<PAGE>
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 1999
REGISTRATION NO. 0-25899
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
POST-EFFECTIVE AMENDMENT NO. 1 to FORM 10
GENERAL FORM FOR
REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or 12(g) of
the Securities Exchange Act of 1934
----------
PIONEER BANCORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Nevada 88-0301208
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
10 State Street 89501-2351
Reno, Nevada (Zip code)
(Address of principal
executive offices)
</TABLE>
(775)-688-7900
(Registrant's telephone number, including area code)
Securities to be registered
pursuant to Section 12(b) of the Act:
None
Securities to be registered
pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
================================================================================
<PAGE>
PIONEER BANCORPORATION
FORM 10 REGISTRATION STATEMENT
ITEM 1. BUSINESS.
Pioneer Bancorporation ("Pioneer") is a bank holding company registered
under the Bank Holding Company Act of 1956, as amended (the "BHCA"). Pioneer
was formed on June 2, 1993 under the laws of the State of Nevada in connection
with a holding company reorganization of Pioneer Citizens Bank of Nevada (the
"Bank") that was approved by the shareholders on September 15, 1993 and became
effective on October 31, 1993. At December 31, 1998, Pioneer had 547
shareholders of record owning 8,679,279 shares of Pioneer's $0.01 par value
common stock ("Common Stock").
The Bank, a wholly owned subsidiary of Pioneer, was opened in 1965 and is
regulated by the Nevada Department of Business & Industry, Financial
Institutions Division ("Division") and by the Federal Deposit Insurance
Corporation ("FDIC"), its primary federal regulator and the insurer of its
deposits.
Primary Market Area
Pioneer conducts its banking business through its main office in Reno and
13 branches located throughout Nevada in the cities of Reno (3 branches), Las
Vegas (6 branches), Carson City (1 branch), Henderson (2 branches) and Sparks (1
branch). Pioneer focuses its banking and other services on individuals,
professionals, and small to medium-sized businesses throughout its market area.
At December 31, 1998, Pioneer had total consolidated assets of $1.03 billion.
Competition
In the very competitive Reno and Las Vegas areas, Pioneer competes with a
number of international banking groups, out-of-state banking companies, state-
wide banking organizations, several local community banks, savings banks,
savings and loans, and credit unions throughout its market area. Pioneer's
principal market area is divided into three separate regions based upon
population and the presence of banking offices. In the northern part of Nevada,
the delineated communities are Washoe County and Carson City. These communities
include the cities of Reno, Sparks, Carson City, and Incline Village. To the
south, the Bank has delineated Clark County, including the cities of Las Vegas,
North Las Vegas, Henderson, Boulder City, and Summerlin.
Pioneer is Nevada's sixth largest commercial bank and the state's largest
independent community bank. The following is the most recent information
available concerning the Bank's major competitors in its principal market area,
indicating deposit size and percentage market share.
1
<PAGE>
<TABLE>
<CAPTION>
Data as of June 30, 1998
----------------------------------------------------------------------------
Total Deposits Percentage Market
Name of Institution (in thousands) Share
- ----------------------------------- ------------------------------------- -------------------------------------
CLARK COUNTY
Las Vegas/Henderson/Boulder
City/Summerlin
- -----------------------------------
<S> <C> <C>
Pioneer Citizens Bank $ 362,721 3.60%
Bank of America, N.A. 2,973,962 29.48%
Norwest Bank Nevada, N.A. 1,537,543 15.24%
Wells Fargo Bank, N.A. 1,276,209 12.65%
First Security Bank of Nevada 894,894 8.87%
Nevada State Bank 715,013 7.09%
Citibank, N.A. 512,643 5.08%
U.S. Bank, N.A. 428,375 4.25%
California Federal Bank 347,232 3.44%
BankWest of Nevada 256,878 2.55%
First Republic Bank 128,182 1.27%
Colonial Bank 118,714 1.18%
Community Bank of Nevada 118,541 1.18%
Silver State Bank 105,490 1.05%
WASHOE COUNTY
Reno/Sparks/Incline Village
- -----------------------------------
Pioneer Citizens Bank $ 359,951 10.83%
U.S. Bank, N.A. 668,901 20.13%
Bank of America 653,317 19.66%
Norwest Bank Nevada, N.A. 576,823 17.36%
Wells Fargo Bank, N.A. 478,945 14.41%
California Federal Bank 177,470 5.34%
Sierra West Bank 127,825 3.85%
Comstock Bank 105,117 3.16%
Interwest Bank 81,788 2.46%
Nevada Banking Company 35,217 1.06%
Heritage Bank of Nevada 33,752 1.02%
CARSON CITY
Carson City
- -----------------------------------
Pioneer Citizens Bank $ 46,156 6.62%
Wells Fargo Bank, N.A. 145,571 20.88%
Bank of America 108,175 15.51%
Norwest Bank Nevada, N.A. 99,916 14.33%
Comstock Bank 79,583 11.41%
U.S. Bank, N.A. 69,208 9.93%
Sierra West Bank 65,580 9.41%
Nevada State Bank 8,946 1.28%
</TABLE>
2
<PAGE>
Services Provided
Lending Activities. The Bank offers a variety of loans to meet the credit
------------------
needs of the communities it serves. The Bank offers and encourages applications
for a variety of secured and unsecured loans to help meet the needs of its
communities, dependent upon the Bank's financial condition and size, legal
impediments, local economic conditions and consistency with safe and sound
operating practices. While specific credit programs may vary from time to time,
based on Bank policies and market conditions, every effort is made to encourage
applications for the following credit services throughout its communities.
Consumer Loans. A variety of consumer loans are offered by the Bank
--------------
including personal loans, motor vehicle loans, boat loans, recreational vehicle
loans, home improvement loans, home equity loans, open-end credit lines, both
secured and unsecured, and overdraft protection credit lines. The Bank credit
cards are also offered in affiliation with MBNA American Bank, N.A.
In 1998, the Bank implemented a consumer phone-in lending service,
available 24 hours a day and 7 days a week. Callers may apply over the phone
for almost any type of consumer loan offered, or may simply call for information
or credit rates.
Real Estate Loans. The Bank offers home improvement loans and home equity
-----------------
loans and credit lines. Loans for construction, rehabilitation or repurchase of
commercial, industrial and residential development projects are also available
through the Bank.
Business Loans. A wide range of loans and open-end credit arrangements are
--------------
offered by the Bank to businesses of every size, from small sole proprietorships
to large corporate entities, with purposes ranging from working capital and
inventory acquisition to equipment purchases and business expansion. The Bank
also offers commercial leasing and participates in the Small Business
Administration (SBA) financing programs.
Agricultural Loans. The Bank offers loans for agricultural and ranching
------------------
purposes. These include expansion loans, short-term working capital loans,
equipment loans and cattle or livestock loans.
The Bank evaluates each type of lending activity detailed above to
determine the level of credit, market, and economic risk on each individual
credit in relation to the Bank's overall credit portfolio. Some examples of
this include recession, interest rate movement, and fraud. These risks are
involved in all segments of lending and vary according to the borrowers
relationship to the Bank and the economic factors on a local, regional, national
and to some extent, international level.
In order to help mitigate these risks, the Board has approved specific
lending policies and procedures for the Bank and is responsible for the
implementation of these policies. The lending policies and procedures include
guidelines for loan term, loan-to-value ratios, collateral appraisals, and
interest rates. The loan policies also vest varying levels of loan authority in
management, the Bank's loan committee, and the Board of Directors. In addition,
the Bank's audit function provides secondary loan review to maintain credit
standards. These procedures, in combination with experienced credit personnel,
have created a strong credit culture as evidenced by the Bank's low level of
loan losses in comparison to industry averages over the last five years.
The Bank also continues to improve the level of risk management systems to
measure and manage all types of risk within its loan portfolio. This provides
greater understanding of industry, product, and area concentration risk to
establish loan policy, and target markets for loan development.
Management of the Bank monitors lending activities through weekly loan
committee meetings, monthly reporting and periodic loan reviews by external
auditors. The Bank uses these strong internal systems in combination with
involvement in local and national organization, continuing education, and
seminars to understand and anticipate future economic risks, which the Bank
views as the single greatest factor in determining risk management policy.
Deposit Services. The Bank offers the full range of deposit services
----------------
that are typically available in most banks and savings and loan associations,
including checking accounts, savings, money market accounts and various types of
certificates of deposit. The transaction accounts and certificates of deposit
are tailored to the Bank's primary market area at rates competitive with those
offered in the area. All deposit accounts are insured by the FDIC to the
maximum amount permitted by law.
Investment Services. The Bank provides alternative investment services
-------------------
through a third party vendor, including annuities, securities, mutual funds and
discount brokerage services to its customers. The Bank offers these products in
a manner consistent with the principles of prudent and safe banking and in
compliance with applicable laws, rules, regulations and regulatory guidelines.
The Bank also offers investment services to its Trust Department customers.
3
<PAGE>
Other Services. These services include automated teller machines (ATMs).
--------------
ATM access cards, point-of-sale (POS) debit card (Master Card's Master
Money(TM)), check guarantee cards, safe deposit boxes, merchant credit card
services, travelers cheques, savings bonds, direct deposit, night deposit, cash
management services, trust services, and investment services.
The Bank offers "Bank-By-Phone", a service which allows retail customers
24-hour access to deposit and loan account information, and a customer service
center for account inquiries. The Bank is a member of the Star and Plus cash
machine networks.
Employees
Pioneer currently employees 310 full-time equivalent employees.
Supervision and Regulation
General
-------
Pioneer is extensively regulated under federal and state law. These laws
and regulations are primarily intended to protect depositors, not shareholders.
The discussion below describes and summarizes certain statutes and regulations.
These descriptions and summaries are qualified in their entirety by reference to
the particular statute or regulation. Changes in applicable laws or regulations
may have a material effect on the business and prospects of Pioneer. The
operations of Pioneer may also be affected by changes in the policies of banking
and other government regulators. Pioneer cannot accurately predict the nature or
extent of the effects on its business and earnings that fiscal or monetary
policies, or new federal or state laws, may have in the future.
Federal Bank Holding Company Regulation
---------------------------------------
Pioneer is a bank holding company as defined in the Bank Holding Company
Act of 1956, as amended (the "BHCA") because of its ownership of the Bank, and
is therefore subject to regulation, supervision and examination by the Federal
Reserve. In general, the BHCA limits the business of bank holding companies to
owning or controlling banks and engaging in other activities closely related to
banking. Pioneer must file periodic reports with the Federal Reserve and must
provide it with such additional information as it may require.
Holding Company Bank Ownership. The BHCA requires every bank holding
------------------------------
company to obtain the prior approval of the Federal Reserve before (i)
acquiring, directly or indirectly, ownership or control of any voting shares of
another bank or bank holding company if, after such acquisition, it would own or
control more than 5% of such shares, (ii) acquiring all or substantially all of
the assets of another bank or bank holding company, or (iii) merging or
consolidating with another bank holding company.
Holding Company Control of Nonbanks. With some exceptions, the BHCA also
-----------------------------------
prohibits a bank holding company from acquiring or retaining direct or indirect
ownership or control of more than 5% of the voting shares of any company which
is not a bank or bank holding company, or from engaging directly or indirectly
in activities other than those of banking, managing or controlling banks, or
providing services for its subsidiaries. The principal exceptions to these
prohibitions involve certain non-bank activities which, by statute or by Federal
Reserve regulation or order, have been identified as activities closely related
to the business of banking or of managing or controlling banks. In making this
determination, the Federal Reserve considers whether the performance of such
activities by a bank holding company can be expected to produce benefits to the
public such as greater convenience, increased competition or gains in the
efficient use of resources, which can be expected to outweigh the
4
<PAGE>
risks of possible adverse effects such as decreased or unfair competition,
conflicts of interest or unsound banking practices. The Economic Growth and
Regulatory Reduction Act of 1996 amended the BHCA to eliminate the requirement
that bank holding companies seek prior Federal Reserve approval before engaging
in certain permissible nonbanking activities if the holding company is well-
capitalized and meets certain other specified criteria.
Transactions with Affiliates. Subsidiary banks of a bank holding company
----------------------------
are subject to restrictions imposed by the Federal Reserve Act on extensions of
credit to the holding company or its subsidiaries, on investments in their
securities and on the use of their securities as collateral for loans to any
borrower. These regulations and restrictions may limit Pioneer's ability to
obtain funds from the Bank for its cash needs, including funds for payment of
dividends, interest and operational expenses.
Tying Arrangements. Under the Federal Reserve Act and certain regulations
------------------
of the Federal Reserve, a bank holding company and its subsidiaries are
prohibited from engaging in certain tying arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services. For
example, the Bank may not generally require a customer to obtain other services
from it or from Pioneer, and may not require that the customer promise not to
obtain other services from a competitor, as a condition to an extension of
credit to the customer.
Federal and State Bank Regulation
---------------------------------
General. The Bank is a Nevada stock bank with deposits insured by the
-------
FDIC, and is subject to the supervision and regulation of the FDIC and the
Nevada Department of Business and Industry, Financial Institutions Division.
Both of these agencies have the authority to prohibit the Bank from engaging in
what the agencies believe constitute unsafe or unsound banking practices.
CRA. The Community Reinvestment Act (the "CRA") requires that, in
---
connection with examinations of financial institutions within their
jurisdiction, the Federal Reserve or the FDIC evaluates the record of the
financial institutions in meeting the credit needs of their local communities,
including low and moderate income neighborhoods, consistent with the safe and
sound operation of those banks. These factors are also considered in evaluating
mergers, acquisitions and applications to open a branch or facility.
Insider Credit Transactions. Banks are also subject to certain
---------------------------
restrictions imposed by the Federal Reserve Act on extensions of credit to
executive officers, directors, principal shareholders or any related interests
of such persons. Extensions of credit (i) must be made on substantially the
same terms, including interest rates and collateral as, and follow credit
underwriting procedures that are not less stringent than, those prevailing at
the time for comparable transactions with persons not covered above and who are
not employees, and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features. Banks are also subject to certain
lending limits and restrictions on overdrafts to such persons. A violation of
these restrictions may result in the assessment of substantial civil monetary
penalties on the affected bank or any officer, director, employee, agent or
other person participating in the conduct of the affairs of that bank, the
imposition of a cease and desist order, and other regulatory sanctions.
FDICIA. Under the Federal Deposit Insurance Corporation Improvement
------
Act ("FDICIA"), each federal banking agency has prescribed, by regulation, non-
capital safety and soundness standards for institutions under its authority.
These standards cover internal controls, information systems and internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, fees and benefits, such other operational and managerial
standards as the agency determines to be appropriate, and standards for asset
quality, earnings and stock valuation. An institution
5
<PAGE>
which fails to meet these standards must develop a plan acceptable to the
agency, specifying the steps that the institution will take to meet the
standards. Failure to submit or implement such a plan may subject the
institution to regulatory sanctions. Management believes that the Bank meets all
such standards, and therefore does not believe that these regulatory standards
materially affect Pioneer's business operations.
Interstate Banking and Branching
--------------------------------
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Act") permits nationwide interstate banking and branching under
certain circumstances. This legislation generally authorizes interstate
branching and relaxes federal law restrictions on interstate banking. Currently,
bank holding companies may purchase banks in any state, and states may not
prohibit such purchases. Additionally, banks are permitted to merge with banks
in other states as long as the home state of neither merging bank has opted out.
The Interstate Act requires regulators to consult with community organizations
before permitting an interstate institution to close a branch in a low-income
area.
Under recent FDIC regulations, banks are prohibited from using their
interstate branches primarily for deposit production. The FDIC has accordingly
implemented a loan-to-deposit ratio screen to ensure compliance with this
prohibition.
Nevada has enacted "opting in" legislation in accordance with the
Interstate Act provisions generally allowing banks, other depository
institutions, and holding companies to engage in interstate mergers with, or
acquisitions of, Nevada depository institutions (including banks), subject to
certain "aging" and regulatory approval requirements. The "aging" requirements
are that the Nevada depository institution must have been chartered on or before
September 28, 1995 or must have been in existence for at least five years prior
to the transaction. Branches generally may not be opened or acquired separately
in Nevada by an out-of-state depository institution. An out-of-state depository
institution may, however, open or acquire a de novo branch in a Nevada county
with a population of less than 100,000 people. In addition, once an out-of-state
depository institution has acquired a depository institution within Nevada, the
out-of-state depository institution may open additional branches within the
state.
Deposit Insurance
-----------------
The deposits of the Bank are currently insured to a maximum of $100,000 per
depositor through the Bank Insurance Fund ("BIF") administered by the FDIC. The
Bank is required to pay semiannual deposit insurance premium assessments to the
FDIC.
FDICIA included provisions to reform the federal deposit insurance system,
including the implementation of risk-based deposit insurance premiums. FDICIA
also permits the FDIC to make special assessments on insured depository
institutions in amounts determined by the FDIC to be necessary to give it
adequate assessment income to repay amounts borrowed from the U.S. Treasury and
other sources or for any other purpose the FDIC deems necessary. The FDIC has
implemented a risk-based insurance premium system under which banks are assessed
insurance premiums based on much risk they present to BIF. Banks with higher
levels of capital and a low degree of supervisory concern are assessed lower
premiums than banks with lower levels of capital or a higher degree of
supervisory concern.
6
<PAGE>
Dividends
---------
Other than proceeds received from the purchase of stock by officers and
directors in connection with the exercise of stock options or directors' fees,
the principal source of Pioneer's cash revenues is dividends received from the
Bank. The payment of dividends is subject to government regulation, in that
regulatory authorities may prohibit banks and bank holding companies from paying
dividends which would constitute an unsafe or unsound banking practice. In
addition, a bank may not pay cash dividends if that payment could reduce the
amount of its capital below that necessary to meet minimum applicable regulatory
capital requirements. Nevada banking statutes also place limitations on a bank's
ability to pay distributions (which includes cash dividends) in certain
respects. First, no distribution may be made by a bank if the distribution would
reduce the bank's stockholders' equity below its initial level. Second, a bank's
stockholders' equity must not fall below six percent of the bank's average total
daily deposit liabilities for the preceding 60 days. Distributions that would
result in such percentage being less than six percent are, therefore,
prohibited. For purposes of these Nevada law restrictions, a bank's
stockholders' equity includes the reserve for loan losses. Other than the laws
and regulations noted above which apply to all banks and bank holding companies,
neither Pioneer nor the Bank are currently subject to any regulatory
restrictions on their dividends. The Bank has been paying cash dividends, as
needed, to Pioneer and Pioneer has been paying regular stock dividends to its
shareholders. No assurances can be given that dividends will continue to be
paid. Pioneer historically has not paid cash dividends, nor does it expect to
pay them in the foreseeable future.
Capital Adequacy
----------------
Federal bank regulatory agencies use capital adequacy guidelines in the
examination and regulation of bank holding companies and banks. If capital falls
below minimum guideline levels, the holding company or bank may be denied
approval to acquire or establish additional banks or non-bank businesses or to
open new facilities.
The FDIC and Federal Reserve use risk-based capital guidelines for banks
and bank holding companies. These are designed to make such capital requirements
more sensitive to differences in risk profiles among banks and bank holding
companies, to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items. The guidelines are minimums, and the Federal
Reserve has noted that bank holding companies contemplating significant
expansion programs should not allow expansion to diminish their capital ratios
and should maintain ratios well in excess of the minimum. The current guidelines
require all bank holding companies and federally-regulated banks to maintain a
minimum risk-based total capital ratio equal to 8%, of which at least 4% must be
Tier I capital. Tier I capital for bank holding companies includes common
shareholders' equity, certain qualifying perpetual preferred stock and minority
interests in equity accounts of consolidated subsidiaries, less intangibles
except as described above.
The Federal Reserve also employs a leverage ratio, which is Tier I capital
as a percentage of total assets less intangibles, to be used as a supplement to
risk-based guidelines. The principal objective of the leverage ratio is to
constrain the maximum degree to which a bank holding company may leverage its
equity capital base. The Federal Reserve requires a minimum leverage ratio of
3%. However, for all but the most highly rated bank holding companies and for
bank holding companies seeking to expand, the Federal Reserve expects an
additional cushion of at least 1% to 2%.
7
<PAGE>
FDICIA created a statutory framework of supervisory actions indexed to the
capital level of the individual institution. Under regulations adopted by the
FDIC, an institution is assigned to one of five capital categories depending on
its total risk-based capital ratio, Tier I risk-based capital ratio, and
leverage ratio, together with certain subjective factors. Institutions which are
deemed to be "undercapitalized" depending on the category to which they are
assigned are subject to certain mandatory supervisory corrective actions.
Pioneer does not believe that these regulations have any material effect on its
operations.
Effects of Government Monetary Policy
-------------------------------------
The earnings and growth of Pioneer are affected not only by general
economic conditions, but also by the fiscal and monetary policies of the federal
government, particularly the Federal Reserve. The Federal Reserve can and does
implement national monetary policy for such purposes as curbing inflation and
combating recession, but its open market operations in U.S. government
securities, control of the discount rate applicable to borrowings from the
Federal Reserve, and establishment of reserve requirements against certain
deposits, influence the growth of bank loans, investments and deposits, and also
affect interest rates charged on loans or paid on deposits. The nature and
impact of future changes in monetary policies and their impact on Pioneer cannot
be predicted with certainty.
Changes in Banking Laws and Regulations
---------------------------------------
The laws and regulations that affect banks and bank holding companies are
currently undergoing significant changes. This year, legislation was proposed in
Congress which contained proposals to alter the structure, regulation, and
competitive relationships of the nation's financial institutions. Although the
legislation was not passed in the 1998 general session of Congress, similar
legislation may be proposed in the coming years and, if enacted into law, such
bills could have the effect of increasing or decreasing the cost of doing
business, limiting or expanding permissible activities (including activities in
the insurance and securities fields), or affecting the competitive balance among
banks, savings associations, and other financial institutions. Some of these
bills may reduce the extent of federal deposit insurance, broaden the powers or
the geographical range of operations of bank holding companies, alter the extent
to which banks could engage in securities activities, and change the structure
and jurisdiction of various financial institution regulatory agencies. Whether
or in what form such legislation may be adopted, or the extent to which the
businesses of Pioneer and the Bank might be affected thereby, cannot be
predicted with certainty.
8
<PAGE>
ITEM 2. FINANCIAL INFORMATION.
Selected Financial Data
The following year-end financial data of Pioneer are derived from Pioneer's
historical audited financial statements. The interim financial information has
been derived from unaudited financial statements of Pioneer. Pioneer believes
that these financial statements include all adjustments of a normal, recurring
nature and all disclosures that are necessary for a fair statement of the
results for the unaudited interim periods. Results for the interim periods do
not necessarily indicate which may be expected for any interim or annual period.
The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related footnotes contained elsewhere in this
Registration Statement.
