Attached files
Table of Contents
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 |
For the Quarterly Period Ended September 30, 2009
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 0-30541
PIONEER BANKSHARES, INC.
(Exact name of registrant 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) (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.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: Common shares outstanding as of November 13, 2009 were 1,025,098.
Table of Contents
INDEX
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Part I - Financial Information.
Item 1. | Financial Statements |
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
September 30, 2009 |
December 31 2008 |
||||||
(Unaudited) | (Audited) | ||||||
ASSETS |
|||||||
Cash and due from banks |
$ | 3,931 | $ | 2,401 | |||
Interest bearing deposits in banks |
7,997 | 11,896 | |||||
Federal funds sold |
900 | 100 | |||||
Securities available for sale, at fair value |
14,953 | 15,216 | |||||
Restricted securities |
788 | 792 | |||||
Loans receivable, net of allowance for loan losses of $2,052 and $1,651 respectively |
124,836 | 119,225 | |||||
Premises and equipment, net |
3,640 | 3,790 | |||||
Accrued interest receivable |
703 | 720 | |||||
Other assets |
2,362 | 1,970 | |||||
Total Assets |
$ | 160,110 | $ | 156,110 | |||
LIABILITIES |
|||||||
Deposits |
|||||||
Noninterest bearing demand |
$ | 26,231 | $ | 25,079 | |||
Interest bearing |
|||||||
Demand |
16,885 | 12,377 | |||||
Savings |
16,038 | 15,866 | |||||
Time deposits over $100,000 |
21,393 | 16,921 | |||||
Other time deposits |
52,291 | 58,735 | |||||
Total Deposits |
132,838 | 128,978 | |||||
Accrued expenses and other liabilities |
1,045 | 927 | |||||
Borrowings |
8,600 | 9,400 | |||||
Total Liabilities |
142,483 | 139,305 | |||||
STOCKHOLDERS EQUITY |
|||||||
Common stock; $.50 par value, authorized 5,000,000, outstanding 1,025,098 and 1,017,170 respectively |
512 | 509 | |||||
Retained earnings |
17,083 | 16,460 | |||||
Accumulated other comprehensive income (loss), net |
32 | (164 | ) | ||||
Total Stockholders Equity |
17,627 | 16,805 | |||||
Total Liabilities and Stockholders Equity |
$ | 160,110 | $ | 156,110 | |||
See Notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars, except Per Share Data)
(UNAUDITED)
Three Months Ended September 30, |
|||||||
2009 | 2008 | ||||||
Interest and Dividend Income: |
|||||||
Loans including fees |
$ | 2,181 | $ | 2,300 | |||
Interest on securities - taxable |
74 | 166 | |||||
Interest on securities - nontaxable |
35 | 8 | |||||
Interest on deposits and federal funds sold |
46 | 108 | |||||
Dividends |
14 | 20 | |||||
Total Interest and Dividend Income |
2,350 | 2,602 | |||||
Interest Expense: |
|||||||
Deposits |
616 | 797 | |||||
Long term debt |
54 | 107 | |||||
Total Interest Expense |
670 | 904 | |||||
Net Interest Income |
1,680 | 1,698 | |||||
Provision for loan losses |
285 | 96 | |||||
Net interest income after provision for loan losses |
1,395 | 1,602 | |||||
Noninterest Income: |
|||||||
Service charges and fees |
254 | 254 | |||||
Other income (loss) |
29 | (5 | ) | ||||
Total Noninterest Income |
283 | 249 | |||||
Noninterest Expense: |
|||||||
Salaries and benefits |
550 | 660 | |||||
Occupancy expenses |
83 | 87 | |||||
Equipment expenses |
138 | 160 | |||||
Other expenses |
613 | 385 | |||||
Total Noninterest Expenses |
1,384 | 1,292 | |||||
Income before Income Taxes |
294 | 559 | |||||
Income Tax Expense |
81 | 185 | |||||
Net Income |
$ | 213 | $ | 374 | |||
Per Share Data |
|||||||
Net income, basic and diluted |
$ | 0.21 | $ | 0.37 | |||
Dividends |
$ | 0.14 | $ | 0.14 | |||
Weighted Average Shares Outstanding, Basic and Diluted |
1,024,289 | 1,014,594 | |||||
See Notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars, except Per Share Data)
(UNAUDITED)
Nine Months Ended September 30, | ||||||
2009 | 2008 | |||||
Interest and Dividend Income: |
||||||
Loans including fees |
$ | 6,501 | $ | 7,053 | ||
Interest on securities - taxable |
317 | 439 | ||||
Interest on securities - nontaxable |
71 | 13 | ||||
Interest on deposits and federal funds sold |
149 | 333 | ||||
Dividends |
26 | 57 | ||||
Total Interest and Dividend Income |
7,064 | 7,895 | ||||
Interest Expense: |
||||||
Deposits |
2,020 | 2,552 | ||||
Long term debt |
176 | 342 | ||||
Total Interest Expense |
2,196 | 2,894 | ||||
Net Interest Income |
4,868 | 5,001 | ||||
Provision for loan losses |
710 | 292 | ||||
Net interest income after provision for loan losses |
4,158 | 4,709 | ||||
Noninterest Income: |
||||||
Service charges and fees |
723 | 668 | ||||
Other income |
138 | 111 | ||||
Gain on security transactions |
133 | 145 | ||||
Total Noninterest Income |
994 | 924 | ||||
Noninterest Expense: |
||||||
Salaries and benefits |
1,652 | 1,965 | ||||
Occupancy expenses |
260 | 266 | ||||
Equipment expenses |
431 | 501 | ||||
Other expenses |
1,450 | 1,239 | ||||
Total Noninterest Expenses |
3,793 | 3,971 | ||||
Income before Income Taxes |
1,359 | 1,662 | ||||
Income Tax Expense |
424 | 552 | ||||
Net Income |
$ | 935 | $ | 1,110 | ||
Per Share Data |
||||||
Net income, basic and diluted |
$ | 0.91 | $ | 1.09 | ||
Dividends |
$ | 0.43 | $ | 0.43 | ||
Weighted Average Shares Outstanding, Basic |
1,022,185 | 1,014,594 | ||||
Weighted Average Shares Outstanding, Diluted |
