounts of
$1,799,000 and $1,114,000 respectively.
Securities. Securities may be classified as either trading, held-to-maturity or available-for-sale. Trading securities
are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities
are included immediately in earnings. Held-to-maturity securities are those which the Company has the positive
intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities consist of
securities not classified as trading securities or as held-to-maturity securities. Unrealized holding gains and losses
on available-for-sale securities are excluded from operations and reported in accumulated other comprehensive
(loss) income. Gains and losses on the sale of available-for-sale securities are recorded on the trade date
determined using the specific-identification method. Premiums and discounts on securities available for sale are
recognized in interest income using the interest method over the period to maturity.
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more
frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length
of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term
prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a
period of time sufficient to allow for any anticipated recovery in fair value.
(continued)
8
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Loans Held for Sale. Loans held for sale include mortgage loans and Small Business Administration ("SBA")
loans originated which are intended for sale in the secondary market and are carried at the lower of book value or
estimated fair value in the aggregate. For the years ended December 31, 2016 and 2015, gains on loans held for
sale are reported on the Consolidated Statements of Earnings under noninterest income in mortgage banking
revenue, as there were no SBA loans sold during 2016 or 2015. At December 31, 2016 loans held for sale were
$3,291,000 compared to $2,722,000 at December 31, 2015. At December 31, 2016 and 2015, market values
exceeded book values in the aggregate.
Loans. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or
pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and
any deferred fees or costs.
Commitment and loan origination fees are deferred and certain direct origination costs are capitalized. Both are
recognized as an adjustment of the yield of the related loan.
The accrual of interest on all portfolio classes is discontinued at the time the loan is ninety-days delinquent unless
the loan is well collateralized and in process of collection. In all cases, loans are placed on nonaccrual or charged-
off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not
collected for loans that are placed on nonaccrual or loans that are charged-off is reversed against interest income.
The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return
to accrual. Loans are returned to accrual status when all of the principal and interest amounts contractually due
are brought current and future payments are reasonably assured.
Allowance for Loan Losses. The allowance for loan losses is established as losses are estimated to have occurred
through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when
management confirms that a loan balance cannot be collected. Subsequent recoveries, if any, are credited to the
allowance. There were no changes in the Company's accounting policies or methodology during the years ended
December 31, 2016 and 2015.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management's
periodic review of the collectability of the loans in light of historical experience, the nature and volume of the
loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying
collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that
are susceptible to significant revision as more information becomes available.
The allowance consists of specific and general components. The specific component relates to loans that are
considered impaired. For such loans, an allowance is established when the discounted cash flows or collateral
value of the impaired loan is lower than the carrying value of that loan. The general component covers all other
loans and is based on the following factors:
The historical loss component of the allowance is determined by losses recognized by portfolio segment over the
preceding thirty-six months. This is supplemented by the risks for each portfolio segment. Risk factors impacting
loans in each of the portfolio segments include any deterioration of property values, reduced consumer and
business spending as a result of unemployment and reduced credit availability, and a lack of confidence in the
economy. The historical experience is adjusted for the following qualitative factors: (a) changes in lending
policies and procedures, risk selection and underwriting standards; (b) changes in national, regional and local
economic conditions that affect the collectability of the loan portfolio; (c) changes in the experience, ability and
depth of lending management and other relevant staff; (d) changes in the volume and severity of past due loans,
nonaccrual loans or loans classified special mention, substandard, doubtful or loss; (e) quality of loan review and
Board of Directors oversight; (f) changes in the nature and volume of the loan portfolio and terms of loans; (g)
the existence and effect of any concentrations of credit and changes in the level of such concentrations; (h)
changes in collateral dependent loans; and (i) the effect of other external factors, trends or uncertainties that could
affect management’s estimate of probable losses, such as competition and industry conditions.
(continued)
9
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Allowance for Loan Losses, Continued. A loan is considered impaired when, based on current information
and events, it is probable that the Company will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement. Factors considered by management
in determining impairment include payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management determines the significance of payment delays
and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the
loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment
record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on
a loan by loan basis for all loans by either the present value of expected future cash flows discounted at the loan's
effective interest rate or the fair value of the collateral if the loan is collateral-dependent.
Premises and Equipment. Land is stated at cost. Buildings, leasehold improvements, furniture, fixtures and
equipment, computer and software are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization expense are computed using the straight-line method over the estimated useful life
of each type of asset, or the lease term if shorter.
Transfer of Financial Assets. Transfers of financial assets or a participating interest in an entire financial asset
are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is
deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains
the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an
agreement to repurchase them before their maturity. A participating interest is a portion of an entire financial
asset that (1) conveys proportionate ownership rights with equal priority to each participating interest holder (2)
involves no recourse (other than standard representations and warranties) to, or subordination by, any participating
interest holder, and (3) does not entitle any participating interest holder to receive cash before any other
participating interest holder.
Off-Balance-Sheet Financial Instruments. In the ordinary course of business, the Company has entered into
off-balance-sheet financial instruments consisting of commitments to extend credit, construction loans in process,
unused lines of credit, standby financial and performance letters of credit, guaranteed accounts and transactions.
Such financial instruments are recorded in the consolidated financial statements when they are funded.
Income Taxes. There are two components of income tax expense: current and deferred. Current income tax
expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax
law to the taxable income or excess of deductions over revenues. The Company determines deferred income
taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is
based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted
changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense
results from changes in deferred tax assets and liabilities between periods.
Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position
will be realized or sustained upon examination. The term “more likely than not” means a likelihood of more than
50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation
processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and
subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being
(continued)
10
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
realized upon settlement with a taxing authority that has full knowledge of all relevant information. The
determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers
the facts, circumstances, and information available at the reporting date and is subject to management's judgment.
