UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended Commission File Number: 0-30541
September 30, 2000
Pioneer Bankshares, Inc.
Virginia 54-1278721
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
263 East Market Street
P. O. Box 10
Stanley, Virginia 22851
(540) 778-2294
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 requirement for
the past 90 days. Yes ..X. No ....
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at September 30, 2000
Common Stock, par value - $.50 1,116,254 shares
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE> 1
PIONEER BANKSHARES, INC.
INDEX
Page
PART I FINANCIAL INFORMATION 2
Item 1. Financial Statements
Consolidated Statements of Income - Three Months
Ended September 30, 2000 and 1999 2
Consolidated Statements of Income - Nine Months
Ended September 30, 2000 and 1999 3
Consolidated Balance Sheets - September 30, 2000 and
December 31, 1999 4
Consolidated Statements of Changes in Stockholders'
Equity - Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II OTHER INFORMATION 17
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8K 18
SIGNATURES 20
<PAGE> 2
Part I Financial Information
Item 1 Financial Statements
PIONEER BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
Three Months Ended
September 30,
2000 1999
Interest and Dividend Income:
Loans including fees $ 1,837 $ 1,659
Debt securities - taxable 200 195
Debt securities - nontaxable 33 46
Deposits and federal funds sold 17 58
Equity securities 3 8
--------- ---------
Total Interest and Dividend Income 2,090 1,966
--------- ---------
Interest Expense:
Deposits 771 703
Borrowings 32 40
--------- ---------
Total Interest Expense 803 743
--------- ---------
Net Interest Income 1,287 1,223
Provision for loan losses 15 22
Net interest income after provision --------- ---------
for loan losses 1,272 1,201
--------- ---------
Noninterest Income:
Service charges on deposit accounts 137 153
Other income 41 159
Gain on security transactions 38 19
--------- ---------
Total Noninterest Income 216 331
--------- ---------
Noninterest Expense:
Salaries and benefits 448 384
Occupancy expenses 54 59
Equipment expenses 101 82
Other expenses 382 349
--------- ---------
Total Noninterest Expenses 985 874
--------- ---------
Income before Income Taxes 503 658
Income Tax Expense 157 204
--------- ---------
Net Income $346 $454
======== ========
Earnings Per Share
Net income $0.31 $0.38
======== ========
Weighted Average Shares Outstanding 1,117,559 1,181,552
========== ==========
<PAGE> 3
PIONEER BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
Nine Months Ended
September 30,
2000 1999
Interest and Dividend Income:
Loans including fees $ 5,339 $ 4,804
Debt securities - taxable 598 515
Debt securities - nontaxable 103 163
Deposits and federal funds sold 96 224
Equity securities 22 29
--------- ---------
Total Interest and Dividend Income 6,158 5,735
--------- ---------
Interest Expense:
Deposits 2,260 2,136
Borrowings 135 58
--------- ---------
Total Interest Expense 2,395 2,194
--------- ---------
Net Interest Income 3,763 3,541
Provision for loan losses 45 82
Net interest income after provision --------- ---------
for loan losses 3,718 3,459
--------- ---------
Noninterest Income:
Service charges on deposit accounts 403 374
Other income 309 333
Gain on security transactions 374 146
--------- ---------
Total Noninterest Income 1,086 853
--------- ---------
Noninterest Expense:
Salaries and benefits 1,316 1,074
Occupancy expenses 165 180
Equipment expenses 302 230
Other expenses 1,140 1,067
--------- ---------
Total Noninterest Expenses 2,923 2,551
--------- ---------
Income before Income Taxes 1,881 1,761
Income Tax Expense 616 543
--------- ---------
Net Income $1,265 $1,218
======== ========
Earnings Per Share
Net income $1.13 $1.03
======== ========
Weighted Average Shares Outstanding 1,117,559 1,181,552
========== ==========
<PAGE> 4
PIONEER BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
September 30,December 31,
2000 1999
ASSETS
Cash and due from banks $4,244 $5,199
Federal funds sold 240 2,215
Interest bearing deposits in banks 68 4,536
Investment securities
