<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 March 31, 1998
--------------
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)
<TABLE>
<CAPTION>
Delaware 62-1469913
- --------------------------------------------------- -----------------------------------
<S> <C>
(State of other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
801 Broad Street, Chattanooga, TN 37402
- --------------------------------------------------- ----------------------------------
(Address of principal executive offices) Zip Code
</TABLE>
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 March 31, 1998:
Title of Class Number of Shares Outstanding
-------------- ----------------------------
Common Stock, $.01 Par Value 3,759,912
<PAGE> 2
PIONEER BANCSHARES, INC.
<TABLE>
<CAPTION>
INDEX PAGE
- ----- -----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998,
December 31, 1997 and March 31, 1997 1
Consolidated Statements of Income -
Three Months Ended March 31, 1998 and March 31, 1997 2
Consolidated Statements of Changes in Stockholders' Equity -
Three Months Ended March 31, 1998 and March 31, 1997 3
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and March 31, 1997 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. 9-21
PART II. OTHER INFORMATION 22
Signatures 23
Exhibit Index 24
</TABLE>
<PAGE> 3
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION Unaudited Unaudited
(in thousands) March 31, December 31, March 31,
--------- ------------ ---------
ASSETS 1998 1997 1997
-------- ------------ ---------
<S> <C> <C> <C>
Cash and due from banks $ 52,314 $ 46,873 $ 58,383
Investment securities:
Held-to-maturity (fair value of $41,371 at
March 31, 1998, $48,587 at December 31,
1997, and $53,362 at March 31, 1997) 41,107 48,396 54,205
Available-for-sale 168,624 156,691 203,274
Federal funds sold 22,455 18,830 6,100
Loans 672,628 651,234 541,163
Less: Unearned income 1,607 1,476 1,724
Allowance for loan losses 8,415 7,837 6,153
-------- -------- ---------
Net loans 662,606 641,921 533,286
Premises and equipment, net of accumulated
depreciation 23,428 22,740 20,160
Intangible assets 5,520 5,707 6,243
Other assets 17,033 15,732 15,884
-------- -------- ---------
Total Assets $993,087 $956,890 $ 897,535
======== ======== =========
LIABILITIES
Deposits
Noninterest bearing demand deposits $135,690 $126,684 $ 120,278
Interest bearing demand deposits 131,295 132,755 125,043
Money market accounts 58,580 57,873 39,727
Savings deposits 115,823 111,156 109,952
Time deposits of less than $100,000 263,158 249,368 250,943
Time deposits of $100,000 or more 89,115 70,585 76,824
-------- -------- ---------
Total deposits 793,661 748,421 722,767
Federal funds purchased and securities
sold under agreements to repurchase 58,848 60,439 64,051
Other borrowings 30,098 38,000 10,000
Other liabilities 9,550 10,114 7,103
-------- -------- ---------
Total liabilities 892,157 856,974 803,921
-------- -------- ---------
STOCKHOLDERS' EQUITY
Common stock par value $.01 per share;
8,000,000 authorized; 3,759,912 issued 38 38 38
Surplus 65,040 64,875 64,709
Retained earnings 36,494 35,074 30,455
Unrealized appreciation/(depreciation) on
securities available for sale 888 1,044 (614)
Less: treasury stock - at cost 1,530 1,115 974
-------- -------- ---------
Total stockholders' equity 100,930 99,916 93,614
======== ======== =========
Total Liabilities and Stockholders' Equity 993,087 956,890 897,535
======== ======== =========
</TABLE>
1
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Unaudited
Three months ended
March 31,
---------------------------
INTEREST INCOME 1998 1997
-------- ---------
<S> <C> <C>
Interest and fees on loans $ 14,883 $ 11,535
Interest on investment securities
Taxable 2,101 2,575
Tax exempt 708 964
Interest on federal funds sold 340 184
Interest on other earning assets 10 7
------- ------
Total interest income 18,042 15,265
------- ------
INTEREST EXPENSE
Interest bearing demand deposits 841 831
Money market accounts 453 416
Savings deposits 927 843
Time deposits of less than $100,000 3,622 3,253
Time deposits of $100,000 or more 1,160 892
Federal funds purchased and securities
sold under agreements to repurchase 714 560
Other borrowed money 518 132
------- ------
Total interest expense 8,235 6,927
------- ------
Net interest income 9,807 8,338
Provision for loan losses 938 466
------- ------
Net interest income
after the provision for loan losses 8,869 7,872
------- ------
NONINTEREST INCOME
Trust income 433 383
Service charge on deposit accounts 1,119 1,008
Net securities gains 4 (8)
Other income 1,402 739
------- ------
Total noninterest income 2,958 2,122
------- ------
NONINTEREST EXPENSE
Salaries and employee benefits 4,699 3,697
Occupancy 997 1,162
Other 2,609 1,889
------- ------
Total noninterest expense 8,305 6,748
------- ------
Income before provision for income taxes 3,522 3,246