As of December 31, 2016, management is not aware of any uncertain tax positions that would have a material
effect on the Company's consolidated financial statements. Deferred tax assets are reduced by a valuation
allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a
deferred tax asset will not be realized.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
The Company files consolidated income tax returns. Income taxes are allocated to the Holding Company and
Bank as if separate income tax returns were filed.
Fair Value Measurements. Fair value is the exchange price that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. GAAP has established a fair value hierarchy
which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. The hierarchy describes three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar
assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose
significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing
services.
Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market
activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the
time, to the extent that inputs are available without undue cost and effort.
The following describes valuation methodologies used for assets measured at fair value:
Securities Available for Sale. Where quoted prices are available in an active market, securities are classified
within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, certain
mortgage products and exchange-traded equities. If quoted market prices are not available, then fair values are
estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash
flows. Examples of such instruments, which would generally be classified within Level 2 of the valuation
hierarchy, include U.S. Government agency securities, municipal securities and mortgage-backed securities. In
certain cases where there is limited activity or less transparency around inputs to the valuation, securities are
classified within Level 3 of the valuation hierarchy.
Impaired Loans. Estimates of fair value for impaired loans is based on the estimated value of the underlying
collateral which is determined based on a variety of information, including the use of available appraisals,
estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of
the Bank’s management related to values of equipment or properties in the Bank’s market areas. Management
takes into consideration the type, location or occupancy of the equipment or property as well as current economic
conditions in the area the property is located in assessing estimates of fair value. Accordingly, fair value estimates
for impaired loans are classified as Level 3.
(continued)
11
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Fair Value Measurements, Continued
Fair Values of Financial Instruments. The following methods and assumptions were used by the Company in
estimating fair values of financial instruments:
Cash and Cash Equivalents. The carrying amounts of cash and cash equivalents approximate their fair value
(Level 1).
Securities. Fair values for securities are based on the framework for measuring fair value (Level 2).
Loans Held for Sale. Fair values of loans held for sale are based on commitments on hand from investors
or prevailing market prices. Fair values are estimated using discounted cash flow analyses using interest rates
currently being offered for loans with similar terms to borrowers of similar credit quality Level 3).
Loans. Fair values for variable rate loans, fixed-rate mortgage loans (e.g. one-to-four family residential),
commercial real estate loans and commercial loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair
values for nonperforming loans are estimated using discounted cash flow analysis or underlying collateral
values, where applicable (Level 3).
Federal Home Loan Bank Stock. The fair value of the Company's investment in Federal Home Loan Bank
stock is based on its redemption value (Level 3).
Accrued Interest Receivable. The carrying amounts of accrued interest approximate their fair values (Level
3).
Bank-owned Life Insurance. The carrying amounts of the Company’s investment in bank-owned life
insurance approximate their fair value (Level 3).
Deposits. The fair values disclosed for demand, NOW, money-market and savings deposits are, by definition,
equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values
for fixed-rate time deposits are estimated using a discounted cash flow calculation that applies interest rates
currently being offered on time deposits to a schedule of aggregated expected monthly maturities of time
deposits (Level 3).
Off-Balance-Sheet Instruments. Fair values for off-balance-sheet lending commitments are based on fees
currently charged to enter into similar agreements, taking into account the remaining terms of the agreements
and the counterparties' credit standing (Level 3).
Advertising. The Company expenses all media advertising as incurred.
Stock-Based Compensation. The Company expenses the fair value of any stock options granted. The Company
recognizes stock option compensation in the consolidated statements of earnings as the options vest.
Comprehensive Income. GAAP 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 available-for-
sale securities, are reported as a separate component of the equity section of the consolidated balance sheets, such
items, along with net earnings, are components of comprehensive income.
Mortgage Banking Revenue. Mortgage banking revenue includes gains and losses on the sale of mortgage
loans originated for sale and wholesale brokerage fees. The Company recognizes mortgage banking revenue
from mortgage loans originated in the consolidated statement of earnings upon sale of the loans.
12
(continued)
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Recent Accounting Standards Update. In January 2016, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU") No. 2016-01, Financial Instruments-Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities, which is intended to enhance the
reporting model for financial instruments to provide users of financial statements with more decision-useful
information. The ASU requires equity investments to be measured at fair value with changes in fair values recognized
in net earnings, (public entities to use the exit price notion when measuring the fair value of financial instruments for
disclosure purposes), simplifies the impairment assessment of equity investments without readily determinable fair
values by requiring a qualitative assessment to identify impairment and eliminates the requirement to disclose fair
values, the methods and significant assumptions used to estimate the fair value of financial instruments measured at
amortized cost. The ASU also clarifies that the Company should evaluate the need for a valuation allowance on a
deferred tax asset related to available-for-sale debt securities in combination with the Company's other deferred tax
assets. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected
to have a material impact on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-2, Leases (Topic 842) which will require lessees to recognize on
the balance sheet the assets and liabilities for the rights and obligations created by those leases with term of more
than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and
cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease.
The new ASU will require both types of leases to be recognized on the balance sheet. The ASU also will require
disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty
of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing
additional information about the amounts recorded in the financial statements. For public companies, the ASU is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The
Company is in the process of determining the effect of the ASU on its consolidated financial statements. Early
adoption is permitted.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718) intended to
improve the accounting for employee share-based payments. The ASU affects all organizations that issue share-based
payment awards to their employees. The ASU simplifies several aspects of the accounting for share-based payment
award transactions, including the income tax consequences, classification of awards as either equity or liabilities, and
classification on the consolidated statement of cash flows. For public companies, the amendments in this ASU are
effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.
Early adoption is permitted. The Company is in the process of determining the effect of the ASU on its consolidated
financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326). The ASU
improves financial reporting by requiring timelier recording of credit losses on loans and other financial instruments
held by the Company. The ASU requires the Company to measure all expected credit losses for financial assets held
at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.
Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques
will change to reflect the full amount of expected credit losses. The Company will continue to use judgment to
determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced
disclosures to help investors and other financial statement users better understand significant estimates and judgments
used in estimating credit losses, as well as the credit quality and underwriting standards of an organization's portfolio.
These disclosures include qualitative and quantitative requirements that provide additional information about the
amounts recorded in the financial statements. Additionally, the ASU amends the accounting for credit losses on
available-for-sale debt securities and purchased financial assets with credit deterioration. The new guidance is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early
adoption is permitted. The Company is in the process of determining the effect of the ASU on its consolidated
financial statements.
(continued)
13
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Securities Available for Sale
Securities have been classified according to management's intention. The carrying amount of securities and their fair
values are summarized as follows (in thousands):
Gross
Amortized Unrealized Unrealized
Gains
Losses
Gross
Cost
At December 31, 2016:
U.S. Government agency securities
Municipal securities
Mortgage-backed securities
$ 2,186
12,614
18,673
2
91
36
(17)
(282)
(200)
Fair
Value
2,171
12,423
18,509
$ 33,473
129
(499)
33,103
At December 31, 2015:
U.S. Government agency securities
Municipal securities
Mortgage-backed securities
8,376
9,532
20,065
61
130
52
(9)
(54)
(90)
8,428
9,608
20,027
$ 37,973
243
(153)
38,063
(continued)
14
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Securities Available for Sale, Continued
Securities available for sale measured at fair value on a recurring basis are summarized below (in thousands):
Fair Value Measurements Using
Quoted
Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
0
0
0
0
2,171
12,423
18,509
33,103
0
0
0
0
8,428
9,608
20,027
38,063
0
0
0
0
0
0
0
0
Fair
Value
$ 2,171
12,423
18,509
$ 33,103
8,428
9,608
20,027
$ 38,063
At December 31, 2016:
U.S. Government agency securities
Municipal securities
Mortgage-backed securities
At December 31, 2015:
U.S. Government agency securities
Municipal securities
Mortgage-backed securities
During the years ended December 31, 2016 and 2015, no securities were transferred in or out of Level 1,
Level 2 or Level 3.
The scheduled maturities of securities are as follows (in thousands):
At December 31, 2016:
Due in one to five years
Due five to ten years
Due after ten years
Mortgage-backed securities
Amortized
Cost
Fair
Value
$ 3,150
7,904
3,746
18,673
$ 33,473
3,124
7,900
3,570
18,509
33,103
The following summarizes sales of securities available for sale (in thousands):
Proceeds received from sales
Gross gains
Gross losses
Net gain from sale of securities
Year Ended
December, 31
2016
2015
$ 8,248
4,691
102
0
96
(1)
$ 102
95
At December 31, 2016 and 2015, securities with a fair value of $9,279,000 and $9,601,000, respectively,
were pledged as collateral for public deposits and for other borrowings with clients.
(continued)
15
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Securities Available for Sale, Continued
Securities with unrealized losses aggregated by investment category and length of time that individual securities have
been in a continuous unrealized loss position, are as follows (in thousands):
At December 31, 2016:
U.S. Government agency securities
Municipal securities
Mortgage-backed securities
At December 31, 2015:
U.S. Government agency securities
Municipal securities
Mortgage-backed securities
Less Than Twelve More Than Twelve
Months
Months
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
$ (17)
(282)
(191)
1,529
6,111
12,709
0
0
(9)
Fair
Value
0
0
501
$ (490)
20,349
(9)
501
(9)
(14)
(40)
1,616
1,620
10,803
0
(40)
(50)
0
1,224
2,018
$ (63)
14,039
(90)
3,242
The unrealized losses on twenty-four securities at December 31, 2016, and twenty-two securities at December 31,
2015, were caused by market conditions. It is expected that the securities would not be settled at a price less than the
par value of the investments. Because the decline in fair value is attributable to market conditions and not credit
quality, and because the Company has the ability and intent to hold these investments until a market price recovery or
maturity, these investments are not considered other-than-temporarily impaired.
(3) Loans
The segments and classes of loans are as follows (in thousands):
Real estate mortgage loans:
Commercial
Residential and home equity
Construction
Total real estate mortgage loans
Commercial loans
Consumer and other loans
Total loans
Add (Less):
Net deferred loan costs
Allowance for loan losses
Loans, net
16
At December 31,
2015
2016
$ 65,805
88,883
19,991
174,679
57,847
69,817
17,493
145,157
46,340
4,275
40,229
3,877
225,294
189,263
350
(2,876)
286
(2,473)
$ 222,768
187,076
(continued)
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans, Continued
The Company has divided the loan portfolio into three portfolio segments and five portfolio classes, each with different
risk characteristics and methodologies for assessing risk. All loans are underwritten based upon standards set forth in
the policies approved by the Company's Board of Directors. The portfolio segments and classes are identified by the
Company as follows:
Real Estate Mortgage Loans. Real estate mortgage loans are typically divided into three classes: commercial,
residential and home equity, and construction. The real estate mortgage loans are as follows:
Commercial. Loans of this type are typically our more complex loans. This category of real estate loans is
comprised of loans secured by mortgages on commercial property that are typically owner-occupied, but
also includes nonowner-occupied investment properties. Commercial loans that are secured by owner-
occupied commercial real estate are repaid through operating cash flows of the borrower. The maturity for
this type of loan is generally limited to three to five years; however, payments may be structured on a longer
amortization basis. Typically, interest rates on our commercial real estate loans are fixed for five years or
less after which they adjust based upon a predetermined spread over an index. At times, a rate may be fixed
for longer than five years. As part of our credit underwriting standards, the Bank typically requires personal
guarantees from the principal owners of the business supported by a review of the principal owners' personal
financial statements and tax returns. As part of the enterprise risk management process, it is understood that
risks associated with commercial real estate loans include fluctuations in real estate values, the overall
strength of the borrower, the overall strength of the economy, new job creation trends, tenant vacancy rates,
environmental contamination, and the quality of the borrowers' management. In order to mitigate and limit
these risks, we analyze the borrowers' cash flow and evaluate collateral value. Currently, the collateral
securing our commercial real estate loans 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,
multifamily residential loans, and home equity lines of credit. The collateral for these loans is generally on
the clients' owner-occupied residences. Although these types of loans present lower levels of risk than
commercial real estate loans, risks do still exist because of possible fluctuations in the value of the real estate
collateral securing the loan, as well as changes in the borrowers' financial condition. The nonowner-occupied
investment properties are more similar in risk to commercial real estate loans, and therefore, are underwritten
by assessing the property’s income potential and appraised value. In both cases, we underwrite the
borrower’s financial condition and evaluate his or her global cash flow position. Borrowers may be affected
by numerous factors, including job loss, illness, or other personal hardship. As part of our product mix, the
Bank offers both portfolio and secondary market mortgages; portfolio loans generally are based on a 1-year,
3-year, 5-year, or 7-year adjustable rate mortgage; while 15-year or 30-year fixed-rate loans are generally
sold to 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, generally 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.