Hold To Maturity 3,162 3,557
Available for sale 11,881 11,628
Loans receivable, net of allowance for loan
losses of 629 and 779 respectively 73,559 69,252
Premises and equipment 2,781 2,910
Other assets 2,195 1,748
--------- ---------
Total assets $98,130 $101,045
======== ========
LIABILITIES
Deposits
Noninterest bearing demand 14,373 12,246
Interest bearing
Demand 9,871 10,516
Savings 10,088 10,412
Time deposits over $100,000 6,554 5,065
Other time deposits 42,384 44,200
--------- ---------
Total Deposits 83,270 82,439
Accrued expenses and other liabilities 1,580 1,426
Borrowings 1,800 6,350
--------- ---------
Total Liabilities 86,650 90,215
--------- ---------
STOCKHOLDERS' EQUITY
Common stock; $.50 par value, shares 558 561
outstanding 1,116,254 and 1,160,819
for the current period and prior year
Retained earnings 10,889 10,275
Accumulated other comprehensive income (loss) 33 (6)
--------- ---------
Total Stockholders' Equity 11,480 10,830
--------- ---------
Total Liabilities and Stockholders' Equity $98,130 $101,045
======== =======
<PAGE> 5
PIONEER BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars)
Nine Months Ended
September 30,
2000 1999
Balance, beginning of period $10,830 $11,060
Comprehensive Income:
Net income for period $1,265 $1,218
Net change in unrealized gains
on securities available for sale,
net of income taxes 39 (241)
--------- ---------
Total Comprehensive Income 1,304 977
Dividends declared (560) (475)
Retirement of common stock (94) (451)
--------- ---------
Balance, end of period $11,480 $11,111
======== ========
Quarterly dividends:
First quarter $0.30 $0.30
Second quarter $0.10 $0.10
Third quarter $0.10 $0.00
<PAGE> 6
PIONEER BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
Nine Months Ended
September 30,
2000 1999
Cash Flows from Operating Activities:
Net income $1,265 $1,218
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 45 82
Depreciation 213 179
Net Accretion/Amortization of securities 33 38
(Gain)/Loss on sale of securities (374) (146)
Net change in:
Accrued income (154) (120)
Other assets (266) (126)
Accrued expense and other liabilities 217 (65)
------- -------
Net Cash Provided by Operating Activities 979 1,060
------- -------
Cash Flows from Investing Activities:
Net change in federal funds sold 1,975 3,235
Net change in interest bearing deposits 4,468 (88)
Proceeds from maturities and sales
of securities available for sale 2,650 1,814
Proceeds from maturities and calls
of securities held to maturity 394 3,401
Purchase of securities available for sale (2,527) (7,305)
Purchase of securities held to maturity 0 (13)
Net increase in loans (4,352) (5,031)
Purchase of bank premises and equipment (84) (53)
Investment in life insurance policies (27) (50)
------- -------
Net Cash Provided by (Used in) Investing Activities 2,497 (4,090)
------- -------
Cash Flows from Financing Activities:
Net change in:
Demand and savings deposits 1,158 2,269
Time deposits (327) (237)
Proceeds from borrowings 2,700 2,000
Curtailments of borrowings (7,250) (100)
Purchase and subsequent retirement of common stock (94) (451)
Dividends paid (618) (476)
------- -------
Net Cash Provided by (Used in) Financing Activities (4,431) 3,005
------- -------
Cash and Cash Equivalents
Net change in cash and cash equivalents (955) (25)
Cash and Cash Equivalents, beginning of year 5,199 4,400
------- -------
Cash and Cash Equivalents, End of Year $4,244 $4,375
======= =======
Supplemental Disclosure of Cash Paid During the Year for:
Interest $3,484 $3,364
Income taxes $384 $508
<PAGE> 7
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING PRINCIPLES:
The consolidated financial statements conform to generally accepted
accounting principles and to general industry practices. In the opinion
of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of
September 30, 2000 and the results of operations for the three-month
periods and year to date periods ended September 30, 2000 and September
30, 1999. The notes included herein should be read in conjunction with
the notes to financial statements included in the 1999 annual report to
stockholders of Pioneer Bankshares, Inc.
