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Section 1: 8-K (FORM 8-K)

pmhg20190729_8k.htm

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 8-K

 

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported) August 3, 2020

 

 

 

PRIME MERIDIAN HOLDING COMPANY 

(Exact name of registrant as specified in its charter)

 

 

 

Florida

333-191801

27-2980805

(State or other jurisdiction of incorporation)

(Commission file number)

(IRS employer identification no.)

 

1471 Timberlane Road Tallahassee, FL

32312

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (850907-2300

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1933 (§240.12b-2 of this chapter)

 

Emerging growth company            ☐

 

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

 

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

 

Title of each class

Trading Symbol(s) Name of exchange on which registered
None N/A N/A

 

 

 

 

Item 2.02.    Results of Operations and Financial Condition.

 

On August 3, 2020, Prime Meridian Holding Company issued a press release announcing financial results for the three and  six-month period ended June 30, 2020. A copy of the press release is attached as Exhibit 99.1 to this Form 8-K.

 

Item 9.01     Financial Statements and Exhibits.

 

     (d)     Exhibits.
     
       99.1                 Press release dated August 3, 2020

          

The information in this report (including the exhibits) shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

 

SIGNATURE

 

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

 

 

PRIME MERIDIAN HOLDING COMPANY

 

 

 

 

 

 

 

By:

/s/ Clint F. Weber

 

 

Clint F. Weber

 

 

Chief Financial Officer and

Executive Vice President

 

Date: August 3, 2020

 
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Section 2: EX-99.1 (EXHIBIT 99.1)

ex_156525.htm

Exhibit 99.1

 

 

 

FOR IMMEDIATE RELEASE

 

Prime Meridian Holding Company Reports

SECOND Quarter 2020 Results

 

TALLAHASSEE, FL – August 3, 2020 (GLOBE NEWSWIRE) – Prime Meridian Holding Company (OTCQX: PMHG), the parent bank holding company for Prime Meridian Bank, today announced unaudited financial results for the quarter ended June 30, 2020. The Company reported net earnings of $720,000, or $0.23 per basic and diluted share, for the quarter ended June 30, 2020 compared to net earnings of $764,000 or $0.24 per basic and diluted share, for the quarter ended June 30, 2019.  For the six months ended June 30, 2020, the Company reported net earnings of $1,436,000, or $0.45 per basic and diluted share, compared to net earnings of $1,631,000 or $0.52 per basic and diluted share, for the six months ended June 30, 2019.

 

The Bank continued to work closely with clients and their businesses throughout the second quarter to help them navigate the financial impacts of COVID-19, partial shutdowns and related challenges. “The Paycheck Protection Program (PPP) was instrumental in helping businesses sustain their operations,” said Sammie D. Dixon, Jr., Vice Chairman, President and CEO of Prime Meridian Bank.   Dixon credits his team’s adept handling of PPP for the abundance of community goodwill generated, which translated to new client relationships and strengthening of existing ones. “The infusion of 855 SBA-backed PPP loans totaling $81.5 million to our local economies enabled many to maintain workers and remain viable,” he continued. "Approximately 84% of these loans are less than $150,000, " he added.

 

According to Dixon, though the Bank is seeing pressure on cash flows in certain loan sectors, including hospitality, it is currently not experiencing significant widespread deterioration in its loan portfolio. “We are closely monitoring all loan sectors, particularly those with loans that are under payment modification,” he said. “As we move into the third quarter, we traditionally see increases in seasonal activities and spending (ie: college football, fall travel, etc.) in the Tallahassee and Lakeland markets.”  Dixon acknowledges, though, it is still too early to know how this will unfold.  “A lot depends on how local and state ordinances -- designed to address COVID-19 -- will impact our markets,” he said.

The Bank’s mortgage department continues to perform well, especially in Leon County, where it ranks first in dollar volume and second in number of mortgages originated, for the first six months of 2020 according to Metro Market Trends reporting.  Comparing the six-month period ended June 30, 2020 to the same period in 2019, mortgage banking revenue stood at $367,000 – a 21.1% increase.

Dixon maintained that, “If we look at our total performance since year-end, or compare it with the same period year-over-year, the numbers reveal the underlying strength of the Company and real value creation for all stakeholders.” He added the Company maintains ample access to capital resources. “I am as excited as I’ve ever been at the opportunities ahead,” he continued. “We remain cautiously optimistic as we move toward a post-COVID-19 economy.”

 

Second Quarter 2020 Highlights

 

Financial Highlights - Prime Meridian Holding Company and Subsidiary (Unaudited)

(dollars in thousands except per share amounts)

   

2Q'20

   

1Q'20

   

4Q'19

   

3Q'19

   

2Q'19

 

Net earnings

  $ 720     $ 716     $ 947     $ 964     $ 764  

Book value per share

  $ 18.30     $ 17.88     $ 17.51     $ 17.25     $ 16.85  

Earnings per share - Basic

  $ 0.23     $ 0.22     $ 0.29     $ 0.31     $ 0.24  

Earnings per share - Diluted

  $ 0.23     $ 0.22     $ 0.29     $ 0.31     $ 0.24  

Weighted-average basic shares outstanding

    3,116,307       3,183,857       3,190,933       3,147,696       3,144,068  

Weighted-average diluted shares outstanding

    3,116,370       3,185,558       3,195,793       3,151,321       3,150,136  

Return on average assets(1)

    0.47 %     0.56 %     0.75 %     0.83 %     0.70 %

Return on average equity(1)

    5.09       5.09       6.84       7.14       5.85  

Average yield on earning assets(1)

    3.59       4.17       4.17       4.48       4.49  

Net interest margin(1)

    3.07       3.42       3.36       3.63       3.66  

Efficiency ratio(2)

    56.57       65.14       60.40       65.03       71.52  

Nonperforming assets/total assets(3)

    0.33       0.57       0.52       0.54       0.44  

 

(1) Ratio has been annualized

(2) Efficiency Ratio represents noninterest expense divided by the sum of net interest income plus noninterest income.

