<PAGE> 1
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, 1997
---------------------
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 No.)
incorporation or organization)
801 Broad Street, Chattanooga, TN 37402
- - --------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
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, 1997:
Title of Class Number of Shares Outstanding
-------------- ----------------------------
Common Stock, $.005 Par Value 3,759,912
<PAGE> 2
PIONEER BANCSHARES, INC.
<TABLE>
<CAPTION>
INDEX PAGE
- - ----- ----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1997,
December 31, 1996 and June 30, 1996 1
Consolidated Statements of Income -
Three Months and Six Months Ended June 30, 1997
and June 30, 1996 2
Consolidated Statements of Changes in Shareholders' Equity -
Six Months Ended June 30, 1997 and June 30, 1996 3
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and June 30, 1996 4-5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
of Pioneer Bancshares, Inc. 9-22
PART II. OTHER INFORMATION 23
Signatures 24
Exhibit Index 25
</TABLE>
<PAGE> 3
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION Unaudited Unaudited
(in thousands) June 30, December 31, June 30,
--------- ------------ ---------
ASSETS 1997 1996 1996
--------- ------------ ---------
<S> <C> <C> <C>
Cash and due from banks $ 62,988 $ 57,565 $ 62,606
Investment securities:
Held-to-maturity (fair value of $53,127 at
June 30, 1997, $59,319 at December 31,
1996, and $63,687 at June 30, 1996) 53,133 59,409 65,392
Available-for-sale 189,784 191,519 204,932
Federal funds sold 3,470 -- --
Loans 593,745 524,849 480,547
Less: Unearned income 1,872 1,596 1,605
Allowance for loan losses 6,939 5,758 5,493
--------- --------- ---------
Net loans 584,934 517,495 473,449
Premises and equipment, net of accumulated
depreciation 20,448 20,242 20,024
Intangible assets 6,035 6,450 6,864
Other assets 15,324 14,560 14,415
--------- --------- ---------
Total Assets
$ 936,116 $ 867,240 $ 847,682
========= ========= =========
LIABILITIES
Deposits
Noninterest bearing demand deposits $ 142,597 $ 125,530 $ 135,388
Interest bearing demand deposits 128,563 120,146 120,263
Money market accounts 45,383 43,008 42,801
Savings deposits 101,936 112,684 86,554
Time deposits of less than $100,000 251,865 235,114 245,612
Time deposits of $100,000 or more 71,836 56,086 51,375
--------- --------- ---------
Total deposits 742,180 692,568 681,993
Federal funds purchased and securities
sold under agreements to repurchase 61,508 63,339 53,162
Other borrowings 28,000 10,000 17,000
Other liabilities 7,971 7,410 6,552
--------- --------- ---------
Total liabilities 839,659 773,317 758,707
--------- --------- ---------
STOCKHOLDERS' EQUITY
Common stock par value $.005 per share;
8,000,000 authorized; 3,759,912 issued 19 19 19
Surplus 64,728 64,885 64,728
Retained earnings 31,901 28,771 25,406
Unrealized appreciation/(depreciation) on
securities available for sale 783 807 (1,152)
Less: treasury stock - at cost 974 559 26
--------- --------- ---------
Total stockholders' equity 96,457 93,923 88,975
--------- --------- ---------
Total Liabilities and Stockholders' Equity $ 936,116 $ 867,240 $ 847,682
========= ========= =========
</TABLE>
1
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Unaudited Unaudited
Three months ended Six months ended
June 30, June 30,
-----------------------------------------
INTEREST INCOME 1997 1996 1997 1996
-------- ------------------- --------
<S> <C> <C> <C> <C>
Interest and fees on loans $ 12,790 $ 10,033 $ 24,325 $ 19,461
Interest on investment securities
Taxable 2,620 2,907 5,195 5,887
Tax exempt 1,020 1,019 1,984 1,990
Interest on federal funds sold 151 54 335 148
Interest on other earning assets 7 6 14 9
-------- ------------------- --------
Total interest income 16,588 14,019 31,853 27,495
-------- ------------------- --------
INTEREST EXPENSE
Interest bearing demand deposits 819 783 1,650 1,563
Money market accounts 407 393 823 793
Savings deposits 819 574 1,662 1,138
Time deposits of less than $100,000 3,469 3,180 6,722 6,428
Time deposits of $100,000 or more 1,032 787 1,924 1,491
Federal funds purchased and securities
sold under agreements to repurchase 805 590 1,365 1,075
Other borrowed money 209 182 341 233
-------- ------------------- --------
Total interest expense 7,560 6,489 14,487 12,721
-------- ------------------- --------
Net interest income 9,028 7,530 17,366 14,774
Provision for loan losses 1,155 255 1,621 535
-------- ------------------- --------
Net interest income
after the provision for loan losses 7,873 7,275 15,745 14,239
-------- ------------------- --------
NONINTEREST INCOME
Trust income 404 336 787 649
Service charge on deposit accounts 1,038 985 2,046 1,822
Net securities gains (losses) 70 (8) 62 (1)
Other income 657 403 1,396 1,187
-------- ------------------- --------
Total noninterest income 2,169 1,716 4,291 3,657
-------- ------------------- --------
NONINTEREST EXPENSE
Salaries and employee benefits 4,018 3,540 7,749 6,864
Occupancy 433 581 883 1,113
Other 2,439 2,173 5,006 4,425
-------- ------------------- --------
Total noninterest expense 6,890 6,294 13,638 12,402
-------- ------------------- --------
Income before provision for income taxes 3,152 2,697 6,398 5,494
Provision for income taxes 840 711 1,690 1,497
-------- ------------------- --------
NET INCOME $ 2,312 $ 1,986 $ 4,708 $ 3,997
======== =================== ========
Net income per common share $ 0.615 $ 0.528 $ 1.252 $ 1.063
Dividends declared per common share $ 0.23 $ 0.2175 $ 0.46 $ 0.4350
</TABLE>
2
<PAGE> 5
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Pioneer Bancshares, Inc.