1,022,185 | 1,014,976 | ||||
See Notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(In Thousands)
(UNAUDITED)
Common Stock |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Total | ||||||||||||
BALANCE DECEMBER 31, 2007 |
$ | 506 | $ | 15,805 | $ | (36 | ) | $ | 16,275 | ||||||
Comprehensive Income |
|||||||||||||||
Net Income |
1,110 | 1,110 | |||||||||||||
Changes in unrealized gains (losses) on securities, net of taxes |
|||||||||||||||
Unrealized holding losses arising during the period (net of tax effect of $214) |
(329 | ) | |||||||||||||
Reclassification adjustment for gains included in net income (net of tax effect of $49) |
(96 | ) | (425 | ) | |||||||||||
Total Comprehensive Income |
685 | ||||||||||||||
Stock issued for compensation |
3 | 120 | | 123 | |||||||||||
Cash Dividends |
| (436 | ) | | (436 | ) | |||||||||
BALANCE SEPTEMBER 30, 2008 |
$ | 509 | $ | 16,599 | $ | (461 | ) | $ | 16,647 | ||||||
BALANCE DECEMBER 31, 2008 |
$ | 509 | $ | 16,460 | $ | (164 | ) | $ | 16,805 | ||||||
Comprehensive Income |
|||||||||||||||
Net Income |
935 | 935 | |||||||||||||
Changes in unrealized gains (losses) on securities, net of taxes |
|||||||||||||||
Unrealized holding gains arising during the period (net of tax effect of 160) |
284 | ||||||||||||||
Reclassification adjustment for gains included in net income (net of tax effect of $45) |
(88 | ) | 196 | ||||||||||||
Total Comprehensive Income |
1,131 | ||||||||||||||
Stock issued for compensation |
3 | 128 | | 131 | |||||||||||
Cash Dividends |
| (440 | ) | | (440 | ) | |||||||||
BALANCE SEPTEMBER 30, 2009 |
$ | 512 | $ | 17,083 | $ | 32 | $ | 17,627 | |||||||
See Notes to Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(UNAUDITED)
Nine Months Ended September 30, |
||||||||
2009 | 2008 | |||||||
Cash Flows from Operating Activities: |
||||||||
Net income |
$ | 935 | $ | 1,110 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for loan losses |
710 | 292 | ||||||
Depreciation and amortization |
301 | 370 | ||||||
Gain on sale of securities |
(133 | ) | (145 | ) | ||||
Net amortization on securities |
12 | | ||||||
Stock issued for compensation |
131 | 123 | ||||||
Net change in: |
||||||||
Accrued interest receivable |
17 | 52 | ||||||
Other assets |
(507 | ) | (93 | ) | ||||
Accrued expense and other liabilities |
118 | (215 | ) | |||||
Net Cash Provided by Operating Activities |
1,584 | 1,494 | ||||||
Cash Flows from Investing Activities: |
||||||||
Net change in federal funds sold |
(800 | ) | (1,700 | ) | ||||
Net change in interest bearing deposits |
3,899 | (8,413 | ) | |||||
Net change in restricted securities |
4 | (409 | ) | |||||
Proceeds from maturities and sales of securities available for sale |
15,407 | 13,325 | ||||||
Purchase of securities available for sale |
(14,712 | ) | (21,351 | ) | ||||
Net decrease (increase) in loans |
(6,321 | ) | 7,975 | |||||
Purchase of bank premises and equipment |
(151 | ) | (184 | ) | ||||
Net Cash Used in Investing Activities |
(2,674 | ) | (10,757 | ) | ||||
Cash Flows from Financing Activities: |
||||||||
Net change in: |
||||||||
Demand and savings deposits |
5,832 | 440 | ||||||
Time deposits |
(1,972 | ) | (1,244 | ) | ||||
Proceeds from borrowings |
6,500 | 21,501 | ||||||
Curtailments of borrowings |
(7,300 | ) | (12,401 | ) | ||||
Dividends paid |
(440 | ) | (436 | ) | ||||
Net Cash Provided by Financing Activities |
2,620 | 7,860 | ||||||
Cash and Cash Equivalents: |
||||||||
Net increase (decrease) in cash and cash equivalents |
1,530 | (1,403 | ) | |||||
Cash and Cash Equivalents, beginning of year |
2,401 | 6,106 | ||||||
Cash and Cash Equivalents, End of Period |
$ | 3,931 | $ | 4,703 | ||||
Supplemental Disclosure of Cash Paid |
||||||||
During the Period for: |
||||||||
Interest |
$ | 2,278 | $ | 3,055 | ||||
Income taxes |
$ | 657 | $ | 654 | ||||
Supplemental Disclosure of non-cash activity: |
||||||||
Unrealized gain (loss) on securities available for sale |
311 | (688 | ) | |||||
Loan balances transferred to other real estate |
475 | 24 |
See Notes to Consolidated Financial Statements
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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, 2009 and the results of operations for the nine month period ended September 30, 2009 and September 30, 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. The results for the nine month period ended September 30, 2009 are not necessarily indicative of the results to be expected for the full year.
Reclassifications Certain reclassifications have been made to prior period balances to conform to the current year presentation.
Subsequent Events In preparing these financial statements, management has evaluated subsequent events and transactions for potential recognition or disclosure through November 13, 2009, the date these financial statements were issued. Management has concluded there were no material subsequent events to be disclosed at this time.
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.
The accounting standard relating to Stock Compensation 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. All outstanding shares are fully vested and all compensation expense relating to outstanding stock options under this plan have been previously recorded. There is no additional compensation expense expected to be booked relating to this plan.
