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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998 Commission file number 1-12625
PREMIER BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-1793778
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
2180 ATLANTA PLAZA
950 EAST PACES FERRY ROAD
ATLANTA, GEORGIA 31061
(address of principal (zip code)
executive offices)
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Registrants telephone number, including area code 404-814-3090
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 5, 1998
COMMON STOCK, $1.00 PAR VALUE 24,877,105
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PREMIER BANCSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements................................... 3
Consolidated Condensed Statements of Condition (Unaudited) as of
September 30, 1998 and December 31, 1997
Consolidated Condensed Statements of Income (Unaudited) for the Three
Months Ended September 30, 1998 and 1997
Consolidated Condensed Statements of Income (Unaudited) for the Nine
Months Ended September 30, 1998 and 1997
Consolidated Condensed Statements of Cash Flows (Unaudited) for the
Nine Months Ended September 30, 1998 and 1997
Notes to Unaudited Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K..............................................17
Signatures.............................................................................18
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2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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<CAPTION>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CONDITION
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(dollar amounts in thousands)
<S> <C> <C>
Assets
Cash and due from banks $ 78,697 $ 50,049
Interest-bearing deposits with other banks 3,552 6,977
Federal funds sold 122,675 54,467
Securities available-for-sale 97,356 146,885
Securities held-to-maturity 36,778 46,003
Loans held for sale 58,277 62,738
Loans 904,015 806,519
Allowance for credit losses (13,710) (13,356)
----------- ------------
Net loans 890,305 793,163
Premises and equipment, net 30,611 30,055
Goodwill and other intangibles 4,624 5,001
Other real estate owned 2,441 1,237
Other assets 18,854 17,758
---------- ----------
Total assets $1,344,170 $1,214,333
========== ==========
Liabilities
Deposits
Noninterest-bearing $ 175,826 $ 170,864
Interest-bearing 910,564 845,316
---------- ----------
Total deposits 1,086,390 1,016,180
Federal funds purchased and securities sold under repurchase agreements 16,482 27,168
Federal Home Loan Bank advances 1,875 2,875
Guaranteed preferred beneficial interests in the Company's
subordinated debentures 28,750 28,750
Other borrowings 70,980 12,197
Other liabilities 11,336 10,795
---------- ----------
Total liabilities 1,215,813 1,097,965
Redeemable preferred stock, par value $60, 2,000,000 shares authorized, 40,770
shares issued and outstanding 2,446 2,446
Shareholders' Equity
Common stock, $1 par value; 60,000,000 shares authorized; 24,875,634 and
24,915,045 shares issued at September 30, 1998 and December 31, 1997, respectively 24,875 24,914
Capital surplus 47,526 47,649
Retained earnings 52,876 41,877
Treasury stock, at cost 701,944 shares at December 31, 1997 --- (1,186)
Unrealized gains on securities available-for-sale, net 634 668
---------- ----------
Total shareholders' equity 125,911 113,922
---------- ----------
Total liabilities and shareholders' equity $1,344,170 $1,214,333
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
3
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PREMIER BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
--------------- -------------
(dollar amounts in thousands, except per
share data)
<S> <C> <C>
INTEREST INCOME
Loans, including fees $24,039 $20,796
Investment securities:
Taxable 2,541 2,863
Tax-exempt 276 340
Federal funds sold 1,606 633
Other interest income -- 44
------- -------
Total interest income 28,462 24,676
INTEREST EXPENSE
Deposits 11,220 10,179
Other borrowings 2,154 832
------- -------
Total interest expense 13,374 11,011
Net interest income 15,088 13,665
Provision for credit losses 170 580
------- -------
Net interest income after provision for credit losses 14,918 13,085
NONINTEREST INCOME
Service charges on deposit accounts 872 1,086
Securities transactions, net 1,110 14
Mortgage banking activities 5,983 4,236
Other noninterest income 2,306 1,173
------- -------
Total noninterest income 10,271 6,509
NONINTEREST EXPENSE
Salaries and employee benefits 9,961 6,924
Net occupancy and equipment expense 2,084 1,609
Merger related expenses 1,245 261
Other noninterest expense 4,050 3,000
------- -------
Total noninterest expense 17,340 11,794
Income before income taxes 7,849 7,800
Income taxes 3,142 2,769
------- -------
NET INCOME $ 4,707 $ 5,031
======= =======
Per Share Information (1):
Earnings per share - Basic $ 0.19 $ 0.21
Weighted average common shares outstanding - Basic 24,875,634 24,287,188
Earnings per share Diluted $ 0.18 $ 0.20
Weighted average common shares outstanding Diluted 25,358,634 24,555,188
Dividends declared per share $ 0.00 $ 0.04
</TABLE>
See notes to consolidated condensed financial statements.
(1) After giving effect to a stock split payable to stockholders of record on
January 23, 1998.