<TABLE>
<CAPTION>
At or For the
Three Months Ended March 31,
-----------------------------------
(unaudited) (unaudited)
-----------------------------------
1999 1998
-----------------------------------
<S> <C> <C>
Consolidated Statements of
Earnings Data:
Total interest income $ 18,613 $ 15,978
Total interest expense 7,480 6,601
-----------------------------------
Net interest income 11,133 9,377
Provision for loan losses 510 360
-----------------------------------
Net interest income after
provision for loan losses 10,623 9,017
Gain on sale of securities 24 11
Total other income 2,113 1,805
Total other expense 8,428 6,591
-----------------------------------
Income before taxes 4,332 4,242
Income taxes 1,087 1,200
-----------------------------------
Net income $ 3,245 $ 3,042
Net income per share*
Basic 0.34 0.32
Diluted 0.34 0.32
===================================
Average weighted common
shares outstanding*
Basic 9,548,135 9,444,735
Diluted 9,567,543 9,492,918
-----------------------------------
Consolidated Balance Sheet
Data (at period end):
Total assets $1,075,524 $ 905,697
Net loans 610,598 457,030
Deposits 940,902 778,512
Shareholders' equity 69,449 57,413
Number of Branches 13 11
</TABLE>
Selected Financial Data For Years Ended December 31
---------------------------------------------------
(dollars in thousands except share data)
<TABLE>
<CAPTION>
STATEMENTS OF 1998 1997 1996 1995 1994
EARNINGS DATA
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $ 68,866 $ 55,624 $ 42,364 $ 36,738 $ 26,762
Total interest expense 28,745 21,694 15,844 13,010 7,282
------------------------------------------------------------
Net interest income 40,121 33,930 26,520 23,728 19,480
Provision for loan losses 2,125 1,300 1,015 1,155 990
------------------------------------------------------------
Net interest income after
provision for loan losses 37,996 32,630 25,505 22,573 18,490
Gain on sale of available
for sale securities 2,016 111 --- 36 (18)
Total other income 8,235 7,475 5,391 4,414 3,673
Total other expense 30,002 23,716 19,332 16,738 13,589
------------------------------------------------------------
Income before taxes 18,245 16,500 11,564 10,285 8,556
Income taxes 4,954 4,956 3,480 3,282 2,726
------------------------------------------------------------
Net income $ 13,291 $ 11,544 $ 8,084 $ 7,003 $ 5,830
Net income per share*
Basic 1.40 1.24 0.87 0.75 0.63
Diluted 1.39 1.20 0.84 0.73 0.60
============================================================
Average weighted common
shares outstanding*
Basic 9,495,419 9,337,301 9,317,468 9,314,638 9,314,626
Diluted 9,527,786 9,581,583 9,657,646 9,651,294 9,637,126
<CAPTION>
- --------------------------------------------------------------------------------------
CONSOLIDATED BALANCE 1998 1997 1996 1995 1994
SHEET DATA
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets 1,031,257 851,261 631,137 499,456 416,353
Net loans 576,105 434,548 351,896 286,706 221,690
Deposits 899,747 739,778 563,477 432,575 382,253
Shareholders' equity 67,554 54,057 40,997 33,002 24,985
NUMBER OF BRANCHES 13 11 10 9 8
</TABLE>
* Earnings per share are computed on the basis of the weighted average number of
shares outstanding plus the common stock equivalents which would arise from the
exercise of stock options. Weighted shares outstanding are adjusted
retroactively for the effect of stock splits and dividends.
9
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------
KEY FINANCIAL RATIOS 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on Average Assets 1.46% 1.57% 1.47%
Return on Average Equity 22.28% 24.38% 22.05%
Average Equity to Average Assets 6.55% 6.44% 6.67%
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Three Months Ended March 31, 1999 and 1998
Overview
--------
Total assets grew 4% from December 31, 1998 to March 31, 1999. Total net
loans and total deposits grew 6% and 5%, respectively, during the first quarter
of 1999. The real estate loan category accounted for the majority of the loan
growth in the quarter, while time deposits generated the largest amount of
deposit growth. Cash and cash equivalent balances increased 22% from December
31, 1998 to March 31, 1999 due to the large build up in the fed funds sold
category that was driven primarily by substantial increases in commercial
customer account balances in anticipation of the April tax payment date. The
first quarter 1999 net 5% decrease in the premises and equipment category is due
to the sale and leaseback of the Eastgate (Henderson) branch facility built in
1998. The net deferred tax asset category increase of 33% during the first
quarter of 1999 was caused by the recognition of the tax effect of the
substantial decrease in the available for sale securities unrealized gain as of
December 31, 1998 to an unrealized loss at March 31, 1999.
For the three months ended March 31, 1999 average total assets of Pioneer
were $1.038 billion, a 21% increase over the $856 million average asset total
for the three months ended March 31, 1998. Average total net loans, investment
securities, and interest-bearing liabilities grew 33%, 20% and 23%, respectively
during the three month period ended March 31, 1999 compared to the three months
ended March 31, 1998. The growth can be attributed to expansion of the Bank's
branch system from 10 to 13 as well as expansion of the two major commercial and
real estate lending centers in Las Vegas and Reno.
Pioneer's net income for the three months ended March 31, 1999 increased 7%
over the three month period ended March 31, 1998. As the Bank aggressively
opened new branch facilities, increased staffing levels, and responded to the
competitive loan rate environment, net income growth trended under the double
digit increases that have been experienced in the past. As the loan portfolio
has grown substantial, the provision for loan and lease losses has been
increased accordingly. For the three month period ended March 31, 1999 this
provision increased 42% over the same period in 1998.
The following tables summarize, by loan category and portfolio percentages,
transactions in the allowance for loan losses and the allocation of the
allowance for the indicated periods:
<TABLE>
<CAPTION>
Allocation of the Allowance for Loan Losses
and Non-Accrual Loans Detail
(dollars in thousands)
March 31, 1999
---------------------------------------------------------------------------
Percent of
Loans to Non-
Total Gross Accrual
Loans Loans Allowance Loans
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial 23.9% $148,440 $1,708 $314
Real Estate 68.9% 427,175 4,923 47
Agricultural 0.1% 557 7 -
Installment 5.2% 32,477 372 12
State and Municipal 1.4% 8,864 100 -
Leases 0.5% 2,786 35 -
---------------------------------------------------------------------------
100.0% $620,299 $7,145 $373
===========================================================================
<CAPTION>
December 31, 1998
---------------------------------------------------------------------------
Percent of
Loans to Non-
Total Gross Accrual
Loans Loans Allowance Loans
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial 25.9% $151,691 $1,816 $684
Real Estate 66.9% 391,587 4,688 98
Agricultural 0.1% 462 5 -
Installment 5.5% 32,211 386 12
State and Municipal 1.4% 8,380 100 -
Leases 0.2% 714 9 -
---------------------------------------------------------------------------
100.0% $585,045 $7,004 $794
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
---------------------------------------------------------------------------
Percent of
Loans to Non-
Total Gross Accrual
Loans Loans Allowance Loans
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial 26.5% $123,293 $1,606 $1,570
Real Estate 65.6% 305,014 3,975 -
Agricultural - - - -
Installment 6.9% 31,926 418 20
State and Municipal 1.0% 4,758 60 -
Leases - - - -
---------------------------------------------------------------------------
100.0% $464,991 $6,059 $1,590
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
Analysis of the Allowance
For Loan Losses
(dollars in thousands)
At March 31,
1999 1998
----------------------------------------------------
<S> <C> <C>
BEGINNING BALANCE $ 7,004 $ 5,773
CHARGE-OFFS
Commercial 266 50
Real Estate - -
Installment Loans 127 41
----------------------------------------------------
Total Charge-offs 393 91
RECOVERIES 24 17
----------------------------------------------------
NET CHARGE-OFFS 369 74
PROVISION 510 360
----------------------------------------------------
ENDING BALANCE $ 7,145 $ 6,059
====================================================
Ratio of net charge-offs to
average loans outstanding 0.07% 0.02%
</TABLE>
Net Interest Income
-------------------
The following table provides information on net interest income for the periods
indicated, setting forth average balances of interest-earning assets and
interest-bearing liabilities, the interest income earned and interest expense
recorded thereon and the resulting average yield-cost ratios:
<TABLE>
<CAPTION>
Average Balance Sheets and Analysis of Net Interest Earnings
(dollars in thousands)
For the three months ended: 3/31/99
Average Int Income/
Balance Expense Yield
---------------------------------------------------
<S> <C> <C> <C>
Loans, net (1) $ 590,428 $ 13,544 9.30%
Securities (2) 305,774 4,381 5.81%
Federal Funds Sold 58,894 688 4.74%
---------------------------------------------------
Total Earning Assets $ 955,096 $ 18,613 7.90%
Cash and Due Banks 49,388
Bank Premises and Equipment, net 18,192
Other Assets 15,666
------------------
Total Assets $1,038,342
==================
Time Deposits of $100,000 or more $ 123,385 $ 1,572 5.17%
Other Interest-Bearing Deposits 583,106 5,286 3.68%
Repurchase Agreements 56,773 622 4.44%
---------------------------------------------------
Total Interest-Bearing Liabilities $ 763,264 $ 7,480 3.97%
Noninterest-Bearing Deposits 204,106
Other Liabilities 3,061
Shareholders' Equity 67,911
------------------
Total Liabilities and Shareholders' $1,038,342
==================
Equity
------------------
Net Interest Income $ 11,133
==================
Net Yield on Interest-Earning Assets 4.73%
For the three months ended: 3/31/98
Average Int Income/
Balance Expense Yield
---------------------------------------------------
Loans, net (1) $ 443,369 $ 11,162 10.21%
Securities (2) 254,586 3,605 5.74%
Federal Funds Sold 88,622 1,211 5.54%
---------------------------------------------------
Total Earning Assets $ 786,577 $ 15,978 8.24%
Cash and Due Banks 45,119
Bank Premises and Equipment, net 11,467
Other Assets 12,581
------------------
Total Assets $ 855,744
==================
Time Deposits of $100,000 or more $ 48,723 $ 647 5.39%
Other Interest-Bearing Deposits 514,352 5,245 4.14%
Repurchase Agreements 55,984 709 5.14%
---------------------------------------------------
Total Interest-Bearing Liabilities $ 619,059 $ 6,601 4.32%
Noninterest-Bearing Deposits 177,490
Other Liabilities 3,304
Shareholders' Equity 55,891
------------------
Total Liabilities and Shareholders' $ 855,744
==================
Equity
------------------
Net Interest Income $ 9,377
==================
Net Yield on Interest-Earning Assets 4.83%
</TABLE>
(1) Non-accrual loans are included in the average balance, but interest on such
loans is not recognized in the interest income.
(2) Municipal interest income is not tax equivalized.
The following rate/volume analysis depicts the increase (decrease) in net
interest income attributable to interest rate fluctuations (change in rate
multiplied by prior period average balance) and volume fluctuations (change in
average balance multiplied by prior period rate) when compared to the preceding
year.
<TABLE>
<CAPTION>
Changes Due to Volume and Rate
(dollars in thousands)
For the three months ended: 3/31/99 vs. 3/31/98
Changes due to
Volume Rate Total
----------------------------------------------------------
<S> <C> <C> <C>
Loans, net $3,442 $(1,060) $2,382
Securities 733 43 776
Federal Funds Sold (365) (158) (523)
-----------------------------------------------------------
Total $3,810 $(1,175) $2,635
Time Deposits of $100,000 or more $ 952 $ (27) $ 925
Other Interest-Bearing Deposits 658 (617) 41
Repurchase Agreements 10 (97) (87)
-----------------------------------------------------------
Total $1,620 $ (741) $ 879
-----------------------------------------------------------
Net Interest Income $2,190 $ (434) $1,756
===========================================================
</TABLE>
NOTE - The change in interest not due solely to volume or
rate has been allocated in proportion to the absolute dollar
amounts of the change in each.
For the three month period ended March 31, 1999, net interest income
increased 19% from the same period in 1998. Interest income and interest
expense increased 16% and 13%, respectively, for the three months ended March
31, 1999 compared to the three months ended March 31, 1998. The Bank's net
interest margin at March 31 for the years 1999 and 1998 was 4.73% and 4.83%,
respectively. The 10 basis point decrease in the net interest margin can be
primarily attributed to the substantial decrease in the yield received on the
loan portfolio. On a tax equivalent basis, the net interest margin was 4.98%
and 5.04% at March 31 for the years 1999 and 1998, respectively. The
unfavorable rate variance in the loan and federal funds sold categories have
been more than offset by the favorable volume increases in the loan and
securities categories. In addition, the decrease in deposit rates has been a
favorable development, which partially offset the unfavorable earning asset rate
variance. Management believes that competition between banks and other
financial services companies will continue to keep loan rates down while deposit
rates will probably not decrease from current levels due to this same
competitive environment.
Non-Interest Income
-------------------
The following table details dollar amount and percentage changes of certain
categories of non-interest income for the periods indicated:
<TABLE>
<CAPTION>
NON-INTEREST INCOME
(dollars in thousands) Percent Percent
For three months ended: 3/31/99 % of Change 3/31/98 % of Change
Amount Total Prev. Yr. Amount Total Prev. Yr.
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service Charges on Deposit
Accounts $847 39.6% 10.9% $ 764 42.0% 7.5%
Merchant Credit Card Income 549 25.7% 17.3% 468 25.8% 7.1%
Trust Department Income 408 19.1% 14.3% 357 19.7% 10.9%
Gain on Sale of Securities
Available for Sale 24 1.1% 118.2% 11 0.6% -
ATM Network Fees Earned 93 4.4% 45.3% 64 3.5% 20.8%
Other Income 216 10.1% 32.5% 163 9.0% 22.6%
----------------------------------------------------------------------------------------------------
$2,137 100.0% 17.7% $ 1,816 100.0% 9.7%
</TABLE>
Service charges on deposits continue to be a focal point of non-interest
income growth from period to period as this category continues to be
approximately 40% of the total. Fee increases contemplated in late 1998 and
instituted in late first quarter 1999 have contributed to the increase in period
to period growth rate of service charges from 7.5% to almost 11%. It is
anticipated that service charge income will continue to grow as the full effect
of the fee adjustments are realized on into 1999. Merchant credit card and
trust department income both experienced double digit increases from the 1998
first quarter period due to increased volume within the business categories over
the previous year. Higher period to period ATM usage has also been a favorable
development and has increased the contribution of this category to the total.
Non-Interest Expense
--------------------
The following table details dollar amount and percentage changes of certain
categories of non-interest expense for the periods indicated:
<TABLE>
<CAPTION>
NON-INTEREST EXPENSE
(dollars in thousands) Percent Percent
For three months ended: 3/31/99 % of Change 3/31/98 % of Change
Amount Total Prev. Yr. Amount Total Prev. Yr.
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries and Employee
Benefits $ 3,975 47.2% 26.4% $ 3,144 47.7% 25.2%
Occupancy and Equipment 1,847 21.9% 55.3% 1,189 18.1% 35.4%
Merchant Credit Card Expense 489 5.8% 22.9% 398 6.0% 2.6%
Marketing/Advertising 209 2.5% 50.4% 139 2.1% 17.8%
Other Expense 1,908 22.6% 10.9% 1,721 26.1% 18.7%
---------------------------------------------------------------------------------------------
$ 8,428 100.0% 27.9% $ 6,591 100.0% 23.3%
</TABLE>
As Pioneer has grown and expanded the branch network and product offerings,
the salaries and benefit category continues to be the largest non-interest
expense category with over 47% of the total. However, occupancy and expense
has had the highest growth rates for period to period comparisons due to
facilities expansion and branch construction. Marketing and advertising expense
increased substantially as management of the Bank chose to focus on more
extensive campaigns in the high growth Las Vegas area.
Pioneer experienced a 300 basis point decrease in the Company's effective
federal income tax rate from the 28% rate at March 31, 1998. This decrease in
effective tax rate is due to the substantial 49% increase in tax-exempt income
booked during the three months ended March 31, 1999 versus the same period ended
March 31, 1998.
FISCAL YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
- ---------------------------------------------------
Overview
--------
For 1998, Pioneer realized record annual earnings of $13,291,000 and $1.39
per share (diluted) on an after-tax basis. This is a 15% increase in net
earnings over 1997's $11,544,000 and $1.20 per share (diluted). These results
represent the ninth consecutive year of increased earnings. Return on equity and
return on assets, common measures of bank performance, totaled 22.28% and 1.46%,
respectively, compared to 24.38% and 1.57% in 1997. Pioneer paid a 10% stock
dividend in March 1999, February 1998 and declared a three-for-two stock split
in July 1998. All per share data computations are calculated after giving
retroactive effect to stock dividends and stock splits.
Total assets reached $1,031,257,000, a 21% increase from $851,261,000 in
1997. Total loans also experienced record growth to $576,105,000 from the
$434,548,000 level at the end of 1997. Total deposits grew from $739,778,000 to
$899,747,000 at December 31, 1998. These amounted to 33% and 22% growth rates,
respectively. Performance at Pioneer over the past three years has largely been
the result of a continued commitment to an aggressive branch expansion plan and
high levels of customer service in terms of suitable branch staffing levels,
local decision-making authority, competitive pricing and face-to-face business
development efforts.
Net income for 1998 included after-tax net gains of $1,310,000 on sales of
$60,914,000 par value available-for-sale securities.
Pioneer's net interest margin at December 31, 1998 was 4.72%, as compared
to 5.13% at December 31, 1997 and 5.44% at December 31, 1996. On a tax
equivalent basis, the net interest margin was 4.92% at December 31, 1998, 5.25%
at December 31, 1997 and 5.53% at December 31, 1996.
In the past year, the Bank has opened two new Las Vegas/Henderson area
branches and completed the transition from a temporary facility to the permanent
building at another Las Vegas location. Initial plans for 1999 include two
additional branch locations, one in the Reno/Sparks area and one in the Las
Vegas area. Also, conversion of the Bank's North Carson City ATM/night drop
facility into a full service branch is planned for 1999. Management continues
to believe that strategically locating branches in high growth areas within
Southern and Northern Nevada is a desirable way of fueling the future growth
prospects of the Bank.
Balance Sheet Analysis
----------------------
Average earning assets as a percentage of average total assets was 92% for
1998, as compared to 90% for 1997. Earning assets grew 21% to $939,287,000 at
December 31, 1998. Interest-bearing liabilities grew 24% to $735,410,000 at
December 31, 1998.
10
<PAGE>
Loans
-----
The loan portfolio continues to be the largest component of earning assets
and the 33% growth in 1998 of that component has resulted in a favorable
increase in earnings for Pioneer. However, competition for loan business has
been keen with non-bank and traditional bank competitors willing to lend at
substantially lower rates than were offered just last year. If loan yields
continue to be driven down by this intense competition, Pioneer's future
earnings could be adversely effected. The Bank will continue to be an
aggressive force in its lending markets while actively managing portfolio with
safety and soundness as important objectives.
The Bank started a leasing program in 1998 to serve both the northern and
southern regions. It is management's intention to favorably increase the
overall yield of the loan portfolio with this program. The Bank has also
increased its presence in the tax-exempt loan market as evidenced by the 371%
growth in the state and municipal obligations category.
In 1997, the total loan portfolio increased 23% with real estate loans
contributing the highest growth, 28%, in the portfolio from 1996. Interim
construction and land development lending grew 46% as it continued to be a very
important growth area for the Bank's real estate portfolio. The real estate
portfolio has been 60 plus percent of the total portfolio for the last five
years while contributing almost nothing to the charge-off totals over that
period.
Classification of Loans
-----------------------
The Bank is required under applicable law and regulations to review their
loans on a regular basis and to classify them as "satisfactory," "special
mention," "substandard," "doubtful" or "loss." A loan which possesses no
apparent weakness or deficiency is designated "satisfactory." A loan which
possess weaknesses or deficiencies deserving close attention is designated as
"special mention." A loan is generally classified at "substandard" if it
possesses a well-defined weakness and the Bank will probably sustain some loss
if the weaknesses or deficiencies are not corrected. A loan is classified as
"doubtful" if a probable loss of principal and/or interest exists but the amount
of the loss, if any, is subject to the outcome of future events which are
undeterminable at the time of classification. If a loan is classified as "loss,"
the Bank either established a specific valuation allowance equal to the amount
classified as loss or charges off such amount.
Non-accrual loans are those which have become delinquent for more than 90
days. Placement of loans on non-accrual status does not necessarily mean that
the outstanding loan principal will not be collected but rather than timely
collection of principal and interest is in question. When a loan is placed on
non-accrual status, interest accrued but not received is reversed. The amount
of interest income which would have been recorded in fiscal 1998, 1997, 1996,
1995 and 1994 on non-accrual loans was $42,000, $40,000, $29,000, $38,000 and
$0, respectively. A non-accrual loan may be restored to accrual status when
principal and interest payments are brought current or when brought to 90 days
or less delinquent and continuing payment of principal and interest is expected.
The Allowance for Loan Losses
-----------------------------
The allowance for loan losses is based upon management's assessment of
various factors including, but not limited to, current and future economic
trends, historical loan losses, delinquencies, underlying collateral values, as
well as current and potential risks identified in the loan portfolio.
The following tables summarize, by loan category and portfolio percentages,
transactions in the allowance for loan losses and the allocation of the
allowance for the last five years.
11
<PAGE>
Allocation of the Allowance for Loan Losses
and Non-Accrual Loans Detail
(dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------------------------------------
Percent of
Loans to Gross Non-Accrual
Total Loans Loans Allowance Loans
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial 25.9% $151,691 $1,816 $684
Real Estate 66.9% 391,587 4,688 98
Agricultural 0.1% 462 5 ---
Installment 5.5% 32,211 386 12
State and Municipal 1.4% 8,380 100 ---
Leases 0.2% 714 9 ---
---------------------------------------------------------------------------------------------
100.0% $585,045 $7,004 $794
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------------------------------------------
Percent of
Loans to Gross Non-Accrual
Total Loans Loans Allowance Loans
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial 26.9% $118,862 $1,553 $793
Real Estate 65.5% 289,590 3,783 127
Agricultural --- 70 1 ---
Installment 7.2% 31,647 413 ---
State and Municipal 0.4% 1,781 23 ---
Leases --- --- --- ---
---------------------------------------------------------------------------------------------
100.0% $441,950 $5,773 $920
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------------------------------------------
Percent of
Loans to Gross Non-Accrual
Total Loans Loans Allowance Loans
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial 29.6% $106,089 $1,458 $ 162
Real Estate 63.1% 226,018 3,106 1,309
Agricultural --- --- --- ---
Installment 6.9% 24,633 338 66
State and Municipal 0.4% 1,512 21 ---
Leases --- --- --- ---
---------------------------------------------------------------------------------------------
100.0% $358,252 $4,923 $1,537
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------------------------------------------------
Percent of
Loans to Gross Non-Accrual
Total Loans Loans Allowance Loans
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial 31.6% $ 92,169 $1,267 $ ---
Real Estate 60.2% 175,787 2,416 1,652
Agricultural --- --- --- ---
Installment 8.0% 23,331 320 ---
State and Municipal 0.2% 512 7 ---
Leases --- --- --- ---
---------------------------------------------------------------------------------------------
100.0% $291,799 $4,010 $1,652
=============================================================================================
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------------------------------------------------------------
Percent of
Loans to Gross Non-Accrual
Total Loans Loans Allowance Loans
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial 26.9% $ 60,798 $ 820 $ ---
Real Estate 64.9% 146,544 1,977 ---
Agricultural 0.2% 354 5 ---
Installment 7.8% 17,631 238 ---
State and Municipal 0.2% 530 7 ---
Leases --- --- --- ---
---------------------------------------------------------------------------------------------
100.0% $225,857 $3,047 $ ---
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF THE ALLOWANCE FOR LOAN 1998 1997 1996 1995 1994
LOSSES (dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BEGINNING BALANCE $5,773 $4,923 $4,010 $3,047 $2,509
CHARGE-OFFS
Commercial 619 406 96 167 395
Real Estate --- --- --- 54 ---
Installment Loans 366 128 114 29 168
------------------------------------------------------------------------------------
Total Charge-offs 985 534 210 250 563
RECOVERIES 91 84 108 58 111
------------------------------------------------------------------------------------
NET CHARGE-OFFS 894 450 102 192 452
PROVISION 2,125 1,300 1,015 1,155 990
------------------------------------------------------------------------------------
ENDING BALANCE $7,004 $5,773 $4,923 $4,010 $3,047
====================================================================================
Ratio of net charge-offs to
average loans outstanding 0.18% 0.12% 0.03% 0.07% 0.21%
</TABLE>
The following table details loan repricing information for fixed and
variable loans.
