Warm regards,
Sammie D. Dixon, Jr.
Richard A. Weidner
T
echnology (namely AI) captured the imagination of many last year and the trend is gaining
momentum. No doubt technology is an important part of the Prime Meridian story though it’s not
already seeing returns from those investments. Yet, our success begins and ends with people: how we
treat others, our team, clients, and shareholders.
As we enter our 17th year serving clients and communities, we are most proud of the work done cultivating
a collection of caring bankers whose focus is on providing the best service humanly possible. We work to
provide the resources clients need to prosper, build businesses, purchase homes, and improve the lives
of those around them.
The Bank caters to the needs of small businesses because we understand them. While larger institutions
As you will see in the Annual Report which follows, we put up some good numbers in 2024. Our team
gets up each and every day working to improve performance from the day before.
capitalized and ready to respond to changes as they arise. Staying prepared is in our DNA.
As a shareholder of the Company, it is important to point out that participation as a Bank account
holder provides you an even greater value for your investment. If you do not currently hold deposit
accounts with us (ie: checking, savings, money market, CDs), please consider doing so. We invite
Other Highlights
•
The Board of Directors declared an annual cash dividend of $1.00 per share of the Company’s common
stock. The dividend was paid February 28, 2025 to shareholders of record as of February 7, 2025.
•
Book value per share as of December 31, 2024 was $27.09, increasing $2.56, or 10.4%, since the fourth
quarter of 2023.
•
Gross loan balances increased $50.2 million, or 7.7%, since December 31, 2023 with most growth
occurring in residential real estate loans and home equity loans.
•
Total deposits increased 9.6%, or $71.9 million, to $820.6 million in 2024. Growth was driven by time
deposits and money market accounts.
•
The Bank remains well capitalized with a Tier 1 Leverage ratio of 10.28% and a Total Risk Based Capital
Ratio of 14.88%.
We are proud to present the enclosed 2024 Annual Report.
Independent Auditor's Report
To the Shareholders and the Board of Directors
Prime Meridian Holding Company
Tallahassee, Florida:
Opinion
We have audited the accompanying consolidated financial statements of Prime Meridian Holding Company
(the "Company"), which comprise the consolidated balance sheets as of December 31, 2024 and 2023, and
the related consolidated statements of earnings, comprehensive income, stockholders' equity and cash flows
for the years then ended, and the related notes to the consolidated financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Company as of December 31, 2024 and 2023, and the results of its
operations and its cash flows for the years then ended in accordance with accounting principles generally
accepted in the United States of America ("GAAP").
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America ("GAAS"). Our responsibilities under those standards are further described in the Auditor's
Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required
to be independent of the Company and to meet our other ethical responsibilities, in accordance with the
relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements
in accordance with GAAP, and for the design, implementation, and maintenance of internal control relevant
to the preparation and fair presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to
continue as a going concern for a period of one year after the date that the financial statements are available
to be issued.
To the Shareholders and the Board of Directors
Prime Meridian Holding Company
Page Two
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that
includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and
therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material
misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control. Misstatements are considered material if there is a
substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a
reasonable user based on the consolidated financial statements.
In performing an audit in accordance with GAAS, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- Identify and assess the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures
include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company's internal control. Accordingly, no such opinion is expressed.
- Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluate the overall presentation of the consolidated financial
statements.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise
substantial doubt about the Company's ability to continue as a going concern for a reasonable period of
time.
We are required to communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit, significant audit findings, and certain internal control
related matters
that we identified during the audit.
HACKER, JOHNSON & SMITH PA
Tampa, Florida
March 6, 2025
1
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
December 31,
2024
2023
(dollars in thousands, except per share amounts)
Assets
Cash and due from banks ........................................................................................................ $
5,903 $
9,003
Federal funds sold ...................................................................................................................
19,356
14,856
Interest-bearing deposits .........................................................................................................
52,893
4,557
Total cash and cash equivalents .......................................................................................
78,152
28,416
Debt securities available for sale ............................................................................................
89,983
124,475
Debt securities held to maturity (fair value of $13,663 and $10,358) .....................................
15,276
11,850
Loans held for sale ..................................................................................................................
6,491
5,288
Loans, net of allowance for credit losses of $5,632 and $5,609 .............................................
696,151
646,127
Federal Home Loan Bank stock ..............................................................................................
836
1,283
Premises and equipment, net ...................................................................................................
7,120
7,476
Right of use lease asset ...........................................................................................................
2,597
2,823
Deferred tax asset ....................................................................................................................
3,633
3,529
Accrued interest receivable .....................................................................................................
3,090
3,114
Bank-owned life insurance .....................................................................................................
17,347
16,921
Other assets .............................................................................................................................
3,140
3,226
Total assets ...................................................................................................................... $
923,816 $
854,528
Liabilities and Stockholders' Equity
Liabilities:
Noninterest-bearing demand deposits ................................................................................. $
182,679 $
189,426
Savings, NOW and money-market deposits ........................................................................
509,697
476,826
Time deposits ......................................................................................................................
128,209
82,436
Total deposits ...................................................................................................................
820,585
748,688
Federal Home Loan Bank advances ....................................................................................
5,000
15,000
Official checks ....................................................................................................................
956
2,377
Operating lease liability .......................................................................................................
2,799
3,013
Other liabilities ....................................................................................................................
5,421
5,474
Total liabilities .................................................................................................................
834,761
774,552
Commitments and contingencies (notes 5, 9, and 16)
Stockholders' equity:
Preferred stock, undesignated; 1,000,000 shares authorized, none issued or outstanding ......
-
-
Common stock, $.01 par value; 9,000,000 shares authorized, 3,287,747 and 3,259,881
issued and outstanding .........................................................................................................
33
33
Additional paid-in capital .......................................................................................................
41,605
40,522
Retained earnings ....................................................................................................................
54,907
47,234
Accumulated other comprehensive loss ..................................................................................
(7,490 )
(7,813 )
Total stockholders' equity ................................................................................................
89,055
79,976
Total liabilities and stockholders' equity ......................................................................... $
923,816 $
854,528
See Accompanying Notes to Consolidated Financial Statements
2
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Earnings
Year Ended December 31,
(in thousands, except per share amounts)
2024
2023
Interest income:
Loans .................................................................................................................................... $
42,539 $
35,291
Debt securities ......................................................................................................................
3,255
3,698
Other .....................................................................................................................................
2,449
937
Total interest income ........................................................................................................
48,243
39,926
Interest expense:
Deposits ................................................................................................................................
17,296
9,492
FHLB advances and other borrowings .................................................................................
696
1,086
Total interest expense .......................................................................................................
17,992
10,578
Net interest income ...........................................................................................................
30,251
29,348
Credit loss expense ..................................................................................................................
1,113
1,450
Net interest income after credit loss expense ....................................................................
29,138
27,898
Noninterest income:
Service charges and fees on deposit accounts ......................................................................
319
357
Debit card/ATM revenue, net ...............................................................................................
632
573
Mortgage banking revenue, net ............................................................................................
511
352
Income from bank-owned life insurance ..............................................................................
426
389
Other income ........................................................................................................................
226
224
Total noninterest income ..................................................................................................
2,114
1,895
Noninterest expense:
Salaries and employee benefits ............................................................................................
11,967
11,172
Occupancy and equipment ...................................................................................................
1,651
1,647
Professional fees ...................................................................................................................
606
559
Advertising ...........................................................................................................................
1,045
903
FDIC assessment ..................................................................................................................