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, 2000 and December 31, 1999 follows:
2000 1999
Carrying Market Carrying Market
Value Value Value Value
Securities held to maturity:
U.S. Treasury and agency
obligations $1,753 $1,748 $1,759 $1,737
State and municipal 1,055 1,072 1,253 1,282
Mortgage-backed securities 354 346 545 522
------- ------- ------- -------
Total $3,162 $3,166 $3,557 $3,541
======= ======= ======= =======
Securities available for sale:
U.S. Treasury and agency
obligations $8,968 $8,799 $10,563 $10,157
Municipal Securities 1,655 1,591 - -
Equity Securities 1,208 1,491 1,049 1,471
------- ------- ------- -------
Total $11,831 $11,881 $11,612 $11,628
======= ======= ======= =======
<PAGE> 8
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 LOANS:
Loans outstanding are summarized as follows:
September 30, December 31,
2000 1999
Real estate loans $55,948 $52,780
Commercial and industrial loans 4,428 4,007
Loans to individuals, primarily
collateralized by autos 14,397 14,164
All other loans 1,047 364
--------- ---------
Total Loans 75,820 71,315
Less unearned discount (1,632) (1,284)
--------- ---------
Loans, less unearned discount 74,188 70,031
Less allowance for loan losses (629) (779)
--------- ---------
Net Loans Receivable $73,559 $69,252
======== ========
NOTE 4 ALLOWANCE FOR LOAN LOSSES:
A summary of transactions in the allowance for loan losses for the Nine
months ended September 30, 2000 and 1999 follows:
2000 1999
Balance, beginning of period $ 779 $ 773
Provision charged to operating expenses 45 82
Recoveries of loans charged off 71 27
Loans charged off 266 155
------- -------
Balance, End of Period $629 $727
======= =======
<PAGE> 9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
Loans continued to grow, increasing $4,517,000 (5.94%), principally in the
residential real estate and consumer loan areas. The Federal Home Loan Bank
Line of Credit for $4,500,000 was repaid in total at the beginning of the year.
Deposits increased by $831,000 (1.01%), with an increase in certificates of
deposit over $100,000 of $1,489,000. This need for funds was met by a decrease
in Federal Funds Sold of $1,975,000, decrease in Interest Bearing Deposits at
Banks of $4,468,000 and a decrease in Cash and Due from Banks of $955,000.
Results of Operations
The dollar amount of the tax equivalent net interest margin increased $191,000
or 5.25% for the current year to date period as compared to the corresponding
period in the prior year [$57,000 or 4.56% in the third quarter of 2000 compared
to the third quarter of 1999]. Improvement in the yield in credit card loans is
attributable to the expiration of introductory rates when the card was initially
issued and an increase in fees charged on credit cards.
A significant portion of the increase in net interest income is primarily
attributable to an increase in net earning assets (i.e. volume increases), with
the remainder coming from a decrease in the net yield on earning assets.
Noninterest income increased $333,000 in the first half of 2000. An increase in
securities gains accounted for $228,000 of the total.
During 1999, the Bank entered into an agreement with its former President
whereby this individual reimbursed the Bank for certain prior bank expenditures
and certain costs associated therewith. The prior bank expenditures relate to
direct purchases and credit card charges that were not found to have adequate
documentation to support the business purpose of the expenditure. This
reimbursement resulted in the bank recognizing $154,000 of other income for the
nine months ended September 30, 1999 and $96,000 of other income for the nine
months ended September 30, 2000.