Provision for income taxes 1,162 850
======= ======
NET INCOME $ 2,360 $ 2,396
======= =========
Basic net income per common share $ 0.628 $ 0.637
Diluted net income per common share $ 0.628 $ 0.637
Dividends declared per common share $ 0.250 $ 0.230
</TABLE>
2
<PAGE> 5
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(in thousands except for share data) Unrealized
Common Stock Appreciation
------------------- (Depreciation)
# of Par Comp. Capital Retained Available- Treasury Total
Shares Value Income Surplus Earnings for-Sale Sec Stock
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996 3,759,912 $ 38 $ 64,866 $ 28,771 $ 807 $ (559) $93,923
Comprehensive Income:
Net income --- --- $ 2,396 --- 2,396 --- --- 2,396
Other Comprehensive Income, net of tax
Net Change in Unrealized Loss on Securities
Available-for-Sale, net of reclassification
adjustment (1,429)
------
Comprehensive Income $ 967
======
Cash dividend --- --- ---- (865) --- --- (865)
Stock dividend --- --- ---- --- --- --- ---
Net Changes in Unrealized Appreciation on
Securities Available-for-Sale --- --- --- --- (1,419) --- (1,419)
Sales of Treasury Stock --- --- --- --- --- 604 604
Purchases of Treasury Stock --- --- --- --- --- (1,013) (1,013)
Employee Stock Ownership Plan (ESOP) --- --- (157) 153 (2) (6) (12)
========= ===== ======== ========= ======== ======= ========
Balances, March 31, 1997 (Unaudited) 3,759,912 $ 38 $ 64,709 $ 30,455 $ 614 $ (974) $93,614
========= ===== ======== ========= ======== ======= =========
Balances, December 31, 1997 3,759,912 $ 38 $ 64,875 $ 35,074 $ 1,044 $(1,115) $ 99,916
Comprehensive Income:
Net income --- --- $ 2,360 --- 2,360 --- --- 2,360
Other Comprehensive Income, net of tax
Net Changes in Unrealized Loss on Securities
Available-for-Sale, net of reclassification
adjustment (160)
=======
Comprehensive Income $ 2,200
=======
Cash dividend --- --- --- (940) --- --- (940)
Net Changes in Unrealized Appreciation on
Securities Available-for-Sale --- --- --- --- (156) --- (156)
Sales of Treasury Stock --- --- --- --- 475 475
Purchases of Treasury Stock --- --- --- --- --- (890) (890)
Gain on Sale of Treasury Stock --- --- 165 --- --- --- 165
--------- ----- --------- -------- ------ -------- --------
Balances, March 31, 1998 (Unaudited) 3,759,912 $ 38 $ 65,040 $ 36,494 $ 888 $ (1,530) $100,930
========= ===== ========= ======== ====== ======== ========
</TABLE>
3
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Unaudited
Three months ended
OPERATING ACTIVITIES March 31,
-----------------------
1998 1997
-----------------------
<S> <C> <C>
Net income $ 2,360 $ 2,396
Adjustments to reconcile net income to cash
provided by operating activities:
Provision for loan losses 938 466
Depreciation on premises and equipment 762 653
Amortization and accretion of investment
securities 53 121
Increase in other assets (1,301) (1,117)
Decrease in other liabilities (564) (307)
-------- --------
Net cash provided by operating activities 2,248 2,212
-------- --------
INVESTING ACTIVITIES
Proceeds from sales and maturities of
available-for-sale securities 12,439 12,868
Proceeds from maturities of
held-to-maturity securities 7,290 5,156
Purchases of investment securities (25,290) (24,454)
Net increase in federal funds sold (3,625) (6,100)
Net increase in loans (21,263) (16,257)
Purchases of premises and equipment (750) (820)
-------- --------
Net cash used in investing activities (31,199) (29,607)
-------- --------
FINANCING ACTIVITIES
Net decrease in demand deposits 7,546 (355)
Net increase in savings and MMDA 5,374 (6,013)
Net increase in time deposits 32,320 36,567
Net decrease in repurchase
agreements and federal funds purchased (1,591) (712)
Net decrease in other borrowings (7,902) ---
Cash dividends paid (940) (865)
Sales of treasury stock 475 604
Purchase of treasury stock (890) (1,013)
-------- --------
Net cash provided by financing activities 34,392 28,213
-------- --------
Increase (decrease) in cash and cash
equivalents 5,441 818
-------- --------
Cash and cash equivalents at the beginning of
the period 46,873 57,565
-------- --------
Cash and cash equivalents at the end of
the period $ 52,314 $ 58,383
======== ========
</TABLE>
4
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Unaudited
Three months ended
SUPPLEMENTAL DISCLOSURES OF March 31,
NONCASH INVESTING AND
FINANCING ACTIVITIES
---------- ---------
1998 1997
---------- ---------
<S> <C> <C>
Unrealized Appreciation (Depreciation)
of Securities, net of Deferred Taxes $ (156) $ (1,421)
Increase in Other Real Estate Owned $ 66 $ 109
</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 1997 Annual Report to Shareholders which
was furnished to each shareholder of the Company on March 25, 1998. The
consolidated financial statements presented herein conform to generally accepted
accounting principles and to general industry practices.