4
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<CAPTION>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
-------------- --------------
(dollar amounts in thousands,
except per share data)
<S> <C> <C>
INTEREST INCOME
Loans, including fees $69,351 $57,485
Investment securities:
Taxable 7,355 8,983
Tax-exempt 909 1,076
Federal funds sold 3,466 2,451
Other interest income 89 142
------- -------
Total interest income 81,170 70,137
INTEREST EXPENSE
Deposits 32,881 28,976
Other borrowings 5,048 2,131
------- -------
Total noninterest income 37,192 31,107
Net interest income 43,241 39,030
Provision for credit losses 350 929
------- -------
Net interest income after provision for credit losses 42,891 38,101
NONINTEREST INCOME
Service charges on deposit accounts 2,949 3,216
Securities transactions, net 1,119 (31)
Mortgage banking activities 18,715 9,806
Other noninterest income 5,943 3,855
------- -------
Total noninterest income 28,726 16,846
NONINTEREST EXPENSE
Salaries and employee benefits 27,895 20,393
Net occupancy and equipment expense 5,842 4,606
Merger related expenses 2,625 655
Other noninterest expenses 10,228 8,867
------- -------
Total noninterest expense 46,590 34,521
Income before income taxes 25,027 20,426
Income taxes 8,622 6,742
------- -------
NET INCOME $16,405 $13,684
======= =======
Per share information (1):
Earnings per share - Basic $ 0.65 $ 0.56
Weighted average common shares outstanding - Basic 24,875,634 24,287,188
Earnings per share - Diluted $ 0.65 $ 0.55
Weighted average common shares outstanding Diluted 25,068,634 24,555,188
Dividends declared per share $0.16 $ 0.14
</TABLE>
See notes to consolidated condensed financial statements.
(1) After giving effect to stock splits payable to stockholders of record on
January 23, 1998 and March 6, 1997.
5
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<CAPTION>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
--------- ---------
(dollar amounts in thousands,
except per share data)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,405 $ 13,684
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for credit losses 350 929
Depreciation expense 2,277 1,017
Amortization and accretion, net 337 165
Gain on sale of premises and equipment (538) --
Gain on sale of branch (657) --
Gain on sale of subsidiary -- (1,054)
(Gain) loss on sale of securities (1,119) 31
Net (increase) decrease in loans held for sale 15,261 (26,771)
Increase in other assets (1,885) (1,119)
(Decrease) increase in other liabilities (1,630) 1,211
--------- ---------
Net cash provided by (used in) operating activities 28,801 (11,907)
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in interest bearing deposits 3,425 568
Proceeds from maturities and paydowns of investment securities available-for-sale 64,327 43,469
Proceeds from maturities and paydowns of investment securities held-to-maturity 18,885 7,313
Proceeds from sales of investment securities available-for-sale 23,215 18,527
Purchases of investment securities available-for-sale (37,588) (37,460)
Purchases of investment securities held-to-maturity (10,085) (15,162)
Net increase in loans (97,846) (131,385)
(Increase) decrease in federal funds sold, net (68,208) 53,108
Additions to premises and equipment (3,665) (1,875)
Proceeds from sales of premises and equipment 1,105 --
Sale of bank branch (7,122) --
--------- ---------
Net cash used in investing activities (113,557) (62,897)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 70,210 73,852
Net increase in short term borrowings 47,097 8,489
Cash dividends paid (5,406) (3,398)
Purchase of treasury stock -- (1,143)
Proceeds from exercise of stock options 1,503 405
--------- ---------
Net cash provided by financing activities 113,404 78,205
--------- ---------
Net increase in cash and cash equivalents 28,648 3,401
Cash and cash equivalents, beginning of period 50,049 42,417
--------- ---------
Cash and cash equivalents, end of period $ 78,697 $ 45,818
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 38,267 $ 29,936
========= =========
Income taxes $ 7,430 $ 5,947
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
6
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PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
Note 1. BASIS OF PRESENTATION
The accompanying consolidated condensed financial information of Premier
Bancshares, Inc. and Subsidiaries (the "Company") is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and results of operations. As more fully
discussed in Note 2, the Company completed three mergers in 1998 accounted for
as poolings of interests. The accompanying consolidated condensed financial
information has been restated for all periods presented. The results of
operations for the three-month and nine month periods ended September 30, 1998
are not necessarily indicative of the results to be expected for the full year.
These statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
Note 2. BUSINESS COMBINATIONS
Completed Combinations.
On July 2, 1998, the Company completed a business combination with the Bank
Holding Company ("BHC") by exchanging 2,170,447 shares of the Company's common
stock and 40,770 shares of the Company's redeemable preferred stock for all of
the outstanding common and redeemable preferred stock of BHC. The combination
was accounted for as a pooling of interests and, accordingly, the financial
statements reflect the combination as if it took place on January 1, 1998. All
prior period consolidated financial statements have been restated to include the
results of BHC.
On July 1, 1998, the Company completed a business combination with Button
Gwinnett Financial Corporation ("Button Gwinnett") by exchanging 5,571,778
shares of the Company's common stock for all of the outstanding common stock of
Button Gwinnett. The combination was accounted for as a pooling of interests
and, accordingly, the financial statements reflect the combination as if it took
place on January 1, 1998. All prior period consolidated financial statements
have been restated to include the results of Button Gwinnett.
On June 9, 1998, the Company completed a business combination with Lanier Bank &
Trust Company ("Lanier") by exchanging 1,625,990 shares of the Company's common
stock for all of the outstanding common stock of Lanier. The combination was
accounted for as a pooling of interests and, accordingly, the financial
statements reflect the combination as if it took place on January 1, 1998. All
prior period consolidated financial statements have been restated to include the
results of Lanier.