Other Income in the first quarter of 2000 also included the following two items;
an adjustment of $58,000 relating to the bank's deferred compensation
liabilities and the cash value of insurance policies held to provide funds to
meet these liabilities, and an adjustment to eliminate an unused accrual for Y2K
expenses in the amount of $20,000.
Service charges on deposit Accounts increased due to increases in the per item
overdraft fee and an increase in the number of accounts serviced.
Noninterest expense increased $372,000 (14.59%). Salaries and benefits
accounted for $242,000 of this total. These increases resulted from normal
salary increases, the bank president position only being filled for part of the
first half of 1999 while a new president was included in expenses for the full
period in 2000 and the commencement of training personnel for the opening of a
new branch. Equipment expense increased due to increased depreciation and
repairs and maintenance. Other expense increased primarily from; increase in
director fees, increase in professional fees, and a decrease in Y2K related
expenses.
<PAGE> 10
Financial Condition
Securities
The Company's securities portfolio is held to assist the Company in liquidity
and asset liability management as well as capital appreciation. The securities
portfolio 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,
2000, the market value of all securities available for sale was above their
amortized cost by $50,000 ($33,000 after the consideration of income taxes).
This is the result of increases in the value of equity securities held by the
parent, net of decreases in the value of the bond portfolio held by the
subsidiary bank. Management has traditionally held debt securities (regardless
of classification) until maturity and thus it does not expect the minor
fluctuation in the value of these securities to have a direct impact on
earnings.
The Bank generally invests in relatively short-term maturities due to
uncertainty in the direction of interest rates. Of the investments in securities
available for sale, 12.55% (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 significant increases in value.
Loan Portfolio
The Company operates in an agriculturally dominated area that includes the
counties of Page, and Rockingham in the western portion of Virginia. The
Company does not make a significant number of loans to borrowers outside its
primary service area. The Company is very active in local residential
construction mortgages. Commercial lending includes loans to small and medium
sized business 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
notes 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 some concentration in residential real estate loans. A significant
percentage of residential real estate loans and consumer installment loans are
made to borrowers employed in the agricultural sector of the economy or employed
by businesses outside our service area. The Company monitors its past due loans
closely and has not experienced a high delinquency rate.
<PAGE> 11
Loan Portfolio (Continued)
The risk elements in lending activities include nonaccrual loans, loans 90 days
or more past due and restructured loans. Nonaccrual loans are loans on which
interest accruals have been suspended or discontinued permanently. Restructured
loans are loans, which have changed the original interest rate or repayment
terms due to financial hardship. Nonaccrual loans and loans 90 days or more past
due totaled $186,000 at September 30, 2000 compared to $326,000 at December 31,
1999. A majority of these past due loans are secured by real estate. Although
the potential exists for some loan 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. The Company had no problem loans at September 30, 2000.
As of September 30, 2000 the Company did not hold any real estate that was
acquired through foreclosure.
Allowance for Loan Losses
Management evaluates the loan portfolio in light of national and local economic
trends, changes in the nature and value of the portfolio and industry
standards. Specific factors considered by management in determining the
adequacy of the level of the allowance include internally generated loan review
reports, past due reports, historical loan loss experience and individual
borrower's financial condition. This review also considers concentrations of
loans in terms of geography, business type or level of risk. Management
evaluates the risk elements involved in loans relative to their collateral value
and makes the appropriate adjustments to the allowance when needed.
The provision for credit losses and changes in the allowance for loan losses are
shown in Note 4 above.
The allowance for loan losses of $629,000 at September 30, 2000 was down
$150,000 from its level at December 31, 1999. The allowance was equal to .85%
and 1.12% of total loans at September 30, 2000 and December 31, 1999
respectively. In the opinion of management, the allowance, when taken as a
whole, is adequate to absorb reasonably estimated losses inherent in the
Company's portfolio.
