5
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 quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-84254
Pioneer Bancshares, Inc.
(Exact name of Registrant as specified in its Charter)
Delaware 62-1469913
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation No.)
or organization)
801 Broad Street, Chattanooga, TN 37402
(Address of principal executive Zip Code
offices)
Registrant's telephone number, including area code 423-755-0000
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 June 30, 1996:
Title of Class Number of Shares Outstanding
Common Stock, $.005 Par Value 3,759,912
PIONEER BANCSHARES, INC.
INDEX PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1996,
December 31, 1995 and June 30, 1995 1
Consolidated Statements of Income -
Three Months and Six Months Ended 2
June 30, 1996 and June 30, 1995
Consolidated Statements of Changes in Shrhlds' Equity -
Six Months Ended June 30, 1996 and June 30,1995 3
Consolidated Statements of Cash Flows -
Six Months Ended June 30,1996 and June 30,1995 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations of Pioneer Bancshares, Inc. 7-19
PART II. OTHER INFORMATION 20
Signatures 21
Exhibit Index 22
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CONDITION
Unaudited Unaudited
(in thousands) June 30, Dec 31, June 30,
ASSETS 1996 1995 1995
Cash and due from banks 62,606 54,938 59,673
Investment securities:
Held-to-maturity (fair value
of $63,687 at June 30, 1996,
$78,260 at December 31, 1995,
and $81,816 at June 30,1995) 65,392 78,040 82,504
Available-for-sale 204,932 208,968 173,752
Federal funds sold 0 5,935 69,475
Loans 480,547 423,191 364,573
Less: Unearned income 1,605 1,688 1,589
Allowance for loan loss 5,493 5,872 5,500
Net loans 473,449 415,631 357,484
Premises and equipment, net of
accumulated depreciation 20,024 17,084 15,436
Intangible assets 6,864 7,271 7,562
Other assets 14,415 11,401 14,637
Total Assets 847,682 799,268 780,523
LIABILITIES
Deposits
Noninterest bearing DDA 135,388 127,776 130,175
Interest bearing DDA 120,263 118,084 116,576
Money market accounts 42,801 44,652 43,235
Savings deposits 86,554 88,556 86,608
Time deposits of < $100,000 245,612 231,563 226,592
Time deposits of > $100,000 51,375 51,464 53,769
Total deposits 681,993 662,095 656,955
Federal funds purchased and
securities sold under agreements
to repurchase 53,162 41,915 33,848
Other borrowings 17,000 0 0
Other liabilities 6,552 7,633 5,142
Total liabilities 758,707 711,643 695,945
STOCKHOLDERS' EQUITY
Common stock par value $.005 per share:
8,000,000 authorized;
3,759,912 issued. 19 19 19
Surplus 64,728 64,728 64,728
Retained earnings 25,406 23,045 21,099
Unrealized apprec/(deprec) on
securities available for sale (1,152) 312 (994)
Less: treasury stock - at cost 26 479 274
Total stockholders' equity 88,975 87,625 84,578
Total Liabilities and
Stockholders' Equity 847,682 799,268 780,523
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Unaudited Unaudited
Three months ended Six months ended
June 30, June 30,
INTEREST INCOME 1996 1995 1996 1995
Interest and fees on loans 10,033 7,683 19,461 14,838
Interest on investment securities
Taxable 2,907 2,828 5,887 5,704
Tax exempt 1,019 993 1,990 2,010
Interest on federal funds sold 54 349 148 609
Interest on other earning assets 6 6 9 10
Total interest income 14,019 11,859 27,495 23,171
INTEREST EXPENSE
Interest bearing demand deposits 783 802 1,563 1,494
Money market accounts 393 308 793 626
Savings deposits 574 563 1,138 1,131
Time deposits of < $100,000 3,180 2,750 6,428 5,000
Time deposits of > $100,000r 787 656 1,491 1,361
Federal funds purchased and
securities sold under
agreements to repurchase 590 417 1,075 743
Other borrowed money 182 0 233 0
Total interest expense 6,489 5,496 12,721 10,355
Net interest income 7,530 6,363 14,774 12,816
Provision for loan losses 255 30 535 110
Net interest income after
the provision for loan losses 7,275 6,333 14,239 12,706
NONINTEREST INCOME
Trust income 335 298 648 578
Service charge on deposit accts 958 796 1,821 1,582
Net securities gains (losses) (99) (1) 63 (47)
Other income 522 362 1,125 738
Total noninterest income 1,716 1,455 3,657 2,851
NONINTEREST EXPENSE
Salaries and employee benefits 3,481 2,869 6,755 5,629
Occupancy 894 736 1,791 1,377
Other 1,919 1,967 3,856 3,814
Total noninterest expense 6,294 5,572 12,402 10,820
Income before provision for
income taxes 2,697 2,216 5,494 4,737
Provision for income taxes 711 475 1,497 1,089
NET INCOME 1,986 1,741 3,997 3,648
Net income per common share 0.53 0.46 1.06 0.97
Dividends declared per common share 0.2175 0.2100 0.4350 0.4100
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Pioneer Bancshares, Inc.