17
(continued)
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans, Continued
Commercial Loans. The Bank offers a wide range of commercial loans, including business term loans, equipment
financing, lines of credit, and U.S. Small Business Administration (SBA) loans to small and midsized businesses.
Small-to-medium sized businesses, retail, and professional establishments, make up our target market for
commercial loans. Our Relationship Managers primarily underwrite these loans based on the 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.
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;
it 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. Therefore, both secured and unsecured consumer loans subject the
Company 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.
(continued)
18
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans, Continued
An analysis of the change in the allowance for loan losses follows (in thousands):
Real Estate Mortgage Loans s
Residential
and
Home
Equity Construction Loans
Consumer
and
Commercial Other
Loans
Commercial
Total
Year Ended December 31, 2016:
Beginning balance
Provision for loan losses
Net (charge-offs) recoveries
$ 707
68
0
868
206
0
246
12
0
596
135
(17)
56
3
(4)
2,473
424
(21)
Ending balance
$ 775
1,074
258
714
55 2,876
At December 31, 2016:
Individually evaluated for impairment:
Recorded investment
$ 0
Balance in allowance for loan losses $ 0
662
0
73
0
76
0
76 0
811
76
Collectively evaluated for impairment:
Recorded investment
$ 65,805
Balance in allowance for loan losses $ 775
88,221
1,074
19,918
258
46,264
638
4,275 224,483
2,800
55
Year Ended December 31, 2015:
Beginning balance
Provision for loan losses
Net (charge-offs) recoveries
641
66
0
594
274
0
263
(17)
0
562
86
(52)
38
24
2,098
433
(6) (58)
Ending balance
$ 707
868
246
596
56
2,473
At December 31, 2015:
Individually evaluated for impairment:
Recorded investment
$ 0
Balance in allowance for loan losses $ 0
Collectively evaluated for impairment:
Recorded investment
$ 57,847
Balance in allowance for loan losses $ 707
0
0
69,817
868
0
0
17,493
246
137
62
7
7
144
69
40,092
534
3,870 189,119
2,404
49
(continued)
19
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans, Continued
The following summarizes the loan credit quality (in thousands):
Real Estate Mortgage Loans
Residential
and
Home
Equity Construction
Consumer
and
Commercial Other
Loans
Loans
Total
Commercial
$ 61,734 84,695
3,152
1,036
0
0
4,071
0
0
0
19,485
333
173
0
0
45,623
250
467
0
0
4,227 215,764
7,852
1,678
0
0
46
2
0
0
At December 31, 2016:
Grade:
Pass
Special mention
Substandard
Doubtful
Loss
Total
$ 65,805
88,883
19,991 46,340
4,275 225,294
At December 31, 2015:
Grade:
Pass
Special mention
Substandard
Doubtful
Loss
52,097
5,750
0
0
0
65,367
3,396
1,054
0
0
17,204
163
126
0
0
39,607
461
161
0
0
3,836 178,111
9,802
1,350
0
0
32
9
0
0
Total
$ 57,847 69,817
17,493
40,229
3,877 189,263
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.
Further, construction and nonowner-occupied commercial real estate loans and commercial relationships in
excess of $500,000 are reviewed at least annually. The Company determines the appropriate loan grade during
the renewal process and reevaluates the loan grade in situations when a loan becomes past due.
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.
(continued)
20
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans, Continued
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.