Deposits
The Company's main source of funds is customer deposits received from
individuals, governmental entities and businesses located within the Company's
service area. Deposit accounts include demand deposits, savings, money market
and certificates of deposit.
Borrowings
Borrowings from the Federal Home Loan Bank of Atlanta (FHLB) to finance fixed
rate loans occurred at the end of the first quarter of 1999. The Company's
subsidiary bank borrows funds on a fixed rate basis. These borrowings are used
to fund either fifteen-year fixed rate loans or twenty-year loans. This program
allows the Bank to match the maturity of its fixed rate real estate portfolio
with the maturity of its debt and thus reduce its exposure to interest rate
changes.
<PAGE> 12
Capital
The Company maintains a strong capital base to expand facilities, promote public
confidence, support operations and grow at a manageable level. As of September
30, 2000, the Company's total risk based capital and total capital to total
assets ratios were 14.54% and 13.56%, respectively. Both ratios are in excess
of regulatory minimums.
Earnings have been sufficient to allow for dividends to be paid on a quarterly
basis in 2000 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 Company's ability to obtain deposits and purchase
funds at favorable rates determines its liquidity exposure. As a result of the
Company's management of liquid assets and the ability to generate liquidity
through borrowings, management believes that the Company maintains overall
liquidity sufficient to satisfy its depositors' requirements and meet its
customers' credit needs.
Additional sources of liquidity available to the Company include, but are not
limited to, loan repayments, deposits obtained through the adjustment of
interest rates, purchases of federal funds and borrowings. To further meet its
liquidity needs, the Company also maintains lines of credit with the Federal
Home Loan Bank of Atlanta and a correspondent bank. In the past, growth in
deposits and proceeds from the maturity of investment securities has been
sufficient to fund most of the net increase in loans and investment securities.
Interest Rate Sensitivity
The Company's liquidity levels remain adequate. The Bank 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. During 2000, the Bank
has used maturing investments, deposit growth and use of lines of credit to meet
its liquidity needs.
The Bank's membership in the Federal Home Loan Bank System also provides
liquidity. The matching of the long-term receivables and liabilities helps the
Bank reduce its sensitivity to interest rate changes.
The Company reviews its interest rate gap periodically and makes adjustments as
needed.
There are no off-balance-sheet items that should impair future liquidity.
<PAGE> 13
Interest Rate Sensitivity (Continued)
Table II contains an analysis, which shows the repricing opportunities of
earning assets and interest bearing liabilities as of September 30, 2000.
As of September 30, 2000, the Company had a cumulative Gap Rate Sensitivity
Ratio of (26.17%) for the one-year repricing period. This generally indicates
that earnings would improve in a declining interest rate environment as
liabilities reprice 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
reprice concurrently with changes in rates within the general economy.
Management constantly monitors the Company's interest rate risk and has decided
the current position is acceptable for a well-capitalized community bank
operating in a rural environment.
Effect of Newly Issued Accounting Standards
The Company does not believe that any newly issued but as yet unapplied
accounting standards will have a material impact on the Company's financial
position or operations.
Securities and Exchange Commission Web Site
The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov)that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including Pioneer Bankshares, Inc.
<PAGE> 14
TABLE 1
Pioneer Bankshares, Inc.
