UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended September 30, 2008
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 0-30541
PIONEER BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
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Virginia
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54-1278721
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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263 East Main Street
P. O. Box 10
Stanley, Virginia 22851
(Address of principal executive offices) (Zip code)
(540) 778-2294
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule
12b-2 of the Exchange Act.
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). YES
¨
NO
x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: Common shares outstanding as of November 13, 2008 were 1,017,170.
PIONEER BANKSHARES, INC.
INDEX
2
Part I - Financial Information
Item 1.
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Financial Statements
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PIONEER BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
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September 30,
2008
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December 31,
2007
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(Unaudited)
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(Audited)
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ASSETS
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Cash and due from banks
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$
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4,703
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$
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6,106
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Interest bearing deposits in banks
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10,013
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1,600
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Federal funds sold
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2,000
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300
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Securities available for sale, at fair value
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18,551
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11,069
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Restricted securities
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1,089
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680
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Loans receivable, net of allowance for loan losses of $1,536 and $1,573 respectively
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117,344
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125,611
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Premises and equipment, net
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3,870
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4,056
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Accrued interest receivable
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706
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758
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Other assets
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2,002
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1,645
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Total Assets
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$
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160,278
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$
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151,825
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LIABILITIES
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Deposits
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Noninterest bearing demand
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$
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28,946
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$
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33,423
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Interest bearing
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Demand
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11,585
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10,238
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Savings
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16,937
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13,367
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Time deposits over $100,000
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15,148
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15,822
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Other time deposits
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53,935
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54,505
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Total Deposits
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126,551
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127,355
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Accrued expenses and other liabilities
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1,080
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1,295
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Long term debt
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16,000
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6,900
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Total Liabilities
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143,631
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135,550
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STOCKHOLDERS EQUITY
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Common stock; $.50 par value, authorized 5,000,000, outstanding 1,017,170 and 1,011,481 respectively
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509
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506
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Retained earnings
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16,599
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15,805
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Accumulated other comprehensive loss, net
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(461
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)
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(36
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)
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Total Stockholders Equity
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16,647
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16,275
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Total Liabilities and Stockholders Equity
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$
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160,278
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$
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151,825
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See Notes to Consolidated Financial Statements
3
PIONEER BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars, except Per Share Data)
(UNAUDITED)
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Three Months Ended
September 30,
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2008
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2007
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Interest and Dividend Income:
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Loans including fees
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$
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2,300
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$
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2,512
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Interest on securities - taxable
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166
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116
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Interest on securities - nontaxable
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8
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2
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Interest on deposits and federal funds sold
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108
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117
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Dividends
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20
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39
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Total Interest and Dividend Income
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2,602
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2,786
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Interest Expense:
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Deposits
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797
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944
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Long term debt
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107
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106
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Total Interest Expense
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904
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1,050
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Net Interest Income
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1,698
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1,736
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Provision for loan losses
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96
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70
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Net interest income after provision for loan losses
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1,602
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1,666
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Noninterest Income:
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Service charges and fees
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254
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202
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Other income
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(5
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)
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29
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Gain on securities transactions
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147
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Total Noninterest Income
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249
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378
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Noninterest Expense:
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Salaries and benefits
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660
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636
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Occupancy expenses
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87
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87
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Equipment expenses
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160
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196
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Other expenses
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385
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435
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Total Noninterest Expenses
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1,292
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1,354
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Income before Income Taxes
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559
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690
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Income Tax Expense
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185
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237
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Net Income
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$
|
374
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$
|
453
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Per Share Data
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Net income, basic and diluted
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$
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0.37
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$
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0.45
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Dividends
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$
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0.14
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$
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0.14
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Weighted Average Shares Outstanding, Basic
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1,014,594
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1,011,481
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Weighted Average Shares Outstanding, Diluted
|
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1,014,594
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|
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1,014,403
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|
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See Notes to Consolidated Financial Statements
4
PIONEER BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars, except Per Share Data)
(UNAUDITED)
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Nine Months Ended
September 30,
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2008
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|
2007
|
Interest and Dividend Income:
|
|
|
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Loans including fees
|
|
$
|
7,053
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$
|
7,268
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Interest on securities - taxable
|