Maturity and Repricing for the Bank's
Loan Portfolio at December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
LOAN REPRICING Fixed Rate Variable Rate Total Loans
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0-90 days $ 11,120 $236,145 $247,265
91-365 days 18,958 9,783 28,741
1 year-5 years 95,741 84,271 180,012
5 years or more 120,602 6,489 127,091
---------------------------------------------------------------------------
$246,421 $336,688 $583,109
Loans on which the accrual of
interest has been discounted --- --- ---
---------------------------------------------------------------------------
$246,421 $336,688 $583,109
Allowance for Loan Losses --- --- $ (7,004)
---------------------------------------------------------------------------
$246,421 $336,688 $576,105
</TABLE>
13
<PAGE>
Investments
-----------
The investment portfolio is the second largest earning asset category and
is comprised mostly of securities categorized as available-for-sale.
The carrying value of the available-for-sale securities portfolio grew 28%
to $269,476,000 at December 31, 1998 from $211,004,000 at December 31, 1997.
The carrying value of the held-to-maturity securities portfolio grew 13% to
$46,102,000 from $40,861,000. Pioneer continues to invest more excess funds
into the available-for-sale portfolio so as to have more flexibility in managing
the investment portfolio assets. In 1998, the Bank began to shift more
investment dollars to U.S. agency debentures from direct U.S. government notes
and bonds due to the more favorable yield levels of the agencies. A large part
of the U.S. Agency securities growth for 1998 came in the category of high
quality mortgage-backed securities and collateralized mortgage obligations.
These investments have extended slightly the duration of the total investment
portfolio, however, the Bank was paid for the extension through favorable
yields. Both the available-for-sale portfolio as well as the held-to-maturity
portfolio have average durations of approximately 60 months.
Pioneer also substantially increased its overall investment in municipal
securities during 1998. The combined (available-for-sale and held-to-maturity)
tax-exempt municipal portfolio grew 68% during 1998. Pioneer has experienced a
favorable decrease in its effective tax rate due to the growth in tax-exempt
holdings. Management does not anticipate reaching an amount in total tax-exempt
investments that would warrant alternative minimum tax treatment.
The average federal funds balance for 1998 was only 8% over that of 1997's
average which was in turn 142% more than the 1996 average balance.
In 1997, the Bank began to shift more investment dollars into the U.S.
agency market. Higher yields for fairly equal risk and increased use as
collateral for public funds pledging and repurchase agreement transactions, were
reasons for the high growth in U.S. agency investment. Tax-exempt municipal
bond investments grew substantially also as the Bank continued to lower its
effective tax rate.
The following table displays investment securities balances and repricing
information for the portfolio.
Investment Portfolio Detail
(carrying value dollars in thousands)
as of December 31,
<TABLE>
<CAPTION>
Percentage Percentage
Change Change
Previous Previous
1998 Year 1997 Year 1996
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasuries $ 52,962 -56.7% $122,347 18.3% $103,410
U.S. Agencies 164,219 131.9% 70,801 150.3% 28,287
State, County, and Municipal 98,397 67.6% 58,717 83.1% 32,065
---------------------------------------------------------------------------------------
Total $315,578 25.3% $251,865 53.8% $163,762
=======================================================================================
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1998
Maturing Within One One to Five to Over
(in thousands) Year Five Years Ten Years Ten Years Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasuries $32,410 $20,552 $ --- $ --- $ 52,962
U.S. Agencies 7,299 44,697 33,102 79,121 164,219
State, County, and Municipal 2,144 16,911 58,625 20,717 98,397
-------------------------------------------------------------------------------------
Total $41,853 $82,160 $91,727 $99,838 $315,578
=====================================================================================
</TABLE>
Deposits
--------
The Bank continues to gather most of its deposit base from small business
sources. The retail base continues to grow with new and improved product
offerings, however, management recognizes that customer service, not a vast
retail branch network, is going to be the key to the Bank's retail growth. In
1998, the Bank experienced some changes in the typical sources of deposit growth
as well as the ever increasing competition for deposit dollars. While interest-
bearing deposits grew 26% over 1997, the certificates of deposit portion of that
total grew by 108%. In previous years much of the Bank's growth has been in
money market and tiered interest accounts. Money market account balances
actually decreased 9% due to a large municipal entity closing an account
relationship in June. The Bank planned for this eventuality by carrying a
larger than normal federal funds position in the first months of 1998. Including
the closure of the municipal account, money market balances would have grown
approximately 10%.
1998 was indeed an indicator of what is in store for many community banks
as more competition for deposits comes from mutual funds, high yield money
market accounts and other non-bank investment opportunities. The Bank has
responded by remaining very competitive in the traditional deposit products as
well as offering repurchase agreements and a commercial sweep product to
business customers.
As evidence of the trend toward more interest-bearing deposits at the Bank,
average noninterest-bearing deposits decreased as a percentage of average total
interest-bearing liabilities in 1998 to 22% from 24% for the years 1997 and
1996.
Total deposits grew 31% in 1997 with noninterest-bearing balances growing
28% and interest-bearing deposits growing 33% over 1996 balances. Money market
accounts (personal, business and public) grew to $277 million at December 31,
1997 from $211 million at December 31, 1996. In 1997, customers enjoyed
increased access to their deposits through the Bank's introduction of a debit
card product and a 24-hour automated bank-by-phone line.
The following table details repricing information for the Bank's time
deposits.
Time Deposit Maturities at December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
TIME DEPOSIT MATURITIES Under $100,000 Total Time
$100,000 or more Deposits
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
0-90 days $ 21,167 $ 41,099 $ 62,266
91-180 days 19,423 20,210 39,633
181-365 days 40,925 35,552 76,477
Over 1 year 17,583 12,289 29,872
---------------------------------------------------------------------------------
$ 99,098 $109,150 $208,248
</TABLE>
15
<PAGE>
Borrowing
---------
As part of Pioneer's funds management and liquidity plan, the Bank has
arranged to have short- term and long-term borrowing facilities available. The
short-term and overnight facilities are federal funds purchasing lines as
reciprocal arrangements to the federal funds selling agreements in place with
various correspondent banks. These borrowings are generally unsecured. For long-
term funding needs, the Bank has credit available of $10.9 million immediately
and up to 30% of assets with additional collateral through the Federal Home Loan
Bank of San Francisco. At December 31, 1998, the Bank did not have term
borrowings outstanding.
Capital
-------
Pioneer continues to exceed the regulatory capital levels for a "well-
capitalized" bank. As total assets have grown at a substantial rate, the
capital generation effect of nine years of record net earnings has been the
primary reason that capital ratios have remained above the "well-capitalized"
level.
Because of Pioneer's growth and expansion, management and the board have
chosen not to pay cash dividends to shareholders, however, annual 10% or 20%
stock dividends have been the rule for the past nine years.
The following table sets forth Pioneer's actual capital ratios for 1998,
1997 and 1996 as well as the quantitative measures established by regulatory
authorities.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
CAPITAL ADEQUACY For Capital Prompt Corrective
(dollars in thousands) Actual Adequacy Purposes Action Provisions
- --------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998
Total Capital
(to Risk Weighted Assets) $73,533 10.5% $55,954 8.0% $69,954 10.0%
Tier 1 Capital
(to Risk Weighted Assets) 66,529 9.5% 28,000 4.0% 42,000 6.0%
Tier 1 Capital
(to Average Assets) 66,529 7.2% 37,000 4.0% 46,250 5.0%
December 31, 1997
Total Capital
(to Risk Weighted Assets) $58,369 10.9% $42,723 8.0% $53,423 10.0%
Tier 1 Capital
(to Risk Weighted Assets) 52,596 9.9% 21,350 4.0% 32,050 6.0%
Tier 1 Capital
(to Average Assets) 52,596 7.2% 29,450 4.0% 36,800 5.0%
December 31, 1996
Total Capital
(to Risk Weighted Assets) $45,574 10.9% $33,416 8.0% $41,770 10.0%
Tier 1 Capital
(to Risk Weighted Assets) 40,651 9.7% 16,708 4.0% 25,062 6.0%
Tier 1 Capital
(to Average Assets) 40,651 7.4% 21,883 4.0% 27,354 5.0%
</TABLE>
16
<PAGE>
Liquidity
---------
Daily liquidity management seeks to ensure that Pioneer's cash and cash
equivalents (cash and due from banks and fed funds sold) position is adequate to
meet any deposit withdrawals as well as loan funding needs. Pioneer is funded
predominately by core small business and retail deposits, which are stable and
add to the liquidity management of the Bank.
In the short-term, securities with the available-for-sale classification
are a secondary source of liquidity. The fair value of available-for-sale
securities maturing in one year or less at December 31, 1998 totaled $41.9
million.
For longer term liquidity needs, management continues to use a maturity
laddering strategy in the investment portfolio as well as having access to
short-term securities via the available-for-sale classification. Additional
funding sources were outlined under the "Borrowing" caption above.
The Bank's liquidity ratio at December 31, 1998 was 38.4% as compared to
40.4% at December 31, 1997.
Results of Operations
Net Interest Income
-------------------
The following table provides information on net interest income for the
past three years, setting forth average balances of interest-earning assets and
interest-bearing liabilities, the interest income earned and interest expense
recorded thereon and the resulting average yield-cost ratios.
Average Balance Sheets and Analysis of Net Interest Earnings
(dollars in thousands)
<TABLE>
<CAPTION>
Average Int Income/
For the Year Ended Balance Expense Yield
December 31, 1998 ------------------------------------------------------------------
<S> <C> <C> <C>
Loans, net (1) $504,067 $49,588 9.84%
Securities (2) 274,496 15,483 5.64%
Federal Funds Sold 70,721 3,795 5.37%
------------------------------------------------------------------
Total Earning Assets $849,284 $68,866 8.11%
Cash and Due Banks 47,688
Bank Premises and Equipment, net 15,081
Other Assets 12,251
----------------------
Total Assets $924,304
======================
Time Deposits of $100,000 or more $ 71,370 $ 3,886 5.44%
Other Interest-Bearing Deposits 530,568 21,651 4.08%
Repurchase Agreements 64,936 3,208 4.94%
------------------------------------------------------------------
Total Interest-Bearing Liabilities $666,874 $28,745 4.31%
Noninterest-Bearing Deposits 193,168
Other Liabilities 3,513
Shareholders' Equity 60,749
----------------------
Total Liabilities and Shareholders' Equity $924,304
======================
Net Interest Income $40,121
======================
Net Yield on Interest-Earning Assets 4.72%
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Average Int Income/
For the Year Ended Balance Expense Yield
December 31, 1997 ------------------------------------------------------------------
<S> <C> <C> <C>
Loans, net (1) $385,378 $39,909 10.36%
Securities (2) 210,564 12,228 5.81%
Federal Funds Sold 65,279 3,487 5.34%
------------------------------------------------------------------
Total Earning Assets $661,221 $55,624 8.41%
Cash and Due Banks 51,931
Bank Premises and Equipment, net 12,244
Other Assets 10,594
----------------------
Total Assets $735,990
======================
Time Deposits of $100,000 or more $ 31,809 $ 1,674 5.26%
Other Interest-Bearing Deposits 455,032 18,207 4.00%
Repurchase Agreements 34,391 1,813 5.27%
------------------------------------------------------------------
Total Interest-Bearing Liabilities $521,232 $21,694 4.16%
Noninterest-Bearing Deposits 163,437
Other Liabilities 4,916
Shareholders' Equity 46,405
----------------------
Total Liabilities and Shareholders' Equity $735,990
======================
Net Interest Income $33,930
======================
Net Yield on Interest-Earning Assets 5.13%
</TABLE>
<TABLE>
<CAPTION>
Average Int Income/
For the Year Ended Balance Expense Yield
December 31, 1996 ------------------------------------------------------------------
<S> <C> <C> <C>
Loans, net (1) $307,349 $32,225 10.48%
Securities (2) 152,751 8,624 5.65%
Federal Funds Sold 26,970 1,515 5.62%
------------------------------------------------------------------
Total Earning Assets $487,070 $42,364 8.70%
Cash and Due Banks 40,944
Bank Premises and Equipment, net 10,896
Other Assets 8,137
----------------------
Total Assets $547,047
======================
Time Deposits of $100,000 or more $ 37,647 $ 2,000 5.31%
Other Interest-Bearing Deposits 326,857 12,738 3.90%
Repurchase Agreements 19,438 1,106 5.69%
------------------------------------------------------------------
Total Interest-Bearing Liabilities $383,942 $15,844 4.13%
Noninterest-Bearing Deposits 122,869
Other Liabilities 4,470
Shareholders' Equity 35,766
----------------------
Total Liabilities and Shareholders' Equity $547,047
======================
Net Interest Income $26,520
======================
Net Yield on Interest-Earning Assets 5.44%
</TABLE>
(1) Non-accrual loans are included in the average balance, but interest on such
loans is not recognized in the interest income.
(2) Municipal interest income is not tax equalized.
18
<PAGE>
The following rate/volume analysis depicts the increase (decrease) in net
interest income attributable to interest rate fluctuations (change in rate
multiplied by prior period average balance) and volume fluctuations (change in
average balance multiplied by prior period rate) when compared to the preceding
year.
Changes Due to Volume and Rate
(in thousands)
<TABLE>
<CAPTION>
1998 vs 1997
Changes due to
Volume Rate Total
-------------------------------------------------------------------
<S> <C> <C> <C>
Loans, net $11,762 $(2,083) $ 9,679
Securities 3,615 (360) 3,255
Federal Funds Sold 292 16 308
-------------------------------------------------------------------
Total $15,669 $(2,427) $13,242
Time Deposits of $100,000 or more $ 2,152 $ 60 $ 2,212
Other Interest-Bearing Deposits 3,076 368 3,444
Repurchase Agreements 1,516 (121) 1,395
-------------------------------------------------------------------
Total $ 6,744 $ 307 $ 7,051
-------------------------------------------------------------------
Net Interest Income $ 8,925 $(2,734) $ 6,191
===================================================================
</TABLE>
<TABLE>
<CAPTION>
1997 vs 1996
Changes due to
Volume Rate Total
--------------------------------------------------------------------
<S> <C> <C> <C>
Loans, net $ 8,086 $(402) $ 7,684
Securities 3,350 254 3,604
Federal Funds Sold 2,050 (78) 1,972
--------------------------------------------------------------------
Total $13,486 $(226) $13,260
Time Deposits of $100,000 or more $ (307) $ (19) $ (326)
Other Interest-Bearing Deposits 5,121 348 5,469
Repurchase Agreements 793 (86) 707
--------------------------------------------------------------------
Total $ 5,607 $ 243 $ 5,850
--------------------------------------------------------------------
Net Interest Income $ 7,879 $(469) $ 7,410
====================================================================
</TABLE>
Note: The change in interest not due solely to volume or rate has been
allocated in proportion to the absolute dollar amounts of the change in each.
The Bank's net interest income increased $6.2 million in 1998 versus 1997.
The net interest income increase attributable to volume increases was a
favorable $8.9 million over 1997. However, interest-earning assets were subject
to downward rate pressure during 1998 due to three decreases in the U.S. prime
rate as well as extensive competition for loans. These factors, coupled with a
competitive environment for deposit dollars, created a $2.7 million decrease in
net interest income attributable to rate variances.
19
<PAGE>
The net yield on interest-earning assets (net interest margin) decreased 41
basis points in 1998 versus 1997. The cost of interest-bearing liabilities
increased 15 basis points, again reflecting the increased competition for
deposit dollars and the substantial growth in time deposit and repurchase
agreement balances over 1997 levels. The cost of $100,000 and over time
deposits increased 18 basis points in the face of rate decreases during 1998,
however, the loan yield drop of 52 basis points was the most drastic rate change
from 1997. As the Bank has grown and expanded its customer base, there are more
opportunities to underwrite larger, more competitively priced loans that exist
in the current market. The three prime rate decreases during 1998 directly
affected the Bank's variable rate loan portfolio which was 58% of the portfolio
at December 31, 1998. The investment securities portfolio experienced a
decrease in yield of 17 basis points while the yield on fed funds sold actually
increased slightly due to the availability of more competitive conduits for
federal funds sales.
In 1997, the Bank's net interest income increased $7.4 million over 1996.
The net interest income increase attributable to 1997 volume increases was a
favorable $7.9 million. 60% of the volume related interest income increase was
attributable to the loan portfolio, as the Bank grew this portfolio average
balance by 25% in 1997. The fairly small negative rate variance of $0.5 million
between 1997 and 1996 was caused by a mixture of positive and negative rate
variances within both, interest-earning asset categories and interest-bearing
liabilities.
The net yield on interest-earning assets decreased 31 basis points in 1997.
From 1996 to 1997, the yield on loans decreased due in large part to increasing
competition among local banks while investment securities yields increased
slightly as maturities were slightly extended as the Bank prepared for
anticipated decreases in general interest rates. In 1997, the Bank increased
money market and tiered interest account rates to remain competitive in the
deposit market, however, the cost of time deposits decreased due to favorable
repricing of maturities at lower rates.
Other Income
------------
The following table details dollar amount and percentage changes of certain
categories of other income for the three years ended December 31, 1998.
<TABLE>
<CAPTION>
OTHER INCOME Percent Percent
(dollars in thousands) 1998 % Change 1997 % Change 1996 %
Amount of Total Prev. Yr. Amount of Total Prev. Yr. Amount of Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service Charges on Deposit
Accounts $ 3,232 31.5% 6.0% $3,050 40.2% 24.7% $2,446 45.4%
Merchant Credit Card Income 1,988 19.4% 8.6% 1,831 24.1% 24.6% 1,469 27.2%
Trust Department Income 1,554 15.2% 17.9% 1,318 17.4% 87.7% 702 13.0%
Gain on Sale of Securities
Held-to-Maturity -- -- -- -- -- -100.0% 10 0.2%
Gain on Sale of Securities
Available-for-Sale 2,016 19.7% 1716.2% 111 1.5% -- -- --
ATM Network Fees Earned 276 2.7% 16.9% 236 3.1% 15.1% 205 3.8%
Other Income 1,185 11.5% 13.9% 1,040 13.7% 86.0% 559 10.4%
------------------------------------------------------------------------------------
$10,251 100.0% 35.1% $7,586 100.0% 40.7% $5,391 100.0%
</TABLE>
Service charges on deposit accounts continue to be the major non-interest
income category. Other categories such as merchant credit card income and trust
department income are growing, however, in 1998 the large realized gain in the
available-for-sale securities portfolio caused that category to be the second
biggest contributor last year. Management's decision to realize some of the
gains within the available-for-sale portfolio was made on the premise that the
Bank could replace the yields of the securities to be sold with slight extension
in duration. Also, this presented an opportunity to reinvest
20
<PAGE>
some of the proceeds into various low risk mortgage-backed securities and
collateralized mortgage obligations.
In 1998, an outside consulting group was hired to assist management in
identifying ways to enhance the contributions of current non-interest income
sources, specifically service charges on deposit accounts. As another ongoing
process, the Bank continues to explore other possible non-interest income
sources such as insurance sales and additional trust products.
In 1997, trust department income increased 88% from 1996 as consolidations
at competitor banks benefited Pioneer and its continued commitment toward
providing trust services to our communities. Service charges on deposits also
increased favorably due to the growth in deposits both in balance and numbers.
Other Expense
-------------
The following table details dollar amount and percentage changes of certain
categories of other expense for the three years ended December 31, 1998.
<TABLE>
<CAPTION>
Percent Percent
OTHER EXPENSE 1998 % Change 1997 % Change 1996
(dollars in thousands) Amount of Total Prev. Yr. Amount of Total Prev. Yr. Amount %
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and Employee Benefits $13,939 46.5% 25.6% $11,100 46.8% 21.9% $ 9,108 47.1%
Occupancy and Equipment 5,966 19.9% 35.7% 4,396 18.5% 32.4% 3,320 17.2%
Merchant Credit Card Expense 1,718 5.7% 9.7% 1,566 6.6% 8.9% 1,438 7.4%
Other Expense 8,379 27.9% 25.9% 6,654 28.1% 21.7% 5,466 28.3%
----------------------------------------------------------------------------------
$30,002 100.0% 26.5% $23,716 100.0% 22.7% $19,332 100.0%
</TABLE>
Similar to 1997 and 1996, salaries and employee benefits continued to be
the majority of the non-interest expense category. As Pioneer has grown in total
assets, number of branches and product offerings, the number of full-time
equivalent employees at the Bank has also grown from 193 at the beginning of
1996 to 307 at December 31, 1998. In 1998, the Bank opened three branches in the
Las Vegas/ Henderson area and a Central Vault facility in Las Vegas. Also
various departments such as Marketing, Support Services (data center) and
Leasing and Lending Centers, and Business Development have added staff in
response to the increased volume of business and the growth opportunities.
Pioneer's assets per full-time equivalent employee ratio is $3.3 million,
compared to a peer ratio of $2.6 million, as published in the FDIC's Peer
Analysis for Commercial Banks with deposits between $500 million and $1 billion
as of September 30, 1998.
Consistent with Pioneer's growth strategy, occupancy and equipment expense
grew significantly in 1998. The major 1998 capital budget items and the
expenditures for each are as follows: three Las Vegas/Henderson area branches
($6.1 million), relocation of data center to a new Reno location ($0.4 million),
completion of the Central Vault facility in Las Vegas ($1.7 million), expansion
of the Sparks branch ($0.7 million), and upgrade and enhancement of the Bank's
computer network ($0.3 million).
A large expense item within the other expense category is public
relations/advertising expense. This expense category totaled $1.2 million for
1998, a 62% increase over the $0.75 million expenses in 1997.
Cost management has always been a high priority item for management and the
board. The outside consulting group hired in 1998 was also asked to assist
management in analyzing and adjusting various branch and department processes so
as to achieve additional cost savings. The resulting
21
<PAGE>
recommendations were implemented, or are in the process of implementation, and
are already beginning to improve net earnings. No employee terminations or other
restructuring costs are planned as a result of implementation of either the
consulting group's recommendations or other processing changes.
For 1997, growth in salaries and employee benefits as well as occupancy and
equipment expense was related to the substantial growth that the Bank
experienced throughout the system. New branches, more branch personnel and
department support staff, increases in the number of loan and deposit accounts
and the transactions processed within those relationships all added to the 23%
increase in other expense from 1996. Major capital budget projects and
expenditures for 1997 included the following items: initial phases of Las Vegas
branch expansion ($0.5 million), new Reno main offices ($2.3 million),
mainframe/software upgrades ($0.3 million) and northern branch remodel ($0.3
million). Public relations/advertising expense in 1997 increased 15% over the
$0.65 million expenses in 1996.
22
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity Management
------------------------------------
The largest component of Pioneer's earnings is net interest income, which
can fluctuate widely when interest rate movements occur. The Bank's management
is responsible for minimizing Pioneer's exposure to interest rate risk. This is
accomplished by developing objectives, and strategies such as establishing
benchmarks, which attempt to limit the change in pre-tax net interest income or
benchmark ranges which limit the level of asset or liability sensitivity with a
given time period. The ongoing management of Pioneer's interest
rate sensitivity, limits interest rate risk by controlling the mix and maturity
of assets and liabilities.