(in thousands except for share data)
Unreal
Common Stock Appr
# of Par Capital Retained (Depr) Treas
Shares Value Surplus Earnings AFS Sec Stock Total
Balances, 12/31/94 1,879,956 19 64,728 18,812 (5,591) (63) 77,905
Net income 3,648 3,648
Cash dividend (1,361) (1,361)
Net Changes in
Unrealized
Appreciation on
Securities AFS 4,597 4,597
Purchases of Treasury Stk (211) (211)
Balances, 06/30/95 1,879,956 19 64,728 21,099 (994) (274) 84,578
(Unaudited)
Balances, 12/31/95 1,879,956 19 64,728 23,045 312 (479) 87,625
Net income 3,997 3,997
Cash dividend (1,636) (1,636)
Stock dividend 1,879,956
Net Changes in
Unrealized
Depreciation on
Securities AFS (1,464) (1,464)
Sales of Treasury Stk 631 631
Purchases of Treasury (178) (178)
Balances, 06/30/96 3,759,912 19 64,728 25,406 (1,152) (26) 88,975
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Unaudited
Six months ended
OPERATING ACTIVITIES June 30,
1996 1995
Net income 3,997 3,648
Adjustments to reconcile net
income to cash provided by
operating activities:
Provision for loan losses 535 110
Depreciation on prem and equip 867 716
Amort and accrt of inv sec 459 250
(Incr) decr in other assets (2,607) (7,372)
Incr (decr) in other liab's (1,081) (1,223)
Net cash provided (used) by oper activ 2,170 (3,871)
INVESTING ACTIVITIES
Proceeds from sales and
maturities of AFS securities 24,542 28,218
Proceeds from maturities of
held-to-maturity securities 12,574 1,788
Purchases of investment sec (22,355) (11,580)
Net (incr) decr in fed fund sold 5,935 (61,835)
Net (incr) decr in loans (58,353) (27,072)
Purchases of prem and equip (3,807) (2,841)
Net cash used in investing activ (41,464) (73,322)
FINANCING ACTIVITIES
Net incr (decr) in DDA 9,791 (14,414)
Net incr (decr) in sav & MMDA (3,853) (10,090)
Net incr (decr) in time deposits 13,960 77,382
Net increase (decrease) in
repurchase agreements and FFP 11,247 (4,622)
Net incr (decr) in other borrowings 17,000 0
Cash dividends paid (1,636) (1,361)
Sales of treasury stock 631 0
Purchase of treasury stock (178) (211)
Net cash provided by financing activ 46,962 75,512
Increase (decrease) in cash
and cash equivalents 7,668 (1,681)
Cash and cash equivalents at
the beginning of the period 54,938 61,354
Cash and cash equivalents at
the end of the period 62,606 59,673
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PIONEER BANCSHARES, INC.
A. PRESENTATION OF FINANCIAL INFORMATION
The financial statements in this report have not been audited.
The information included herein should be read in conjunction
with the notes to consolidated financial statements included in
the 1995 Annual Report to Shareholders which was furnished to
each shareholder of the Company on April 30, 1996. The
consolidated financial statements presented herein conform to
generally accepted accounting principles and to general industry
practices. All prior period financial statement data has been
restated to reflect the pooling of interest method of accounting.
All prior period per share data has been restated to reflect the
two for one stock split approved at the annual meeting of Pioneer
Bancshares, Inc. stockholders held on May 21, 1996.
Consolidation
The accompanying consolidated financial statements include the
accounts of Pioneer Bancshares, Inc., its subsidiaries, Pioneer
Bank and Valley Bank, and Pioneer Bank's subsidiaries and
trusteed affiliates. Pioneer Bank's subsidiaries include Pioneer
Securities, Inc. (PSI), Marion Properties, Inc. and Center
Finance Corporation. The trusteed affiliates of Pioneer Bank
include Frontier Corporation and Valley Company with Valley's
wholly-owned subsidiary. Collectively Pioneer Bancshares and its
subsidiaries and trusteed affiliates are referred to as the
"Company." Frontier Corporation and Valley Company are held in
trust for the benefit of Pioneer Bank's shareholders for a period
of one hundred years from 1956. At any time, the trusts may be
liquidated by a two-thirds vote of Pioneer Bank's shareholders.
Center Finance Corporation will engage in consumer finance and
related activities in Athens, Tennessee and is expected to open
in the third quarter of 1996.
Substantially all intercompany transactions, profits and balances
have been eliminated.
Accounting Policies
During interim periods, the Company follows the accounting
policies set forth in its Form 10-K for the year ended December
31, 1995, as filed with the Securities and Exchange Commission.
Since 1995, there have been no changes in any accounting
principles or practices, or in the method of applying any such
principles or practices.
Interim Financial Data (Unaudited)
In the opinion of Company management, the accompanying interim
financial statements contain all material adjustments, consisting
only of normal recurring adjustments necessary to present fairly
the financial condition, the results of operations, cash flows
and stockholders' equity of the Company for the interim periods.
Results for interim periods are not necessarily indicative of the
results to be expected for a full year.
Deferred Taxes
Deferred income taxes arise from temporary differences between
the income tax basis and the financial reporting basis of assets
and liabilities. If it is more likely than not that some portion
or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
Common Stock Data
Earnings per share is computed by dividing the net income for the
period by the weighted average number of common shares
outstanding during the period.