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|
439
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|
332
|
Interest on securities - nontaxable
|
|
|
13
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|
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7
|
Interest on deposits and federal funds sold
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|
|
333
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|
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316
|
Dividends
|
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57
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|
|
99
|
|
|
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|
|
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Total Interest and Dividend Income
|
|
|
7,895
|
|
|
8,022
|
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|
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|
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Interest Expense:
|
|
|
|
|
|
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Deposits
|
|
|
2,552
|
|
|
2,650
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Long term debt
|
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|
342
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281
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|
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|
|
|
|
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Total Interest Expense
|
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2,894
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2,931
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Net Interest Income
|
|
|
5,001
|
|
|
5,091
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Provision for loan losses
|
|
|
292
|
|
|
210
|
|
|
|
|
|
|
|
|
|
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Net interest income after provision for loan losses
|
|
|
4,709
|
|
|
4,881
|
|
|
|
|
|
|
|
|
|
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Noninterest Income:
|
|
|
|
|
|
|
Service charges and fees
|
|
|
668
|
|
|
599
|
Other income
|
|
|
111
|
|
|
126
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Gain on security transactions
|
|
|
145
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|
|
206
|
|
|
|
|
|
|
|
Total Noninterest Income
|
|
|
924
|
|
|
931
|
|
|
|
|
|
|
|
|
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Noninterest Expense:
|
|
|
|
|
|
|
Salaries and benefits
|
|
|
1,965
|
|
|
1,900
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Occupancy expenses
|
|
|
266
|
|
|
283
|
Equipment expenses
|
|
|
501
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|
|
556
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Other expenses
|
|
|
1,239
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|
|
1,179
|
|
|
|
|
|
|
|
Total Noninterest Expenses
|
|
|
3,971
|
|
|
3,918
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes
|
|
|
1,662
|
|
|
1,894
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Income Tax Expense
|
|
|
552
|
|
|
642
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
1,110
|
|
$
|
1,252
|
|
|
|
|
|
|
|
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Per Share Data
|
|
|
|
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|
Net income, basic and diluted
|
|
$
|
1.09
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|
$
|
1.24
|
|
|
|
|
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Dividends
|
|
$
|
0.43
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|
$
|
0.42
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|
|
|
|
|
|
|
|
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|
Weighted Average Shares Outstanding, Basic
|
|
|
1,014,594
|
|
|
1,011,481
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|
|
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Weighted Average Shares Outstanding, Diluted
|
|
|
1,014,976
|
|
|
1,013,990
|
|
|
|
|
|
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|
See Notes to Consolidated Financial Statements
5
PIONEER BANKSHARES, INC
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(In Thousands)
(UNAUDITED)
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|
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|
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Common
Stock
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
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|
Total
|
|
BALANCE DECEMBER 31, 2006
|
|
$
|
506
|
|
$
|
14,615
|
|
|
$
|
97
|
|
|
$
|
15,218
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
1,252
|
|
|
|
|
|
|
|
1,252
|
|
Changes in unrealized gains (losses) on securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Unrealized holding gains arising during the period (net of tax effect of $31)
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|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
Reclassification adjustment for gains included in net income (net of tax effect of $78)
|
|
|
|
|
|
|
|
|
|
(128
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,179
|
|
|
|
|
|
|
Cash Dividends
|
|
|
|
|
|
(424
|
)
|
|
|
|
|
|
|
(424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SEPTEMBER 30, 2007
|
|
$
|
506
|
|
$
|
15,443
|
|
|
$
|
24
|
|
|
$
|
15,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE DECEMBER 31, 2007
|
|
$
|
506
|
|
$
|
15,805
|
|
|
$
|
(36
|
)
|
|
$
|
16,275
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
1,110
|
|
|
|
|
|
|
|
1,110
|
|
Changes in unrealized gains (losses) on securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses arising during the period (net of tax effect of $214)
|
|
|
|
|
|
|
|
|
|
(329
|
)
|
|
|
|
|
Reclassification adjustment for gains included in net income (net of tax effect of $49)
|
|
|
|
|
|
|
|
|
|
(96
|
)
|
|
|
(425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
685
|
|
Stock issued for compensation
|
|
|
3
|
|
|
120
|
|
|
|
|
|
|
|
123
|
|
|
|
|
|
|
Cash Dividends
|
|
|
|
|
|
(436
|
)
|
|
|
|
|
|
|
(436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SEPTEMBER 30, 2008
|
|
$
|
509
|
|
$
|
16,599
|
|
|
$
|
(461
|
)
|
|
$
|
16,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
6
PIONEER BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,110
|
|
|
$
|
1,252
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
292
|
|
|
|
210
|
|
Depreciation and amortization
|
|
|
370
|
|
|
|
410
|
|
Gain on sale of securities
|
|
|
(145
|
)
|
|
|
(206
|
)
|
Net amortization on securities
|
|
|
|
|
|
|
(7
|
)
|
Stock issued for compensation
|
|
|
123
|
|
|
|
|
|
Net change in:
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
52
|
|
|
|
(102
|
)
|
Other assets
|
|
|
(93
|
)
|
|
|
(27
|
)
|
Accrued expense and other liabilities
|
|
|
(215
|
)
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
|
1,494
|
|
|
|
1,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Net change in federal funds sold
|
|
|
(1,700
|
)
|
|
|
700
|
|
Net change in interest bearing deposits
|
|
|
(8,413
|
)
|
|
|
64
|
|
Net change in restricted securities
|
|
|
(409
|
)
|
|
|
8
|
|
Proceeds from maturities and sales of securities available for sale
|
|
|
13,325
|
|
|
|
13,370
|
|
Proceeds from maturities and calls of securities held to maturity
|
|
|
|
|
|
|
1
|
|
Purchase of securities available for sale
|
|
|
(21,351
|
)
|
|
|
(9,097
|
)
|
Net decrease (increase) in loans
|
|
|
7,975
|
|
|
|
(7,433
|
)
|
Purchase of bank premises and equipment
|
|
|
(184
|
)
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
|
|
(10,757
|
)
|
|
|
(2,492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Net change in:
|
|
|
|
|
|
|
|
|
Demand and savings deposits
|
|
|
440
|
|
|
|
2,550
|
|
Time deposits
|
|
|
(1,244
|
)
|
|
|
3,986
|
|
Proceeds from borrowings
|
|
|
21,501
|
|
|
|
2,000
|
|
Curtailments of borrowings
|
|
|
(12,401
|
)
|
|
|
(3,200
|
)
|
Dividends paid
|
|
|
(436
|
)
|
|
|
(424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
7,860
|
|
|
|
4,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents:
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,403
|
)
|
|
|
4,350
|
|
Cash and Cash Equivalents, beginning of year
|
|
|
6,106
|
|
|
|
5,197
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period
|
|
$
|
4,703
|
|
|
$
|
9,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Paid
|
|
|
|
|
|
|
|
|
During the Period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,055
|
|
|
$
|
2,766
|
|
Income taxes
|
|
$
|
654
|
|
|
$
|
396
|
|
|
|
|
Supplemental Disclosure of non-cash activity:
|
|
|
|
|
|
|
|
|
Unrealized (loss) on securities available for sale
|
|
|
(688
|
)
|
|
|
(120
|
)
|
Loan balances transferred to OREO
|
|
|
24
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
7
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 ACCOUNTING PRINCIPLES:
The consolidated financial statements conform to generally accepted accounting principles and to general industry practices. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 2008 and the results of operations for the three and nine month period ended September 30, 2008 and September 30,
2007. The notes included herein should be read in conjunction with the notes to financial statements included in the 2007 annual report to stockholders of Pioneer Bankshares, Inc. (the Company) and its Form 10-KSB for the year ended
December 31, 2007, as filed with the Securities and Exchange Commission.
Fair Value Measurements -
SFAS No. 157, Fair Value Measurements,
defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is
based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follow:
|
|
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the
asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant
to the valuation hierarchy:
Securities
Where quoted
prices are available in an active market, securities are classified within level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices
are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities,
obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within level 3
of the valuation hierarchy. Currently, all of the Companys securities are considered to be Level 2 securities.
Impaired loans
SFAS No. 157 applies to loans measured for impairment using the practical expedients permitted by SFAS No. 114,
Accounting by Creditors for Impairment of a
Loan
, including impaired loans measured at an observable market price (if available), or at the fair value of the loans collateral (if the loan is collateral dependent). Fair value of the loans collateral, when the loan is dependent
on collateral, is determined by appraisals or independent valuation which is then adjusted for the cost related to liquidation of the collateral.
Other
Real Estate Owned
Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. We believe that the fair value
component in its valuation follows the provisions of SFAS No. 157. As of September 30, 2008, the outstanding balance in OREO was approximately $24,000. It is not managements intent to hold foreclosure properties or maintain them as a
part of the Companys permanent fixed assets and premises. Management is actively marketing these properties and anticipates being able to sell them within a reasonable time period.
8
Reclassifications
- Certain reclassifications have been made to prior period balances to conform to the current
year presentation.
Stock Compensation Plans
- The Company previously accounted for its stock option plan under the recognition and measurement
principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Effective January 1, 2006, the Financial Accounting Standards Board (FASB)
Statement No. 123R (Revised 2004), Share-Based Payment (SFAS No. 123R), replaces and supersedes APB Opinion No. 25. This revised accounting principle now requires that costs resulting from all share-based plans be expensed
and recognized in the financial statements over the vesting period of each specific stock option granted.
The expense relating to previously issued stock
options, as of September 30, 2008, is approximately $2,057 compared to $3,287 for September 30, 2007. The expense related to stock option compensation is generally recognized over a vesting period of one year for each option granted. There
were no additional stock options granted during the nine month period ending September 30, 2008. There have been 700 stock option shares exercised by non-employee directors during the nine month period ending September 30, 2008, which were
exercised at a price of $18.00 per share.
The following summarizes the stock options outstanding as of September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual Term
|
|
Intrinsic Value
of Unexercised
In-the-Money
Options
(In Thousands)
|
Options outstanding, 12/31/07
|
|
7,900
|
|
$
|
16.32
|
|
5.1
|
|
|
|
New Options Granted
|
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
700
|
|
|
18.00
|
|
|
|
|
|
Options Forfeited
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, 9/30/08
|
|
7,200
|
|
$
|
16.16
|
|
4.8
|
|
|
|
Options exercisable, 9/30/08
|
|
7,200
|
|
$
|
16.16
|
|
4.8
|
|
$
|
56
|
(1)
|
The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying
stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on September 30, 2008. This amount is subject to change based on the market value of the
Companys stock. The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.
|
NOTE 2 INVESTMENT SECURITIES:
The amounts at which investment
securities are carried in the consolidated balance sheets and their approximate market values at September 30, 2008 and December 31, 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
September 30, 2008
|
|
December 31, 2007
|
|
|
Carrying
Value
|
|
Market
Value
|
|
Carrying
Value
|
|
Market
Value
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and agency obligations
|
|
$
|
5,994
|
|
$
|
6,030
|
|
$
|
5,962
|
|
$
|
6,088
|
Mortgage-backed
|
|
|
9,525
|
|
|
9,709
|
|
|
1,999
|
|
|
2,007
|
Municipal securities
|
|
|
1,117
|
|
|
1,097
|
|
|
215
|
|
|
218
|
Equity securities
|
|
|
2,671
|
|
|
1,715
|
|
|
2,961
|
|
|
2,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,307
|
|
$
|
18,551
|
|
$
|
11,137
|
|
$
|
11,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
NOTE 2 INVESTMENT SECURITIES: (continued)
As of September 30, 2008, there were 4 investment securities that had been in a loss position for more than 12 consecutive months and 12 additional securities that had been in a loss position for less than one
year.
