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
June 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 June 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 June 30, 2000 and 1999 2
Consolidated Statements of Income - Six Months
Ended June 30, 2000 and 1999 3
Consolidated Balance Sheets - June 30, 2000 and
December 31, 1999 4
Consolidated Statements of Changes in Stockholders'
Equity - Six Months Ended June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows - Six Months
Ended June 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. Exhibit 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
June 30,
2000 1999
Interest and Dividend Income:
Loans including fees $ 1,779 $ 1,606
Debt securities - taxable 200 178
Debt securities - nontaxable 37 55
Deposits and federal funds sold 35 75
Equity securities 2 15
--------- ---------
Total Interest and Dividend Income 2,053 1,929
--------- ---------
Interest Expense:
Deposits 750 710
Borrowings 28 18
--------- ---------
Total Interest Expense 778 728
--------- ---------
Net Interest Income 1,275 1,201
Provision for loan losses 15 30
Net interest income after provision --------- ---------
for loan losses 1,260 1,171
--------- ---------
Noninterest Income:
Service charges on deposit accounts 148 124
Other income 41 127
Gain on security transactions 127 26
--------- ---------
Total Noninterest Income 316 277
--------- ---------
Noninterest Expense:
Salaries and benefits 443 351
Occupancy expenses 56 71
Equipment expenses 103 74
Other expenses 382 375
--------- ---------
Total Noninterest Expenses 984 871
--------- ---------
Income before Income Taxes 592 577
Income Tax Expense 187 175
--------- ---------
Net Income $405 $402
======== ========
Earnings Per Share
Net income $0.36 $0.34
======== ========
Weighted Average Shares Outstanding 1,116,254 1,185,140
========== ==========
<PAGE> 3
PIONEER BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
Six Months Ended
June 30,
2001 1999
Interest and Dividend Income:
Loans including fees $ 3,502 $ 3,145
Debt securities - taxable 398 320
Debt securities - nontaxable 70 117
Deposits and federal funds sold 79 166
Equity securities 19 21
--------- ---------
Total Interest and Dividend Income 4,068 3,769
--------- ---------
Interest Expense:
Deposits 1,489 1,433
Borrowings 103 18
--------- ---------
Total Interest Expense 1,592 1,451
--------- ---------
Net Interest Income 2,476 2,318
Provision for loan losses 30 60
Net interest income after provision --------- ---------
for loan losses 2,446 2,258
--------- ---------
Noninterest Income:
Service charges on deposit accounts 266 221
Other income 268 174
Gain on security transactions 336 127
--------- ---------
Total Noninterest Income 870 522
--------- ---------
Noninterest Expense:
Salaries and benefits 868 690
Occupancy expenses 111 121
Equipment expenses 201 148
Other expenses 758 718
--------- ---------
Total Noninterest Expenses 1,938 1,677
--------- ---------
Income before Income Taxes 1,378 1,103
Income Tax Expense 459 339
--------- ---------
Net Income $919 $764
======== ========
Earnings Per Share
Net income $0.82 $0.64
======== ========
Weighted Average Shares Outstanding 1,116,254 1,185,140
========== ==========
<PAGE> 4
PIONEER BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
June 30, December 31,
2000 1999
ASSETS
Cash and due from banks $4,893 $5,199
Federal funds sold 800 2,215
Interest bearing deposits in banks 491 4,536
Investment securities 3,367 3,557
Hold To Maturity 12,019 11,628
Available for sale
Loans receivable, net of allowance for loan 71,925 69,252
losses of 735 and 763 respectively 2,832 2,910
Other assets 2,005 1,748
--------- ---------
Total assets $98,332 $101,045
======== ========
LIABILITIES
Deposits
Noninterest bearing demand 13,586 12,246
Interest bearing
Demand 10,120 10,516
Savings 10,076 10,412
Time deposits over $100,000 6,149 5,065
Other time deposits 42,979 44,200
--------- ---------
Total Deposits 82,910 82,439
Accrued expenses and other liabilities 1,533 1,426
Borrowings 2,750 6,350
--------- ---------