FASB Statements No. 114 & 118
The Company adopted FASB Statements No. 114 & 118 in the first
quarter of 1995. For purposes of these Statements, management
maintains the following policy. Impaired loans are divided into
two classifications: doubtful and loss. "Doubtful" loans
indicate probable loss and are reserved at 50% of outstanding
principal regardless of underlying collateral value. If
collateral value is less than 50% of principal, then additional
specific reserves are allocated. "Loss" loans are deemed
uncollectible by management and are reserved at 100% of
outstanding principal value. The Company charges-off loans that
it deems to be substantially uncollectible. The Directors Loan
Committee approves all loan charge-offs. The following table
details impaired loans:
June 30,
1996 1995
Principal balance 66,797 71,451
Interest income recorded during loan impair 0 0
Reserve for potential credit losses 36,504 38,474
Unreserved portion of impaired loans 30,293 32,977
Average principal balance QTD 206,463 143,348
Average principal balance YTD 152,714 193,047
Impaired loans are identified according to the two classification
methods in the following table:
June 30,
1996 1995
Doubtful loans outstanding 60,587 65,953
Loss loans outstanding 6,210 5,498
ITEM 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
of Pioneer Bancshares, Inc.
OVERVIEW
The Company ended the first quarter with total assets of $847.7
million, a 6.1% increase from December 31, 1995. The Company
reported net income of $4.0 million, or $1.06 per share, for the
six months ended June 30, 1996, compared to $3.6 million, or
$0.97 per share, for the same period in 1995.
NET INTEREST INCOME
Net interest income was $7.5 million for the three months ended
June 30, 1996, compared to $6.4 million for the same period in
1995. This level of net interest income resulted primarily from,
among other things, an increase in net interest spread of 32
basis points to 3.60% from 3.28% . The net interest margin was
4.38% in the second quarter of 1996 compared to 4.26% in the
second quarter of 1995. The margin increased because the yield
on interest earning assets increased 23 basis points, while the
rate paid on interest bearing liabilities decreased nine basis
points. (See "ASSET/LIABILITY MANAGEMENT."
CASH and DUE FROM BANKS
Cash and due from banks increased from $54.9 million as of
December 31, 1995, to $62.6 million as of June 30, 1996,
representing a 14.0% increase. The increase is indicative of
normal business cycles in the industry. Cash and due from bank
balances will fluctuate depending on monthly cycles and the
volume of uncollected funds deposited by bank customers. It is
management's desire to maintain adequate cash reserves to meet
our customers' cash needs.
INVESTMENTS
Investment securities decreased from $287.0 million to $270.3
million, or 6.2% from December 31, 1995 to June 30, 1996. This
decrease was due to maturities in the held-to-maturity category
which were not reinvested in investment securities, but rather
funded loan portfolio growth.
The increase in long term interest rates during 1996 has devalued
the investment portfolio by $1.5 million. Interest rates
increased due to indices that reflect that the economy is
generally strong, as well as a to curb inflation. Regarding the
investment portfolio, management intends to (i) buy securities
only during those times when prices appear most favorable, (ii)
maintain maturities four years or less and (iii) avoid mortgage-
backed securities and structured notes.
FASB 115 requires that the "Available for Sale" portfolio be
valued at market prices and any difference be recorded as a
change in asset value of the investment portfolio and capital.
As of June 30, 1996, the FASB 115 adjustment resulted in a
decrease in the asset value of the investment portfolio of $1.5
million and an adjustment to the capital account of $1.2 million,
after reserving $304,000 for deferred taxes.
As of June 30, 1996, the Company had no investment in Federal
Funds compared to $5.9 million at December 31, 1995. Management
continually monitors the Company's liquidity position to
determine the necessary balances of short term investments and to
consider alternative uses of such funds.
LOAN PORTFOLIO
Loans, net of unearned income increased $57.4 million or 13.6%
from December 31, 1995 to June 30, 1996. The loan mix changed
marginally from year end 1995 to quarter end, June 30, 1996. A
large increase is noted in commercial loans of $25.7 million or
32.3% from December 1995 to June 1996. Consumer installment
loans increased $12.6 million or 24.7%, due to the indirect auto
loan program. The next largest percentage increase was 9.7% and
occurred in the residential real estate loans with growth of
$11.4 million from December 31, 1995 to June 30, 1996. Real
estate construction loans increased $6.5 million, for the same
period.
The Company had no foreign loans or loans to lesser developed
countries as of June 30, 1996. The Company's loan mix is further
described in the table below.
LOAN PORTFOLIO
(in thousands)
June Percent December Percent
1996 of Total 1995 of Total
Commercial, financial
and agricultural 104,978 21.85% 79,324 18.74%
Real estate:
Construction and
land development 25,197 5.24% 18,671 4.41%
Residential 128,534 26.75% 117,182 27.69%
Commercial 154,138 32.07% 153,354 36.24%
Consumer:
Credit cards 3,654 0.76% 3,253 0.77%
Installments 63,625 13.24% 51,040 12.06%
Lease financing 421 0.09% 367 0.09%
Total Gross Loans 480,547 100.00% 423,191 100.00%
Less:
Unearned income 1,605 1,688
Allowance for
for loan loss 5,493 5,872
Total Net Loans 473,449 415,631
Management does not anticipate the current loan mix to change
significantly over the remainder of 1996.