(in thousands except for share data)
<TABLE>
<CAPTION>
Unrealized
Common Stock Appreciation
----------------------- (Depreciation)
# of Par Capital Retained Available- Treasury
Shares Value Surplus Earnings for-Sale Sec Stock Total
---------- ---------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 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
Appreciation on
Securities Available-for-Sale -- -- -- -- (1,464) -- (1,464)
Sales of Treasury Stock -- -- -- -- -- 631 631
Purchases of Treasury Stock -- -- -- -- -- (178) (178)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances, June 30, 1996 (Unaudited) 3,759,912 $ 19 $ 64,728 $ 25,406 $ (1,152) $ (26) $ 88,975
========== ========== ========== ========== ========== ========== ==========
Balances, December 31, 1996 3,759,912 $ 19 $ 64,885 $ 28,771 $ 807 $ (559) $ 93,923
Net income -- -- -- 4,708 -- -- 4,708
Cash dividend -- -- -- (1,730) -- -- (1,730)
Net Changes in Unrealized
Depreciation on
Securities Available-for-Sale -- -- -- -- (23) -- (23)
Sales of Treasury Stock -- -- -- -- -- 604 604
Purchases of Treasury Stock -- -- -- -- -- (1,013) (1,013)
Common Stock Adjustment For
Employee Stock Ownership Plan (ESOP) -- -- (157) 152 (1) (6) (12)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances, June 30, 1997 (Unaudited) 3,759,912 $ 19 $ 64,728 $ 31,901 $ 783 $ (974) $ 96,457
========== ========== ========== ========== ========== ========== ==========
</TABLE>
3
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Unaudited
Six months ended
OPERATING ACTIVITIES June 30,
-------- --------
1997 1996
-------- --------
<S> <C> <C>
Net income $ 4,708 $ 3,997
Adjustments to reconcile net income to cash
provided by operating activities:
Provision for loan losses 1,621 535
Depreciation on premises and equipment 1,285 867
Amortization and accretion of investment
securities 115 459
(Increase) decrease in other assets (349) (2,607)
Increase (decrease) in other liabilities 561 (1,081)
-------- --------
Net cash provided by operating activities 7,941 2,170
-------- --------
INVESTING ACTIVITIES
Proceeds from sales and maturities of
available-for-sale securities 64,233 24,542
Proceeds from maturities of
held-to-maturity securities 6,278 12,574
Purchases of investment securities (62,500) (22,355)
Net (increase) decrease in federal funds sold (3,470) 5,935
Net (increase) decrease in loans (69,060) (58,353)
Purchases of premises and equipment (1,641) (3,807)
-------- --------
Net cash used in investing activities (66,160) (41,464)
-------- --------
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits 25,484 9,791
Net increase (decrease) in savings and MMDA (8,373) (3,853)
Net increase (decrease) in time deposits 32,501 13,960
Net increase (decrease) in repurchase
agreements and federal funds purchased (1,831) 11,247
Net increase (decrease) in other borrowings 18,000 17,000
Cash dividends paid (1,730) (1,636)
Sales of treasury stock 604 631
Purchase of treasury stock (1,013) (178)
-------- --------
Net cash provided (used) by financing activities 63,642 46,962
-------- --------
Increase (decrease) in cash and cash
equivalents 5,423 7,668
-------- --------
Cash and cash equivalents at the beginning of
the period 57,565 54,938
-------- --------
Cash and cash equivalents at the end of
the period $ 62,988 $ 62,606
======== ========
</TABLE>
4
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Unaudited
Six months ended
SUPPLEMENTAL DISCLOSURES OF June 30,
NONCASH INVESTING AND
FINANCING ACTIVITIES
----------- -----------
1997 1996
----------- -----------
<S> <C> <C>
Increase in Other Real Estate Owned $ 353 $ 431
Unrealized Appreciation (Depreciation)
of Securities, net of Deferred Taxes $ (330) $ (1,014)
State Taxes Paid $ 565 $ 389
Federal Taxes Paid $ 2,037 $ 1,649
</TABLE>
5
<PAGE> 8
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 1996 Annual Report to Shareholders which
was furnished to each shareholder of the Company on March 24, 1997. 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 interests
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) and Center Finance Company, Inc.. The
trusteed affiliates of Pioneer Bank include Frontier Corporation and Valley
Company with Valley's wholly-owned subsidiary, Oneida Insurance Company, Inc..
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 Company, Inc.
specializes in consumer finance and related activities in Athens, Tennessee and
commenced operations in the first 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, 1996, as filed with the Securities
and Exchange Commission. Since December, 1996, 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
6
<PAGE> 9
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:
<TABLE>
<CAPTION>
---------------------
June 30,
-------- --------
1997 1996
-------- --------
<S> <C> <C>
Principal balance $303,672 $ 66,797
Interest income recorded during loan impairment -- --
Reserve for potential credit losses 172,727 36,504
Unreserved portion of impaired loans 130,945 30,293
Average principal balance quarter-to-date 169,571 206,463
Average principal balance year-to-date 159,632 152,714
</TABLE>
Impaired loans are identified according to the two classification methods in the
following table:
<TABLE>
<CAPTION>
---------------------
June 30,
-------- --------
1997 1996
-------- --------
<S> <C> <C>
Doubtful loans outstanding. $303,672 $ 60,587
Loss loans outstanding -- 6,210
</TABLE>
7
<PAGE> 10
Forward-Looking Statements
Certain written and oral statements made by or with the approval of an
authorized executive officer of the Company may constitute "forward-looking
statements" as defined under the Private Securities Litigation Reform Act of
1995. Words or phrases such as "should result, are expected to, we anticipate,
we estimate, we project" or similar expressions are intended to identify
forward-looking statements. These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from the
Company's historical experience and its present expectations or projections.