Net Interest Margin Analysis
(on a fully tax equivalent basis)
(dollar amounts in thousands)
Nine Months Ended Nine Months Ended
September 30,2000 September 30,1999
------------------- ------------------
(In thousands) Average Income/ Average Income/
Balance Expense Rates Balance Expense Rates
Interest Income
Loans 1
Commercial $4,114 $329 10.66% $3,742 $314 11.19%
Real estate 54,570 $3,563 8.71% 49,315 $3,214 8.69%
Installment 12,374 $1,293 13.93% 11,130 $1,164 13.94%
Credit Card 996 $154 20.62% 861 $112 17.34%
Federal funds sold 2,132 96 6.00% 6,235 224 4.79%
Interest bearing deposits 572 22 5.13% 674 29 5.74%
Investments
Taxable 3 13,121 614 6.24% 12,365 531 5.72%
Nontaxable 2 2,684 156 7.75% 3,678 247 8.95%
------ ------ ------ ------ ------ ------
Total earning assets 90,563 6,227 9.17% 88,000 5,835 8.84%
------ ------ ------ ------ ------ ------
Interest Expense
Demand deposits 23,226 128 0.73% 23,051 147 0.85%
Savings 10,126 142 1.87% 11,881 211 2.37%
Time deposits 49,494 1,990 5.36% 46,149 1,778 5.14%
Borrowings 2,348 135 7.67% 1,329 58 5.82%
------ ------ ------ ------ ------ ------
Total Interest Bearing
Liabilities $85,194 $2,395 3.75% $82,410 $2,194 3.55%
===== ===== ===== ===== ===== =====
Net Interest Margin 1 3,832 3,641
===== =====
Net interest yield on
interest earning assets 5.64% 5.52%
===== =====
1 Interest on loans includes loan fees
2 An incremental income tax rate of 34% was used to calculate the
tax equivalent income
3 An incremental tax rate of 34% and 70% dividend exclusion was used
to calculate the tax equivalent income
<PAGE> 15
TABLE 1 (CONTINUED)
Pioneer Bankshares, Inc.
Net Interest Margin Analysis
(on a fully tax equivalent basis)
(dollar amounts in thousands)
Three Months Ended Three Months Ended
September 30,2000 September 30,1999
------------------- ------------------
(In thousands) Average Income/ Average Income/
Balance Expense Rates Balance Expense Rates
Interest Income
Loans 1
Commercial $4,401 $118 10.72% $3,813 $109 11.43%
Real estate 55,497 1,222 8.81% 50,782 1,097 8.64%
Installment 12,890 446 13.84% 11,561 406 14.05%
Credit Card 992 51 20.56% 887 47 21.20%
Federal funds sold 1,047 17 6.49% 4,241 58 5.47%
Interest bearing deposits 210 3 5.71% 290 8 11.03%
Investments
Taxable 3 13,192 205 6.23% 13,569 200 5.91%
Nontaxable 2 2,655 50 7.53% 3,443 70 8.10%
------ ------ ------ ------ ------ ------
Total earning assets 90,884 2,112 9.30% 88,586 1,995 9.01%
------ ------ ------ ------ ------ ------
Interest Expense
Demand deposits 24,346 42 0.69% 23,368 48 0.82%
Savings 10,020 47 1.88% 12,084 70 2.32%
Time deposits 49,035 682 5.56% 45,751 585 5.11%
Borrowings 2,048 32 6.25% 1,949 40 8.21%
------ ------ ------ ------ ------ ------
Total Interest Bearing
Liabilities $85,449 $803 3.76% $83,152 $743 3.57%
===== ===== ===== ===== ===== =====
Net Interest Margin 1 1,309 1,252
===== =====
Net interest yield on
interest earning assets 5.76% 5.65%
===== =====
1 Interest on loans includes loan fees
2 An incremental income tax rate of 34% was used to calculate the
tax equivalent income
3 An incremental tax rate of 34% and 70% dividend exclusion was used
to calculate the tax equivalent income
<PAGE> 16
TABLE 2
Pioneer Bankshares, Inc.