In analyzing an issuers financial condition, management considers whether the securities are issued by the federal government or its agencies,
whether downgrades by bond rating agencies have occurred, and industry analysts reports and overall credit quality.
As of September 30, 2008,
management has determined that the unrealized losses in the investment portfolio are temporary. Management recognizes that current economic conditions and market trends may result in other than temporary impairment classifications for certain
securities or equity investments. Management will continue to monitor the securities in a loss position for future impairment. Management generally has the intent and demonstrated ability to hold securities to scheduled maturity, call dates or until
they recover in value.
The schedule of losses on the securities as of September 30, 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSSES
|
|
|
|
US Government
Agency
Securities
|
|
Tax-Exempt
Municipal
Securities
|
|
|
Mortgage-
Backed
Securities
|
|
Equity
Securities
|
|
|
Total
|
|
|
|
|
|
(In Thousands)
|
|
Less than 12 Months
|
|
Fair Value
|
|
$
|
|
|
$
|
1,097
|
|
|
$
|
|
|
$
|
1,528
|
|
|
$
|
2,625
|
|
|
|
Unrealized Losses
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
(728
|
)
|
|
|
(747
|
)
|
|
|
|
|
|
|
|
More than 12 Months
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
187
|
|
|
|
187
|
|
|
|
Unrealized Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
(228
|
)
|
|
|
(228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Fair Value
|
|
$
|
|
|
$
|
1,097
|
|
|
|
|
|
$
|
1,715
|
|
|
$
|
2,812
|
|
|
|
Unrealized Losses
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
(956
|
)
|
|
|
(975
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, there were 21 securities in the portfolio that have unrealized losses, which are
considered to be temporary. The schedule of unrealized losses on these securities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSSES
|
|
|
|
US Government
Agency
Securities
|
|
Mortgage-Backed
Securities
|
|
|
Equity
Securities
|
|
|
Total
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
Fair Value
|
|
$
|
|
|
$
|
|
|
|
$
|
2,756
|
|
|
$
|
2,756
|
|
|
|
Unrealized Losses
|
|
|
|
|
|
|
|
|
|
(205
|
)
|
|
|
(205
|
)
|
|
|
|
|
|
|
More than 12 Months
|
|
Fair Value
|
|
|
|
|
|
273
|
|
|
|
|
|
|
|
273
|
|
|
|
Unrealized Losses
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Fair Value
|
|
$
|
|
|
|
273
|
|
|
|
2,756
|
|
|
|
3,029
|
|
|
|
Unrealized Losses
|
|
|
|
|
|
(5
|
)
|
|
|
(205
|
)
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
NOTE 3 LOANS:
Loans
outstanding are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
September 30,
2008
|
|
|
December 31,
2007
|
|
Mortgage loans on real estate
|
|
|
|
|
|
|
|
|
Construction loans
|
|
$
|
9,335
|
|
|
$
|
12,979
|
|
Agricultural
|
|
|
4,303
|
|
|
|
4,573
|
|
Equity lines of credit
|
|
|
1,957
|
|
|
|
2,431
|
|
Residential 1-4 family
|
|
|
40,926
|
|
|
|
41,579
|
|
Second Mortgages
|
|
|
4,041
|
|
|
|
5,055
|
|
Multifamily
|
|
|
3,846
|
|
|
|
3,946
|
|
Commercial
|
|
|
33,109
|
|
|
|
32,332
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
97,517
|
|
|
|
102,895
|
|
|
|
|
Commercial and industrial loans
|
|
|
5,930
|
|
|
|
7,204
|
|
|
|
|
Consumer installment loans
|
|
|
|
|
|
|
|
|
Personal
|
|
|
15,433
|
|
|
|
17,165
|
|
Credit cards
|
|
|
577
|
|
|
|
587
|
|
|
|
|
|
|
|
|
|
|
Total consumer installment loans
|
|
|
16,010
|
|
|
|
17,752
|
|
|
|
|
All other loans
|
|
|
197
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
Gross Loans
|
|
|
119,654
|
|
|
|
128,174
|
|
|
|
|
Less unearned income on loans
|
|
|
(774
|
)
|
|
|
(990
|
)
|
|
|
|
|
|
|
|
|
|
Loans, less unearned discount
|
|
|
118,880
|
|
|
|
127,184
|
|
|
|
|
Less allowance for loan losses
|
|
|
(1,536
|
)
|
|
|
(1,573
|
)
|
|
|
|
|
|
|
|
|
|
Net Loans Receivable
|
|
$
|
117,344
|
|
|
$
|
125,611
|
|
|
|
|
|
|
|
|
|
|
Pioneer Banks loan portfolio is concentrated in real estate loans, including those secured by residential
consumer properties and small business commercial properties. Management has limited its exposure to risk in the real estate lending market by establishing specific criteria relating to real estate lending practices and continuing to engage
primarily in only traditional mortgage products. Management has also limited its risk exposure by establishing caps for long-term fixed rate mortgage programs. As September 30, 2008, management considers the risk of loss in the real estate loan
categories to be low to moderate.
Management recognizes that prevailing economic conditions may have the potential to impact borrowers within the
Banks real estate portfolio and continues to monitor this on an on-going basis.
11
NOTE 4 ALLOWANCE FOR LOAN LOSSES:
A summary of transactions in the allowance for loan losses for the nine months ended September 30, 2008 and the year ending December 31, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
2008
|
|
|
December 31,
2007
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(In Thousands)
|
|
Balance, beginning of period
|
|
$
|
1,573
|
|
|
$
|
1,476
|
|
Provision charged to operating expenses
|
|
|
292
|
|
|
|
309
|
|
Recoveries of loans charged off
|
|
|
271
|
|
|
|
262
|
|
Loans charged off
|
|
|
(600
|
)
|
|
|
(474
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
1,536
|
|
|
$
|
1,573
|
|
|
|
|
|
|
|
|
|
|
The total amount of impaired loans as of September 30, 2008 was $1.9 million compared to $785,000 at
December 31, 2007. Specific valuation allowances at September 30, 2008 totaled $267,000 and have been made as a precautionary measure to cover potential losses. Specific valuation allowances as of September 30, 2007 totaled $67,500.
NOTE 5 EARNINGS PER SHARE:
The following shows the
weighted average number of shares for the nine month period ending September 30, 2008 and 2007, used in computing earnings per share and the effect on weighted average number of shares diluted potential common stock. Potential dilutive common
stock had no effect on income available to common shareholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2008
|
|
Nine Months Ended
September 30, 2007
|
|
|
Shares
|
|
Per
Share
Amount
|
|
Shares
|
|
Per
Share
Amount
|
Basic earnings per share
|
|
1,014,594
|
|
$
|
1.09
|
|
1,011,481
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: Stock Options
|
|
382
|
|
|
|
|
2,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
1,014,976
|
|
$
|
1.09
|
|
1,013,990
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
Stock options representing 7,200 shares were not included in the computation of diluted EPS because their effects
were anti-dilutive as of September 30, 2008. There were no stock options excluded from the computation of diluted EPS because their effects were anti-dilutive as of September 30, 2007.