Consolidation
The accompanying consolidated financial statements include the accounts of
Pioneer Bancshares, Inc., its subsidiaries, Pioneer Bank, Pioneer Bank, f.s.b.
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.
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, 1997, as filed with the Securities
and Exchange Commission. Since December, 1997, 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.
6
<PAGE> 9
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
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>
-------------------------
March 31,
-------------------------
1998 1997
------------------------
<S> <C> <C>
Principal balance $ 258,059 $ 274,098
Interest income recorded during loan impairment --- ---
Reserve for potential credit losses 143,040 137,049
Unreserved portion of impaired loans 115,019 137,049
Average principal balance quarter-to-date 409,092 149,693
Average principal balance year-to-date 409,092 149,693
</TABLE>
Impaired loans are identified according to the two classification methods in the
following table:
<TABLE>
<CAPTION>
------------------------
March 31,
------------------------
1998 1997
------------------------
<S> <C> <C>
Doubtful loans outstanding. $ 258,059 $ 274,098
Loss loans outstanding --- ---
------------------------
</TABLE>
The Company's method of valuing impaired loans approximates fair value as
defined in Statements No. 114 & 118.
7
<PAGE> 10
Earnings Per Common Share
Basic earnings per share ("EPS") is computed by dividing income available to
common shareholders (numerator) by the weighted average number of common shares
outstanding (denominator) . Diluted EPS is computed by dividing income available
to common shareholders by the weighted average number of shares outstanding
adjusted to reflect the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity.
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. ACCOUNTING AND REGULATORY MATTERS
Statement of Financial Accounting Standards (SFAS) No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits", changes the
disclosures about pensions and other benefits provided by employers. This
standard does not affect accounting measurements nor does it revise the
disclosures made in the financial statements of the plans. Rather, this standard
applies to financial statements of sponsors of such plans and harmonizes the
disclosures for various types of plans. The provisions of SFAS No. 132 are
effective for fiscal years beginning after December 15, 1997. Early application
is encouraged. Management intends to include appropriate disclosures in the
Company's financial reports as of December 31, 1998.
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 first quarter with total assets of $993.1 million, a 3.8%
increase from December 31, 1997 and an 10.7% increase from March 31, 1997. The
Company reported net income for the first quarter of $2.36 million, or $0.628
basic earnings per share, compared to $2.39 million, or $0.637 basic earnings
per share, for the same period in 1997.
NET INTEREST INCOME
Net interest income was $9.8 million for the three months ended March 31, 1998,
compared to $8.3 million for the same period in 1997. This level of net interest
income resulted primarily from, among other things, an increase in net interest
spread of 12 basis points to 3.85% from 3.73%. The net interest margin was 4.65%
in the first quarter of 1998 compared to 4.48% in the first quarter of 1997. The
margin increased because the yield on interest earning assets increased 40 basis
points, while the rate paid on interest bearing liabilities increased only 28
basis points. (See "Net Interest Margin")
CASH AND DUE FROM BANKS
Cash and due from banks increased from $46.9 million as of December 31, 1997, to
$52.3 million as of March 31, 1998, representing a 11.5% 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 increased from $205.1 million to $209.7 million, or 2.2%
from December 31, 1997 to March 31, 1998. This increase was due to deposits
growing faster than the loan portfolio, creating a temporary liquidity
availability. Maturities, sales and prepayments within the securities portfolio
were reinvested in securities, thereby decreasing liquidity for loan growth.
From December 31, 1997 to March 31, 1998 the "Held-to-Maturity" securities
decreased $7.3 million, or 15.1% while the "Available-for-Sale" securities
increased $11.9 million, or 7.6%. The average expected life of the total
investment security portfolio at March 31, 1998 was 3.1 years with an average
tax equivalent yield of 6.42%. Taxable equivalent adjustments, using a 34
percent tax rate, have been made in calculating yields on tax-exempt
obligations.
Since December 31, 1997, interest rate volatility in the bond market has
decreased the value of the investment portfolio by $180,482. Interest rates
increased as the fears of Asia's financial difficulties subsided and interest
rates returned to their normal trading levels. Continued strength of
9
<PAGE> 12
the U.S. dollar and the lack of any sign of inflation kept interest rates from
rising even higher. Regarding the investment portfolio, management intends to
decreased due to the decrease in the federal deficit causing treasury debt
prices to increase (i) buy securities only during those times when prices appear
most favorable, (ii) maintain maturities five years or less and (iii) avoid
excessive call exposure.
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 March 31, 1998, the FASB 115 adjustment
resulted in an increase in the asset value of the investment portfolio of $1.3
million and an adjustment to the capital account of $888,000, after reserving
$457,000 for deferred taxes.
As of March 31, 1998, the Company had $22.5 million invested in Federal Funds
compared to $18.8 million at December 31, 1997. 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 $21.3 million, or 3.3% from December
31, 1997 to March 31, 1998. The loan mix changed marginally from year end 1997
to quarter end, March 31, 1998. The largest dollar volume loan category increase
occurred in commercial loans by $13.5 million, or 8.1% from December, 1997 to
March, 1998. Consumer credit card loans decreased $208,000, or 4.6%. Residential
real estate loans increased $13.6 million, or 7.9% from December 31, 1997 to
March 31, 1998, due to a strong demand for home equity loans and home
refinancing. Real estate construction loans increased 3.8%, or $2.1 million, for
the same period. This increase in construction loans is one indication of a
moderately strong local economy.