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 September 30, 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 | 4.25 | ||||||
Options Granted |
| | ||||||||
Options Exercised |
800 | 12.75 | ||||||||
Options Forfeited |
| | ||||||||
Options outstanding, 9/30/09 |
6,400 | $ | 16.58 | 4.25 | ||||||
Options exercisable, 9/30/09 |
6,400 | $ | 16.58 | 4.25 | $ | |
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PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
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, 2009 and December 31, 2008 follows:
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||
(In Thousands) | |||||||||||||
September 30, 2009 | |||||||||||||
Available for Sale |
|||||||||||||
U.S. government and agency securities |
$ | 3,500 | $ | 4 | $ | | $ | 3,504 | |||||
Mortgage-backed securities |
4,137 | 208 | | 4,345 | |||||||||
State and municipals |
4,300 | 131 | | 4,431 | |||||||||
Equity securities |
2,987 | 83 | (397 | ) | 2,673 | ||||||||
$ | 14,924 | $ | 426 | $ | (397 | ) | $ | 14,953 | |||||
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 September 30, 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 and does not expect to be required to sell these securities before such time that 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 September 30, 2009 and December 31, 2008, by duration of the unrealized loss are shown in the following table.
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PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
NOTE 2 INVESTMENT SECURITIES (continued):
As of September 30, 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:
Gross Unrealized Losses |
(In Thousands) |
Equity Securities |
Total | |||||||
Less than 12 Months |
Fair Value | $ | | $ | | |||||
Unrealized Losses | | | ||||||||
More than 12 Months |
Fair Value | 969 | 969 | |||||||
Unrealized Losses | (397 | ) | (397 | ) | ||||||
Total |
Fair Value | $ | 969 | $ | 969 | |||||
Unrealized Losses | (397 | ) | (397 | ) | ||||||
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:
Gross Unrealized Losses |
Municipal Securities |
Equity Securities |
Total | |||||||||||
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 | ) | |||||
The Bank also holds additional investments in Federal Home Loan Bank of Atlanta (FHLB) in the form of FHLB stock, which is a membership requirement. Loan advances from FHLB are also subject to additional stock purchase requirements, which are generally redeemed as outstanding loan balances are repaid, subject to FHLBs quarterly excess capital evaluation process. For the third quarter of 2009, FHLB announced that it will not repurchase activity-based excess capital stock outstanding. FHLB will continue to evaluate excess capital stock repurchases on a quarterly basis going forward. FHLB stock is generally viewed as a long term investment and is considered to be a restricted security, which is carried at cost, because there is no market for the stock other than FHLB or other member institutions. As of September 30, 2009, the Banks investment in FHLB stock totaled $712,000. Managements evaluation of FHLB stock for impairment is based on the ultimate recoverability of par value rather than recognizing temporary declines in value. Although FHLBs stock dividends were temporarily suspended for the fourth quarter of 2008 and the first quarter of 2009, dividend payments were declared for the period ending June 30, 2009 and September 30, 2009. Managements evaluation of FHLB stock as of September 30, 2009 did not consider this investment to be other than temporarily impaired, and therefore, no impairment has been recognized.
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PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
NOTE 3 LOANS:
Loans outstanding are summarized as follows:
(In Thousands) | ||||||||
September 30, 2009 |
December 31, 2008 |
|||||||
Mortgage loans on real estate |
||||||||
Construction loans |
$ | 7,690 | $ | 9,447 | ||||
Agricultural |
3,566 | 4,267 | ||||||
Equity lines of credit |
1,729 | 1,927 | ||||||
Residential 1-4 family |
46,580 | 41,618 | ||||||
Second Mortgages |
4,125 | 3,788 | ||||||
Multifamily |
3,603 | 4,144 | ||||||
Commercial |
36,586 | 34,022 | ||||||
Total real estate loans |
103,879 | 99,213 | ||||||
Commercial and industrial loans |
6,667 | 5,701 | ||||||
Consumer installment loans |
||||||||
Personal |
16,006 | 15,665 | ||||||
Credit cards |
604 | 645 | ||||||
Total consumer installment loans |
16,610 | 16,310 | ||||||
All other loans |
230 | 362 | ||||||
Gross Loans |
127,386 | 121,586 | ||||||
Less unearned income on loans |
(498 | ) | (710 | ) | ||||
Loans, less unearned discount |
126,888 | 120,876 | ||||||
Less allowance for loan losses |
(2,052 | ) | (1,651 | ) | ||||
Net Loans Receivable |
$ | 124,836 | $ | 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 September 30, 2009 and the year ending December 31, 2008 is as follows:
September 30, 2009 |
December 31, 2008 |
|||||||
(Unaudited) | (Audited) | |||||||
(In Thousands) | ||||||||
Balance, beginning of period |
$ | 1,651 | $ | 1,573 | ||||
Provision charged to operating expenses |
710 | 548 | ||||||
Recoveries of loans charged off |
162 | 311 | ||||||
Loans charged off |
(471 | ) | (781 | ) | ||||
Balance, end of period |
$ | 2,052 | $ | 1,651 | ||||
The total amount of impaired loans was $2.0 million as of September 30, 2009 and December 31, 2008. Specific valuation allowances of approximately $695,000 have been made to cover potential losses associated with these loans.
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PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
NOTE 5 EARNINGS PER SHARE:
The following shows the weighted average number of shares for the nine month period ending September 30, 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.
Nine Months Ended September 30, 2009 |
Nine Months Ended September 30, 2008 | |||||||||
Shares | Per Share Amount |
Shares | Per Share Amount | |||||||
Basic earnings per share |
1,022,185 | $ | 0.91 | 1,014,594 | $ | 1.09 | ||||
Effect of dilutive securities: |
||||||||||
Stock Options |
| 382 | ||||||||
Diluted earnings per share |
1,022,185 | $ | 0.91 | 1,014,976 | $ | 1.09 | ||||
The weighted average number of shares for the three month period ending September 30, 2009 and 2008, 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, 2009 |
Three Month Ended September 30, 2008 | |||||||||
Shares | Per Share Amount |
Shares | Per Share Amount | |||||||
Basic earnings per share |
1,024,289 | $ | 0.21 | 1,014,594 | $ | 0.37 | ||||
Effect of dilutive securities: |
||||||||||
Stock Options |
| | ||||||||
Diluted earnings per share |
1,024,289 | $ | 0.21 | 1,014,594 | $ | 0.37 | ||||
Stock options representing 6,400 and 7,200 shares were not included in the computation of diluted EPS because their effects were anti-dilutive as of September 30, 2009 and 2008, respectively.