425
360
Software maintenance, amortization and other ....................................................................
1,820
1,214
Other .....................................................................................................................................
2,565
2,490
Total noninterest expense .................................................................................................
20,079
18,345
Earnings before income taxes ...........................................................................................
11,173
11,448
Income taxes ............................................................................................................................
2,682
2,740
Net earnings ...................................................................................................................... $
8,491 $
8,708
Earnings per common share:
Basic ..................................................................................................................................... $
2.58 $
2.71
Diluted .................................................................................................................................. $
2.54 $
2.68
See Accompanying Notes to Consolidated Financial Statements
3
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
Year Ended December 31,
(in thousands)
2024
2023
Net earnings ............................................................................................................................. $
8,491 $
8,708
Other comprehensive income:
Change in unrealized loss on debt securities available for sale:
Unrealized gain arising during the year ............................................................................
432
2,896
Deferred income tax expense ...................................................................................................
(109 )
(734 )
Total other comprehensive income ..........................................................................................
323
2,162
Comprehensive income ............................................................................................................ $
8,814 $
10,870
See Accompanying Notes to Consolidated Financial Statements.
4
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2024 and 2023
Accumulated
Other
Additional
Compre-
Total
Common Stock
Paid-in
Retained
hensive
Stockholders'
Shares
Amount
Capital Earnings
Loss
Equity
(dollars in thousands)
Balance at December 31, 2022 ....... 3,164,491 $
32 $
39,718 $
37,278 $
(9,975 ) $
67,053
Net earnings .....................................
-
-
-
8,708
-
8,708
Impact of adopting ASC 326
(net of tax) ....................................
-
-
-
1,946
-
1,946
Dividends paid .................................
-
-
-
(698 )
-
(698 )
Net change in unrealized loss on
debt securities available for sale,
net of income taxes .......................
-
-
-
-
2,162
2,162
Stock options exercised ...................
19,217
-
341
-
-
341
Common stock issued as
compensation to directors .............
6,700
-
163
-
-
163
Issuance of restricted stock ..............
69,473
1
243
244
Stock-based compensation ...............
-
-
57
-
-
57
Balance at December 31, 2023 ....... 3,259,881 $
33 $
40,522 $
47,234 $
(7,813 ) $
79,976
Net earnings .....................................
-
-
-
8,491
-
8,491
Dividends paid .................................
-
-
-
(818 )
-
(818 )
Net change in unrealized loss on
debt securities available for sale,
net of income taxes .......................
-
-
-
-
323
323
Stock options exercised ...................
23,940
-
481
-
-
481
Common stock repurchase ...............
(7,000 )
-
(180 )
-
-
(180 )
Common stock issued as
compensation to directors .............
5,436
-
137
-
-
137
Issuance of restricted stock ..............
5,490
-
439
-
-
439
Stock-based compensation ...............
-
-
206
-
-
206
Balance at December 31, 2024 ....... 3,287,747 $
33 $
41,605 $
54,907 $
(7,490 ) $
89,055
See Accompanying Notes to Consolidated Financial Statements.
5
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
Year Ended December 31,
(in thousands)
2024
2023
Cash flows from operating activities:
Net earnings ............................................................................................................................. $
8,491 $
8,708
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization .............................................................................................
695
724
Credit loss expense ...............................................................................................................
1,113
1,450
Net amortization of deferred loan fees .................................................................................
127
276
Deferred income taxes ..........................................................................................................
(213 )
(390 )
Net accretion of premiums and discounts on debt securities ................................................
(235 )
(284 )
Gain on sale of loans held for sale .......................................................................................
(511 )
(352 )
Proceeds from the sale of loans held for sale .......................................................................
74,670
60,437
Loans originated as held for sale ..........................................................................................
(75,362 )
(58,315 )
Stock issued as compensation to directors ...........................................................................
137
163
Stock-based compensation expense .....................................................................................
645
301
Income from bank-owned life insurance ..............................................................................
(426 )
(389 )
Net decrease (increase) in accrued interest receivable .........................................................
24
(729 )
Net change in operating leases .............................................................................................
12
26
Net decrease in other assets ..................................................................................................
86
165
Net decrease in other liabilities and official checks .............................................................
(1,646 )
(1,250 )
Net cash provided by operating activities .........................................................................
7,607
10,541
Cash flows from investing activities:
Loan originations, net of principal repayments ....................................................................
(51,092 )
(56,532 )
Purchase of debt securities available for sale .......................................................................
(11,539 )
(1,206 )
Purchase of debt securities held to maturity .........................................................................
(3,387 )
-
Principal repayments of debt securities available for sale ....................................................
11,099
7,284
Maturities and calls of debt securities available for sale ......................................................
35,560
2,018
Redemption (purchase) of Federal Home Loan Bank stock .................................................
447
(820 )
Purchase of premises and equipment ...................................................................................
(339 )
(178 )
Net cash used in investing activities .................................................................................
(19,251 )
(49,434 )
Cash flows from financing activities:
Net increase in deposits ........................................................................................................
71,897
17,153
Net decrease in other borrowings .........................................................................................
-
(4,275 )
(Decrease) increase in Federal Home Loan Bank advances, net ..........................................
(10,000 )
15,000
Proceeds from stock options exercised .................................................................................
481
341
Common stock repurchase ...................................................................................................
(180 )
-
Common stock dividends paid .............................................................................................
(818 )
(698 )
Net cash provided by financing activities .........................................................................
61,380
27,521
Net increase (decrease) in cash and cash equivalents ..............................................................
49,736
(11,372 )
Cash and cash equivalents at beginning of year .......................................................................
28,416
39,788
Cash and cash equivalents at end of year ................................................................................. $
78,152 $
28,416
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest .............................................................................................................................. $
17,920 $
10,218
Income taxes ..................................................................................................................... $
3,155 $
3,072
Noncash transactions:
Accumulated other comprehensive loss, net change in unrealized loss on debt securities
available for sale, net of income taxes .............................................................................. $
323 $
2,162
Impact of adopting ASC 326 ................................................................................................ $
- $
1,946
See Accompanying Notes to Consolidated Financial Statements
(continued)
6
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
At December 31, 2024 and 2023 and for the Years Then Ended
(1) Summary of Significant Accounting Policies
Organization. Prime Meridian Holding Company (³PMHG´) 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 four
banking offices located in Tallahassee, Crawfordville, and Lakeland, 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 credit 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.
Subsequent Events. Management has evaluated events occurring subsequent to the consolidated balance sheet date through March
6, 2025 (the date these consolidated financial statements were available to be issued), determining that no events require additional
disclosure in these consolidated financial statements, except for the item disclosed in Note 14.
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 in banks, all of which have original maturities of less than
ninety days.
Debt Securities. Debt securities may be classified as either trading, held-to-maturity or available-for-sale. Trading debt securities
are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading debt securities are included
immediately in earnings. Held-to-maturity debt securities are those which the Company has the positive intent and ability to hold to
maturity and are reported at amortized cost. Debt securities available-for-sale consist of securities not classified as trading debt
securities or as held-to-maturity debt securities. Unrealized holding gains and losses on debt securities available-for-sale are excluded
from earnings and reported in accumulated other comprehensive loss. Gains and losses on the sale of debt securities are recorded on
the trade date determined using the specific-identification method. Premiums and discounts on debt securities are recognized in
interest income using the interest method over the period to maturity or call date, if applicable.