These risks and uncertainties include, but are not limited to, unanticipated
economic changes, interest rate movements and the impact of competition. Caution
should be taken not to place undue reliance on any such forward-looking
statements since such statements speak only as of the date of the making of such
statements.
B. BUSINESS COMBINATIONS
The Company has made an application to the Office of Thrift Supervision ("OTS"),
the Federal Reserve Bank of Atlanta ("FRB") and the Federal Deposit Insurance
Corporation ("FDIC") to first organize and subsequently purchase a, Tennessee
based, de novo federal savings bank ("FSB"). The Company has requested from the
FDIC to grant the federally chartered FSB a "Bank Insurance Fund" insurance
charter. The Company intends, if all approvals are granted, to manage the FSB
with the full authority and powers granted a federally chartered FSB. Regulatory
approval is expected to be completed during the third quarter, and operations
for the FSB are expected to begin during the fourth quarter. The transaction is
less than 10% of the Company's assets, therefore an 8-K filing is not expected
to be filed.
8
<PAGE> 11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OF PIONEER BANCSHARES, INC.
OVERVIEW
The Company ended the second quarter with total assets of $936.1 million, a 7.9%
increase from December 31, 1996 and a 10.4% increase from June 30, 1996. The
Company reported net income for the second quarter of $2.3 million, or $0.62 per
share, compared to $1.9 million, or $0.53 per share, for the same period in
1996. For the six months ended June 30, 1997, the Company reported $4.7 million,
or $1.25 per share, compared to $4.0 million, or $1.06 per share, for the same
period last year. The improvement in earnings represents a 16.4% increase from
the second quarter 1996 to the second quarter of 1997 and a 17.8% increase from
the first six months of 1996 to the first six months of 1997.
NET INTEREST INCOME
Net interest income was $9.0 million for the three months ended June 30, 1997,
compared to $7.5 million for the same period in 1996. This level of net interest
income resulted primarily from, among other things, an increase in net interest
spread of 35 basis points to 3.89% from 3.54%. The net interest margin was 4.64%
in the second quarter of 1997 compared to 4.33% in the second quarter of 1996.
The margin increased because the yield on interest earning assets increased 45
basis points, while the rate paid on interest bearing liabilities increased only
10 basis points.
Net interest income was $17.4 million for the six months ended June 30, 1997,
compared to $14.8 million for the same period in 1996. This level of net
interest income resulted primarily from, among other things, an increase in net
interest spread of 31 basis points to 3.81% from 3.50%. The net interest margin
was 4.56% for the six months ended June 30, 1997 compared to 4.30% for the same
period last year. The margin increased because the yield on interest earning
assets increased 37 basis points, while the rate paid on interest bearing
liabilities increased only 6 basis points. (See "Net Interest Margin")
CASH AND DUE FROM BANKS
Cash and due from banks increased from $57.6 million as of December 31, 1996, to
$63.0 million as of June 30, 1997, representing a 9.4% 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.
9
<PAGE> 12
INVESTMENTS
Investment securities decreased from $250.9 million to $242.9 million, or 3.2%
from December 31, 1996 to June 30, 1997. This decrease was due to deposits
growing slower than the loan portfolio, creating a temporary liquidity need.
Maturities, sales and prepayments within the securities portfolio were not
reinvested in securities, thereby increasing liquidity for loan growth. From
December 31, 1996 to June 30, 1997 the "Held-to-Maturity" securities decreased
$6.3 million, or 10.6% while the "Available-for-Sale" securities decreased $1.7
million, or 0.9%. The average expected life of the total investment security
portfolio at June 30, 1997 was 3.4 years with an average tax equivalent yield of
6.52%. Taxable equivalent adjustments, using a 34 percent tax rate, have been
made in calculating yields on tax-exempt obligations.
Since December 31, 1996, interest rate volatility in the bond market has
increased the value of the investment portfolio by $1.2 million. Interest rates
decreased due to indices reflecting the economy is generally moderating from a
strong first quarter, as well as the lack of any significant threat to higher
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 to the
investment portfolio and capital. As of June 30, 1997, the FASB 115 adjustment
resulted in an increase in the asset value of the investment portfolio of $1.2
million and an adjustment to the capital account of $783,000, after reserving
$417,000 for deferred taxes.
As of June 30, 1997, the Company had $3.5 million invested in Federal Funds
compared to no investment in Federal Funds at December 31, 1996. 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 $68.6 million, or 13.1% from December
31, 1996 to June 30, 1997. The loan mix changed marginally from year end 1996 to
quarter end, June 30, 1997. The largest dollar volume loan category increase
occurred in commercial loans by $39.3 million, or 37.3% from December, 1996 to
June, 1997. Consumer credit card loans decreased $163,000, or 3.9%, due to the
re-pricing of the card program after the initial discount rate offering was
completed. Residential real estate loans increased $20.7 million, or 15.0% from
December 31, 1996 to June 30, 1997, due to a strong marketing program for home
equity loans. Real estate construction loans increased 32.4%, or $12.1 million,
for the same period. This increase in construction loans is one indication of a
strong local economy.
Management is anticipating strong loan growth for the remainder of the year.
However, the amount of such growth, if any, will depend upon general economic
conditions, including whether or not the
10
<PAGE> 13
Federal Reserve increases or maintains current interest rate levels. Higher
interest rate levels will reduce the growth rate of the loan portfolio.
Management continues to monitor the mix of loans and the introduction of new
loan products to ensure our customers are provided with the best borrowing
opportunities.
The Company had no foreign loans or loans to lesser developed countries as of
June 30, 1997. The Company has not invested in loans to finance highly leveraged
transactions ("HLT"), such as leveraged buy-out transactions, as defined by the
Federal Reserve and other regulatory agencies. There has not been a
concentration in lending to any one industry segment. The Company's loan mix is
further described in the table below.