A monthly exercise which involves simulating the effects of various
immediate interest rate shifts (100 to 200 basis points up or down) on the most
current balance sheet and income statement, enables management to review the
Bank's interest rate risk position. This includes evaluating alternative sources
and uses of funds as well as discussing any changes in external factors. Methods
used to achieve and maintain the Bank's rate sensitive position objectives,
include the sale of purchase/funding of various asset classes as well as
adjusting loan and/or deposit product pricing. Pioneer does not currently use,
or anticipate using, derivative instruments such as floors, caps or other
interest rates swap type instruments to protect the Bank from significant
movements I interest rates. However, the majority of variable loans on the
Bank's balance sheet do have cap or floor arrangements within the rate terms.
Pioneer views any asset or liability which matures, or is subject to
repricing within one year to be interest sensitive even though an analysis is
performed for all other time intervals as well. The difference between interest
sensitive assets and interest sensitive liabilities for a defined period of time
is known as the interest sensitivity "gap", and may be either positive or
negative. When the gap is positive, interest sensitive assets reprice quicker
than interest sensitive liabilities. When negative, the reverse occurs. Non-
interest assets and liabilities have been positioned based on management's
evaluation of the general sensitivity of these balances to migrate into rate
sensitive products. This analysis provides a general measure of interest rate
risk but does not address complexities such as prepayment risk, basis risk and
the Bank's customer response to interest rate changes. Currently, Pioneer's one
year interest sensitive gap is positive. This means, if interest rates were to
change and affect assets and liabilities equally, rising rates would increase
the Bank's net interest income. The reverse is true when rates fall.
The following table displays the Bank's balance sheet based on the
repricing schedule of 3 months, 3 months to 1 year, 1 year to 5 years and over 5
years. The table does not fully reflect possible high levels of loan prepayments
or time deposit early withdrawals with the periods.
Asset/Liability Maturity Repricing Schedule
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
After Three
Months but After One
ASSET/LIABILITY MATURITY Within Within But Within After Five Total
REPRICING SCHEDULE Three Months One Year Five Years Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans $ $ $ $ $
Fixed 11,120 18,958 95,741 120,602 246,421
Variable (2) 236,145 9,783 84,271 6,489 336,688
Securities 23,595 18,258 82,160 191,565 315,578
Federal Funds Sold 47,500 --- --- --- 47,500
------------------------------------------------------------------------------
Total Earning Assets $ 318,360 $ 46,999 $ 262,172 $318,656 $946,187
Allowance for Loan Losses --- --- --- (7,004) (7,004)
------------------------------------------------------------------------------
Total Earning Assets $ 318,360 $ 46,109 $ 262,172 $311,652 $939,183
==============================================================================
Interest Bearing Demand (1) $ 369,772 $ --- $ --- $ --- $369,772
Savings (1) 97,279 --- --- --- 97,279
Time 62,267 116,109 29,768 104 208,248
------------------------------------------------------------------------------
Total Deposits $ 529,318 $ 116,109 $ 29,768 $ 104 $675,299
Repurchase Agreements 60,111 --- --- --- 60,111
------------------------------------------------------------------------------
Total Interest Bearing Liabilities $ 589,429 $ 116,109 $ 29,768 $ 104 $735,410
Net Interest Rate Sensitivity Gap $(271,069) $ (69,110) $ 232,404 $311,548 $203,773
Cumulative Gap (271,069) (540,179) (107,775) 203,773 203,773
</TABLE>
(1) Includes deposits with no stated maturity.
(2) The majority of variable rate loans use Prime Rate as the index. An
immaterial amount of other variable rate loans use the five-year constant
maturity treasury index. The remaining earning asset categories are fixed
rate in nature.
23
<PAGE>
The following table displays expected maturity information and
corresponding interest rates for all interest-sensitive assets and liabilities
as well as the fair value of each category at December 31, 1998.
Expected Maturity Date at December 31, 1998
(Dollars in thousands)
<TABLE>
Fair
1999 2000-01 2002-03 Thereafter Total Value
-------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets:
Commercial and Industrial $106,480 $ 13,993 $ 20,850 $ 10,368 $151,691 $152,118
Average interest rate 8.87% 8.43% 8.73% 8.91% 8.82%
Construction and Development 85,270 2,548 1,038 4,910 93,766 92,865
Average interest rate 9.04% 7.93% 8.70% 8.82% 9.00%
Insured or Guaranteed Residential 46 --- --- --- 46 47
Average interest rate 10.14% --- --- --- 10.14%
Conventional and Non-Farm, Non-Residential 62,575 16,339 115,512 103,349 297,775 299,280
Average interest rate 8.69% 9.22% 8.50% 8.31% 8.50%
Agricultural Loans 441 --- 21 --- 462 464
Average interest rate 9.74% --- 9.13% --- 9.71%
Loans to Individuals for Personal Expenditures 21,588 4,920 4,104 1,599 32,211 32,452
Average interest rate 9.57% 9.59% 8.94% 9.66% 9.50%
State and Municipal Obligations --- --- 271 8,109 8,380 8,196
Average interest rate --- --- 4.29% 6.65% 4.94%
Leases 398 59 257 --- 714 727
Average interest rate 8.13% 12.79% 10.24% --- 9.24%
Federal funds sold 47,500 --- --- --- 47,500 47,500
Average interest rate 4.74% --- --- --- 4.74%
Securities 41,853 51,321 30,839 191,565 315,578 317,111
Average interest rate 6.01% 5.95% 5.40% 5.54% 5.63%
-------------------------------------------------------------------
Total Interest-Sensitive Assets $366,151 $ 89,180 $172,892 $319,900 $948,123 $950,760
===================================================================
Interest-sensitive liabilities:
Deposits:
Savings(1) $ 44,049 $ 37,937 $ 4,830 $ 10,463 $ 97,279 $ 97,425
Average interest rate 2.37% 2.37% 2.37% 2.37% 2.37%
Money Market & NOW(1) 88,487 146,370 51,489 83,426 369,772 369,772
Average interest rate 3.03% 3.03% 3.03% 3.03% 3.03%
Time certificates 178,376 28,127 1,641 104 208,248 209,120
Average interest rate 5.26% 5.57% 5.25% 6.00% 5.30%
Repurchase Agreements 60,111 --- --- --- 60,111 60,111
Average interest rate 4.40% --- --- --- 4.40%
-------------------------------------------------------------------
Total Interest-Sensitive Liabilities $371,023 $212,434 $ 57,960 $ 93,993 $735,410 $736,428
===================================================================
</TABLE>
(1) Expected maturity based on historical life of accounts.
24
<PAGE>
Year 2000 Disclosure - Pioneer and the Bank's State of Readiness
Technical Issues
----------------
The Year 2000 ("Y2K") issue is the result of the computers inability to
distinguish "00" as 2000. Computer programs that were written with only a two-
digit year may not function accurately or at all when the date changes from
1999 to 2000. Year 2000 issues will potentially affect anything that contains
an embedded microchip.
The major impact created by the two-digit year in computer programs
involves finding the numerous date routines, correcting them, testing the
changes and placing the program back into production. Estimates have these date
representations occurring about once every five lines of code on average. The
major cost of remediation for most companies falls into the area of identifying,
fixing and testing the two-digit dates and reinstalling the programs into
production.
The Bank does not run core mission critical systems that rely on two-digit
code for the year. The Information Technology Incorporated (ITI) system that we
rely on utilizes a single proprietary date routine for all of their programs.
This date routine was developed in the 1980's as part of the original system
design and has proven its accuracy over the course of the past thirteen years
that the Bank has run the ITI system. The major cost element of fixing the two-
digit date was averted by running the ITI system.
The Bank has tested the ITI system it uses twice: once at our disaster
recovery site on their equipment and once on our own main frame computer in
Reno. The results of both tests were identical, and no date related problems
occurred. The system was tested through the end of the Year 2000 to insure it
was able to determine the correct number of days occurring in the Year 2000
which will be 366 due to leap year.
Another advantage to the ITI system is that it currently runs in more than
1,300 locations in the United States supporting more than 3,500 banks. Under the
Federal Financial Institutions Examination Council ("FFIEC") guidelines, the
system must be tested in each bank. This will make the ITI system one of the
most Y2K tested systems in the country.
Given the design of the system, its long history of positive performance,
the intense level of Y2K testing and our own years of experience in using the
system, our confidence level is high that it will perform as designed.
Project Management. The Bank initiated a Year 2000 Project early in 1997
------------------
to address these issues. The Bank Year 2000 Project Plan has been set up
following the FFIEC recommended five-phase format: Awareness; Assessment;
Renovation; Validation; Implementation. In addition to the recommended five
phases, the Bank plan has been expanded to include Audit, Budget, Contingency
Plans and year-end plans.
Awareness
---------
The Awareness phase of our project has taken on much greater importance
than originally envisioned. The primary reason is that the Bank feels very
strongly about informing our shareholders, customers and business partners of
our progress toward Year 2000 compliance and about the Year 2000's potential
impact on them.
25
<PAGE>
The Bank's Y2K communication efforts have reached all shareholders,
customers, and Bank staff. All information has been placed in our branches for
both our customers and the general public. Year 2000 presentations have been
made by members of our Y2K Team to more than 600 business people in various Reno
and Las Vegas civic clubs in an effort to raise awareness of the potential Y2K
risks. We participated in a televised program dealing with Y2K issues that had
more than a million viewers in five states.
Awareness Phase Status. The awareness phase of our Y2K Plan continues to
----------------------
be the most active phase. The continuing need to communicate the potential Y2K
impact will last through the end of 1999. We will continue to communicate the
status of the Bank's Y2K efforts and the steps we are taking to insure the
safety and accuracy of customer funds and records.
Assessment
----------
More than 94 % of the dollar amount of the Bank's loan portfolio has been
Y2K risk assessed by the Bank lenders. The review was designed to identify
borrowers that may experience potential disruptions as a result of a failure of
their systems, external systems or suppliers that in turn could impact cash flow
and affect their financial strength. Only 11 loans in four relationships
involving $3.1 million were rated as Y2K high risk. These four relationships
plus the loans rated medium risk are being monitored on a quarterly basis by the
lenders per Bank policy. Those customers have also been advised to seek
professional Y2K assistance.
The Bank added to its loan criteria, the requirement to evaluate the
applicant's Y2K compliance rating as another consideration in determining the
final decision on the loan application. A high Y2K risk rating may not
disqualify the applicant in itself. If the applicant has a Y2K project plan, if
the plan is on schedule and the risk factors have been addressed to the
satisfaction of the Bank, the Y2K risk may not disqualify the application.
The Bank's Trust Department has completed assessment of the Y2K risk
associated with their fiduciary services. Outside providers of investment advice
have been required to follow the SEC's directives dealing with the soundness of
companies they recommend for investment of trust funds. In addition to Y2K
checking the new assets being added to the trust portfolios, the trust officers
have reviewed the existing assets in the account to determine if they may be a
Y2K risk to the client.
The Bank's investment portfolio has been reviewed for insurance coverage
and maturity dates. The money derived from the maturing of some bonds may become
part of the total cash plan for the Bank. A contingency plan for cash has been
developed and addresses the level of cash the Bank will retain over the
Century Date Change (CDC) weekend.
Assessment Phase Status. The initial assessment of loans, trust accounts,
-----------------------
investments and large funds providers as well as our Information Systems and
environmental systems have been completed with positive results. The main
activity for the balance of the year will be monitoring the existing accounts
and reviewing the new ones.
Renovation
----------
Our automatic teller machines (ATM), Bank By Phone (VRU) Systems and Trust
Systems were successfully converted to the Y2K compliant version of their
respective software. The trust accounting system was upgraded to the Y2K
compliant version in August 1998 and continues to run in our production
environment. The Y2K update to our LAN/WAN personal computer Network Operating
System and the installation of new computer chips in our teller station
computers was completed in the first quarter of 1999. This change will enable
the teller station hardware to continue to process customer transactions into
the next century without replacing the entire computer.
Renovation Phase Status. The renovation phase of our project has been
-----------------------
completed for Y2K purposes. All new programs will be subjected to the full
range of Y2K testing prior to final acceptance and installation in our
production environment.
26
<PAGE>
Validation
----------
Testing of our mission critical core mainframe computer software was
completed in June 1998. Following extensive and exhaustive review of the output
data by our technical staff, internal audit and the users of the systems, the
data was determined to be accurate in all aspects. All non-critical software has
been tested and determined to be accurate in all respects.
The Unisys mainframe computer in Reno was successfully tested for the Year
2000 rollover date and the leap year date as was the Unisys DP500 data capture
system in Las Vegas.
All Y2K and Leap Year tests have been successfully completed in conjunction
with the Federal Reserve Bank including tests on the following applications:
wire transfers, Automated Clearing House (ACH) payments, bond processing and
Treasury Taxes and Loans (TT&L) tax payment system.
Validation Phase Status. All Y2K validation efforts have been completed
-----------------------
with positive results. Testing will continue in a maintenance mode.
Implementation
--------------
The implementation effort at the Bank involved upgrades to several
applications and in the case of the trust application required us to upgrade our
hardware to obtain the best results from the system. The other upgrades were
completed earlier than projected because of Y2K but were planned for later
change as a matter of normal operational planning. All applications running in
a production mode are the Y2K version of the software.
Implementation Phase Status. The implementation phase of the Bank's Y2K
---------------------------
project is considered to be in an ongoing maintenance mode. All new systems
installed in the Bank are being validated as Y2K compliant prior to their
implementation.
Non-Technical Issues
--------------------
The Year 2000 also has non-technical issues that have the potential to
create problems. Our environmental systems have been reviewed and determined to
be Y2K ready. Only limited changes were required with minimal expense incurred.
Our mission critical equipment such as vault doors and security systems have
been evaluated and are considered to be Y2K ready.
We have received a written response from all mission critical vendors
indicating that they are aware of the Year 2000 potential risks and have a plan
in place to address their issues. None of our identified mission critical
vendors have indicated that they are not, or believe that they will not timely
be, Year 2000 compliant. We will continue to monitor these vendors and request
periodic updates on their progress. Contingency plans have been developed to
address the potential loss of services and/or products from these vendors. Most
of our mission critical vendors automatically update us quarterly as to their
status if such updates are not received from any vendor, we promptly contact
such vendors in writing, requesting a written status update.
None of the written assurances that we have received from mission critical
vendors are significantly qualified, limited or subject to conditions that cause
us to question the value of such assurances. Aside from certain evidentiary
exclusions or higher evidentiary requirements that may apply in state and
federal legal actions regarding vendor assurances if they are determined by a
court to constitute Y2K readiness disclosures or Year 2000 statements under the
federal Year 2000 Information and Readiness disclosure Act of 1998, the Bank is
not aware of any limitations on its legal remedies against vendors that
ultimately prove not to be Y2K compliant despite assurances to the contrary.
The Bank has successfully tested the Y2K compliance of all of its mission
critical software vendors' products in use by the Bank. A written request has
been sent to our mission critical software vendors asking if they have had a
third party review of their software. A request has been made to our mission
critical vendors for copies of their financial reports including the annual
report, 10-K, 10Q and quarterly reports to shareholders. Some information was
obtained from the respective vendor web sites. An analysis of this information
was performed by a lending analyst from the loan department which indicated that
the companies in question were in acceptable financial condition. Many of the
Bank's mission critical vendors have been audited by the Office of the
Comptroller of the Currency ("OCC") for Y2K compliance. The FDIC, in
cooperation with the OCC, has provided us with an audit report of their findings
to help is evaluate the condition of these companies.
Aside from the compliance testing described above, regarding vendors of
mission critical software products, we have not, and have no current plans to,
independently test the Y2K compliance of our mission critical vendors generally
The Bank has not established specific dates after which it would terminate
its relations with any mission critical vendor that has not provided adequate
assurance of its Y2K compliance. The reason for not setting a date is that we
have established good communications with all mission critical vendors and have
no current concerns about their Y2K compliance. If this situation changes with
any such vendors we would reconsider our position which may result in
termination of our relationship. Any such termination decision would be made on
a case-by-case basis, based on all the information then available to the Bank
after careful scrutiny of the nature of the vendor's Y2K issues, the services
provided by such vendor, the nature and quality of alternative vendors, and
other matters.
Contingency and Year End Plans
------------------------------
Contingency and year-end plans have been completed for all areas of the
Bank. Both plans are considered to be "living documents" and will be refined
and updated to reflect changes and conditions that evolve or develop as time
passes. A successful bank wide walkthrough test of the plans was conducted on
April 17, 1999.
The walkthrough test successfully addressed the objectives of the exercise
from several directions. The plans themselves were well thought out and
complete, the process we designed for handling the issues worked as expected,
the information provided to the senior managers was satisfactory in both content
and volume and the problems we designed to test the plans were addressed. Some
issues surfaced during the course of the test that were evaluated and
incorporated into the plans where appropriate. Some of the issues were related
to communications, physical location of various staff at the Century Date change
("CDC") time, customer service, disaster supplies and extra security equipment.
The Bank has concluded, based on its review of information available to it,
that it cannot now accurately assess the most reasonably likely worst case
scenario in which the Bank could find itself as a result of Y2K issues. Indeed,
the scope of the Y2K situation is the subject of worldwide speculation, and
there is no clear picture of the most reasonably likely worst case scenario,
from any source. Management believes that the "living document" approach
described above, and the regular attention to evolving Y2K issues and challenges
that is necessary for this approach, to be the optimal way to approach the
possible worst case scenarios at this point in time. As noted above, the Bank
has in place contingency and year-end plans, which outline the steps to be taken
to minimize the effect on customers and losses to the bank in the event that
unforeseen circumstances beyond the Bank's control adversely affect our ability
to provide financial services to customers.
27
<PAGE>
Audit
-----
McGladrey & Pullen, LLP a public account firm specializing in Year 2000
audits, has completed a review of our Year 2000 project and provided the Bank
with a report of their findings. The report indicated that our plan addressed
the Y2K issues as expected and was following the FFIEC guidelines. Overall, the
Bank is on schedule with their Year 2000 planning activities and does not have
any significant problems related to its Year 2000 compliance efforts.
The FDIC has conducted three onsite examinations of the Bank's Y2K project
since August of 1997. Although the audit results and conclusions may not be
revealed, the Bank considers the Y2K project on schedule or ahead of schedule.
Results of our testing have been positive and we are running the most current
version of our production software without Y2K problems. We are currently
testing our contingency plans and year-end plans and expect they will prove
capable of addressing any problems that develop when the CDC arrives.
Summary
-------
Pioneer and the Bank continue to meet its Y2K plan milestones and move
toward its goal of becoming Year 2000 compliant. Pioneer and the Bank remain
firm in their commitment to provide the needed resources to address the Year
2000 issues and continue to serve its customers into the next century.
Estimated Costs to Address Year 2000 Issues
-------------------------------------------
The total financial effect that the Year 2000 issues may have on the Bank
cannot be predicted with any certainty at this time. The single largest Y2K
expense involves the identification and modification of date routines in
software. Because the Bank utilizes software acquired from a third party and
has no source code or programmers to work on the code, the major Y2K expense has
been avoided. Our total budget for 1998 was $500,000 and our actual
expenditures were less than half this amount. The budget was set at $350,000
for 1999 and $270,000 for 2000 bringing the total Y2K budget through the Year
2000 to $1.12 million. The Bank does not consider this level of expenditure to
be material and is not expected to have a material impact on earnings. The
year-to-date 1999 direct cost attributable to Y2K efforts through May 31, 1999
was $105,000.
Risks Related to Year 2000 Issues
---------------------------------
The Year 2000 poses certain risks to the Bank and its operations. Like the
operations of many other companies, the Bank's operations can be adversely
affected by the Year 2000 triggered failures of other companies upon whom we
depend for the functioning of our automated systems and other services.
Accordingly, the Bank's operations could be materially affected, if the
operations of mission-critical third party service providers are adversely
affected. The Bank has identified all of our mission-critical vendors and set
up a process to carry out ongoing monitoring of their Year 2000 compliance
efforts.
FORWARD LOOKING STATEMENTS
AND YEAR 2000 READINESS DISCLOSURE
The discussion above regarding the century date change for the year 2000
includes certain "forward looking statements" concerning the future operations
of the Bank. The Bank desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 ("PSLRA") as they apply
to forward looking statements. This statement is for the express purpose of
availing the Bank of the protections of such safe harbor with respect to all
"forward looking statements". Management's ability to predict results of the
effect of future plans is inherently uncertain, and subject to factors that
28
<PAGE>
may cause result to differ materially from those projected. Factors that could
affect the actual results include the Bank's success in identifying all the Y2K
risks within the Bank, the uncertainty associated with the impact of the century
change on our customers, vendors and third-party service providers and the
economy in general.
The safe harbor provisions of the PLSRA described above do not apply to
initial public offerings. The Company has been advised that the SEC takes the
position that the Company's filing on Form 10 constitutes an initial public
offering for such purpose, and that accordingly, the PSLRA does not apply to
forward looking statements contained in this document.
ITEM 3. DESCRIPTION OF PROPERTIES.
Pioneer currently operates 13 branch offices of the Bank, with the main
office located in Reno, Nevada. The following is a description of the branch
offices.
<TABLE>
<CAPTION>
Date Opened Occupancy
City and County Address Sq. Feet or Acquired Status
- -------------------------------- -------------------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Reno Branches
(Washoe County)
Corporate Headquarters
Administrative Office 10 State Street 16,600 3/65 Leased
Main Branch One W. Liberty Street 8,000 9/15/97 Leased
Moana-Lakeside Branch 1001 W. Moana Lane 4,536 9/13/74 Leased
Meadowood Branch 5050 Meadowood Mall Circle 6,419 11/18/96 Leased
Sparks Branch
(Washoe County)
Sparks Branch 500 E. Prater Way 4,969 6/15/93 Leased
Carson City Branch
(Carson City)
South Carson Branch 4267 S. Carson Street 4,537 11/17/95 Leased
Las Vegas Branches
(Clark County)
Las Vegas Downtown Branch 230 S. Las Vegas Boulevard 5,380 11/13/95 Leased
Pioneer Center Branch 4170 S. Maryland Parkway 14,000 5/17/78 Bldg Owned
Land Leased
Spring Mountain Branch 4949 Spring Mountain Road 14,504 11/15/81 Leased
Summerlin Branch 8400 W. Lake Mead 3,770 10/3/94 Leased
Boulevard
West Sahara Branch 8260 W. Sahara Avenue 4,950 1/26/98 Leased
McCarran Center Branch 750 E. Warm Springs Road 4,900 7/20/98 Leased
Henderson Branches
(Clark County)
Eastgate Branch 460 N. Stephanie Street 5,137 12/7/98 Leased
Green Valley Branch 4001 E. Sunset Road 4,100 8/9/93 Leased
</TABLE>
29
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of April 1, 1999, with
respect to the shares of Pioneer Common Stock beneficially owned by (i) each
person (other than executive officers or directors whose stock ownership is
listed below), known by Pioneer to own beneficially more than 5% of Pioneer
Common Stock, (ii) each director of Pioneer, (iii) the executive officers of
Pioneer named in the Summary Compensation Table, and (iv) all directors and
executive officers of Pioneer as a group. Except as noted below, each holder has
sole voting and investment power with respect to shares of Pioneer Common Stock
listed as owned by such person or entity. Where beneficial ownership is less
than 1% of the outstanding shares, the percentage is not reflected in the table.