Loans Held for Sale. Loans held for sale include mortgage loans 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, 2024 and 2023, gains from the
sale of loans held for sale are reported on the consolidated statements of earnings under noninterest income in mortgage banking
revenue. At December 31, 2024 and 2023, fair values exceeded book values in the aggregate. The Company retains no beneficial
interest in these sales and no servicing rights on the loans sold.
(continued)
7
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
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 credit 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 the 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.
The following is a summary of the Company's significant accounting policies with respect to the Allowance for Credit Losses
("ACL"):
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
uncollectability 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 December 31, 2024 and 2023,
the accrued interest receivable for debt securities available for sale included in accrued interest receivable was $336,000 and
$523,000, respectively.
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 year ended December 31, 2024, there were no debt securities placed on nonaccrual. As of December 31, 2024
and 2023, the accrued interest receivable for debt securities held to maturity included in accrued interest receivable was $82,000 and
$69,000, respectively.
(continued)
8
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
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 off-balance-sheet ("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 consolidated 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 (³WARM´) 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.
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 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 the nature and volume of the portfolio; and 7) 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.
(continued)
9
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
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 Accounting Standard Codification ("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 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 December
31, 2024 and 2023, the accrued interest receivable for loans recorded in accrued interest receivable was $2,672,000 and $2,522,000,
respectively.
The Company has a variety of assets that have a component that qualifies as an OBS exposure. These primarily include undrawn
portions of lines of credit and construction loans in process. 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.
(continued)
10
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
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.
Bank-Owned Life Insurance ("BOLI"). The Company has purchased life insurance policies on certain key officers. Bank-owned
life insurance is recorded at the amount that can be realized under the insurance contract at the consolidated balance sheet date,
which is the cash surrender value adjusted for other charges or other amount due that are probable at settlement.
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 and guaranteed accounts. Such financial instruments are recorded in the consolidated
financial statements when they are funded.
Revenue from Contracts with Customers. In addition to lending and related activities, the Company offers various services to
customers that generate revenue, certain of which are governed by ASC Topic 606 Revenue from Contracts with Customers (³ASC
606´). The Company¶s services that fall within the scope of ASC 606 are presented within noninterest income and include service
charges and fees on deposit accounts and debit card/ATM revenue, net of expenses. Revenue is recognized upon satisfaction of our
performance obligation when the transactions occur or as services are performed over primarily monthly or quarterly periods.
Payment is typically received in the period the transactions occur.
Service charges and fees on deposit accounts. Deposit related fees consist of fees earned on transaction-based, account
maintenance, and overdraft services. Transaction-based fees, which include services such as wire fees, stop payment charges,
statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Bank fulfills
the customer¶s request, and the performance obligation is satisfied. Account maintenance fees, which relate primarily to monthly
maintenance, are earned over the course of a month, representing the period over which the Bank satisfies the performance obligation.
Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the
customer¶s account balance.
Debit Card/ATM Revenue. Debit card/ATM revenue primarily includes interchange income from client use of consumer and
business debit cards. Interchange income is paid by a merchant bank to the card-issuing bank through the interchange network.
Interchange fees are set by the credit card associations and based on cardholder purchase volumes. Also included in debit card/ATM
revenue is ATM foreign fee income and ATM non-client ACH credits. This revenue line is shown net of debit card fees and ATM
program expenses.
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 ³more 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.
(continued)
11
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Income Taxes, Continued. 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 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, 2024, 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:
Debt 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 treasury and agency securities, municipal securities, U.S. agency
mortgage-backed securities, and asset-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.
Derivatives: The fair values of derivatives are based on valuation models using observable market data as of the measurement date
(Level 2). Quoted market prices are not always available for our derivatives. Therefore, the fair values of derivatives are determined
using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include
interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the
position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market
transactions and third-party pricing services.
(continued)
12
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, 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).
Debt Securities. Fair values for debt 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 Company has purchased life insurance policies on certain officers. The life insurance is recorded
at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted
for other charges or other amounts due that are probable at settlement (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).
Federal Home Loan Bank Advances. Fair values of FHLB advances are estimated using discounted cash flow analysis based on
current borrowing rates of the FHLB (Level 3).
Derivatives. Fair value of the Company¶s derivative contracts is based on the framework for measuring fair value (Level 2).
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 awards granted. The Company recognizes stock-
based compensation in the consolidated statements of earnings as the awards vest. The market price of the Company's common stock
at the date of the grant is used for restricted stock awards. For stock purchase plans, the Black-Scholes model is utilized to estimate
the fair value of the award. The impact of forfeitures of share-based awards on compensation expense is recognized as forfeitures
occur.
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 debt securities available-for-sale, 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.
(continued)
13
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
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.
Mortgage Banking Revenue. Mortgage banking revenue includes gains and losses on the sale of mortgage loans originated for sale,
net of direct origination costs, and wholesale brokerage fees. The Company recognizes mortgage banking revenue from mortgage
loans originated in the consolidated statements of earnings upon sale of the loans.
Recently Adopted Accounting Standards
The Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments ± Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments (³ASC 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 (³CECL´)
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 OBS 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
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 ..................................................................................... $
- $
- $
660
Equity:
Retained earnings (impact of adopting ASC 326, net of taxes) ............... $
- $
- $
1,946
Also, on January 1, 2023, the Company adopted ASU 2022-22, "Troubled Debt Restructurings and Vintage Disclosures." ASU
2022-22 eliminates the accounting guidance for troubled debt restructurings ("TDRs") in ASC 310-40 Receivables - Troubled Debt
Restructurings by Creditors, and introduces new disclosures related to modifications with borrowers that are experiencing financial
difficulties. ASU 2022-02 also requires the disclosure of current-period gross write-offs by year of origination for financing
receivables held at amortized cost. Upon adoption, the Company eliminated the separate credit loss estimation process for loans
classified as TDRs. The adoption did not have a material impact to the consolidated financial statements.
(continued)
14
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Recent Accounting Standards
In December 2023, the Financial Accounting Standards Board (³FASB´) issued ASU 2023-09, ³Improvements to Income Tax
Disclosures.´ ASU 2023-09 requires disclosure of specific categories in the income tax rate reconciliation and requires additional
information for reconciling items that meet a quantitative threshold. The standard requires an annual disclosure of income taxes paid,
net of refunds received, disaggregated by federal, state and foreign taxes and to disaggregate the information by jurisdiction based
on a quantitative threshold. The standard is effective for fiscal years beginning after December 15, 2024 and early adoption is
permitted. The Company does not expect the adoption of the standard to have a material impact on its disclosures.
In November 2024, the FASB issued ASU 2024-03, ³Expense Disaggregation Disclosures.´ ASU 2024-03 requires disclosure to
disaggregate prescribed expenses within relevant statement of earnings captions. The standard is effective for fiscal years beginning
after December 15, 2026 and for interim periods after December 15, 2027. Early adoption is permitted. The Company is evaluating
the impact of the changes to its existing disclosures.
(continued)
15
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Debt Securities
Debt securities have been classified according to management's intention. 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 December 31, 2024
Debt Securities Available for Sale
U.S. Government treasury and agency securities ........................... $
13,301 $
- $
(620 ) $
12,681
Municipal securities .......................................................................
20,113
-
(2,062 )
18,051
U.S. agency mortgage-backed securities ........................................
64,268
36
(7,356 )
56,948
Asset-backed securities ..................................................................
