<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED MARCH 31, 1999
--------------
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)
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 April 5, 1999
Common stock, $1.00 par value 26,102,257
<PAGE>
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 March
31, 1999 and December 31, 1998
Consolidated Condensed Statements of Income (Unaudited) for the Three
Months Ended March 31, 1999 and 1998
Consolidated Condensed Statements of Cash Flows (Unaudited) for the
Three Months Ended March 31, 1999 and 1998
Notes to Unaudited Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 14
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.................................. 15
Signatures................................................................. 15
<PAGE>
Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements
<TABLE>
<CAPTION>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CONDITION
(Unaudited)
March 31, December 31,
1999 1998
--------- ---------
<S> <C> <C>
(dollar amounts in thousands)
Assets
Cash and due from banks $ 72,290 $ 58,021
Interest-bearing deposits with other banks 8,999 8,262
Federal funds sold 91,202 123,740
Securities available-for-sale 142,868 133,232
Loans held for sale 78,025 124,900
Loans 1,078,844 1,033,561
Allowance for credit losses (14,374) (14,080)
--------- ---------
Net loans 1,064,470 1,019,481
Premises and equipment, net 30,782 30,787
Goodwill and other intangibles 4,394 4,500
Other real estate owned 1,262 1,889
Other assets 16,598 15,806
--------- ---------
Total assets $1,510,890 $1,520,618
========= =========
Liabilities, redeemable preferred stock and common
stockholders' equity
Deposits
Noninterest-bearing $ 181,619 $ 187,998
Interest-bearing 986,963 991,964
--------- ---------
Total deposits 1,168,582 1,179,962
Federal funds purchased and securities sold under repurchase agreements 17,926 21,782
Federal Home Loan Bank advances 50,000 ---
Guaranteed preferred beneficial interests in the Company's subordinated 28,750 28,750
debentures
Other borrowings 93,029 140,089
Other liabilities 12,843 11,496
--------- ---------
Total liabilities 1,371,130 1,382,079
Redeemable preferred stock, par value $60, 2,000,000 shares authorized, 40,770
shares issued and outstanding 2,446 2,446
Common stockholders' equity:
Common stock, $1 par value; 60,000,000 shares authorized; 26,102,257 and
26,000,409 shares issued at March 31, 1999 and December 31, 1998, 26,102 26,000
respectively
Capital surplus 55,270 54,730
Treasury stock, at cost (83,900 shares at March 31, 1999) (1,544) ---
Retained earnings 57,619 54,986
Accumulated other comprehensive (loss) income (133) 377
--------- ---------
Total Stockholders' equity 137,314 136,093
--------- ---------
Total liabilities and stockholders' equity $1,510,890 $1,520,618
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<S> <C> <C>
Three Months Ended
March 31,
1999 1998
---------- ----------
(dollar amounts in thousands,
except per share data)
Interest Income:
Loans, including fees $ 25,961 $ 22,806
Investment securities:
Taxable 1,907 2,490
Tax-exempt 145 322
Federal funds sold 1,026 1,145
---------- ----------
Total interest income 29,039 26,763
Interest Expense:
Deposits 11,010 11,454
Other borrowings 2,611 1,201
---------- ----------
Total interest expense 13,621 12,655
Net interest income 15,418 14,108
Provision for credit losses 405 45
---------- ----------
Net interest income after provision for credit losses 15,013 14,063
Other Income:
Service charges on deposit accounts 1,149 1,142
Securities transactions, net 27 ---
Mortgage banking activities 7,342 5,988
Other noninterest income 1,641 1,438
---------- ----------
Total other income 10,159 8,568
Other Expenses:
Salaries and employee benefits 9,291 8,679
Net occupancy and equipment expense 2,093 1,854
Merger related expenses 280 17
Other noninterest expense 4,517 3,562
---------- ----------
Total other expenses 16,181 14,112
---------- ----------
Income before income taxes 8,991 8,519
Income taxes 3,215 2,830
---------- ----------
Net income $ 5,776 $ 5,689
========== ==========
Per Share Information:
Earnings per share - Basic $ 0.22 $ 0.22
Weighted average common shares outstanding - Basic $26,047,218 $25,749,889
Earnings per share Diluted $ 0.22 $ 0.22
Weighted average common shares outstanding Diluted $26,528,334 $26,100,000
Dividends declared per share $ 0.09 $ 0.13
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<S> <C> <C>
Three months ended
March 31,
1999 1998
-------------- ---------------
(dollar amounts in thousands,
except per share data)
Cash flows from operating activities
Net income $ 5,776 $ 5,689
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for credit losses 405 45
