Thomas G. Welch
President/CEO
April 15, 2008

It is my responsibility today, to give you, the members of Pioneer Federal Savings and Loan Association, a review of our past year. I will also try to provide you with a sense of what I foresee for the coming year.

At our last Annual Meeting some 15 months ago, I stated the following as I looked ahead to 2007, “What will the future bring for your Association? I fully expect 2007 to be a transitional year. I expect your Association and its management to be challenged to find innovative ways and products to attract new customers and retain existing customers. The realities of a competitive marketplace plus increased regulatory burden that fly in the face of our strong desire to remain a traditional, community oriented, mutual thrift will require tough decisions and changes to be made at Pioneer Federal Savings and Loan.”

What we found for 2007 was all that I had predicted and more. 2007 was a most challenging year in all aspects of the business. Early in the year, our local economies enjoyed continued strong real estate markets and your Association found that it must compete hard for not only good loans but also for deposits in which to fund these loans. A marketing campaign entitled, “We put ourselves in your shoes” was initiated to highlight our understanding and ties to the local markets.

In August the sub prime mortgage crisis dominated the news and impacted for a short period of days your Association. Although not a sub prime lender, Pioneer Federal experienced a 10 day period in mid August when no new loan applications were taken in either loan office-a first in my extensive years with the Association.

As the year progressed, rumblings of national economic problems surfaced and while generally immune from the nuances of our national economic peaks and valleys, our local economies began to show cracks as the impact of falling interest rates and the constriction of the secondary market for real estate loans reached Montana. Your Association found itself relying on Federal Home Loan Bank advances to fund loans as depositors chased the highest rates they could find. By year end 2007, these Federal Home Loan Bank advances were fully paid off.

It is notable that your Association was able to ride out this economic uncertainty and continues to do so today by relying on our strong roots as a traditional mutual institution and by showing great patience as these national economic events unfold. Although the end results of the entire sub prime lending crisis and economic pitfalls will not be known for months or perhaps years to come, we can most certainly count on increased regulatory burden as being our reward for acting prudently throughout the years!

Having said all of this, 2007 was still another solid year for Pioneer Federal Savings and Loan. Your Association showed modest growth of $650,000.00 in assets to reach an asset level of $71,546,000.00. This growth continues the trend of limited growth that the Association has experienced for the most part in recent years.

Association savings balances rose slightly to stand at just over $59 million at year end 2007. As stated previously, for much of the year depositors chased higher yields from any source they deemed reliable although many were non local and many non insured! Depositors at Pioneer Federal Savings and Loan earned $1,813,500.00 in interest in 2007 up some $325,000.00 from 2006. In the past 10 years, we have paid almost $20 million in interest to our depositors. At year end, Pioneer Federal had 6487 open deposit accounts down slightly from the comparable 2006 number.

The truly shining star in the Association’s operations for 2007 was in the area of lending. Year end balances for the nearly 1400 outstanding loans on the Association’s books reached $62.3 million up $4 million from the year end 2006 numbers. This amount excludes the $4.3 million of loans serviced by the Association for others such as the Montana Board of Housing and the Montana Board of Investments.

After adding over $400,000.00 from our yearly operations, our Capital at the end of 2007 exceeds $11,619,000.000 or some 16.24% of assets. This is a very strong capital position for any financial institution and is most certainly the strongest capital position in our local markets. This strong capital positions your Association very well to handle the on going market uncertainties on both a local and national level.

Some further numbers from our 2007 operations includes the following:

--the Association’s average cost of funds at year end was 3.26% compared to 3.00% a year ago

--Association personnel successfully completed 184,784 transactions on behalf of our thousands of customers. This number is down from the 2006 numbers due in a large part to the growing number of transactions being completed electronically.

--Your Association made 284 loans in 2007 split evenly number wise between the two offices. These loans totaled over $17.5 million with $11.1 million made in the Dillon office and slightly over $6.4 million made in the Deer Lodge office.

--we continued our successful involvement in quality loan participations with other Montana financial institutions

--asset quality remained extremely high with limited loan delinquencies, we possess an investment portfolio of highly rated investments and no foreclosed or repossessed assets were owned by the Association at year end. Again, as has been the case for several years, no foreclosures or repossession actions took place for Association owned loans in 2007.