Principal Shareholders (5% Owners)
<TABLE>
<CAPTION>
Percentage of
Name and Address Number of Shares of Outstanding
of Beneficial Owner Common Stock Owned Common Stock
- -------------------------------------------- ----------------------------------- ------------------------
<S> <C> <C>
Cede & Co. 1,638,932 18.88%
P. O. Box 20
New York, NY 10004
Melba E. Leaverton & Steven T. Walther 737,044 8.49%
Co-Trustees of William Nixson Denton Trust
P. O. Box 7418
Reno, NV 89510
</TABLE>
Directors and Named Executive Officers
<TABLE>
Percentage of
Number of Shares of Outstanding
Name and Position Common Stock Owned/1/ Common Stock
- -------------------------------------------- ----------------------------------- -----------------------
<S> <C> <C>
Directors
- ---------
Louis J. Capurro, Chairman 510,953/2/ 5.88%
Donald A. Bernard, Vice Chairman 170,318 1.96%
William E. Martin, President and CEO 120,444/3/ 1.38%
James N. Bahan, Director 76,943/4/ ---
Jeanne Hood, Director 10,531 ---
</TABLE>
/1/ Includes shares subject to options that could be exercised within 60 days as
follows: 300 shares for each of Messrs. Capurro, Bernard, Bahan, Knauss, Mack,
Ruthe, Wells, Wilkerson and Yoxen and Ms. Hood; 3,750 shares for Mr. Martin;
and 2,250 shares for each of Messrs. Henry, J. Martin and Plunkett.
/2/ Includes 124,031 shares held by The Capurro Survivor's Trust; 272,926 shares
held by Quail Meadows Ltd. Partnership; 3,262 shares held by Capurro Irrevocable
Decedent's Trust; of which Mr. Capurro is a trustee, and 110,434 shares held by
an Irrevocable Marital Trust, of which Mr. Capurro is a trustee.
/3/ Includes 5,413 shares held in an IRA Account for the benefit of Mr. Martin.
/4/ Includes 16,479 shares held by a Trust of which Mr. Bahan is a trustee,
50,164 shares held by a Bahan Family Trust, of which Mr. Bahan and his spouse
are co-trustees, and 10,000 shares held in an IRA Account for the benefit of Mr.
Bahan.
30
<PAGE>
<TABLE>
<S> <C> <C>
Ken Knauss, Director 33,308/5/ ---
Luther Mack Jr. Director 19,577 ---
Charles L. Ruthe, Director 1,942/6/ ---
Howard Wells Jr., Director 82,215/7/ ---
Donald L. Wilkerson, Director 422,683/8/ 4.86%
John E. Yoxen, Director 330,291/9/ 3.80%
Executive Officers
- ------------------
A.G. Henry, EVP/COO 79,158/6/ ---
Jerry R. Martin, EVP/CCO 36,368/10/ ---
Edward T. Plunkett, EVP/CFO 3,606 ---
All executive officers and directors as a 1,865,023/11/ 21.44%
group (14 persons)
</TABLE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
Directors
The following table sets forth summary information about the directors of
Pioneer. Directors serve on the Board of Directors of both Pioneer and the Bank.
Directors of Pioneer serve staggered terms consisting of three groups of
directors, and at each annual meeting, members of one of the groups, on a
rotating basis, are elected for a three-year term. Pioneer's Articles of
Incorporation and Bylaws permit no more than fifteen directors. The following
table sets forth certain information with respect to the directors, some of whom
are also executive officers of Pioneer:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------------------- ------------------- --------------------------------
<S> <C> <C>
Term Expiring 2000
- ------------------
Donald A. Bernard 63 Vice Chairman of the Board of
Pioneer and the Bank
Ken Knauss 43 Director
William E. Martin 57 Director, President and CEO of
Pioneer and the Bank
</TABLE>
- ---------------------
/5/ Includes 12,401 shares held by Ken Knauss Revocable Trust, of which Mr.
Knauss is a trustee; 10,303 shares held by Knauss Irrevocable Trust for
Nicolette Knauss; and 10,304 shares held by Knauss Irrevocable Trust for Kristen
Knauss, trusts for Mr. Knauss's daughters.
/6/ Held jointly with spouse.
/7/ Includes 79,499 shares held by the Wells Family Trust, of which he and his
spouse are co-trustees and 2,716 shares in an IRA Account for the benefit of Mr.
Wells.
/8/ Includes 3,131 shares held by the Wilkerson Family Trust which Mr. Wilkerson
and his spouse are co-trustees and 419,252 shares by Mardon Investments Limited
Partnership, of which Mr. Wilkerson is a partner.
/9/ Includes 8,546 shares held by the Yoxen Family Trust, of which Mr. Yoxen and
his spouse are trustees and 321,445 shares held by the Alby Family Limited
Partnership, of which Mr. Yoxen is a partner.
/10/ Includes 2,254 shares held jointly with daughter, 1,039 shares as custodian
for his minor son and 17,202 shares held in an IRA Account for the benefit of
Mr. Martin.
/11/ Includes 13,500 shares subject to option that could be exercised within 60
days.
31
<PAGE>
<TABLE>
<S> <C> <C>
Term Expiring 2001
- ------------------
Louis J. Capurro 80 Chairman of the Board of
Pioneer and the Bank
James N. Bahan 60 Director
Jeanne Hood 72 Director
Charles L. Ruthe 64 Director
Howard Wells Jr. 61 Director
Term Expiring 2002
- ------------------
Luther Mack Jr. 59 Director
Donald L. Wilkerson 65 Director
John E. Yoxen 79 Director
</TABLE>
The business experience of each of the directors for the past five years is
described below:
James N. Bahan has been a director of Pioneer and the Bank since 1997. Mr.
--------------
Bahan is the Executive Vice President of Model Dairy, a company that he and his
brother purchased in 1977. Mr. Bahan previously served as the President of Model
Dairy before it was acquired by Suiza Foods in December 1996.
Donald A. Bernard has served as Vice Chairman of the Board of Pioneer since
-----------------
its formation in 1993. Mr. Bernard has been a director of the Bank since 1987
and has served as Vice Chairman of the Board of the Bank since 1992. He has been
the owner of Bernard Holdings and Investment Group since 1996. Prior to that
time, he was Senior Vice President of Everen (Kemper) Securities and an
Executive Vice President at Birr Wilson.
Louis J. Capurro has served as Chairman of the Board of Pioneer since its
-----------------
formation in 1993. Mr. Capurro has been a director and the Chairman of the Board
of the Bank since 1965. He retired in June 1991 as Senior Vice President of
Sedgwick James Insurance Brokers, where he had worked since 1983. Prior to that
time, he was associated with the insurance firm of Capurro & McKenna and its
successors since 1946.
Jeanne Hood has been a director of Pioneer and the Bank since 1994. Ms.
-----------
Hood is a consultant and director with American Casino Enterprises. Prior to
that time, she served as the President, CEO, Vice Chairman and Consultant to
Elsinore Corporation, a gaming operation in Las Vegas. Ms. Hood also serves as a
director of American Vantage Companies.
Ken Knauss has been a director of Pioneer and the Bank since 1993. Mr.
----------
Knauss is the President of Palm Mortuaries Inc., formerly Desert Lawn Inc., and
from 1982 - 1987, served as Vice President of Operations of the company.
Luther Mack Jr. has been a director of Pioneer since its formation in 1993
---------------
and a director of the Bank since 1991. Mr. Mack is the owner and President of
Mack Associates, Inc., owning and operating McDonald's Franchise locations since
1974. He also owned and operated a television station in Reno from 1995 to 1998.
Prior to that time, he worked for the Small Business Administration and State of
Nevada.
32
<PAGE>
William E. Martin has been a director and the President and Chief Executive
-----------------
Officer of the Bank since joining Pioneer in 1989, and of Pioneer since its
formation in 1993. Prior to joining Pioneer, Mr. Martin served as the President
of Nevada National Bank and worked for the Office of the Comptroller of the
Currency.
Charles L. Ruthe has been a director of Pioneer and the Bank since 1998.
----------------
Mr. Ruthe is the owner and Chairman of the Board of Charles L. Ruthe and
Associates, Inc., since 1975. He was employed by Boyd Gaming Corporation from
1983 to 1997 and retired as President of the Boyd Group. Mr. Ruthe continues to
serve as a consultant to Boyd Gaming, and also serves as a director of Sierra
Health Services.
Howard Wells Jr. has been a director of Pioneer since its formation in 1993
----------------
and a director of the Bank since 1986. Mr. Wells is the owner and President of
Wells Cargo, Inc., a construction firm, since 1972.
Donald L. Wilkerson has been a director of Pioneer since its formation
-------------------
in 1993 and a director of the Bank since 1991. Mr. Wilkerson is self employed
as an investor and developer since 1982. Prior to that time, he was with Mason-
McDuffie Company, mortgage banking division.
John E. Yoxen has been a director of Pioneer since its formation in 1993
-------------
and a director of the Bank since 1971. Mr. Yoxen worked as a contractor for 26
years, until his retirement in 1986.
Executive Officers
The following table sets forth summary information about the executive
officers of Pioneer and the Bank, listed in the summary compensation table, who
are not also directors. Each of the executive officers has served in positions
with Pioneer and/or the Bank for the past five years.
<TABLE>
<CAPTION>
Term of
Name Age Position Office
- ---------------------------------- ----------- ------------------------------------------ ------------
<S> <C> <C> <C>
A. G. Henry 56 Asst. Secretary of Pioneer; Executive 1989
Vice President, Chief Operating Officer
of the Bank
Edward T. Plunkett 61 Treasurer of Pioneer; Executive Vice 1991
President, Chief Financial Officer of
the Bank
Jerry R. Martin 49 Executive Vice President, Chief Credit 1991
Officer of the Bank
</TABLE>
ITEM 6. EXECUTIVE COMPENSATION
The following information is provided regarding the compensation paid by
Pioneer, or in certain cases, the Bank, to the directors and to the Chief
Executive Officer of Pioneer and the three most highly compensated executive
officers of Pioneer or the Bank, as the case may be, whose compensation exceeded
$100,000 in fiscal year 1998.
33
<PAGE>
Director Compensation
Pioneer has established a program for director compensation in which each
director of Pioneer receives a fee of $2,500 for each meeting. As authorized by
the Board, directors may elect to receive shares of Pioneer Common Stock in lieu
of director fees. Shares of Pioneer Common Stock are issued based on the market
value of Pioneer's Common Stock on the day prior to the Board of Director's
meeting.
Deferred Compensation Plan
The Board has also adopted a deferred compensation program for directors
and executive officers. Under the deferred compensation program, directors may
elect to defer payment of some or all of their directors' fees and executive
officers may elect to defer all or a portion of their bonus. There are no
company paid contributions under this program.
Executive Officer Compensation
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------------------------------------------------------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Principal Year Salary Bonus($) Compensation Awards Options/ Payouts Compensation
Position ($) (1) ($) SARs(#) ($) ($) (2)(3)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William E. Martin 1998 $275,040 $400,000 0 0 37,500 0 $ 6,923
President and CEO (4)
- ----------------------------------------------------------------------------------------------------------------------------------
A. G. Henry, EVP and 1998 $168,000 $ 90,000 0 0 22,500 0 $ 5,703
Chief Operating Officer
- ----------------------------------------------------------------------------------------------------------------------------------
Jerry R. Martin, EVP and 1998 $110,040 $ 35,000 0 0 22,500 0 $ 5,487
Chief Credit Officer
- ----------------------------------------------------------------------------------------------------------------------------------
Edward T. Plunkett, EVP 1998 $110,040 $ 35,000 0 0 22,500 0 $ 4,811
and Chief Financial
Officer
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include amounts attributable to miscellaneous benefits received by
executive officers, including the use of company-owned automobiles and the
payment of certain club dues. In the opinion of management, the costs to
the Bank of providing such benefits to any individual executive officer
during the year ended December 31, 1998 did not exceed the lesser of
$50,000 or 10% of the total of annual salary and bonus reported for the
individual.
(2) Includes contributions paid by Pioneer or the Bank during 1998 for the
benefit of Messrs. Martin, Henry, J. Martin and Plunkett in the amounts of
$5,000, $3,780, $2,889 and $2,889, respectively, pursuant to Pioneer's
401(k) Savings Plan and Trust.
(3) Includes insurance premiums paid by Pioneer during 1998 on behalf of
Messrs. Martin, Henry, J. Martin and Plunkett in the amounts of $1,922,
$1,922, $2,498 and $1,922, respectively.
(4) Mr. Martin's bonus represents $125,000 that vested over the normal course
of his employment at the rate of 25% upon grant, and 25% per year over the
following three years, and $275,000 which was granted with an accelerated
vesting schedule.
34
<PAGE>
Executive Severance Agreements
In February 1999, the Bank entered into severance agreements with certain
executive officers. Under these agreements, the executive is entitled to
receive a severance payment if his or her employment is terminated voluntarily
or involuntarily, other than for cause, disability or death (i) within the
Severance Protection Period (as defined below) after a change in control, or
(ii) within sixty days before a change in control. For Mr. Martin, the
"Severance Protection Period" is 36 months from the date of a change in control;
and for Messrs. Henry, Jerry Martin and Plunkett, the "Severance Protection
Period" is 24 months from the date of a change in control, plus an additional
month for each year of employment, for a maximum of 30 months. The amount of
the severance payment is based on the executive's most recent salary and bonus
amount for one month, multiplied by the number of months in the Severance
Protection Period.
The severance agreements also contain a noncompete provision that prevents
the executives from competing with the Bank, either directly or indirectly, as a
shareholder, member, partner, director, officer, manager, consultant, agent or
representative of a "competing business" in the State of Nevada for a period of
twelve months.
Consulting Agreement
In February 1998, the Bank entered into a Consulting Agreement with Leo V.
Seevers, who, at that time served as an Executive Vice President of the Bank.
The Consulting Agreement which became effective on March 31, 1998, the date of
Mr. Seever's retirement, provides that Mr. Seevers will serve as a consultant to
the Bank for a period of three years, until March 30, 2001 (the "Transition
Period"). As compensation for his consulting services, Mr. Seevers will receive
the sum of $360,000, payable in monthly installments over the Transition Period.
The Consulting Agreement also contains a noncompete provision that prevents
Mr. Seevers, without the prior written authorization of the Bank, either
directly or indirectly, to own, manage, operate, control, or participate in the
ownership, management, operation or control of, or to be connected as an
officer, employee, partner, director or consultant, of any financial institution
within Clark County, Washoe County or the State of Nevada during the Transition
Period.
Stock Options
Stock Option Grants. The following table sets forth stock options granted
-------------------
during 1998 to the executive officers named in the "Summary Compensation Table"
above, pursuant to Pioneer's stock option plan during the year ended December
31, 1998.
35
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at
Assumed Annual Rates
Individual Grants of Stock Price
Appreciation
for Option Term(3)
- --------------------------------------------------------------------------------------------------------------------------
Number of Shares of % of Total
Underlying Options Exercise
Options Granted to Price Expiration
Name Granted (1)(2) Employees ($/Share) Date 5% 10%
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William E. Martin 37,500 8.4% $26.67 2/17/08 $630,078 $1,590,198
- --------------------------------------------------------------------------------------------------------------------------
A. G. Henry 22,500 5.1% $26.67 2/17/08 $378,047 $ 954,119
- --------------------------------------------------------------------------------------------------------------------------
Jerry R. Martin 11,250 5.1% $26.67 2/17/08 $189,023 $ 477,059
11,250 $25.33 4/14/08 $179,526 $ 453,090
- --------------------------------------------------------------------------------------------------------------------------
Edward T. Plunkett 22,500 5.1% $26.67 2/17/08 $378,047 $ 954,119
==========================================================================================================================
</TABLE>
(1) Shares have been adjusted to reflect a 3-for-2 stock split effective July
29, 1998.
(2) The options are non-qualified stock options and become exercisable in five
annual installments. Each option was granted under Pioneer's stock option
plan and has an exercise price equal to the fair market value of the Common
Stock on the date of grant.
(3) The dollar amounts under these columns result from calculations at the 5%
and 10% assumed appreciation rate established by the SEC and, therefore, are
not intended to forecast possible future appreciation, if any, of Pioneer's
Common Stock price.
Stock Option Exercises. The following table sets forth certain information
----------------------
concerning exercises of stock options pursuant to Pioneer's stock option plan by
the executive officers named in the "Summary Compensation Table" during the year
ended December 31, 1998 and stock options held at year end.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
Number of Value of
Shares Unexercised Unexercised Options
Acquired on Value Options at Year End1 at Year End (2)
Name Exercise Realized ------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William E. Martin 82,113 $1,852,467 3,750 33,750 $0 $0
- ---------------------------------------------------------------------------------------------------------------------------
A. G. Henry 61,585 $1,389,358 2,250 20,250 $0 $0
- ---------------------------------------------------------------------------------------------------------------------------
Jerry R. Martin 0 --- 2,250 20,250 $0 $0
- ---------------------------------------------------------------------------------------------------------------------------
Edward T. Plunkett 0 --- 2,250 20,250 $0 $0
===========================================================================================================================
</TABLE>
(1) Shares have been adjusted to reflect a 3-for-2 stock split effective July
29, 1998.
(2) On December 31, 1998, the average closing price of Pioneer's Common Stock
was $25.00. For purposes of the foregoing table, stock options with an
exercise price greater than that amount are considered to be "under water,"
therefore, no dollar value is listed.
36
<PAGE>
Employee Benefit Plans
401(k) Savings Plan and Trust. Pioneer and the Bank have a 401(k) Savings
-----------------------------
Plan and Trust ("401(k) Plan") covering substantially all employees. An
employee must be at least 18 years of age and have six months of service with
Pioneer or the Bank to be eligible for the 401 (k) Plan ("Effective Date").
Under the 401(k) Plan, participants may defer a percentage of their
compensation, the dollar amount of which may not exceed the limit as governed by
law. At the direction of the Board of Directors, Pioneer may also elect to pay
a discretionary matching contribution equal to a percentage of the amount of the
salary deferral made by the participant. The 401(k) Plan provides that
contributions made by the employee are 100% vested immediately upon the
participant's Effective Date. Contributions made by the employer vest 25% upon
completion of two years of employment, and vest 25% annually thereafter, and are
fully vested in the fifth year.
A committee of the Bank acts as the Plan Administrator of the 401(k) Plan.
The general investment options are determined by the Plan's Administrative
Committee.
Supplemental Executive Incentive Plan (Deferred Compensation Plan).
------------------------------------------------------------------
Pioneer and the Bank have adopted a deferred compensation plan ("DCP Plan")
which is open to directors, executive officers and individuals designated by the
Executive Committee of the Board of Directors. Participants may elect to defer
payment up to 100% of their salary or bonus. Upon reaching normal retirement age
or date of disability, if earlier, both as defined, participants are paid in a
lump sum or in quarterly installments over a term of up to 15 years. No
contributions were made by eligible participants in 1998.
Nonqualified Stock Option Plan. Pioneer maintains a Nonqualified Stock
------------------------------
Option Plan ("Plan") for the benefit of key employees and directors of Pioneer
and the Bank. Under the terms of the Plan, the Board or a committee appointed
by the Board may grant employees or directors of Pioneer and the Bank options to
purchase shares of Pioneer's Common Stock at a purchase price of not less than
100% of the fair market value of such stock on the date of the grant. Options
vest in annual installments over a five year period. The options have a term
not exceeding ten years from the date the option is granted. The Plan is
amended and a new plan is adopted from time to time to make additional shares
available for issuance. The Plan is currently authorized to grant up to 677,443
shares of Pioneer Common Stock. At December 31, 1998, options to purchase
446,250 shares had been granted and 231,193 shares remain available for future
grant.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pioneer and the Bank have had, and expects to have in the future, banking
transactions, including loans, in the ordinary course of business with
directors, executive officers, and their associates, on substantially the same
terms, including interest rates and collateral, as those prevailing at the same
time for comparable transactions with other persons, which transactions do not
involve more than the normal risk of collectability or present other unfavorable
features. As of December 31, 1998, aggregate loans to directors and executive
officers, including those made to related business interest and their
associates, totaled $5,215,000. All such loans were made in the ordinary course
of the Bank's business, on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other customers and in the opinion of management, do not
involve any undue credit risk to Pioneer or the Bank.
37
<PAGE>
ITEM 8. LEGAL PROCEEDINGS
Pioneer and the Bank are parties to various claims, legal actions and
complaints in the ordinary course of their businesses. In Pioneer's opinion,
all such matters are adequately covered by insurance, are without merit or are
of such kind, or involve such amounts, that unfavorable disposition would not
have a material adverse effect on the consolidated financial position or results
of operations of Pioneer.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Bid and ask prices for Pioneer's Common Stock are quoted in the Pink Sheets
and on the OTC Bulletin Board under the symbol "PNCZ" As of April 1, 1999,
there were six Pink Sheet/Bulletin Board Market Makers. The range of high and
low bid prices for the Pioneer's Common Stock for each quarter during the two
most recent fiscal years is as follows:
<TABLE>
<CAPTION>
Quarterly Common Stock Price Ranges/(1)/
--------------------------------------------------------------------------------------
1998 1997
------------------------------------------ ------------------------------------------
Quarter High Low High Low
- ------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
1st $30.66 $24.00 $14.88 $12.95
2nd $28.66 $24.00 $18.49 $14.24
3rd $25.50 $23.00 $20.45 $17.43
4th $26.00 $21.25 $28.49 $19.32
</TABLE>
(1) This table reflects the range of high and low bid prices for Pioneer's
Common Stock during the indicated periods. Prices for 1998 have been
adjusted to reflect a three-for-two stock split that was effective July 29,
1998 and the 10% stock dividends paid in 1997 and 1998. The quotations
merely reflect the prices at which transactions were proposed, and do not
necessarily represent actual transactions. Prices do not include retail
markup, markdown or commissions.
The approximate number of record holders of the Pioneer's Common stock as
of April 1, 1999 was 558.
Pioneer historically has not paid cash dividends, nor does it expect to pay
cash dividends in the foreseeable future.
ITEM 10. RECENT SALES OF REGISTRANT'S SECURITIES TO BE REGISTERED
During the fiscal years 1997 and 1998, Pioneer issued 205,283 shares of
Pioneer Common Stock to certain officers and employees of Pioneer and/or the
Bank upon the exercise of stock options previously granted to such persons under
the Plan. The aggregate price for the Pioneer Common Stock sold to such persons
was $500,890. No underwriting discounts or commissions were paid in connection
with such sale. The issuance and sale of Pioneer Common Stock pursuant to the
Plan is exempt from registration under the Securities Act of 1933, as amended,
pursuant to Section 4(2) of such Act, as a sale of securities not involving a
public offering. Pioneer intends to register its Common Stock issued pursuant
to the Plan, on a Form S-8 registration statement under the Securities Act of
1933, to be effective immediately, or as soon thereafter, following the
effective date of this Registration Statement. In addition to the shares issued
pursuant to the exercise of stock options, the Company issued 100 qualifying
shares to director Charles Ruthe who was appointed to the Board in 1998, at a
per share price of $35.00. The Company has also issued shares pursuant to
certain stock splits and stock dividends.
38
<PAGE>
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
Description of Capital Stock
Pioneer is currently authorized to issue 15,000,000 shares of Pioneer
Common Stock, $0.01 par value per share. The following description of Pioneer
Common Stock and certain provisions of Pioneer's Articles of Incorporation, as
amended (the "Articles") and Bylaws is a summary, does not purport to be
complete, and is subject to the detailed provisions of, and is qualified in its
entirety by reference to, the Articles and Bylaws, copies of which have been
filed as exhibits to this Registration Statement.