Depreciation expense 722 780
Amortization and accretion, net 212 94
Gain on sale of premises and equipment (213) (560)
Gain on sale of securities (27) ---
Net decrease (increase) in loans held for sale 46,875 (13,894)
Decrease (increase) in other assets 898 (1,114)
Decrease in other liabilities (917) (836)
------- -------
Net cash provided by (used in) operating activities 53,731 (9,796)
Cash flows from investing activities
(Decrease) increase in interest bearing deposits (737) 2,989
Proceeds from maturities and paydowns of investment securities available-for-sale 23,656 18,288
Proceeds from maturities and paydowns of investment securities held-to-maturity --- 7,992
Proceeds from sales of investment securities available-for-sale 527 --
Purchases of investment securities available-for-sale (34,461) (1,000)
Purchases of investment securities held-to-maturity --- (1,598)
Net increase in loans (45,394) (25,501)
Decrease (increase) in federal funds sold, net 32,538 (25,356)
Purchases of premises and equipment (671) (45)
Proceeds from sales of OREO 820 245
------- -------
Net cash used in investing activities (23,722) (23,986)
Cash flows from financing activities
Net (decrease) increase in deposits (11,380) 41,654
Net decrease in repurchase agreements (3,856) (854)
Net increase in Federal Home Loan Bank advances 50,000 ---
Net decrease in other borrowings (47,060) (4,835)
Dividends paid (2,541) (2,651)
Purchase of treasury stock (1,544) ---
Proceeds from exercise of stock options 641 338
------- -------
Net cash (used in) provided by financing activities (15,740) 33,652
Net increase in cash and cash equivalents 14,269 (130)
Cash and due from banks, beginning of period 58,021 51,882
Cash and due from banks, end of period $ 72,290 $ 51,752
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 14,231 $ 15,652
======= =======
Income taxes $ 1,742 $ 2,066
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1999
(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 four mergers in 1998 accounted for as
poolings of interests. The accompanying consolidated condensed financial
information has been restated for the three months ended March 31, 1998 to
reflect the effect of these mergers as if they had taken place on January 1,
1998. The results of operations for the three-month period ended March 31, 1999
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, 1998.
Note 2. BUSINESS COMBINATIONS
Completed Combinations
On December 17, 1998 the Company completed a business combination with Frederica
Bank & Trust ("Frederica") by exchanging 1,013,500 shares of the Company's
common stock for all of the common stock of Frederica. 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 Frederica.
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.
Pending Combinations
On April 6, 1999, the Company announced that a definitive merger agreement had
been entered into with North Fulton Bancshares, Inc. ("North Fulton"). As of
December 31, 1998, North Fulton had total assets of $173,600,000, and for the
year ended December 31, 1998, had revenue and net income of $15,608,000 and
$1,417,000, respectively. The merger is expected to close in the third quarter
of 1999 and is expected to be accounted for as a pooling of interests.
On April 20, 1999, the Company announced that a definitive merger agreement
had been entered into with Farmers & Merchants Bank ("Farmers"). As of
December 31, 1998, Farmers had total assets of $165,981,000, and for the year
ended December 31, 1998, had revenue and net income of $13,048,000 and
$2,600,000, respectively. The merger is expected to close in June of 1999 and
is expected to be accounted for as a pooling of interests.
<PAGE>
Note 3. STOCKHOLDERS' EQUITY
The Company declared a three-for-two stock split on January 8, 1998 for
stockholders of record as of January 23, 1998.
On January 23, 1998, the Company declared a quarterly cash dividend of $0.08 per
share payable shareholders of record as of February 12, 1998. The dividend was
paid on February 27, 1998.
On January 21, 1999, the Company declared a quarterly cash dividend of $0.09 per
share payable to shareholders of record as of February 12, 1999. The dividend
was paid on February 26, 1999.
On April 13, 1999, the Company declared a quarterly cash dividend of $0.09 per
share payable to shareholders of record as of April 27, 1999. The dividend was
paid on May 10, 1999.
Note 4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement
133"). Statement 133 establishes new accounting and reporting activities for
derivatives. The standard requires all derivatives to be measured at fair value
and recognized as either assets or liabilities in the statement of condition.