--Pioneer Federal Savings and Loan and the Pioneer Federal Community Foundation, Inc. made cash contributions and other donations totaling in excess of $90,000.00 to worthy projects and organizations primarily in Beaverhead and Powell Counties during this past year. In the past 10 years alone, Pioneer Federal has made cash contributions nearing $850,000.00 within our communities.

--Most all Association personnel and Directors attended one or more off site training sessions in order to stay on top of the latest industry trends, regulations, and services.

--Usage of our internet banking program continues to grow. Coupled with the Pioneer Checkcard-our Visa ATM/Debit card, customers now have some of the finest and most modern banking services available.

--In August 2007, the Office of Thrift Supervision (OTS), our Federal regulators, were on site completing their routine review of the Association’s operations and looking at safety and soundness related issues as well as those dealing with compliance. Later in the year, our Independent Auditors, Anderson Zurmuehlen and Company were on site for their annual work looking at financial and operational related matters. Your Association again passed these reviews with strong ratings. This is made possible in part, due to our commitment to strong compliance and internal audit programs headed by Rozanne Pebbles and Penny Boka respectively coupled with emphasis on staff, management, and Director training.

--2007 saw Pioneer Federal Savings and Loan in Dillon continue their “Shred Day’ which allowed area residents to dispose of their personal items via the commercial shredder utilized by the Association. This function again proved to be a great success and is expected to be continued in coming years. Of note is the fact that following our lead, a number of other financial institutions state wide have now tried their own Shred Day with similar successes. It is anticipated that the Deer Lodge office will offer a similar Shred Day to area customers in the summer of 2008.

2007 was an important year in the history of the Association for many reasons but I would like to comment briefly on two distinct 2007 milestones. First, 2007 was the 95th successful year of business for your Association which was established in 1912 as Powell building and Loan. Secondly 2007 saw the completion of the first substantial updates to the Association’s Charter and Bylaws in decades.

One item of importance that I feel needs to be stressed is the strong performance by our officers, staff, and Directors this past year. The very nature of our business made 2007 another year when nothing less than a total effort was needed. I am most pleased to report that you and I received just that from all involved. It should by all means be emphasized that all of the above was accomplished with a most capable staff representing 19 FTEs. Our 16 full time employees average almost 14 years of service with the Association itself and our 9 Directors average 15 years of service to the Association.

This past year was not much different from at least the last 30 years, in that, in order to survive and thrive as a financial institution offering quality products and services in the communities in which we operate, we must control operating expenses. Our General and Administrative (G&A) expense ratio of less than 2.60% is clearly outstanding. I am extremely proud of the fact that our G&A expenses for 2007 increased only $22,000.00 or 1.2% over 2006 and down from the 2006 numbers of $33,600.00 and 1.8% respectively. This number includes all expenses incurred by the Association in our daily operations except for income taxes and interest expense. Maintaining this low ratio and controlling expenses going forward, although formidable, is a most critical task for the continued viability for Pioneer Federal Savings and Loan.

What will the future bring for your Association? I fully expect 2008 to be a tough year. I expect your Association and its management to be challenged not only by local events and economies but by happenings and decisions made on a national level. We will need to work especially hard to educate our customers –new and existing- about why Pioneer Federal continues to be a great place for them to conduct business. Patience will be more important than ever before-we will need to take what the markets give us and remain true to those business lines that have proven to be successful in the past and at which we excel. The realities of a competitive marketplace plus increased regulatory burden that fly in the face of our strong desire to remain a traditional, community oriented, mutual thrift will make this a tough task but one at which I feel Pioneer Federal Savings and Loan can succeed.

In closing, I would like to say that as members of Pioneer Federal Savings and Loan Association, you should be proud. We have an extremely strong financial institution that is a community leader in so many ways. We have a well trained and qualified staff that is able to lead your Association whatever direction your Directors and management choose to go. We have a staff that is involved in the organizations and projects going on within our local communities not because they have to be but because they want to be.

I hope that thru these brief remarks I have been able to give you a sense of what Pioneer Federal Savings and Loan accomplished this past year. Before taking any questions that anyone might have, I would like to express my sincere thanks to our staff, other officers, and our Directors for their continued support of my efforts on your behalf. Thank You!

I am now ready for any questions that you might have about Pioneer Federal Savings and Loan Association or its operations this past year or for the future.

Thomas G. Welch President/CEO April 15, 2008

REV.06PIONEER

Powered By BankSITE®