UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x
|
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 March 31, 2009
¨
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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 has
submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
¨
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 May 14,2009 were 1,021,714.
PIONEER BANKSHARES, INC.
INDEX
2
Part IFinancial 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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|
|
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March 31,
2009
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December 31
2008
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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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3,544
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$
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2,401
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Interest bearing deposits in banks
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8,458
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11,896
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Federal funds sold
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1,850
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100
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Securities available for sale, at fair value
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16,527
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15,216
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Restricted securities
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684
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792
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Loans receivable, net of allowance for loan losses of $1,702 and $1,651 respectively
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119,010
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119,225
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Premises and equipment, net
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3,771
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3,790
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Accrued interest receivable
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740
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720
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Other assets
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1,964
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1,970
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Total Assets
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$
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156,548
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$
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156,110
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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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26,319
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$
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25,079
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Interest bearing
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Demand
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14,530
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12,377
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Savings
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16,079
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15,866
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Time deposits over $100,000
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17,776
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16,921
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Other time deposits
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57,061
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58,735
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Total Deposits
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131,765
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128,978
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Accrued expenses and other liabilities
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928
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927
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Borrowings
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6,800
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9,400
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Total Liabilities
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139,493
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139,305
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STOCKHOLDERS EQUITY
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Common stock; $.50 par value, authorized 5,000,000, outstanding 1,020,914 and 1,017,170 respectively
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510
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509
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Retained earnings
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16,791
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16,460
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Accumulated other comprehensive loss, net
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(246
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)
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(164
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)
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Total Stockholders Equity
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17,055
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16,805
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Total Liabilities and Stockholders Equity
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$
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156,548
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$
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156,110
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See Notes to Consolidated Financial Statements
3
PIONEER BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars, except share and per share data)
(UNAUDITED)
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Three Months Ended
March 31,
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2009
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2008
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Interest and Dividend Income:
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Loans including fees
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$
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2,159
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$
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2,411
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Interest on securitiestaxable
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147
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115
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Interest on securitiesnontaxable
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9
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2
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Interest on deposits in banks and federal funds sold
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55
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108
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Dividends
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17
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Total Interest and Dividend Income
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2,370
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2,653
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Interest Expense:
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Deposits
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748
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881
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Borrowings
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63
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114
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Total Interest Expense
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811
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995
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Net Interest Income
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1,559
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1,658
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Provision for loan losses
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175
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105
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Net interest income after provision for loan losses
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1,384
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1,553
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Noninterest Income:
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Service charges and fees
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223
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201
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Other income
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53
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69
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Gain on security transactions
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133
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151
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Total Noninterest Income
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409
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421
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Noninterest Expense:
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Salaries and benefits
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554
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639
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Occupancy expenses
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95
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92
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Equipment expenses