Voting
The holders of Pioneer Common Stock may not cumulate their votes and are
entitled to one vote per share held of record on all matters submitted to a vote
of the stockholders. The Bylaws provide that a majority of shares, represented
in person or by proxy, entitled to vote constitutes a quorum, and that the
affirmative vote of the majority of the shares represented at a meeting at which
a quorum is present constitutes the act of the stockholders, unless the vote of
a greater number is required by law or by the Articles. The Articles and Bylaws
each contain provisions that require a greater than majority vote of shares
entitled to vote on certain actions. (See "--Removal of Directors" and "Anti-
Takeover Provisions").
Dividends
The holders of Pioneer Common Stock are entitled to such distributions,
including cash dividends, as the Pioneer Board may declare from time to time out
of funds legally available. Dividends from Pioneer depend upon the receipt by
Pioneer of cash received pursuant to the exercise of stock options by directors
and officers, directors' fees, and distributions from the Bank because Pioneer
has no source of income.
The declaration and payment of dividends and other distributions by the
Board of Directors of the Bank are subject to (i) the rules and regulations of
the Division and the FDIC governing the manner, amount and available sources of
payment of dividends which may be paid to shareholders of the Bank; (ii) the
methods, if any, by which permanent capital reserves may be retired or reduced;
and (iii) federal and state laws limiting the payment of distributions.
The Board of Directors of the Bank, at its discretion, may consider paying
cash dividends when it determines that dividends are appropriate. Any such cash
dividends would be declared and paid by the Bank based on the Board of
Directors' evaluation of the then current operating results, financial condition
and future growth plans of the Bank, general business conditions, and subject to
tax and other relevant considerations and regulatory limitations (including the
requirement that the Bank's equity capital be maintained at certain minimum
levels.) (See "Item 1. BUSINESS - Supervision and Regulation - Capital
Adequacy").
Under Nevada law applicable to banks, and subject to certain limitations,
the directors of a bank may declare a cash dividend or other distribution of so
much of the Bank's retained earnings as they deem to be appropriate. No
distributions may be paid at any time when a bank is insolvent or when payment
of them would render it insolvent or be contrary to its Articles of
Incorporation. Also, under the Federal Deposit Insurance Act, no distributions
may be paid by an FDIC insured bank while it is in default of any assessment due
the FDIC. See also "Item 1. BUSINESS - Supervision and Regulation -Dividends"
for further restrictions on a Nevada bank's ability to pay dividends or other
distributions.
39
<PAGE>
Also under Nevada law applicable to Pioneer, the Bank and Nevada
corporations generally, no distributions may be made by a corporation to its
stockholders if, after giving effect to the distribution, (i) the corporation
would be unable to pay its debts as they become due in the usual course of
business or (ii) the sum of the corporation's assets would be less than the sum
of its liabilities plus the amount (if any) that would be needed to satisfy the
rights of holders of any preferred stock of the corporation, assuming the
corporation were to be dissolved at the time of the distribution.
Pioneer has been paying stock dividends to its shareholders. Stock
dividends are not subject to the Nevada law restrictions or distributions, as
described above, because a corporation's assets, liabilities and total
stockholders' equity do not change as a result of the stock dividend.
Transferability of Shares
The shares of Common Stock are freely transferable, subject to certain
restrictions on resale imposed on (i) affiliates of Pioneer, and (ii) persons
having received shares of Pioneer Common Stock pursuant to the Plan, prior to
the filing of a registration statement to register the shares under the Plan.
Nevada Law Regarding Certain Business Transactions
Certain provisions of the Nevada Revised Statute (the "NRS"), summarized
below, may be considered to have an anti-takeover effect and may, if a Nevada
corporation does not opt out of them, delay, deter, or prevent a tender offer,
proxy contest or other takeover attempt that a stockholder might consider to be
in such stockholder's best interest, including such an attempt as might result
in payment of a premium over the market price for shares held by stockholders.
Pioneer has not opted out of these NRS provisions, which are commonly referred
to as Nevada's "control share law" (codified in NRS [SECTIONS]78.378 through
78.3793) (the "CSL") and "business combination law" (codified in NRS
[SECTIONS]78.411 through 78.444) (the "BCL"), and Pioneer meets the statutory
standards for applicability of the CSL and the BCL.
The CSL provides, among other things, that a person (individually or in
association with others) who acquires a "controlling interest" (which, under the
definition in the CSL, can be as small as 20% of the voting power in the
election of directors) in a corporation will obtain voting rights in the
"control shares" only to the extent such rights are conferred by a vote of the
disinterested stockholders. In addition, in certain cases where the acquiring
party has obtained such stockholder approval for voting rights, stockholders who
voted against conferring such voting rights are entitled to demand payment by
the corporation of the fair value of their shares.
The BCL provides, among other things, for restrictions on business
"combinations" (as broadly defined in the BCL) between a corporation and a
person (individually or in association with others) who is deemed an "interested
stockholder" because such person (i) has acquired ten percent or more of the
voting power of the corporation's shares or (ii) has certain affiliations or
associations with the corporation and previously owned ten percent or more of
such voting shares. Such business combinations are prohibited for a three-year
period specified prescribed by the BCL unless certain prior approvals by the
corporation's board of directors have been obtained. After expiration of the
three-year period, such business combinations are still prohibited unless
certain prior approvals by the corporation's board of directors or disinterested
shareholders have been obtained or certain fair value requirements are met.
40
<PAGE>
Special Meetings of Shareholders
The Bylaws provide that special meetings of shareholders may be called by
the Chairman of the Board of Directors, the President, the Board of Directors,
or shareholders holding at least 50% of the shares entitled to vote at the
meeting.
Classified Board of Directors
The Articles and the Bylaws provide for the division of the Board of
Directors into three classes nearly equal in size as possible with staggered
three-year terms. At each annual meeting of the shareholders, successors to the
directors whose terms expire at that annual meeting are elected for a three-year
term, with each director to hold office until a successor has been duly elected
and qualified. As a result, approximately one-third of the Board of Directors
will be elected each year. (See "Management Executive Officers and Directors").
Removal of Directors
Pioneer's Articles of Incorporation and Bylaws provide that any director
may be removed from office by the affirmative vote of 75% of the shareholders
entitled to vote.
Anti-Takeover Provisions
The Articles of Incorporation include a "super-majority" provision,
requiring that the holders of 80 percent of Pioneer Common Stock approve a
merger, consolidation, liquidation, dissolution or sale or other disposition of
all or substantially all of Pioneer's assets. This provision may not be amended
unless first approved by shareholders holding 80 percent of the shares of
Pioneer Common Stock.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Limitation of Liability and Indemnification
Chapter 78 of the NRS and the Bylaws, taken together, provide that Pioneer
may indemnify any person who was or is involved in any manner or was or is
threatened to be made so involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative, by reason of the fact that such person is or was a director,
officer, employee or agent of Pioneer or of any other business enterprise
pursuant to which the person served in such capacity at Pioneer's request,
against all expenses, judgments, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such proceeding if the
person acted in good faith and in a manner which he or she reasonably believed
to be in, or not opposed to, the best interests of Pioneer, and with respect to
a criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. Pioneer may not, however, provide such indemnification on account of
acts or omissions finally adjudged to be intentional misconduct, fraud, or a
knowing violation of law and material to the cause of action. The
indemnification provisions of the NRS and the Bylaws include the right of an
indemnitee to receive payment of any expenses incurred in connection with a
proceeding in advance of the final disposition of the proceeding, consistent
with applicable law. The NRS and the Bylaws specify certain procedures and
conditions that apply with respect to indemnification and the advancement of
expenses.
Indemnification of any person serving as a director, officer, employee or
agent, as described in the preceding paragraph, is mandatory to the extent that
such person has been successful on the merits or otherwise in defense of the
subject action, suit or proceeding.
41
<PAGE>
The indemnification rights described in the preceding paragraphs are not
exclusive of other rights to which any person seeking indemnification may
otherwise be entitled under current or future laws or by agreement with Pioneer.
Pioneer may also purchase and maintain insurance or make other financial
arrangements on behalf of any present or past director, officer, employee or
agent of Pioneer or of any other business pursuant to which such person served
in that capacity at Pioneer's request. Such insurance or other financial
arrangements may cover liabilities asserted against or expenses incurred by,
such person in any of the aforementioned capacities, regardless of whether
Pioneer would have the authority to indemnify such person.
Besides indemnification, the Articles of Incorporation contain a provision
that limits the personal liability of Pioneer's directors and officers to
Pioneer or its stockholders for damages for breach of fiduciary duty, except
liability for acts or omissions that involve intentional misconduct, fraud or a
knowing violation of law and liability based on payments of distributions
(including dividends) which violate the NRS.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related documents listed under Item 15 are
filed as part of this Registration Statement.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS INDEX
(a)(1) Independent Auditors' Report.
(2) Consolidated Balance Sheets at December 31, 1998 and December
31, 1997.
(3) Consolidated Statements of Earnings for the years ended
December 31, 1998, December 31, 1997 and December 31, 1996.
(4) Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income.
(5) Consolidated Statements of Cash Flows for the years ended
December 31, 1998, December 31, 1997 and December 31, 1996.
(6) Notes to Consolidated Financial Statements.
(7) Consolidated Balance Sheets at March 31, 1999 (unaudited) and
December 31, 1998
(8) Consolidated Statements of Earnings for the three months ended
March 31, 1999 and March 31, 1998 (unaudited)
(9) Consolidated Statement of Changes in Shareholders' Equity and
Comprehensive Income for the three months ended March 31, 1999
and March 31, 1998 (unaudited)
(10) Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and March 31, 1998 (unaudited)
(11) Notes to Consolidated Financial Statements (unaudited)
(b) Exhibits: See "Exhibit Index."
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this amendment to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
PIONEER BANCORPORATION
(Registrant)
Date: July 7, 1999 By: /s/ William E. Martin
-----------------------
William E. Martin
President and Chief Executive Officer
43
<PAGE>
Independent Auditors' Report
The Shareholders and Board of Directors
Pioneer Bancorporation:
We have audited the accompanying consolidated balance sheets of Pioneer
Bancorporation and subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of earnings, changes in shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pioneer
Bancorporation and subsidiary as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Los Angeles, California
January 15, 1999, Except for
Notes 13 and 22 of the Notes to
Consolidated Financial Statements
which are as of May 7, 1999
1
<PAGE>
<TABLE>
<CAPTION>
1998 Consolidated Balance Sheets
As of December 31, 1998 and 1997 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and Cash Equivalents:
Cash and Due from Banks $ 58,208,000 $ 57,467,000
Federal Funds Sold 47,500,000 83,500,000
Total Cash and Cash Equivalents 105,708,000 140,967,000
Securities Held to Maturity, Fair Value
of $47,627,000 and $41,870,000 as of
December 31, 1998 and 1997, respectively 46,102,000 40,861,000
Securities Available for Sale 269,476,000 211,004,000
Loans (less allowance for credit losses of
$7,004,000 and $5,773,000 as of December
31, 1998 and 1997, respectively) 576,105,000 434,548,000
Premises and Equipment, Net 18,049,000 10,886,000
Interest Receivable 7,258,000 6,408,000
Deferred Tax Asset, Net 2,098,000 1,092,000
Other Assets 6,461,000 5,495,000
- -------------------------------------------------------------------------------
Total Assets $1,031,257,000 $ 851,261,000
- -------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Liabilities:
Deposits:
Demand:
Noninterest Bearing $ 224,448,000 $ 201,956,000
Interest Bearing 118,748,000 94,049,000
Savings 97,279,000 66,352,000
Money Market 251,024,000 277,413,000
Time - under $100,000 99,098,000 59,104,000
Time - $100,000 and over 109,150,000 40,904,000
Total Deposits 899,747,000 739,778,000
Securities Sold Under Repurchase
Agreements 60,111,000 53,728,000
Other Liabilities 3,845,000 3,698,000
- -------------------------------------------------------------------------------
Total Liabilities $ 963,703,000 $ 797,204,000
- -------------------------------------------------------------------------------
Shareholders' Equity:
Common Stock, $.01 par value, authorized
15,000,000 shares; issued and
outstanding 9,547,266 shares in 1998
and 9,273,770 shares in 1997 $ 96,000 $ 51,000
Paid-In Surplus 65,282,000 21,973,000
Accumulated Other Comprehensive Income:
Net Unrealized Gain on Securities
Available for Sale, Net of Tax
effect of $482,000 and $687,000
respectively 1,025,000 1,460,000
Retained Earnings 1,151,000 30,573,000
- -------------------------------------------------------------------------------
Total Shareholders' Equity 67,554,000 54,057,000
- -------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,031,257,000 $ 851,261,000
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
1998 Consolidated Statements of Earnings
Years ended December 31, 1998, 1997 and 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Interest and Fees on Loans $ 49,588,000 $ 39,909,000 $ 32,225,000
Interest on Federal Funds Sold 3,795,000 3,487,000 1,515,000
Interest on Securities:
Taxable 11,904,000 10,168,000 7,284,000
Exempt from Federal Income Taxes 3,579,000 2,060,000 1,340,000
- -------------------------------------------------------------------------------------------------------------
Total Interest Income $ 68,866,000 $ 55,624,000 $ 42,364,000
- -------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on Deposits 25,537,000 19,881,000 14,738,000
Interest on Federal Funds and Repurchase Agreements 3,208,000 1,813,000 1,106,000
- -------------------------------------------------------------------------------------------------------------
Total Interest Expense $ 28,745,000 $ 21,694,000 $ 15,844,000
- -------------------------------------------------------------------------------------------------------------
Net Interest Income: 40,121,000 33,930,000 26,520,000
Provision for Credit Losses 2,125,000 1,300,000 1,015,000
- -------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Credit Losses $ 37,996,000 $ 32,630,000 $ 25,505,000
- -------------------------------------------------------------------------------------------------------------
Other Income:
Service Charges on Deposit Accounts 3,232,000 3,050,000 2,446,000
Merchant Credit Card Income 1,988,000 1,831,000 1,469,000
Trust Department Income 1,554,000 1,318,000 702,000
Gain on Sale of Securities Held to Maturity - - 10,000
Gain on Sale of Securities Available for Sale 2,016,000 111,000 -
ATM Network Fees Earned 276,000 236,000 205,000
Other Income 1,185,000 1,040,000 559,000
- -------------------------------------------------------------------------------------------------------------
Total Other Income $ 10,251,000 $ 7,586,000 $ 5,391,000
- -------------------------------------------------------------------------------------------------------------
Other Expenses:
Salaries and Employee Benefits 13,939,000 11,100,000 9,108,000
Occupancy Expense 5,966,000 4,396,000 3,320,000
Merchant Credit Card Expense 1,718,000 1,566,000 1,438,000
Other Expense 8,379,000 6,654,000 5,466,000
- -------------------------------------------------------------------------------------------------------------
Total Other Expenses $ 30,002,000 $ 23,716,000 $ 19,332,000
- -------------------------------------------------------------------------------------------------------------
Income before Income Taxes: 18,245,000 16,500,000 11,564,000
Income Taxes 4,954,000 4,956,000 3,480,000
- -------------------------------------------------------------------------------------------------------------
Net Income $ 13,291,000 $ 11,544,000 $ 8,084,000
- -------------------------------------------------------------------------------------------------------------
Net Income per Common Share:
Basic Net Income Per Share $1.40 $1.24 $0.87
- -------------------------------------------------------------------------------------------------------------
Diluted Net Income Per Share $1.39 $1.20 $0.84
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
1998 Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Paid-In Retained Comprehensive Shareholders'
Shares Amount Surplus Earnings Income Equity
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995
Balance: 2,539,302 $ 25,000 $ 9,946,000 $ 22,397,000 $ 634,000 $ 33,002,000
--------------------------------------------------------------------------------------------------------------------------------
Stock Split Effected in the form of
a Dividend 507,823 5,000 (9,000) - - (4,000)
Common Stock Issuance 9,297 (a) 219,000 - - 219,000
Comprehensive Income:
Net Income - - - 8,084,000 - 8,084,000
Net unrealized change in Securities
Available for Sale, net of tax
effect of ($142,000) - - - - (302,000) (302,000)
Total Comprehensive Income 7,782,000
Three-for-Two Stock Split 1,525,663 15,000 (17,000) - - (2,000)
December 31, 1996
Balance: 4,582,085 $ 45,000 $ 10,139,000 $ 30,481,000 $ 332,000 $ 40,997,000
--------------------------------------------------------------------------------------------------------------------------------
Stock Dividend 458,067 5,000 11,442,000 (11,452,000) - (5,000)
Common Stock Issuance 7,778 (a) 242,000 - - 242,000
Comprehensive Income:
Net Income - - - 11,544,000 - 11,544,000
Net unrealized change in Securities
Available for Sale, net of tax
effect of $530,000 - - - - 1,128,000 1,128,000
Total Comprehensive Income 12,672,000
Exercise of Stock Options 61,585 1,000 150,000 - - 151,000
December 31, 1997
Balance: 5,109,515 $ 51,000 $ 21,973,000 $ 30,573,000 $ 1,460,000 $ 54,057,000
--------------------------------------------------------------------------------------------------------------------------------
Stock Dividend 525,207 5,000 20,995,000 (21,009,000) - (9,000)
Common Stock Issuance 9,520 (a) 302,000 - - 302,000
Comprehensive Income:
Net Income - - - 13,291,000 - 13,291,000
Net unrealized change in Securities
Available for Sale, net of tax
effect of $205,000 - - - - (435,000) (435,000)
Total Comprehensive Income 12,856,000
Three-for-Two Stock Split 2,891,339 29,000 (32,000) - - (3,000)
Exercise of Stock Options 143,698 2,000 349,000 - - 351,000
Stock Dividend (b) 867,987 9,000 21,695,000 (21,704,000) - -
December 31, 1998
Balance: 9,547,266 $ 96,000 $ 65,282,000 $ 1,151,000 $ 1,025,000 $ 67,554,000
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
(a) Amount is less than $1,000.
(b) Declared in March 1999. See Footnote 22.
4
<PAGE>
<TABLE>
<CAPTION>
1998 Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 13,291,000 $ 11,544,000 $ 8,084,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 2,301,000 1,716,000 1,296,000
Amortization, Accretion of Premiums and Discounts on Investments 512,000 662,000 798,000
Provision for Credit Losses 2,125,000 1,300,000 1,015,000
Deferred Income Taxes (782,000) (332,000) (290,000)
Gain on Sale of Premises and Equipment (380,000) (324,000) (2,000)
Gain on Sale of Securities Held to Maturity - - (10,000)
Gain on Sale of Securities Available for Sale (2,016,000) (111,000) -
Increase in Interest Receivable (850,000) (1,576,000) (838,000)
(Increase) Decrease in Other Assets (966,000) (1,454,000) 245,000
Increase in Unamortized Loan Origination Fees 307,000 196,000 350,000
Increase (Decrease) in Other Liabilities 147,000 476,000 152,000
Total Adjustments 398,000 553,000 2,716,000
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities $ 13,689,000 $ 12,097,000 $ 10,800,000
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Proceeds from Maturities and Calls of:
Held to Maturity Securities $ 4,945,000 $ 50,292,000 $ 20,446,000
Available for Sale Securities 25,535,000 18,750,000 25,700,000
Proceeds from Sales of Available for Sale Securities 60,914,000 12,893,000 -
Purchase of Securities Held to Maturity (10,317,000) (58,111,000) -
Purchase of Securities Available for Sale (143,945,000) (110,816,000) (94,350,000)
Net Increase in Loans (144,080,000) (84,232,000) (66,663,000)
Proceeds from Sale of Premises and Equipment 2,675,000 4,941,000 2,000
Acquisition of Premises and Equipment (11,759,000) (5,127,000) (3,370,000)
Loan Recoveries 91,000 84,000 108,000
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities $(215,941,000) $(171,326,000) $(118,127,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net Increase (Decrease) from Federal Funds Purchased - $ (2,970,000) $ 220,000
Net Increase in Demand Deposits and Savings Accounts 51,729,000 151,119,000 146,391,000
Net Increase (Decrease) in Certificates of Deposit 108,240,000 25,182,000 (15,490,000)
Net Increase (Decrease) in Securities Sold under Repurchase Agreements 6,383,000 33,257,000 (8,053,000)
Proceeds from Sale of Stock 302,000 242,000 219,000
Proceeds from Exercise of Options 351,000 151,000 -
Cash Paid for Fractional Shares at Dividend and Split (12,000) (5,000) (6,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities $ 166,993,000 $ 206,976,000 $ 123,281,000
- ----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents: $ (35,259,000) $ 47,747,000 $ 15,954,000
Cash and Cash Equivalents Beginning of Year 140,967,000 93,220,000 77,266,000
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents End of Year $ 105,708,000 $ 140,967,000 $ 93,220,000
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Interest Paid During the Year $ 28,580,000 $ 21,569,000 $ 15,875,000
Income Taxes Paid During the Year $ 6,000,000 $ 5,750,000 $ 4,075,000
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
1998 Notes to Consolidated Financial Statements
1. Summary of Significant Accounting and Reporting Policies
The significant accounting and reporting policies of Pioneer Bancorporation
("the Company") and its wholly-owned subsidiary Pioneer Citizens Bank of Nevada
("PCBN") are summarized below. These policies conform with generally accepted
accounting principles and with general practice within the banking industry.
Certain reclassifications have been made to prior years` consolidated financial
statements to conform with current year presentation. All material intercompany
balances and transactions have been eliminated
(a) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and PCBN. PCBN is a state chartered commercial bank serving the
communities of Reno, Sparks, Carson City, Las Vegas, Summerlin and Henderson.
PCBN became a wholly-owned subsidiary of the Company on October 31, 1993.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the consolidated balance sheets and the
consolidated results from operations for the periods presented. Actual results
could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant material
change in the near term relate to the allowance for credit losses. While
management believes that these allowances are currently adequate, future
additions may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as part of their examination process, periodically
review the allowances for credit losses. Such agencies may require the Company
to recognize additions to these allowances based on their judgements about
information available to them at the time of their examination.
(b) Securities Held to Maturity
Securities held to maturity are carried at cost, adjusted for amortization
of premiums and accretion of discounts, computed using the interest method. The
Company determines the classification of securities at the time of their
purchase. The Company classifies securities as held to maturity when it has the
positive intent and ability to hold such securities to maturity. The Company
considers its asset/liability strategies, liquidity needs and other factors in
determining its ability and intent to hold securities to maturity.
(c) Securities Available for Sale
The Company has designated certain securities as available for sale at the
time of their purchase. The Company determines which securities are available
for sale by evaluating whether such securities would be sold in response to
liquidity needs, asset/liability management and other factors. Amortization of
premiums and accretion of discounts are computed using the interest method. The
cost of securities sold is determined using the specific identification method.
Unrealized gains and losses, net of tax, on securities available for sale are
reported as a separate component of other comprehensive income until realized.
Declines in the fair value of individual securities held to maturity or
available for sale below their cost that are other than temporary would result
in write-downs of the individual securities to their fair value. The related
write-downs would be included in net income as realized losses.
(d) Allowance for Credit Losses
The allowance for credit losses is maintained at a level believed by
management to be adequate to provide for potential loan losses based on
management's evaluation of the loan portfolio, prevailing and anticipated
economic conditions, and the Company's previous loan loss experience. The
allowance is based on estimates and ultimate losses may vary from current
estimates. The allowance is increased by provisions charged to operations and
reduced by loans charged off, net of recoveries. In addition, regulatory
examiners may require the Company to recognize additions to the allowance based
upon information available to them at the time of their examination.