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses decreased $379,000 or 6.5%
during the first six months of 1996. The provision charged to
expense is based on continuous analysis by the Company's
management of potential losses in the loan portfolio.
ALLOWANCE FOR LOAN LOSSES
(in thousands)
1996 1995
Quarter Ending June 30 Mar 31 Dec 31 Sept 30 June 30
Balance, begin of period 5,741 5,872 5,609 5,500 5,440
Loans charged-off 1,069 481 146 119 148
Loans recovered 566 70 80 49 178
Net charge-offs(recovries) 503 411 66 70 (30)
Provision for loan
losses charged to expense 255 280 329 179 30
Balance, end of period 5,493 5,741 5,872 5,609 5,500
Allowance for loan
losses as a percentage
of ave loans outstanding
for the period 1.19% 1.32% 1.45% 1.52% 1.55%
Allowance for loan
losses as a percentage
of nonperforming
assets and loans 90
past due outstanding
at end of the period 145.66% 211.77% 255.64% 251.86% 330.53%
Annualized QTD net
charge-offs as
a percentage of
average loans outstanding
for the period 0.44% 0.38% 0.07% 0.08% -0.03%
Annualized YTD net
charge-offs as
a percentage of
average loans outstanding
for the period 0.41% 0.38% 0.03% 0.01% -0.02%
The Company's allowance for possible loan losses as a percentage
of loans, net of unearned income, was 1.19% at June 30, 1996 as
compared to 1.45% at December 31, 1995. The allowance for loan
losses at June 30, 1996, and December 31, 1995, provided 150.08%
and 255.6% coverage, respectively, of nonperforming assets. Net
charge-offs (annualized as a percentage of average quarter-to-
date loans) were 0.44% during the first quarter of 1996 as
compared to -0.03% for the same period one year ago. At June 30,
1996, management believes that the allowance for possible loan
losses is sufficient to absorb potential losses.
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets include nonperforming loans, foreclosed real
estate held for sale and foreclosed other personal property held
for sale. As of June 30, 1996, nonperforming assets were $2.5
million as compared to $1.9 million at December 31, 1995. The
ratio of nonperforming assets to loans, net of unearned income,
other real estate and other nonperforming assets was 0.54% at
June 30, 1996, compared to 0.47% at December 31, 1995 and 0.43%
at June 30, 1995.
Total nonperforming loans to total average loans increased from
0.28% at December 31, 1996, to 0.42% at June 30, 1996. Likewise,
loans past due 90 days or more as a percentage of total average
loans increased to 0.27% as of June 30, 1996, compared to 0.09%
as of December 31, 1995. Management does not expect that the
majority of the loans over 90 days past due (as of June 30, 1996)
to be placed in nonaccrual status. Senior management believes
that asset quality will improve to previous levels by year end
1996.
Net loans charged off during the second quarter of 1996 were
$503,000 compared to a $30,000 net recovery for the same period
of 1995. Further detail of loan charge-offs and recoveries is
presented in the table "Allowance for Loan Losses."
NONPERFORMING ASSETS AND PAST DUE LOANS
(in thousands)
1996 1995
Quarter Ending June 30 Mar 31 Dec 31 Sept 30 June 30
Avg loans, net of
unearned income 461,337 434,323 406,150 369,385 353,762
Nonaccrual loans 1,915 1,160 1,153 881 694
Renegotiated or
restructured loans 0 0 0 0 0
Total nonperf loans 1,915 1,160 1,153 881 694
OREO,net 480 840 761 699 834
Other non-perf assets 111 54 0 0 0
Total nonperf assets 2,506 2,054 1,914 1,580 1,528
Loans 90 days or more past
due and still accruing 1,265 711 383 647 136
Total nonperforming
loans as a percentage
of total loans 0.42% 0.27% 0.28% 0.24% 0.20%
Total nonperforming
assets as a percentage
of total loans, OREO
and other nonperf assets 0.54% 0.47% 0.47% 0.43% 0.43%
Loans 90 days past due
as a percentage
of total loans 0.27% 0.16% 0.09% 0.18% 0.04%
DEPOSITS
Total deposits increased $19.9 million or 3.0% from $662.1
million at December 31, 1995 to $682.0 million at June 30, 1996.
The increase is due primarily to customers investing in time
deposits to attain marginally higher yields over other deposit
products. Total time deposits of less than $100,000 increased
$14.0 million from December 31, 1995 to June 30, 1996.
Federal funds purchased and securities sold under agreements to
repurchase increased $11.2 million or 26.8% from December 31,
1995 to June 30, 1996. Counterparties to the agreements to
repurchase are commercial account customers, where excess funds
from noninterest bearing checking accounts are transferred
nightly to a collateralized interest bearing repurchase account.
These accounts are not FDIC insured, therefore the Company
collateralizes the deposits with securities from the investment
portfolio. For the quarter ended June 30, 1996, none of the
repurchased agreements were brokered. As of June 30, 1996, the
Company's federal funds purchased position was $20.3 million
compared to $5.0 million as of December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity represents the ability to provide funding for lending
and investment activities, as well as to cover deposit
withdrawals and pay debt and operating obligations. Maintaining
an adequate level of liquidity is an important component of the
Company's balance sheet management objectives.