(3) Nonperforming assets include other real estate owned and loans greater than 90 days past due and exclude troubled debt restructuring loans (TDRs). 

 

•  During the second quarter, the Company originated and funded 855 loans, or $81.5 million, in Paycheck Protection Program ("PPP") loans offered through the Small Business Administration ("SBA").  Of this amount, approximately 373 loans, or $28.2 million, were originated with new clients.

•  Adjusted pre-tax, pre-provision net earnings for the second quarter were $2.2 million and adjusted pre-tax, pre-provision annualized returns on average assets and average common equity were 1.40% and 15.30%, respectively. (These are considered non-GAAP financial measures.  Please refer to "Non-GAAP Measures and Ratio Reconciliation" in the Tables on pages 11-12 for more detail.) 

•  The provision for loan losses for the second quarter of 2020 was substantially higher than prior periods at $1.2 million, with $686,000 in net charge-offs for the quarter and $236,000 placed in unallocated reserves to account for potential COVID-19 related credit deterioration. The charge-offs during the quarter consisted of six loans, were centered in the general Commercial and Industrial category, and were unrelated to the COVID-19 pandemic.

•  Bank capital remained strong with a Tier 1 Leverage Capital Ratio of 8.99%.  The Company ended the quarter with a well-positioned balance sheet reflecting solid interest rate risk management, strong liquidity, and the ability to access other capital sources if needed.

 

 
1

COVID-19 Response

 

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets and significantly increased unemployment levels.  The extent to which the COVID-19 pandemic impacts our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments and the duration of the pandemic and actions taken by governmental authorities to slow the spread of the disease and mitigate its economic impact.

 

The Company took actions during the first and second quarters to prepare its employees, support its clients, and help its communities.   In mid-March, the Company closed its lobbies to foot traffic, making them available by appointment only.  At the same time, the Company moved to a split-staff schedule to decrease the number of employees in an office and enhanced its cleaning and disinfecting procedures.  Meetings of more than ten people transitioned to virtual or online platforms and clients have the option to sign documents electronically.  As of the date of this earnings release, the State of Florida was in Phase Two of Governor DeSantis' reopening plan for the state which became effective June 5, 2020.  The Bank has reopened its lobbies, but continues to follow guidance from the Centers for Disease Control ("CDC") and the Florida Department of Health in best practices for maintaining a healthy work environment.  

 

The Company is supporting small business owners by making PPP loans. As of June 30, 2020, the Bank had originated $81.5 million in PPP loans.  These loans are 100% guaranteed by the SBA. The Company has the option of funding PPP loans through the Federal Reserve's Paycheck Protection Program Lending Facility (the "PPPLF"). Loans pledged to secure PPPLF advances are excluded from the calculations of the Bank's regulatory capital ratios.  The Company funded $51.1 million under the PPPLF during the quarter, but elected to prepay these borrowing tranches before June 30th using excess liquidity. The Company maintains its access to the PPPLF, along with its other borrowing sources, if needed. 

 

Management believes credit quality deterioration directly related to the pandemic could materialize in the future. As of June 30, 2020, the Company had accommodated 70 requests for payment deferrals or modifications on loans totaling $42.4 million, or 11.5% of the Bank’s portfolio loans, excluding PPP loans.  Approximately 88.9% of the requests were for loans secured with real estate.  Since quarter end, 25 loans totaling $7.8 million have reverted back to original pre-modification terms and are being paid as agreed.  Seven loans totaling $9.5 million have been approved for a second payment deferral/modification in the 3rd quarter, and the remaining 38 loans are either being paid within modified terms or their payments were originally deferred until the middle of the 3rd quarter.  The tables below give more detail on loan modification activity and PPP loan originations through June 30, 2020.

 

Loan Deferral Requests 

June 30, 2020

(dollars in thousands)

 

                                                              Percent  
                      Average                       Full       Weighted       of  
   

Number of

   

Dollar

   

Balance

   

Interest

   

Interest

   

Payment

   

Average

   

Total Loan

 
    Loans     Amount Loans     Loans     Only     Only     Deferral     LTV Loans     Collateral  

Collateral or Loan Type

 

Modified

   

Modified

   

Modified

   

3 Months

   

4-6 Months

   

3 Months

   

Modified

   

or Type

 

1-4 family owner occupied

    15     $ 7,558     $ 504     $ -     $ -     $ 7,558       75.0 %     17.8 %
                                                                 

1-4 family non-owner occupied

    9       3,035       337       948       167       1,920       67.0       7.1  
                                                                 

CRE owner occupied

    13       10,730       825       -       -       10,730       61.0       25.3  
                                                                 

CRE non-owner occupied

    9       16,407       1,823       -       1,737       14,670       62.0       38.7  
                                                                 

Commercial & Industrial

    15       3,898       260       417       672       2,809       N/A       9.2  
                                                                 

Construction/Land

    7       781       112       23       -       758       47.0       1.8  
                                                                 

Consumer

    2       29       15       29       -       -       N/A       0.1  

Total

    70     $ 42,438     $ 606     $ 1,417     $ 2,576     $ 38,445       -       100.0 %

 

 

PPP Loans by Industry

June 30, 2020

(dollars in thousands)

                         
   

Total

   

Avg. Loan

   

% of

 

Category

 

Balance

   

Balance

   

Total

 

Hospitality

  $ 6,368     $ 75       7.8 %

Real estate services and construction

    13,033       72       16.0  

Wholesale and retail trade and manufacturing

    10,861       88       13.3  

Financial, professional, and information services

    23,234       113       28.5  

Administrative, religious and other services

    16,334       86       20.1  

Healthcare services

    11,621       168       14.3  

TOTAL

  $ 81,451     $ 95       100.0 %

 

 

 

 

2

 

Earnings Summary (Unaudited)

(dollars in thousands)

 

                           

Change 2Q'20 vs.