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145
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175
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Other expenses
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376
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420
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Total Noninterest Expenses
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1,170
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1,326
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Income before Income Taxes
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623
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648
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Income Tax Expense
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206
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|
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216
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Net Income
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$
|
417
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$
|
432
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Per Share Data
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Net income, basic and diluted
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$
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0.41
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$
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0.43
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Dividends
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$
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0.15
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|
$
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0.15
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|
|
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Weighted Average Shares Outstanding, Basic
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1,020,581
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1,012,324
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Weighted Average Shares Outstanding, Diluted
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1,020,581
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1,013,088
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See Notes to Consolidated Financial Statements
4
PIONEER BANKSHARES, INC
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(In Thousands)
(UNAUDITED)
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Common
Stock
|
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Retained
Earnings
|
|
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Accumulated
Other
Comprehensive
Income (Loss)
|
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Total
|
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BALANCE DECEMBER 31, 2007
|
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$
|
506
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$
|
15,805
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$
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(36
|
)
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$
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16,275
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Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net Income
|
|
|
|
|
|
432
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|
|
|
|
|
|
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432
|
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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 $9)
|
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|
|
|
|
|
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18
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|
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Reclassification adjustment for gains included in net income (net of tax effect of $53)
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|
|
|
|
|
|
|
|
(98
|
)
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total Comprehensive Income
|
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|
|
|
|
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352
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Stock issued for compensation
|
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58
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|
|
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58
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Cash Dividends
|
|
|
|
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|
(152
|
)
|
|
|
|
|
|
|
(152
|
)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE MARCH 31, 2008
|
|
$
|
506
|
|
$
|
16,143
|
|
|
$
|
(116
|
)
|
|
$
|
16,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
BALANCE DECEMBER 31, 2008
|
|
$
|
509
|
|
$
|
16,460
|
|
|
$
|
(164
|
)
|
|
$
|
16,805
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
417
|
|
|
|
|
|
|
|
417
|
|
Changes in unrealized gains (losses) on securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during the period (net of tax effect of $3)
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Reclassification adjustment for gains included in net income (net of tax effect of $45)
|
|
|
|
|
|
|
|
|
|
(88
|
)
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
335
|
|
Stock issued for compensation
|
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|
1
|
|
|
67
|
|
|
|
|
|
|
|
68
|
|
Cash Dividends
|
|
|
|
|
|
(153
|
)
|
|
|
|
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE MARCH 31, 2009
|
|
$
|
510
|
|
$
|
16,791
|
|
|
$
|
(246
|
)
|
|
$
|
17,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
5
PIONEER BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(UNAUDITED)
|
|
|
|
|
|
|
|
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|
Three Months Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
417
|
|
|
$
|
432
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
175
|
|
|
|
105
|
|
Depreciation and amortization
|
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|
102
|
|
|
|
130
|
|
Gain on sale of securities
|
|
|
(133
|
)
|
|
|
(151
|
)
|
Net amortization on securities
|
|
|
9
|
|
|
|
6
|
|
Stock issued for compensation
|
|
|
68
|
|
|
|
58
|
|
Net change in:
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
(20
|
)
|
|
|
17
|
|
Other assets
|
|
|
46
|
|
|
|
84
|
|
Accrued expense and other liabilities
|
|
|
1
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
|
665
|
|
|
|
651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Net change in federal funds sold
|
|
|
(1,750
|
)
|
|
|
(100
|
)
|
Net change in interest bearing deposits
|
|
|
3,438
|
|
|
|
(8,156
|
)
|
Net change in restricted securities
|
|
|
108
|
|
|
|
(454
|
)
|
Proceeds from maturities and sales of securities available for sale
|
|
|
4,633
|
|
|
|
3,002
|
|
Purchase of securities available for sale
|
|
|
(5,942
|
)
|
|
|
(10,337
|
)
|
Net increase in loans
|
|
|
40
|
|
|
|
(1,935
|
)
|
Purchase of bank premises and equipment
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Investing Activities
|
|
|
444
|
|
|
|
(14,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Net change in:
|
|
|
|
|
|
|
|
|
Demand and savings deposits
|
|
|
3,606
|
|
|
|
(1,783
|
)
|
Time deposits
|
|
|
(819
|
)
|
|
|
4,808
|
|
Proceeds from borrowings
|
|
|
|
|
|
|
12,000
|
|
Curtailments of borrowings
|
|
|
(2,600
|
)
|
|
|
(1,300
|
)
|
Dividends paid
|
|
|
(153
|
)
|
|
|
(152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
34
|
|
|
|
13,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents:
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
1,143
|
|
|
|
114
|
|
Cash and Cash Equivalents, beginning of year
|
|
|
2,401
|
|
|
|
6,106
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period
|
|
$
|
3,544
|
|
|
$
|
6,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Paid
|
|
|
|
|
|
|
|
|
During the Period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
860
|
|
|
$
|
1,074
|
|
Supplemental Disclosure of non-cash activity:
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on securities available for sale
|
|
$
|
(131
|
)
|
|
$
|
(131
|
)
|
Loans transferred to other real estate owned
|
|
|
100
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
6
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 March 31, 2009 and the results of operations for the three-month periods ended March 31, 2009 and March 31, 2008. The notes included herein should be read in conjunction with
the notes to financial statements included in the 2008 annual report to stockholders of Pioneer Bankshares, Inc. (the Company) and its Form 10-K for the year ended December 31, 2008, as filed with the Securities and Exchange
Commission.
Reclassifications
Certain reclassifications have been made to prior period balances to conform to the current year presentation.
Stock Compensation Plans
The Companys 1998 Stock Incentive Plan (the Plan) was adopted by the Board of Directors on
June 11, 1998 and approved by the shareholders on June 11, 1999. This ten year Plan expired in June of 2008 with respect to the issuance of new option grants. However, grants previously issued under this Plan may still be exercised within
the original terms.
Generally, the Plan provided for the grants of incentive stock options and non-qualified stock options. The exercise price of an
Option could not be less than 100% of the fair market value of the common stock (or if greater, the book value) on the date of the grant. The option terms applicable to each grant were determined at the grant date, but no Option could be exercisable
in any event, after ten years from its grant date.
Effective January 1, 2006, the Company adopted Financial Accounting Standards Board
(FASB) Statement 123R (Revised 2004), Share-Based Payment (SFAS 123R). This revised accounting principle 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 fair value of each previously issued stock option grant was estimated at the grant date using the Black-Scholes option-pricing model. The expected volatility was based on historical
volatility. The risk-free interest rates for periods within the contractual life of the awards were based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on historical exercise experience. The dividend
paid assumptions were based on the Companys history and expectation of dividend payments.