Under certain conditions, a derivative may be specifically designated as a
hedge. Accounting for the changes in fair value of a derivative depends on the
intended use of the derivative and the resulting designation. Adoption of the
standard is required for the Company's December 31, 2000 financial statements
with early adoption allowed as of the beginning of any quarter after June 30,
1998. Adoption is not expected to result in a material financial impact on the
Company's financial position or results of operations.
Note 5. EARNINGS PER SHARE
Earnings per share for periods prior to 1999 have been restated to reflect the
business combinations accounted for as poolings of interests.
The following tables sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Quarter ended March 31,
1999 1998
---------------------------------------
<S> <C> <C> <C>
(In thousands, except per share data)
Numerator:
Net income $ 5,776 $ 5,689
Preferred stock dividends (49) (49)
---------------------------------------
Net income available to common shareholders $ 5,727 $ 5,640
=======================================
Denominator:
Denominator for basic earnings per share - weighted 26,047 25,750
average shares
Effect of dilutive securities - stock options 481 350
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed conversions 26,528 26,100
=======================================
Net income per share of common stock $ 0.22 $ 0.22
---------------------------------------
Net income per share of common stock - diluted $ 0.22 $ 0.22
=======================================
</TABLE>
Note 6. OTHER COMPREHENSIVE INCOME
Total comprehensive income was $5,266,000 and $6,553,000 for the three months
ended March 31, 1999 and 1998, respectively. The Company's components of other
comprehensive income consist solely of unrealized gains and losses on
securities classified as available for sale and reclassification adjustments for
securities gains and losses included in net income.
<PAGE>
Note 7. BUSINESS SEGMENT INFORMATION
The Company's two major lines of business are Community Banking and Mortgage
Lending. Community Banking encompasses all of the Company's traditional banking
services, including: loans to small and medium-size businesses; residential,
construction and development loans; commercial real estate loans; consumer loans
and a variety of commercial and consumer deposit accounts. Included in
Community Banking are certain corporate overhead expenses which have not been
separately allocated. Mortgage Lending encompasses the retail origination of
residential mortgage loans which are sold to correspondent mortgage investors.
<TABLE>
<CAPTION>
Community Mortgage
Banking Lending Eliminations Total
---------------------------------------------------------------------------
(dollars in thousands)
Three months ended March 31, 1999:
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $ 14,240 $ 773 - $ $15,013
Other income 2,437 7,769 (47) 10,159
Other expenses (10,438) (5,790) 47 (16,181)
Income before income taxes $ 6,239 $ 2,752 - $ 8,991
========================================================================================================
Average total assets $1,339,667 $118,685 $1,458,352
========================================================================================================
Three months ended March 31, 1998:
- --------------------------------------------------------------------------------------------------------
Net interest income $ 13,895 $ 168 - $ 14,063
Other income 2,409 6,159 8,568
Other expenses (9,907) (4,205) (14,112)
Income before income taxes $6,397 $ 2,122 - $8,519
========================================================================================================
Average total assets $1,285,309 $ 20,337 $1,305,646
========================================================================================================
</TABLE>
<PAGE>
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 March 31, 1999, the Company had five subsidiaries: Premier Bank
("Premier Bank"), Premier Lending Corporation ("Premier Lending"), First
Community Bank of Henry County ("Henry"), The Bank of Spalding County
("Spalding") and Frederica Bank and Trust ("Frederica") (collectively, the
"Subsidiaries"). The Company merged Central and Southern Bank of Georgia into
Premier Bank during the first quarter of 1999 and expects to merge Henry,
Spalding, and Frederica with and into Premier Bank in the second quarter of
1999. 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 with several financial services industry products and services such as
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. The Company's
knowledge of both its product lines and local markets allows it to compete
effectively with larger institutions by offering a wide range of products while
maintaining strong community relationships and name recognition within its
markets. In addition, management believes that there continue to be increased
opportunities in the retail and small to middle market commercial loan products
as larger competitors focus on the higher dollar and volume loan product
markets.
Through its four wholly-owned financial institution subsidiaries, the Company
operates over 36 banking offices located in the Atlanta metropolitan area and in
northern, central and coastal Georgia. In these markets, the 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 10 mortgage loan production offices in the Atlanta
metropolitan area and one in each of Augusta, Georgia; Warner Robins, Georgia;
St. Simons Island, Georgia; Charlotte, North Carolina; Chattanooga, Tennessee;
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, 1998, the
Company acquired Lanier Bank & Trust Company, a Georgia bank; on July 1, 1998,
the Company acquired Button Gwinnett Financial Corporation, a bank holding
company; on July 2, 1998, the Company acquired The Bank Holding Company, a bank
holding company; and on December 17, 1998, the Company acquired Frederica Bank &
Trust, a Georgia bank. 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 April 6, 1999, the Company announced that a definitive merger agreement had
been entered into with North Fulton Bancshares, Inc. ("North Fulton"). On April
20, 1999, the Company announced that a definitive merger agreement had been
entered into with Farmers & Merchants Bank ("Farmers"). These merger are
expected to close by the third quarter of 1999 and are expected to be accounted
for as a poolings of interests.