Total Liabilities 87,193 90,215
--------- ---------
STOCKHOLDERS' EQUITY
Common stock; $.50 par value, shares 558 561
outstanding 1,116,254 and 1,121,670
for the current period and prior year
Retained earnings 10,655 10,275
Accumulated other comprehensive income (loss) (74) (6)
--------- ---------
Total Stockholders' Equity 11,139 10,830
--------- ---------
Total Liabilities and Stockholders' Equity $98,332 $101,045
======== =======
<PAGE> 5
PIONEER BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars)
Six Months Ended
June 30,
2000 1999
Balance, beginning of period $10,830 $11,060
Comprehensive Income:
Net income for period $919 $764
Net change in unrealized gains
on securities available for sale,
net of income taxes (68) (144)
--------- ---------
Total Comprehensive Income 851 620
Dividends declared (448) (475)
Retirement of common stock (94) (47)
--------- ---------
Balance, end of period $11,139 $11,158
======== ========
Quarterly dividends:
First quarter $0.30 $0.30
Second quarter $0.10 $0.10
<PAGE> 6
PIONEER BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
Six Months Ended
June 30,
2000 1999
Cash Flows from Operating Activities:
Net income $919 $764
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 30 60
Depreciation 142 118
Net Accretion/Amortization of securities (308) (103)
(Gain)/Loss on sale of securities (336) (127)
Net change in:
Accrued income (45) (93)
Other assets (194) (173)
Accrued expense and other liabilities 225 (73)
------- -------
Net Cash Provided by Operating Activities 433 373
------- -------
Cash Flows from Investing Activities:
Net change in federal funds sold 1,415 2,805
Net increase in interest bearing deposits 4,045 (964)
Proceeds from maturities and sales
of securities available for sale 1,260 1,072
Proceeds from maturities and calls
of securities held to maturity 189 2,147
Purchase of securities available for sale (1,134) (6,892)
Purchase of securities held to maturity 0 (13)
Net increase in loans (2,703) (3,382)
Purchase of bank premises and equipment (64) (51)
Investment in life insurance policies (18) (33)
------- -------
Net Cash Provided by (Used in) Investing Activities 2,990 (5,311)
------- -------
Cash Flows from Financing Activities:
Net change in:
Demand and savings deposits 608 4,094
Time deposits (137) (1,110)
Short-term borrowings 0 0
Proceeds from borrowings 1,000 2,000
Curtailments of borrowings (4,600) (50)
Purchase and subsequent retirement of common stock (94) (47)
Dividends paid (506) (357)
------- -------
Net Cash Provided by (Used in) Financing Activities (3,729) 4,530
------- -------
Cash and Cash Equivalents
Net increase in cash and cash equivalents (306) (408)
Cash and Cash Equivalents, beginning of year 5,199 4,400
------- -------
Cash and Cash Equivalents, End of Year $4,893 $3,992
======= =======
Supplemental Disclosure of Cash Paid During the Year for:
Interest $1,612 $1,465
Income taxes $233 $279
<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 June
30, 2000 and the results of operations for the three-month periods and
year to date periods ended June 30, 2000 and June 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 June
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 $1,734 $1,759 $1,737
State and municipal 1,156 1,173 1,253 1,282
Other securities - - - -
Mortgage-backed securities 458 440 545 522
------- ------- ------- -------
Total $3,367 $3,347 $3,557 $3,541
======= ======= ======= =======
Securities available for sale:
U.S. Treasury and agency
obligations $9,252 $8,972 $10,563 $10,157
Municipal Securities 1,905 1,800 - -
Equity Securities 975 1,247 1,049 1,471
Mortgage-backed securities - - - -
------- ------- ------- -------
Total $12,132 $12,019 $11,612 $11,628
======= ======= ======= =======
<PAGE> 8
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 LOANS:
Loans outstanding are summarized as follows:
June 30, December 31,
2000 1999
Real estate loans $53,665 $52,780
Commercial and industrial loans 5,266 4,007
Loans to individuals, primarily
collateralized by autos 14,281 14,164
All other loans 1,074 364
