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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Pioneer Bankshares Inc (PK) | USOTC:PNBI | OTCMarkets | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 20.50 | 20.50 | 20.50 | 0.00 | 01:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For Quarterly Period Ended September 30, 2007
¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
Commission File No.: 0-30541
PIONEER BANKSHARES, INC.
(Exact name of small business issuer as specified in its charter)
Virginia | 54-1278721 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
263 East Main Street
P. O. Box 10
Stanley, Virginia 22851
(Address of principal executive offices)
(540) 778-2294
(Issuers telephone number)
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date.
Class |
Outstanding at November 14, 2007 |
|
Common Stock, par value - $0.50 |
1,011,481 shares |
Transitional Small Business Disclosure Format (check one) YES ¨ NO x
INDEX
2
Part I - Financial Information
Item 1. | Financial Statements |
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
See Notes to Consolidated Financial Statements
3
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars, except Per Share Data)
(UNAUDITED)
Three Months Ended September 30, |
||||||
2007 | 2006 | |||||
Interest and Dividend Income: |
||||||
Loans including fees |
$ | 2,512 | $ | 2,245 | ||
Interest on securities - taxable |
116 | 83 | ||||
Interest on securities - nontaxable |
2 | 2 | ||||
Interest on deposits and federal funds sold |
117 | 137 | ||||
Dividends |
39 | 39 | ||||
Total Interest and Dividend Income |
2,786 | 2,506 | ||||
Interest Expense: |
||||||
Deposits |
944 | 734 | ||||
Long term debt |
106 | 175 | ||||
Total Interest Expense |
1,050 | 909 | ||||
Net Interest Income |
1,736 | 1,597 | ||||
Provision for loan losses |
70 | 53 | ||||
Net interest income after provision for loan losses |
1,666 | 1,544 | ||||
Noninterest Income: |
||||||
Service charges and fees |
202 | 197 | ||||
Other income |
29 | 10 | ||||
Gain on securities transactions |
147 | 143 | ||||
Total Noninterest Income |
378 | 350 | ||||
Noninterest Expense: |
||||||
Salaries and benefits |
636 | 534 | ||||
Occupancy expenses |
87 | 97 | ||||
Equipment expenses |
196 | 217 | ||||
Other expenses |
435 | 414 | ||||
Total Noninterest Expenses |
1,354 | 1,262 | ||||
Income before Income Taxes |
690 | 632 | ||||
Income Tax Expense |
237 | 216 | ||||
Net Income |
$ | 453 | $ | 416 | ||
Per Share Data |
||||||
Net income, basic and diluted |
$ | 0.45 | $ | 0.41 | ||
Dividends |
$ | 0.14 | $ | 0.13 | ||
Weighted Average Shares Outstanding, Basic |
1,011,481 | 1,011,481 | ||||
Weighted Average Shares Outstanding, Diluted |
1,014,403 | 1,013,968 | ||||
See Notes to Consolidated Financial Statements
4
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars, except Per Share Data)
(UNAUDITED)
Nine Months Ended September 30, |
||||||
2007 | 2006 | |||||
Interest and Dividend Income: |
||||||
Loans including fees |
$ | 7,268 | $ | 6,604 | ||
Interest on securities - taxable |
332 | 216 | ||||
Interest on securities - nontaxable |
7 | 7 | ||||
Interest on deposits and federal funds sold |
316 | 356 | ||||
Dividends |
99 | 102 | ||||
Total Interest and Dividend Income |
8,022 | 7,285 | ||||
Interest Expense: |
||||||
Deposits |
2,650 | 1,890 | ||||
Long term debt |
281 | 516 | ||||
Total Interest Expense |
2,931 | 2,406 | ||||
Net Interest Income |
5,091 | 4,879 | ||||
Provision for loan losses |
210 | 197 | ||||
Net interest income after provision for loan losses |
4,881 | 4,682 | ||||
Noninterest Income: |
||||||
Service charges and fees |
599 | 585 | ||||
Other income |
126 | 68 | ||||
Gain on securities transactions |
206 | 305 | ||||
Total Noninterest Income |
931 | 958 | ||||
Noninterest Expense: |
||||||
Salaries and benefits |
1,900 | 1,713 | ||||
Occupancy expenses |
283 | 281 | ||||
Equipment expenses |
556 | 599 | ||||
Other expenses |
1,179 | 1,180 | ||||
Total Noninterest Expenses |
3,918 | 3,773 | ||||
Income before Income Taxes |
1,894 | 1,867 | ||||
Income Tax Expense |
642 | 635 | ||||
Net Income |
$ | 1,252 | $ | 1,232 | ||
Per Share Data |
||||||
Net income, basic and diluted |
$ | 1.24 | $ | 1.22 | ||
Dividends |
$ | 0.42 | $ | 0.38 | ||
Weighted Average Shares Outstanding, Basic |
1,011,481 | 1,011,481 | ||||