On December 12, 1997, the Company completed a business combination with Citizens
Gwinnett Bankshares, Inc. ("Citizens") by exchanging 2,066,834 shares of the
Company's common stock for all of the outstanding common stock of Citizens. The
combination was accounted for as a pooling of interests and, accordingly, the
financial statements reflect the combination as if it took place on January 1,
1997, and all prior period consolidated financial statements have been restated
to include the results of Citizens.
On June 23, 1997, the Company completed a business combination with Central and
Southern Holding Company ("Central and Southern") by exchanging 3,653,523 shares
of the Company's common stock for all of the outstanding common stock of Central
and Southern. The combination was accounted for as a pooling of interests and,
accordingly, the financial statements reflect the combination as if it took
place on January 1, 1997, and all prior period consolidated financial statements
have been restated to include the results of Central and Southern.
7
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The following table illustrates the Company's net interest income and net income
on a consolidated basis for periods prior to the business combinations discussed
above:
<TABLE>
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NINE MONTHS ENDED
September 30,
1998 1997
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Net interest income: (dollars in thousands)
<S> <C> <C>
Premier Bancshares, Inc., exclusive of pre-acquisition amounts $32,982 $13,556
Bank Holding Company (1) 2,730 4,541
Button Gwinnett (2) 6,042 8,028
Lanier (3) 1,487 2,193
Citizens (4) -- 6,013
Central and Southern (5) -- 4,699
------- -------
Total $43,241 $39,030
======= =======
Net income:
Premier Bancshares, Inc., exclusive of pre-acquisition amounts $12,240 $ 5,278
Bank Holding Company (1) 870 1,243
Button Gwinnett (2) 2,954 3,576
Lanier (3) 341 553
Citizens (4) -- 1,519
Central and Southern (5) -- 1,515
------- -------
Total $16,405 $13,684
======= =======
</TABLE>
- -----------
(1) 1998 amounts reflect the results of operations from January 1, 1998 through
the effective merger date of July 2, 1998. Results of operations for the
period from July 3, 1998 through September 30, 1998 are included in Premier
Bancshares, Inc. amounts.
(2) 1998 amounts reflect the results of operations from January 1, 1998 through
the effective merger date of July 1, 1998. Results of operations for the
period from July 2, 1998 through September 30, 1998 are included in Premier
Bancshares, Inc. amounts.
(3) 1998 amounts reflect the results of operations from January 1, 1998 through
the effective merger date of June 9, 1998. Results of operations for the
period from June 10, 1998 through September 30, 1998 are included in
Premier Bancshares, Inc. amounts.
(4) 1997 amounts reflect the results of operations from January 1, 1997 through
September 30, 1997.
(5) 1997 amounts reflect the results of operations from January 1, 1997 through
the effective merger date of June 23, 1997. Results of operations for the
period from June 24, 1997 through September 30, 1997 are included in
Premier Bancshares, Inc. amounts.
Effective October 17, 1997, the Company acquired Traditional Mortgage
Corporation ("Traditional") for 114,598 shares of the Company's common stock at
a fair market value of $1,833,000. Traditional originates residential mortgage
loans primarily for sale to independent third party investors. Traditional was
merged with Premier Lending Corporation. The acquisition was accounted for as a
purchase and the results of operations for Traditional from the date of
acquisition are included in the consolidated financial statements. The purchase
price was allocated to the acquired assets and liabilities based on the fair
value of those assets and liabilities as determined by the Company. The excess
of the total acquisition cost over the fair value of the assets and liabilities
acquired is being amortized on a straight-line basis over a period of fifteen
years.
8
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Combinations
On July 9, 1998, the Company announced that a definitive merger agreement had
been entered into with Frederica Bank & Trust ("Frederica"). As of December 31,
1997, Frederica had total assets of $66,166,000 and for the year ended December
31, 1997, had revenue and net income of $5,420,000 and $660,000, respectively.
The merger is expected to be accounted for as a pooling of interests.
Note 3. SHAREHOLDERS' EQUITY
The Company declared a three-for-two stock split on January 8, 1998 for
stockholders of record as of January 23, 1998. All per share data has been
restated to reflect the split.
On February 24, 1997, the Company declared a 1.8055 stock split for stockholders
of record as of March 6, 1997. All per share data has been restated to reflect
the split.
On June 23, 1998, the Company declared dividends of $0.08 per share payable to
shareholders of record as of June 30, 1998. During the quarter ended
September 30, 1997, the Company declared cash dividends of $0.07 per share
(restated for stock splits and pooling of interests).
On October 19, 1998 the Company declared dividends of $0.09 per share payable to
shareholders of record as of November 2, 1998. The dividend was paid on
November 12, 1998.