Management is anticipating moderate 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 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
March 31, 1998. 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.
10
<PAGE> 13
LOAN PORTFOLIO
(in thousands)
<TABLE>
<CAPTION>
March Percent December Percent
1998 of Total 1997 of Total
---- -------- ---- --------
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $181,165 26.93% $167,655 25.74%
Real estate:
Construction and
land development 56,688 8.43% 54,624 8.39%
Residential 185,758 27.62% 172,124 26.43%
Commercial 156,250 23.23% 155,348 23.86%
Consumer
Credit cards 4,270 0.63% 4,478 0.69%
Installments 88,322 13.13% 96,739 14.85%
Lease financing 175 0.03% 266 0.04%
--------------------------------------------------------
Total Gross Loans 672,628 100.00% 651,234 100.00%
====== ======
Less:
Unearned income 1,607 1,476
Allowance for
loan losses 8,415 7,837
-------- --------
Total Net Loans $662,606 $641,921
======== ========
</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 similar to 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 1998 at or below historical peer group averages.
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 $578,000, or 7.4% during the first quarter of 1998. 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 efforts to
maintain a percentage of the allowance for possible loan loss reserve at 1.25%
of gross outstanding loans.
The Company's allowance for possible loan losses as a percentage of average
loans, net of unearned income, was 1.27% at March 31, 1998 as compared to 1.23%
at December 31, 1997. The allowance for loan losses at March 31, 1998, and
December 31, 1997, provided 157.3% and 164.97% coverage of nonperforming assets
and loans 90 days or more past due, respectively. Net
11
<PAGE> 14
charge-offs (annualized as a percentage of average quarter-to-date loans) were
0.22% during the first quarter of 1998 as compared to 0.05% for the same period
one year ago. At March 31, 1998, management believes that the allowance for
possible loan losses is sufficient to absorb potential losses.
ALLOWANCE FOR LOAN LOSSES
(in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------
1998 1997
------------------------------------------------------------------------
Quarter Ending March 31 Dec 31 Sept 30 June 30 March 31
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 7,837 $ 7,651 $ 6,940 $ 6,153 $ 5,758
Loans charged-off 442 889 529 433 242
Loans recovered 82 210 117 64 171
------------------------------------------------------------------------
Net charge-offs (recoveries) 360 679 412 369
71
Provision for loan losses charged
to expense 938 865 1,123 1,156 466
------------------------------------------------------------------------
Balance at end of period $ 8,415 $ 7,837 $ 7,651 $ 6,940 $ 6,153
========================================================================
Allowance for loan losses as
a percentage of average loans
outstanding for The period 1.27% 1.23% 1.27% 1.22% 1.17%
Allowance for loan losses as a
percentage of nonperforming assets
and loans 90 days past due
outstanding at end of the period 157.30% 164.97% 267.52% 240.64% 247.41%
Annualized QTD net charge-offs as
a percentage of average loans
outstanding for the period 0.22% 0.43% 0.27% 0.26% 0.05%
Annualized YTD net charge-offs as
a percentage of average loans
outstanding for the period 0.22% 0.26% 0.19% 0.16% 0.05%
</TABLE>
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 1998. 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.
12
<PAGE> 15
Nonperforming assets include nonperforming loans, renegotiated loans, foreclosed
real estate held for sale and foreclosed other personal property held for sale.
As of March 31, 1998, nonperforming assets were $5.0 million as compared to $2.6
million at December 31, 1997. The ratio of nonperforming assets to average
loans, net of unearned income, other real estate and other nonperforming assets
was 0.76% at March 31, 1998, compared to 0.41% at December 31, 1997 and 0.41% at
March 31, 1997. The increase in nonperforming assets is primarily due to the
addition of one large secured loan. Management is unable to estimate the amount
of recovery on the loan at this time.
Total nonperforming loans to total average loans increased from 0.29% at
December 31, 1997, to 0.63% at March 31, 1998. Loans past due 90 days or more as
a percentage of total average loans decreased to 0.05% as of March 31, 1997,
compared to 0.33% as of December 31, 1997. Management believes that asset
quality remains strong despite the increase in nonperforming loans during the
first quarter and will remain strong throughout the remainder of 1998.