At December 31, 2016, there was one loan over thirty days past due, no loans past due ninety days or more but
still accruing and four loans on nonaccrual. Age analysis of past-due loans at December 31, 2016 and 2015 is as
follows (in thousands):
Accruing Loans
30-59
Days
Greater
60-89 Than 90 Total
Past
Days
Days
Past Due Past Due Past Due Due Current
Nonaccrual Total
Loans
Loans
At December 31, 2016:
Real estate mortgage:
Commercial
Residential and home equity
Construction
Commercial
Consumer/other
Total
At December 31, 2015:
Real estate mortgage:
Commercial
Residential and home equity
Construction
Commercial
Consumer/other
Total
$ 0
371
0
0
0
$ 371
0
0
0
0
0
0
0
0
371
0
0
0
0
0
0
0
0 371
65,805
87,850
19,918
46,264
4,275
224,112
0
662
73
76
0
811
65,805
88,883
19,991
46,340
4,275
225,294
0
0
0
0
0
$ 0
0
0
0
0
0
0
0
0
0
0
0
0
57,847
0
69,817
0
17,493
0
40,092
0
0
3,877
0 189,126
0
0
0
137
0
137
57,847
69,817
17,493
40,229
3,877
189,263
(continued)
21
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans, Continued
The following summarizes the amount of impaired loans (in thousands):
With No Related
Allowance Recorded
With an Allowance Recorded
Total
Unpaid
Contractual
Unpaid
Contractual
Unpaid
Contractual
Recorded Principal
Investment Balance
Recorded
Investment Balance Allowance
Principal Related
Recorded Principal Related
Investment Balance Allowance
At December 31, 2016:
Residential & Home Equity
Construction
Commercial
Total
$ 662
73
0
$ 735
662
73
0
735
0
0
76
76
0
0
76
76
0
0
76
76
662
662
0
73 73 0
76
76
811 76
76
811
At December 31, 2015:
Commercial loans
Consumer
Total
0
0
0 0
0
$ 0
137
7
144
137
7
144
62
7
69
137
7
144
137 62
7 7
144 69
The average net investment in impaired loans and interest income recognized and received on impaired loans by
loan class is as follows (in thousands):
Year Ended December 31, 2016:
Residential & Home Equity
Construction
Commercial
Total
Year Ended December 31, 2015:
Commercial
Consumer
Total
Interest
Interest
Average
Recorded
Income
Income
Investment Recognized Received
$ 354
19
107
0
0
7
14
0
6
$ 480
7
20
270
7
12
1
12
1
$ 277
13
13
There were no collateral dependent impaired loans measured at fair value on a nonrecurring basis at December
31, 2016 or 2015.
The Company did not enter into any new troubled debt restructured loans in the years ended December 31, 2016
or 2015.
The Company grants the majority of its loans to borrowers throughout Leon County, Florida. Although the
Company has a diversified loan portfolio, a significant portion of its borrowers’ ability to honor their contracts is
dependent upon the economy of this area. The Company does not have any significant concentrations to any one
industry or client.
(continued)
22
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Premises and Equipment
A summary of premises and equipment follows (in thousands):
Land
Building
Leasehold improvements
Furniture, fixtures and equipment
Computer and software
Construction in progress
Total, at cost
At December 31,
2015
2016
$ 690
2,461
411
993
1,943
1,181
7,679
690
2,449
377
930
1,723
275
6,444
Less accumulated depreciation and amortization
(2,750)
(2,222)
Premises and equipment, net
$ 4,929
4,222
Construction in progress relates to the construction of the Company’s branch office in Crawfordville, FL, which
was substantially complete at December 31, 2016.
The Company leases an office facility under an operating lease which expires in 2017, but has two 5-year options
to extend. This lease requires monthly lease payments and common area maintenance charges and contains
escalation clauses during the term of the lease. The Company also has an operating lease that expires in
November, 2017, with no options to renew. Rent expense under these operating leases during the years ended
December 31, 2016 and 2015 was $147,000 and $137,000, respectively. Future minimum rental commitments,
including renewal options, are as follows (in thousands):
Year Ending December 31,
2017
2018
2019
2020
2021
Thereafter
(5) Deposits
Amount
$ 155
86
86
86
86
482
$ 981
The aggregate amount of time deposits with a minimum denomination of $100,000 was approximately $16.4
million and $18.1 million at December 31, 2016 and 2015, respectively.
A schedule of maturities of time deposits at December 31, 2016 follows (in thousands):
Year Ending December 31,
2017
2018
2019
2020
23
Amount
$ 15,216
4,540
588
379
$ 20,723
(continued)
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6) Other Borrowings
In 2015, the Company was a participant in a repurchase agreement with a client that required the Company to pledge
securities as collateral for borrowings under this agreement. This agreement was terminated in June, 2015. A summary
of other borrowings in 2015 follows ($ in thousands):
Balance outstanding at year-end
Average balance outstanding during the year
Average interest rate paid
Maximum amount outstanding at any month-end during the year
Pledged securities at year-end
2015
0
$ 1,223
1.0%
$ 2,661
0
The Company has pledged collateral to the Federal Home Loan Bank of Atlanta (“FHLB”) for future advances which
will be collateralized by a blanket lien on qualifying residential real estate, commercial real estate, home equity lines
of credit and multi-family loans. The Company may borrow up to $35.2 million as of December 31, 2016 from the
FHLB. There were no advances outstanding at December 31, 2016 or 2015. The Company also has available credit
of $16.3 million in lines of credit with correspondent banks. All draws under these lines are subject to approval by the
correspondent bank.
(7) Income Taxes
The components of the income taxes are as follows (in thousands):
Year Ended
December 31, ,
2016
2015
$ 1,031
180
1,211
828
23
851
1
5
(25)
18
6
(7)
$ 1,217
844
(continued)
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Total income taxes
24
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) Income Taxes, Continued
The reasons for the difference between the statutory Federal income tax rate of 34% and the effective tax rates are
summarized as follows (dollars in thousands):
Income taxes at statutory rate
Increase (decrease) resulting from:
State taxes, net of Federal tax benefit
Tax-exempt income
Other nondeductible expenses
Year Ended December 31,
2015
2016
% of
Pretax
% of
Pretax
Amount Earnings Amount Earnings
$ 1,169 34.0%
$ 866
34.0%
122
(82)
8
3.5
(2.4)
0.3
27
(43)
(6)
1.1
(1.7)
(0.3)
$ 1,217 35.4% $ 844 33.1%
Tax effects of temporary differences that give rise to the deferred tax assets and liabilities are as follows (in
thousands):
Deferred tax assets:
Allowance for loan losses
Organizational and start-up costs
Stock-based compensation
Unrealized losses on securities available for sale
Other
Deferred tax assets
Deferred tax liabilities:
Accrual to cash conversion
Deferred loan costs
Premises and equipment
Unrealized gains on securities available for sale
Deferred tax liabilities
Net deferred tax asset
At December 31, ,
2016
2015
$ 1,008
87
18
137
16
848
101
18
0
9
1,266
976
(69)
(392)
(272)
0
(89)
(293)
(192)
(34)
(733)
(608)
$ 533
368
The Company files consolidated income tax returns in the U.S. federal jurisdiction and the State of Florida. The
Company is no longer subject to U.S. federal, or state and local income tax examinations by taxing authorities for
years before 2013.