LOAN PORTFOLIO
(in thousands)
<TABLE>
<CAPTION>
June Percent December Percent
1997 of Total 1996 of Total
---- -------- ---- --------
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $144,554 24.35% $105,297 20.06%
Real estate:
Construction and
land development 49,432 8.33% 37,324 7.11%
Residential 158,921 26.77% 138,194 26.33%
Commercial 148,113 24.95% 158,333 30.17%
Consumer
Credit cards 3,998 0.67% 4,161 0.79%
Installments 88,445 14.90% 81,196 15.47%
Lease financing 282 0.03% 344 0.07%
------------------------------------------------------------
Total Gross Loans $593,745 100.00% $524,849 100.00%
====== ======
Less:
Unearned income 1,872 1,596
Allowance for
loan losses 6,939 5,758
-------- --------
Total Net Loans $584,934 $517,495
======== ========
</TABLE>
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The economic outlook for the State of Tennessee, where the Company does
business, is cautious. However, it is generally performing better than the
nation as a whole. In the Company's markets, real estate values appear to have
increased slightly as interest rates have eased lower and new housing starts
have remained steady since the first quarter. A continued healthy economy will
probably hold the level of net charge-offs and delinquencies for the remainder
of 1997 at or below historical peer group averages.
11
<PAGE> 14
Management considers changes in the size and character of the loan portfolio,
changes in nonperforming and past due loans, historical loan loss experience,
the existing risk of individual loans, concentrations of loans to specific
borrowers or industries and existing and prospective economic conditions when
determining the adequacy of the loan loss reserve. The allowance for possible
loan losses increased $786,000, or 12.8% during the second quarter of 1997. The
provision charged to expense is based on a continuous analysis by the Company's
management of potential losses in the loan portfolio and management's desire to
increase the percentage of the allowance for possible loan loss reserve to 1.25%
of average outstanding loans before year-end 1997.
The Company's allowance for possible loan losses as a percentage of average
loans, net of unearned income, was 1.22% at June 30, 1997 as compared to 1.14%
at December 31, 1996. The allowance for loan losses at June 30, 1997, and
December 31, 1996, provided 240.6% and 163.3% coverage of nonperforming assets
and loans 90 days or more past due, respectively. Net charge-offs (annualized as
a percentage of average quarter-to-date loans) were 0.26% during the second
quarter of 1997 as compared to 0.44% for the same period one year ago. At June
30, 1997, management believes that the allowance for possible loan losses is
sufficient to absorb potential losses.
ALLOWANCE FOR LOAN LOSSES
(in thousands)
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------------------------------
Quarter Ending June 30 March 31 Dec 31 Sept 30 June 30
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 6,153 $ 5,758 $ 5,270 $ 5,493 $ 5,741
Loans charged-off 433 242 493 566 1,069
Loans recovered 64 171 640 122 566
------------------------------------------------------------------------
Net charge-offs (recoveries) $ 369 $ 71 $ (147) $ 444 $ 503
Provision for loan losses charged
to expense 1,155 466 341 221 255
------------------------------------------------------------------------
Balance at end of period $ 6,939 $ 6,153 $ 5,758 $ 5,270 $ 5,493
========================================================================
Allowance for loan losses as a
percentage of average loans
outstanding for the period 1.22% 1.17% 1.14 % 1.11% 1.19%
Allowance for loan losses as a
percentage of nonperforming assets
and loans 90 days past due
outstanding at end of the period 240.60% 207.20% 163.30 % 180.54% 145.66%
Annualized QTD net charge-offs as
a percentage of average loans
outstanding for the period 0.26% 0.05% (0.12)% 0.37% 0.44%
Annualized YTD net charge-offs as
a percentage of average loans
outstanding for the period 0.16% 0.05% 0.24 % 0.38% 0.40%
</TABLE>
12
<PAGE> 15
NONPERFORMING ASSETS AND PAST DUE LOANS
The Company has policies, procedures and underwriting guidelines intended to
assist in maintaining the overall quality of its loan portfolio. The Company
monitors its delinquency levels for any adverse trends. During the past few
years, the Southeastern region of the country has experienced a general
improvement in the real estate loan market. In view of these market conditions,
management has closely monitored and will continue to monitor the Company's real
estate and commercial loan portfolio during 1997. Particular attention will be
focused on those credits targeted by the loan monitoring and review process.
Management's continued emphasis is to seek and maintain a relatively low level
of nonperforming assets and returning the current nonperforming assets to an
earning status.
Nonperforming assets include nonperforming loans, renegotiated loans, foreclosed
real estate held for sale and foreclosed other personal property held for sale.
As of June 30, 1997, nonperforming assets were $2.3 million as compared to $2.3
million at December 31, 1996. The ratio of nonperforming assets to average
loans, net of unearned income, other real estate and other nonperforming assets
was 0.41% at June 30, 1997, compared to 0.47% at December 31, 1996 and 0.54% at
June 30, 1996.
Total nonperforming loans to total average loans decreased from 0.35% at
December 31, 1996, to 0.30% at June 30, 1997. Likewise, loans past due 90 days
or more as a percentage of total average loans decreased to 0.10% as of June 30,
1997, compared to 0.23% as of December 31, 1996. Management believes that asset
quality will remain strong throughout the remainder of 1997.
Net loans charged off during the second quarter of 1997 were $369,000 compared
to a $503,000 for the same period of 1996. Further detail of loan charge-offs
and recoveries is presented in the table "Allowance for Loan Losses."