Net loans charged off during the first quarter of 1998 were $442,000 compared to
a $242,000 for the same period of 1997. 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)
<TABLE>
<CAPTION>
---------------------------------------------------------------------
1998 1997
---------------------------------------------------------------------
Quarter Ending March 31 Dec 31 Sept 30 June 30 March 31
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Avg loans, net of unearned income $660,896 $636,559 $603,579 $566,628 $526,599
====================================================================
Nonaccrual loans $ 4,179 $ 1,836 $ 1,856 $ 1,708 $ 1,488
Renegotiated or restructured loans 0 0 0 0 0
--------------------------------------------------------------------
Total nonperforming loans 4,179 1,836 1,856 1,708 1,488
Other real estate owned, net 753 687 352 571 670
Other non-performing assets 94 107 67 24 26
--------------------------------------------------------------------
Total nonperforming assets $ 5,026 $ 2,630 $ 2,275 $ 2,303 $ 2,184
====================================================================
Loans 90 days or more past due
and still accruing $ 323 $ 2,120 $ 585 $ 581 $ 303
Total nonperforming loans as a
percentage of total avg loans 0.63% 0.29% 0.31% 0.30% 0.28%
Total nonperforming assets as a
percentage of total avg loans, ORE
and other nonperforming assets 0.76% 0.41% 0.38% 0.41% 0.41%
Loans 90 days past due as a
percentage of total avg loans 0.05% 0.33% 0.10% 0.10% 0.06%
</TABLE>
DEPOSITS
Total deposits increased $45.2 million, or 6.0% from $748.4 million at December
31, 1997 to $793.6 million at March 31, 1998. The increase is due primarily to
customers investing in time deposits and increases in large CD's. Total interest
bearing deposits increased $36.2 million from
13
<PAGE> 16
December 31, 1997 to March 31, 1998. Noninterest bearing demand deposits
increased in the first three months of 1998 from December 31, 1997 by $9
million, or 7.1%. From December 31, 1997 to March 31, 1998, interest bearing
transaction accounts decreased $1.5 million, or 1.1%, while money market
accounts and savings accounts increased $707,000, or 1.2% and increased $4.7
million, or 4.2%, respectively.
Federal funds purchased and securities sold under agreements to repurchase
decreased $1.6 million, or 2.6% from December 31, 1997 to March 31, 1998.
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 March 31, 1998,
none of the repurchased agreements were brokered. As of March 31, 1998 and
December 31, 1997, the Company's had no federal funds purchased. 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 March 31, 1998 total FHLB borrowings were
$30.0 million, or $8 million lower than on December 31, 1997. Regarding the
Company's deposit mix, savings deposits and both interest bearing and
noninterest bearing transaction deposits accounted for 48.2%, 49.5% and 49.2% of
total deposits at March 31, 1998, December 31, 1997 and March 31, 1997,
respectively. Large certificates of deposits, representing 11.2% of total
deposits, is higher than 9.4% at December 31, 1997 and 10.6% at March 31, 1997.
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 three months ended March 31,
1998, totaled $2.2 million. For the same period, net cash used by investing
activities totaled $31.2 million consisting of proceeds from maturities and
sales of investment securities of $19.7 million, with cash outflows of $25.2
million in investment securities purchases, and a $21.3 million increase in
loans outstanding. Net cash provided by financing activities of $34.4 million
consisted of an increase in demand deposits of $7.5 million, an increase in
savings deposits of $5.4 million and increases in time deposits of $32.3 million
and a decrease in other borrowings of $7.9 million. The payment of $940,000 in
common stock dividends and intercompany dividends was funded from earnings and
equity, respectively. Intercompany dividends are used to fund the ongoing
operations of the holding company in lieu of management fees. 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.
14
<PAGE> 17
Total stockholders' equity, adjusted for the unrealized appreciation on
securities available for sale, to total assets at March 31, 1998 and December
31, 1997 was 10.07% and 10.33%, respectively. The Company's book value per
share, increased from $26.57 at December 31, 1997 to $26.84 at March 31, 1998.
The Company's Tier I risk based capital ratio, total risk based capital ratio
and leverage capital ratio at March 31, 1998 were 12.88%, 14.03% and 9.78%,
respectively, exceeding the fully phased-in required capital ratios of 4.00%,
8.00% and 3.00%, respectively. These ratios as of December 31, 1997, were
12.91%, 13.99% and 10.29%, 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. 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 March 31, 1998:
15
<PAGE> 18
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
as of March 31, 1998
(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
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest Earning Assets:
Loans, net of unearned
income $ 253,332 $ 56,179 $ 331,187 $ 30,323 --- $ 671,021
Less: Allowance for
loan losses --- --- --- --- $ (8,415) (8,415)
Net loans --------------------------------------------------------------------------------------------
253,332 56,179 331,187 30,323 (8,415) 662,606
Investment securities 22,373 66,630 77,912 42,816 --- 209,731
Federal funds sold 22,455 --- --- --- --- 22,455
--------------------------------------------------------------------------------------------
Total earning assets 298,160 122,809 409,099 73,139 (8,415) 894,792
Cash and other assets --- --- --- --- 98,295 98,295
--------------------------------------------------------------------------------------------
Total assets $ 298,160 $ 122,809 $ 409,099 $ 73,139 $ 89,880 $ 993,087