(continued)
25
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(8) 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 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 Bank’s standby letters of credit are secured by collateral and those secured
letters of credit totaled $395,000 at December 31, 2016.
Guaranteed accounts are irrevocable standby letters of credit issued by us to guarantee a client’s credit line with our
third-party credit card company, First Arkansas Bank & Trust. As a part of this agreement, we are responsible for the
established credit limit on 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.
In 2016, the Company entered into an agreement with another bank. This agreement references an interest rate swap
that was transacted between the other bank and its loan client (the “Counterparty”). Should the Counterparty default
on its obligations under the interest rate swap agreement with the other bank, then the Company would be liable for
13.208% of all swap liabilities. The maximum potential credit exposure under this contract at December 31, 2016 is
$86,000.
(continued)
26
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(8) Off-Balance-Sheet Financial Instruments, Continued
A summary of the contractual amounts of the Company’s financial instruments with off-balance-sheet risk at
December 31, 2016 is as follows (in thousands):
Commitments to extend credit
Construction loans in process
Unused lines of credit
Standby financial letters of credit
Standby performance letters of credit
Guaranteed Accounts
$ 0
$ 7,426
$ 31,276
$ 1,702
$ 183
$ 694
(9) Stock Compensation Plans
The 2015 Stock Incentive Compensation Plan (the “2015 Plan”) was approved by Shareholders at the Company’s
annual meeting of shareholders on May 20, 2015, and permits the Company to grants its key employees and directors
stock options, stock appreciation rights, performance shares, and phantom stock. Under the 2015 Plan, the amount of
shares which may be issued is 500,000, but in no instance more than 15% of the issued and outstanding shares of the
Company’s common stock. As of December 31, 2016, no stock options, stock appreciation rights, performance shares,
or phantom stock shares had been issued under the 2015 Plan. As of May 20, 2015, no further grants will be made
under the 2007 Stock Option Plan (the “2007 Plan”). Unexercised stock options that were granted under the 2007 Plan
will remain outstanding and will expire under the terms of the individual stock grant.
(continued)
27
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(9) Stock Compensation Plans, Continued
A summary of the activity in the Company’s 2007 Stock Option Plan is as follows:
Weighted-
Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Value
Term
Price
Number of
Options
Outstanding at December 31, 2014
108,400
10.01
Options granted
Options exercised
Options forfeited
15,000
12.50
(30,540)
10.00
(17,360)
$ 11.44
Outstanding at December 31, 2015
75,500
$ 10.19
Options exercised
Options forfeited
(25,450)
10.29
(7,850)
10.00
Outstanding at December 31, 2016
42,200
$ 10.16
2.4 years
Exercisable at December 31, 2016
41,000
10.15
2.3 years $174,000
At December 31, 2016, there was $1,000 of total unrecognized compensation expense related to nonvested share
based compensation arrangements granted under the plan. The cost is expected to be recognized over a weighted-
average period of twelve months. The total fair value of shares vesting and recognized as compensation expense
was $1,000 and $15,000 in the years ended December 31, 2016 and 2015, respectively. The associated income tax
benefit recognized was $0 and $5,000 for the years ended December 31, 2016 and 2015, respectively.
The fair value of each option granted during the year ended December 31, 2015 was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
Weighted average risk-free interest rate
Expected dividend yield
Expected stock volatility
Expected life in years
Per share fair value of options issued during the year
Year Ended
December 31, 2015
0.89%
-
8.13%
3.0
$ 0.87
The Company used the guidance in Staff Accounting Bulletin No. 107 to determine the estimated life of options
issued. Expected volatility is based on volatility of similar companies’ common stock. The risk-free rate for
periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of
grant. The dividend yield is based on the Company’s history and expectation of dividend payouts.
(continued)
28
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(9) Stock Compensation Plans, Continued
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 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 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 and Nominating 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 and Nominating 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.
In 2016 and 2015, our directors received 3,928 and 3,172 shares of common stock, respectively, in lieu of cash, under
the Directors’ Plan. At December 31, 2016, 62,014 shares remained available for grant.
(10) Profit Sharing Plan
The Company sponsors a 401(k)-profit sharing plan available to all employees electing to participate after meeting
certain length-of-service requirements. The Company’s contributions to the profit sharing plan are discretionary and
determined annually. Contributions to the plan for the years ended December 31, 2016 and 2015 were $128,000 and
$100,000, respectively.
(11) Related Party Transactions
The Company enters into transactions during the ordinary course of business with officers and directors of the
Company and entities in which they hold a significant financial interest. The following table summarizes these
transactions (in thousands):
Loans:
Beginning balance
Originated during the year
Principal repayments
Ending balance
Deposits at year end
Year Ended December 31,
2016
2015
$ 6,082
1,216
(1,356)
6,107
283
(308)
$ 5,942
6,082
$ 13,947
17,956
From the Bank’s formation until February, 2016, the Company leased an office facility from a related party. In
February, 2016, the building was purchased by a non-related party. Rent expense under this operating lease from the
related party during the years ended December 31, 2016 and 2015 was $10,000 and $137,000 respectively. In
addition, the Bank purchases various insurance policies through a company that employs the spouse of one of our
directors and former CFO. The premiums paid totaled $531,000 in 2015 and $406,000 in 2016.