 
   

2Q'20

   

1Q'20

   

2Q'19

   

1Q'20

   

2Q'19

 

Net interest income

  $ 4,569     $ 4,143     $ 3,759       10.3 %     21.5 %

Provision for loan losses

    1,227       636       179       92.9       585.5  

Noninterest income

    414       367       412       12.8       0.5  
Noninterest expense     2,819       2,938       2,983       (4.1 )     (5.5 )

Income taxes

    217       220       245       (1.4 )     (11.4 )

Net earnings

  $ 720     $ 716     $ 764       0.6 %     (5.8 )%

 

On a linked quarter basis, the Company’s performance during the second quarter of 2020 benefitted from growth in both net interest income and noninterest income, driven primarily by interest and fees on the $81.5 million in PPP loans booked in the second quarter and strong performance in our mortgage banking area.  Also contributing to earnings was a 4.1% decrease in noninterest expense and a 1.4% decrease in income tax expense.  Offsetting these positive net income drivers was a $1.2 million provision for loan losses. 

 

Compared to the same period a year ago, the decrease in the Company's second quarter net income is primarily attributed to a $1.0 million increase in the provision for loan losses, despite a 21.5% increase in net interest income, a 5.5% decrease in noninterest expense, and an 11.4% decrease in income tax expense. 

 

 

   

Six Months Ended

                 
   

June 30, 2020

   

June 30, 2019

   

$ Change

   

% Change

 

Net interest income

  $ 8,712     $ 7,446     $ 1,266       17.0 %

Provision for loan losses

    1,863       344       1,519       441.6  

Noninterest income

    781       737       44       6.0  

Noninterest expense

    5,757       5,689       68       1.2  

Income taxes

    437       519       (82 )     (15.8 )

Net income

  $ 1,436     $ 1,631     $ (195 )     (12.0 )%

 

Comparing the six-month periods, the $1.5 million increase in the provision for loan losses offset growth in net interest income and noninterest income and a 15.8% decrease in income tax expense.  

 

Interest income (Unaudited)

(dollars in thousands)

 

                           

Change 2Q'20 vs.

 
   

2Q'20

   

1Q'20

   

2Q'19

   

1Q'20

   

2Q'19

 

Interest income:

                                       

Loans

  $ 4,844     $ 4,429     $ 3,916       9.4 %     23.7 %

Securities

    428       384       333       11.5       28.5  

Other

    62       232       361       (73.3 )     (82.8 )

Total interest income

  $ 5,334     $ 5,045     $ 4,610       5.7 %     15.7 %

 

On a linked quarter basis, the 5.7% increase in total interest income was driven by interest income and fees on PPP originations, totaling $392,000 in the second quarter.  The increase in interest income from securities is attributed to higher average balances and a $56,000 discount accreted to interest income after a corporate bond was called in April, 2020. The decrease in other interest income is attributed to lower yields on federal funds sold and deposits with other banks.  Without the PPP loan activity during the second quarter, total interest income would have been down slightly on a linked quarter basis, primarily due to decreased average loan yields.

 

Compared to the second quarter of 2019, the 15.7% increase in total interest income is mostly attributed to loan growth, with average loan balances increasing $129.8 million, or 43.6%.  More than half of the loan growth came from PPP loan originations in the second quarter of 2020.  Partially offsetting this loan growth were lower yields on loans, federal funds sold and deposits with banks as the Federal Reserve has cut rates five times since June 30, 2019.

 

   

Six Months Ended

                 
   

June 30, 2020

   

June 30, 2019

   

$ Change

   

% Change

 

Interest income:

                               

Loans

  $ 9,273     $ 7,772     $ 1,501       19.3 %

Securities

    812       629       183       29.1  

Other

    294       709       (415 )     (58.5 )

Total interest income

  $ 10,379     $ 9,110     $ 1,269       13.9 %

 

Comparing the six-month period ended June 30, 2020 to the same period a year ago, growth in total interest income was driven by a higher volume of loans and securities, partially offset by lower yields across most interest-earning asset categories. 

 

 

 

3

 

Interest expense (Unaudited)

(dollars in thousands)

 

                           

Change 2Q'20 vs.

 
   

2Q'20

   

1Q'20

   

2Q'19

   

1Q'20

   

2Q'19

 

Total interest expense

  $ 765     $ 902     $ 851       (15.2 )%     (10.1 )%

 

Despite higher balances of interest-bearing liabilities, total interest expense declined $137,000 from the first quarter of 2020 and $86,000 from the second quarter of 2019.  Management strategically reduced rates in the fourth quarter of 2019 following three interest rate cuts by the Federal Reserve in the second half of 2019.  This effort continued into the first half of 2020 and was accelerated after the Federal Reserve cut its benchmark interest rate twice in the month of March, both in emergency meetings scheduled in response to the growing global coronavirus pandemic. Average interest-bearing deposit costs have decreased 43 basis points since the second quarter of 2019.