Note 4. RECENT ACCOUNTING DEVELOPMENTS
On January 1, 1998, the Company adopted the provisions of Financial Accounting
Standards Board ("FASB") Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," ("Statement
125"), relating to repurchase agreements, securities lending and other similar
transactions and pledged collateral, which had been delayed until after December
31, 1997 by FASB Statement No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125, an amendment of FASB Statement No. 125,"
("Statement 127"). Statement 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of liabilities
based on a consistent application of a "financial-components approach" that
focuses on control. Under that approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered and derecognizes liabilities when extinguished. Statement 125
provides standards for consistently distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. The adoption of the
additional provisions of Statement 125 as amended by Statement 127 resulted in
no material impact on the Company's financial condition or results of
operations.
As of January 1, 1998, the Company adopted FASB Statement No. 130, "Reporting
Comprehensive Income" ("Statement 130"). Statement 130 established new rules
for the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's net
income or shareholders' equity. Statement 130 requires unrealized gains or
losses on the Company's available-for-sale securities, which prior to adoption
were reported separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of Statement 130. During the three and nine months
ended September 30, 1998, total comprehensive income amounted to $4,687,000 and
$17,039,000, respectively. During the three and nine months ended September 30,
1997, total comprehensive income amounted to $5,437,000 and $14,352,000
respectively.
Effective January 1, 1998, the Company adopted FASB Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"). Statement 131 superseded FASB Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise". Statement 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The adoption of Statement 131 did not affect results of operations or financial
position.
9
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Note 5. EARNINGS PER SHARE
Earnings per share for periods prior to 1998 have been restated to reflect the
effect of business combinations accounted for as poolings of interests. For the
quarter ended September 30, 1997, net income per common share, diluted, has been
adjusted $(.01). For the nine months ended September 30, 1997, net income per
common share and net income per common share, diluted, have been adjusted
$(.01).
The following tables sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30,
1998 1997
---------------------------------------
<S> <C> <C>
(In thousands, except per share data)
Numerator:
Net income $ 4,707 $ 5,031
Preferred stock dividends (49) (49)
------- -------
Net income available to common shareholders $ 4,658 $ 4,982
======= =======
Denominator:
Denominator for basic earnings per share - weighted
average shares 24,875 24,287
Effect of dilutive securities - stock options 484 268
------- -------
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversions 25,359 24,555
======= =======
Net income per share of common stock $ 0.19 $ 0.21
------- -------
Net income per share of common stock - diluted $ 0.18 $ 0.20
======= =======
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
----------------- ---------------
(In thousands, except per share data)
<S> <C> <C>
Numerator:
Net income $16,405 $13,684
Preferred stock dividends (147) (147)
------- -------
Net income available to common shareholders $16,258 $13,537
======= =======
Denominator:
Denominator for basic earnings per share - weighted
average shares 24,876 24,287
Effect of dilutive securities - stock options 193 268
------- -------
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversions 25,069 24,555
======= =======
Net income per share of common stock $ 0.65 $ 0.56
------- -------
Net income per share of common stock - diluted $ 0.65 $ 0.55
======= =======
</TABLE>
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Premier Bancshares, Inc. (the "Company") is a bank holding company organized and
existing under the laws of the State of Georgia and headquartered in Atlanta,
Georgia. At September 30, 1998, the Company had six subsidiaries: Premier Bank
("Premier Bank"), Premier Lending Corporation ("Premier Lending"), The Central
and Southern Bank of Georgia ("Central and Southern Bank"). The Bank of Gwinnett
County ("Gwinnett County Bank"), First Community Bank of Henry County ("Henry
County Bank"), and The Bank of Spalding County ("Spalding County Bank"). The
Company was incorporated in 1988 under the laws of the State of Georgia.
The Company is a locally-focused, community-oriented financial services holding
company which offers various traditional banking services. Among these services
are commercial finance (including asset-based loans), Small Business
Administration ("SBA") lending, residential construction lending, residential
mortgage loan origination and commercial real estate mortgage loan origination.
Through its five wholly-owned financial institution subsidiaries, Premier Bank,
Central and Southern Bank, Gwinnett County Bank, Henry County Bank and Spalding
County Bank (collectively, the "Banking Subsidiaries," or ("Banks"), the Company
operates twenty-eight banking offices located in the Atlanta metropolitan area
and in northern and central Georgia. In these markets, the Banking Subsidiaries
provide a broad array of community banking services, including: loans to small
and medium-sized businesses; residential, construction and development loans;
commercial real estate loans, consumer loans and a variety of commercial and
consumer deposit accounts.
In addition, through its wholly-owned mortgage banking subsidiary, Premier
Lending, the Company operates eight mortgage loan production offices in the
Atlanta metropolitan area and one in each of Jacksonville, Florida; Charleston,
South Carolina; and Mobile, Alabama. Premier Lending is a retail originator of
residential mortgage loans which are sold to correspondent mortgage investors
and is an approved Federal National Mortgage Association ("FNMA") and Federal
Home Loan Mortgage Corporation ("FHLMC") seller-servicer of mortgage loans and
an approved Department of Housing and Urban Development ("HUD") and Veterans
Administration ("VA") mortgage originator.