Weighted Average Shares Outstanding, Diluted |
1,013,990 | 1,013,318 | ||||
See Notes to Consolidated Financial Statements
5
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(In Thousands)
(UNAUDITED)
Common
Stock |
Retained
Earnings |
Accumulated Other Comprehensive Income (Loss) |
Total | ||||||||||||
BALANCE DECEMBER 31, 2005 |
$ | 506 | $ | 13,468 | $ | (29 | ) | $ | 13,945 | ||||||
Comprehensive Income |
|||||||||||||||
Net Income |
1,232 | 1,232 | |||||||||||||
Changes in unrealized gains (losses) on securities, net of taxes |
|||||||||||||||
Unrealized holding gains arising during the period (net of tax effect of $138) |
239 | ||||||||||||||
Reclassification adjustment for gains included in net income (net of tax effect of $ 116) |
(189 | ) | 50 | ||||||||||||
Total Comprehensive Income |
1,282 | ||||||||||||||
Cash Dividends |
| (385 | ) | | (385 | ) | |||||||||
BALANCE SEPTEMBER 30, 2006 |
$ | 506 | $ | 14,315 | $ | 21 | $ | 14,842 | |||||||
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 |
|||||||||||||||
Unrealized holding gains arising during the period (net of tax effect of $31) |
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 | |||||||
See Notes to Consolidated Financial Statements
6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(UNAUDITED)
Nine Months Ended September 30, |
||||||||
2007 | 2006 | |||||||
Cash Flows from Operating Activities: |
||||||||
Net income |
$ | 1,252 | $ | 1,232 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for loan losses |
210 | 197 | ||||||
Depreciation and amortization |
410 | 345 | ||||||
Gain on sale of securities |
(206 | ) | (305 | ) | ||||
Net amortization on securities |
(7 | ) | 24 | |||||
Net change in: |
||||||||
Accrued interest receivable |
(102 | ) | (132 | ) | ||||
Other assets |
27 | (104 | ) | |||||
Accrued expense and other liabilities |
346 | 165 | ||||||
Net Cash Provided by Operating Activities |
1,930 | 1,422 | ||||||
Cash Flows from Investing Activities: |
||||||||
Net change in federal funds sold |
700 | 2,500 | ||||||
Net change in interest bearing deposits |
64 | 1,176 | ||||||
Net change in restricted securities |
8 | (73 | ) | |||||
Proceeds from maturities and sales of securities available for sale |
13,370 | 10,322 | ||||||
Proceeds from maturities and calls of securities held to maturity |
1 | 3 | ||||||
Purchase of securities available for sale |
(9,097 | ) | (12,811 | ) | ||||
Net increase in loans |
(7,433 | ) | (8,483 | ) | ||||
Purchase of bank premises and equipment |
(105 | ) | (319 | ) | ||||
Net Cash Used in Investing Activities |
(2,492 | ) | (7,685 | ) | ||||
Cash Flows from Financing Activities: |
||||||||
Net change in: |
||||||||
Demand and savings deposits |
2,550 | (3,172 | ) | |||||
Time deposits |
3,986 | 8,048 | ||||||
Proceeds from borrowings |
2,000 | 5,000 | ||||||
Curtailments of borrowings |
(3,200 | ) | (3,200 | ) | ||||
Dividends paid |
(424 | ) | (385 | ) | ||||
Net Cash Provided by Financing Activities |
4,912 | 6,291 | ||||||
Cash and Cash Equivalents: |
||||||||
Net increase in cash and cash equivalents |
4,350 | 28 | ||||||
Cash and Cash Equivalents, beginning of year |
5,197 | 7,373 | ||||||
Cash and Cash Equivalents, End of Period |
$ | 9,547 | $ | 7,401 | ||||
Supplemental Disclosure of Cash Paid |
||||||||
During the Period for: |
||||||||
Interest |
$ | 2,766 | $ | 2,282 | ||||
Income taxes |
$ | 396 | $ | 723 | ||||
Supplemental Disclosure of non-cash activity: |
||||||||
Unrealized gain on securities available for sale |
(120 | ) | 72 |
See Notes to Consolidated Financial Statements
7
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 September 30, 2007 and the results of operations for the nine and three-month periods ended September 30, 2007 and September 30, 2006. Operating results for the nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. The notes included herein should be read in conjunction with the notes to the financial statements included in the 2006 annual report to stockholders of Pioneer Bankshares, Inc., (the Company) and its Form 10-KSB for the year ended December 31, 2006, 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 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 Company adopted SFAS No. 123R and does not expect this change in accounting principle to have a material impact on its financial condition or future results of operations.