Net cash provided by operating activities for the six months
ended June 30, 1996, totaled $2.2 million. For the same period,
net cash used by investing activities totaled $41.5 million
consisting of proceeds from maturities and sales of investment
securities of $37.1 million, with cash outflows of $22.4 million
in investment securities purchases, and a $53.4 million increase
in loans outstanding. Net cash provided by financing activities
of $47.0 million consisted of increases in demand deposits, time
deposits, repurchase agreements, federal funds purchased and
other borrowings of $52.0 million. The payment of $1.6 million in
common stock dividends ($0.435 per share) was funded from
earnings. Management will stagger the purchases of investment
securities within a four year maturity horizon to provide
sufficient liquidity to the loan portfolio. Management does not
anticipate any unexpected funding needs in the near future that
could not be satisfied with current cash generated from investing
activities.
Total stockholders' equity, adjusted for the unrealized
appreciation on securities available for sale, to total assets at
June 30, 1996 and December 31, 1995 was 10.63% and 10.92%,
respectively. The Company's book value per share increased from
$23.31 at December 31, 1995 to $23.66 at June 30, 1996. The
Company's Tier I risk based capital ratio, total risk based
capital ratio and leverage capital ratio at June 30, 1996 were
13.94%, 14.85% and 10.33%, respectively, exceeding the fully
phased-in required capital ratios of 4.00%, 8.00% and 3.00%,
respectively. These ratios as of December 31, 1995, were 14.77%,
15.85% and 10.11%, respectively. Increased regulatory activity
in the financial industry as a whole will continue to impact the
structure of the industry; however, management does not
anticipate any negative impact on the capital resources or
operations of the Company.
INTEREST RATE SENSITIVITY
The following table illustrates the Company's exposure to
interest rate fluctuations as of June 30, 1996:
Interest Rate Sensitivity Analysis
as of June 30, 1996
(in thousands)
Over 3 Over 1
Months Year Non-
3 Months through through Over Interest
or less 12 Months 5 Years 5 Years Sensitive Total
ASSETS:
Interest earning assets:
Loans, net of
unearned inc 153,009 70,460 239,682 15,791 478,942
Less:
Allowance for
loan losses (5,493) (5,493)
Net loans 153,009 70,460 239,682 15,791 (5,493) 473,449
Inv sec 11,856 52,141 141,427 64,900 270,324
FFS 0 0
Total earning
assets 164,865 122,601 381,109 80,691 (5,493) 743,773
Cash and other assets 103,909 103,909
Total assets 164,865 122,601 381,109 80,691 98,416 847,682
Over 3 Over 1
Months Year Non-
3 Months through through Over Interest
or less 12 Months 5 Years 5 Years Sensitive Total
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Interest Bearing
Liabilities:
Int bearing DDA 9,621 14,432 96,210 120,263
Money mkt accts 8,561 17,120 17,120 42,801
Savings deps 6,924 10,386 69,244 86,554
Other time deps 75,002 134,659 35,896 55 245,612
CD's of
CD's >$100,000 18,098 27,013 6,264 51,375
FFP & securities
sold under agrmnt
to repurchase 53,162 53,162
Other borrowings 7,000 10,000 17,000
Total
Total interest
bearing liabs 178,368 203,610 234,734 55 616,767
Non-interest
bearing DDA 135,388 135,388
Other liabilities 6,552 6,552
Stkhldrs' equity 88,975 88,975
Total liabs
and stk eq 178,368 203,610 234,734 55 230,915 847,682
Interest
sensitivity
gap (13,503) (81,009) 146,375 80,636
Cumulative
interest
sensitivity
gap (13,503) (94,512) 51,863 132,499
Cumulative
interest
sensitivity
gap as a
percentage
of total
earning assets -1.8% -12.7% 7.0% 17.8%
In analyzing the interest rate sensitivity at June 30, 1996, the
Company is liability sensitive in the less than twelve month
categories in the amount of $94.5 million. In the greater than
one year categories, the Company is asset sensitive in the amount
of $227.0 million. Overall the Company is asset sensitive in the
amount of $132.5 million. During periods of increasing interest
rates asset sensitivity would enable the Company to reprice
earning assets faster than interest bearing liabilities,
therefore optimizing net interest margins. During periods of
decreasing interest rates, being asset sensitive would narrow net
interest margins, because interest earning assets would reprice
faster at lower rates before the repricing of the interest
bearing liabilities. Management maintains several interest rate
risk models, regularly meets with the Board of Directors to
discuss asset/liability management issues and believes this level
of exposure to interest rate fluctuations to be acceptable.
NET INCOME
Net income for the three months ended June 30, 1996 increased
$245,000 or 14.1% over the same period in 1995. Net income per
share for the quarter increased $0.07 or 14.1% to $0.53 per share
compared to $0.46 per share for the same period one year ago.
Annualized return on average assets for the three months ending
June 30, 1996 was 0.96% as compared to 0.99% for 1995. The
annualized return on average equity for the second quarter of
1996 was 8.84% compared to 8.29% for the same period in 1995.