Acquisitions of unaffiliated financial institutions during the past two years
have been a principal source of the Company's growth. On August 31, 1996, the
Company acquired a thrift holding company then named Premier Bancshares, Inc.;
on June 23, 1997, the Company acquired Central and Southern Holding Company, a
bank and thrift holding company; on December 12, 1997, the Company acquired
Citizens Gwinnett Bankshares, Inc., a bank holding company; on June 9, 1988, the
Company acquired Lanier Bank & Trust Company; on July 1, 1998, the Company
acquired Button Gwinnett Financial Corporation, a bank holding company; and on
July 2, 1998, the Company acquired The Bank Holding Company, a bank holding
company. The historical financial statements of the Company have been restated
to give effect to these acquisitions which were accounted for as poolings of
interests.
On October 17, 1997, the Company acquired Traditional Mortgage Corporation
("Traditional"), a Georgia corporation specializing in mortgage banking, and
merged Traditional with and into Premier Lending, adding five loan production
offices to Premier Lending's existing franchise.
The Company's principal executive offices are located at 2180 Atlanta Plaza, 950
East Paces Ferry Road, Atlanta, Georgia 30326 and its telephone number at that
address is (404) 814-3090.
The following discussion should be read in conjunction with the Consolidated
Condensed Financial Statements, including the footnotes, and is qualified in its
entirety by the foregoing and other more detailed financial information
appearing elsewhere herein. Historical results of operations and the percentage
relationships among any amounts included in the Consolidated Condensed
Statements of Income, and any trends which may appear to be inferable therefrom,
should not be taken as being necessarily indicative of trends in operations or
results of operations for any future periods.
11
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FINANCIAL CONDITION
At the end of the third quarter of 1998, total assets increased $129,837,000 or
10.7% from December 31, 1997. Total loans (excluding mortgage loans held for
sale), increased $97,496,000 or 12.1% from December 31, 1997 to September 30,
1998. The increase in loans is primarily attributable to increased demand for
loans in the markets that the Company serves due to a declining interest rate
environment. Mortgage loans held for sale decreased $4,461,000 or 7.1% during
the same period. Federal funds sold increased $68,208,000 or 125.2% from
December 31, 1997 to September 30, 1998. Securities available-for-sale
decreased $49,529,000 or 33.7% and securities held-to-maturity decreased
$4,461,000 or 9.7% during the same period due to principal maturities and calls.
The proceeds from securities sold or maturing were used to partially fund the
increase in loans.
Other borrowings increased by $58,783,000 or 481.9% as the result of the Company
funding its mortgage banking operations with a warehouse line from a regional
bank. Total liabilities increased by $117,848,000 or 10.7% from December 31,
1997 to September 30, 1998. Noninterest-bearing deposits increased by
$4,962,000 or 2.9% and interest-bearing deposits increased by $65,248,000 or
7.7% during the same period as the Company has increased its market area through
the acquisition of Central and Southern Holding Company in June 1997, Citizens
Gwinnett Bankshares in December 1997, Lanier Bank & Trust in June 1998, The Bank
Holding Company and Button Gwinnett Financial Corporation in July 1998.
RESULTS OF OPERATIONS
For the three-month period ended September 30, 1998 the Company recorded net
income of $4,707,000 as compared to $5,031,000 for the same period in 1997.
This $324,000 or 6.4% decrease is due primarily to the following:
Net interest income increased $1,423,000.
Provision for credit losses decreased $410,000.
Total noninterest income increased $3,762,000.
Total noninterest expense increased $5,546,000.
Income tax expense increased $373,000.
The reasons for these changes are discussed more fully below.
For the nine-month period ended September 30, 1998 the Company recorded net
income of $16,405,000 as compared to $13,684,000 for the same period in 1997.
This $2,721,000 or 19.9% increase is due primarily to the following:
Net interest income increased $4,211,000.
Provision for credit losses decreased $579,000.
Total noninterest income increased $11,880,000.
Total noninterest expense increased $12,069,000.
Income tax expense increased $1,880,000.
The reasons for these changes are discussed more fully below.
Net Interest Income
- -------------------
Net interest income increased $1,423,000 or 10.4% for the three month period
ended September 30, 1998 compared to the same period in 1997, due to an increase
in average earning assets. Average earning assets increased by approximately
$153 million while average interest-bearing liabilities increased by
approximately $133 million. Yields on earning assets increased by 7 basis points
and costs of interest-bearing liabilities increased by 26 basis points. The net
interest margin declined to 4.99% in the third quarter of 1998 from 5.16% in the
comparable period of 1997.
Net interest income increased $4,211,000 or 10.8% for the nine month period
ended September 30, 1998 compared to the same period in 1997, due to an increase
in average earning assets. Average earning assets increased by approximately
$155 million and average interest-bearing liabilities increased by approximately
$137 million. Yields on earning assets increased by 2 basis points and costs of
interest-bearing liabilities increased by 23 basis points. The net interest
margin declined to 4.98% for the first nine months of 1998 from 5.20% in the
comparable period of 1997.
12
<PAGE>
Provision for Credit Losses
- ---------------------------
The Company recorded a provision for credit losses of $170,000 for the third
quarter of 1998. The Company had net charge-offs during the quarter of $41,000.
Management anticipates a possible net recovery trend due to continued recoveries
of prior period charge-offs. Management will monitor and adjust the level of
the allowance for credit losses in relation to this net recovery stream, as well
as the overall level of the allowance for credit losses to loans outstanding and
management's assessment of credit losses inherent in the loan portfolio.