The fair value of each grant was estimated at the grant date using the Black-Scholes option-pricing model. The estimates were calculated using the following weighted-average assumptions for stock options granted in 2007 and 2006 respectively: Dividend rate of 2.99% and 3.07%, price volatility of 21.41% and 14.58%, risk-free interest rate of 5.23% and 5.13%, and expected lives of 10 years.
The expected volatility is based on historical volatility. The risk-free interest rates for periods within the contractual life of the awards are 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 assumption is based on the Companys history and expectation of dividend payments.
The expense relating to all outstanding stock options, as of September 30, 2007, is $2,169, net of tax. There have been no stock options exercised under this plan as of the date of this report.
The following summarizes the stock options outstanding as of September 30, 2007:
Shares |
Weighted
Average Exercise Price |
Weighted Average
Remaining
|
Intrinsic Value of Unexercised
In-the-Money
(In Thousands) |
|||||||
Options outstanding, 12/31/06 |
7,100 | $ | 15.48 | 6.1 | ||||||
New Options Granted, 6/14/07 |
800 | 23.80 | 10.0 | |||||||
Options Exercised |
| | ||||||||
Options Forfeited |
| | ||||||||
Options outstanding, 9/30/07 |
7,900 | $ | 16.32 | 5.3 | ||||||
Options exercisable, 9/30/07 |
7,100 | $ | 15.48 | 4.8 | $ | 75 |
(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, 2007. 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. |
8
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, 2007 and December 31, 2006 follows:
(In Thousands) | ||||||||||||
September 30, 2007 | December 31, 2006 | |||||||||||
Carrying
Value |
Market
Value |
Carrying
Value |
Market
Value |
|||||||||
Securities held to maturity: |
||||||||||||
Mortgage-backed securities |
$ | | $ | | $ | 1 | $ | 1 | ||||
Total |
$ | | $ | | $ | 1 | $ | 1 | ||||
Securities available for sale: |
||||||||||||
U.S. Treasury and agency obligations |
$ | 6,459 | $ | 6,520 | $ | 9,984 | $ | 10,005 | ||||
Mortgage-backed |
2,089 | 2,076 | 1,366 | 1,354 | ||||||||
Municipal securities |
214 | 218 | 214 | 218 | ||||||||
Equity securities |
928 | 912 | 2,184 | 2,329 | ||||||||
Total |
$ | 9,690 | $ | 9,726 | $ | 13,748 | $ | 13,906 | ||||
As of September 30, 2007, there were 2 investment securities that had been in a loss position for more than 12 consecutive months and 8 additional securities that had been in a loss position for less than one year. Management has the intent and ability to hold securities to their scheduled maturity or call date, and considers any current market value losses to be temporary. One factor considered in the determination and evaluation of temporary losses is credit quality of the issuer. Managements conclusion for this reporting period is that the temporary losses are the result of current economic conditions and market interest rate changes. The temporary losses are not considered to be related to credit quality.
The schedule of losses on the securities as of September 30, 2007, is as follows:
LOSSES |
(In Thousands) |
US Government
Agency Securities |
Mortgage-Backed
Securities |
Equity
Securities |
Total | ||||||||||||
Less than 12 Months |
Fair Value | $ | | $ | 1,780 | $ | 522 | $ | 2,302 | ||||||||
Unrealized Losses |
| (9 | ) | (102 | ) | (111 | ) | ||||||||||
More than 12 Months |
Fair Value | | 295 | | 295 | ||||||||||||
Unrealized Losses |
| (5 | ) | | (5 | ) | |||||||||||
Total |
Fair Value | $ | | $ | 2,075 | $ | 522 | $ | 2,597 | ||||||||
Unrealized Losses |
| (14 | ) | (102 | ) | (116 | ) | ||||||||||
9
NOTE 2 INVESTMENT SECURITIES (cont):
As of December 31, 2006, there were 13 securities in the portfolio that had losses, which were considered to be temporary. The schedule of losses on these securities was as follows:
LOSSES |
(In Thousands) |
US Government
Agency Securities |
Mortgage-Backed
Securities |
Equity
Securities |
Total | |||||||||||||
Less than 12 Months |
Fair Value | $ | | $ | | $ | 456 | $ | 456 | |||||||||