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.
<PAGE>
Financial Condition
At the end of the first quarter of 1999, total assets decreased $9,728,000 or
0.6% from December 31, 1998. Total loans (excluding mortgage loans held for
sale), increased $45,283,000 or 4.4% from December 31, 1998. The increase in
loans is primarily attributable to increased demand for loans in the markets
that the Company serves. Mortgage loans held for sale decreased $46,875,000 or
37.5% during the same period, as the volume of loans sold to correspondent
mortgage investors increased during the first quarter of 1999. Federal funds
sold decreased $32,538,000 or 26.3% from December 31, 1998 to March 31, 1999.
Securities available-for-sale increased $9,636,000 or 7.2% during the same
period.
Total deposits decreased $11,380,000, or 1.0% for the quarter due to in part a
program to reduce the cost of deposits. Federal home loan bank advances
increased $50,000,000 as the Company initiated a plan to supplement deposits
with lower cost funding. Other borrowings decreased by $47,060,000 or 33.6% as
the result of decreases in the warehouse line of credit resulting from lower
outstanding mortgage loans held for sale at period end. Total liabilities
decreased by $10,949,000 or 0.8% from December 31, 1998 to March 31, 1999.
Results of Operations
For the three-month period ended March 31, 1999 the Company recorded net income
of $5,776,000 as compared to $5,689,000 for the same period in 1998. This
$87,000 or 1.5% increase is due primarily to the following:
Net interest income increased $1,310,000.
Provision for credit losses increased $360,000.
Total other income increased $1,591,000.
Total other expense increased $2,069,000.
Income tax expense increased $385,000.
The reasons for these changes are discussed more fully below.
Net Interest Income
- -------------------
Net interest income increased $1,310,000 or 9.3% for the three month period
ended March 31, 1999 compared to the same period in 1998, due to an increase in
average earning assets. Average earning assets increased by approximately
$148,000,000 while average interest-bearing liabilities increased by
approximately $129,000,000. Yields on earning assets decreased by 30 basis
points and costs of interest-bearing liabilities decreased by 24 basis points.
The net interest margin declined to 4.65% in the first quarter of 1999 from
4.77% in the same period of 1998.
Provision for Credit Losses
- ---------------------------
The Company recorded a provision for credit losses of $405,000 for the first
quarter of 1999. The Company had net charge-offs during the quarter of
$111,000. Management will continue to monitor and adjust the level of the
allowance for credit losses in relation to net charge-offs, 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.
<PAGE>
<TABLE>
<CAPTION>
ASSET QUALITY
March 31, December 31,
1999 1998 Change Percentage
---------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Past due loans $ 10 $ 14 $ (4) (28.6)%
Nonaccrual loans 2,939 3,843 (904) (23.5)%
---------------------------------------------------------------------------
Total nonperforming loans 2,949 3,857 (908) (23.5)%
Other real estate owned 1,262 1,889 (627) (33.2)%
Total nonperforming assets $4,211 $5,746 $(1,535) (26.7)%
===========================================================================
Nonperforming loans/Total loans 0.27% 0.37%
Nonperforming assets/Total assets 0.28% 0.38%
</TABLE>
The table above illustrates the changes in the level of nonperforming assets
from December 31, 1998 to March 31, 1999. The level of nonperforming assets at
March 31, 1999 decreased slightly from December 31, 1998. Management
anticipates the levels of nonperforming loans and assets will remain at
relatively low levels.
Other Income
- ------------
The Company's main sources of other income are from mortgage banking activities
and service charges on deposit accounts. Other income increased substantially
in the first quarter of 1999 compared to the same period in 1998. Income from
mortgage banking activities increased $1,354,000 for the three months ended
March 31, 1999 compared to the same period in 1998 due to an increased volume of
mortgage loan originations resulting from the continued strong housing demand in
the Company's markets and the low interest rate environment.
Other Expense
- -------------
Other expense increased substantially for the three month period ended March 31,
1999 compared to the same period in 1998. 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 1998. Merger expenses
were $280,000 related to the completion of the acquisition of Frederica Bank.