In 2015, the Bank purchased three acres of land in Wakulla County, Florida from a related party for $290,000 for
the purpose of building a branch office.
The Bank also contracted with a related party to perform loan reviews of the Bank’s loan portfolio in 2014 and a
payment of $20,000 was made in 2015 for these services.
(continued)
29
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(12) Fair Value of Financial Instruments
The approximate carrying amounts and estimated fair values of the Company’s financial instruments are as follows
(in thousands):
At December 31,
2016
2015
Level
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Financial assets:
Cash and cash equivalents
Securities available for sale
Loans held for sale
Loans, net
Federal Home Loan Bank stock
Accrued interest receivable
Bank-owned life insurance
Financial liabilities-
Deposits
Off-balance-sheet financial
instruments
1
2
3
3
3
3
3
3
3
$ 36,165
33,103
3,291
222,768
220
798
1,711
36,165
33,103
3,500
221,320
220
798
1,711
8,429
38,063
2,722
187,076
189
692
1,662
8,429
38,063
2,791
188,784
189
692
1,662
275,347
275,433
217,573
217,652
0
0
0
0
(13) Dividend Restrictions
The Holding Company is limited in the amount of cash dividends it may declare and pay by the amount of dividends
it can receive from the Bank. The Bank is limited in the amount of cash dividends that may be paid. The amount of
cash dividends that may be paid is based on the Bank’s net earnings of the current year combined with the Bank’s
retained earnings of the preceding two years, as defined by state banking regulations. However, for any dividend
declaration, the Bank must consider additional factors such as the amount of current period net earnings, liquidity,
asset quality, capital adequacy and economic conditions. It is likely that these factors would further limit the amount
of dividends which the Bank could declare. In addition, bank regulators have the authority to prohibit banks from
paying dividends if they deem such payment to be an unsafe or unsound practice.
(14) Regulatory Matters
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.
Effective January 1, 2015, the Bank, became subject to the new Basel III capital level threshold requirements under
the Prompt Corrective Action regulations with full compliance with all of the final rule's requirements phased in over
a multi-year schedule. These new regulations were designed to ensure that banks maintain strong capital positions
even in the event of severe economic downturns or unforeseen losses.
30
(continued)
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(14) Regulatory Matters, Continued
Changes that could affect the Bank going forward include additional constraints on the inclusion of deferred tax
assets in capital and increased risk weightings for nonperforming loans and acquisition/development loans in
regulatory capital. Under the new regulations in the first quarter of 2015, the Bank elected an irreversible one-time
opt-out to exclude accumulated other comprehensive income (loss) from regulatory capital. Beginning January 1,
2016, the Bank became 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 December 31, 2016, the Bank’s capital conservation buffer exceeds the minimum requirement of 0.625% for 2016.
The required buffer is to be phased in over three years.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum
amounts and percentage (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 December 31, 2016, that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2016, 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 table (dollars in thousands):
As of December 31, 2016
Tier 1 Leverage Capital
Common Equity Tier 1
Risk-Based Capital
Tier 1 Risk-Based Capital
Total Risk-Based Capital
As of December 31, 2015
Tier 1 Leverage Capital
Common Equity Tier 1
Risk-Based Capital
Tier1Risk-Based Capital
Total Risk-Based Capital
Actual
For Capital
Adequacy Purposes
For Well
Capitalized Purposes
Amount
Percentage
Amount
Percentage
Amount
Percentage
$ 25,994
8.73%
$ 11,906
4.00%
$ 14,883
5.00%
25,994
25,994
28,772
11.70
11.70
12.95
9,995
13,326
17,769
4.50
6.00
8.00
14,437
17,769
22,211
6.50
8.00
10.00
$ 23,511
9.48%
$ 9,918
4.00%
$ 12,398
5.00%
23,511
23,511
25,810
12.79
12.79
14.05
8,269
11,026
14,701
4.50
6.00
8.00
11,945
14,701
18,377
6.50
8.00
10.00
(continued)
31
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(15) Legal Contingencies
Various legal claims arise from time to time in the normal course of business which, in the opinion of management,
will not have a material effect on the Company’s financial statements. As of December 31, 2016, there is no pending
or threatened litigation of which management is aware.
(16) Earnings Per Share
Earnings per share has been computed on the basis of the weighted-average number of shares of common stock
outstanding. Outstanding stock options are considered dilutive securities for purposes of calculating diluted EPS
which was computed using the treasury stock method. (dollars in thousands, except per share amounts):
2016
2015
Weighted-
Average
Shares
Per
Share
Amount
Earnings
Weighted-
Average
Shares
Per
Share
Amount
Earnings
Year Ended December 31:
Basic EPS:
Net earnings
$ 2,220 1,982,334
$ 1.12
$ 1,704
1,945,980
$ 0.88
Effect of dilutive securities-
Incremental shares from
assumed conversion of
options
Diluted EPS:
Net earnings
(17) Reclassification
8,827
9,593
$ 2,220
1,991,161
$ 1.11
$ 1,704
1,955,573
$ 0.87
Certain noninterest expenses were reclassified from occupancy and equipment to software maintenance,
amortization and other for the year ended December 31, 2015 to conform to 2016 presentation. The reclassification
of expenses had no effect on net earnings.