The weighted average number of shares for the three month period ending September 30, 2008 and 2007, used in computing earnings per share and the effect on weighted
average number of shares diluted potential common stock are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2008
|
|
Three Month Ended
September 30, 2007
|
|
|
Shares
|
|
Per
Share
Amount
|
|
Shares
|
|
Per
Share
Amount
|
Basic earnings per share
|
|
1,014,594
|
|
$
|
0.37
|
|
1,011,481
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: Stock Options
|
|
|
|
|
|
|
2,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
1,014,594
|
|
$
|
0.37
|
|
1,014,403
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
12
NOTE 6 LONG TERM DEBT:
The Bank has a line of credit with the Federal Home Loan Bank of Atlanta (the FHLB) upon which credit advances can be made up to 40% of total assets, subject to certain eligibility requirements. FHLB advances bear interest at a
fixed or floating rate depending on the terms and maturity of each advance and numerous renewal options are available. These advances are secured by 1-4 family residential mortgages. On some fixed rate advances, the FHLB may convert the advance to
an indexed floating rate at some set point in time for the remainder of the term. If the advance converts to a floating rate, the Bank may pay back all or part of the advance without a prepayment penalty.
Total outstanding borrowings increased by approximately $9.1 million during the nine month period ending September 30, 2008. This increase is the result of low-rate
fixed borrowings that were obtained from the FHLB primarily for investment purposes with funds generally being placed in matching term investment instruments. The investment instruments were placed at a rate of interest higher than the borrowing
rate in an effort to produce additional interest income.
As of September 30, 2008, total outstanding borrowings with FHLB were $16.0 million, which
are scheduled to mature through January 18, 2011. The interest rates on these fixed-rate borrowings range from 2.47% to 3.92%. The maturities of FHLB advances as of September 30, 2008 are shown in TABLE II of this report.
NOTE 7 OTHER EXPENSES:
Other expenses in the consolidated statements
of income include the following components:
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
2008
|
|
2007
|
|
|
(In Thousands)
|
Director Fees
|
|
$
|
96
|
|
$
|
126
|
Legal Fees
|
|
|
90
|
|
|
84
|
Professional Fees
|
|
|
153
|
|
|
102
|
Supplies and Printing
|
|
|
101
|
|
|
102
|
Telephone Expense
|
|
|
106
|
|
|
80
|
Other
|
|
|
693
|
|
|
685
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,239
|
|
$
|
1,179
|
|
|
|
|
|
|
|
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations.
|
The discussion covers the consolidated financial condition and operations of Pioneer Bankshares, Inc. (Company) and its subsidiary Pioneer Bank (Bank).
Forward-Looking Statements
This quarterly report on Form 10-Q
contains forward-looking statements with respect to the Companys and the Banks financial condition, results of operations and business. These forward-looking statements involve certain risks and uncertainties. When used in this quarterly
report or future regulatory filings, in press releases or other public shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases will likely result, are
expected to, will continue, is anticipated, estimate, project, believe, or similar expressions are intended to identify forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. We caution the readers and users of this information not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advise readers that various
factors including regional and national economic conditions, changes in the levels of market rates of interest, credit risk and lending activities, and competitive and regulatory factors could affect the financial performance of the Company and the
Bank and could cause actual results for future periods to differ materially from those anticipated or projected.
13
The Company and the Bank do not undertake and specifically disclaim any obligation to publicly release the result of any
revisions, which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
Overview
The Company reported year-to-date net earnings of $1.1 million as of September 30, 2008 as
compared to net earnings for the same period last year of $1.3 million. The decrease in earnings of approximately $142,000, or 11.34%, is primarily attributed to a reduced volume of loans and related interest income, additional loan loss reserve
allocations, and increased operating and legal expenses. Earnings per share were $1.09 for the period ending September 30, 2008 compared to earnings per share of $1.24 for the same period last year.
The Companys total assets as of September 30, 2008 were $160.3 million and total liabilities were $143.6 million. Total capital as of September 30, 2008
was $16.6 million. The Companys loan portfolio has decreased by approximately $8.3 million or 6.58% during the nine month period ending September 30, 2008. The decrease in loan volume is primarily attributed to low consumer demand,
commercial and residential real estate loan payoffs, and other consumer refinancing activities. The deposit portfolio has decreased approximately $804,000 or 0.63% during the nine month period ending September 30, 2008.
Investments in securities available for sale have increased by $7.5 million during the nine month period ending September 30, 2008, as compared to total securities
at December 31, 2007. Investments in interest bearing deposits have increased by approximately $8.4 million during the same period. Total outstanding borrowings have increased by approximately $9.1 million. The increase in borrowings is
primarily the result of fixed low-rate advances that were obtained from the Federal Home Loan Bank of Atlanta. These borrowings were initiated to support investment activities, with funds generally being placed in matching term investment
instruments at a rate of interest higher than the borrowing rate.
The Companys book value as of September 30, 2008 was $16.37 per share, as
compared to a book value of $16.09 per share as of December 31, 2007. This represents an increase of 1.74%. Additionally, shareholder dividend payments for the nine month period ending September 30, 2008 increased by 2.38%, as compared to
the same period last year.
Management recognizes that prevailing economic conditions may have the potential to adversely impact the Companys
operational results, including future earnings, liquidity, and capital resources. Management continually monitors economic factors in an effort to promptly identify specific trends that could have a direct material effect on the Company.
Critical Accounting Policies
General
The Companys consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America
(GAAP). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of
factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset, or relieving a liability.
The Company uses historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio. Actual losses could differ significantly from the historical factors. In addition, GAAP itself may change
from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.
14
Allowance for Loan Losses
The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: 1) Statement of Financial Accounting Standard (SFAS)
No. 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimatable, and 2) SFAS No. 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued
based on the differences between the value of collateral, present value of future cash flows or values that are observable in the market and the loan balance.
Management evaluates the loan portfolio in light of national and local economic trends, changes in the nature and value of the portfolio and industry standards. Specific factors considered by management in determining the adequacy of the
level of the allowance include internally generated loan review reports, past due reports, historical loan loss experience and individual borrowers financial condition. This review also considers concentrations of loans in terms of geography,
business type or level of risk. Management evaluates the risk elements involved in loans relative to their collateral value and maintains the allowance for loan losses at a level which is adequate to absorb credit losses inherent in the loan
portfolio. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgment about
information available to them at the time of their examination.
The methodology used to calculate the allowance for loan losses and the provision for loan
losses is a significant accounting principle, which is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.
Goodwill
Goodwill is evaluated on an annual basis for impairments in value and adjusted accordingly. In June 2001,
the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. Additionally, it further clarifies the criteria for the initial recognition and measurement of intangible assets separate from goodwill. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001 and prescribes the accounting for goodwill and intangible assets subsequent to initial recognition. The provisions of SFAS No. 142 discontinue the amortization of goodwill and intangible assets with
indefinite lives. Instead, these assets will be subject to at least an annual impairment review, and more frequently if certain impairment indicators are in evidence. SFAS No. 142 also requires that reporting units be identified for the purpose
of assessing potential future impairments of goodwill.
Goodwill is included in other assets and totaled $360,000 at September 30, 2008 and
December 31, 2007. The goodwill is no longer amortized, but instead is tested for impairment at least annually.
Results of Operations
Net Interest Income
Total interest income decreased
$127,000 or 1.58% during the nine month period ending September 30, 2008, as compared to the same period for 2007. Total interest expense decreased $37,000 or 1.26% during the same period. The decreased in interest income and interest expense
resulted in a net interest income decrease of $90,000 or 1.77% for the period ending September 30, 2008 compared to the period ending September 30, 2007. The net interest margin decreased from 4.70% for the period ending September 30,
2007 to 4.40% for the period ending September 30, 2008. The decreases in net interest income and net interest margin are primarily attributed to recent declines in market interest rates and a declining loan volume.