2,334
3
(34 )
2,303
Total ............................................................................................ $
100,016 $
39 $
(10,072 ) $
89,983
Debt Securities Held to Maturity
Municipal securities ....................................................................... $
9,300 $
- $
(1,465 ) $
7,835
U.S. agency mortgage-backed securities ........................................
5,976
1
(149 )
5,828
Total ............................................................................................ $
15,276 $
1 $
(1,614 ) $
13,663
At December 31, 2023
Debt Securities Available for Sale
U.S. Government treasury and agency securities ........................... $
46,492 $
- $
(1,234 ) $
45,258
Municipal securities .......................................................................
22,259
-
(2,151 )
20,108
U.S. agency mortgage-backed securities ........................................
63,165
7
(7,013 )
56,159
Asset-backed securities ..................................................................
3,024
-
(74 )
2,950
Total ............................................................................................ $
134,940 $
7 $
(10,472 ) $
124,475
Debt Securities Held to Maturity
Municipal securities ....................................................................... $
9,257 $
39 $
(1,378 ) $
7,918
U.S. agency mortgage-backed securities ........................................
2,593
-
(153 )
2,440
Total ............................................................................................ $
11,850 $
39 $
(1,531 ) $
10,358
(continued)
16
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, 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 December 31, 2024
Debt Securities Available for Sale
U.S. Government treasury and agency securities ........................... $
12,681 $
- $
12,681 $
-
Municipal securities .......................................................................
18,051
-
18,051
-
U.S. agency mortgage-backed securities ........................................
56,948
-
56,948
-
Asset-backed securities ..................................................................
2,303
-
2,303
-
Total ............................................................................................ $
89,983 $
- $
89,983 $
-
At December 31, 2023
Debt Securities Available for Sale
U.S. Government treasury and agency securities ........................... $
45,258 $
- $
45,258 $
-
Municipal securities .......................................................................
20,108
-
20,108
-
U.S. agency mortgage-backed securities ........................................
56,159
-
56,159
-
Asset-backed securities ..................................................................
2,950
-
2,950
-
Total ............................................................................................ $
124,475 $
- $
124,475 $
-
The scheduled maturities of debt securities at December 31, 2024 are as follows:
Amortized
Fair
Cost
Value
(in thousands)
Debt Securities Available for Sale
Due in less than one year .................................... $
8,414 $
8,361
Due in one to five years ......................................
13,387
12,271
Due in five to ten years .......................................
9,375
8,229
Due after ten years ..............................................
4,572
4,174
Mortgage-backed securities ................................
64,268
56,948
Total ................................................................ $
100,016 $
89,983
Debt Securities Held to Maturity
Due in five to ten years ....................................... $
2,077 $
1,955
Due after ten years ..............................................
7,223
5,880
Mortgage-backed securities ................................
5,976
5,828
Total ................................................................ $
15,276 $
13,663
There were no debt securities available for sale sold during the years ended December 31, 2024 and 2023.
(continued)
17
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Debt Securities, Continued
At December 31, 2024 and 2023, debt securities with a fair value of $17,263,000 and $16,410,000, respectively, were pledged as
collateral for public deposits.
Debt 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:
Less Than Twelve Months More Than Twelve Months
Gross
Gross
Unrealized
Fair
Unrealized
Fair
Losses
Value
Losses
Value
(in thousands)
At December 31, 2024
Debt Securities Available for Sale
U.S. Government treasury and agency securities ................... $
- $
- $
(620 ) $
12,681
Municipal securities ...............................................................
-
-
(2,062 )
18,051
U.S. agency mortgage-backed securities ................................
(181 )
8,743
(7,175 )
46,994
Asset-backed securities ..........................................................
-
-
(34 )
1,621
Total .................................................................................... $
(181 ) $
8,743 $
(9,891 ) $
79,347
Debt Securities Held to Maturity
Municipal securities ............................................................... $
(78 ) $
1,771 $
(1,387 ) $
6,064
U.S. agency mortgage-backed securities ................................
(35 )
1,956
(114 )
2,482
Total .................................................................................... $
(113 ) $
3,727 $
(1,501 ) $
8,546
At December 31, 2023
Debt Securities Available for Sale
U.S. Government treasury and agency securities ................... $
- $
- $
(1,234 ) $
45,258
Municipal securities ...............................................................
(2 )
386
(2,149 )
19,722
U.S. agency mortgage-backed securities ................................
-
-
(7,013 )
54,987
Asset-backed securities ..........................................................
-
-
(74 )
2,950
Total .................................................................................... $
(2 ) $
386 $
(10,470 ) $
122,917
Debt Securities Held to Maturity
Municipal securities ............................................................... $
- $
- $
(1,378 ) $
6,884
U.S. agency mortgage-backed securities ................................
-
-
(153 )
2,440
Total .................................................................................... $
- $
- $
(1,531 ) $
9,324
The unrealized losses at December 31, 2024 and 2023 on 94 and 103 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.
(continued)
18
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Debt Securities, Continued
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 December
31, 2024 and 2023, all municipal and asset-backed securities were rated as investment grade. All debt securities in an unrealized loss
position as of December 31, 2024 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 December 31, 2024, 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)
19
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans
The segments and classes of loans are as follows:
At December 31,
(in thousands)
2024
2023
Real estate mortgage loans:
Commercial(1) ................................................ $
214,531 $
208,429
Residential and home equity(1) ......................
306,558
273,383
Construction(1) ...............................................
81,513
78,197
Total real estate mortgage loans ................
602,602
560,009
Commercial loans .............................................
93,078
85,983
Consumer and other loans ................................
6,419
5,936
Total loans .................................................
702,099
651,928
Deduct:
Net deferred loan fees ...................................
(316 )
(192 )
Allowance for credit losses ...........................
(5,632 )
(5,609 )
Loans, net .................................................. $
696,151 $
646,127
(1) Certain loans as of December 31, 2023 have been reclassed to conform with current loan class presentation.
(continued)
20
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 flow
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 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, 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 Company offers both portfolio and secondary market
mortgages; portfolio loans generally are based on a 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
Company. 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.
(continued)
21
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans, Continued
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 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 ³all business assets,´ or a ³blanket
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
Company 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)
22
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans, Continued
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 $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)
23
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans, Continued
Loan balances classified by credit quality indicator, loan type and based on year of origination as of December 31, 2024 are as
follows:
Term Loans by Origination Year
(in thousands)
2024 2023 2022 2021 2020 Prior
Revolving
Loans Total
Commercial Real Estate Loans
Pass .......................................................... $ 19,505 $ 27,317 $ 62,457 $ 27,621 $ 33,612 $ 39,423 $
3,784 $ 213,719
Special mention ........................................
-
-
-
-
-
758
-
758
Substandard ..............................................
-
-
-
-
-
54
-
54
Total commercial real estate loans ........... $ 19,505 $ 27,317 $ 62,457 $ 27,621 $ 33,612 $ 40,235 $
3,784 $ 214,531
Year-to-date gross charge-offs ................. $
- $
- $
- $
- $
- $
- $
- $
-
Residential and Home Equity Loans
Pass .......................................................... $ 34,275 $ 46,583 $ 54,565 $ 63,349 $ 27,389 $ 37,001 $ 37,881 $ 301,043
Special mention ........................................
-
986
351
1,363
-
198
247
3,145
Substandard ..............................................