13
<PAGE> 16
NONPERFORMING ASSETS AND PAST DUE LOANS
(in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------
Quarter Ending June 30 March 31 Dec 31 Sept 30 June 30
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Avg loans, net of unearned income $566,628 $526,599 $503,599 $475,430 $461,337
========================================================================
Nonaccrual loans $ 1,708 $ 1,488 $ 1,745 $ 1,618 $ 1,915
Renegotiated or restructured loans 0 0 0 0 0
------------------------------------------------------------------------
Total nonperforming loans $ 1,708 $ 1,488 $ 1,745 $ 1,618 $ 1,915
Other real estate owned, net 571 670 561 421 480
Other non-performing assets 24 26 81 89 111
------------------------------------------------------------------------
Total nonperforming assets $ 2,303 $ 2,184 $ 2,387 $ 2,128 $ 2,506
========================================================================
Loans 90 days or more past due
and still accruing $ 581 $ 303 $ 1,139 $ 791 $ 1,265
Total nonperforming loans as a
percentage of total avg loans 0.30% 0.28% 0.35% 0.34% 0.42%
Total nonperforming assets as a
percentage of total avg loans, ORE
and other nonperforming assets 0.41% 0.41% 0.47% 0.45% 0.54%
Loans 90 days past due as a
percentage of total avg loans 0.10% 0.06% 0.23% 0.17% 0.27%
</TABLE>
DEPOSITS
Total deposits increased $49.6 million, or 7.2% from $692.6 million at December
31, 1996 to $742.2 million at June 30, 1997. The increase is due primarily to
customers investing in time deposits and increases in large CD's. Total interest
bearing deposits increased $32.5 million from December 31, 1996 to June 30,
1997. Noninterest bearing demand deposits increased in the first six months of
1997 from December 31, 1996 by $17.1 million, or 13.6%. From December 31, 1996
to June 30, 1997, interest bearing transaction accounts increased $8.4 million,
or 7.0%, while money market accounts and savings accounts increased $2.4
million, or 5.5% and decreased $10.7 million, or 9.5%, respectively.
Federal funds purchased and securities sold under agreements to repurchase
decreased $1.8 million, or 2.9% from December 31, 1996 to June 30, 1997.
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, 1997,
none of the repurchased agreements were brokered. As of June 30, 1997, the
Company's federal funds purchased position was $2.9 million compared to $13.5
million as of December 31, 1996. The Company uses borrowings from the Federal
Home Loan Board ("FHLB") to supplement the management of interest rate risk by
matching maturities within the loan portfolio with FHLB borrowings. At June 30,
1997 total FHLB borrowings were $28.0 million, or $18.0 million higher than on
December 31, 1996. Regarding the Company's deposit mix, savings deposits and
both interest bearing and noninterest bearing transaction deposits accounted for
50.3%, 51.7% and 50.2% of total deposits at June 30,
14
<PAGE> 17
1997, December 31, 1996 and June 30, 1996, respectively. Large certificates of
deposits, representing 9.7% of total deposits, is higher than 8.1% at December
31, 1996 and 7.5% at June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of a company to convert assets into cash or cash
equivalents without significant loss and to raise additional funds by increasing
liabilities. Liquidity management involves maintaining the Company's ability to
meet the day-to-day cash flow requirements of its customers, whether they are
depositors wishing to withdraw funds or borrowers requiring funds to meet their
credit needs.
Net cash provided by operating activities for the six months ended June 30,
1997, totaled $7.9 million. For the same period, net cash used by investing
activities totaled $66.2 million consisting of proceeds from maturities and
sales of investment securities of $70.5 million, with cash outflows of $62.5
million in investment securities purchases, and a $69.1 million increase in
loans outstanding. Net cash provided by financing activities of $63.6 million
consisted of an increase in demand deposits of $25.5 million, a decrease in
savings deposits of $8.4 million and increases in time deposits of $32.5 million
and other borrowings of $18.0 million. The payment of $1.7 million in common
stock dividends 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, 1997 and December 31,
1996 was 10.22% and 10.74%, respectively. The Company's book value per share,
increased from $24.98 at December 31, 1996 to 25.65% at June 30, 1997. The
Company's Tier I risk based capital ratio, total risk based capital ratio and
leverage capital ratio at June 30, 1997 were 13.51%, 14.55% and 9.72%,
respectively, exceeding the fully phased-in required capital ratios of 4.00%,
8.00% and 3.00%, respectively. These ratios as of December 31, 1996, were
13.86%, 14.78% and 10.07%, 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.
ASSET/LIABILITY MANAGEMENT
Interest Rate Sensitivity
Interest rate sensitivity is a function of the repricing characteristics of the
Company's portfolio of assets and liabilities. These repricing characteristics
are the time frames within which the interest bearing assets and liabilities are
subject to change in interest rates either at replacement, repricing or maturity
during the life of the instruments. Interest rate sensitivity management focuses
on repricing relationships of assets and liabilities during periods of changes
in market interest rates.
15
<PAGE> 18
Interest rate sensitivity is measured as the difference between the volumes of
assets and liabilities that are subject to repricing at various time horizons.