NOTE 6 BORROWINGS:
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 September 30, 2009, the total outstanding borrowings with FHLB were $8.6 million, which mature through June 30, 2010. The interest rates on these fixed-rate notes payable range from 0.38% to 3.92%. The maturities of FHLB advances as of September 30, 2009 are shown in TABLE II of this report.
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PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
NOTE 7 OTHER EXPENSES:
Other expenses in the consolidated statements of income include the following components:
Nine Months Ended September 30, | ||||||
2009 | 2008 | |||||
(In Thousands) | ||||||
ATM Service Fees |
$ | 94 | $ | 82 | ||
Director Fees |
92 | 96 | ||||
FDIC Assessment |
279 | 13 | ||||
Legal Fees |
80 | 90 | ||||
Professional Fees |
103 | 153 | ||||
Supplies and Printing |
111 | 101 | ||||
Telephone Expense |
78 | 106 | ||||
Sales & Franchise Taxes |
89 | 66 | ||||
Other |
524 | 532 | ||||
Total |
$ | 1,450 | $ | 1,239 | ||
NOTE 8 FAIR VALUE MEASUREMENT:
The accounting standard relating to Fair Value Measurements and Disclosure requirements provides guidance for fair value recording of certain assets and liabilities and clarifies that fair value of those certain assets and liabilities is determined at 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. This accounting standard further clarifies the application of Fair Value Measurements in a market that is not active and provides key considerations in determining the fair value of a financial asset when the market for that financial asset is not active.
The Fair Value Measurement accounting standard 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 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.
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PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2009:
Description |
Balance as of September 30, 2009 |
Fair Value Measurements Using | ||||||||||
Quoted Prices in Active Markets for Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs | ||||||||||
(Level 1) | (Level 2) | (Level 3) | ||||||||||
Assets |
||||||||||||
Available-for-sale securities |
$ | 14,953 | $ | | $ | 14,953 | $ | |
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.
Impaired loans
The Fair Value Measurement accounting standard also applies to loans measured for impairment 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.
The following table summarizes the Companys financial assets that were measured at fair value as of September 30, 2009:
Description |
Balance as of September 30, 2009 |
Carrying value at September 30, 2009 | ||||||||||
Quoted Prices in Active Markets for Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs | ||||||||||
(Level 1) | (Level 2) | (Level 3) | ||||||||||
Assets: |
||||||||||||
Impaired Loans, Net of allowance |
$ | 1,269 | $ | | $ | 475 | $ | 794 | ||||
Other Real Estate Owned |
$ | 475 | $ | 475 | $ | |
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PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The fair value of a financial instrument is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced liquidation sale. As the majority of the Companys financial instruments lack an available trading market; significant estimates, assumptions and present value calculations are required to determine estimated fair value.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and Due From Banks and Federal Funds Sold For those short-term instruments, the carrying amount is a reasonable estimate of fair value.
Interest Bearing Deposits in Other Banks Fair values are based on quoted reinvestment market rates available at for similar deposits accounts as of the date of this report.
Securities Fair values, excluding restricted stock, are based on quoted market prices or dealer quotes.
Loans Receivable For certain homogeneous categories of loans, such as some residential mortgages, and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
Deposits and Borrowings The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. The fair value of all other deposits and borrowings is determined using the discounted cash flow method. The discount rate was equal to the rate currently offered on similar products.
Accrued Interest The carrying amounts of accrued interest approximate fair value.
Off-Balance-Sheet Financial Instruments The fair value of commitments to extend credit is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counter party. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.
The fair value of stand-by letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counter parties at the reporting date.
At September 30, 2009 and December 31, 2008, the fair value of loan commitments and stand-by letters of credit were immaterial. Therefore, they have not been included in the following table.
The Company, through its bank subsidiary, assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair value of their financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to repay in a rising rate environment and more likely to repay in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Companys overall interest rate risk.
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PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Estimated fair value and the carrying value of financial instruments at September 30, 2009 and December 31, 2008 are as follows:
September 30, 2009 | December 31, 2008 | |||||||||||
Estimated Fair Value |
Carrying Value |
Estimated Fair Value |
Carrying Value | |||||||||
(In Thousands) | ||||||||||||
Financial Assets |
||||||||||||
Cash and due from banks |
$ | 3,931 | $ | 3,931 | $ | 2,401 | $ | 2,401 | ||||
Interest bearing deposits in other banks |
8,060 | 7,997 | 12,045 | 11,896 | ||||||||
Federal funds sold |
900 | 900 | 100 | 100 | ||||||||
Securities available for sale |
14,953 | 14,953 | 15,216 | 15,216 | ||||||||
Loans, net |
125,637 | 124,836 | 118,272 | 119,225 | ||||||||
Accrued interest receivable |
703 | 703 | 720 | 720 | ||||||||
Financial Liabilities |
||||||||||||
Demand Deposits: |
||||||||||||
Non-interest bearing |
26,231 | 26,231 | 25,079 | 25,079 | ||||||||
Interest bearing |
16,885 | 16,885 | 12,377 | 12,377 | ||||||||
Savings deposits |
16,038 | 16,038 | 15,866 | 15,866 | ||||||||
Time deposits |
75,689 | 73,684 | 76,848 | 75,656 | ||||||||
Borrowings |
8,613 | 8,600 | 9,408 | 9,400 | ||||||||
Accrued interest payable |
536 | 536 | 619 | 619 |
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
The discussion covers the consolidated financial condition and operations of Pioneer Bankshares, Inc. (Company) and its subsidiary Pioneer Bank (Bank).