For the six months ended June 30, 1996, net income increased
$355,000 or 9.7% over net income for the six months ended June
30, 1995. Earnings per share increased $0.09 or 9.7% from $0.97
per share to $1.06 per share for the same period. On an
annualized basis, the return on average assets decreased from
1.05% as of June 30, 1995, to 0.99% as of June 30, 1996.
Whereas, the return on average equity increased from 8.83% for
the first two quarters of 1996 to 8.91% for the same period in
1995.
NET INTEREST MARGIN
The following table shows average balances, interest income and
interest expense, and yields/rates for the three months and for
the six months ending June 30, 1996 and 1995.
CONSOLIDATED AVERAGE BALANCE SHEET
INTEREST INCOME/EXPENSE AND
YIELD/RATES
Taxable Equivalent Basis
(in thousands) Three months ended
June 30,
Assets 1996 1995
Ave Inc/ Yield/ Ave Inc/ Yield/
Earning assets: Bal Exp Rate Bal Exp Rate
Loans, net unearn inc 461,337 10,068 8.73% 353,762 7,722 8.73%
Investment securities 277,233 4,459 6.43% 270,530 4,332 6.41%
Other earning assets 4,292 60 5.59% 24,433 355 5.81%
Total earning assets 742,862 14,587 7.85% 648,725 12,409 7.65%
Allowance for loan loss (5,829) (5,500)
Cash and other assets 86,300 55,487
TOTAL ASSETS 823,333 698,712
Liabilities and Stockholders' Equity
Interest bearing
liabilities:
Int bearing DDA 117,152 783 2.67% 106,752 802 3.01%
Savings deposits 87,202 574 2.63% 81,289 563 2.77%
Time deposits 282,843 3,573 5.05% 236,145 3,058 5.18%
Time dep > $100,000 54,395 787 5.79% 44,865 656 5.85%
FFP & sec sold under
agreement to repur 54,406 590 4.34% 34,039 417 4.90%
Other borrowings 10,307 182 7.06% 0 0 0.00%
Total int bearing liab 606,305 6,489 4.28% 503,090 5,496 4.37%
Net interest spread 8,098 3.57% 6,913 3.28%
Nonint bearing DDA 120,392 106,725
Accr exp & other liabs 6,785 5,149
Stockholders' equity 89,851 83,748
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 823,333 698,712
Net yield on earn assets 4.36% 4.26%
Taxable equivalent
adjustment:
Loans 35 39
Investment securities 533 511
Total adjustment 569 550
CONSOLIDATED AVERAGE BALANCE SHEET
INTEREST INCOME/EXPENSE AND
YIELD/RATES
Taxable Equivalent Basis
(in thousands) Six months ended
June 30,
Assets 1996 1995
Ave Inc/ Yield/ Ave Inc/ Yield/
Earning assets: Bal Exp Rate Bal Exp Rate
income 447,830 19,533 8.72% 346,261 14,905 8.61%
Investment securities 280,451 8,919 6.36% 273,264 8,749 6.40%
Other earning assets 5,574 157 5.63% 21,221 619 5.83%
Total earning assets 733,855 28,611 7.80% 640,746 24,273 7.58%
Allowance for loan loss (5,786) (5,470)
Cash and other assets 83,297 58,239
TOTAL ASSETS 811,366 693,515
Liabilities and Stockholders' Equity
Interest bearing
liabilities:
Int bearing DDA 118,209 1,563 2.64% 108,458 1,494 2.73%
Savings deposits 87,677 1,138 2.60% 82,132 1,131 2.75%
Time deposits 279,749 7,221 5.16% 230,235 5,626 4.89%
Time dep > $100,000 52,936 1,491 5.63% 49,509 1,361 5.50%
FFP and sec sold under
agreement to repur 49,225 1,075 4.37% 30,417 743 4.89%
Other borrowings 8,505 233 5.48% 0 0 0.00%
Total int bearing liab 596,301 12,721 4.27% 500,751 10,355 4.14%
Net interest spread 15,890 3.53% 13,918 3.44%
Nonint bearing DDA 117,539 105,625
Accr exp & other liab 7,842 4,607
Stockholders' equity 89,684 82,533
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 811,366 693,515
Net yield on earn assets 4.33% 4.34%
Taxable equivalent
adjustment:
Loans 74 67
Investment securities 1,042 1,035
Total adjustment 1,116 1,102
ASSET/LIABILITY MANAGEMENT
The net yield on earning assets increased 10 basis points from
the second quarter of 1995 to the second quarter of 1996, 4.26%
to 4.36%, respectively. The increase resulted from changes in
rates, volumes and mix of interest earning assets and interest
bearing liabilities. In addition, the average balance of
noninterest bearing demand deposits increased $13.7 million or
12.8%. On a tax equivalent basis, interest income on earning
assets increased $2.2 million or 17.6% due to an increase of
$94.1 million or 14.5% in the average volume of interest earning
assets. Although the rates earned on the loans and investment
securities remained relatively unchanged, the mix of interest
earning assets continues to develop toward the higher yielding
assets. The average balances of loans increased $107.6 million
or 30.4%, while the average balance of securities increased $6.7
million or 2.5% and the average balance of other earning assets,
primarily federal funds sold, decreased $20.1 million or 82.4%.