The following table illustrates the Company's exposure to interest rate
fluctuations as of June 30, 1997:
INTEREST RATE SENSITIVITY ANALYSIS
as of June 30, 1997
(in thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Over 3 Over 1
Months Year Non-
3 Months through through Over Interest
or less 12 Months 5 Years 5 Years Sensitive Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest Earning Assets:
Loans, net of unearned
income $ 215,772 $ 44,726 $ 293,205 $ 38,170 $ 591,873
Less: Allowance for
loan losses (6,939) $ (6,939)
--------------------------------------------------------------------------------------
Net loans $ 215,772 $ 44,726 $ 293,205 $ 38,170 $ (6,939) $ 584,934
Investment securities 509 45,323 127,239 69,846 242,917
Federal funds sold 3,470 3,470
--------------------------------------------------------------------------------------
Total earning assets $ 219,751 $ 90,049 $ 420,444 $ 108,016 $ (6,939) $ 831,321
Cash and other assets 104,795 104,795
--------------------------------------------------------------------------------------
Total assets $ 219,751 $ 90,049 $ 420,444 $ 108,016 $ 97,856 $ 936,116
======================================================================================
<CAPTION>
--------------------------------------------------------------------------------------
Over 3 Over 1
Months Year Non-
3 Months through through Over Interest
or less 12 Months 5 Years 5 Years Sensitive Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS'
EQUITY:
Interest Bearing
Liabilities:
Interest bearing demand
deposits $ 12,856 $ 12,856 $ 102,851 $ 128,563
Money market accts 2,269 4,538 38,576 45,383
Savings deposits 5,096 10,194 86,646 101,936
Other time deposits 79,866 140,541 31,396 $ 62 251,865
CD's of $100,000
or more 22,779 40,084 8,973 71,836
Federal funds purchased
and securities sold
under agreements
to repurchase 61,508 61,508
Other borrowings 28,000 28,000
--------------------------------------------------------------------------------------
Total interest bearing
liabilities $ 184,374 $ 236,213 $ 268,442 $ 62 $ 689,091
======================================================================================
Non-interest bearing
demand deposits 142,597 $ 142,597
Other liabilities 7,971 7,971
Stockholders' equity 96,457 96,457
Total liabilities and
stockholders' equity $ 184,374 $ 236,213 $ 268,442 $ 62 $ 247,025 $ 936,116
Interest sensitivity gap $ 35,377 $(146,164) $ 152,002 $ 107,954
Cumulative interest
sensitivity gap $ 35,377 $(110,787) $ 41,215 $ 149,169
Cumulative interest
sensitivity gap as a
percentage of
total earning assets 4.26% (13.33)% 4.96% 17.94%
</TABLE>
16
<PAGE> 19
In analyzing the interest rate sensitivity at June 30, 1997, the Company is
liability sensitive in the less than twelve month categories in the amount of
$110.8 million. In the greater than one year categories, the Company is asset
sensitive in the amount of $260.0 million. Overall the Company is asset
sensitive in the amount of $149.2 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 six months ended June 30, 1997 increased $711,000, or 17.8%
over the same period in 1996. Net income per share for the first six months
increased $0.19, or 17.8% to $1.25 per share compared to $1.07 per share for the
same period one year ago. Annualized return on average assets for the six months
ending June 30, 1997 was 1.06% as compared to 0.99% for 1996. The annualized
return on average equity for the first six months of 1997 was 10.04%, compared
to 8.94% for the same period in 1996.
NET INTEREST MARGIN
Net interest margin is the principal component of a financial institution's
income stream and represents the difference or spread between interest from
earning assets and the interest expense paid on deposits and other borrowed
funds. Fluctuations in interest rates as well as volume and mix changes in
earning assets and interest bearing liabilities can materially impact net
interest margin. The discussion of net interest margin is presented on a tax
equivalent basis, unless otherwise noted, to facilitate comparisons among
various taxable and tax-exempt assets.
The following table shows average balances, interest income and interest
expense, and yields/rates for the three months ending June 30, 1997 and 1996.
17
<PAGE> 20
CONSOLIDATED AVERAGE BALANCE SHEET
INTEREST INCOME/EXPENSE AND
YIELD/RATES
Taxable Equivalent Basis
(in thousands)
<TABLE>
<CAPTION>
Three months ended
June 30,
------------------------------------------------------------------------------
Assets 1997 1996
------------------------------------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Earning assets: Balance Expense Rate Balance Expense Rate
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income $ 566,628 $ 12,846 9.07% $ 461,337 $ 10,071 8.73%
Investment securities 255,196 4,203 6.59% 277,233 4,398 6.35%
Other earning assets 10,189 158 6.20% 4,292 60 5.59%
------------------------- -------------------------
Total earning assets $ 832,013 $ 17,207 8.27% $ 742,862 $ 14,529 7.82%
--------- ---------
Allowance for loan losses (6,295) (5,829)
Cash and other assets 87,084 86,300
--------- ---------
TOTAL ASSETS $ 912,802 $ 823,333
========= =========
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Interest bearing demand deposits $ 121,762 $ 819 2.69% $ 117,152 $ 783 2.67%
Savings deposits 104,615 819 3.13% 87,202 574 2.63%
Time deposits 298,916 3,876 5.19% 282,843 3,573 5.05%
Time deposits of $100,000 or more 74,504 1,032 5.54% 54,395 787 5.79%
Federal funds purchased and securities
sold under agreement to repurchase 75,120 805 4.29% 54,406 590 4.34%
Other borrowings 14,811 209 5.64% 10,307 182 7.06%
------------------------- -------------------------
Total interest bearing liabilities $ 689,728 $ 7,560 4.38% $ 606,305 $ 6,489 4.28%
--------- ---------
Net interest spread $ 9,647 3.89% $ 8,040 3.54%
========= =========
Noninterest bearing demand deposits 120,929 120,392
Accrued expenses and other liabilities 7,691 6,785
Stockholders' equity 94,454 89,851
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 912,802 $ 823,333
========= =========
Net yield on earning assets 4.64% 4.33%
Taxable equivalent adjustment:
Loans $ 56 $ 38
Investment securities 563 472
--------- ---------
Total adjustment $ 619 $ 510
========= =========
</TABLE>
18
<PAGE> 21
CONSOLIDATED AVERAGE BALANCE SHEET
INTEREST INCOME/EXPENSE AND
YIELD/RATES
Taxable Equivalent Basis
(in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------------------------------------------------------------------
Assets 1997 1996
------------------------------------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Earning assets: Balance Expense Rate Balance Expense Rate
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income $ 546,724 $ 24,390 8.92% $ 447,830 $ 19,537 8.73%
Investment securities 250,449 8,207 6.55% 280,451 8,821 6.29%
Other earning assets 12,290 349 5.68% 5,574 157 5.63%
------------------------- ------------------------
Total earning assets $ 809,463 $ 32,946 8.14% $ 733,855 $ 28,515 7.77%
--------- --------
Allowance for loan losses (6,120) (5,786)