The Company evaluates loans for impairment on a periodic basis. A loan is
considered impaired when, based on current information of events, it is probable
that a creditor will be unable to collect all amounts due (i.e. principal and
interest) according to the contractual terms of the loan agreement. The
measurement of impairment may be based upon (i) the present value of the
expected future cash flows of the impaired loan discounted at the loans original
effective interest rate, (ii) the observable market price of the impaired loan,
or (iii) the fair value of the collateral of a collateral dependent loan. The
6
<PAGE>
amount by which the recorded investment of the loan exceeds the measure of the
impaired loan is recognized by recording of valuation allowance with a
corresponding charge to the provision for credit losses.
The Company stratifies its loan portfolio by size and treats smaller
performing loans with an outstanding balance less than $250,000 as a homogenous
portfolio. For loans in excess of $250,000, the Company conducts a periodic
review of each loan in order to test for impairment. Cash payments received on
loans considered impaired are applied to principal amounts due first until fully
recovered and then to any forgone interest.
(e) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation for consolidated financial statement purposes is
computed on the straight-line method over the estimated useful lives. Leasehold
improvements are amortized over the economic life of the improvement or lease
term, whichever is shorter.
The estimated useful lives of premises and equipment are as follows:
Building and Improvements: 10 to 39 years
Furniture, Fixtures and Equipment: 3 to 10 years
As events or circumstances warrant, the Company assesses the recoverability
of its premises and equipment by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(f) Other Real Estate Owned
Other real estate owned, if any, would include foreclosed properties held
for sale and would be recorded at estimated fair value less costs to sell.
(g) Interest Income on Loans
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest on loans is discontinued when, in
the opinion of management, there is an indication that the borrower may be
unable to meet payments as they become due.
Upon such discontinuance, all unpaid accrued interest is reversed. Cash
collections on nonaccrual loans are generally applied as a reduction to the
recorded investment of the loan. Loans are returned to accrual status only after
all past due amounts have been received and the borrower has demonstrated
sustained performance.
(h) Loan Origination Fees and Costs
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield on the related loan on a level
yield basis.
(i) Net Income per Share
The Company reports both basic and diluted net income per share. Basic net
income per share is determined by dividing net income by the average number of
shares of common stock outstanding, while diluted net income per share is
determined by dividing the average number of shares of common stock outstanding
adjusted for the dilutive effect of common stock equivalents. The net income per
share data for 1997 and 1996 has been restated to give retroactive recognition
to the stock dividend and the stock split declared in 1998 (see Notes 11 and
22).
(j) Income Taxes
Provisions for income taxes are based on taxes payable or refundable for the
current year (after exclusion of non-taxable income such as interest on state
and municipal securities and loans) and deferred taxes on temporary differences
between the amount of taxable income and pretax financial income and between the
tax basis of assets and liabilities and their reported amounts in the
consolidated financial statements. Deferred tax assets and liabilities are
included in the consolidated financial statements at currently enacted income
tax rates applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and
7
<PAGE>
liabilities are adjusted through the provision for income taxes. Deferred tax
assets are recognized subject to management's judgement that realization is more
likely than not.
(k) Repurchase Agreements
Securities sold under agreement to repurchase generally mature within one to
four days from the transaction date. At December 31, 1998 one transaction was
individually over 10% of shareholders' equity. This agreement was with a
customer of the Bank.
(l) Statements of Cash Flows
For purposes of the statements of cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and Federal Funds sold. Generally,
Federal Funds are purchased and sold for one-day periods.
(m) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted certain provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, which permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants made
in 1995 and future years as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.
(n) Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and net
unrealized gains (losses) on securities and is presented in the consolidated
statements of stockholders' equity and comprehensive income. The Statement
requires only additional disclosures in the consolidated financial statements;
it does not affect the Company's financial position or results 0of operations.
Prior year financial statements have been reclassified to conform to the
requirements of SFAS No. 130.
2. Cash and Due From Banks
The Company was required to maintain cash balances of $4,177,000 and
$4,746,000 at December 31, 1998 and 1997, respectively, to cover services
provided by correspondent banks. Federal Reserve Board regulations require that
PCBN maintain certain reserve balances on deposit with the Federal Reserve Bank.
Cash balances maintained to meet reserve requirements are not available for use
by PCBN or the Company. The Federal Reserve required balances were $2,400,000
and $920,000 at December 31, 1998 and 1997, respectively.
8
<PAGE>
3. Securities Held to Maturity
The carrying values and estimated fair values of securities held to maturity
at December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
U.S. Treasuries $ - $ - $ - $ -
State, County and Municipal 46,102,000 1,582,000 57,000 47,627,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total $46,102,000 $1,582,000 $57,000 $47,627,000
- ------------------------------------------------------------------------------------------------------------------------------------
1997:
U.S. Treasuries $ 4,006,000 $ - $ - $ 4,006,000
State, County and Municipal 36,855,000 1,059,000 50,000 37,864,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total $40,861,000 $1,059,000 $50,000 $41,870,000
- ------------------------------------------------------------------------------------------------------------------------------------
The carrying values and estimated fair values of securities held to maturity at
December 31, 1998, by contractual maturity, are shown below:
Carrying Fair
Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
Maturing Within:
One Year $ 1,836,000 $ 1,846,000
One to Five Years 10,403,000 10,608,000
Five to Ten Years 28,497,000 29,799,000
Over Ten Years 5,366,000 5,374,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total $46,102,000 $47,627,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Securities carried at approximately $0 and $4,006,000 at December 31, 1998
and 1997, respectively, were pledged to secure various state and local
government and trust deposits as required or permitted by law.
9
<PAGE>
4. Securities Available for Sale
The amortized cost and estimated fair values of securities available for sale at
December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998:
U.S. Treasuries $ 52,121,000 $ 841,000 $ - $ 52,962,000
U.S. Agencies 164,450,000 801,000 1,032,000 164,219,000
State, County and Municipal 51,392,000 947,000 44,000 52,295,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total $267,963,000 $2,589,000 $1,076,000 $269,476,000
- ------------------------------------------------------------------------------------------------------------------------------------
1997:
U.S. Treasuries $116,880,000 $1,494,000 $ 33,000 $118,341,000
U.S. Agencies 70,404,000 557,000 160,000 70,801,000
State, County and Municipal 21,569,000 296,000 3,000 21,862,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total $208,853,000 $2,347,000 $ 196,000 $211,004,000
- ------------------------------------------------------------------------------------------------------------------------------------
The amortized cost and estimated fair values of securities available for sale
at December 31, 1998, by contractual maturity, are shown below:
- ------------------------------------------------------------------------------------------------------------------------------------
Amortized Fair
Cost Value
- ------------------------------------------------------------------------------------------------------------------------------------
Maturing Within:
One Year $ 39,712,000 $ 40,017,000
One to Five Years 70,591,000 71,757,000
Five to Ten Years 62,531,000 63,230,000
Over Ten Years 95,129,000 94,472,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total $267,963,000 $269,476,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Securities with fair value of approximately $31,700,000 and $67,637,000
at December 31, 1998 and 1997, respectively, were pledged to secure various
state and local government and trust deposits as required or permitted by
law. Proceeds from the sales of available for sale securities during 1998,
1997 and 1996 were approximately $60,914,000, $12,893,000 and $0,
respectively. Gross gains (losses) of $2,020,000 and $(4,000) in 1998,
$115,000 and ($4,000) in 1997, and no gains (losses) in 1996 were realized
on those sales.
During 1998, $596,000 of unrealized gains arose during the year and are
included in comprehensive income ($387,000, net of tax), and $1,265,000 of
previously unrealized gains ($822,000, net of tax) were realized in
earnings.
10
<PAGE>
5. Loans and Leases
<TABLE>
<CAPTION>
The following is a summary of loans by major category at December 31, 1998, and 1997: 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial and Industrial $151,691,000 $118,862,000
Real Estate Loans:
Construction and Land Development 93,766,000 85,479,000
Insured or Guaranteed Residential 46,000 46,000
Conventional and Non-Farm, Non-Residential 297,775,000 204,065,000
Agricultural Loans 462,000 70,000
Loans to Individuals for Personal Expenditures 32,211,000 31,647,000
State and Municipal Obligations 8,380,000 1,781,000
Leases 714,000 -
Subtotal 585,045,000 441,950,000
Less: Allowance for Credit Losses 7,004,000 5,773,000
Unamortized Loan Origination Fees, Net of Direct Costs 1,936,000 1,629,000
- -------------------------------------------------------------------------------------------------------------------
Loans Net $576,105,000 $434,548,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998 and 1997 the Company had no impaired loans for which a
specific allowance had been established. Nonaccrual and impaired loans amounted
to $794,000 and $920,000, respectively, as of December 31, 1998 and 1997. The
average recorded investment in impaired loans was $1,555,000 and $473,000,
respectively for the years ended December 31, 1998 and 1997. As the Company
places all impaired loans on nonaccrual status, no interest income was
recognized on impaired loans during the years ended December 31, 1998 and 1997.
The amount of interest income that would have been recorded on nonaccrual loans
was approximately $42,000, $40,000 and $29,000 for 1998, 1997, and 1996,
respectively.
6. Allowance for Credit Losses
<TABLE>
<CAPTION>
Changes in the allowance for credit losses are as follows: 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at Beginning of Year $ 5,773,000 $ 4,923,000 $ 4,010,000
Loans Charged Off (985,000) (534,000) (210,000)
Recoveries of Loans Previously Charged Off 91,000 84,000 108,000
Net Loans Charged Off (894,000) (450,000) (102,000)
Provision for Credit Losses 2,125,000 1,300,000 1,015,000
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at End of Year $ 7,004,000 $ 5,773,000 $ 4,923,000
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7. Premises and Equipment, Net
<TABLE>
<CAPTION>
Major classifications of premises and equipment at December 31, 1998 and 1997
are summarized as follows: 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,122,000 $ 1,206,000
Buildings 2,310,000 1,239,000
Leasehold Improvements 11,204,000 6,700,000
Furniture and Equipment 11,662,000 7,756,000
Subtotal 26,298,000 16,901,000
Less: Accumulated Depreciation and Amortization 8,249,000 6,015,000
- ----------------------------------------------------------------------------------------------------------------------------------
Premises and Equipment, Net $18,049,000 $10,886,000
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
8. Deposits
At December 31, 1998 and 1997, the Company had time deposits of $100,000 or
more of $109,150,000 and $40,904,000, respectively. Interest paid on time
deposits of $100,000 or more for 1998, 1997 and 1996 was $3,886,000, $1,674,000
and $2,000,000, respectively.
Scheduled maturities of certificates of deposit at December 31, 1998 are
summarized as follows:
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
1999 $178,376,000
2000 27,044,000
2001 1,083,000
2002 1,640,000
2003 1,000
2004 and Beyond 104,000
- ----------------------------------------------------------------------------------------------------------------------
Total $208,248,000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
9. Repurchase Agreements
<TABLE>
<CAPTION>
The following table sets forth information with respect to securities sold under
agreements to repurchase: 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, end of year $60,111,000 $ 53,728,000 $20,471,000
Weighted average interest rate, end of year 4.43% 4.98% 4.91%
Average amount outstanding, during the year $64,936,000 $ 34,391,000 $19,438,000
Weighted average interest rate, for the year 4.86% 5.00% 4.91%
Maximum amount outstanding at any month-end $84,930,000 $ 53,728,000 $20,771,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Securities subject to repurchase agreements are retained by PCBN's
custodian under written agreements that recognize the customers' interests
in the securities. Interest expense associated with securities sold under
repurchase agreements totaled $3,155,000, $1,720,000 and $955,000 for 1998,
1997 and 1996, respectively.
12
<PAGE>
10. Income Taxes
<TABLE>
<CAPTION>
Federal Income Tax Expense consists of: 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Income Taxes $ 5,736,000 $5,288,000 $3,770,000
Deferred Income Taxes (782,000) (332,000) (290,000)
- ------------------------------------------------------------------------------------------------------------------------
Total $ 4,954,000 $4,956,000 $3,480,000
- ------------------------------------------------------------------------------------------------------------------------
The reasons for the variation of the effective income tax
rate from the statutory federal tax rate are as follows:
Tax Expense at Statutory Rate $ 6,386,000 $5,775,000 $3,932,000
Tax Effect of Tax Exempt Interest Income (1,199,000) (655,000) (414,000)
Tax Other, Net (233,000) (164,000) (38,000)
- ------------------------------------------------------------------------------------------------------------------------
Total $ 4,954,000 $4,956,000 $3,480,000
- ------------------------------------------------------------------------------------------------------------------------
(As restated to reflect the actual 1997 Federal Income Tax Return as filed) 1998 1997
Deferred Tax Assets:
Allowance for Credit Losses $ 2,386,000 $1,837,000
Deferred Compensation 584,000 504,000
Other 4,000 -
- ------------------------------------------------------------------------------------------------------------------------
Total Gross Deferred Tax Assets $ 2,974,000 $2,341,000
- ------------------------------------------------------------------------------------------------------------------------
Less: Valuation Allowance - -
- ------------------------------------------------------------------------------------------------------------------------
Net Deferred Tax Assets $ 2,974,000 $2,341,000
- ------------------------------------------------------------------------------------------------------------------------
Deferred Tax Liabilities:
Plant and Equipment $ 99,000 $ 210,000
Deferred Loan Fees 13,000 13,000
Discount Accretion on Securities - 105,000
Unrealized Gain on Securities Available for Sale 529,000 753,000
Other 235,000 168,000
- ------------------------------------------------------------------------------------------------------------------------
Total Gross Deferred Tax Liabilities $ 876,000 $1,249,000
- ------------------------------------------------------------------------------------------------------------------------
Net Deferred Tax Assets $ 2,098,000 $1,092,000
- ------------------------------------------------------------------------------------------------------------------------
A summary of the change in the deferred tax asset
(liability) for the years ended December 31, 1998 and 1997 is as follows: 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
Deferred Tax Asset, Net Beginning of Year $ 1,092,000 $1,294,000
Change in the Tax Effect related to Unrealized (Gain)
Loss on AFS Securities 224,000 (534,000)
Current Year Deferred Income Taxes 782,000 332,000
- ------------------------------------------------------------------------------------------------------------------------
Deferred Tax Asset, Net End of Year $ 2,098,000 $1,092,000
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The current federal tax receivable of $1,154,000 and receivable of $780,000
at December 31, 1998 and 1997 respectively, is included in other assets in
the consolidated balance sheets. In assessing the realizability of deferred
tax assets, the Company considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the ability
to carryback losses and the generation of future taxable income during the
periods in which those temporary differences become deductible. The Company
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. Based on the level of historical taxable income and projections
for future taxable income over the periods which deferred tax assets are
deductible, management believes that it is more likely than not that the
Company will realize the benefits of these deductible differences. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income over the
periods which deferred tax assets are deductible are reduced.
13
<PAGE>
11. Common Stock
On July 15, 1998, the Board of Directors declared a three-for-two stock
split to shareholders of record as of July 27, 1998. All pertinent share and per
share information for 1998, 1997 and 1996 including stock option activity has
been retroactively restated to reflect this split.
On January 21, 1998, the Board of Directors declared a 10% stock dividend to
shareholders of record as of February 2, 1998. All pertinent share and per share
information for 1998, 1997 and 1996 including qualified stock option activity
has been retroactively restated to reflect this dividend.
On January 15, 1997, the Board of Directors declared a 10% stock dividend to
shareholders of record as of January 31, 1997. All pertinent share and per share
information for 1997 and 1996 including qualified stock option activity has been
retroactively restated to reflect this split.
On April 17, 1996, the Board of Directors declared a three-for-two stock
split to shareholders of record as of April 30, 1996. All pertinent share and
per share information for 1996 including qualified stock option activity has
been retroactively restated to reflect this split.
On January 17, 1996, the Board of Directors declared a one-for-five stock
split effected in the form of a dividend to shareholders of record as of January
31, 1996. All pertinent share and per share information for 1996 including
qualified stock option activity has been retroactively restated to reflect this
split.
In 1990, the Board of Directors approved the issuance of qualified stock
options which provide for the grant of qualified stock options to certain key
employees. The price per share at which shares may be acquired upon exercise of
qualified options is determined by the Board of Directors at the time of the
grant. The qualified options are exercisable over a vesting period until
employee termination as set forth in the respective stock option agreements.
In 1998, the shareholders of the Company approved an amendment to a non-
qualified stock option plan dated 1991. Under this plan and amendment, options
may be granted by the Board of Directors to key employees or directors of the
Company or PCBN. The price per share at which shares may be acquired upon
exercise of non-qualified options is determined by the Board of Directors at the
time of the grant. The non-qualified options are exercisable over a vesting
period of 5-years until employee termination or option expiration as set forth
in the respective stock option agreements.
<TABLE>
<CAPTION>
A summary of changes in outstanding options is as follows: 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, January 1 143,698 205,283 205,283
Options granted 446,250 - -
Options exercised (143,698) (61,585) -
- -----------------------------------------------------------------------------------------------------------
Outstanding, December 31 446,250 143,698 205,283
</TABLE>
14
<PAGE>
11. Common Stock (continued)
Information regarding stock option activity and prices of the shares is as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Option Average
Number of Price Range Option Price
Shares* Per Share* Per Share*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares under option at:
December 31, 1998 446,250 $29.33-$25.00 $26.58
December 31, 1997 143,698 2.44 2.44
December 31, 1996 205,283 2.44 2.44
Options exercisable at:
December 31, 1998 - - -
December 31, 1997 143,698 2.44 2.44
December 31, 1996 205,283 2.44 2.44
Options exercised in year ended:
December 31, 1998 143,698 2.44 2.44
December 31, 1997 61,585 2.44 2.44
December 31, 1996 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Adjusted for stock dividends declared in 1996, 1997 and 1998 as well as
3-for-2 stock splits in 1996 and 1998.
The Company applies APB 25 in accounting for the stock option plan and,
accordingly, no compensation cost has been recognized in the Consolidated
Financial Statements for the fair value of stock options granted. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options granted in 1998 under SFAS No. 123, the Company's net
income would have been reduced to the pro forma amounts indicated in the table
below for the year ended December 31, 1998:
<TABLE>
<CAPTION>
(In Thousands except per share data)
- -----------------------------------------------------
<S> <C>
Net Income:
As reported $13,291
Pro Forma 13,074
Basic net income per share:
As reported $ 1.40
Pro Forma 1.38
Diluted net income per share:
As reported $ 1.39
Pro Forma 1.37
- -----------------------------------------------------
</TABLE>
The fair value of each option granted was estimated on the date of grant using
the Black-Sholes option-pricing model with the following weighted average
assumptions for the years presented:
<TABLE>
<CAPTION>
(In Thousands except per share data)
- -----------------------------------------------------
<S> <C>
Dividend yield 0%
Expected life of option (years):
Officers 5
Directors 5
Stock price volatility:
Officers 27%
Directors 27%
- -----------------------------------------------------
</TABLE>
The risk-free interest rates used in the Black-Scholes option-pricing model were
equal to comparable U.S. Treasury rates at each respective grant date. A 5-year
rate of 5.22% was used for valuing both the officers' options and the directors'
options based upon respective terms of the options. The weighted average fair
value at the date of grant for options granted during 1998 was $9.03 per option.
15
<PAGE>
12. Related Party Transactions
At December 31, 1998, 1997 and 1996, officers and directors of the Company
or companies with which they are affiliated were indebted to the Company in the
approximate aggregate amounts of $5,215,000, $4,556,000 and $5,428,000,
respectively. Such loans were made on substantially the same terms, including
interest rates and collateral as those prevailing at the time for comparable
transactions with other persons who were not executive officers or directors and
did not involve more than the normal risk of collectibility or present other
unfavorable features. It is the policy of the Company to have the Board of
Directors approve executive officer/director loans in advance of their funding.
13. Net Income per Share
The following is a summary of the calculation of basic and diluted net
income per share for the years ended December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Net Income $13,291,000 $11,544,000 $8,084,000
Basic Net Income Per Share
Weighted Average
Shares Outstanding 9,495,419 9,337,301 9,317,468
Net Income per Share $ 1.40 $ 1.24 $ 0.87
- ---------------------------------------------------------------------
Diluted Net Income Per Share
Weighted Average
Shares Outstanding 9,495,419 9,337,301 9,317,468
Effect of Dilutive
Stock Options 32,367 244,282 340,178
- ---------------------------------------------------------------------
9,527,786 9,581,583 9,657,646
Net Income per Share $ 1.39 $ 1.20 $ 0.84
- ---------------------------------------------------------------------
</TABLE>
Per share amounts have been retroactively restated to reflect the stock
dividends and stock splits described in Notes 11 and 22.
14. Transfers from Retained Earnings to Paid-in Surplus
The Nevada Revised Statutes require that amounts be transferred from PCBN's
retained earnings to paid-in surplus before distribution of dividends to
shareholders from retained earnings. Such transfers are required only when net
income is generated in the previous fiscal year.
15. Employee Benefit Plans
Effective August 1, 1987, the Company adopted a 401(k) Savings Plan (the
"Savings Plan"). The Savings Plan is a single-employer defined contribution plan
covering substantially all full-time employees of the Company. Employees may
contribute from 1% to 15% of their annual compensation. The Company's
discretionary contribution was 50% of the contributions made by the employees in
1998, 1997 and 1996. The Company's discretionary contributions were $201,816,
$157,698 and $127,708 in 1998, 1997 and 1996, respectively.
Effective April 15, 1992, the Company adopted a supplemental executive
compensation plan to provide an unfunded incentive compensation arrangement for
certain management, directors and highly compensated employees of the Company.
Participants may elect to defer up to 100% of their annual compensation, as
defined. Upon reaching normal retirement age or date of disability, if earlier,
both as defined, participants are paid in a lump sum or in quarterly
installments over a term of up to 15 years. No contributions were made by
eligible participants in 1998, 1997 and 1996.
16
<PAGE>
16. Future Minimum Rental Payments
Certain bank facilities are leased under various operating leases. Future
minimum rental payments required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December 31,
1998 are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
- -------------------------------------------
<S> <C>
1999 $ 2,606,000
2000 2,620,000
2001 2,684,000
2002 2,738,000
2003 2,769,000
Thereafter 3,246,000
- -------------------------------------------
Total $16,663,000
- -------------------------------------------
</TABLE>
Rent expense was $2,029,000, $1,453,000 and $949,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
17. Commitments and Contingencies
In the normal course of business, there are outstanding various commitments
and contingent liabilities which are not reflected in the consolidated financial
statements, consisting of undisbursed loan commitments, unused lines of credit
and letters of credit of $182,457,000 and $150,172,000, respectively, at
December 31, 1998 and 1997. The Company's exposure to credit loss is limited to
amounts funded or drawn. At December 31, 1998 no losses are anticipated as a
result of these commitments.
Loan commitments are typically contingent upon the borrower meeting certain
financial and other covenants, and such commitments typically have fixed
expiration dates and require payment of a fee. As many of these commitments are
expected to expire without being drawn upon, the total commitments do not
necessarily represent future cash requirements. The Company evaluates each
potential borrower and the necessary collateral on an individual basis.
Collateral varies, but may include real property, bank deposits, debt
securities, equity securities or business assets.