Unrealized Losses |
| | (12 | ) | (12 | ) | ||||||||||||
More than 12 Months |
Fair Value | 1,494 | 363 | | 1,857 | |||||||||||||
Unrealized Losses |
(8 | ) | (12 | ) | | (20 | ) | |||||||||||
Total |
Fair Value | $ | 1,494 | $ | 363 | $ | 456 | $ | 2,313 | |||||||||
Unrealized Losses |
(8 | ) | (12 | ) | (12 | ) | (32 | ) | ||||||||||
NOTE 3 LOANS:
Loans outstanding are summarized as follows:
(In Thousands) | ||||||||
September 30, 2007 |
December 31, 2006 |
|||||||
Mortgage loans on real estate |
||||||||
Construction loans |
$ | 12,134 | $ | 9,933 | ||||
Agricultural |
4,640 | 4,940 | ||||||
Equity lines of credit |
2,434 | 1,777 | ||||||
Residential 1-4 family |
42,668 | 45,624 | ||||||
Second Mortgages |
4,960 | 4,894 | ||||||
Multifamily |
4,163 | 3,796 | ||||||
Commercial |
32,049 | 26,998 | ||||||
Total real estate loans |
103,048 | 97,962 | ||||||
Commercial and industrial loans |
7,625 | 7,174 | ||||||
Consumer installment loan |
||||||||
Personal |
17,159 | 15,314 | ||||||
Credit cards |
561 | 661 | ||||||
Total consumer installment loans |
17,720 | 15,975 | ||||||
All other loans |
257 | 331 | ||||||
Gross Loans |
128,650 | 121,442 | ||||||
Less unearned income on loans |
(1,073 | ) | (1,144 | ) | ||||
Loans, less unearned discount |
127,577 | 120,298 | ||||||
Less allowance for loan losses |
(1,532 | ) | (1,476 | ) | ||||
Net Loans Receivable |
$ | 126,045 | $ | 118,822 | ||||
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 criteria relating to real estate lending and considers the risk of loss in these loan categories to be relatively low.
10
NOTE 4 ALLOWANCE FOR LOAN LOSSES:
A summary of transactions in the allowance for loan losses for the nine months ended September 30, 2007 and the year ending December 31, 2006 is as follows:
September 30, 2007 |
December 31 2006 |
|||||||
(Unaudited) | (Audited) | |||||||
(In Thousands) | ||||||||
Balance, beginning of period |
$ | 1,476 | $ | 1,332 | ||||
Provision charged to operating expenses |
210 | 233 | ||||||
Recoveries of loans charged off |
207 | 335 | ||||||
Loans charged off |
(361 | ) | (424 | ) | ||||
Balance, end of period |
$ | 1,532 | $ | 1,476 | ||||
NOTE 5 EARNINGS PER SHARE:
The following shows the weighted average number of shares for the nine month period ending September 30, 2007 and 2006, 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, 2007 |
Nine Months Ended
September 30, 2006 |
|||||||||
Shares |
Per Share Amount |
Shares |
Per Share Amount |
|||||||
Basic earnings per share |
1,011,481 | $ | 1.24 | 1,011,481 | $ | 1.22 | ||||
Effect of dilutive securities: |
||||||||||
Stock Options |
2,509 | 1,837 | ||||||||
Diluted earnings per share |
1,013,990 | $ | 1.24 | 1,013,318 | $ | 1.22 | ||||
There were no stock options excluded from the computation of diluted EPS because their effects were anti-dilutive as of September 30, 2007 and 2006.
The weighted average number of shares for the three month period ending September 30, 2007 and 2006, 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, 2007 |
Three Month Ended September 30, 2006 |
|||||||||
Shares |
Per Share Amount |
Shares |
Per Share Amount |
|||||||
Basic earnings per share |
1,011,481 | $ | 0.45 | 1,011,481 | $ | 0.41 | ||||
Effect of dilutive securities: |
||||||||||
Stock Options |
2,922 | 2,487 | ||||||||
Diluted earnings per share |
1,014,403 | $ | 0.45 | 1,013,968 | $ | 0.41 | ||||
11
NOTE 6 BORROWINGS:
The Bank has a line of credit with the Federal Home Loan Bank of Atlanta (FHLB) upon which credit advances can be made up to 40% of total assets, subject to certain eligibility and collateral 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 September 30, 2007, the total outstanding borrowings with FHLB were $9.5 million with approximately $7.5 million being fixed-rate long-term debt, which matures through December 30, 2009. The interest rates on the fixed-rate notes payable ranges from 2.92% to 3.92%. As of September 30, 2007, the total outstanding borrowing with variable interest rates was $2.0 million.