(18) Parent Company Only Financial Information
The Holding Company's unconsolidated financial information follows:
Condensed Balance Sheets
(In thousands)
Assets
Cash
Investment in subsidiary
Other assets
Total assets
Stockholders' Equity
Stockholders' equity
Total stockholders' equity
32
At December 31
2015
2016
$ 1,301
25,761
20
1,139
23,567
227
$ 27,082
24,933
27,082
24,933
$ 27,082
24,933
(continued)
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(18) Parent Company Only Financial Information, Continued
Condensed Statements of Earnings
(In thousands)
Revenues
Expenses
Income tax benefit
Loss before earnings of subsidiary
Net earnings of subsidiary
Net earnings
Year Ended
December 31,
2015
2016
$ 0
(421)
159
0
(322)
119
(262)
(203)
2,482
1,907
$ 2,220
1,704
(continued)
33
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(18) Parent Company Only Financial Information, Continued
Condensed Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net
cash used in operating activities:
Equity in earnings of subsidiary
Stock issued as compensation
Decrease (increase) in other assets
Net cash used in operating activities
Cash flow from financing activity-
Proceeds from stock options exercised
Cash flow from investment activities:
Cash Dividend paid
Capital infusion in subsidiary
Net cash used in investing activities
Net increase (decrease) in cash
Cash at beginning of the year
Cash at end of year
Supplemental disclosure of cash flow information-
Noncash items:
Net change in accumulated other comprehensive
(loss) income of subsidiary, net change in unrealized
gain on securities available for sale,
net of tax
Stock-based compensation expense of subsidiary
Year Ended
December 31,
2016
2015
$ 2,220
1,704
(2,482)
55
207
(1,907)
39
(135)
0
(299)
261
306
(99)
0
0
(2,000)
(99) (2,000)
162
(1,993)
1,139
3,132
$ 1,301
1,139
$ (289)
2
$ 1
15
34
Dear Fellow Shareholders,
In 2016, the Company hit several important milestones. The Bank surpassed $300 million in total
assets, exceeded $12 million in total revenue, and completed construction of its permanent office in
Crawfordville.
Loan and deposit growth remain strong. Our team’s ongoing commitment to client service resulted
in additional opportunities for new business.
As of December 31, 2016, total assets were $303.9 million, with total deposits measuring
$275.3 million. This compares to $244.0 million in total assets and $217.6 million in total deposits at
December 31, 2015. The Bank remains “well capitalized” and total Company capital was
$27.1 million at December 31, 2016.
At its January 2017 meeting, the Board of Directors declared a cash dividend of $0.07 per share on
its common stock to all Company shareholders as of record date February 16, 2017.
We believe this dividend continues to be an important step in Prime Meridian Holding Company’s
long-term strategy to enhance shareholder value.
Other highlights include:
• Net income increased 30.3% to $2.2 million from 2015 to 2016, boosted by strong growth in
both net interest income and noninterest income.
• Mortgage banking revenue, which consists of both origination fee income and gains (losses) on
the sale of mortgage loans, increased 71.3% to $935,000 in 2016 and continues to represent a
growing source of revenue for the Company.
• Total assets increased 24.5% during 2016 to $303.9 million.
• Year over year, the Company reported strong growth in both its net loan portfolio and total
deposits. Net loans grew 19.1%, or $35.7 million, to $222.8 million, while total deposits grew
$57.8 million or 26.6% to $275.3 million.
• For the year ended December 31, 2016, the Return on Average Assets was 0.81%, the Return
on Average Equity was 8.51%, and the net interest margin was 3.74%.
• Since entering the Crawfordville, FL market in September, 2015, our Crawfordville office has
collected nearly $30 million in deposits as of December 31, 2016.
• Prime Meridian Bank was ranked No. 20 nationally by American Banker Magazine as one of
the “Best Banks to Work For.”
On behalf of the Company’s shareholders, we are proud of Prime Meridian’s accomplishments over
the previous year. It is with great pleasure that we present the enclosed 2016 Annual Report.
Warm regards,
Sammie D. Dixon, Jr.
Richard A. Weidner, CPA
President and Chief Executive Officer
Chairman of the Board
Vote your shares online or by phone. See enclosed Proxy Card for instructions.
2016 BY T H E N U M B E R S
(IN MILLIONS)
OF THE COMPANY
AS OF DEC. 31, 2016
$303.9 TOTAL ASSETS (IN MILLIONS)
$2.2 2016 NET INCOME
$222.8 LOANS, NET OF ALLOWANCE
71.3% PERCENT INCREASE IN
MORTGAGE BANKING
REVENUE OVER 2016
(IN MILLIONS)
AS OF DEC. 31, 2016
QUARTERS RANKED 5 STARS
BY BAUER FINANCIAL
28 NUMBER OF CONSECUTIVE
20 RANKING (NATIONALLY)
BEST BANKS TO WORK FOR
AMERICAN BANKER MAGAZINE
E X E C U T I V E
MA N AG E M E N T
P R I M E M E R I D I A N B A N K
Sammie D. Dixon, Jr.
President
Chief Executive Officer
R. Randy Guemple
Executive Vice President
Chief Financial Officer
Chris L. Jensen, Jr.
Executive Vice President
Senior Lender
Susan Payne Turner
Executive Vice President
Chief Risk Officer
M E M B E R
RATED 5-STARS BauerFinancial.com
A N N UA L R E P O R T | 2016
B OA R D O F
D I R E C TO R S
P R I M E M E R I D I A N H O L D I N G
CO M PA N Y
Sammie D. Dixon, Jr.
President
Chief Executive Officer
R. Randy Guemple
Executive Vice President
Chief Financial Officer
Chris L. Jensen, Jr.
Executive Vice President
Richard A. Weidner
Chairman
William D. Crona
Steven L. Evans
Kathleen C. Jones
Robert H. Kirby
Frank L. Langston
Todd A. Patterson, D.O.
L. Collins Proctor
Garrison A. Rolle, M.D.
Steven D. Smith
Marjorie R. Turnbull
TryMyBank.com
MAIN OFFICE
1897 Capital Circle NE
Tallahassee, FL 32308
Telephone: (850) 907-2301
TIMBERLANE
1471 Timberlane Road, Suite 124
Tallahassee, FL 32312
Telephone: (850) 907-2300
CRAWFORDVILLE
2201 Crawfordville Hwy.
Crawfordville, FL 32327
Telephone: (850) 926-4320