Letters of credit are conditional commitments written by the Company to
guarantee the performance of a customer to a third party. These guarantees are
issued primarily relating to purchases of goods by the Company's commercial
customers, and such guarantees are typically short-term. Credit risk is similar
to that involved in extending loan commitments to customers, and the Company,
accordingly, uses evaluation and collateral requirements similar to those for
loan commitments.
The Company is involved both as plaintiff and defendant in litigation in the
ordinary course of its operations. Based on advice of legal counsel, management
does not anticipate that the final outcome of current or anticipated litigation
will have a materially adverse effect on the Company's operations or financial
condition.
The Bank has a Trust Department which acts as Trustee for certain assets. At
December 31, 1998 discretionary assets totaled $104,351,000 and non-
discretionary assets totaled $316,139,000.
17
<PAGE>
18. Financial Instrument Disclosures
Fair value estimates, methods and assumptions are set forth below for the
Company's financial instruments.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
(a) Cash and Due from Banks and Federal Funds Sold/Purchased
The carrying amount is a reasonable estimate of fair value.
(b) Securities held to Maturity and Securities Available for Sale
The carrying amounts for short-term investments approximate fair value
because they mature in 90 days or less and do not present unanticipated credit
concerns. The fair value of long-term investments, except certain state and
municipal securities, is estimated based on bid prices published in financial
newspapers or bid quotations received from securities dealers. The fair value of
certain state and municipal securities, is estimated based on bid prices
published in financial newspapers or bid quotations received from securities
dealers. The fair value of certain state and municipal securities is not readily
available The carrying amounts for short-term investments approximate fair value
because they mature in 90 days or less and do not present unanticipated credit
concerns. The fair value of long-term investments, except through market sources
other than dealer quotations, so fair value estimates are based on quoted market
prices of similar instruments, adjusted for differences between the quoted
instruments and the instruments being valued.
(c) Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage, and consumer. Each loan category is further
segmented into fixed and adjustable rate interest terms and by performing and
nonperforming categories.
Loans which are either maturing or subject to repricing in the short term
are valued for fair value purposes by using the carrying amount for such loans.
For other loans fair value is estimated by discounting scheduled cash flows
through estimated maturity using estimated market discount rates that reflect
the credit and interest rate risk inherent in the loan.
(d) Deposit Liabilities
Under FAS 107, the fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings, and NOW accounts and money market
and checking accounts, is equal to the amount payable on demand. The fair value
of certificates of deposit is based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities.
(e) Repurchase Agreements
The carrying amounts of borrowings under repurchase agreements approximate
the fair value.
(f) Commitments to Extend Credit and Letters of Credit
The fair value of commitments to extend credit and the fair value of letters
of credit are estimated based on fees currently charged for similar agreements.
As recorded, deferred income arising from these unrecognized financial
instruments is insignificant to the consolidated financial statements. Estimated
fair value is not presented herein.
18
<PAGE>
(g) Fair Value Disclosures
The estimated fair market value of Pioneer Bancorporation's Financial
Instruments at December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1998 1997 1997
- ------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and Cash Equivalents $105,708,000 $105,708,000 $140,967,000 $140,967,000
Securities:
Available for Sale 269,476,000 269,476,000 211,004,000 211,004,000
Held to Maturity 46,102,000 47,635,000 40,861,000 41,870,000
Loans Net 576,105,000 586,149,000 434,548,000 435,362,000
- ------------------------------------------------------------------------------------------------------------
Financial Liabilities:
Deposits:
Noninterest-bearing $224,448,000 $224,448,000 $201,956,000 $201,956,000
Interest-bearing 118,748,000 118,748,000 93,500,000 93,500,000
Savings 97,279,000 97,425,000 66,352,000 66,500,000
Money Market 251,024,000 251,024,000 278,022,000 278,022,000
Certificates of Deposit 208,248,000 209,120,000 99,948,000 100,048,000
Securities Sold under Repurchase Agreements 60,111,000 60,111,000 53,728,000 53,728,000
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(h) Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgements regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgement and therefore cannot be determined with precision. Changes
in assumptions could significantly effect the estimates.
Fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For example, premises and equipment are not considered
financial assets. In addition, the tax ramifications related to the realization
of the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in these estimates.
19. Risks Associated with Financial Instruments
Credit Risk
Credit risk of a financial instrument is the possibility that a loss may
result from the failure of another party to perform in accordance with the terms
of the contract. The most significant credit risk associated with the Company's
financial instruments is concentrated in its loans receivable. Additionally, the
Company is subject to credit risk on certain off-balance sheet financial
instruments. The Company utilizes a loan monitoring system to evaluate the level
of credit risk on its loan portfolio and utilizes a similar process for Company
standby letters of credit.
Market Risk
Market risk of a financial instrument is the possibility that future changes
in market prices may reduce the value of a financial instrument or increase the
contractual obligations of the Company. The Company's market risk is
concentrated in its portfolios of securities available-for-sale and loans
receivable. The Company's securities available-for-sale are traded in active
markets. The values of these securities are susceptible to fluctuations in the
general market. When a borrower fails to meet the contractual requirements of
his loan agreement, the Company is subject to the market risk of the collateral
securing the loan.
19
<PAGE>
Interest Rate Risk
Financial instruments are subject to interest rate risk to the extent that
they reprice on a frequency, degree or basis that varies from market repricing.
The Company is subject to interest rate risk to the degree that its interest
earning assets reprice on a different frequency or schedule than its interest-
bearing liabilities. The Company closely monitors the pricing sensitivity of its
financial instruments and utilizes asset/liability techniques to mitigate the
impact of interest rate risk.
Concentrations of Credit Risk
The Company's lending activities are conducted in the state of Nevada. The
Company currently focuses on the origination of commercial and real estate
loans. The largest concentration of the Company's loan portfolio is located in
the Washoe, Carson and Clark County areas of Nevada. The ability of the
Company's borrowers to repay their commitments is contingent on several factors,
including the economic conditions in the borrower's geographic region, primarily
Nevada, market interest rates and upon the individual financial condition of the
borrower.
20. Regulatory Matters
The Company is required to maintain minimum amounts of capital to total
"risk weighted" assets, as defined by the banking regulators. At December 31,
1998, the Company was required to have minimum Tier 1 and total risk-based
capital ratios of 4.0% and 8.0%, respectively. The Company's actual risk-based
capital ratios at that date were 9.5% and 10.5%, respectively.
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory - and possibly additional discretionary - actions
by regulators that, if undertaken, could have a direct material effect on PCBN's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, PCBN must meet specific capital
guidelines that involve quantitative measures of PCBN's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. PCBN's capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require PCBN to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1998, that PCBN
meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the FDIC
categorized PCBN as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, PCBN must maintain
minimum total risk-based, Tier 1 risk-based, Tier 1 leverage ratios as set forth
in the table. There are no conditions or events since the notification that
management believes have changed the institution's category.
PCBN's actual capital amounts and ratios are also presented in the table. No
amounts were deducted from capital for interest-rate risk.
20
<PAGE>
20. Regulatory Matters continued:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
- -------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets) $73,533,000 10.5% $55,954,000 8.0% $69,954,000 10.0%
Tier 1 Capital
(to Risk Weighted Assets) $66,529,000 9.5% $28,000,000 4.0% $42,000,000 6.0%
Tier 1 Capital
(to Average Assets) $66,529,000 7.2% $37,000,000 4.0% $46,250,000 5.0%
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets) $58,369,000 10.9% $42,723,000 8.0% $53,423,000 10.0%
Tier 1 Capital
(to Risk Weighted Assets) $52,596,000 9.9% $21,350,000 4.0% $32,050,000 6.0%
Tier 1 Capital
(to Average Assets) $52,596,000 7.2% $29,450,000 4.0% $36,800,000 5.0%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
PCBN, as a Nevada corporation, is limited in making distribution to its
stockholders, the Company, to the lesser of the retained earnings of the Bank or
the net income of the Bank for its last three fiscal years, less the amount of
any distributions during such period.
21. Pioneer Bancorporation (Parent Company Only)
<TABLE>
<CAPTION>
(Condensed Balance Sheet at December 31,) 1998 1997
<S> <C> <C>
Assets:
Cash and Non-Interest Bearing Due From Subsidiary $ 3,000 $ -
Interest Bearing Due From Subsidiary 1,107,000 608,000
Investment In Subsidiary 66,400,000 53,437,000
Other Assets 64,000 12,000
- ------------------------------------------------------------------------------------------------
Total Assets $67,574,000 $54,057,000
- ------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Other Liabilities $ 20,000 $ -
- ------------------------------------------------------------------------------------------------
Total Liabilities $ 20,000 $ -
- ------------------------------------------------------------------------------------------------
Shareholders Equity:
Common Stock, $.01 par value, 15,000,000
shares authorized; 9,547,266 and 9,273,770 issued
and outstanding in 1998 and 1997, respectively $ 96,000 $ 51,000
Paid-In Surplus 65,282,000 21,973,000
Accumulated Other Comprehensive Income:
Net Unrealized Gain on Securities Available for Sale 1,025,000 1,460,000
Retained Earnings 1,151,000 30,573,000
- ------------------------------------------------------------------------------------------------
Total Shareholders' Equity $67,554,000 $54,057,000
- ------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $67,574,000 $54,057,000
- ------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
21. Pioneer Bancorporation (Parent Company Only) continued:
<TABLE>
<CAPTION>
Condensed Statement of Income for the year ended December 31,: 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Interest Income on Due From Subsidiary $ 43,000 $ 16,000 $ 5,000
- ------------------------------------------------------------------------------------------------------------------
Total Income $ 43,000 $ 16,000 $ 5,000
- ------------------------------------------------------------------------------------------------------------------
Expense:
Salaries and Benefits $ 55,000 $ 0 $ 0
Other Expense $ 145,000 $ 92,000 32,000
- ------------------------------------------------------------------------------------------------------------------
Total Expense $ 200,000 $ 92,000 $ 32,000
- ------------------------------------------------------------------------------------------------------------------
Profit (Loss) before Income Taxes: $ (157,000) $ (76,000) $ (27,000)
Applicable Tax Benefit (50,000) (24,000) (9,000)
- ------------------------------------------------------------------------------------------------------------------
Income before Equity in Undistributed Income of Subsidiary $ (107,000) $ (52,000) $ (18,000)
- ------------------------------------------------------------------------------------------------------------------
Equity in Undistributed Income of Subsidiary $ 13,398,000 $ 11,596,000 $ 8,102,000
- ------------------------------------------------------------------------------------------------------------------
Net Income $ 13,291,000 $ 11,544,000 $ 8,084,000
- ------------------------------------------------------------------------------------------------------------------
Condensed Statement of Cash Flows for the year ended December 31,: 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income $ 13,291,000 $ 11,544,000 $ 8,084,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Undistributed Income of Subsidiary $(13,398,000) $(11,596,000) $(8,102,000)
(Increase) Decrease in Other Assets $ (52,000) $ 11,000 $ 13,000
Increase (Decrease) in Other Liabilities $ 20,000 $ (7,000) $ 0
- ------------------------------------------------------------------------------------------------------------------
Total Adjustments $(13,430,000) $(11,592,000) $(8,089,000)
- ------------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities $ (139,000) $ (48,000) $ (5,000)
- ------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
- ------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities $ 0 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Dividend from Subsidiary $ - $ - $ 50,000
Proceeds from Sale of Stock $ 302,000 $ 242,000 $ 219,000
Proceeds from Exercise of Options $ 351,000 $ 151,000 $ -
Cash Paid for Fractional Shares at Dividend and Split (12,000) (5,000) (6,000)
- ------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities $ 641,000 $ 388,000 $ 263,000
- ------------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents $ 502,000 $ 340,000 $ 258,000
Cash and Cash Equivalents, Beginning of Year $ 608,000 $ 268,000 $ 10,000
- ------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 1,110,000 $ 608,000 $ 268,000
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
22. Subsequent Events
On March 17, 1999, the Board of Directors of Pioneer declared a 10% stock
dividend to the shareholders of record March 29, 1999. The retroactive effect
of this dividend, which is reflected in the consolidated financial statements,
thereby increases the number of shares outstanding at December 31, 1998 and
increases paid-in-surplus while decreasing retained earnings for the fair value
of stock issued. Earnings per share data has been restated to reflect such
dividend.
On May 7, 1999, Pioneer Bancorporation announced that a definitive
agreement has been signed under which Pioneer will merge with Zions
Bancorporation. Pioneer's principal subsidiary, Pioneer Citizens Bank of
Nevada, will merge into Zion's subsidiary, Nevada State Bank. The agreement is
subject to regulatory and other approvals and is expected to close in the third
quarter of 1999. The merger is structured to be tax-free and is intended to be
accounted for as a pooling of interests.
<TABLE>
<CAPTION>
PIONEER BANCORPORATION
Consolidated Balance Sheets
Unaudited
March 31, December 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and Cash Equivalents:
Cash and Due from Banks $ 49,576,000 $ 58,208,000
Federal Funds Sold 79,250,000 47,500,000
----------------- -----------------
Total Cash and Cash Equivalents 128,826,000 105,708,000
Securities Held to Maturity 45,139,000 46,102,000
Securities Available for Sale 258,618,000 269,476,000
Loans (less allowance for credit losses of $7,145,000 and
$7,004,000, respectively) 610,598,000 576,105,000
Premises and Equipment, Net 17,167,000 18,049,000
Interest Receivable 7,177,000 7,258,000
Deferred Tax Asset, Net 2,791,000 2,098,000
Other Assets 5,208,000 6,461,000
--------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,075,524,000 $ 1,031,257,000
--------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand:
Non-Interest Bearing $ 216,107,000 $ 224,448,000
Interest Bearing 119,946,000 118,748,000
Savings 100,402,000 97,279,000
Money Market 264,662,000 251,024,000
Time - under $100,000 110,249,000 99,098,000
Time - $100,00 and over 129,536,000 109,150,000
------------------ ------------------
Total Deposits 940,902,000 899,747,000
Securities Sold Under Repurchase Agreement 61,893,000 60,111,000
Other Liabilities 3,280,000 3,845,000
--------------------------------------------------------------------------------------------------------------------------------
Total Liabilities $ 1,006,075,000 $ 963,703,000
--------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Common Stock, $.01 par value,
authorized 15,000,000 shares; issued and outstanding
9,550,029 and 9,547,266 respectively $ 96,000 $ 96,000
Paid-In Surplus 65,349,000 65,282,000
Accumulated Other Comprehensive Income:
Net Unrealized Gain on Securities Available for Sale,
Net of Tax effect of ($211,000) and $482,000 respectively. (392,000) 1,025,000
Retained Earnings 4,396,000 1,151,000
--------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 69,449,000 67,554,000
--------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 1,075,524,000 $ 1,031,257,000
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
PIONEER BANCORPORATION
Consolidated Statements of Earnings
Three Months
ended March 31,
--------------------------------------------
1999 1998
Unaudited Unaudited
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest Income:
Interest and Fees on Loans $ 13,544,000 $ 11,163,000
Interest on Federal Funds Sold 688,000 1,211,000
Interest on Securities:
Taxable 3,296,000 2,876,000
Exempt from Federal Income Taxes 1,085,000 728,000
---------------------------------------------------------------------------------------------------------------------------
Total Interest Income $ 18,613,000 $ 15,978,000
---------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on Deposits 6,858,000 5,892,000
Interest on Federal Funds and Repurchase Agreements 622,000 709,000
---------------------------------------------------------------------------------------------------------------------------
Total Interest Expense $ 7,480,000 $ 6,601,000
---------------------------------------------------------------------------------------------------------------------------
Net Interest Income: 11,133,000 9,377,000
---------------------------------------------------------------------------------------------------------------------------
Provision for Credit Losses 510,000 360,000
---------------------------------------------------------------------------------------------------------------------------
Net Interest Income after Provision for Credit Losses $ 10,623,000 9,017,000
---------------------------------------------------------------------------------------------------------------------------
Other Income:
Service Charges on Deposit Accounts 847,000 764,000
Merchant Credit Card Income 549,000 468,000
Trust Department Income 408,000 357,000
Gain on Sale of Securities Available for Sale 24,000 11,000
ATM Network Fees Earned 93,000 64,000
Other Income 216,000 152,000
---------------------------------------------------------------------------------------------------------------------------
Total Other Income $ 2,137,000 $ 1,816,000
---------------------------------------------------------------------------------------------------------------------------
Other Expenses:
Salaries and Employee Benefits 3,975,000 3,144,000
Occupancy Expense 1,847,000 1,189,000
Merchant Credit Card Expense 489,000 398,000
Other Expense 2,117,000 1,860,000
---------------------------------------------------------------------------------------------------------------------------
Total Other Expenses $ 8,428,000 $ 6,591,000
---------------------------------------------------------------------------------------------------------------------------
Income before Income Taxes: 4,332,000 4,242,000
Income Taxes 1,087,000 1,200,000
---------------------------------------------------------------------------------------------------------------------------
Net Income $ 3,245,000 $ 3,042,000
---------------------------------------------------------------------------------------------------------------------------
Net Income per Common Share:
Basic Net Income Per Share $ 0.34 $ 0.32
---------------------------------------------------------------------------------------------------------------------------
Diluted Net Income Per Share $ 0.34 $ 0.32
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
PIONEER BANCORPORATION
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income
Quarter ended March 31, 1999
Accumulated
Other Total
Common Stock Paid-In Retained Comprehensive Shareholders'
Shares Amount Surplus Earnings Income Equity
December 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Balance: 9,547,266 $ 96,000 $ 65,282,000 $ 1,151,000 $ 1,025,000 $ 67,554,000
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Issuance 2,763 (a) 67,000 - - 67,000
Comprehensive Income:
Net Income - - - 3,245,000 - 3,245,000
Net unrealized change
in Securities Available
for Sale, net of tax
effect of $763,000 - - - - (1,417,000) (1,417,000)
----------------
Total Comprehensive Income 1,828,000
March 31, 1999
Balance: 9,550,029 $ 96,000 $ 65,349,000 $ 4,396,000 $ (392,000) $ 69,449,000
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
(a) Amount is less than $1,000.
</TABLE>
<TABLE>
<CAPTION>
PIONEER BANCORPORATION
Consolidated Statements of Cash Flows
Three Months
ended March 31,
--------------------------------------------
1999 1998
Unaudited Unaudited
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 3,245,000 $ 3,042,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 716,000 493,000
Amortization, Accretion of Premiums, Discounts on Investments (169,000) 1,140,000
Provision for Credit Losses 510,000 360,000
Deferred Income Taxes 70,000 (358,000)
Gain on Sale of Premises and Equipment (18,000) -
Gain on Sale of Securities Available for Sale (24,000) (11,000)
(Increase) Decrease in Interest Receivable 81,000 (292,000)
(Increase) Decrease in Other Assets 838,000 1,254,000
Increase in Unamortized Loan Origination Fees 570,000 307,000
Increase (Decrease) in Other Liabilities (565,000) (13,000)
Total Adjustments 2,009,000 2,880,000
----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities $ 5,254,000 $ 5,922,000
----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Proceeds from Maturities and Calls of:
Held to Maturity Securities $ 925,000 $ 4,000,000
Available for Sale Securities 20,323,000 2,350,000
Proceeds from Sales of Available for Sale Securities 1,016,000 4,000,000
Purchase of Securities Held to Maturity - (3,545,000)
Purchase of Securities Available for Sale (12,430,000) (16,889,000)
Net Increase in Loans (35,597,000) (23,166,000)
Proceeds from Sale of Premises and Equipment 2,539,000 -
Acquisition of Premises and Equipment (1,940,000) (1,556,000)
Loan Recoveries 24,000 17,000
---------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities $ (25,140,000) $ (34,789,000)
---------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net Increase in Demand Deposits and Savings Accounts $ 9,618,000 $ 12,835,000
Net Increase in Certificates of Deposit 31,537,000 25,899,000
Net Increase in Securities Sold under Repurchase Agreements 1,782,000 12,359,000
Proceeds from Sale of Stock 67,000 76,000
Proceeds from Exercise of Options - 352,000
Cash Paid for Fractional Shares at Dividend and Split - (8,000)
---------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities $ 43,004,000 $ 51,513,000
---------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents: $ 23,118,000 $ 22,646,000
Cash and Cash Equivalents Beginning of Year 105,708,000 140,967,000
---------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents End of Quarter $ 128,826,000 $ 163,613,000
---------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Interest Paid During the Quarter $ 7,368,000 $ 6,530,000
Income Taxes Paid During the Quarter $ - $ -
</TABLE>
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and with the
instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999. The accompanying consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10 for the year ended December
31, 1998. The preparation of financial statements in conformity with GAAP also
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period. Actual
results could differ from those estimates.
2. NET INCOME PER SHARE
The following is a summary of the calculation of basic and diluted net income
per share for the quarters ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
- --------------------------------------------------------------------------
Net Income $3,245,000 $3,042,000
Basic Net Income Per Share
Weighted Average
Shares Outstanding 9,548,135 9,444,735
Net Income Per Share $ 0.34 $ 0.32
- --------------------------------------------------------------------------
Diluted Net Income Per Share
Weighted Average
Shares Outstanding 9,548,135 9,444,735
Effect of Dilutive Stock Options 19,408 48,183
- --------------------------------------------------------------------------
9,567,543 9,492,918
Net Income Per Share $ 0.34 $ 0.32
- --------------------------------------------------------------------------
Per share amounts have been retroactively adjusted for the effect of stock splits and dividends.
</TABLE>
22
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
3.1* Amended and Restated Articles of Incorporation.
3.2* Amended and Restated Bylaws.
4.1* Form of Stock Certificate.
10.1* Nonqualified Stock Option Plan.
10.2* Nonqualified Stock Option Agreement
10.3* Severance Agreement for William E. Martin
10.4* Form of Severance Agreement for A.G. Henry, Jerry R. Martin and
Edward T. Plunkett
10.5* Consulting Agreement with Leo V. Seevers
22 * Pioneer Citizens Bank is the only subsidiary of Registrant
27.1* Financial Data Schedule for year ended December 31, 1998
27.2 Financial Data Schedule for three months ended March 31, 1999
* Previously filed
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 49,472
<INT-BEARING-DEPOSITS> 104
<FED-FUNDS-SOLD> 79,250
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 258,618
<INVESTMENTS-CARRYING> 45,139
<INVESTMENTS-MARKET> 46,228
<LOANS> 610,598
<ALLOWANCE> 7,145
<TOTAL-ASSETS> 1,075,524
<DEPOSITS> 940,902
<SHORT-TERM> 61,893
<LIABILITIES-OTHER> 3,280
<LONG-TERM> 0
0
0
<COMMON> 96
<OTHER-SE> 69,353
<TOTAL-LIABILITIES-AND-EQUITY> 1,075,524
<INTEREST-LOAN> 13,544
<INTEREST-INVEST> 4,381
<INTEREST-OTHER> 688
<INTEREST-TOTAL> 18,613
<INTEREST-DEPOSIT> 6,858
<INTEREST-EXPENSE> 7,480
<INTEREST-INCOME-NET> 11,133
<LOAN-LOSSES> 510
<SECURITIES-GAINS> 24
<EXPENSE-OTHER> 8,428
<INCOME-PRETAX> 4,332
<INCOME-PRE-EXTRAORDINARY> 4,332
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,245
<EPS-BASIC> 0.34
<EPS-DILUTED> 0.34
<YIELD-ACTUAL> 4.73
<LOANS-NON> 373
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,004
<CHARGE-OFFS> 393
<RECOVERIES> 24
<ALLOWANCE-CLOSE> 7,145
<ALLOWANCE-DOMESTIC> 7,145
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