-
45
233
568
931
-
593
2,370
Total residential loans .............................. $ 34,275 $ 47,614 $ 55,149 $ 65,280 $ 28,320 $ 37,199 $ 38,721 $ 306,558
Year-to-date gross charge-offs ................. $
- $
- $
- $
- $
- $
- $
- $
-
Construction Loans
Pass .......................................................... $ 29,287 $ 17,868 $ 5,996 $ 16,661 $
784 $ 1,482 $
8,838 $ 80,916
Special mention ........................................
-
-
-
-
-
-
-
-
Substandard ..............................................
-
-
178
-
419
-
-
597
Total construction loans ........................... $ 29,287 $ 17,868 $ 6,174 $ 16,661 $ 1,203 $ 1,482 $
8,838 $ 81,513
Year-to-date gross charge-offs ................. $
- $
- $
- $
- $
- $
- $
- $
-
Commercial Loans
Pass .......................................................... $ 9,874 $ 12,609 $ 10,586 $ 4,849 $ 2,361 $ 5,620 $ 39,214 $ 85,113
Special mention ........................................
80
-
-
-
-
-
6,464
6,544
Substandard ..............................................
298
-
-
-
-
-
1,123
1,421
Total commercial loans ............................ $ 10,252 $ 12,609 $ 10,586 $ 4,849 $ 2,361 $ 5,620 $ 46,801 $ 93,078
Year-to-date gross charge-offs ................. $
- $
- $
75 $
83 $
- $
607 $
- $
765
Consumer & Other Loans
Pass .......................................................... $ 1,175 $
908 $
366 $
97 $
105 $
339 $
3,374 $ 6,364
Special mention ........................................
55
-
-
-
-
-
-
55
Substandard ..............................................
-
-
-
-
-
-
-
-
Total consumer & other loans .................. $ 1,230 $
908 $
366 $
97 $
105 $
339 $
3,374 $
6,419
Year-to-date gross charge-offs ................. $
148 $
- $
16 $
- $
- $
- $
- $
164
(continued)
24
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans, Continued
Loan balances classified by credit quality indicator, loan type and based on year of origination as of December 31, 2023 are as
follows:
Term Loans by Origination Year
(in thousands)
2023 2022 2021 2020 2019 Prior
Revolving
Loans Total
Commercial Real Estate Loans (1)
Pass .......................................................... $ 26,574 $ 59,554 $ 29,233 $ 40,719 $ 12,492 $ 36,045 $
2,045 $ 206,662
Special mention ........................................
-
-
-
-
-
1,767
-
1,767
Substandard ..............................................
-
-
-
-
-
-
-
-
Total commercial real estate loans ........... $ 26,574 $ 59,554 $ 29,233 $ 40,719 $ 12,492 $ 37,812 $
2,045 $ 208,429
Year-to-date gross charge-offs ................. $
- $
- $
- $
- $
- $
- $
- $
-
Residential and Home Equity Loans (1)
Pass .......................................................... $ 43,809 $ 55,374 $ 64,522 $ 31,339 $ 11,717 $ 30,253 $ 33,144 $ 270,158
Special mention ........................................
-
-
1,391
278
-
203
357
2,229
Substandard ..............................................
-
-
585
367
-
-
44
996
Total residential loans .............................. $ 43,809 $ 55,374 $ 66,498 $ 31,984 $ 11,717 $ 30,456 $ 33,545 $ 273,383
Year-to-date gross charge-offs ................. $
- $
- $
- $
- $
- $
- $
- $
-
Construction Loans (1)
Pass .......................................................... $ 34,896 $ 17,078 $ 12,563 $ 1,425 $ 1,611 $ 1,997 $
8,045 $ 77,615
Special mention ........................................
-
-
-
-
-
-
-
-
Substandard ..............................................
-
198
-
384
-
-
-
582
Total construction loans ........................... $ 34,896 $ 17,276 $ 12,563 $ 1,809 $ 1,611 $ 1,997 $
8,045 $ 78,197
Year-to-date gross charge-offs ................. $
- $
- $
- $
386 $
- $
- $
- $
386
Commercial Loans
Pass .......................................................... $ 12,024 $ 12,130 $ 7,247 $ 3,543 $ 4,823 $ 5,250 $ 40,064 $ 85,081
Special mention ........................................
24
-
-
45
-
32
-
101
Substandard ..............................................
-
-
-
36
-
-
765
801
Total commercial loans ............................ $ 12,048 $ 12,130 $ 7,247 $ 3,624 $ 4,823 $ 5,282 $ 40,829 $ 85,983
Year-to-date gross charge-offs ................. $
- $
- $
- $
- $
- $
1 $
- $
1
Consumer & Other Loans
Pass .......................................................... $ 1,317 $
688 $
275 $
122 $
348 $
176 $
3,010 $ 5,936
Special mention ........................................
-
-
-
-
-
-
-
-
Substandard ..............................................
-
-
-
-
-
-
-
-
Total consumer & other loans .................. $ 1,317 $
688 $
275 $
122 $
348 $
176 $
3,010 $ 5,936
Year-to-date gross charge-offs ................. $
46 $
- $
- $
- $
- $
- $
- $
46
(1) Certain loans as of December 31, 2023 have been reclassed to conform with current loan class presentation.
(continued)
25
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(3) Loans, Continued
Age analysis of past-due loans is as follows:
Accruing Loans
(in thousands)
30-59
Days
Past Due
60-89
Days
Past Due
Greater
Than 90
Days
Past Due
Total
Past Due Current
Nonaccrual
Loans
Total
Loans
At December 31, 2024:
Real estate mortgage loans:
Commercial ...................................... $
- $
- $
- $
- $ 214,477 $
54 $ 214,531
Residential and home equity ............
3,424
343
29
3,796 300,466
2,296 306,558
Construction .....................................
517
-
-
517
80,399
597
81,513
Commercial loans ................................
171
-
-
171
92,884
23
93,078
Consumer and other loans ....................
1
-
-
1
6,418
-
6,419
Total .............................................. $
4,113 $
343 $
29 $
4,485 $ 694,644 $
2,970 $ 702,099
At December 31, 2023:
Real estate mortgage loans:
Commercial ...................................... $
57 $
- $
- $
57 $ 208,372 $
- $ 208,429
Residential and home equity ............
3,792
492
1,110
5,394 267,036
953 273,383
Construction .....................................
648
-
-
648
76,967
582
78,197
Commercial loans ................................
18
318
-
336
84,847
800
85,983
Consumer and other loans ....................
28
-
-
28
5,908
-
5,936
Total .............................................. $
4,543 $
810 $
1,110 $
6,463 $ 643,130 $
2,335 $ 651,928
(continued)
26
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, 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 amortized cost basis of loans in
nonaccrual status and loans past due over 90 days and still on accrual by class of loans is as follows:
(in thousands)
Total
Nonaccrual
Loans
Nonaccrual
Loans with
No ACL
Nonaccrual
Loans with
ACL
90+ Days
Still
Accruing
At December 31, 2024:
Commercial .................................... $
54 $
54 $
- $
-
Residential and home equity ..........
2,296
2,117
179
29
Construction ...................................
597
597
-
-
Commercial ....................................
23
-
23
-
Total ........................................... $
2,970 $
2,768 $
202 $
29
At December 31, 2023:
Residential and home equity .......... $
953 $
953 $
- $
1,110
Construction ...................................
582
582
-
-
Commercial ....................................
800
36
764
-
Total ........................................... $
2,335 $
1,571 $
764 $
1,110
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 to borrowers experiencing financial difficulty
during the years ended December 31, 2024 and 2023.