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements with respect to the Companys and the Banks financial condition, results of operations and business. These forward-looking statements involve certain risks and uncertainties. When used in this quarterly report or future regulatory filings, in press releases or other public shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, believe, or similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution the readers and users of this information not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advise readers that various factors including regional and national economic conditions, changes in the levels of market rates of interest, credit risk and lending activities, and competitive and regulatory factors could affect the financial performance of the Company and the Bank and could cause actual results for future periods to differ materially from those anticipated or projected.
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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 $935,000 for the nine month period ending September 30, 2009, as compared to $1.1 million for the same period last year. The decrease in earnings of approximately $175,000 is primarily attributed to additional FDIC insurance premiums and provision allocations that have been made for potential loan losses.
The Company had asset growth of approximately $4.0 million during the nine month period ended September 30, 2009. Investments in securities available for sale decreased by $263,000 for the period ending September 30, 2009, as compared to total securities available for sale at December 31, 2008. Investments in interest bearing deposits decreased by $3.9 million for the nine month period ending September 30, 2009 and investments in Federal Funds Sold increased by approximately $800,000 for the same period, as compared to balances as of December 31, 2008.
The Companys loan portfolio increased by approximately $5.6 million or 4.71% during the nine month period ending September 30, 2009, with the majority of this growth being in small to medium sized commercial and residential real estate loans. The deposit portfolio increased by $3.9 million or 2.99% during the same period, with the majority of this growth being in the category of interest bearing demand deposit accounts. The Companys capital position as of September 30, 2009 is approximately $17.6 million, or 11.01% as a percentage of total assets. The Company and its subsidiary, Pioneer Bank, continue to maintain capital ratios that meet and exceed regulatory requirements to be considered a well capitalized institution.
The Companys book value as of September 30, 2009 was $17.20 per share, as compared to a book value of $16.52 per share as of December 31, 2008. This represents an increase of 4.12%. Shareholder dividend payments for the nine month period ending September 30, 2009 totaled $0.43 per share, and were the same as the dividend amount paid for the same period of 2008. Earnings per share as of September 30, 2009 were $0.91 compared to $1.09 for the same period last year.
Management recognizes that prevailing economic conditions may have the potential to adversely impact the Companys operational results, including future earnings, liquidity, and capital resources. Management continually monitors economic factors in an effort to promptly identify specific trends that could have a direct material effect on the Company.
Critical Accounting Policies
General
The Companys consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset, or relieving a liability.
The Company uses historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio. Actual losses could differ significantly from the historical factors. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change.
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 accounting standards: 1) Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimatable, and 2) 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.
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Management evaluates the loan portfolio in light of national and local economic trends, changes in the nature and value of the portfolio and industry standards. Specific factors considered by management in determining the adequacy of the level of the allowance include internally generated loan review reports, past due reports, historical loan loss experience and individual borrowers financial condition. This review also considers concentrations of loans in terms of geography, business type or level of risk. Management evaluates the risk elements involved in loans relative to their collateral value and maintains the allowance for loan losses at a level which is adequate to absorb credit losses inherent in the loan portfolio. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgment about information available to them at the time of their examination.
The methodology used to calculate the allowance for loan losses and the provision for loan losses is a significant accounting principle, which is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.
Goodwill
Goodwill is evaluated on an annual basis for impairments in value and adjusted accordingly. The accounting standards for Business Combinations, Goodwill and Other Intangible Assets require 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. The provisions of these accounting standards discontinued the amortization of goodwill and intangible assets with indefinite lives. Instead, these assets are subject to an annual impairment review, which must be performed at least annually or more frequently if certain impairment indicators are in evidence. The accounting standards relating to Goodwill also require that reporting units be identified for the purpose of assessing potential future impairments.
Goodwill is included in other assets and totaled $360,000 at September 30, 2009 and December 31, 2008. Goodwill is no longer amortized, but instead is tested for impairment at least annually. The impairment testing for 2009 has been performed and management has concluded from this testing that there is no impairment to Goodwill at this time.
Results of Operations
Net Interest Income
Total interest income decreased $831,000 or 10.53% during the nine month period ending September 30, 2009, as compared to the same period for 2008. Total interest expense decreased $698,000 or 24.12% during the nine month period ending September 30, 2009, as compared to the same period of 2008. The decreases in interest income and interest expense resulted in a net interest income decrease of $133,000 or 2.66% for the period ending September 30, 2009 compared to the period ending September 30, 2008. This net decrease is primarily attributed to reduced interest income on loans of approximately $552,000 as compared to the same period last year. The reduced interest income on loans is primarily attributed to lower interest rates and refinancing activities. The average outstanding loan balances as of September 30, 2009 totaled $123.0 million, as compared to $123.5 million as of September 30, 2008. The average yield on loan balances outstanding has decreased from 7.62% as of September 30, 2008 to 7.04% as of September 30, 2009. This decrease in interest yield on loans has been largely impacted by lower market interest rates and scheduled loan re-pricing activities. The overall average yield on earning assets decreased from 6.93% as of September 30, 2008 to 6.40% as of September 30, 2009, and is attributed to the previously mentioned factors.
The Companys cost of liabilities decreased from 3.42% as of September 30, 2008 to 2.64% as of September 30, 2009. This is attributed to managements proactive re-pricing efforts to reduce interest expense on deposit products in conjunction with lower market rates.
The Companys overall net interest margin increased to 4.42% as of September 30, 2009 compared to 4.40% as of September 30, 2008.
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Noninterest Income
During the nine month period ending September 30, 2009, non-interest income increased by $70,000 when compared to the same period last year. This increase is primarily attributed to increased service charges and fees on deposit products and services. Securities gains during the nine month period ending September 30, 2009 decreased by $12,000 or 8.28% 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 nine month period ending September 30, 2009 totaled $138,000 compared to $111,000 for the same period last year. This represents an increase of 24.32% over the prior year. The increase in other income is primarily attributed to gains on the sale of other real estate during 2009 as compared to other real estate losses incurred during 2008.