The average yield on loans decreased from 7.80% for the nine month period ending September 30, 2007 to 7.62% for the nine month period ending September 30,
2008. This is primarily the result of declining loan volume resulting from refinancing and re-pricing activities in a lower interest rate environment. The overall average yield on earning assets decreased from 7.40% as of September 30, 2007 to
6.93% as of September 30, 2008, as a result of the previously mentioned factors.
15
Noninterest Income
During the nine month period ending September 30, 2008, non-interest income decreased $7,000 when compared to the same period last year. Service charge income increased $69,000 as a result of various fee increases relating to checking
accounts, statement processing, minimum balance requirements, and overdrafts. Securities gains during the nine month period ending September 30, 2008 decreased by $61,000 as compared to the prior year. The decrease in securities gains is
primarily attributed to the recent downturn in economic and market conditions. Other income decreased by $15,000 for the nine month period ending September 30, 2008, as compared to the same period last year. The decrease in other income is
mainly attributed to losses recorded on the sale of foreclosure properties and other assets of approximately $35,000 during the nine month period ending September 30, 2008. Losses on foreclosures sales and other assets recorded during the nine
month period ending September 30, 2007 were only $2,000.
Noninterest Expense
During the nine month period ending September 30, 2008, non-interest expense increased by $53,000 or 1.35%, as compared to the same period last year. The primary factors contributing to this overall increase were
legal and professional fees incurred for shareholder and proxy litigation, as well as increased telephone and communication expenses relating to system upgrades.
Financial Condition
Securities
The Companys securities portfolio is held to assist in asset-liability management, as well as, capital appreciation. The securities portfolio, as of September 30, 2008 consists of securities classified as available for sale.
Securities available for sale include securities that may be sold in response to general market fluctuations, general liquidity needs and other similar factors. Securities available for sale are recorded at market value. Unrealized holding gains and
losses of available for sale securities are excluded from earnings and reported (net of deferred income taxes) as a separate component of shareholders equity.
As of September 30, 2008, the net amortized cost of securities available for sale was approximately $756,000 less than the stated market value as shown in Note 2 of the financial statements included in this
report. Management generally has the intent and demonstrated ability to hold securities to scheduled maturity, call dates or until they recover in value, which should minimize the impact or possibility of other than temporary classifications.
Investments in securities, including those which were restricted, increased by approximately $7.9 million during the nine month period ending
September 30, 2008. The Company generally invests in securities with a relatively short-term maturity due to uncertainty in the direction of interest rates.
Of the investments in securities available for sale, 9.24% (based on market value) are invested in equities, some of which are dividend producing and subject to the corporate dividend exclusion for taxation purposes. These investments have
produced a high rate of return for the Company. Management recognizes that these investments are subject to market conditions and can be also impacted by economic downturns. Management generally has the intent and demonstrated ability to hold these
securities for an extended period of time, which allows for potential recovery and increases in value. Managements intent and ability to hold these securities during periods of economic uncertainty should minimize the impact or possibility of
other than temporary classifications.
Loan Portfolio
The Company operates in a service area in the western portion of Virginia in the counties of Page, Greene, Rockingham, Albemarle, the City of Charlottesville, and the City of Harrisonburg, Virginia. The Company does not make a significant
number of loans to borrowers outside its primary service area. The Company is active in local residential mortgages, construction loans, commercial and consumer lending. Commercial lending includes loans to small and medium sized businesses within
its service area.
16
An inherent risk in the lending of money is that the borrower will not be able to repay the loan under the terms of the
original agreement. The allowance for loan losses (see subsequent section) provides for this risk and is reviewed periodically for adequacy. The risk associated with real estate and installment loans to individuals is based upon employment, the
local and national economies, and consumer confidence. All of these affect the ability of borrowers to repay indebtedness. The risk associated with commercial lending is substantially based on the strength of the local and national economies in
addition to the financial strength of the borrower.
While lending is geographically diversified within the service area, the Company does have loan
concentrations in commercial and residential real estate loans, as well as, consumer auto loans. A large percentage of these loans are made to borrowers who are employed by businesses outside the service area. Management monitors the levels of loan
concentrations within the portfolio on a regular basis and establishes appropriate risk tolerances as a means of minimizing potential losses in the future.
During the nine month period ending September 30, 2008, net loans decreased by approximately $8.3 million or 6.58%. The decline in loan volume is primarily attributed to residential and commercial real estate loan payoffs and other
refinance activities. A schedule of loans by type is shown in a note to the consolidated financial statements included in this report.
The risk elements
in lending activities include non-accrual loans, loans 90 days or more past due and restructured loans. Non-accrual loans are loans on which interest accruals have been suspended or discontinued permanently. Restructured loans are loans on which the
original interest rate or repayment terms have changed due to financial hardship. Non-accrual loans and loans 90 days or more past due totaled $889,000 at September 30, 2008 compared to $386,000 at December 31, 2007. This represents an
increase of $503,000 and is mainly attributed to one specific real estate loan where the borrowers source of repayment has diminished with limited expectation for continued business operations. Management has evaluated the value of collateral
related to this account as of September 30, 2008 and has made a specific allocation to the allowance for loan loss account for a potential loss amount of approximately $50,000.
Management continually monitors past due and non-accrual accounts and takes necessary collection actions on a consistent basis to minimize losses in the portfolio. Management monitors all non-performing assets in
order to promptly identify any loss allocations that should be made. Although the potential exists for additional losses, management believes the Bank is generally well secured and continues to actively work with these customers to effect payment.
Impaired loans are those loans which have been identified by management as problem credits due to various circumstances concerning the borrowers
financial condition and frequent delinquency status. These loans may not be delinquent to the extent that would warrant a non-accrual classification, however, management has classified these accounts as impaired and is monitoring the circumstances
and payment status closely. In most cases, a specific allocation to the Banks allowance for loan loss is made for an impaired loan. The total amount of impaired loans as of September 30, 2008 was $2.0 million compared to $785,000 at
December 31, 2007. This represents an increase of approximately $1.2 million and is primarily the result of managements proactive efforts to promptly identify additional potential problem credits. Based on current collateral values,
management has identified potential losses relating to these credits of approximately $267,000 as of September 30, 2008. Specific valuation allowances have been made as a preventative measure to cover potential losses should they occur in the
future.
Problem loans (serious doubt loans) are loans whereby information known by management indicates that the borrower may not be able to comply with
present payment terms. Management was not aware of any problem loans as of September 30, 2008 that are not included in the past dues, non-accrual or impaired loans referred above.
Allowance for Loan Losses
Managements analysis process for evaluating the adequacy of the allowance for
loan loss is a continual process, which is monitored at least quarterly, or more frequently, as needed. The evaluation process consists of regular periodic reviews of the loans outstanding by loan type. Specific reviews and allocations are made for
loans that have been identified as potential loss, in which the borrowers financial condition has substantially weakened or habitual past due payment activity has occurred. Specific reviews and allocations are also made for various sectors of
the loan portfolio that have been identified as higher risk categories. Historical loss ratios are applied to the remaining loan portfolio by loan type, based on the most recent loss trends. Management takes into consideration expected recoveries
from prior charge offs as part of its allowance and funding calculation.