 

   

Six Months Ended

                 
   

June 30, 2020

   

June 30, 2019

   

$ Change

   

% Change

 

Total interest expense

  $ 1,667     $ 1,664     $ 3       0.2 %

 

Looking at the six-month periods, total interest expense stayed relatively flat as the effect of higher average balances of interest-bearing liabilities and lower rates offset one another.

 

Margin Analysis (Unaudited)

(dollars in thousands)

   

2Q'20

   

1Q'20

   

2Q'19

 
           

Interest

                 

Interest

                   

Interest

         
   

Average

   

and

 

Yield/

   

Average

   

and

   

Yield/

   

Average

   

and

   

Yield/

 
   

Balance

   

Dividends

 

Rate

   

Balance

   

Dividends

   

Rate

   

Balance

   

Dividends

   

Rate

 

Interest-earning assets:

                                                                     

Loans(1)

  $ 427,902     $ 4,745     4.44 %   $ 352,421     $ 4,363       4.95 %   $ 298,058     $ 3,834       5.15 %

Loans held for sale

    9,788       99     4.05       6,051       66       4.36       6,957       82       4.71  

Debt securities available for sale

    68,014       428     2.52       63,583       384       2.42       50,943       333       2.61  

Other(2)

    89,217       62     0.28       62,157       232       1.49       54,650       361       2.64  

Total interest-earning assets

    594,921     $ 5,334     3.59 %     484,212     $ 5,045       4.17 %     410,608     $ 4,610       4.49 %

Noninterest-earning assets

    21,749                     26,021                       25,684                  

Total assets

  $ 616,670                   $ 510,233                     $ 436,292                  
                                                                       

Interest-bearing liabilities:

                                                                     

Savings, NOW and money-market deposits

  $ 311,237     $ 412     0.53 %   $ 277,254     $ 544       0.78 %   $ 242,815     $ 597       0.98 %

Time deposits

    67,287       325     1.93       69,906       355       2.03       48,573       254       2.09  

Total interest-bearing deposits

    378,524       737     0.78       347,160       899       1.04       291,388       851       1.17  

Other borrowings

    33,129       28     0.34       1,273       3       0.94       34       -       -  

Total interest-bearing liabilities

    411,653       765     0.74 %     348,433       902       1.04 %     291,422     $ 851       1.17 %

Noninterest-bearing deposits

    140,234                     99,857                       87,077                  

Noninterest-bearing liabilities

    8,220                     5,690                       5,545                  

Stockholders' equity

    56,563                     56,253                       52,248                  

Total liabilities and stockholders' equity

  $ 616,670                   $ 510,233                     $ 436,292                  
                                                                       

Net earning assets

  $ 183,268                   $ 135,779                     $ 119,186                  

Net interest income

          $ 4,569                   $ 4,143                     $ 3,759          

Interest rate spread (3)

                  2.85 %                     3.13 %                     3.32 %

Net interest margin (4)

                  3.07 %                     3.42 %                     3.66 %

 

(1)   Includes nonaccrual loans

(2)    Other interest-earning assets include federal funds sold, interest-bearing deposits and Federal Home Loan Bank stock.

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

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

 

 

Dilution from the PPP loans contributed materially to the quarter's lower net interest margin as these loans are yielding 2.53%, inclusive of recognized fees and costs. In addition, the full quarter impact of the Federal Reserve's actions in March became evident in the Company's net interest margin in the second quarter of 2020.  Subtracting out the impact of the PPP loans, the Company's adjusted average loan yield was 4.76%, compared to 4.95% on a linked quarter basis. (Please refer to "Non-GAAP Measures and Ratio Reconciliation" in the Tables on pages 11-12 for more detail). Looking forward, management expects fluctuations in its net interest margin, in part, due to the uncertain timing of PPP loans exiting the balance sheet.

 

Provision for Loan Losses

 

The provision for loan losses for the quarter and six months ended June 30, 2020 increased substantially over the same periods in 2019.  The Company took $686,000 in net charge-offs during the second quarter of 2020 and $1.0 million in net charge-offs for the first six months of 2020. These charge-offs were unrelated to the COVID-19 pandemic.  The charge-offs, in conjunction with an increase in general and specific reserves and a $236,000 addition to unallocated reserves in anticipation of possible COVID-19 related credit deterioration, resulted in the large increase in the provision in the second quarter. 

 

4

Noninterest income (Unaudited)

(dollars in thousands)

 

                           

Change 2Q'20 vs.

 
   

2Q'20

   

1Q'20

   

2Q'19

   

1Q'20

   

2Q'19

 

Service charges and fees on deposit accounts

  $ 44     $ 64     $ 68       (31.3 )%     (35.3 )%
Debit card/ATM revenue, net     79       81       64       (2.5 )     23.4  

Mortgage banking revenue

    219       148       197       48.0       11.2  

Income from bank-owned life insurance

    40       40       45       -       (11.1 )

Other income

    32       34       38       (5.9 )     (15.8 )

Total noninterest income

  $ 414     $ 367     $ 412       12.8 %     0.5 %

 

On a linked quarter basis, the increase in total noninterest income was driven by a $71,000 increase in mortgage banking revenue.  This was partially offset by a $20,000 decrease in service charges and fees on deposit accounts.

 

Compared to the second quarter of 2019, increases in debit card/ATM net revenue and mortgage banking revenue were offset by declines in service charges and fees on deposit accounts, income from bank-owned life insurance and other income, leaving total noninterest income relatively flat with the second quarter of last year.  