<TABLE>
<CAPTION>
ASSET QUALITY
SEPTEMBER 30, DECEMBER 31,
1998 1997 CHANGE PERCENTAGE
-----------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans past due 90 days or more $ 357 $ 766 $ (409) (53.4)%
Nonaccrual loans 4,193 3,459 734 21.2 %
------- ------ ------ -----
Total nonperforming loans 4,550 4,225 325 7.7 %
Other real estate owned 2,441 1,349 1,092 80.9 %
------- ------ ------ -----
Total nonperforming assets $6,991 $5,574 $1,417 25.4 %
======= ====== ====== =====
Nonperforming loans/Total loans 0.50% 0.52%
Nonperforming assets/Total assets 0.52% 0.46%
</TABLE>
The table above illustrates the changes in the level of nonperforming assets
from December 31, 1997 to September 30, 1998. The level of nonperforming assets
at September 30, 1998 increased slightly from December 31, 1997. Management
anticipates the levels of nonperforming loans and assets to remain at relatively
low levels.
Noninterest Income
- ------------------
The Company's main sources of noninterest income are from mortgage banking
activities and service charges on deposit accounts. Noninterest income
increased substantially in the third quarter of 1998 compared to the same period
in 1997. Income from mortgage banking activities increased $1,747,000 for the
three months ended September 30, 1998 compared to the same period in 1997. An
increased volume of mortgage loan originations is due to continued strong
housing demand in the Company's markets and a low interest rate environment.
Other operating income increased $1,133,000 primarily due to the sale of a
subsidiary branch banking location.
Noninterest income increased substantially for the nine months ended September
30, 1998 compared to the same period in 1997. Total noninterest income increased
$11,880,000, or 70.5% for the nine months. Income from mortgage banking
activities increased $8,909,000, or 90.9% for the first nine months of 1998
compared to the same period in 1997.
Noninterest Expense
- -------------------
Noninterest expense increased substantially for the three month and nine month
periods ended September 30, 1998 compared to the same periods in 1997. Salaries
and employee benefits expense increased primarily due to increased commissions
on mortgage loan originations. Occupancy expense also increased due to the
Company's opening of two new branches of a subsidiary bank during the third
quarter of 1997. Merger expenses increased to $2,325,000, including $1,080,000
included in salaries and employee benefits, for the third quarter of 1998 due to
the costs related to completion of the acquisitions of Button Gwinnett Financial
Corporation and The Bank Holding Company in July 1998.
13
<PAGE>
Income Tax Expense
- ------------------
Income tax expense increased slightly for the three months ended September 30,
1998 compared to the same period in 1997. The effective tax rate for third
quarter 1998 was 40.0% vs. 35.5% for the same period in 1997. Third quarter
1997 tax expense was low due to the recognition of tax credits and prior period
net operating loss carryforwards.
Income tax expense increased $1,880,000, or 27.9% for the nine months ended
September 30, 1998 compared to the same period in 1997. The effective tax rate
for the nine months ended September 30, 1998 was 34.5% vs. 33.0% for the same
period in 1997.
INTEREST RATE SENSITIVITY MANAGEMENT
Interest rates play a major part in the net interest income of a financial
institution. The sensitivity to rate changes is known as "interest rate risk."
The repricing of interest-earning assets and interest-bearing liabilities can
influence the changes in net interest income. As part of the Company's
asset/liability management program, the timing of repricing assets and
liabilities is referred to as Gap management. It is the policy of the Company
to maintain a Gap ratio in the one-year time horizon of .80 to 1.20. The Gap
analysis indicates that the Company is somewhat asset sensitive in relation to
changes in market interest rates.
The Company uses simulation analysis to monitor changes in net interest income
due to changes in market interest rates. The simulation of rising, declining,
and a most likely interest rate scenario allows management to monitor and adjust
interest rate sensitivity to minimize the impact of market interest rate swings.
Each month management updates all available data concerning cash flows of assets
and liabilities, changes in market interest rates, and expectations as to new
volumes of loans.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is an important factor in the financial condition of the Company and
affects the Company's ability to meet the borrowing needs and deposit withdrawal
requirements of its customers. Assets, consisting principally of loans and
investment securities, are funded by customer deposits, purchased funds, and
borrowed funds.
The investment portfolio is one of the Company's primary sources of liquidity.
Maturities of securities provide a constant flow of funds which are available
for cash needs. Investment securities that contractually mature within one year
total $35 million. However, mortgage-backed securities and securities with call
provisions create cash flows earlier than the contractual maturities. Estimates
of prepayments on mortgage-backed securities and call provisions on other
securities increase the forecasted cash flow from the investment portfolio
within one year to approximately $80 million. Maturities in the loan portfolio
also provide a steady flow of funds. The Company's liquidity also continues to
be enhanced by an increasing core deposit base. Deposits have increased $70
million or 6.9% since December 31, 1997. At September 30, 1998, the loan-to-
deposit (excluding loans held for sale) ratio was 83.2%.