17
Management also evaluates the loan portfolio in light of national and local economic trends, changes in the nature and
value of the portfolio and industry standards. Allocation factors relating to identified loan concentrations and loan growth trends are included in the calculation of the adequacy of the loan loss reserve. The periodic review of the allowance for
loan loss and funding provision considers concentrations of loans in terms of geography, business type or level of risk. Management evaluates the risk elements involved in loans relative to collateral values and maintains the allowance for loan
losses at a level which is adequate to absorb credit losses considered to be inherent in the loan portfolio. Management engages the services of an outside loan review firm periodically to evaluate the loan portfolio, provide an independent analysis
of significant borrowers, and to assist in identifying potential problem credits. The independent loan review report is used by management as an additional tool for monitoring and minimizing risks that may be inherent in the loan portfolio.
Management has also implemented an internal loan review process for the purpose of identifying and monitoring possible loan losses in the portfolio. Other factors considered in managements evaluation process are changes in lending policies,
procedures and underwriting criteria; changes in the nature and volume of the loan portfolio; the experience, ability, and depth of lending management or other lending personnel; the volume and severity of past dues, non-accruals, and classified
loans; and other external or regulatory requirements. Regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based
on their judgment about information available to them at the time of their examination.
The methodology used to calculate the allowance for loan losses
and the provision for loan losses is a significant accounting principle which is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.
The provision for loan losses and changes in the allowance for loan losses are shown in note 4 of the financial statements included in this report.
The allowance for loan loss balance of $1.536 million at September 30, 2008, decreased by approximately $37,000 from its level at December 31, 2007. The
decrease in the allowance balance is primarily attributed to the declining loan volume, as well as, the reduction of a specific allocation relating to one borrower, where the sale of collateral resulted in the curtailment of loan principal.
Management has made allocations based on the declining economic trends and the potential for increased past dues in the loan portfolio as a means of providing sufficient funding for possible future losses. Additionally, management has performed an
evaluation of various concentrations within the loan portfolio and has established appropriate allocations in accordance with the levels of risk identified with each concentration category.
The allowance allocations noted above and the declining loan volume trends are considered to be the primary factors impacting the cumulative funding as a percentage of
total loans. The cumulative balance in the allowance for loan loss account was equal to 1.29% and 1.24% of total loans as of September 30, 2008 and December 31, 2007, respectively. Management believes the increase in the allowance for loan
loss as a percentage of total loans, as of September 30, 2008, is directionally consistent with the changes within the loan portfolio and current economic trends that may impact customers ability to pay and overall loan performance.
The allowance is deemed to be within an acceptable range based on managements evaluation of the losses inherent in the loan portfolio at the end of
this reporting period. The evaluation of the allowance for loan loss account as of September 30, 2008 included specific allocations for certain borrowers, in which the payment performance and collateral value assessment indicates possible
future losses. Management exercises the utmost caution and due diligence in allocating for possible loan losses, and follows a consistent methodology in order to protect its investors and to minimize the potential for large fluctuations in future
provision expenses. Managements practice of funding the allowance for loan loss account is to make necessary adjustments on a quarterly basis for the foreseeable period in an attempt to effectively match expenses to loan losses as they are
occurring. Large fluctuations or variances outside of the acceptable range as calculated for the necessary allowance for loan loss reserves are recorded directly to income or expense in the reporting period.
The provision expense related to the allowance for loan loss as of September 30, 2008 was $292,000 as compared to $210,000 for the nine month period ending
September 30, 2008. This increase is directly related to the loan portfolio allocations previously discussed.
Managements evaluation of the
allowance for loan losses as of September 30, 2008 and December 31, 2007 concluded that the reserved amount was adequate to cover potential estimated losses. The allowance for loan loss account is monitored closely by management on an
on-going basis, and is periodically adjusted to ensure that an adequate level of loss coverage is maintained.
18
Premises, Equipment and Software
During the third quarter of 2008, the Company moved its Valley Finance Services office location into the Harrisonburg branch facility in an effort to improve operating efficiency and reduce overhead expenses.
The Company periodically evaluates opportunities for possible new branch locations. However, there are no immediate plans for additional office locations
at this time.
The Company continually monitors technological upgrades in the banking industry, and may periodically, in order to achieve higher levels of
internal operational efficiency, purchase new or additional equipment relating to such technologies. The Companys management sets specific budget allowances on an annual basis, which are deemed to be adequate to cover expenditures that may
arise throughout the year relating to technological upgrades or enhancements.
Deposits
The Companys main source of funds is customer deposits received from individuals, governmental entities and businesses located within the Companys service
area. Deposit accounts include demand deposits, savings, money market and certificates of deposit. The Companys deposit portfolio has decreased by approximately $804,000 or 0.63% during the nine month period ending September 30, 2008.
This decrease was primarily in the categories of noninterest bearing demand deposits and time deposits. The Company monitors its deposits carefully on an on-going basis in order to provide adequate funding for investments and loan growth
opportunities.
Borrowings
The Bank has a line
of credit with the Federal Home Loan Bank (the FHLB) of Atlanta upon which credit advances can be made up to 40% of total assets, subject to certain eligibility requirements. As of September 30, 2008, total borrowings were $16.0
million compared to $6.9 million at December 31, 2007. This represents an increase of approximately $9.1 million, which is primarily attributed to new advances obtained at fixed low interest rates. These borrowings were initiated primarily for
investment purposes with funds generally being placed in matching term investment instruments, at a rate of interest higher than the borrowing rate. The Companys borrowing activities are discussed in Note 6 of the financial statements included
in this report.
Capital
The Company seeks to
maintain a strong capital structure in order to provide adequate funding for future expansion, asset growth opportunities, operational needs, shareholder dividends, and to promote public confidence. The adequacy of the Companys capital is
reviewed by management on an ongoing basis with reference to its size, composition, quality of assets and liability levels, and consistency with regulatory requirements and industry standards.
As of September 30, 2008 and December 31, 2007, the Companys total capital-to-asset ratio was 9.94% and 10.72%, respectively. The Companys total
risk-based capital ratio was 15.3% and 14.7% as of September 30, 2008 and December 31, 2007, respectively. The Companys capital ratios exceed regulatory minimums and earnings have been sufficient to allow for a 2.38% increase in
dividend payments during the nine month period ending September 30, 2008. Dividend payments to shareholders are generally declared on a quarterly basis and management has no reason to believe this payment schedule will not continue.
Liquidity
Liquidity is the ability to meet present and
future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest bearing deposits with banks, federal funds sold,
investments and loans maturing within one year. The Companys ability to obtain deposits and purchase funds at favorable rates determines its liquidity exposure. As a result of the Companys management of liquid assets and the ability to
generate liquidity through borrowings, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors requirements and meet its customers credit needs.
19
Additional sources of liquidity available to the Company include, but are not limited to, loan repayments, deposits
obtained through the adjustment of interest rates, purchases of federal funds and borrowings. To further meet its liquidity needs, the Company also maintains lines of credit with the FHLB and certain correspondent banks.
There are no off-balance sheet items that should impair future liquidity.
Liquidity as of September 30, 2008 remains adequate.
Interest Rate Sensitivity
The Company historically has had a stable core deposit base and, therefore, does not have to rely on volatile funding sources. Because of the stable core deposit base,
changes in interest rates should not have a significant effect on liquidity. The Company also uses loan repayments and maturing investments to meet its liquidity needs. The Banks membership in the Federal Home Loan Bank System provides
additional liquidity. The matching of long-term receivables and liabilities helps the Company reduce its sensitivity to interest rate changes.
The Company
reviews its interest rate gap, loan and deposit maturities and re-pricing schedules on a regular basis. Table II contains an analysis, which shows the re-pricing opportunities of earning assets and interest bearing liabilities as of
September 30, 2008.