============================================================================================
<CAPTION>
---------------------------------------------------------------------------------------------
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:
<S> <C> <C> <C> <C> <C> <C>
Interest Bearing
Liabilities
Interest bearing demand
deposits $ 21,114 $ 38,769 $ 69,282 $ 2,130 --- $ 131,295
Money market accts --- 29,290 29,290 --- --- 58,580
Savings deposits --- 13,899 89,183 12,741 --- 115,823
Other time deposits 110,266 124,664 28,203 --- 263,158
25
CD's of $100,000
or more 41,555 9,402 9 --- 89,115
38,149
Federal funds purchased
and securities sold
under agreements
to repurchase 58,848 --- --- --- --- 58,848
Other borrowings 10,000 10,000 10,000 --- --- 30,000
---------------------------------------------------------------------------------------------
Total interest bearing
liabilities 238,377 258,177 235,360 14,905 --- 746,819
Non-interest bearing
demand deposits --- --- --- --- $ 135,690 135,690
Other liabilities --- --- --- --- 9,648 9,648
Stockholders' equity --- --- --- --- 100,930 100,930
---------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 238,377 $ 258,177 $ 235,360 $ 14,905 $ 246,268 $ 993,087
=============================================================================================
Interest sensitivity gap $ 59,783 $ (135,368) $ 173,739 $ 58,234
Cumulative interest
sensitivity gap $ 59,783 $ (75,585) $ 98,154 $ 156,388
Cumulative interest
sensitivity gap as a
percentage of
total earning assets 6.68% (8.45)% 10.97% 17.48%
</TABLE>
In analyzing the interest rate sensitivity at March 31, 1998, the Company is
liability sensitive in the less than twelve month categories in the amount of
$75.6 million. In the greater than one year categories, the Company is asset
sensitive in the amount of $231.9 million. Overall the Company
16
<PAGE> 19
is asset sensitive in the amount of $156.4 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 March 31, 1998 decreased $36,000, or 1.5%
over the same period in 1997. Basic net income per share for the first three
months decreased $0.009, or 1.4% to $.628 per share compared to $.637 per share
for the same period one year ago. Changes in diluted net income per share were
identical during the same periods. Net income decreased due to an increase in
the loan loss provision of $472,000 over the same period in 1997 and an increase
in non-interest expenses and the Company's effective tax rate. Annualized return
on average assets for the three months ending March 31, 1998 was .98% as
compared to 1.10% for 1997. The annualized return on average equity for the
first three months of 1998 was 9.47%, compared to 10.30% for the same period in
1997.
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.
17
<PAGE> 20
The following table shows average balances, interest income and interest
expense, and yields/rates for the three months ending March 31, 1998 and 1997.
CONSOLIDATED AVERAGE BALANCE SHEET
INTEREST INCOME/EXPENSE AND
YIELD/RATES
<TABLE>
<CAPTION>
Taxable Equivalent Basis
(in thousands)
Three months ended
March 31,
-------------------------------------------------------------------------
Assets 1998 1997
-------------------------------------------------------------------------
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
$ 660,896 $ 14,894 9.14% $ 526,599 $ 11,545 8.77%
Investment securities 203,534 3,208 6.39% 245,649 4,004 6.52%
Other earning assets 25,669 340 5.37% 14,414 191 5.30%
---------------------- ----------------------
Total earning assets 890,099 18,442 8.40% 786,662 15,740 8.00%
--------- ---------
Allowance for loan losses (8,006) (5,943)
Cash and other assets 89,956 90,174
=========== ==========
TOTAL ASSETS $ 972,049 $ 870,893
=========== ==========
Liabilities and Stockholders' Equity
Interest bearing liabilities:
Interest bearing demand deposits
$ 133,377 $ 836 2.54% $ 122,731 $ 831 2.71%
Savings deposits 113,454 928 3.32% 106,351 843 3.17%
Time deposits 308,092 4,083 5.37% 290,347 3,669 5.05%
Time deposits of $100,000 or more 80,511 1,160 5.84% 66,572 892 5.36%
Federal funds purchased and securities
sold under agreement to repurchase 62,349 714 4.64% 52,515 560 4.27%
Other borrowings 35,955 517 5.83% 10,000 132 5.28%
---------------------- ----------------------
Total interest bearing liabilities 733,738 8,238 4.55% 648,516 6,927 4.27%
---------
Net interest spread $ 10,204 3.85% $ 8,813 3.73%
========= =========
Noninterest bearing demand deposits 127,742 120,907
Accrued expenses and other liabilities 10,865 8,389
Stockholders' equity 99,704 93,081
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 972,049 $ 870,893
=========== ==========
Net yield on earning assets 4.65% 4.48%
Taxable equivalent adjustment:
Loans $ 27 $ 9
Investment securities 366 465
========== ==========
Total adjustment $ 393 $ 474
========== ==========
</TABLE>
The net yield on earning assets increased 17 basis points from the first quarter
of 1997 to the first quarter of 1998, 4.48% to 4.65%, 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 $6.8 million, or 5.7%. On a tax equivalent
basis, interest income on earning assets increased $2.7 million, or 17.2% due to
an increase of $103.4 million, or 13.1% in the average volume of interest
earning assets. 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 $134.3 million, or 25.5%, while the average balance
of securities decreased $42.1 million, or 17.1% and the average balance of other
earning assets, primarily federal funds sold, increased $11.3 million, or 78.1%.
As a percentage of total earning assets, loans increased from 66.9% to 74.2%,
investment securities
18
<PAGE> 21
decreased from 31.2% to 22.8%, and other earning assets increased from 1.9% to
3.0%, for the first quarter of 1997 and the first quarter of 1998, respectively.