As a percentage of total earning assets, loans increased from
54.6% to 62.1%, investment securities decreased from 41.7% to
37.3%, and other earning assets decreased from 3.7% to 0.6%, for
the second quarter of 1995 and the second quarter of 1996,
respectively. Rates earned on loans remained unchanged, while
rates earned on investment securities increased two basis points.
The rates earned on other earning assets decreased 22 basis
points. The rate on total earning assets increased 20 basis
points due to the change in mix. Interest expense on deposits
increased $993,000 or 18.1% in the second quarter of 1996
compared to the same period last year. Average balances on
interest bearing liabilities increased by $103.2 million or
20.5%. The average balances of interest bearing demand deposits
increased from second quarter of 1995 to first quarter of 1996 by
$10.4 million or 9.7%. Savings accounts increased for the same
time periods by $5.9 million or 7.3%. The rates paid on these
type of accounts during the three months ending June 30, 1996,
and 1995, decreased 34 and 14 basis points, for interest bearing
demand deposits and savings deposits, respectively. The average
balance of time deposits, including time deposits over $100,000,
increased $56.2 million or 20.0% and the rate paid decreased 12
basis points. Net interest spread and net interest spread rate
increased from second quarter 1995 to first quarter 1996 by $1.2
million and 29 basis points, respectively.
The Company experienced a slight decrease of one basis point in
the net yield on interest earning assets for the six months ended
June 30, 1996, compared to the same period in 1995. This
decrease resulted from changes in rates, volumes and mix of
interest earning assets and interest bearing liabilities. In
addition, the average balance of non-interest bearing demand
deposits increased $11.9 million or 11.3%. Tax equivalent
interest income on earning assets increased $4.3 million or 17.9%
due to an increase of $93.1 million or 14.5% in the average
volume of interest earning assets, as well as an increase in the
rate earned on total interest earning assets. The mix of
interest earning assets changed significantly with the average
balance of loans increasing $101.6 million or 29.3%, the average
balance of investment securities increasing $7.2 million and the
average balance of other earning assets decreasing $15.6 million,
respectively. As a percentage of total earning assets, loans
increased from 54.1% in 1995 to 61.0% in 1996, investment
securities decreased from 42.6% to 38.2% and other earning assets
decreased from 3.3% to 0.8%. Rates earned on loans increased 11
basis pointsform 1995 to 1996. Whereas, rates earned on
investments and other earning assets decreased four and 20 basis
points, respectively. Interest expense on deposits increased by
$2.4 million or 22.8% from $10.4 million in 1995 to $12.7 million
in 1996. Average balances on interest bearing liabilities
increased by $95.6 million or 19.1%. The average balances of
interest bearing demand deposits and savings accounts increased
by 9.0% and 6.8%, respectively. The rates paid on these type of
accounts declined 12 and 15 basis points, respectively. The
average balance of time deposits, including time deposits over
$100,000, increased $52.9 million or 18.9% and the rate paid
increased 24 basis points. Net interest spread increased $2.0
million or 14.2% from 1995 to 1996, as did the spread rate
increase 9 basis points.
NONINTEREST INCOME
Noninterest income consists of revenues generated from a broad
range of financial services and activities including fee-based
services and commissions.
NONINTEREST INCOME
(in thousands)
Three Months Six Months
Ended June 30, Percent Ended June 30, Percent
1996 1995 Change 1996 1995 Change
Service charge on
deposit accounts 958 796 20.35% 1,821 1,582 15.11%
Trust fees 335 298 12.42% 648 578 12.11%
Net securities
gains realized (99) (1) 98.00% 63 (47)234.04%
Other income 522 362 44.20% 1,125 738 52.44%
TOTAL 1,716 1,455 17.94% 3,657 2,851 28.27%
Service charges increased $162,000, or 20.4%, for the three
months ended June 30, 1996, as compared to the quarter ended June
30, 1995. Trust fees increased $37,000, or 12.4%, from the
second quarter of 1995 compared to the second quarter of 1996.
Net securities losses of $99,000 were realized in the second
three months of 1996, compared to the loss of $1,000 realized in
the same period of 1995. In June 1996, Pioneer Bank wrote down
the value of an investment security by $110,000 to a level that
is reasonably expected to be realized at maturity. Management
believes that this is a non recurring event. Other noninterest
income increased $160,000, or 44.2%, for the second quarter 1996
compared to the second quarter of 1995.
For the six months ended June 30, 1996, service charges on
deposit accounts increased $239,000 or 15.1% over the same period
in 1995. The primary reason for the increase is because the
service charges applied to the deposits acquired via the Marion
County Branch Purchase, consummated on June 15, 1995, were
earned in 1996 but not in 1995. Other income increased $387,000
or 52.4%, for the first six months of 1996 compared to the first
six months of 1995.