 

   

Six Months Ended

                 
   

June 30, 2020

   

June 30, 2019

   

$ Change

   

% Change

 

Service charges and fees on deposit accounts

  $ 108     $ 139     $ (31 )     (22.3 )%
Debit card / ATM revenue, net     160       126       34       27.0  

Mortgage banking revenue

    367       303       64       21.1  

Income from bank-owned life insurance

    80       90       (10 )     (11.1 )

Gain on sale of securities available for sale

    -       7       (7 )     N/A  

Other income

    66       72       (6 )     (8.3 )

Total noninterest income

  $ 781     $ 737     $ 44       6.0 %

 

Comparing the six-month period ended June 30, 2020 to 2019, increases in the two most important noninterest income drivers (debit card/ATM net revenue and mortgage banking revenue) were partially offset by declines in other noninterest income categories.  The most notable decline was in service charges and fees on deposit accounts.  

 

Noninterest expense (Unaudited)

(dollars in thousands)

 

                           

Change 2Q'20 vs.

 
   

2Q'20

   

1Q'20

   

2Q'19

   

1Q'20

   

2Q'19

 

Salaries and employee benefits

  $ 1,546     $ 1,618     $ 1,579       (4.4 )%     (2.1 )%

Occupancy and equipment

    381       338       427       12.7       (10.8 )

Professional fees

    83       91       106       (8.8 )     (21.7 )

Marketing

    100       201       194       (50.2 )     (48.5 )

FDIC Assessment

    67       52       44       28.8       52.3  

Software maintenance, amortization and other

    201       193       167       4.1       20.4  

Other

    441       445       466       (0.9 )     (5.4 )

Total noninterest expense

  $ 2,819     $ 2,938     $ 2,983       (4.1 )%     (5.5 )%

 

On a linked quarter basis, a $72,000 decline in salaries and employee benefits and a $101,000 decline in marketing expense were the two key drivers of the 4.1% decrease in total noninterest expense.  The significant decrease in marketing expenses can be attributed to the COVID-19 pandemic and the limitation on in-person gatherings. Sponsored events, client appreciation events, and business development activity were all suspended in the second quarter.  The decline in salaries and employee benefits is attributed to a higher level of PPP-related deferred loan origination costs which offset increases in salaries and commissions.  The $43,000 increase in occupancy expense is attributed to the completion of leasehold improvements at the Timberlane office and its subsequent amortization, along with higher depreciation expense of FF&E and computer equipment.  

 

Compared to the second quarter of 2019, salaries and employee benefits show a decline due to higher deferred loan origination costs in the second quarter of 2020, driven by PPP loan originations.  Occupancy and equipment expense declined 10.8% from the second quarter of 2019, in part because the Company expensed approximately $69,000 in non-recurring occupancy costs related to the opening of the Lakeland office in the second quarter of 2019.  Marketing costs are down significantly due to the COVID-19 pandemic and the suspension of most group activities in the second quarter of 2020. In addition, the Company had large marketing expenditures associated with the opening of our Lakeland office in the second quarter of 2019 compared to the second quarter of 2020, also explaining the decrease in marketing expenses.

 

   

Six Months Ended

                 
   

June 30, 2020

   

June 30, 2019

   

$ Change

   

% Change

 

Salaries and employee benefits

  $ 3,164     $ 3,136     $ 28       0.9 %

Occupancy and equipment

    719       702       17       2.4  

Professional fees

    174       183       (9 )     (4.9 )

Marketing

    301       393       (92 )     (23.4 )

FDIC assessment

    119       87       32       36.8  

Software maintenance, amortization and other

    394       319       75       23.5  

Other

    886       869       17       2.0  

Total noninterest expense

  $ 5,757     $ 5,689     $ 68       1.2 %

 

Comparing the six-month periods, the $92,000 decrease in marketing expense (for reasons already discussed) offset increases in other areas, the most notable one being a $75,000 increase in software maintenance, amortization, and other.  The 36.8% increase in the FDIC assessment is calculated on the Company's increased deposit base, net of regulatory adjustments related to PPP activity. 

 

5

 

Balance Sheet

 

At June 30, 2020, the Company reported $602.2 million in total assets, $536.5 million in deposits, and $442.6 million in net portfolio loans. This compares to $500.9 million in total assets, $438.3 million in deposits, and $337.7 million in net portfolio loans at December 31, 2019. Loan growth occurred in all categories, with the exception of consumer loans which declined slightly, and was driven by the addition of $81.5 million in PPP loans.  Subtracting out PPP loans, commercial loans actually declined $1.8 million, or 2.6%, from December 31, 2019. During the second quarter of 2020, the Company utilized the Federal Reserve's PPPLF to help fund the PPP loans.  The Company borrowed $51.1 million during the quarter, but elected to prepay the PPPLF prior to June 30th with excess liquidity.  The composition of the Bank’s loan portfolio was as follows on the indicated dates:

 

Prime Meridian Holding Company and Subsidiary

Loans by Class

(dollars in thousands)

 

     

June 30, 2020

   

December 31, 2019

 
     

Unaudited

   

Audited

 
     

Amount

   

% of Total

   

Amount

   

% of Total

 

Commercial real estate

    $ 108,970       24.2 %   $ 94,728       27.7 %

Residential real estate and home equity

      141,932       31.6       135,913       39.8  

Construction

      42,142       9.4       33,583       9.8  
Commercial       149,437       33.2       69,770       20.4  
Consumer       7,186       1.6       7,631       2.3  

Total Loans

      449,667       100.0 %     341,625       100.0 %
                                   

Net deferred loan costs

      (1,845 )             499          

Allowance for loan losses

      (5,248 )             (4,414 )        

Loans, net

    $ 442,574             $ 337,710          

 

 

The $98.3 million increase in deposits since December 31, 2019 is attributed to increased market share, deposits associated with PPP loans, and conversion of new PPP clients to full banking relationships.  While management anticipates some shrinkage in deposits as PPP funds are spent, management expects the majority of this deposit increase will remain long-term.