The Company grants the majority of its loans to borrowers throughout Leon County and Polk 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)
27
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Allowance for Credit Losses
Activity in the ACL is summarized as follows:
Real Estate Mortgage Loans
(in thousands)
Commercial
Residential
and Home
Equity Construction
Commercial
Loans
Consumer
and Other
Loans Total
Unfunded
Commitments Total
Year Ended December 31, 2024
Beginning balance .......................... $
1,713 $
2,034 $
559 $
1,272 $
31 $ 5,609 $
- $ 5,609
Credit (income) loss expense ..........
(107 )
346
2
555
145
941
172 1,113
Charge-offs .....................................
-
-
-
(765 )
(164 ) (929 )
- (929 )
Recoveries ......................................
-
-
-
1
10
11
-
11
Ending balance ............................... $
1,606 $
2,380 $
561 $
1,063 $
22 $ 5,632 $
172 $ 5,804
Year Ended December 31, 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 .........................
150
319
424
510
47 1,450
- 1,450
Charge-offs .....................................
-
-
(386 )
(1 )
(46 ) (433 )
-
(433 )
Recoveries ......................................
-
-
2
44
7
53
-
53
Ending balance ............................... $
1,713 $
2,034 $
559 $
1,272 $
31 $ 5,609 $
- $ 5,609
(continued)
28
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) Premises and Equipment
A summary of premises and equipment follows:
At December 31,
(in thousands)
2024
2023
Land .................................................................................................. $
1,704 $
1,704
Buildings ..........................................................................................
5,111
5,111
Leasehold improvements ..................................................................
1,612
1,584
Furniture, fixtures and equipment ....................................................
2,471
2,438
Computer and software ....................................................................
3,999
3,720
Total, at cost..................................................................................
14,897
14,557
Less accumulated depreciation and amortization .............................
(7,777 )
(7,081 )
Premises and equipment, net ........................................................ $
7,120 $
7,476
Right of use lease assets and operating lease liabilities are disclosed as separate line items in the consolidated balance sheets and are
valued based on the present value of the future minimum lease payments at the commencement date. As our lease does not provide
an implicit rate, we used our incremental borrowing rate based on the information available at the adoption date in determining the
present value of future payments. Lease expense is recognized on a straight-line basis over the lease term.
The Company's operating lease obligation is for the Company's main office on Timberlane Road, Tallahassee, Florida. The term of
the lease is 15 years, with four options to renew for five years each. The lease is a fully net lease, with the Company separately
paying real and personal property taxes, all special and third-party assessments, common area maintenance charges, maintenance
costs and insurance expenses.
The components of lease expense and other lease information as of and during the years ended December 31, 2024 and 2023 are as
follows:
Years ended December 31,
(in thousands)
2024
2023
Operating lease cost.......................................................................... $
319 $
319
Cash paid for amount included in the measurement of operating
lease liability operating cash flows from operating lease ................. $
306 $
294
At December 31,
(dollars in thousands)
2024
2023
Operating lease right of use asset .................................................... $
2,597 $
2,823
Operating lease liability ...................................................................
2,799
3,013
Remaining lease term - (in years) ....................................................
9.6
10.6
Weighted average discount rate .......................................................
3.17 %
3.17 %
(continued)
29
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) Premises and Equipment, Continued
Future minimum lease payments under non-cancellable leases as of December 31, 2024, reconciled to our operating lease liability
presented on the consolidated balance sheet are as follows:
(in thousands)
At December 31, 2024
2025 ................................................................ $
323
2026 ................................................................
323
2027 ................................................................
323
2028 ................................................................
323
2029 ................................................................
337
Thereafter .......................................................
1,661
Total future minimum lease payments ........
3,290
Less interest ....................................................
(491 )
Total ............................................................ $
2,799
(6) Deposits
The aggregate amount of time deposits with a minimum denomination greater than $250,000 was approximately $62.2 million
and $40.5 million at December 31, 2024 and 2023, respectively.
A schedule of maturities for all time deposits at December 31, 2024 is as follows:
(in thousands)
Year Ending December 31,
Amount
2025 .................................................................. $
115,096
2026 ..................................................................
12,509
2027 ..................................................................
94
2028 ..................................................................
72
Thereafter .........................................................
438
Total .............................................................. $
128,209
(continued)
30
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) Federal Home Loan Bank Advances and Available Lines of Credit
Federal Home Loan Bank of Atlanta (³FHLB´) 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 $129.1 million at December 31, 2024.
FHLB advances as of December 31, 2024 and 2023 are as follows:
(dollars in thousands)
At December 31,
Maturity Year
Interest Rate
2024
2023
2024 .......................................
4.48%-4.83 % $
- $
10,000
2025 .......................................
4.18 %
5,000
5,000
Total ...................................
$
5,000 $
15,000
The Company has available credit of $64.0 million in lines of credit with correspondent banks. All draws under these lines are
subject to approval by the correspondent bank. There were no outstanding borrowings under these line at December 31, 2024 or
2023.
PMHG maintains a $15.0 million revolving line of credit with a local bank. PMHG has pledged all of the Bank's common stock as
collateral for the revolving line of credit which matures in August 2025 and bears interest at the Wall Street Journal Prime Rate.
There was a zero outstanding balance under this revolving line of credit at December 31, 2024 and 2023.
(continued)
31
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(8) Income Taxes
The components of the income taxes are as follows:
Year Ended December 31,
(in thousands)
2024
2023
Current:
Federal .......................................... $
2,255 $
2,434
State ..............................................
640
696
Total current ..............................
2,895
3,130
Deferred:
Federal ..........................................
(167 )
(305 )
State ..............................................
(46 )
(85 )
Total deferred ............................
(213 )
(390 )
Total income taxes ................. $
2,682 $
2,740
The reasons for the difference between the statutory Federal income tax rate and the effective tax rates are summarized as follows:
Year Ended December 31,
2024
2023
% of
% of
Pretax
Pretax
Amount Earnings
Amount Earnings
(dollars in thousands)
Income taxes at statutory rate ......................... $
2,346
21.0 % $
2,404
21.0 %
Increase (decrease) resulting from:
State taxes, net of federal tax benefit ..........
469
4.2
483
4.2
Tax-exempt income ....................................
(164 )
(1.5 )
(158 )
(1.4 )
Other nondeductible expenses ....................
31
0.3
11
0.1
Total ........................................................ $
2,682
24.0 % $
2,740
23.9 %
(continued)
32
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(8) Income Taxes, Continued
Tax effects of temporary differences that give rise to the deferred tax assets and liabilities are as follows:
At December 31,
2024
2023
(in thousands)
Deferred tax assets:
Allowance for credit losses ................................................. $
1,471 $
1,422
Stock-based compensation ..................................................
203
164
Deferred compensation ........................................................
308
262
Unrealized losses on debt securities available for sale ........
2,543
2,652
Operating lease liability .......................................................
709
764
Other ....................................................................................
12
12
Deferred tax assets ...........................................................
5,246
5,276
Deferred tax liabilities:
Prepaid Expenses .................................................................
(138 )
(143 )
Deferred loan costs ..............................................................
(695 )
(682 )
Premises and equipment ......................................................
(122 )
(206 )
Right of use lease asset ........................................................
(658 )
(716 )
Deferred tax liabilities .....................................................
(1,613 )
(1,747 )
Net deferred tax asset ....................................................... $
3,633 $
3,529
The Company files consolidated income tax returns in the U.S. federal jurisdiction and the State of Florida.
(continued)
33
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(9) 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 financial 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 consolidated financial instruments.