Other operating expense increased $955,000 over 1998 as the Company continues to
merge the group of banks acquired during the same period in 1998 into the lead
bank located in Atlanta, Georgia. All of the subsidiaries, other than Premier
Lending, are expected to be merged into Premier Bank by the end of the second
quarter of 1999.
Income Tax Expense
- ------------------
Income tax expense increased 385,000 or 13.6% for the three months ended March
31, 1999 compared to the same period in 1998. The effective tax rate for first
quarter of 1999 was 35.8% versus 33.2% for the same period in 1998. The
Company's effective tax rate increased due to the nondeductibility of certain
merger expenses and a decrease in tax exempt interest income.
<PAGE>
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 current
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 liquidity needs. Investment securities that contractually mature within one
year total approximately $39 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 $65 million. Maturities
in the loan portfolio also provide a steady flow of funds. At March 31, 1999,
the loan-to-deposit ratio (excluding loans held for sale) was 92.3%.
The Company has a revolving line of credit with a nonaffiliated institution
bearing interest at 30 day LIBOR plus 85 basis points. This rate adjusts monthly
and is payable quarterly. The outstanding balance is secured by 50% of the stock
of each banking subsidiary of the Company. The Company's warehouse line of
credit is with a nonaffiliated institution and bears interest at the Federal
Funds rate plus an index based on the Company's various mortgage loan tranches.
This rate is adjusted daily and is payable monthly. This line matures on June 1,
1999 and is secured by an assignment of first security interest in certain
mortgage loans. In connection with its lines of credit, the Company has agreed,
among other covenants, to maintain earnings, reserves for credit losses, and
capital at certain minimum levels.
The Company began taking Federal Home Loan Bank ("FHLB") advances during the
first quarter of 1999. FHLB advances totaled $50 million at March 31, 1999.
The advances mature at various dates in 2004 and bear interest payable quarterly
at fixed rates ranging from 4.84% to 5.12%. Advances are collateralized by a
blanket floating lien on qualifying first mortgage loans.
Stockholders' Equity
The Company maintains a ratio of stockholders' equity to total assets that is
adequate relative to industry standards. The Company's ratio of stockholders'
equity to total assets was 9.1% at March 31, 1999, compared to 8.9% at December
31, 1998.
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.
<PAGE>
The minimum standard for the ratio of total capital to risk-weighted assets is
8.0%. 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 ratio 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, or 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>
March 31, Minimum
1999 Requirement
-------------- ----------------
<S> <C> <C>
Tier I Capital Leverage Ratio 11.48% 3.0%
Tier I Risk-based Capital Ratio 14.46% 4.0%
Tier II Risk-based Capital Ratio 1.21%
-------------- ----------------
Total Risk-based Capital Ratio 15.67% 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.
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 by May 1999. 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 were completed in the
first quarter of 1999 as further versions of compliant software were released.
Testing of file servers and personal computers and networks is in process for
recent
<PAGE>
acquisitions with replacement and upgrades of mission critical components
complete and non-mission critical computers scheduled to be upgraded during
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.
The Company determined during the first quarter of 1999 that it was necessary
for the Company to reassess and validate the Year 2000 readiness of its non-bank
subsidiary, Premier Lending, and to improve the documentation relating to such
readiness. The Company is in the process of revising and updating the Year 2000
plan for Premier Lending and has engaged an outside consultant to assist in
documenting the level of readiness. The testing of internal systems, the
review of third parties with whom a material relationship may exist, and the
development of Year 2000 business resumption contingency plans have been
undertaken at Premier Lending and will be completed during the second quarter of
1999. However, further testing, assessment of third party risks, and
modification of contingency plans will continue to be undertaken during 1999
with respect to Premier Lending to the extent deemed necessary by the Company.
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 24-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, 1998.
<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 did not file any reports on Form 8-K during the three months ended
March 31, 1999.
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 May 13, 1999 Darrell D. Pittard
------------ -------------------
Darrell D. Pittard
Chief Executive Officer
Date May 13, 1999 Michael E. Ricketson
------------ ---------------------
Michael E. Ricketson
Chief Accounting Officer
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 72,209
<INT-BEARING-DEPOSITS> 8,999
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<TRADING-ASSETS> 0
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<LOANS> 1,156,869
<ALLOWANCE> 14,374
<TOTAL-ASSETS> 1,510,890
<DEPOSITS> 1,168,582
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0
2,446
<COMMON> 26,102
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