--------- ---------
Total Loans 74,286 71,315
Less unearned discount (1,642) (1,284)
--------- ---------
Loans, less unearned discount 72,644 70,031
Less allowance for loan losses (719) (779)
--------- ---------
Net Loans Receivable $71,925 $69,252
======== ========
NOTE 4 ALLOWANCE FOR LOAN LOSSES:
A summary of transactions in the allowance for loan losses for the six
months ended June 30, 2000 and 1999 follows:
2000 1999
Balance, beginning of period $ 779 $ 773
Provision charged to operating expenses 15 30
Recoveries of loans charged off 17 9
Loans charged off 76 49
------- -------
Balance, End of Period $735 $763
======= =======
<PAGE> 9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
Loans continued to grow, increasing $2,613,000 (3.74%), principally in the 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 $471,000 (.58%), with an increase in certificates of deposit over $100,000 of
$1,084,000. This need for funds was met by a decrease in Federal Funds Sold of
$1,415,000, decrease in Interest Bearing Deposits at Banks of $4,045,000 and a
new borrowing on the Federal Home Loan Bank Line of Credit for $1,000,000.
Results of Operations
The dollar amount of the tax equivalent net interest margin increased $211,000
or 15.3% for the current year to date period as compared to the corresponding
period in the prior year [$65,000 or 5.27% in the second quarter of 2000
compared to the second 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.
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 $348,000 in the first half of 2000. An increase in
securities gains accounted for $209,000 of the total. Other Income increased
$94,000 in the first quarter of 2000 and included the following three 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, recognition of receipt of $108,000 [receipts of $72,000 were
recognized in the first half of 1999] from the company's former president (of
which $7,000 was used to offset expenses incurred in the current period) 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 $261,000 (15.57%). Salaries and benefits accounted
for $178,000 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. Equipment expense increased by $53,000 (35.81%) due to increased
depreciation and repairs and maintenance. Other expense increased $40,000
(5.58%) resulting 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 June 30, 2000, the market value of all
securities available for sale was below their amortized cost by $113,000
($75,000 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, 10.38% (based on market value) are invested in equities,
some of which are dividend producing and subject to the corporate dividend
exclusion for taxation purposes. The Company believes these investments offer
adequate returns and/or have the potential for 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 $357,000 at June 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 June 30, 2000.
As of June 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 $719,000 at June 30, 2000 was down $60,000 from
its level at December 31, 1999. The allowance was equal to .99% and 1.12% of
total loans at June 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, of which the
first ten years have a fixed rate. 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
Borrowings (Continued)
In the second quarter of 2000, the Company borrowed $1,000,000 against its Line
Of Credit with the Federal Home Loan Bank. This borrowing was made by the Bank
in order to maintain an adequate liquidity level. These borrowings are in
keeping with the Bank's normal asset and liability management procedures.
Capital
The Company maintains a strong capital base to expand facilities, promote public
confidence, support operations and grow at a manageable level. As of June 30,
2000, the Company's total risk based capital and total capital to total assets
ratios were 14.63% and 13.48%, 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 correspondent banks. 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 June 30, 2000.