Rates earned on loans increased 37 basis points, while rates earned on
investment securities decreased 13 basis points. The rates earned on other
earning assets increased 7 basis points. The rate on total earning assets
increased 40 basis points. Interest expense on interest bearing liabilities
increased $5,000, or less than 1% in the first quarter of 1998 compared to the
same period last year. Average balances on interest bearing liabilities
increased by $85.2 million, or 13.1%. The average balances of interest bearing
demand deposits increased from first quarter of 1997 to first quarter of 1998 by
$10.7 million, or 8.7%. Savings accounts increased for the same time periods by
$7.1 million, or 6.7%. The rates paid on these type of accounts during the three
months ending March 31, 1998, and 1997, decreased 17 and increased 15 basis
points, respectively. The average balance of time deposits, including time
deposits over $100,000, increased $31.7 million, or 8.9% and the rate paid
increased 4 basis points. Net interest spread and net interest spread rate
increased from the first quarter 1997 to the first quarter 1998 by $1.4 million
and 12 basis points, respectively.
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
Ended March 31, Percent
---------------------
1998 1997 Change
--------------------------------
<S> <C> <C> <C>
Trust income $ 433 $ 383 13.05%
Service charge on deposit accounts 1,119 1,008 11.01%
Net securities gains (losses) 4 (8) 150.00%
Other income 1,402 739 89.72%
=====================
TOTAL $ 2,958 $ 2,122 39.40%
=====================
</TABLE>
Trust fees increased $50,000 or 13.05% from the first quarter of 1998 compared
to the first quarter of 1997 reflecting continued steady growth in the earnings
derived from fiduciary activities. Service charges increased $111,000, or 11.01%
for the three months ended March 31, 1998, as compared to the quarter ended
March 31, 1997. The increase in service charges is attributable to a new fee
structure that was implemented during the third quarter of 1997. Net securities
gains of $4,000 were realized in the first quarter of 1998, compared to the loss
of $8,000 realized in the same period of 1997. Other noninterest income
increased $663,000, or 89.72% for the first quarter 1998 compared to the first
quarter of 1997. The increase in other noninterest income is primarily
attributable to the sale of Company properties, which in management's opinion,
were no longer needed for continuing operations.
19
<PAGE> 22
NONINTEREST EXPENSE
Salaries and benefits increased $1,002,000 , or 27.1% for the three months
ending March 31, 1998, as compared to March 31, 1997 due to Company growth
including the establishment of Pioneer Bank, f.s.b. Occupancy expenses decreased
$165,000, or 14.2% due to increased rent income. Management anticipates the
level of spending for occupancy expense to be about the same as last year. Other
expenses increased $720,000, or 38.12% for the first quarter ending March 31,
1998, compared to the same period last year.
NONINTEREST EXPENSE
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31, Percent
---------------------
1998 1997 Change
---------------------------------
<S> <C> <C> <C>
Salaries and benefits $ 4,699 $ 3,697 27.10%
Net occupancy expense 997 1,162 (14.20)%
Other expense 2,609 1,889 38.12%
---------------------
TOTAL $ 8,305 $ 6,748 23.07%
=====================
</TABLE>
PROVISION FOR INCOME TAXES
The Company's provision for income taxes increased $312,000, or 36.7% to
$1,162,000 for the three months ended March 31, 1998, as compared to $850,000
for the same period in 1997. The effective tax rate was 32.9% for the three
months ended March 31, 1998 as compared to 26.2% for March 31, 1997. This
increase is attributable to a large decrease in tax free investments in the
company's loan portfolio and gains on the sale of company property. The notes to
the December 31, 1997, financial statements provide additional information
regarding the Company's taxes.
20
<PAGE> 23
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
Market risk reflects the risk of economic loss resulting from adverse
changes in market prices and interest rates. This risk of loss can be reflected
in either diminished current market values or reduced potential net interest
income in future periods.
The Company's market risk arises primarily from interest rate risk
inherent in its lending and deposit taking activities. The structure of the
Company's loan and deposit portfolios is such that a significant decline in the
prime rate may adversely impact net market values and interest income.
Management seeks to manage this risk through the utilization of various tools,
primarily investment securities and FHLB borrowings. The composition and size of
the investment portfolio and FHLB borrowing is managed so as to reduce the
interest rate risk in the deposit and loan portfolios while at the same time
optimizing the yield generated from those portfolios.
The table below presents in tabular form the contractual balances and
the estimated fair value of the Company's on-balance sheet financial instruments
at their expected maturity dates as of March 31, 1998. The expected maturity
categories take into consideration historical prepayment experience as well as
management's expectations based on the interest rate environment as of March 31,
1998. For core deposits without contractual maturity (i.e., interest bearing
checking, savings and money market accounts), the table presents principal cash
flows based on management's judgment concerning their most likely runoff or
repricing behaviors. Weighted average variable rates are based on implied
forward rates in the yield curve as of March 31, 1998. See "Management's
Discussion and Analysis - Balance Sheet Management."