As of September 30, 2008, the Company had a negative cumulative Gap Rate Sensitivity Ratio of 37.57% for the one year
re-pricing period, compared with a negative cumulative Gap Rate Sensitivity of 39.65% at December 31, 2007. This negative gap position generally indicates that earnings would improve in a declining interest rate environment as liabilities
re-price more quickly than assets. Conversely, earnings would probably decrease in periods during which interest rates are increasing. However, in actual practice, this may not be the case as deposits may not re-price concurrently with changes in
rates within the general economy. Management constantly monitors the Companys interest rate risk and has decided the current position is acceptable for a well-capitalized community bank operating in a rural environment.
Recent Accounting Pronouncements
In December 2007, the
Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141(R), Business Combinations (SFAS 141(R)). The Standard will significantly change the financial accounting and reporting of
business combination transactions. SFAS 141(R) establishes the criteria for how an acquiring entity in a business combination recognizes the assets acquired and liabilities assumed in the transaction; establishes the acquisition date fair value as
the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business
combination. Acquisition related costs including finders fees, advisory, legal, accounting valuation and other professional and consulting fees are required to be expensed as incurred. SFAS 141(R) is effective for fiscal years beginning after
December 15, 2008 and early implementation is not permitted. The Company does not expect the implementation to have a material impact on its consolidated financial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No.160, Noncontrolling Interests in Consolidated Financial Statements (SFAS 160). SFAS 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parents ownership interest, and the
valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures to clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company does not expect
the implementation of SFAS 160 to have a material impact on its consolidated financial statements.
In March 2008, the FASB issued Statement of Financial
Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 changes the disclosure requirements for derivative instruments and
hedging activities. Entities are required to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under Statement 133 and its related
interpretations, and how derivative instruments and related hedged items affect an entitys financial position, financial performance and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15,
2008, with early application permitted. The Company does not expect the implementation of SFAS 161 to have a material impact on its consolidated financial statements.
20
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally
Accepted Accounting Principles (SFAS 162). This Statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the United States. SFAS 162 becomes effective 60 days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU Section 411. The
Company does not expect the implementation of SFAS 162 to have a material impact on its consolidated financial statements.
In February 2008, the FASB
issued FASB Staff Position (FSP) No. 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2). FSP FAS 157-2 delays the effective date of SFAS 157, Fair Value Measurements, for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The delay is intended to allow the FASB and constituents additional time to consider the
effect of various implementation issues that have arisen, or that may arise, from the application of Statement 157. FSP 157-2 defers the effective date of Statement 157 to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years, for items within the scope of this FSP. Examples of items to which the deferral would and would not apply are listed in the FSP. The Company does not expect the implementation of FSP 157-2 to have a material impact on its
consolidated financial statements.
In April 2008, the FASB issued FSP 142-3, Determination of the Useful Life of Intangible Assets (FSP
142-3). This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets. The
intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R), Business
Combinations, and other U.S. generally accepted accounting principles. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited. The Company does not expect the implementation of FSP 142-3 to have a material impact on its consolidated financial statements.
In May
2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1). FSP APB 14-1 clarifies that convertible debt
instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants. The
FSP requires that issuers of such instruments should separately account for the liability (debt) and equity (conversion option) components in a manner that reflects the issuers nonconvertible debt borrowing rate. FSP APB 14-1 is effective
for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those years. The Company does not expect the implementation of FSP APB 14-1 to have a material impact on its consolidated financial
statements.
In October 2008, the FASB issued FSP 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active (FSP 157-3). FSP 157-3 clarifies the application of SFAS 157, Fair Value Measurements, in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial
asset when the market for that financial asset is not active. This FSP was effective upon issuance, including prior periods for which financial statements have not been issued. The Company does not expect the implementation of FSP APB 14-1 to have a
material impact on its consolidated financial statements.
Effect of Proposed Accounting Standards
The Company does not believe that any newly issued but as yet unapplied or recent accounting pronouncements will have a material impact on the Companys financial
position or operations.
Securities and Exchange Commission Web Site
The Securities and Exchange Commission maintains a Web site (
http://www.sec.gov
) that contains reports, proxy and information statements and other information regarding registrants that file electronically with
the Commission, including Pioneer Bankshares, Inc.
21
TABLE I
PIONEER BANKSHARES, INC.
NET INTEREST MARGIN ANALYSIS
(On a Fully Tax Equivalent Basis)
(Dollar Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2008
|
|
|
Nine Months Ended
September 30, 2007
|
|
|
|
Average
Balance
|
|
Income/
Expense
|
|
Rates
|
|
|
Average
Balance
|
|
Income/
Expense
|
|
Rates
|
|
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
7,828
|
|
$
|
477
|
|
8.12
|
%
|
|
$
|
8,393
|
|
$
|
560
|
|
8.90
|
%
|
Real estate
|
|
|
98,584
|
|
|
5,183
|
|
7.01
|
%
|
|
|
99,857
|
|
|
5,316
|
|
7.10
|
%
|
Installment
|
|
|
16,519
|
|
|
1,316
|
|
10.62
|
%
|
|
|
15,458
|
|
|
1,300
|
|
11.21
|
%
|
Credit Card
|
|
|
545
|
|
|
77
|
|
18.84
|
%
|
|
|
556
|
|
|
92
|
|
22.06
|
%
|
Federal funds sold
|
|
|
3,436
|
|
|
59
|
|
2.29
|
%
|
|
|
3,361
|
|
|
128
|
|
5.08
|
%
|
Interest Bearing Deposits
|
|
|
9,953
|
|
|
274
|
|
3.67
|
%
|
|
|
4,971
|
|
|
188
|
|
5.04
|
%
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
12,343
|
|
|
486
|
|
5.25
|
%
|
|
|
9,659
|
|
|
399
|
|
5.51
|
%
|
Nontaxable
2
|
|
|
2,903
|
|
|
37
|
|
1.70
|
%
|
|
|
2,611
|
|
|
56
|
|
2.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
152,111
|
|
|
7,909
|
|
6.93
|
%
|
|
|
144,866
|
|
|
8,039
|
|
7.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
10,854
|
|
|
55
|
|
0.68
|
%
|
|
|
11,188
|
|
|
39
|
|
0.46
|
%
|
Savings
|
|
|
15,518
|
|
|
129
|
|
1.11
|
%
|
|
|
12,986
|
|
|
91
|
|
0.93
|
%
|
Time deposits
|
|
|
72,982
|
|
|
2,368
|
|
4.33
|
%
|
|
|
73,736
|
|
|
2,520
|
|
4.56
|
%
|
Borrowings
|
|
|
13,432
|
|
|
342
|
|
3.39
|
%
|
|
|
10,004
|
|
|
281
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Bearing Liabilities
|
|
$
|
112,786
|
|
$
|
2,894
|
|
3.42
|
%
|
|
$
|
107,914
|
|
$
|
2,931
|
|
3.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
1
|
|
|
|
|
|
5,015
|
|
|
|
|
|
|
|
|
5,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin
|
|
|
|
|
|
|
|
4.40
|
%
|
|
|
|
|
|
|
|
4.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Nonaccrual loans are included in computing the average balances.
|
2
|
An incremental tax rate of 34% and a 70% dividend exclusion was used to calculate the tax equivalent income.
|
22
PIONEER BANKSHARES, INC.