Effective April 15, 1998, the Company and Premier Lending Corporation, a wholly
owned subsidiary, entered into a $90 million Mortgage Warehouse Line of Credit
Loan and Security Agreement with SunTrust Bank, Central Florida, National
Association, individually and as agent for Colonial Bank, CoreStates Bank, N.A.
and SouthTrust Bank, National Association (the "Credit Facility"). The proceeds
of the line of credit will be used to provide interim funds for the funding of
eligible residential mortgage loans prior to resale thereof to investors pre-
approved by the agent. Advances of the proceeds of the line of credit will be
made from time to time by the lenders, on a pro rata basis in accordance with
their respective percentage interest, upon written request of the Company and/or
Premier Lending Corporation in compliance with such advance conditions as may be
established from time to time by the agent. The term of the line of credit is
one year. The line of credit is secured by an assignment of and a grant of a
first priority security interest in the subject mortgage loans. The amount
available to the Company under the Credit Facility at September 30, 1998 was $38
million.
On November 5, 1998 the Company amended its Credit Facility to increase the
amount available under the Credit Facility to $110 million. The Company
believes that the amounts available from operating cash flows and funds
available under the Credit Facility will be sufficient to meet its expected
operating needs and planned capital expenditures for the foreseeable future.
SHAREHOLDERS' EQUITY
The Company maintains a ratio of shareholders' equity to total assets that is
adequate relative to industry standards. The Company's ratio of shareholders'
equity to total assets was 9.4% at September 30, 1998, compared to 9.4% at
December 31, 1997.
14
<PAGE>
The Company and its subsidiary banks are required to comply with capital
adequacy standards established by the Federal Reserve and the FDIC. Currently,
there are two basic measures of capital adequacy: risk-based measure and
leverage measure.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance sheet exposure and to enhance the
value of holding liquid assets. The resulting capital ratios represent capital
as a percentage of total risk-weighted assets and off-balance sheet items.
Recently the Federal Reserve and the FDIC proposed that interest rate risk be
considered in computing risk-based capital ratios.
The minimum standard for the ratio of total capital to risk-weighted assets is
8%. At least 50% of that capital level must consist of common equity, undivided
profits and noncumulative perpetual preferred stock, less goodwill and certain
other intangibles ("Tier I capital"). The remainder ("Tier II capital") may
consist of a limited amount of other preferred stock, mandatory convertible
securities, subordinated debt and a limited amount of the allowance for credit
losses. The sum of Tier I capital and Tier II capital is "total risk-based
capital."
The Federal Reserve has established minimum leverage ratio guidelines for bank
holding companies. The Federal Reserve has adopted a final rule which provides
that the minimum ration of Tier I capital to total assets less goodwill (the
"leverage ratio") for the most highly-rated bank holding companies is 3.0%. The
minimum leverage ratio for all other bank holding companies is 4.0%. Banking
organizations with supervisory, financial, operational, of managerial
weaknesses, as well as organizations that are anticipating or experiencing
significant growth are expected to maintain capital ratios well above the
minimum levels.
CAPITAL LEVELS
<TABLE>
<CAPTION>
AT SEPTEMBER 30, MINIMUM
1998 REQUIREMENT
---------------- -----------
<S> <C> <C>
Tier I Capital Leverage Ratio 11.98% 3.0%
Tier I Risk-based Capital Ratio 14.77% 4.0%
Tier II Risk-based Capital Ratio 1.25%
----- ---
Total Risk-based Capital Ratio 16.02% 8.0%
===== ===
</TABLE>
A subsidiary of the Company issued $28.7 million of cumulative preferred
securities in November, 1997. The proceeds of the sale of cumulative preferred
securities qualifies as Tier 1 capital with respect to the risk-based capital
guidelines established by the Federal Reserve. Federal Reserve guidelines for
calculation of Tier 1 capital limit the amount of cumulative preferred
securities which can be included in Tier 1 capital to 25% of total Tier 1
capital.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT
This quarterly report on Form 10-Q contains "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. When used
in this report, the words "believes," "expects," "anticipates," "estimates," and
similar words and expressions are generally intended to identify forward-looking
statements. Statements that describe the Company's future strategic plans,
goals or objectives are also forward-looking statements, including those
regarding the intent, belief or current expectations of the Company or
management, are not guarantees of future performance, results or events and
involve risks and uncertainties, and that actual results and events may differ
materially from those in the forward-looking statements as a result of various
factors including, but not limited to, (i) general economic conditions in the
markets in which the Company operates, (ii) competitive pressures in the markets
in which the Company operates, (iii) the effect of future legislation or
regulatory changes on the Company's operations and (iv) other factors described
from time to time in the Company's filings with the Securities and Exchange
Commission. The forward-looking statements included in this report are made
only as of the date hereof. The Company undertakes no obligation to update such
forward-looking statements to reflect subsequent events or circumstances.
15
<PAGE>
YEAR 2000
With respect to its internal systems, the Company is taking steps to prepare
both its information technology systems and its other equipment and machinery
for the Year 2000 date change. The Company is currently in the process of
consolidating the recently acquired banks. Current data processing conversion
schedules provide for all currently owned banks to be processed by a common Year
2000 certified processor prior to the end of 1998. The data processing service
provider for the banking subsidiaries has given the Company guarantees of Year
2000 compliance on core loan, deposit and accounting related programming.