The maturities of FHLB advances as of September 30, 2007 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, |
||||||
2007 | 2006 | |||||
(In Thousands) | ||||||
Director Fees |
$ | 126 | $ | 124 | ||
Professional Fees |
102 | 99 | ||||
Supplies and Printing |
102 | 102 | ||||
Telephone Expense |
80 | 122 | ||||
Other |
769 | 733 | ||||
Total |
$ | 1,179 | $ | 1,180 | ||
12
Item 2. | Managements Discussion and Analysis or Plan of Operation |
The discussion covers the consolidated balance sheet and statement of income of Pioneer Bankshares, Inc. (Company) and its subsidiary Pioneer Bank (Bank).
Forward-Looking Statements
This quarterly report on Form 10-QSB 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
For the nine month period ended September 30, 2007, net income including securities transactions was $1.25 million compared to $1.23 million for the same period in 2006. This represents an increase of $20,000 or approximately 1.62%. Earnings per share were $1.24 as of September 30, 2007, compared to $1.22 for the same period last year. The increase in earnings for the period is primarily attributed to increased interest income on loans and investment securities. These increases are primarily the result of the Companys continued efforts to expand its loan portfolio, as well as; increased market yields on the Banks investment portfolio as compared to the prior year.
The Companys net growth in assets for the nine month period ending September 30, 2007 was $6.4 million, which represents a 4.25% increase over that achieved in the comparable period for 2006. The loan portfolio grew by $7.2 million or 6.08% during the nine months ending September 30, 2007. The growth trends are attributed to the Companys focus on increasing its loan portfolio primarily in the category of small to medium sized commercial loans.
Total liabilities for the Company as of September 30, 2007 were $142.1 million compared to $136.4 million at year-end 2006. This represents an increase of approximately $5.7 million or 4.18%. The deposit portfolio grew by $6.5 million or 5.24% during the same period. The primary increases in deposit accounts have been in a variety of categories, including non-interest bearing demand accounts, time deposits and savings accounts. Time deposits increased by approximately $4.0 million or 5.67% during the nine month period ending September 30, 2007.
The Companys total capital position remains strong and exceeds regulatory guidelines. As of September 30, 2007, total capital was $16.0 million.
Management is not aware of any trends, events, or other uncertainties that would have a material effect on the Companys liquidity, capital resources, or operational activities.
13
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.
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 basis principles of accounting: 1) Statement of Financial Accounting Standard (SFAS) 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimatable and 2) SFAS 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 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 evident. 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, 2007 and December 31, 2006. The goodwill is no longer amortized, but instead is tested for impairment at least annually.
14
Results of Operations
Net Interest Income
Total interest income increased by $737,000 or 10.12% during the nine month period ending September 30, 2007 as compared to the same period for 2006. For the same reporting periods, total interest expense increased $525,000 or 21.82%. These increases resulted in a total overall increase in net interest income of $212,000 or 4.35% for the nine month period ending September 30, 2007, when compared to the same period in 2006.
The net interest margin decreased from 4.73% at September 30, 2006, to 4.70% at September 30, 2007. Managements continued focus on commercial and residential real estate lending as opposed to higher yielding consumer loans. Changes in market interest rates on deposits and borrowings were the main contributors to the overall decrease in net interest margin. The average yield on earning assets increased from 7.05% as of September 30, 2006 to 7.40% as of September 30, 2007.
The average interest rate being paid on time deposits increased from 3.93% as of September 30, 2006 to 4.56% as of September 30, 2007. The average interest rate being paid on borrowed funds decreased from 4.01% as of September 30, 2006 to 3.75% as of September 30, 2007. The changes in these average costs are primarily related to the recent market interest rate fluctuations, increased deposit volume during the reporting period, and the cost of borrowed funds.
Noninterest Income
During the nine month period ending September 30, 2007, non-interest income decreased by $27,000 or 2.82% when compared to the same period last year. The primary factor contributing to this decrease was gains on securities transactions of $206,000 compared to gains in the prior year of $305,000. Service charge income increased by $14,000, while other income increased by $58,000. The increase in service charge income is primarily the result of additional ATM fees being collected. The increase in other income is directly related to investment commission income generated by the Companys subsidiary, Pioneer Financial Services, LLC.
Noninterest Expense
During the nine month period ending September 30, 2007, non-interest expense increased $145,000 or 3.84% in comparison to the same period for 2006. Salaries and benefits increased by $187,000 due to cost of living increases, promotional payroll adjustments, and the recent employment of personnel for the Companys subsidiary, Pioneer Financial Services, LLC. Occupancy expenses increased $2,000 and equipment expense decreased by approximately $43,000.