The following summarizes the stock options outstanding as
of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual Term
(In Years)
|
|
Intrinsic Value
of Unexercised
In-the-Money
Options
(In Thousands)
|
Options outstanding, 12/31/08
|
|
7,200
|
|
$
|
16.16
|
|
4.50
|
|
|
|
Options Granted
|
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
|
|
|
|
|
|
|
|
Options Forfeited
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, 3/31/09
|
|
7,200
|
|
$
|
16.16
|
|
4.25
|
|
|
|
Options exercisable, 3/31/09
|
|
7,200
|
|
$
|
16.16
|
|
4.25
|
|
$
|
|
(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 March 31, 2009. This amount changes based on changes in 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.
|
7
NOTE 2
|
INVESTMENT SECURITIES:
|
The amounts at which investment securities
are carried in the consolidated balance sheets and their approximate market values at March 31, 2009 and December 31, 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
(In Thousands)
|
March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
6,998
|
|
$
|
35
|
|
$
|
|
|
|
$
|
7,033
|
Mortgage-backed securities
|
|
|
5,196
|
|
|
198
|
|
|
|
|
|
|
5,394
|
State and municipals
|
|
|
2,054
|
|
|
11
|
|
|
|
|
|
|
2,065
|
Equity securities
|
|
|
2,692
|
|
|
21
|
|
|
(678
|
)
|
|
|
2,035
|
|
|
$
|
16,940
|
|
$
|
265
|
|
$
|
(678
|
)
|
|
$
|
16,527
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
(In Thousands)
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
2,496
|
|
$
|
42
|
|
$
|
|
|
|
$
|
2,538
|
Mortgage-backed securities
|
|
|
9,194
|
|
|
239
|
|
|
|
|
|
|
9,433
|
State and municipals
|
|
|
1,115
|
|
|
|
|
|
(15
|
)
|
|
|
1,100
|
Equity securities
|
|
|
2,693
|
|
|
53
|
|
|
(601
|
)
|
|
|
2,145
|
|
|
$
|
15,498
|
|
$
|
334
|
|
$
|
(616
|
)
|
|
$
|
15,216
|
Management recognizes that current economic conditions and market trends may result in other than temporary
impairment classifications for certain securities or equity investments. 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. As of March 31, 2009, management has determined that the unrealized losses in the investment portfolio are temporary. Management generally has the intent and demonstrated
ability to hold securities to scheduled maturity, call dates or until they recover in value. Management will continue to monitor the securities in a loss position for future impairment. Securities in an unrealized loss position at March 31,
2009 and December 31, 2008, by duration of the unrealized loss are shown in the following table.
8
NOTE 2
|
INVESTMENT SECURITIES (continued):
|
As of March 31, 2009, there were 7 securities in the portfolio with unrealized losses, which were considered to be temporary. The schedule of losses on theses
securities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSSES
|
|
(In Thousands)
|
|
US Government
Agency
Securities
|
|
Mortgage-Backed
Securities
|
|
Equity
Securities
|
|
|
Total
|
|
Less than 12 Months
|
|
Fair Value
|
|
$
|
|
|
$
|
|
|
$
|
346
|
|
|
$
|
346
|
|
|
|
Unrealized Losses
|
|
|
|
|
|
|
|
|
(336
|
)
|
|
|
(336
|
)
|
|
|
|
|
|
|
More than 12 Months
|
|
Fair Value
|
|
|
|
|
|
|
|
|
342
|
|
|
|
342
|
|
|
|
Unrealized Losses
|
|
|
|
|
|
|
|
|
(342
|
)
|
|
|
(342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Fair Value
|
|
$
|
|
|
$
|
|
|
$
|
688
|
|
|
$
|
688
|
|
|
|
Unrealized Losses
|
|
|
|
|
|
|
|
|
(678
|
)
|
|
|
(678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, there were 10 securities in the portfolio that had unrealized losses, which were
considered to be temporary. The schedule of unrealized losses on these securities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSSES
|
|
|
|
Municipal
Securities
|
|
|
Mortgage-Backed
Securities
|
|
Equity
Securities
|
|
|
Total
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
Less than 12 Months
|
|
Fair Value
|
|
$
|
884
|
|
|
$
|
|
|
$
|
398
|
|
|
$
|
1,282
|
|
|
|
Unrealized Losses
|
|
|
(15
|
)
|
|
|
|
|
|
(284
|
)
|
|
|
(299
|
)
|
|
|
|
|
|
|
More than 12 Months
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
366
|
|
|
|
366
|
|
|
|
Unrealized Losses
|
|
|
|
|
|
|
|
|
|
(317
|
)
|
|
|
(317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Fair Value
|
|
|
884
|
|
|
|
|
|
|
764
|
|
|
|
1,648
|
|
|
|
Unrealized Losses
|
|
$
|
(15
|
)
|
|
$
|
|
|
$
|
(601
|
)
|
|
$
|
(616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Loans outstanding are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
March 31,
2009
|
|
|
December 31,
2008
|
|
Mortgage loans on real estate
|
|
|
|
|
|
|
|
|
Construction loans
|
|
$
|
8,478
|
|
|
$
|
9,447
|
|
Agricultural
|
|
|
4,226
|
|
|
|
4,267
|
|
Equity lines of credit
|
|
|
1,990
|
|
|
|
1,927
|
|
Residential 1-4 family
|
|
|
42,194
|
|
|
|
41,618
|
|
Second Mortgages
|
|
|
3,759
|
|
|
|
3,788
|
|
Multifamily
|
|
|
4,105
|
|
|
|
4,144
|
|
Commercial
|
|
|
34,862
|
|
|
|
34,022
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
99,614
|
|
|
|
99,213
|
|
|
|
|
Commercial and industrial loans
|
|
|
5,384
|
|
|
|
5,701
|
|
Consumer installment loans
|
|
|
|
|
|
|
|
|
Personal
|
|
|
15,486
|
|
|
|
15,665
|
|
Credit cards
|
|
|
602
|
|
|
|
645
|
|
|
|
|
|
|
|
|
|
|
Total consumer installment loans
|
|
|
16,088
|
|
|
|
16,310
|
|
All other loans
|
|
|
255
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
Gross Loans
|
|
|
121,341
|
|
|
|
121,586
|
|
|
|
|
Less unearned income on loans
|
|
|
(629
|
)
|
|
|
(710
|
)
|
|
|
|
|
|
|
|
|
|
Loans, less unearned discount
|
|
|
120,712
|
|
|
|
120,876
|
|
|
|
|
Less allowance for loan losses
|
|
|
(1,702
|
)
|
|
|
(1,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans Receivable
|
|
$
|
119,010
|
|
|
$
|
119,225
|
|
|
|
|
|
|
|
|
|
|
Pioneer Banks loan portfolio is concentrated in real estate loans, including those secured by residential
consumer properties and small business commercial properties. Management has established specific lending criteria relating to real estate lending and considers the risk of loss in these loan categories to be moderate.