The Company¶s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unused lines
of credit, construction loans in process and standby financial 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 financial letters of credit are written conditional
commitments issued by the Company to guarantee the performance of a client to a third party. These standby financial 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 standby financial 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 financial letters of credit are secured by collateral and those secured standby financial letters of
credit totaled $804,000 at December 31, 2024.
Guaranteed accounts are irrevocable standby financial 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 financial letters of credit and commitments to extend credit typically result in loans with a market interest rate when funded.
A summary of the contractual amounts of the Company¶s financial instruments with off-balance sheet risk at December 31, 2024 is
as follows:
(in thousands)
At December 31, 2024
Commitments to extend credit ........................ $
8,143
Construction loans in process..........................
23,356
Unused lines of credit .....................................
79,046
Standby financial letters of credit ...................
2,273
Guaranteed accounts .......................................
1,276
Total off-balance sheet instruments ............. $
114,094
(continued)
34
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(10) Stock Compensation Plans
2015 Stock Incentive Compensation Plan
The 2015 Stock Incentive Compensation Plan (the ³2015 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, restricted stock and phantom stock. Under the 2015 Plan, the number 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, 2024, 347,957 stock options and 107,510 restricted stock awards have been granted under the 2015 Plan. At December 31,
2024, 130,993 options are available for grant. A summary of the activity in the Company¶s 2015 Plan is as follows:
Weighted-
Weighted-
Average
Average Remaining Aggregate
Number of Exercise Contractual
Intrinsic
Options
Price
Term
Value
Outstanding at December 31, 2022 .........
251,367 $
19.99
Options exercised ....................................
(19,217 )
(20.09 )
Options forfeited ......................................
(10,050 )
(28.40 )
Outstanding at December 31, 2023 .........
222,100
20.33
Options granted .......................................
25,000
28.59
Options exercised ....................................
(23,940 )
(20.09 )
Options forfeited ......................................
(25,220 )
(20.10 )
Outstanding at December 31, 2024 .........
197,940 $
21.44
2.1 $ 1,834,000
Exercisable at December 31, 2024 ..........
194,240 $
21.34
2.0 $ 1,819,000
The fair value of shares vested and recognized as compensation expense was $206,000 and $57,000 for the years ended December
31, 2024 and 2023, respectively. The Company recognized an income tax benefit with respect to share-based compensation of
$46,000 and $6,000, respectively, in December 31, 2024 and 2023. At December 31, 2024, there was $30,000 of total unrecognized
compensation expense related to non-vested share-based compensation arrangements granted under the 2015 Plan. The cost is
expected to be recognized over a weighted-average period of 2.5 years.
No stock options were granted during 2023. The fair value of each option granted in 2024 was estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
Year ended
December 31, 2024
Weighted average risk-free interest rate .......................
4.11% - 4.32 %
Expected dividend yield ................................................
0.25 %
Expected stock volatility ...............................................
34.82% - 37.87 %
Expected life in years ....................................................
1-5
Per share fair value of options issued during year ........
$4.60 - $10.79
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)
35
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(10) Stock Compensation Plans, Continued
Restricted Stock Issued under the 2015 Stock Incentive Plan
Restricted common stock shares granted are vested equally over the span of 3-5 years. Stockholders of unvested 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, 2022 ........
14,203 $
25.30 $
359,000
Non-vested restricted stock granted ...................................................
75,751 $
22.68 $
1,718,000
Forfeited .............................................................................................
(6,278 )
(23.42 )
(147,000 )
Restricted stock shares vested in 2023 ...............................................
(6,040 )
(24.06 )
(145,000 )
Non-vested restricted stock outstanding at December 31, 2023 ........
77,636 $
22.99 $
1,785,000
Non-vested restricted stock granted ...................................................
10,040 $
23.23 $
233,000
Forfeited .............................................................................................
(4,550 )
(22.74 )
(103,000 )
Restricted stock shares vested in 2024 ...............................................
(17,984 )
(23.26 )
(418,000 )
Non-vested restricted stock outstanding at December 31, 2024 ........
65,142 $
23.05 $
1,497,000
During the years ended December 31, 2024 and 2023, the Company recognized $439,000 and $244,000, respectively, as expense
and had $1,258,000 in unrecognized expense at December 31, 2024 to be recognized over a weighted-average period of 3.6 years.
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
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 OTCQX or a price set by the Board or its Compensation Committee, acting in good faith, but in no case less than
fair market value. In 2024 and 2023, the Board used the greater of quarter-end book value and quarter-end volume weighted average
market price to determine what the fair market value of Prime Meridian common stock was for purposes of the Directors¶ Plan. The
maximum number of shares to be issued pursuant to the Directors¶ Plan is limited to 74,805 shares. In 2024 and 2023, our directors
received 5,436 and 6,700 shares of common stock, respectively, in lieu of cash, under the Directors¶ Plan. The Company recognized
expense of $137,000 and $163,000 during the years ended December 31, 2024 and 2023, respectively, with respect to the Director¶s
Plan. As of December 31, 2024, there were 24,226 shares remaining available for grant.
(11) Employee Benefit Plans
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.
Contribution expense related to the plans for the years ended December 31, 2024 and 2023 was $318,000 and $278,000, respectively.
The Company has established non-qualified account balance deferred compensation plans to provide retirement benefits for certain
officers of the Company. The Company is recognizing the expense of these plans as services are rendered using a discount rate of
four percent and a retirement age of sixty-five. The Company¶s expense in connection with these plans was $181,000 and $242,000
for the years ended December 31, 2024 and 2023, respectively. The accrued liability related to these agreements was $1,215,000
and $1,034,000 at December 31, 2024 and 2023, respectively. Such amounts are included in other liabilities in the accompanying
consolidated balance sheets.
(continued)
36
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(12) 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:
Year Ended December 31,
(in thousands)
2024
2023
Loans:
Beginning balance .................................... $
6,972 $
7,224
Originated during the year ........................
775
1,694
Principal repayments ................................
(1,181 )
(1,946 )
Ending balance ......................................... $
6,566 $
6,972
Deposits at year-end ............................... $
12,485 $
14,690
In addition, the Company purchases various insurance policies through a company that employs the spouse of a Director. The
premiums paid totaled $2.0 million and $1.6 million in 2024 and 2023, respectively, and included health insurance premiums for
employees.
(13) Fair Value of Financial Instruments
The approximate carrying amounts and estimated fair values of the Company¶s financial instruments are as follows:
At December 31, 2024
At December 31, 2023
Carrying
Fair
Carrying
Fair
(in thousands)
Amount
Value
Amount
Value
Financial assets:
Cash and cash equivalents .............................. $
78,152 $
78,152 $
28,416 $
28,416
Debt securities available for sale ....................
89,983
89,983
124,475
124,475
Debt securities held to maturity ......................
15,276
13,663
11,850
10,358
Loans held for sale .........................................
6,491
6,595
5,288
5,371
Loans, net .......................................................
696,151
634,661
646,127
557,847
Federal Home Loan Bank stock .....................
836
836
1,283
1,283
Accrued interest receivable ............................
3,090
3,090
3,114
3,114
Bank owned life insurance .............................
17,347
17,347
16,921
16,921
Derivative contract assets ...............................
1,593
1,593
2,253
2,253
Financial liabilities:
Deposits ..........................................................
820,585
822,392
748,688
749,411
FHLB advances ..............................................
5,000
4,987
15,000
14,848
Derivative contract liabilities .........................