Cash and other assets 88,620 83,297
--------- ---------
TOTAL ASSETS $ 891,963 $ 811,366
========= =========
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Interest bearing demand deposits $ 122,244 $ 1,650 2.70% $ 118,209 $ 1,563 2.64%
Savings deposits 105,478 1,662 3.15% 87,677 1,138 2.60%
Time deposits 294,655 7,545 5.12% 279,749 7,221 5.16%
Time deposits of $100,000 or more 70,560 1,924 5.45% 52,936 1,491 5.63%
Federal funds purchased and securities
sold under agreement to repurchase 63,880 1,365 4.27% 49,225 1,075 4.37%
Other borrowings 12,419 341 5.49% 8,505 233 5.48%
------------------------- -------------------------
Total interest bearing liabilities $ 669,236 $ 14,487 4.33% $ 596,301 $ 12,721 4.27%
--------- ---------
Net interest spread $ 18,459 3.81% $ 15,794 3.50%
========= =========
Noninterest bearing demand deposits 120,918 117,539
Accrued expenses and other liabilities 8,038 7,842
Stockholders' equity 93,771 89,684
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 891,963 $ 811,366
========= =========
Net yield on earning assets 4.56% 4.30%
Taxable equivalent adjustment:
Loans $ 65 $ 76
Investment securities 1,028 944
--------- ---------
Total adjustment $ 1,093 $ 1,020
========= =========
</TABLE>
The net yield on earning assets increased 31 basis points from the second
quarter of 1996 to the second quarter of 1997, 4.33% to 4.64%, 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 $537,000, or 0.5%. On a tax
equivalent basis, interest income on earning assets increased $2.7 million, or
18.4% due to an increase of $89.2 million, or 12.0% in the average volume of
interest earning assets. As the rates earned on the loans and investment
securities increased 34 basis points and 24 basis points, respectively, the
development of the mix of interest earning assets is the primary factor of the
improved yields of earning assets as a whole. The average balances of loans
increased $105.3 million, or 22.8%, while the average balance of securities
decreased $22.0 million, or 8.0% and the average balance of other earning
assets, primarily federal funds sold, increased $5.9 million, or 137.4%. As a
percentage of total earning assets, loans increased from 62.1% to 68.1%,
investment securities decreased from 37.3% to 30.7%, and other earning assets
increased from 0.60% to 1.2%, for the second quarter of
19
<PAGE> 22
1996 and the second quarter of 1997, respectively. Rates earned on loans
increased 34 basis points, while rates earned on investment securities increased
24 basis points. The rates earned on other earning assets increased 61 basis
points. The rate on total earning assets increased 45 basis points. Interest
expense on interest bearing liabilities increased $1.1 million, or 16.5% in the
second quarter of 1997 compared to the same period last year. Average balances
on interest bearing liabilities increased by $83.4 million, or 13.8%. The
average balances of interest bearing demand deposits increased from second
quarter of 1996 to second quarter of 1997 by $4.6 million, or 3.9%. Savings
accounts increased for the same time periods by $17.4 million, or 20.0%. The
rates paid on these type of accounts during the three months ending June 30,
1997, and 1996, increased 2 and increased 50 basis points, for interest bearing
demand deposits and savings deposits, respectively. The average balance of time
deposits, including time deposits over $100,000, increased $36.2 million, or
10.7% and the rate paid increased 9 basis points. Net interest spread and net
interest spread rate increased from the second quarter 1996 to the second
quarter 1997 by $1.6 million and 35 basis points, respectively.
The net yield on earning assets increased 26 basis points to 4.56% for the first
six months of 1997 from 4.30% for the same period in 1996. 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 $3.4 million, or 2.9%. On a tax equivalent basis,
interest income on earning assets increased $4.4 million, or 15.5% due to an
increase of $75.6 million, or 10.3% in the average volume of interest earning
assets. As the rates earned on the loans and investment securities increased 19
basis points and 26 basis points, respectively, the development of the mix of
interest earning assets is the primary factor of the improved yields of earning
assets as a whole. The average balances of loans increased $98.9 million, or
22.1%, while the average balance of securities decreased $30.0 million, or 10.7%
and the average balance of other earning assets, primarily federal funds sold,
increased $6.7 million, or 120.5%. As a percentage of total earning assets,
loans increased from 61.0% to 67.5%, investment securities decreased from 38.2%
to 30.9%, and other earning assets increased from 0.8% to 1.6%, for the first
six months of 1996 and 1997, respectively. Rates earned on loans increased 19
basis points, while rates earned on investment securities increased 26 basis
points. The rates earned on other earning assets increased 5 basis points. The
rate on total earning assets increased 37 basis points. Interest expense on
interest bearing liabilities increased $1.8 million, or 13.9% in the first six
months of 1997 compared to the same period last year. Average balances on
interest bearing liabilities increased by $72.9 million, or 12.2%. The average
balances of interest bearing demand deposits increased from the first six months
of 1996 to first six months of 1997 by $4.0 million, or 3.4%. Savings accounts
increased for the same time periods by $17.8 million, or 20.3%. The rates paid
on these type of accounts during the six months ending June 30, 1997, and 1996,
increased 6 basis points and 55 basis points, respectively. The average balance
of time deposits, including time deposits over $100,000, increased $32.5
million, or 9.8% and the rate paid decreased 5 basis points. Net interest spread
and net interest spread rate increased from the first six months of 1996 to the
first six months of 1997 by $2.6 million and 31 basis points, respectively.
20
<PAGE> 23
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)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------- Percent ----------------- Percent
1997 1996 Change 1997 1996 Change
------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service charge on deposit accounts $1,038 $ 985 5.38% $2,046 $1,822 12.29%
Trust fees 404 336 20.24% 787 649 21.26%
Net securities gains realized 70 (8) 975.00% 62 (1) ----%
Other income 657 403 63.03% 1,396 1,187 17.61%
----------------- -----------------
TOTAL $2,169 $1,716 26.40% $4,291 $3,657 17.34%
====== ====== ====== ======
</TABLE>
Service charges increased $53,000, or 5.4% for the three months ended June 30,
1997, as compared to the quarter ended June 30, 1996. Trust fees increased
$68,000, or 20.2% from the second quarter of 1996 compared to the second quarter
of 1997. Net securities gains of $70,000 were realized in the second quarter of
1997, compared to the loss of $8,000 realized in the same period of 1996. Other
noninterest income increased $254,000, or 63.0% for the second quarter 1997
compared to the second quarter of 1996.