NOTE 4
|
ALLOWANCE FOR LOAN LOSSES:
|
A summary of transactions in the
allowance for loan losses for the three months ended March 31, 2009 and the year ending December 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2009
|
|
|
December 31,
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
(In Thousands)
|
|
Balance, beginning of period
|
|
$
|
1,651
|
|
|
$
|
1,573
|
|
Provision charged to operating expenses
|
|
|
175
|
|
|
|
548
|
|
Recoveries of loans charged off
|
|
|
29
|
|
|
|
311
|
|
Loans charged off
|
|
|
(153
|
)
|
|
|
(781
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
1,702
|
|
|
$
|
1,651
|
|
|
|
|
|
|
|
|
|
|
The total amount of impaired loans as of March 31, 2009 and December 31, 2008 was $2.1 million. Specific
valuation allowances of approximately $481,000 have been made as a precautionary measure to cover these potential losses.
10
NOTE 5
|
EARNINGS PER SHARE:
|
The following shows the weighted average
number of shares as of March 31, 2009 and 2008, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
March 31, 2008
|
|
|
Shares
|
|
Per Share
Amount
|
|
Shares
|
|
Per Share
Amount
|
Basic earnings per share
|
|
1,020,581
|
|
$
|
0.41
|
|
1,012,324
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
|
|
|
|
764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
1,020,581
|
|
$
|
0.41
|
|
1,013,088
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
Stock options representing 7,200 and 3,900 shares were not included in computing diluted EPS because their effects
were anti-dilutive for the reporting period ending March 31, 2009 and March 31, 2008, respectively.
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.
As of
March 31, 2009, the total outstanding borrowings with FHLB were $6.8 million, which mature through January 19, 2010. The interest rates on these fixed-rate notes payable range from 3.14% to 3.92%. The maturities of FHLB advances as of
March 31, 2009 are shown in TABLE II of this report.
Other expenses in the consolidated statements of
income include the following components:
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2009
|
|
2008
|
|
|
(In Thousands)
|
ATM Service Fees
|
|
$
|
30
|
|
$
|
24
|
Director Fees
|
|
|
30
|
|
|
35
|
Legal Fees
|
|
|
8
|
|
|
53
|
Professional Fees
|
|
|
33
|
|
|
51
|
Insurance Expense
|
|
|
20
|
|
|
16
|
Supplies and Printing
|
|
|
27
|
|
|
42
|
Telephone Expense
|
|
|
29
|
|
|
25
|
Other
|
|
|
199
|
|
|
174
|
|
|
|
|
|
|
|
Total
|
|
$
|
376
|
|
$
|
420
|
|
|
|
|
|
|
|
11
NOTE 8
|
FAIR VALUE MEASUREMENT:
|
The Company adopted SFAS No. 157,
Fair Value Measurements (SFAS 157), on January 1, 2008 to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. SFAS 157 clarifies that fair value of certain assets and
liabilities is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
In October of 2008, the FASB issued Staff Position No. 157-3 (FSP 157-3) to clarify the application of SFAS 157 in a market that is not active and to provide key considerations in determining the fair
value of a financial asset when the market for that financial asset is not active. FSP 157-3 was effective upon issuance, including prior periods for which financials statements were not issued.
SFAS 157 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs
reflect market data obtained from independent sources, while unobservable inputs reflect the Companys market assumptions. The three levels of the fair value hierarchy under SFAS 157 based on these two types of inputs are as follows:
|
|
|
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. The following table presents the
balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance as of
March 31,
2009
|
|
Fair Value Measurements Using
|
|
|
Quoted Prices
in Active
Markets
for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
Significant
Unobservable
Inputs
(Level
3)
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities
|
|
$
|
16,527
|
|
$
|
|
|
$
|
16,527
|
|
$
|
|
Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments
to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.