 

As part of the Company's overall capital management plan, the Company initiated a share repurchase program of up to $2 million in the first quarter.  As of June 30, 2020, the Company had repurchased 82,784 shares at a weighted-average cost per share of $14.70 for a total of $1.2 million.  The share repurchase plan was suspended in late March and expired on June 30, 2020. If there are further significant declines in the Company’s stock price and shares become available, the Company will reconsider the merits of a repurchase program as part of its overall capital management plan

 

Total stockholders’ equity was $57.0 million, or 9.5% of total assets, at June 30, 2020 compared to $55.9 million at December 31, 2019, or 11.2% of total assets.  Increases in retained earnings and accumulated other comprehensive income were partially offset by the Company's $1.2 million share repurchase that was initiated toward the end of the first quarter.  Book value per share increased from $17.51 at December 31, 2019 to $18.30 at June 30, 2020, with 3,116,499 common shares outstanding.

 

As of June 30, 2020, the Bank was considered to be “well capitalized” with a Tier 1 Leverage Capital Ratio of 8.99%, a 13.80% Common Equity Tier 1 Capital Ratio, a 13.80% Tier 1 Risk-Based Capital Ratio, and a 15.05% Total Risk-Based Capital Ratio.  During the second quarter of 2020, the Company made a $4 million capital injection into the Bank and benefitted from favorable regulatory treatment of PPP loans pledged towards the Company's borrowings under the PPPLF.

 

Asset Quality

 

Loans totaling $1.9 million were deemed to be impaired under the Bank’s policy at June 30, 2020, while loans totaling $3.2 million were deemed to be impaired under the Bank’s policy at December 31, 2019.  At June 30, 2020, the Bank had eight nonaccrual loans in the aggregate amount of $1.8 million, compared to twelve nonaccrual loans totaling $2.6 million at December 31, 2019.  At June 30, 2020, the Company reported no loans greater than 90 days past due and accruing and $234,000 in other real estate owned. Net charge-offs, totaling $686,000 for the quarter ended June 30, 2020, were predominantly in the commercial loan category and were not related to the COVID-19 pandemic.  The commercial charge-off activity did result in an increase to the general reserve rate for commercial loans. With the charge-off activity, nonperforming assets as a percentage of total assets fell to 0.33%.  Management believes that the allowance for loan losses which was $5.2 million, or 1.42% of gross loans (excluding PPP loans), at June 30, 2020 is adequate.

 

About Prime Meridian Holding Company

 

Headquartered in Tallahassee, Florida, Prime Meridian Holding Company (OTCQX: PMHG) offers a broad range of banking services through its wholly owned subsidiary, Prime Meridian Bank, a Florida state-chartered non-member bank. Founded in 2008, the Bank now serves the Tallahassee and Lakeland/Winter Haven Metropolitan Statistical Areas (MSA), including clients in North and Central Florida as well as South Georgia and South Alabama. The Bank currently has four Florida locations: two in Tallahassee, Florida, one in Crawfordville, Florida, and one in Lakeland, Florida. As of June 30, 2020, the Bank had 89 full-time equivalent employees. For more information about Prime Meridian Holding Company, please visit www.primemeridianbank.com.

 

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “project,” “is confident that” and similar expressions are intended to identify these forward-looking statements. These forward-looking statements involve risk and uncertainty and a variety of factors could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. We do not have a policy of updating or revising forward-looking statements except as otherwise required by law, and silence by management over time should not be construed to mean that actual events are occurring as estimated in such forward-looking statements.

 

6

 

 

About Non-GAAP Financial Measures

 

Certain of the financial measures and ratios we present including "pre-tax, pre-provision (PTPP) operating earnings," "PTPP return on average common equity," "PTPP return on average assets," and "adjusted average loan yield" are supplemental measures that are not required by, or are not presented in accordance with, U.S. generally accepted accounting principles (GAAP). We refer to those financial measures and ratios as "non-GAAP financial measures." We consider the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results.

 

We believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing and comparing past, present, and future periods.

 

These non-GAAP measures should not be considered a substitute for financial information presented in accordance with GAAP and you should not rely on non-GAAP financial measures alone as measures of our performance. The non-GAAP financial measures we present may differ from non-GAAP financial measures used by our peers or other companies. We compensate for these limitations by providing the equivalent GAAP measures whenever we present the non-GAAP financial measures and by including a reconciliation of the impact of the components adjusted for in the non-GAAP financial measure so that both measures and the individual components may be considered when analyzing our performance. A reconciliation of non-GAAP financial measures is included at the end of the financial statement tables.