Service charges increased $224,000, or 12.3% for the six months ended June 30,
1997, as compared to the six months ended June 30, 1996. Trust fees increased
$138,000, or 21.3% for the first months of 1997 compared to the same period last
year. Net securities gains were $62,000 as of June 30, 1997, compared to the
loss of $1,000 realized in the first six months of 1996. Other noninterest
income increased $209,000, or 17.6% for the first six months of 1997, compared
to the same period last year.
NONINTEREST EXPENSE
Salaries and benefits increased $478,000, or 13.5% for the three months ending
June 30, 1997, as compared to June 30, 1996. Occupancy expenses decreased
$148,000, or 25.5% due to increased rent income. Management anticipates the
level of spending for occupancy expense to continue to be lower than last year
by approximately 25%. Other expenses increased $266,000, or 12.2% for the second
quarter ending June 30, 1997, compared to the same period last year.
Salaries and benefits increased $885,000, or 12.9% for the six months ending
June 30, 1997, as compared to June 30, 1996. Occupancy expenses decreased
$230,000, or 20.7% due to increased rent income. Other expenses increased
$588,000 million, or 13.1% for the six months ending June 30, 1997, compared to
the same period last year.
21
<PAGE> 24
NONINTEREST EXPENSE
(in thousands)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------- Percent ------------------ Percent
1997 1996 Change 1997 1996 Change
------------------------------ --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries and benefits $4,018 $3,540 13.50 % $ 7,749 $ 6,864 12.89 %
Net occupancy expens 433 581 (25.47)% 883 1,113 (20.66)%
Other expense 2,439 2,173 12.24 % 5,006 4,425 13.13 %
----------------- ------------------
TOTAL $6,890 $6,294 9.47 % $13,638 $12,402 9.97 %
====== ====== ======= =======
</TABLE>
PROVISION FOR INCOME TAXES
The Company's provision for income taxes increased $129,000, or 18.1% to
$840,000 for the three months ended June 30, 1997, as compared to $711,000 for
the same period in 1996. The effective tax rate was 26.7% for the three months
ended June 30, 1997 as compared to 26.4% for June 30, 1996. The Company's
provision for income taxes increased $193,000, or 12.9% to $1.7 million for the
six months ended June 30, 1997, as compared to $1.5 million for the same period
in 1996. The effective tax rate was 26.4% for the six months ended June 30, 1997
as compared to 27.3% for June 30, 1996. The notes to the financial statements
provide additional information regarding the Company's taxes.
22
<PAGE> 25
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
April 16, 1997 at the Chattanooga Trade Center. 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
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
None
23
<PAGE> 26
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 11, 1997 /s/ Rodger B. Holley
--------------------
Rodger B. Holley
Chairman, President and CEO
Date: August 11, 1997 /s/ Gregory B. Jones
--------------------
Gregory B. Jones
Executive Vice President and Treasurer
Date: August 11, 1997 /s/ Robert M. Wilbanks, Jr.
---------------------------
Robert M. Wilbanks, Jr.
Vice President and Controller
24
<PAGE> 27
PIONEER BANCSHARES, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
<S> <C> <C>
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 26-27
27 Financial Data Schedule (for SEC use only)
</TABLE>
25
<PAGE> 1
PIONEER BANCSHARES, INC.
Form 10-Q, Part II, Item 6
Exhibit 11 - Statement Regarding Computation of
Net Earnings Per Share
<TABLE>
<CAPTION>
For the three months ended June 30, 1997 1996
---- ----
<S> <C> <C>
Income as reported in consolidated
statements of income $2,312,000 $1,986,000
========== ==========
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 $ 0.615 $ 0.528
========== ==========
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 $ 0.615 $ 0.528
========== ==========
</TABLE>
26
<PAGE> 2
PIONEER BANCSHARES, INC.
Form 10-Q, Part II, Item 6
Exhibit 11 - Statement Regarding Computation of
Net Earnings Per Share
<TABLE>
<CAPTION>
For the six months ended June 30, 1997 1996
---- ----
<S> <C> <C>
Income as reported in consolidated
statements of income $4,708,000 $3,997,000
========== ==========
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 $ 1.252 $ 1.063
========== ==========
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 $ 1.252 $ 1.063
========== ==========
</TABLE>
27
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1,000
<CASH> 62,988
<INT-BEARING-DEPOSITS> 599,583
<FED-FUNDS-SOLD> 3,470
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 189,784
<INVESTMENTS-CARRYING> 53,133
<INVESTMENTS-MARKET> 53,127
<LOANS> 593,745
<ALLOWANCE> 6,939
<TOTAL-ASSETS> 936,116
<DEPOSITS> 742,180
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,971
<LONG-TERM> 28,000
19
0
<COMMON> 0
<OTHER-SE> 96,438
<TOTAL-LIABILITIES-AND-EQUITY> 936,116
<INTEREST-LOAN> 24,325
<INTEREST-INVEST> 7,514
<INTEREST-OTHER> 14
<INTEREST-TOTAL> 31,853
<INTEREST-DEPOSIT> 12,781
<INTEREST-EXPENSE> 14,487
<INTEREST-INCOME-NET> 17,366
<LOAN-LOSSES> 1,621
<SECURITIES-GAINS> 62
<EXPENSE-OTHER> 13,638
<INCOME-PRETAX> 6,398
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,708
<EPS-PRIMARY> 1.252
<EPS-DILUTED> 1.252
<YIELD-ACTUAL> 4.56
<LOANS-NON> 1,708
<LOANS-PAST> 581
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 303,672
<ALLOWANCE-OPEN> 5,758
<CHARGE-OFFS> 675
<RECOVERIES> 234
<ALLOWANCE-CLOSE> 6,939
<ALLOWANCE-DOMESTIC> 6,939
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