NONINTEREST EXPENSE
Salaries and benefits increased $612,000, or 21.3%, for the three
months ending June 30, 1996, as compared to June 30, 1995. The
increase was due primarily to the additional employees with the
Marion County Branch Purchase. Occupancy expenses increased
$158,000, or 21.5%, due to depreciation on the properties put
into commission in the second half of 1995. Management
anticipates this level of spending for occupancy expense to
increase through the remainder of the year of 1996 as renovations
for expanding the downtown office continue and the new South
Pittsburg branch opens. Other expenses decreased $48,000, or
2.4% over these same periods.
NONINTEREST EXPENSE
(in thousands)
Three Months Six Months
Ended June 30, Percent Ended June 30, Percent
1996 1995 Change 1996 1995 Change
Salaries and
benefits 3,481 2,869 21.33% 6,755 5,629 20.00%
Net occupancy exp 894 736 21.47% 1,791 1,377 30.07%
Other expense 1,919 1,967 (2.44%) 3,856 3,814 1.10%
TOTAL 6,294 5,572 12.96% 12,402 10,820 14.62%
For the six months ended June 30, 1996, total non interest
expense increased $1.6 million or 14.6% over the six months ended
June 30, 1995. The increase is due to similar reasons as the
increases in the quarter to date data.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes increased $236,000, or
49.70%, to $711,000 for the three months ended June 30, 1996, as
compared to $475,000 for the same period in 1995. The effective
tax rate was 26.4% for the three months ended June 30, 1996 as
compared to 21.4% for June 30, 1995. For the six months ended
June 30, 1996, income taxes increased $408,000 or 37.5% compared
to the first six months of 1995. For the same period the
effective tax rate increased from 23.0% to 27.2%. The notes to
the financial statements provide additional information regarding
the Company's taxes.
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Change in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
The annual meeting of Pioneer Bancshares, Inc.
stockholders was held on May 21, 1996 at the corporate
offices of Pioneer Bank. Only those items disclosed
within the Pioneer Bancshares, Inc. Proxy Statement
were voted.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) The exhibits filed as part of the Report are as follows:
Exhibit
Number Description
3(a) Certificate of Incorporation, incorporated
herein by reference from Registrant's
Registration Statement on Form S-4
(Registration No. 33-49360).
3(b) By-laws, incorporated herein by reference
from Registrant's Registration Statement
on Form S-4 (Registration No. 33-49360)
11 Statement Re Computation of Per Share Earnings
(b) Reports on Form 8-K.
None
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.
Pioneer Bancshares, Inc.
Date: August 14, 1996 /s/ Rodger B. Holley
Rodger B. Holley
President and CEO
Date: August 14, 1996 /s/ Gregory B. Jones
Gregory B. Jones
EVP and Treasurer
Date: August 14, 1996 /s/ William L. Lusk, Jr.
William L. Lusk, Jr.
VP and Conroller
PIONEER BANCSHARES, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
Number Description Page
3(a) Certificate of Incorporation,
incorporated herein by reference
from Registrant's Registration
Statement on Form S-4
(Registration No. 33-49360).
3(b) By-laws, incorporated herein by
reference from Registrant's
Registration Statement on Form S-4
(Registration No. 33-49360).
11 Statement Regarding Computation
of Net Earnings per Share 23,24
PIONEER BANCSHARES, INC.
Form 10-Q, Part II, Item 6
Exhibit 11 - Statement Regarding Computation of
Net Earnings Per Share
For the three months ended June 30, 1996 1995
Income as reported in
consolidated statement of income $1,986,000 $1,741,000
Per share computation of common
and dilutive common equivalent shares:
Weighted average number of
shares outstanding 3,759,912 3,759,912
Weighted average number of
shares issuable upon exercise
of stock options applying the
treasury stock method 0 0
Weighted average number of
shares outstanding used to
calculate per share data
assuming no dilution 3,759,912 3,759,912
Net income per common and
common equivalent share $ 0.53 $ 0.46
Per share computation assuming
full dilution:
Weighted average number of
shares outstanding 3,759,912 3,759,912
Weighted average number of
shares issuable upon exercise
of stock options applying the
treasury stock method 0 0
Weighted average number of
shares outstanding used to
calculate per share data
assuming full dilution 3,759,912 3,759,912
Net income per common and
common equivalent share
assuming full dilution $ 0.53 $ 0.46
PIONEER BANCSHARES, INC.
Form 10-Q, Part II, Item 6
Exhibit 11 - Statement Regarding Computation of
Net Earnings Per Share
For the six months ended June 30, 1996 1995
Income as reported in
consolidated statement of income $3,997,000 $3,648,000
Per share computation of common
and dilutive common equivalent
shares:
Weighted average number of
shares outstanding 3,759,912 3,759,912
Weighted average number of
shares
shares issuable upon exercise
of stock options applying the
treasury stock method 0 0
Weighted average number of
shares outstanding used to
calculate per share data
assuming no dilution 3,759,912 3,759,912
Net income per common and
common equivalent share $ 1.06 $ 0.97
Per share computation assuming
full dilution:
Weighted average number of
shares outstanding 3,759,912 3,759,912
Weighted average number of
shares
shares issuable upon exercise
of stock options applying the
treasury stock method 0 0
Weighted average number of
shares outstanding used to
calculate per share data
assuming full dilution 3,759,912 3,759,912
Net income per common and
common equivalent share assuming
full dilution $ 1.06 $ 0.97
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