12
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.
Loans are designated as impaired when, in the judgment of management based on current
information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of
the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable.
The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using
observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business
equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts
receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the
period incurred as provision for loan losses on the Consolidated Statements of Income.
Other Real Estate Owned
Certain assets such as other real estate owned (OREO) are measured at the lower of loan balance or 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 March 31, 2009, the outstanding balance of OREO was $121,000. There was no outstanding OREO balance as of March 31, 2008. It is not managements intent to hold
foreclosure properties or maintain them as a part of the Companys permanent fixed assets and premises. Management actively markets these properties and anticipates being able to sell them within a reasonable time period.
The following table summarizes the Companys financial assets that were measured at fair value on a nonrecurring basis during the first quarter of 2009:
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Description
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Balance
as of
March 31,
2009
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Carrying value at March 31, 2009
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Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
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Significant
Other
Observable
Inputs
(Level 2)
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Significant
Unobservable
Inputs
(Level
3)
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Assets:
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Impaired Loans, net of allowance
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$
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572
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$
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$
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390
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$
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182
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Other Real Estate Owned
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$
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100
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$
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100
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13
Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations.
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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.
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 net
earnings of $417,000 for the first quarter of 2009, as compared to $432,000 for the first quarter of 2008. Earnings per share for the quarter ended March 31, 2009 were $0.41 compared to $0.43 for the first quarter of 2008.
The Company had asset growth of approximately $438,000 during the first quarter of 2009. Investments in securities available for sale increased by $1.3 million for the
period ending March 31, 2009, as compared to total securities available for sale at December 31, 2008. Investments in interest bearing deposits decreased by $3.4 million for the first quarter of 2009 and investments in Federal Funds Sold
increased by approximately $1.8 million for the period ending March 31, 2009, as compared to balances as of December 31, 2008.
The
Companys loan portfolio decreased by approximately $215,000 or 0.18% during the first quarter of 2009. The deposit portfolio increased by $2.8 million or 2.16% during the same period, with the majority of this growth being in demand deposit
accounts. The Companys capital position as of March 31, 2009 was approximately $17.1 million, or 10.89% as a percentage of total assets.
The
Companys book value as of March 31, 2009 was $16.71 per share, as compared to a book value of $16.52 per share as of December 31, 2008. This represents an increase of 1.15%. Shareholder dividend payments for the first quarter of 2009
were $0.15 per share, and were the same as the dividend amount paid for the first quarter of 2008.
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.
14
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.
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 borrower's 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
March 31, 2009 and December 31, 2008. Goodwill is no longer amortized, but instead is tested for impairment at least annually.
Results of
Operations
Net Interest Income
Total interest
income decreased $283,000 or 10.67% during the first quarter of 2009, as compared to the same period for 2008. Total interest expense decreased $184,000 or 18.49% in the first quarter of 2009 compared to the same period of 2008. The decreases in
interest income and interest expense resulted in a net interest income decrease of $99,000 or 5.97% for the period ending March 31, 2009 compared to the period ending March 31, 2008. This net decrease is primarily attributed to reduced
interest income on loans of approximately $252,000 as compared to the same period last year. The reduced interest income on loans is attributed to the lower volume of loans outstanding, which resulted from loan refinancing activities during 2008.
The average outstanding loan balances as of March 31, 2009 totaled $120.5 million, as compared to $127.9 million as of March 31, 2008. Additionally, the average yield on loan balances outstanding has decreased from 7.54% as of
March 31, 2008 to 7.17% as of March 31, 2009. This decrease in interest yield on loans has been largely impacted by lower market interest rates and scheduled loan re-pricing activities.
15
The Companys overall net interest margin decreased from 4.39% for the first quarter of 2008 to 4.25% for the first
quarter of 2009, and is directly related to lower market interest rates and the reduced loan yields discussed above. The overall average yield on earning assets decreased from 7.03% as of March 31, 2008 to 6.45% as of March 31, 2009, and
is attributed to the previously mentioned factors.
Noninterest Income
During the first quarter of 2009, non-interest income decreased by $12,000 when compared to the same period last year. This decrease can be attributed to reduced income in the categories of gains on securities
transactions and other income. Securities gains during the first quarter of 2009 decreased by $18,000 or 11.92% as compared to the prior year. Income from Securities gains is generally considered to be non-recurring and may fluctuate with market
conditions. Other income for the first quarter of 2009 was $16,000 or 23.19% less than the prior year primarily resulting from reduced commissions generated through the Banks subsidiary, Pioneer Financial Services, LLC, in non-banking
investment product activities. Service charge income increased by $22,000 or 10.91% and is attributed to normal fee increases.