Noninterest Expense
During the nine month period ending September 30, 2009, non-interest expense decreased by $178,000 or 4.48% in comparison to the same period last year. The primary factor contributing to this overall decrease is reduced salary and benefit expense of approximately $313,000. The decrease in salaries and benefits is the result of managements continuing efforts to control expense through staff reductions and decreased hourly schedules.
The Bank is subject to a quarterly statutory FDIC assessment for deposit insurance coverage and must comply with the rules, regulations, and fees established by the FDIC. Each depository institution is assigned a risk category based upon capital and supervisory measures. Depending upon the risk category to which it is assigned, the depository institution is then assessed insurance premiums based upon its deposits. The FDIC has temporarily raised the insurance limits to $250,000 per depositor and has also established a temporary liquidity guarantee program for additional insurance coverage on non-interest bearing transaction accounts. The changes in FDIC insurance coverage are subject to additional assessment fees, which have resulted in a considerable increase in this expense category. As of September 30, 2009, the FDIC insurance assessment expense totaled $279,000 compared to $13,000 for the period ending September 30, 2008. The FDIC fees as of September 30, 2009 included the regular quarterly assessment fees year-to-date, as well as an additional special assessment of approximately $73,000.
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 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 September 30, 2009, the net amortized cost of securities available for sale was approximately $29,000 less than the stated market value as shown in Note 2 of the financial statements included in this report. Management generally has the intent and demonstrated ability to hold securities to scheduled maturity, call dates or until they recover in value. Management continually monitors 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, decreased by approximately $267,000 during the nine month period ending September 30, 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, 17.88% (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.
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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 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 nine month period ending September 30, 2009, net loans increased by approximately $5.6 million or 4.71%. The increase in loan volume was primarily in the categories of residential real estate, small business and commercial real estate loans, and other consumer installment loans. 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 September 30, 2009 compared to $2.0 million at December 31, 2008. This represents an increase of approximately $500,000 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 September 30, 2009, was $2.0 million, and has decreased by approximately $159,000 from the total of impaired loans at December 31, 2008. Management has placed approximately $1.4 million of the Banks impaired loans in a nonaccrual status as of September 30, 2009. This amount is also included in the nonaccrual loan totals discussed above. Impaired loans not in nonaccrual status as of September 30, 2009 were approximately $589,000. Specific allocations have been made to the allowance for loan loss account of approximately $695,000, as of September 30, 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 September 30, 2009 that are not included in the past due or non-accrual loans referred to above.
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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 $2.1 million, at September 30, 2009, increased by approximately $401,000 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, concentrations of credit, and increases in non-performing assets, as a means of providing sufficient funding for possible losses. The increased allowance allocations noted above has 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 1.62% and 1.37% of total loans at September 30, 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 September 30, 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 September 30, 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.
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The provision expense related to the allowance for loan loss as of September 30, 2009 was $710,000 as compared to $292,000 for the same period last year. This increase of $418,000 is directly related to the increased loan portfolio allocations previously discussed.
Managements evaluation of the allowance for loan losses as of September 30, 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.
Premises, Equipment and Software
During the nine month period ending September 30, 2009, the Company had purchases relating to premises, equipment or other fixed assets of approximately $151,000. 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 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 relatively stable; however, these balances fluctuate with normal daily activity.
During the nine month period ending September 30, 2009, total deposits increased by approximately $3.9 million or 2.99% with the increases being primarily distributed among noninterest bearing and interest bearing deposits 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 September 30, 2009, total borrowings were $8.6 million compared to $9.4 million at December 31, 2008. This represents a decrease of approximately $800,000, which is the net result of scheduled pay-downs and periodic short-term borrowings made during 2009. 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 asset growth, shareholder dividends, and ongoing operational needs.
As of September 30, 2009 and December 31, 2008, the Companys total capital-to-asset ratios were 11.01% and 10.76%, respectively. The Companys Tier 1 risk-based capital ratio was 14.38% and the total risk-based capital ratio was 15.63% as of September 30, 2009. The Banks Tier 1 risk-based capital ratio was 11.62% and total risk-based capital ratio was 12.87% as of September 30, 2009. The capital ratios for both the Company and the Bank exceed the well-capitalized regulatory guidelines as of September 30, 2009 and earnings have historically been sufficient to allow for consistent dividends to be declared on a quarterly basis.
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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, 2009 remains adequate.
Interest Rate Sensitivity
The Company historically has had a stable core deposit base and, therefore, does not have to rely on volatile funding sources. Because of the stable core deposit base, changes in interest rates should not have a significant effect on liquidity. The Company also uses loan repayments and maturing investments to meet its liquidity needs. The Banks membership in the Federal Home Loan Bank System provides 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.
As of September 30, 2009, the Company had a negative cumulative Gap Rate Sensitivity Ratio of 42.02% 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 Companys interest rate risk and has decided the current position is acceptable for a well-capitalized community bank operating in a rural environment.
Table II contains an analysis, which shows the re-pricing opportunities of earning assets and interest bearing liabilities as of September 30, 2009.
Recent Accounting Pronouncements
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), Business Combinations (SFAS 141(R)) (ASC 805 Business Combinations). 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 (ASC 805 Business Combinations). 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.
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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 (ASC 820 Fair Value Measurements and Disclosures). 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 (ASC 825 Financial Instruments and ASC 270 Interim Reporting). 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.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (ASC 320 Investments Debt and Equity Securities). FSP FAS 115-2 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 115-2 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 115-2 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.