Interest Sensitivity Analysis
September 30, 2000
(dollar amounts in thousands)
0-3 4-12 1-5 Over 5 Not Total
Months Months Years Years Classified
Uses of Funds:
Loans:
Commercial $2,475 $1,046 $281 $98 $0 $3,900
Installment 238 973 13,132 391 0 14,734
Real estate 7,320 9,225 31,865 7,762 0 56,172
Credit Card 0 0 1,014 0 0 1,014
Interest bearing bank 68 0 0 0 0 68
deposits
Investment securities 807 0 7,509 5,062 1,665 15,043
Federal funds sold 240 0 0 0 0 240
------ ------ ------ ------ ------ ------
Total 11,148 11,244 53,801 13,313 1,665 91,171
------ ------ ------ ------ ------ ------
Sources of Funds:
Interest bearing demand 9,871 0 0 0 0 9,871
deposits
Regular savings 10,088 0 0 0 0 10,088
Certificates of deposit
$100,000 and over 427 3,198 2,929 0 0 6,554
Other certificates of 5,532 16,757 20,095 0 0 42,384
deposits
Borrowings 150 150 800 700 0 1,800
------ ------ ------ ------ ------ ------
Total 26,068 20,105 23,824 700 0 70,697
------ ------ ------ ------ ------ ------
Discrete Gap (14,920) (8,861) 29,977 12,613 1,665 20,474
Cumulative Gap (14,920) (23,781) 6,196 18,809 20,474
Ratio of Cumulative Gap
To Total Earning -16.42% -26.17% 6.82% 20.70% 22.53%
Assets
<PAGE> 17
Part II Other Information
Item 1. Legal Proceedings -
C. Gaylon Waters resigned his positions as president and director of the Bank
and president and director of the Holding Company as of February 15, 1999.
His resignation occurred as part of an agreement with the Bank and the
Holding Company following the discovery of a pattern of unauthorized
expenditures of bank funds. As part of the agreement between Mr. Waters, the
Bank and the Holding Company, Mr. Waters deposited into an escrow account an
amount of Holding Company stock with a market value of approximately
$350,000.00 to secure any claims by the Bank and/or the Holding Company
against Mr. Waters involving the unauthorized expenditures.
After agreeing to the vast majority of charges against the escrow account,
Mr. Waters has now challenged some of those charges. These challenges have
led to the filing by him (in April, 2000) of a lawsuit for recovery of a
portion of the funds recovered by the Bank and the Holding Company, which
matter is pending in the Circuit Court for the City of Harrisonburg, Virginia
as Waters v. Pioneer Bank, et al. While this litigation is pending, the
amount of exposure to the Bank is substantially less than that for which
disclosure is required under federal securities laws. The above suit was
dismissed on September 9, 2000.
<PAGE> 18
Item 2. Changes in Securities - Not Applicable
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
Item 6. Exhibits and Reports on 8-K
(a) Exhibits
3 i Articles of Incorporation of Pioneer Bankshares, Inc. are
incorporated by reference to Exhibits to Pioneer
Bankshares, Inc. Form 10SB filed May 1, 2000.
3 ii Bylaws of Pioneer Bankshares, Inc. are incorporated by
reference to Exhibits to Pioneer Bankshares, Inc. Form 10SB
filed May 1, 2000.
27 Financial Data Schedule attached.
(b) Reports on Form 8-K
On October 3, 2000, Pioneer Bankshares, Inc. filed Form 8K to
announce that on September 26, 2000, a wholly owned subsidiary
[Pioneer Financial Services, LLC] had entered into an agreement to
purchase all the outstanding stock of Valley Finance service,
Inc. The purchase price will be paid in cash and is anticipated
to be between $1,000,000 and $1,500,000 with the final purchase
price to be determined after an audit of Valley Financial
Services, Inc. Pioneer Financial Services, LLC will assume
operations of Valley Financial Services, Inc. on October 23, 2000.
<PAGE> 19
EXHIBIT INDEX
Exhibit
Index Page Number
27 Financial Data Schedule for the quarter
ending September 30, 2000 21
<PAGE> 20
Signature
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.
THOMAS R. ROSAZZA
Thomas R. Rosazza
President
BRENDA KITE
Brenda Kite
Vice President and Chief Financial Officer
Date: November 14, 2000