Financial Condition
Securities
The Companys securities portfolio is held to assist the Company in liquidity and asset liability management as well as capital appreciation. The securities portfolio 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. At September 30, 2007, all of the Companys securities were classified as available for sale.
As of September 30, 2007, the market value of securities available for sale was approximately $36,000 more than the amortized cost as shown in note 2 of the financial statements included in this report. Management has traditionally held debt securities until maturity and thus it does not expect market fluctuations in the value of these securities to have a material impact on earnings.
15
Investments in securities, including those which were restricted, decreased by approximately $4.25 million during the nine month period ending September 30, 2007. This decrease is attributed to funding needs in support of the increased loan portfolio. The Company generally invests in securities with a relatively short-term maturity due to uncertainty in the direction of market interest rates. Of the investments in securities available for sale, 9.38% (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 Company believes these investments offer adequate returns and/or have the potential for increases in value.
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.
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 regularly 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 real estate, residential real estate, and consumer auto loans. A significant percentage of real estate loans and installment loans are made to borrowers employed by businesses outside the service area.
During the nine month period ending September 30, 2007, net loans increased by approximately $7.2 million or 6.08%, as a result of managements proactive efforts to add volume in the commercial real estate sector of the lending portfolio. The Company has taken measures to reduce the risk exposure related to consumer and automobile financing and continues to monitor its progress in this area. A schedule of loans by type is shown in note 3 of 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 $17,000 at September 30, 2007 compared to $67,000 at December 31, 2006. This represents a decrease of $50,000 and is mainly due to managements continued proactive collection efforts. Management continually monitors non-accrual accounts and 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, 2007 was $270,000 compared to $213,000 at December 31, 2006. Based on current collateral values, management has identified potential losses relating to impaired loans of approximately $68,000 as of September 30, 2007. Potential loss reserve allocations as of December 31, 2006 were $42,500. Specific valuation allowances have been made as a precautionary measure to cover these potential losses.
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 September 30, 2007 that are not included in the past due, non-accrual loans, or impaired loans referred to above.
16
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.
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 $1,532 million at September 30, 2007, increased by approximately $56,000 from its level at December 31, 2006. The increase in the allowance balance is primarily attributed to specific allocations related to impaired loans and growth in the consumer auto financing category. While the funding requirement for impaired loans and auto financing has increased, the majority of loan portfolio growth has been in commercial real estate accounts, which are considered to be a lower risk category. The Companys past due trends have remained relatively stable and in a range consistent with the banks expectations during this period of loan growth. The lower risk growth funding factors related to commercial real estate loans have contributed to the slight decrease in the cumulative funding as a percentage of total loans. The cumulative balance in the allowance for loan loss account was equal to 1.20% and 1.23% of total loans at September 30, 2007 and December 31, 2006, respectively.
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 for the period ending September 30, 2007 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.
Managements evaluation of the allowance for loan losses for the periods ending September 30, 2007 and December 31, 2006 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.
17
Premises and Equipment
The Company continually monitors technological upgrades in the banking industry, and may, from time to time, 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. The Company also periodically evaluates opportunities for future branch locations and additional products in order to enhance customer service.
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 total deposit portfolio has historically remained stable.
During the nine month period ending September 30, 2007, total deposits increased by $6.5 million or 5.24%. The increase in deposits was distributed among non-interest bearing demand accounts, savings accounts, 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 of Atlanta (FHLB) upon which credit advances can be made up to 40% of total assets, subject to certain eligibility requirements. As of September 30, 2007, total borrowings were $9.5 million compared to $10.7 million at December 31, 2006. This represents a decrease of $1.2 million or 11.21%. This decrease is attributed to regularly scheduled principal reductions that occurred during the reporting period. The Bank utilizes borrowings periodically as a source of funds for loan growth and other investment opportunities in order to maintain a profitable interest spread. Borrowings are generally matched with maturities of specific groups of loans, and are normally advanced in terms ranging from 1 5 years.
Capital
The Company maintains a strong capital base as support for possible future expansion, to promote public confidence, and to support operations and for continued growth at a manageable level. As of September 30, 2007, and December 31, 2006, the Companys total capital-to-asset ratios were 10.11% and 10.04%, respectively. The Companys capital ratios exceed regulatory minimums. Earnings have been sufficient to allow for dividends to be 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.
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, 2007 remains adequate.
18
Interest Rate Sensitivity
The Company has historically 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 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 September 30, 2007.
The Company had a negative cumulative Gap Rate Sensitivity Ratio of 42.57% for the one year re-pricing period as of September 30, 2007, compared to a negative cumulative Gap Sensitivity of 39.46% at December 31, 2006. 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 September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements but may change current practice for some entities. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those years. The Company does not expect the implementation of SFAS 157 to have a material impact on its consolidated financial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of this Statement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument and is irrevocable. SFAS 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. The Company is in the process of evaluating the impact SFAS 159 may have on its consolidated financial statements.