<TABLE>
<CAPTION>
MARKET RISK INFORMATION FAIR
(in thousands ) PRINCIPAL AMOUNT MATURING IN: VALUE
RATE SENSITIVE ASSETS: 1998 1999 2000 2001 2002 Thereafter Total 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed interest rate loans $122,629 87,925 71,127 02,736 25,720 32,737 442,874 440,464
Average interest rate .08% 9.04% 9.03% 8.95% 9.03% 9.04% 9.03%
Variable interest rate loans $184,398 34,380 8,383 790 197 - 228,147 228,147
Average interest rate 9.02% 9.00% 8.93% 8.92% 8.74% - 9.01%
Fixed interest rate securities $ 59,231 $27,558 20,869 15,560 7,079 50,072 180,369 180,559
Average interest rate 6.67% 6.49% 6.32% 6.45% 6.30% 6.32% 6.47%
Variable interest rate securities $ 2,026 3,030 4,552 - - 19,754 29,362 29,362
Average interest rate 6.27% 6.14% 6.23% - - 6.25% 6.24%
Other interest bearing assets $ 22,455 - - - - - 22,455 22,455
Average interest rate 5.48% - - - - - 5.48%
RATE SENSITIVE LIABILITIES: 1998 1999 2000 2001 2002 Thereafter Total 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Savings and interest bearing checking $119,372 23,663 23,663 19,867 19,867 40,686 247,118 247,118
Average interest rate 3.16% 3.06% 3.05% 2.92% 2.73% 2.50% 2.98%
Fixed interest rate time deposits $321,041 25,221 3,595 9,504 2,170 20 361,551 349,663
Average interest rate 5.66% 5.72% 5.58% 5.38% 5.10% 5.50% 5.65%
Variable interest rate time deposits $ 34,494 14,184 624 - - - 49,302 49,302
Average interest rate 3.96% 3.67% 3.20% 3.87%
Fixed rate borrowings $ 10,000 $20,000 - - - - 30,000 30,000
Average interest rate 5.35% 5.66% - - - - 5.56%
Variable rate borrowings $ 58,848 - - - - - 58,848 58,848
Average interest rate 4.64% - - - - - 4.64%
</TABLE>
21
<PAGE> 24
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 22, 1998 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 Basic and Diluted Earnings
Per Share
(b) Reports on Form 8-K.
None
22
<PAGE> 25
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: May 14, 1998 /s/ Rodger B. Holley
--------------------
Rodger B. Holley
Chairman, President and CEO
Date: May 14, 1998 /s/Gregory B. Jones
-------------------
Gregory B. Jones
Executive Vice President and Treasurer
Date: May 14, 1998 /s/Robert M. Wilbanks, Jr.
--------------------------
Robert M. Wilbanks, Jr.
Vice President and Controller
23
<PAGE> 26
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 Basic and Diluted
Net Earnings per Share 25
27 Financial Data Schedule (For SEC Use Only)
</TABLE>
24
<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 March 31, 1998 1997
---- ----
<S> <C> <C>
Income as reported in consolidated
statements of income $2,360,000 $2,396,000
========== ==========
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 1,970 0
========== ==========
Weighted average number of shares
outstanding used to calculate per share
data assuming no dilution 3,761,882 3,759,912
========== ==========
Net income per common and common
equivalent share $ 0.628 $ 0.637
========== ==========
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 1,970 0
========== ==========
Weighted average number of shares
outstanding used to calculate per share
data assuming full dilution 3,761,882 3,759,912
========== ==========
Net income per common and common
equivalent share assuming full dilution $ 0.628 $ 0.637
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 52,314
<INT-BEARING-DEPOSITS> 657,971
<FED-FUNDS-SOLD> 22,455
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 168,624
<INVESTMENTS-CARRYING> 41,107
<INVESTMENTS-MARKET> 41,371
<LOANS> 672,628
<ALLOWANCE> 8,415
<TOTAL-ASSETS> 993,087
<DEPOSITS> 793,661
<SHORT-TERM> 0
<LIABILITIES-OTHER> 9,550
<LONG-TERM> 38,000
0
0
<COMMON> 38
<OTHER-SE> 100,892
<TOTAL-LIABILITIES-AND-EQUITY> 993,087
<INTEREST-LOAN> 14,883
<INTEREST-INVEST> 3,149
<INTEREST-OTHER> 10
<INTEREST-TOTAL> 18,042
<INTEREST-DEPOSIT> 7,003
<INTEREST-EXPENSE> 8,235
<INTEREST-INCOME-NET> 9,807
<LOAN-LOSSES> 938
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 8,305
<INCOME-PRETAX> 3,522
<INCOME-PRE-EXTRAORDINARY> 3,522
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,360
<EPS-PRIMARY> .628
<EPS-DILUTED> .628
<YIELD-ACTUAL> 4.65
<LOANS-NON> 4,179
<LOANS-PAST> 323
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 258,059
<ALLOWANCE-OPEN> 7,837
<CHARGE-OFFS> 442
<RECOVERIES> 82
<ALLOWANCE-CLOSE> 8,415
<ALLOWANCE-DOMESTIC> 8,415
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