 

Tables Follow

7

 

 

Prime Meridian Holding Company and Subsidiary

Condensed Consolidated Statements of Earnings (Unaudited)

(in thousands except per share amounts)

 

   

2Q'20

   

1Q'20

   

4Q'19

   

3Q'19

   

2Q'19

 

Interest income:

                                       

Loans

  $ 4,844     $ 4,429     $ 4,237     $ 4,179     $ 3,916  

Securities

    428       384       342       338       333  

Other

    62       232       378       402       361  

Total interest income

    5,334       5,045       4,957       4,919       4,610  

Interest expense:

                                       

Deposits

    737       899       962       934       851  

Other borrowings

    28       3       4       5       -  

Total interest expense

    765       902       966       939       851  

Net interest income

    4,569       4,143       3,991       3,980       3,759  

Provision for loan losses

    1,227       636       546       241       179  

Net interest income after provision for loan losses

    3,342       3,507       3,445       3,739       3,580  
                                         

Noninterest income:

                                       

Service charges and fees on deposit accounts

    44       64       75       74       68  

Debit card/ATM revenue, net

    79       81       60       67       64  

Mortgage banking revenue

    219       148       213       151       197  

Income from bank-owned life insurance

    40       40       42       46       45  

Other income

    32       34       38       32       38  

Total noninterest income

    414       367       428       370       412  
                                         

Noninterest expense:

                                       

Salaries and employee benefits

    1,546       1,618       1,384       1,575       1,579  

Occupancy and equipment

    381       338       330       373       427  

Professional fees

    83       91       112       79       106  

Marketing

    100       201       178       172       194  

FDIC assessment

    67       52       26       6       44  

Software maintenance, amortization and other

    201       193       185       188       167  

Other

    441       445       454       436       466  

Total noninterest expense

    2,819       2,938       2,669       2,829       2,983  
                                         

Earnings before income taxes

    937       936       1,204       1,280       1,009  

Income taxes

    217       220       257       316       245  

Net earnings

  $ 720     $ 716     $ 947     $ 964     $ 764  
                                         

Basic earnings per share

  $ 0.23     $ 0.22     $ 0.29     $ 0.31     $ 0.24  
                                         

Diluted earnings per share

    0.23       0.22       0.29       0.31       0.24  

 

8

 

 

Prime Meridian Holding Company and Subsidiary

Condensed Consolidated Statements of Earnings 

(in thousands, except per share amounts)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 
   

Unaudited

   

Unaudited

 

Interest income:

                               

Loans

  $ 4,844     $ 3,916     $ 9,273     $ 7,772  

Securities

    428       333       812       629  

Other

    62       361       294       709  

Total interest income

    5,334       4,610       10,379       9,110  

Interest expense:

                               

Deposits

    737       851       1,636       1,664  

Other borrowings

    28       -       31       -  

Total interest expense

    765       851       1,667       1,664  

Net interest income

    4,569       3,759       8,712       7,446  

Provision for loan losses

    1,227       179       1,863       344  

Net interest income after provision for loan losses

    3,342       3,580       6,849       7,102  

Noninterest income:

                               

Service charges and fees on deposit accounts

    44       68       108       139  

Debit card/ATM revenue, net

    79       64       160       126  

Mortgage banking revenue

    219       197       367       303  

Income from bank-owned life insurance

    40       45       80       90  

Gain on sale of securities available for sale

    -       -       -       7  

Other income

    32       38       66       72  

Total noninterest income

    414       412       781       737  

Noninterest expense:

                               

Salaries and employee benefits

    1,546       1,579       3,164       3,136  

Occupancy and equipment

    381       427       719       702  

Professional fees

    83       106       174       183  

Marketing

    100       194       301       393  

FDIC assessment

    67       44       119       87  

Software maintenance, amortization and other

    201       167       394       319  

Other

    441       466       886       869  

Total noninterest expense

    2,819       2,983       5,757       5,689  

Earnings before income taxes

    937       1,009       1,873       2,150  

Income taxes

    217       245       437       519  

Net earnings

  $ 720     $ 764     $ 1,436     $ 1,631  
                                 

Earnings per common share:

                               

Basic

  $ 0.23     $ 0.24     $ 0.45     $ 0.52  

Diluted

    0.23       0.24       0.45       0.52  

Cash dividends per common share(1)

    -       -       0.12       0.12  

 

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

 

9

 

 

Prime Meridian Holding Company and Subsidiary

Condensed Consolidated Balance Sheets

(in thousands)

 

   

2Q'20

   

1Q'20

   

4Q'19

   

3Q'19

   

2Q'19

 
   

(Unaudited)

   

(Unaudited)

   

(Audited)

   

(Unaudited)

   

(Unaudited)

 

Assets

                                       

Cash & cash equivalents

  $ 62,307     $ 72,677     $ 75,082     $ 84,278     $ 72,042  

Debt securities available for sale

    66,898       70,976       61,333       55,773       52,431  

Loans, held for sale

    8,949       8,946       6,193       7,907       6,223  

Loans, net

    442,574       362,436       337,710       315,807       299,949  

Federal Home Loan Bank stock

    493       493       404       404       404  

Premises & equipment, net

    8,187       8,072       7,744       7,787       7,311  

Right of use lease asset

    3,568       3,619       3,669       3,719       3,768  

Accrued interest receivable

    1,723       1,273       1,137       1,073       1,100  

Bank-owned life insurance

    6,581       6,541       6,501       6,459       6,413  
Other real estate owned     234       234       -       -       -  

Other assets

    658       850       1,088       859       1,086  

Total Assets

  $ 602,172     $ 536,117     $ 500,861     $ 484,066     $ 450,727  
                                         
                                         

Liabilities and Stockholders' Equity

                                       
Liabilities:                                        