Effect of Proposed Accounting Standards
The Company does not believe that any newly issued but as yet unapplied accounting standards 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 SEC, including Pioneer Bankshares, Inc.
19
TABLE I
PIONEER BANKSHARES, INC.
NET INTEREST MARGIN ANALYSIS
(On a Fully Tax Equivalent Basis)
(Dollar Amounts in Thousands)
Nine Months Ended
September 30, 2007 |
Nine Months Ended
September 30, 2006 |
|||||||||||||||||
Average
Balance |
Income/
Expense |
Rates |
Average
Balance |
Income/
Expense |
Rates | |||||||||||||
Interest Income |
||||||||||||||||||
Loans 1 |
||||||||||||||||||
Commercial |
$ | 8,393 | $ | 560 | 8.90 | % | $ | 5,944 | $ | 380 | 8.52 | % | ||||||
Real estate |
99,857 | 5,316 | 7.10 | % | 94,355 | 4,878 | 6.89 | % | ||||||||||
Installment |
15,458 | 1,300 | 11.21 | % | 14,500 | 1,249 | 11.49 | % | ||||||||||
Credit Card |
556 | 92 | 22.06 | % | 598 | 97 | 21.63 | % | ||||||||||
Federal funds sold |
3,361 | 128 | 5.08 | % | 4,507 | 163 | 4.82 | % | ||||||||||
Interest Bearing |
||||||||||||||||||
Deposits |
4,971 | 188 | 5.04 | % | 5,970 | 193 | 4.31 | % | ||||||||||
Investments |
||||||||||||||||||
Taxable |
9,659 | 399 | 5.51 | % | 10,098 | 279 | 3.68 | % | ||||||||||
Nontaxable 2 |
2,611 | 56 | 2.86 | % | 2,187 | 67 | 4.08 | % | ||||||||||
Total earning assets |
144,866 | 8,039 | 7.40 | % | 138,159 | 7,306 | 7.05 | % | ||||||||||
Interest Expense |
||||||||||||||||||
Demand deposits |
11,188 | 39 | 0.46 | % | 12,669 | 42 | 0.44 | % | ||||||||||
Savings |
12,986 | 91 | 0.93 | % | 13,643 | 63 | 0.62 | % | ||||||||||
Time deposits |
73,736 | 2,520 | 4.56 | % | 60,575 | 1,785 | 3.93 | % | ||||||||||
Borrowings |
10,004 | 281 | 3.75 | % | 17,160 | 516 | 4.01 | % | ||||||||||
Total Interest Bearing Liabilities |
$ | 107,914 | $ | 2,931 | 3.62 | % | $ | 104,047 | $ | 2,406 | 3.08 | % | ||||||
Net Interest Income 1 |
5,108 | 4,900 | ||||||||||||||||
Net Interest Margin |
4.70 | % | 4.73 | % | ||||||||||||||
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. |
20
PIONEER BANKSHARES, INC.
NET INTEREST MARGIN ANALYSIS
(On a Fully Tax Equivalent Basis)
(Dollar Amounts in Thousands)
Three Months Ended September 30, 2007 |
Three Months Ended September 30, 2006 |
|||||||||||||||||
Average
Balance |
Income/
Expense |
Rates |
Average
Balance |
Income/
Expense |
Rates | |||||||||||||
Interest Income |
||||||||||||||||||
Loans 1 |
||||||||||||||||||
Commercial |
$ | 8,913 | $ | 198 | 8.89 | % | $ | 6,514 | $ | 147 | 9.03 | % | ||||||
Real estate |
102,020 | 1,828 | 7.17 | % | 95,866 | 1,652 | 6.89 | % | ||||||||||
Installment |
16,064 | 454 | 11.30 | % | 14,725 | 414 | 11.25 | % | ||||||||||
Credit card |
552 | 32 | 23.19 | % | 589 | 32 | 21.73 | % | ||||||||||
Federal funds sold |
3,172 | 40 | 5.04 | % | 5,904 | 79 | 5.35 | % | ||||||||||
Interest Bearing |
||||||||||||||||||
Deposits |
5,861 | 77 | 5.26 | % | 5,097 | 58 | 4.55 | % | ||||||||||
Securities |
||||||||||||||||||
Taxable |
9,817 | 144 | 5.87 | % | 10,017 | 107 | 4.27 | % | ||||||||||
Nontaxable 2 |
2,267 | 18 | 3.18 | % | 2,141 | 25 | 4.67 | % | ||||||||||
Total earning assets |
148,666 | 2,791 | 7.51 | % | 140,853 | 2,514 | 7.14 | % | ||||||||||
Interest Expense |
||||||||||||||||||
Demand deposits |
10,573 | 13 | 0.49 | % | 11,995 | 12 | 0.40 | % | ||||||||||
Savings |
14,005 | 41 | 1.17 | % | 13,173 | 21 | 0.64 | % | ||||||||||
Time deposits |
76,132 | 890 | 4.68 | % | 63,462 | 701 | 4.41 | % | ||||||||||
Borrowings |
10,309 | 106 | 4.11 | % | 17,122 | 175 | 4.09 | % | ||||||||||
Total Interest Bearing Liabilities |
$ | 111,019 | $ | 1,050 | 3.78 | % | $ | 105,752 | $ | 909 | 3.43 | % | ||||||
Net Interest Income 1 |
$ | 1,741 | $ | 1,605 | ||||||||||||||
Net Interest Margin |
4.68 | % | 4.56 | % | ||||||||||||||
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. |
21
TABLE II
PIONEER BANKSHARES, INC.