NET INTEREST MARGIN ANALYSIS
(On a Fully Tax Equivalent Basis)
(Dollar Amounts in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2008
|
|
|
Three Months Ended
September 30, 2007
|
|
|
|
Average
Balance
|
|
Income/
Expense
|
|
Rates
|
|
|
Average
Balance
|
|
Income/
Expense
|
|
Rates
|
|
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
7,469
|
|
$
|
153
|
|
8.19
|
%
|
|
$
|
8,913
|
|
$
|
198
|
|
8.89
|
%
|
Real estate
|
|
|
96,222
|
|
|
1,696
|
|
7.05
|
%
|
|
|
102,020
|
|
|
1,828
|
|
7.17
|
%
|
Installment
|
|
|
15,128
|
|
|
432
|
|
11.42
|
%
|
|
|
16,064
|
|
|
454
|
|
11.30
|
%
|
Credit card
|
|
|
558
|
|
|
19
|
|
13.62
|
%
|
|
|
552
|
|
|
32
|
|
23.19
|
%
|
Federal funds sold
|
|
|
3,827
|
|
|
18
|
|
1.88
|
%
|
|
|
3,172
|
|
|
40
|
|
5.04
|
%
|
Interest Bearing Deposits
|
|
|
10,589
|
|
|
90
|
|
3.40
|
%
|
|
|
5,861
|
|
|
77
|
|
5.26
|
%
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
14,063
|
|
|
183
|
|
5.21
|
%
|
|
|
9,817
|
|
|
144
|
|
5.87
|
%
|
Nontaxable
2
|
|
|
3,036
|
|
|
19
|
|
2.50
|
%
|
|
|
2,267
|
|
|
18
|
|
3.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
150,892
|
|
|
2,610
|
|
6.92
|
%
|
|
|
148,666
|
|
|
2,791
|
|
7.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
11,738
|
|
|
27
|
|
0.92
|
%
|
|
|
10,573
|
|
|
13
|
|
0.49
|
%
|
Savings
|
|
|
16,887
|
|
|
51
|
|
1.21
|
%
|
|
|
14,055
|
|
|
41
|
|
1.17
|
%
|
Time deposits
|
|
|
71,886
|
|
|
719
|
|
4.00
|
%
|
|
|
76,132
|
|
|
890
|
|
4.68
|
%
|
Borrowings
|
|
|
12,584
|
|
|
107
|
|
3.40
|
%
|
|
|
10,309
|
|
|
106
|
|
4.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Bearing Liabilities
|
|
$
|
113,095
|
|
$
|
904
|
|
3.20
|
%
|
|
$
|
111,019
|
|
$
|
1,050
|
|
3.78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
1
|
|
|
|
|
$
|
1,706
|
|
|
|
|
|
|
|
$
|
1,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin
|
|
|
|
|
|
|
|
4.52
|
%
|
|
|
|
|
|
|
|
4.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Nonaccrual loans are included in computing the average balances.
|
2
|
An incremental tax rate of 34% and a 70% dividend exclusion was used to calculate the tax equivalent income.
|
23
TABLE II
PIONEER BANKSHARES, INC.
INTEREST SENSITIVITY ANALYSIS
SEPTEMBER 30, 2008
(Dollar Amounts
in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-3
Months
|
|
|
4-12
Months
|
|
|
1-5
Years
|
|
|
Over 5
Years
|
|
|
Not
Classified
|
|
|
Total
|
Uses of Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
1
|
|
$
|
12,437
|
|
|
$
|
12,238
|
|
|
$
|
53,277
|
|
|
$
|
40,928
|
|
|
$
|
|
|
|
$
|
118,880
|
Interest bearing bank deposits
|
|
|
2,513
|
|
|
|
4,000
|
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
10,013
|
Investment securities
2
|
|
|
3,500
|
|
|
|
508
|
|
|
|
2,237
|
|
|
|
10,591
|
|
|
|
1,715
|
|
|
|
18,551
|
Restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,089
|
|
|
|
1,089
|
Federal funds sold
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20,450
|
|
|
|
508
|
|
|
|
59,014
|
|
|
|
51,519
|
|
|
|
2,804
|
|
|
|
150,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits
|
|
|
11,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,585
|
Regular savings
|
|
|
16,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,937
|
Certificates of deposit $100,000 and over
|
|
|
3,270
|
|
|
|
10,009
|
|
|
|
1,869
|
|
|
|
|
|
|
|
|
|
|
|
15,148
|
Other certificates of deposit
|
|
|
10,075
|
|
|
|
34,066
|
|
|
|
9,794
|
|
|
|
|
|
|
|
|
|
|
|
53,935
|
Borrowings
|
|
|
600
|
|
|
|
7,800
|
|
|
|
7,600
|
|
|
|
|
|
|
|
|
|
|
|
16,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42,467
|
|
|
$
|
51,875
|
|
|
$
|
19,263
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
113,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discrete Gap
|
|
$
|
(22,017
|
)
|
|
$
|
(35,129
|
)
|
|
$
|
39,751
|
|
|
$
|
51,519
|
|
|
$
|
2,804
|
|
|
$
|
36,928
|
|
|
|
|
|
|
|
Cumulative Gap
|
|
$
|
(22,017
|
)
|
|
$
|
(57,146
|
)
|
|
$
|
(17,395
|
)
|
|
$
|
34,124
|
|
|
$
|
36,928
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Cumulative Gap To Total Earning Assets at September 30, 2008
|
|
|
-14.47
|
%
|
|
|
-37.57
|
%
|
|
|
-11.44
|
%
|
|
|
22.43
|
%
|
|
|
24.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Cumulative Gap To Total Earning Assets at December 31, 2007
|
|
|
-13.11
|
%
|
|
|
-39.65
|
%
|
|
|
-7.82
|
%
|
|
|
25.96
|
%
|
|
|
28.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Nonaccrual loans are included in the loan totals.
|
2
|
Investment securities are reflected at fair value.
|
24
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk.
|
Not
Applicable
Item 4.
|
Controls and Procedures
|
As a result of the enactment of the
Sarbanes-Oxley Act of 2002, issuers such as Pioneer Bankshares, Inc. that file periodic reports under the Securities Exchange Act of 1934 (the Act) are required to include in those reports certain information concerning the issuers
controls and procedures for complying with the disclosure requirements of the federal securities laws. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be
disclosed by an issuer in the reports it files or submits under the Act, is communicated to the issuers management, including its principal executive officer or officers and principal financial officer or officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure.
The Company has established disclosure controls and procedures
to ensure that material information related to Pioneer Bankshares, Inc. is made known to our principal executive officers, and principal financial officer on a regular basis, in particular during the periods in which our quarterly and annual reports
are being prepared. As required, the Company evaluates the effectiveness of these disclosure controls and procedures on a quarterly basis, and has done so as of the end of the period covered by this report. Based on this evaluation, the
Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are adequate and effective. There were no changes in the Companys internal control over financial reporting
during the quarter ended September 30, 2008, that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
Part II - Other Information
Item 1.
|
Legal Proceedings
|
In the ordinary course of its operations, the
Company and its subsidiaries are parties to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in such proceedings, in the aggregate, will
not have a material adverse effect on the business or the financial condition or results of operations of the Company.
Not Applicable
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
The
Company has a stock repurchase program authorized with 5,000 shares remaining available for repurchase. There have been no repurchase transactions during 2008.
Item 3.
|
Defaults Upon Senior Securities
|
Not Applicable
Item 4.
|
Submission of Matters to a Vote of Security Holders
|
Not Applicable
25
Item 5.
|
Other Information
|
Not Applicable
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith).
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith).
|
|
|
32
|
|
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
|
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
PIONEER BANKSHARES, INC.
|
|
|
|
|
|
By:
|
|
/s/ THOMAS R. ROSAZZA
|
Date: November 13, 2008
|
|
|
|
Thomas R. Rosazza
|
|
|
|
|
President and Chief Executive Officer
|
|
|
|
Date: November 13, 2008
|
|
By:
|
|
/s/ LORI G. HASSETT
|
|
|
|
|
Lori G. Hassett
|
|
|
|
|
Vice President and Chief Financial Officer
|
27
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