Testing of the service provider was completed during the third quarter of 1998
with test results proving that accurate calculations will continue through the
year 2000 and beyond. With these test results, the company's Year 2000 efforts
are considered to be substantially complete for core banking applications. Year
2000 upgrades to the ATM machines are under contract and will be completed by
the second quarter of 1999 as further versions of compliant software are
released. Testing of file servers and personal computers and networks is in
process for recent acquisitions with replacement and upgrades of mission
critical components complete and non-mission critical computers scheduled to be
replaced or upgraded during the first quarter of 1999. Customer mailings
promoting awareness of the potential Year 2000 problem were mailed during the
third quarter of 1998. Larger credit relationships have been reviewed and
surveyed for Year 2000 issues assessing their readiness and preparations related
to the coming of the new millenium and findings indicate minimal additional
risks because of the Year 2000. Costs associated with Year 2000 have been
minimized due to the necessary upgrades of our acquired banking offices prior to
the merging of data processing systems. Estimated costs for Year 2000
preparation including personnel costs are $150,000. Management believes that
all systems will be year 2000 ready. Failure of mission critical systems is not
likely because of Year 2000 preparations. Contingency plans continue to be
developed and focus on manual processes and backup procedures needed for
temporary operations should there be temporary malfunctions of utility
providers. Contingency plans will be modified on an ongoing basis as
information dictates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk and, to a
lesser extent, credit risk and liquidity risk. The Company has little or no
risk related to trading accounts, commodities or foreign exchange. Interest
rate risk is the exposure of a banking organization's financial condition and
earnings ability to adverse movements in interest rates. The Company has
analyzed the assumed market value risk and earnings risk inherent in its
interest rate sensitive instruments related to interest-rate swings of 300 basis
points over a twenty four month horizon, both above and below current levels
(rate shock analysis). Earnings and fair value estimates are subjective in
nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. There have been no significant
changes in the Company's market risk exposure since December 31, 1997.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
27.1 Financial Data Schedule.
B. REPORTS ON FORM 8-K
The Company filed the following Current Reports on Form 8-K during the third
quarter and through the filing date of this Report:
(i) On July 2, 1998, the Company filed a Current Report on Form 8-K to
report the acquisition by the Company of Button Gwinnett Financial
Corporation.
(ii) On July 8, 1998, the Company filed a Current Report on Form 8-K to
report the acquisition by the Company of The Bank Holding Company.
(iii) On September 14, 1998, the Company filed a Current Report on Form 8-
K/A to provide certain required financial and other information in
connection with the acquisitions of Button Gwinnett Financial Corporation
and The Bank Holding Company.
(iv) On September 30, 1998, the Company filed a Current Report on Form 8-K
to report and file supplemental audited consolidated financial statements of
the Company for fiscal years ended December 31, 1997, 1996 and 1995 to
reflect certain acquisitions by the Company that were accounted for as
poolings of interests.
(v) On September 30, 1998, the Company filed a Current Report on Form 8-K
to report and file supplemental interim unaudited consolidated financial
statements of the Company for the six months ended June 30, 1998, restated
to reflect certain acquisitions accounted for as poolings of interests.
(vi) On October 16, 1998, the Company filed a Current Report on Form 8-K/A
to amend the report filed on September 30, 1998 which contained supplemental
audited financial statements of the Company to add the opinions of auditors
of two companies previously acquired by the Company.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREMIER BANCSHARES, INC.
- ------------------------
Registrant
Date November 13, 1998 /s/ Darrell D. Pittard
-------------------------- --------------------------------
Darrell D. Pittard
Chief Executive Officer
Date November13, 1998 /s/ Michael E. Ricketson
-------------------------- --------------------------------
Michael E. Ricketson
Chief Accounting Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 78,697
<INT-BEARING-DEPOSITS> 3,552
<FED-FUNDS-SOLD> 122,675
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 97,356
<INVESTMENTS-CARRYING> 36,778
<INVESTMENTS-MARKET> 134,409
<LOANS> 962,292
<ALLOWANCE> 13,710
<TOTAL-ASSETS> 1,344,710
<DEPOSITS> 1,086,390
<SHORT-TERM> 116,212
<LIABILITIES-OTHER> 11,336
<LONG-TERM> 1,875
0
2,446
<COMMON> 24,875
<OTHER-SE> 101,036
<TOTAL-LIABILITIES-AND-EQUITY> 1,344,170
<INTEREST-LOAN> 69,351
<INTEREST-INVEST> 8,264
<INTEREST-OTHER> 3,555
<INTEREST-TOTAL> 81,170
<INTEREST-DEPOSIT> 32,881
<INTEREST-EXPENSE> 37,929
<INTEREST-INCOME-NET> 43,241
<LOAN-LOSSES> 350
<SECURITIES-GAINS> 1,119
<EXPENSE-OTHER> 46,590
<INCOME-PRETAX> 25,027
<INCOME-PRE-EXTRAORDINARY> 25,027
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,405
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.65
<YIELD-ACTUAL> 4.98
<LOANS-NON> 4,193
<LOANS-PAST> 357
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 13,356
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 561
<RECOVERIES> 565
<ALLOWANCE-CLOSE> 13,710
<ALLOWANCE-DOMESTIC> 13,710
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