1,593
1,593
2,253
2,253
Off-Balance Sheet financial instruments ...........
-
-
-
-
(continued)
37
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(14) Dividend Restrictions
The Holding Company is limited in the amount of cash dividends it may declare and pay by the amount of capital it has retained and
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.
In January 2025, the Board of Directors declared an annual dividend of $1.00 per share of common stock payable on February 28,
2025 to shareholders of record as of February 7, 2025.
(continued)
38
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(15) 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.
The Bank is subject to the Basel III capital level threshold requirements under the Prompt Corrective Action regulations which
phased in full compliance over a multi-year schedule. 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 December 31, 2024, and 2023, the Bank¶s capital
conservation buffer exceeded the minimum requirement of 2.50%.
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, 2024, that the Bank meets
all capital adequacy requirements to which it is subject.
As of December 31, 2024, 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:
Actual
For Capital Adequacy
Purposes
For Well Capitalized
Purposes
(dollars in thousands)
Amount Percentage Amount Percentage Amount Percentage
As of December 31, 2024
Tier 1 Leverage ratio to Average Assets ...... $ 96,186
10.28 % $ 37,439
4.00 % $ 46,799
5.00 %
Common Equity Tier 1 Capital to Risk-
Weighted Assets .......................................
96,186
14.03
30,851
4.50
44,563
6.50
Tier 1 Capital to Risk-Weighted Assets .......
96,186
14.03
41,135
6.00
54,846
8.00
Total Capital to Risk-Weighted Assets ........ 101,990
14.88
54,846
8.00
68,558
10.00
As of December 31, 2023:
Tier 1 Leverage ratio to Average Assets ...... $ 86,576
10.15 % $ 34,133
4.00 % $ 42,666
5.00 %
Common Equity Tier 1 Capital to Risk-
Weighted Assets .......................................
86,576
13.18
29,566
4.50
42,706
6.50
Tier 1 Capital to Risk-Weighted Assets .......
86,576
13.18
39,421
6.00
52,561
8.00
Total Capital to Risk-Weighted Assets ........
92,185
14.03
52,561
8.00
65,702
10.00
(continued)
39
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(16) 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 consolidated financial statements. As of December 31, 2024, there is no pending or threatened
litigation of which management is aware.
(17) Earnings Per Share
Earnings per share (³EPS´) 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:
2024
2023
Weighted-
Per
Weighted-
Per
Average
Share
Average
Share
(dollars in thousands, except per share amounts) Earnings
Shares Amount Earnings
Shares Amount
Year Ended December 31,
Basic EPS:
Net earnings .......................................................... $
8,491 3,288,749 $
2.58 $
8,708 3,209,924 $
2.71
Effect of dilutive securities-incremental shares
from assumed conversion of options .................
51,965
41,156
Diluted EPS:
Net earnings .......................................................... $
8,491 3,340,714 $
2.54 $
8,708 3,251,080 $
2.68
(continued)
40
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(18) Derivatives
The Company has entered into interest rate swaps in order to provide commercial real estate loan clients with 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, is included in ³other assets´ and ³other
liabilities´ on the Company¶s consolidated balance sheets, and the net change in each of these financial statement line items in the
accompanying consolidated statements of cash flows. The derivative transactions are considered instruments with no hedging
designation, otherwise known as stand-alone derivatives.
At December 31,
2024
2023
(dollars in thousands)
Notional amount - interest rate swaps:
Stand-alone derivatives ................................................................. $
10,900 $
19,548
Weighted-average pay rate - interest rate swaps ...........................
3.63 %
3.68 %
Weighted-average receive rate - interest rate swaps ......................
3.00 %
3.00 %
Weighted-average maturity (in years) - interest rate swaps ...........
10.5
11.6
Net realized fair value adjustments:
Stand-alone derivatives - interest rate swaps (other assets) ........... $
1,593 $
2,253
Stand-alone derivatives - interest rate swaps (other liabilities) ..... $
(1,593 ) $
(2,253 )
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.
(continued)
41
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(19) Parent Company Only Financial Information
The Holding Company's unconsolidated financial information follows:
Condensed Balance Sheets
December 31,
2024
2023
(in thousands)
Assets
Cash ....................................................................... $
328 $
1,178
Investment in subsidiary .......................................
88,696
78,763
Other assets ...........................................................
31
35
Total assets ........................................................ $
89,055 $
79,976
Liabilities and Stockholders' Equity
Liabilities:
Other borrowings .................................................. $
- $
-
Accrued interest ....................................................
-
-
Total liabilities ...................................................
-
-
Stockholders' equity ..................................................
89,055
79,976
Total liabilities and stockholders' equity ........... $
89,055 $
79,976
Condensed Statements of Earnings
Year Ended December 31,
2024
2023
(in thousands)
Revenues .................................................................. $
- $
-
Expenses ..................................................................
(634 )
(698 )
Income tax benefit ...................................................
160
177
Loss before earnings of subsidiary .......................
(474 )
(521 )
Net earnings of subsidiary .......................................
8,965
9,229
Net earnings ......................................................... $
8,491 $
8,708
42
PRIME MERIDIAN HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(19) Parent Company Only Financial Information, Continued
Condensed Statements of Cash Flows
Year Ended December 31,
(in thousands)
2024
2023
Cash flows from operating activities:
Net Earnings ............................................................................................................................ $
8,491 $
8,708
Adjustments to reconcile net earnings to net cash used in operating activities:
Equity in earnings of subsidiary ...........................................................................................
(8,965 )
(9,229 )
Stock issued as compensation ..............................................................................................
137
163
Net change in other assets ....................................................................................................
4
(5 )
Decrease in accrued interest .................................................................................................
-
(31 )
Net cash used in operating activities .................................................................................
(333 )
(394 )
Cash flows from investment activities-
Cash dividend received from bank subsidiary ......................................................................
-
6,000
Cash flows from financing activities:
Net change in other borrowings ...........................................................................................
-
(4,275 )
Common stock repurchase ...................................................................................................
(180 )
-
Cash dividend paid ...............................................................................................................
(818 )
(698 )
Proceeds from stock options exercised .................................................................................
481
341
Net cash used in financing activities .................................................................................
(517 )
(4,632 )
Net (decrease) increase in cash ................................................................................................
(850 )
974
Cash at beginning of the year ...................................................................................................
1,178
204
Cash at end of year ................................................................................................................... $
328 $
1,178
Supplemental disclosure of cash flow information-
Noncash items:
Net change in accumulated other comprehensive loss of subsidiary, net change in
unrealized loss on debt securities available for sale, net of taxes .................................. $
323 $
2,162
Stock-based compensation expense of subsidiary ............................................................ $
645 $
301
2024 BY THE NUMBERS (dollars in millions)
$100.9
$923.8
MARKET CAPITALIZATION
TOTAL ASSETS
$820.6
$702.1
GROSS LOAN BALANCES
(YEAR-OVER-YEAR INCREASE OF 7.7%)
$27.09
62.0%
BOOK VALUE PER SHARE AS OF DEC. 31, 2024
(INCREASE OF 10.4% OVER Q4 2023)
EFFICIENCY RATIO
TOTAL DEPOSITS
(YEAR-OVER-YEAR INCREASE OF 9.6%)
2024 NET INCOME
$8.5
NET INCOME ($ in 000s)
Source: S&P Global and internal company documents
(All data as of December 31, 2024 unless otherwise indicated)
$2.1
NONINTEREST INCOME
(YEAR-OVER-YEAR INCREASE OF 11.6%)