INTEREST SENSITIVITY ANALYSIS
September 30, 2007
(Dollar Amounts in Thousands)
0-3
Months |
4-12
Months |
1-5 Years |
Over 5
Years |
Not
Classified |
Total | ||||||||||||||||||
Uses of Funds: |
|||||||||||||||||||||||
Loans |
$ | 13,808 | $ | 9,195 | $ | 56,392 | $ | 48,182 | $ | | $ | 127,577 | |||||||||||
Interest bearing bank deposits |
4,068 | 1,250 | | | | 5,318 | |||||||||||||||||
Investment securities |
| 295 | 5,237 | 3,282 | 912 | 9,726 | |||||||||||||||||
Restricted stock |
| | | | 856 | 856 | |||||||||||||||||
Federal funds sold |
| | | | | | |||||||||||||||||
Total |
17,876 | 10,740 | 61,629 | 51,464 | 1,768 | 143,477 | |||||||||||||||||
Sources of Funds: |
|||||||||||||||||||||||
Interest bearing demand deposits |
10,555 | | | | | 10,555 | |||||||||||||||||
Regular savings |
13,817 | | | | | 13,817 | |||||||||||||||||
Certificates of deposit $100,000 and over |
1,273 | 10,246 | 1,837 | | | 13,356 | |||||||||||||||||
Other certificates of deposit |
14,831 | 35,770 | 10,317 | | | 60,918 | |||||||||||||||||
Borrowings |
600 | 3,200 | 5,700 | | | 9,500 | |||||||||||||||||
Total |
41,076 | 49,216 | 17,854 | | | 108,146 | |||||||||||||||||
Discrete Gap |
(23,200 | ) | (38,476 | ) | 43,775 | 51,464 | 1,768 | 35,331 | |||||||||||||||
Cumulative Gap |
(23,200 | ) | (61,676 | ) | (17,901 | ) | 33,563 | 35,331 | |||||||||||||||
Ratio of Cumulative Gap To Total Ave Earning Assets at September 30, 2007 |
-16.01 | % | -42.57 | % | -12.36 | % | 23.17 | % | 24.39 | % | |||||||||||||
22
Item 3. | 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 officer 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 were adequate and effective as of the end of the period covered by this report. There were no changes in the Companys internal control over financial reporting during the quarter ended September 30, 2007, that materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
Changes in Internal Controls
There were no significant changes in the Companys internal controls pertaining to its financial reporting and control of its assets or in other factors that could significantly affect these controls since the date of their evaluation.
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.
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 2007.
Item 3. | Defaults Upon Senior Securities |
Not Applicable
23
Item 4. | Submission of Matters to a Vote of Security Holders |
Not Applicable
Item 5. | Other Information |
Not Applicable
Item 5a. | Required 8-K Disclosures |
Not Applicable
Item 5b. | Changes in Procedures for Director Nominations by Security Holders |
There have been no material changes to the Companys procedures by which the security holders may recommend nominees to the Companys board of directors during this reporting period.
Item 6. | Exhibits |
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). |
24
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PIONEER BANKSHARES, INC. |
/s/ THOMAS R. ROSAZZA |
Thomas R. Rosazza |
President and Chief Executive Officer |
/s/ LORI G. HASSETT |
Lori G. Hassett |
Vice President and Chief Financial Officer |
Date: November 14, 2007
25
1 Year Pioneer Bankshares (PK) Chart |
1 Month Pioneer Bankshares (PK) Chart |
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