In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events (ASC 855 Subsequent Events). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 is effective for interim and annual periods ending after June 15, 2009. The Company does not expect the adoption of SFAS 165 to have a material impact on its consolidated financial statements.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140 (ASC 860 Transfers and Servicing). SFAS 166 provides guidance to improve the relevance, representational faithfulness, and comparability of the information that a report entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferors continuing involvement, if any, in transferred financial assets. SFAS 166 is effective for interim and annual periods beginning after November 15, 2009. The Company does not expect the adoption of SFAS 166 to have a material impact on its consolidated financial statements.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (ASC 810 Consolidation). SFAS 167 improves financial reporting by enterprises involved with variable interest entities. SFAS 167 is effective for interim and annual periods beginning after November 15, 2009. Early adoption is prohibited. The Company does not expect the adoption of SFAS 167 to have a material impact on its consolidated financial statements.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles replacement of FASB Statement No. 162 (ASC 105 Generally Accepted Accounting Principles). SFAS 168 establishes the FASB Accounting Standards Codification which will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. SFAS 168 is effective immediately. The Company does not expect the adoption of SFAS 168 to have a material impact on its consolidated financial statements.
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In June 2009, the FASB issued EITF Issue No. 09-1, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing (ASC 470 Debt). EITF Issue No. 09-1 clarifies how an entity should account for an own-share lending arrangement that is entered into in contemplation of a convertible debt offering. EITF Issue No. 09-1 is effective for arrangements entered into on or after June 15, 2009. Early adoption is prohibited. The Company does not expect the adoption of EITF Issue No. 09-1 to have a material impact on its consolidated financial statements.
In June 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 112 (SAB 112). SAB 112 revises or rescinds portions of the interpretative guidance included in the codification of SABs in order to make the interpretive guidance consistent with current U.S. GAAP. The Company does not expect the adoption of SAB 112 to have a material impact on its consolidated financial statements.
In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05), Fair Value Measurements and Disclosures (Topic 820) Measuring Liabilities at Fair Value. ASU 2009-05 amends Subtopic 820-10, Fair Value Measurements and Disclosures Overall, and provides clarification for the fair value measurement of liabilities. ASU 2009-05 is effective for the first reporting period including interim period beginning after issuance. The Company does not expect the adoption of ASU 2009-05 to have a material impact on its consolidated financial statements.
In September 2009, the FASB issued Accounting Standards Update No. 2009-12 (ASU 2009-12), Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU 2009-12 provides guidance on estimating the fair value of alternative investments. ASU 2009-12 is effective for interim and annual periods ending after December 15, 2009. The Company does not expect the adoption of ASU 2009-12 to have a material impact on its consolidated financial statements.
In October 2009, the FASB issued Accounting Standards Update No. 2009-15 (ASU 2009-15), Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. ASU 2009-15 amends Subtopic 470-20 to expand accounting and reporting guidance for own-share lending arrangements issued in contemplation of convertible debt issuance. ASU 2009-15 is effective for fiscal years beginning on or after December 15, 2009 and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The Company does not expect the adoption of ASU 2009-15 to have a material impact on its consolidated financial statements.
In October 2009, the Securities and Exchange Commission issued Release No. 33-99072, Internal Control over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers. Release No. 33-99072 delays the requirement for non-accelerated filers to include an attestation report of their independent auditor on internal control over financial reporting with their annual report until the fiscal year ending on or after June 15, 2010.
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.
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TABLE I
PIONEER BANKSHARES, INC.
NET INTEREST MARGIN ANALYSIS
(On a Fully Tax Equivalent Basis)
(Dollar Amounts in Thousands)
Nine Months Ended September 30, 2009 |
Nine Months Ended September 30, 2008 |
|||||||||||||||||
Average Balance |
Income/ Expense |
Rates | Average Balance |
Income/ Expense |
Rates | |||||||||||||
Interest Income |
||||||||||||||||||
Loans 1 |
||||||||||||||||||
Commercial |
$ | 6,931 | $ | 353 | 6.79 | % | $ | 7,828 | $ | 477 | 8.12 | % | ||||||
Real estate |
99,686 | 4,853 | 6.49 | % | 98,584 | 5,183 | 7.01 | % | ||||||||||
Installment |
15,817 | 1,206 | 10.17 | % | 16,519 | 1,316 | 10.62 | % | ||||||||||
Credit Card |
615 | 89 | 19.30 | % | 545 | 77 | 18.84 | % | ||||||||||
Federal funds sold |
2,479 | 5 | 0.27 | % | 3,436 | 59 | 2.29 | % | ||||||||||
Interest Bearing |
||||||||||||||||||
Deposits |
8,714 | 144 | 2.20 | % | 9,953 | 274 | 3.67 | % | ||||||||||
Investments |
||||||||||||||||||
Taxable |
9,287 | 310 | 4.45 | % | 12,343 | 486 | 5.25 | % | ||||||||||
Nontaxable 2 |
4,833 | 156 | 4.30 | % | 2,903 | 37 | 1.70 | % | ||||||||||
Total earning assets |
148,362 | 7,116 | 6.40 | % | 152,111 | 7,909 | 6.93 | % | ||||||||||
Interest Expense |
||||||||||||||||||
Demand deposits |
12,677 | 118 | 1.24 | % | 10,854 | 55 | 0.68 | % | ||||||||||
Savings |
16,133 | 99 | 0.82 | % | 15,518 | 129 | 1.11 | % | ||||||||||
Time deposits |
74,998 | 1,803 | 3.21 | % | 72,982 | 2,368 | 4.33 | % | ||||||||||
Borrowings |
7,038 | 176 | 3.33 | % | 13,432 | 342 | 3.39 | % | ||||||||||
Total Interest Bearing Liabilities |
$ | 110,846 | $ | 2,196 | 2.64 | % | $ | 112,786 | $ | 2,894 | 3.42 | % | ||||||
Net Interest Income 1 |
4,920 | 5,015 | ||||||||||||||||
Net Interest Margin |
4.42 | % | 4.40 | % | ||||||||||||||
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. |
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PIONEER BANKSHARES, INC.