Noninterest Expense
During the first quarter of 2009, non-interest expense decreased by $156,000 or 11.76% in comparison to the first quarter of 2008. The primary factor
contributing to this overall decrease is reduced salary and benefit expense of approximately $85,000. The decrease in salaries and benefits is the result of managements continuing efforts to control expense through staff reductions and
decreased hourly schedules.
Financial Condition
Securities
The Company's securities portfolio is held to assist the Company in liquidity and asset liability management as well as
capital appreciation. The securities portfolio generally consists of securities held to maturity and securities available for sale. Securities are classified as held to maturity when management has the intent and ability to hold the securities to
maturity. These securities are carried at amortized cost. 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 March 31, 2009, the net amortized cost of securities available for sale was approximately $413,000 more 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. Management continually monitors the securities in a loss
position for possible impairment.
At this time, management does not expect the fluctuation in the value of these securities to have a material impact on
earnings.
Investments in securities, including those which were restricted, increased by approximately $1.2 million during the first quarter of 2009. 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, 12.31% (based on market value) are invested in equities, some
of which are dividend producing and subject to the corporate dividend exclusion for taxation purposes. The equity securities generally include common stocks and corporate bonds, which are purchased with the objective of generating additional
interest or dividend income. The value of these investments is sensitive to general trends in the stock market and other economic conditions.
Loan
Portfolio
The Company operates in a service area in the western portion of Virginia in the counties of Page, Greene, Rockingham, and the City of
Harrisonburg, and has expanded its service area to include Albemarle County and the City of Charlottesville, 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 construction mortgages 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 significant percentage of these loans are made to borrowers who are employed by businesses outside the service area.
During the first quarter of 2009, net loans decreased by approximately $215,000 or 0.18%, which is primarily attributed to payoffs and loan 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 were approximately $2.5 million at March 31, 2009 compared to $2.0 million at December 31, 2008. This represents an
increase of $480,000 and is mainly attributed to certain real estate accounts in which the borrowers are experiencing financial difficulties. Management has evaluated the value of collateral related to these accounts and has made appropriate
specific allocations to the allowance for loan loss account for potential loan losses.
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 March 31, 2009, were $2.1 million, and were unchanged from the total of impaired loans at December 31, 2008. Management has placed approximately $1.7 million of the Banks impaired loans in a nonaccrual status as
of March 31, 2009. This amount is also included in the nonaccrual loan totals discussed above. Impaired loans not yet placed in nonaccrual status as of March 31, 2009 were approximately $370,000. Specific allocations have been made to the
allowance for loan loss account of approximately $481,000, as of March 31, 2009, to cover potential losses that may occur relating to impaired loans.
Management continually monitors past due, non-accrual, and impaired loans 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.
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 at March 31, 2009 that are not included in the past due or non-accrual loans referred to 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 $1.7 million, at March 31, 2009, increased by approximately $51,000 from its level at December 31, 2008. The increase in
the allowance balance is primarily attributed to specific allocations related to impaired loans, as well as, an increased percentage of non-performing assets, including nonaccruals, past dues, and classified loans. The increase in non-performing
assets is partially attributed to a declining economic environment.
Management has made additional allocations based on the declining economic trends and
increases in non-performing assets, as a means of providing sufficient funding for possible losses. The increased allowance allocations noted above have contributed to an overall increase in the cumulative funding as a percentage of total loans. The
cumulative balance in the allowance for loan loss account was equal to 1.41% and 1.37% of total loans at March 31, 2009 and December 31, 2008, respectively. The increase in the allowance for loan loss as a percentage of total loans is
directionally consistent with the changes and trends that have been identified within the loan portfolio as of March 31, 2009.
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 March 31, 2009 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 conservative 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 March 31, 2009 was $175,000 as compared to $105,000 for the first quarter of 2008. This increase of $70,000 is directly related to the increased loan portfolio allocations previously discussed.
Managements evaluation of the allowance for loan losses as of March 31, 2009 and December 31, 2008 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 first quarter of 2009, the Company had purchases relating to premises, equipment or other fixed assets of approximately $83,000. These purchases were primarily related to in-house software and equipment
upgrades for image processing.
The Company continually monitors technological upgrades in the banking industry, and periodically, in order to achieve
higher levels of internal operational efficiency, purchases new or additional equipment relating to such technologies. 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 Company's main source of funds is customer deposits received from individuals, governmental entities and businesses located within the Company's service area. Deposit
accounts include demand deposits, savings, money market and certificates of deposit. The Companys total deposit portfolio has historically remained relatively stable; however, these balances fluctuate with normal daily activity.
During the first quarter of 2009, total deposits have increased by approximately $2.8 million or 2.16%. This increase was mainly in the categories of demand deposits and
savings accounts. The Company monitors its deposits carefully on an on-going basis in order to provide for investment activities and loan funding 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 March 31, 2009, total borrowings were $6.8 million compared to $9.4 million at December 31, 2008. This represents a decrease of
approximately $2.6 million, and resulted from scheduled loan repayments. Additional information relating to the Banks borrowing activities is included in Note 6 of the financial statements included in this report.