Noninterest-bearing demand deposits

  $ 146,542     $ 106,176     $ 96,807     $ 96,732     $ 89,608  

Savings, NOW and money-market deposits

    323,523       297,991       272,283       265,518       247,804  

Time deposits

    66,449       70,116       69,174       58,947       52,912  

Total Deposits

    536,514       474,283       438,264       421,197       390,324  

Other borrowings

    -       -       1,254       2,053       770  

Official checks

    3,373       1,391       606       900       1,496  

Operating lease liability

    3,669       3,714       3,758       3,801       3,827  

Other liabilities

    1,584       1,038       1,111       1,088       1,314  

Total Liabilities

    545,140       480,426       444,993       429,039       397,731  

Total Stockholders' Equity

    57,032       55,691       55,868       55,027       52,996  

Total Liabilities and Stockholders' Equity

  $ 602,172     $ 536,117     $ 500,861     $ 484,066     $ 450,727  

 

10

 

 

Prime Meridian Holding Company and Subsidiary

Financial Highlights (Unaudited)

(dollars in thousands except per share amounts)

 

     

2Q'20

   

1Q'20

   

4Q'19

   

3Q'19

   

2Q'19

 
                                           

Per Share Data:

                                         
      $ 0.23     $ 0.22     $ 0.29     $ 0.31     $ 0.24  

Earnings per share - Diluted

    $ 0.23     $ 0.22     $ 0.29     $ 0.31     $ 0.24  

Book value per share

    $ 18.30     $ 17.88     $ 17.51     $ 17.25     $ 16.85  

Shares outstanding

      3,116,499       3,115,334       3,191,288       3,190,031       3,144,456  

Weighted-average basic shares outstanding

      3,116,307       3,183,857       3,190,933       3,147,696       3,144,068  

Weighted-average diluted shares outstanding

      3,116,370       3,185,558       3,195,793       3,151,321       3,150,136  
                                           

Selected Performance Ratios and Other Data:

                                         

Return on average assets(1)

      0.47 %     0.56 %     0.75 %     0.83 %     0.70 %

Return on average equity(1)

      5.09       5.09       6.84       7.14       5.85  

Average yield on earning assets

      3.59       4.17       4.17       4.48       4.49  

Net interest margin(2)

      3.07       3.42       3.36       3.63       3.66  

Efficiency ratio(3)

      56.57       65.14       60.40       65.03       71.52  

Noninterest expense/average assets(1)

      1.83       2.30       2.13       2.43       2.73  
                                           

Asset Quality Data:

                                         

Nonaccrual loans

    $ 1,756     $ 2,244     $ 2,591     $ 2,603     $ 1,962  

Loans 90 days past due + other real estate owned

      234       787       -       -       -  

Total nonperforming assets

      1,990       3,031       2,591       2,603       1,962  

Nonperforming assets/total assets

      0.33 %     0.57 %     0.52 %     0.54 %     0.44 %

Loans 30-89 days past due

    $ 5     $ 3,029     $ 743     $ 254     $ 688  

Total loans, net of held-for-sale loans

      449,667       366,627       341,625       319,261       303,484  

Loans 30-89 days past due / total loans

      0.00 %     0.83 %     0.22 %     0.08 %     0.23 %

Net charge-offs / average loans (1)

      0.64 %     0.39 %     0.32 %     0.34 %     0.04 %
                                           

Capital Ratios:

                                         

Tier 1 Leverage Capital Ratio (Company)

      9.53 %     10.75 %     11.08 %     11.73 %     12.08 %

Tier 1 Leverage Capital Ratio (Bank)

      8.99       9.33       9.31       9.24       9.10  

Common Equity Tier 1 Capital Ratio (Bank)

      13.80       12.41       13.24       12.95       12.69  

Tier 1 Risk-Based Capital Ratio (Bank)

      13.80       12.41       13.24       12.95       12.69  

Total Capital Ratio (Bank)

      15.05       13.64       14.49       14.15       13.94  

 

(1)   Annualized

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

(3)   Efficiency Ratio represents noninterest expense divided by the sum of net interest income plus noninterest income.

 

11

 

Prime Meridian Holding Company and Subsidiary

Non-GAAP Measures and Ratio Reconciliation

Quarterly Pre-Pax Pre-Provision Calculation (Unaudited)

(dollars in thousands except per share amounts)

 

   

2Q'20

   

1Q'20

   

4Q'19

   

3Q'19

   

2Q'19

 

Net Income

                                       

Net earnings (GAAP)

  $ 720     $ 716     $ 947     $ 964     $ 764  

Plus: provision for loan losses

    1,227       636       546       241       179  

Plus: income taxes

    217       220       257       316       245  

PTPP operating earnings (non-GAAP)

  $ 2,164     $ 1,572     $ 1,750     $ 1,521     $ 1,188  
                                         

Earnings per Share EPS

                                       

Weighted average common shares, diluted

    3,116,370       3,185,558       3,195,793       3,151,321       3,150,136  

EPS, diluted (GAAP)

  $ 0.23     $ 0.22     $ 0.29     $ 0.31     $ 0.24  

PTPP EPS, diluted (non-GAAP)

  $ 0.69     $ 0.49     $ 0.55     $ 0.48     $ 0.38  
                                         

Return on Average Assets (ROAA)

                                       

Average assets

  $ 616,670     $ 510,233     $ 501,878     $ 465,759     $ 436,292  

ROAA (GAAP)

    0.47 %     0.56 %     0.75 %     0.83 %     0.70 %

PTPP ROAA (non-GAAP)

    1.40 %     1.23 %     1.39 %     1.31 %     1.09 %
                                         

Return on Average Common Equity

                                       

Average common equity

  $ 56,563     $ 56,253     $