NET INTEREST MARGIN ANALYSIS
(On a Fully Tax Equivalent Basis)
(Dollar Amounts in Thousands)
Three Months Ended September 30, 2009 |
Three Months Ended September 30, 2008 |
|||||||||||||||||
Average Balance |
Income/ Expense |
Rates | Average Balance |
Income/ Expense |
Rates | |||||||||||||
Interest Income |
||||||||||||||||||
Loans 1 |
||||||||||||||||||
Commercial |
$ | 7,126 | $ | 122 | 6.85 | % | $ | 7,469 | $ | 153 | 8.19 | % | ||||||
Real estate |
103,151 | 1,625 | 6.30 | % | 96,222 | 1,696 | 7.05 | % | ||||||||||
Installment |
15,953 | 403 | 10.10 | % | 15,128 | 432 | 11.42 | % | ||||||||||
Credit card |
622 | 31 | 19.94 | % | 558 | 19 | 13.62 | % | ||||||||||
Federal funds sold |
2,817 | 2 | 0.28 | % | 3,827 | 18 | 1.88 | % | ||||||||||
Interest Bearing |
||||||||||||||||||
Deposits |
7,725 | 44 | 2.28 | % | 10,589 | 90 | 3.40 | % | ||||||||||
Securities |
||||||||||||||||||
Taxable |
6,891 | 77 | 4.47 | % | 14,063 | 183 | 5.21 | % | ||||||||||
Nontaxable 2 |
6,367 | 71 | 4.46 | % | 3,036 | 19 | 2.50 | % | ||||||||||
Total earning assets |
150,652 | 2,375 | 6.31 | % | 150,892 | 2,610 | 6.92 | % | ||||||||||
Interest Expense |
||||||||||||||||||
Demand deposits |
16,589 | 47 | 1.13 | % | 11,738 | 27 | 0.92 | % | ||||||||||
Savings |
16,146 | 25 | 0.62 | % | 16,887 | 51 | 1.21 | % | ||||||||||
Time deposits |
75,881 | 544 | 2.87 | % | 71,886 | 719 | 4.00 | % | ||||||||||
Borrowings |
6,416 | 54 | 3.37 | % | 12,584 | 107 | 3.40 | % | ||||||||||
Total Interest Bearing Liabilities |
$ | 115,032 | $ | 670 | 2.33 | % | $ | 113,095 | $ | 904 | 3.20 | % | ||||||
Net Interest Income 1 |
$ | 1,705 | $ | 1,706 | ||||||||||||||
Net Interest Margin |
4.53 | % | 4.52 | % | ||||||||||||||
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. |
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TABLE II
PIONEER BANKSHARES, INC.
INTEREST SENSITIVITY ANALYSIS
SEPTEMBER 30, 2009
(Dollar Amounts in Thousands)
0-3 Months |
4-12 Months |
1-5 Years |
Over 5 Years |
Not Classified |
Total | ||||||||||||||||||
Uses of Funds: |
|||||||||||||||||||||||
Loans1 |
$ | 7,273 | $ | 9,598 | $ | 63,398 | $ | 46,619 | $ | | $ | 126,888 | |||||||||||
Interest bearing bank deposits |
2,497 | 4,000 | 1,500 | | | 7,997 | |||||||||||||||||
Investment securities2 |
3,504 | | 1,012 | 7,764 | 2,673 | 14,953 | |||||||||||||||||
Restricted stock |
| | | | 788 | 788 | |||||||||||||||||
Federal funds sold |
900 | | | | | 900 | |||||||||||||||||
Total |
14,174 | 13,598 | 65,910 | 54,383 | 3,461 | 151,526 | |||||||||||||||||
Sources of Funds: |
|||||||||||||||||||||||
Interest bearing demand deposits |
16,885 | | | | | 16,885 | |||||||||||||||||
Regular savings |
16,038 | | | | | 16,038 | |||||||||||||||||
Certificates of deposit $100,000 and over |
5,182 | 9,428 | 6,783 | | | 21,393 | |||||||||||||||||
Other certificates of deposit |
5,965 | 29,343 | 16,983 | | | 52,291 | |||||||||||||||||
Borrowings |
600 | 8,000 | | | | 8,600 | |||||||||||||||||
Total |
$ | 44,670 | $ | 46,771 | $ | 23,766 | $ | | $ | | $ | 115,207 | |||||||||||
Discrete Gap |
$ | (30,496 | ) | $ | (33,173 | ) | $ | 42,144 | $ | 54,383 | $ | 3,461 | $ | 36,319 | |||||||||
Cumulative Gap |
$ | (30,496 | ) | $ | (63,669 | ) | $ | (21,525 | ) | $ | 32,858 | $ | 36,319 | ||||||||||
Ratio of Cumulative Gap To Total Earning Assets at September 30, 2009 |
-20.13 | % | -42.02 | % | -14.21 | % | 21.68 | % | 23.97 | % | |||||||||||||
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. |
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk. |
Not Applicable
Item 4. | Controls and Procedures |
As a result of the enactment of the Sarbanes-Oxley Act of 2002, issuers such as Pioneer Bankshares, Inc. that file periodic reports under the Securities Exchange Act of 1934 (the Act) are required to include in those reports certain information concerning the issuers controls and procedures for complying with the disclosure requirements of the federal securities laws. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports it files or submits under the Act, is communicated to the issuers management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
The Company has established disclosure controls and procedures to ensure that material information related to Pioneer Bankshares, Inc. is made known to our principal executive officers, and principal financial officer on a regular basis, in particular during the periods in which our quarterly and annual reports are being prepared. As required, the Company evaluates the effectiveness of these disclosure controls and procedures on a quarterly basis, and has done so as of the end of the period covered by this report. Based on this evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are adequate and effective. There were no changes in the Companys internal control over financial reporting during the quarter ended September 30, 2009, that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
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 1A. | Risk Factors. |
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
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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). |
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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. | ||||||
Date: November 13, 2009 | By: | /S/ THOMAS R. ROSAZZA | ||||
Thomas R. Rosazza | ||||||
President and Chief Executive Officer | ||||||
Date: November 13, 2009 | By: | /S/ LORI G. HASSETT | ||||
Lori G. Hassett | ||||||
Vice President and Chief Financial Officer |
31