Capital
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. Management seeks to maintain a capital structure that
will assure an adequate level to support anticipated asset growth, future expansion, shareholder dividends, and ongoing operational needs.
As of
March 31, 2009 and December 31, 2008, the Company's total capital-to-asset ratios were 10.89% and 10.76%, respectively. The Companys capital ratios exceed regulatory minimums and earnings have been sufficient to allow for dividends
to be declared on a quarterly basis, historically.
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 Company's ability to obtain deposits and purchase funds at favorable rates determines its liquidity exposure. As a result of
the Company's 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.
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 March 31, 2009 remains adequate.
19
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 Bank's membership in the Federal Home Loan Bank System provides additionally 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 periodically and
makes adjustments as needed.
Table II contains an analysis, which shows the re-pricing opportunities of earning assets and interest bearing liabilities as
of March 31, 2009.
As of March 31, 2009, the Company had a negative cumulative Gap Rate Sensitivity Ratio of 34.66% for the one year re-pricing
period, compared with a negative cumulative Gap Rate Sensitivity of 33.89% at December 31, 2008. 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 Company's 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 FASB
issued Statement of Financial Accounting Standards No. 141(R), Business Combinations (SFAS 141(R)). The Standard significantly changed the financial accounting and reporting of business combination transactions. SFAS 141(R)
establishes principles for how an acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a
gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for acquisition dates on or
after the beginning of an entitys first year that begins after December 15, 2008. The Company does not expect the implementation of SFAS 141(R) to have a material impact on its consolidated financial statements, at this time.
In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies. FSP FAS 141(R)-1 amends and clarifies SFAS 141(R) to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies
in a business combination. The FSP is effective for assets and liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company does not expect the adoption of FSP FAS 141(R)-1 to have a material impact on its consolidated financial statements.
In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP FAS 157-4
provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. The FSP also includes guidance on identifying circumstances that
indicate a transaction is not orderly. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, and shall be applied prospectively. Earlier adoption is permitted for periods ending after March 15, 2009. The
Company does not expect the adoption of FSP FAS 157-4 to have a material impact on its consolidated financial statements.
In April 2009, the FASB issued
FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures
about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. In addition, the FSP amends APB Opinion No. 28, Interim Financial Reporting, to require
those disclosures in summarized financial information at interim reporting periods. The FSP is effective for interim periods ending after June 15, 2009, with earlier adoption permitted for periods ending after March 15, 2009. The Company
does not expect the adoption of FSP FAS 107-1 and APB 28-1 to have a material impact on its consolidated financial statements.
20
In April 2009, the FASB issued FSP FAS 115-1 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments. FSP FAS 115-1 and FAS 124-2 amends other-than-temporary impairment guidance for debt securities to make guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and
equity securities. The FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-1 and FAS 124-2 is effective for interim and annual periods ending after
June 15, 2009, with earlier adoption permitted for periods ending after March 15, 2009. The Company does not expect the adoption of FSP FAS 115-1 and FAS 124-2 to have a material impact on its consolidated financial statements.
In April 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 111 (SAB 111). SAB 111 amends and replaces SAB Topic 5.M. in the SAB
Series entitled Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities. SAB 111 maintains the SEC Staffs previous views related to equity securities and amends Topic 5.M. to exclude debt securities
from its scope. The Company does not expect the implementation of SAB 111 to have a material impact on its consolidated financial statements.
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)
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|
Three Months Ended
March 31, 2009
|
|
|
Three Months Ended
March 31, 2008
|
|
|
|
Average
Balance
|
|
Income/
Expense
|
|
Rates
|
|
|
Average
Balance
|
|
Income/
Expense
|
|
Rates
|
|
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
6,778
|
|
$
|
119
|
|
7.02
|
%
|
|
$
|
8,333
|
|
$
|
172
|
|
8.26
|
%
|
Real estate
|
|
|
97,510
|
|
|
1,609
|
|
6.60
|
%
|
|
|
100,224
|
|
|
1,759
|
|
7.02
|
%
|
Installment
|
|
|
15,567
|
|
|
401
|
|
10.30
|
%
|
|
|
18,848
|
|
|
452
|
|
9.59
|
%
|
Credit card
|
|
|
611
|
|
|
30
|
|
19.64
|
%
|
|
|
534
|
|
|
28
|
|
20.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
|
120,466
|
|
|
2,159
|
|
7.17
|
%
|
|
|
127,939
|
|
|
2,411
|
|
7.54
|
%
|
|
|
|
|
|
|
|
Federal funds sold
|
|
|
2,873
|
|
|
2
|
|
0.28
|
%
|
|
|
3,391
|
|
|
26
|
|
3.07
|
%
|
Interest Bearing Deposits
|
|
|
8,546
|
|
|
53
|
|
2.48
|
%
|
|
|
7,880
|
|
|
82
|
|
4.16
|
%
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
12,472
|
|
|
137
|
|
4.39
|
%
|
|
|
9,145
|
|
|
128
|
|
5.60
|
%
|
Nontaxable
2
|
|
|
3,094
|
|
|
28
|
|
3.62
|
%
|
|
|
2,863
|
|
|
9
|
|
1.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
147,451
|
|
|
2,379
|
|
6.45
|
%
|
|
|
151,218
|
|
|
2,656
|
|
7.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
12,989
|
|
|
33
|
|
1.02
|
%
|
|
|
10,293
|
|
|
13
|
|
0.51
|
%
|
Savings
|
|
|
15,916
|
|
|
44
|
|
1.11
|
%
|
|
|
13,535
|
|
|
35
|
|
1.03
|
%
|
Time deposits
|
|
|
75,802
|
|
|
671
|
|
3.54
|
%
|
|
|
72,040
|
|
|
833
|
|
4.63
|
%
|
Borrowings
|
|
|
7,882
|
|
|
63
|
|
3.20
|
%
|
|
|
13,360
|
|
|
114
|
|
3.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Bearing Liabilities
|
|
$
|
112,589
|
|
$
|
811
|
|
2.88
|
%
|
|
$
|
109,228
|
|
$
|
995
|
|
3.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
|
|
$
|
1,568
|
|
|
|
|
|
|
|
$
|
1,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin
|
|
|
|
|
|
|
|
4.25
|
%
|
|
|
|
|
|
|
|
4.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
TABLE II
PIONEER BANKSHARES, INC.
INTEREST SENSITIVITY ANALYSIS
MARCH 31, 2009
(Dollar Amounts in
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-3
Months
|
|
|
4-12
Months
|
|
|
1-5 Years
|
|
|
Over 5
Years
|
|
|
Not
Classified
|
|
|
Total
|
Uses of Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
1
|
|
$
|
10,685
|
|
|
$
|
8,662
|
|
|
$
|
58,032
|
|
|
$
|
43,333
|
|
|
$
|
|
|
|
$
|
120,712
|
Interest bearing bank deposits
|
|
|
3,958
|
|
|
|
3,000
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
8,458
|
Investment securities
2
|
|
|
3,500
|
|
|
|
1,021
|
|
|
|
3,210
|
|
|
|
6,761
|
|
|
|
2,035
|
|
|
|
16,527
|
Restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
684
|
|
|
|
684
|
Federal funds sold
|
|
|
1,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
19,993
|
|
|
|
12,683
|
|
|
|
62,742
|
|
|
|
50,094
|
|
|
|
2,719
|
|
|
|
148,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits
|
|
|
14,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,530
|
Regular savings
|
|
|
16,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,079
|
Certificates of deposit $100,000 and over
|
|
|
5,207
|
|
|
|
5,453
|
|
|
|
7,116
|
|
|
|
|
|
|
|
|
|
|
|
17,776
|
Other certificates of deposit
|
|
|
13,624
|
|
|
|
22,353
|
|
|
|
21,084
|
|
|
|
|
|
|
|
|
|
|
|
57,061
|
Borrowings
|
|
|
600
|
|
|
|
6,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,040
|
|
|
$
|
34,006
|
|
|
$
|
28,200
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
112,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discrete Gap
|
|
$
|
(30,047
|
)
|
|
$
|
(21,323
|
)
|
|
$
|
34,542
|
|
|
$
|
50,094
|
|
|
$
|
2,719
|
|
|
$
|
35,985
|
|
|
|
|
|
|
|
Cumulative Gap
|
|
$
|
(30,047
|
)
|
|
$
|
(51,370
|
)
|
|
$
|
(16,828
|
)
|
|
$
|
33,266
|
|
|
$
|
35,985
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gap To Total Earning Assets at March 31, 2009
|
|
|
-20.27
|
%
|
|
|
-34.66
|
%
|
|
|
-11.35
|
%
|
|
|
22.44
|
%
|
|
|
24.28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gap To Total Earning Assets at December 31, 2008
|
|
|
-18.46
|
%
|
|
|
-33.89
|
%
|
|
|
-13.56
|
%
|
|
|
21.93
|
%
|
|
|
23.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Nonaccrual loans are included in the loan totals.
|
2
|
Investment securities are reflected at fair value.
|
23
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 issuer's 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 issuer's 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 March 31, 2009, that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
Part IIOther 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 2009.
Item 3.
|
Defaults Upon Senior Securities.
|
Not Applicable
Item 4.
|
Submission of Matters to a Vote of Security Holders.
|
Not
Applicable
Item 5.
|
Other Information.
|
Not Applicable
24
|
|
|
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).
|
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
PIONEER BANKSHARES, INC.
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ THOMAS R. ROSAZZA
|
Date: May 14, 2009
|
|
|
|
|
|
Thomas R. Rosazza
|
|
|
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
Date: May 14, 2009
|
|
|
|
By:
|
|
/s/ LORI G. HASSETT
|
|
|
|
|
|
|
Lori G. Hassett
|
|
|
|
|
|
|
Vice President and Chief Financial Officer
|
26
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