As of June 30, 2000, the Company had a cumulative Gap Rate Sensitivity Ratio of
(33.39%) 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)
Six Months Ended Six Months Ended
June 30,2000 June 30,1999
------------------- ------------------
(In thousands) Average Income/ Average Income/
Balance Expense Rates Balance Expense Rates
Interest Income
Loans 1
Commercial $3,969 $211 10.63% $3,706 $205 11.06%
Real estate 54,280 $2,341 8.63% 48,885 $2,117 8.66%
Installment 11,935 $847 14.19% 10,596 $758 14.31%
Credit Card 998 $103 20.64% 848 $65 15.33%
Federal funds sold 2,680 79 5.90% 7,248 166 4.58%
Interest bearing deposits 755 19 5.03% 870 21 4.83%
Investments
Taxable 3 13,130 408 6.22% 11,556 330 5.72%
Nontaxable 2 2,829 106 7.50% 3,995 177 8.87%
------ ------ ----- ------ ------ -----
Total earning assets 90,576 4,115 18.17% 87,704 3,840 17.51%
------ ------ ----- ------ ------ -----
Interest Expense
Demand deposits 23,367 86 0.74% 22,968 99 0.86%
Savings 10,180 95 1.87% 11,778 141 2.39%
Time deposits 49,725 1,308 5.26% 46,352 1,123 4.85%
Borrowings 2,499 103 8.24% 1,012 18 3.56%
------ ------ ----- ------ ------ -----
Total Interest Bearing
Liabilities $85,771 $1,592 3.71% $82,110 $1,381 3.36%
===== ===== ===== ===== ===== =====
Net Interest Margin 1 2,523 2,459
===== =====
Net interest yield on
interest earning assets 5.57% 5.61%
===== =====
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
June 30,2000 June 30,1999
------------------- ------------------
(In thousands) Average Income/ Average Income/
Balance Expense Rates Balance Expense Rates
Interest Income
Loans 1
Commercial $4,112 $110 10.70% $3,820 $102 10.68%
Real estate 54,673 $1,190 8.71% 49,538 $1,086 8.77%
Installment 12,166 $425 13.97% 10,726 $385 14.36%
Credit Card 986 $54 21.91% 823 $33 16.04%
Federal funds sold 2,253 35 6.21% 6,359 75 4.72%
Interest bearing deposits 122 2 6.56% 1,707 15 3.51%
Investments
Taxable 3 13,112 205 6.24% 12,645 183 5.78%
Nontaxable 2 2,981 56 7.52% 3,939 83 8.46%
------ ------ ----- ------ ------ -----
Total earning assets 90,405 2,077 9.19% 89,557 1,962 8.76%
------ ------ ----- ------ ------ -----
Interest Expense
Demand deposits 23,963 43 0.72% 23,616 50 0.85%
Savings 10,111 47 1.86% 12,190 70 2.30%
Time deposits 49,563 660 5.33% 46,054 590 5.12%
Borrowings 1,825 28 6.14% 1,992 18 3.61%
------ ------ ----- ------ ------ -----
Total Interest Bearing
Liabilities $85,462 $778 3.64% $83,852 $728 3.47%
===== ===== ===== ===== ===== =====
Net Interest Margin 1 1,299 1,234
===== =====
Net interest yield on
interest earning assets 5.75% 5.51%
===== =====
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
June 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 $2,036 $1,424 $369 $0 $0 $3,829
Installment 170 786 12,829 591 0 14,376
Real estate 6,538 9,225 31,730 7,618 0 55,111
Credit Card 0 0 1,006 0 0 1,006
Interest bearing bank 491 0 0 0 0 491
deposits
Investment securities 376 1,135 6,495 6,133 448 14,587
Federal funds sold 800 0 0 0 0 800
------ ------ ------ ------ ------ ------
Total 10,411 12,570 52,429 14,342 448 90,200
------ ------ ------ ------ ------ ------
Sources of Funds:
Interest bearing demand 10,120 0 0 0 0 10,120
deposits
Regular savings 10,076 0 0 0 0 10,076
Certificates of deposit
$100,000 and over 958 3,249 1,942 0 0 6,149
Other certificates of 6,632 18,835 17,512 0 0 42,979
deposits
TT & L Account 0 0 0 0 0 0
Borrowings 1,050 150 800 750 0 2,750
------ ------ ------ ------ ------ ------
Total 28,836 22,234 20,254 750 0 72,074
------ ------ ------ ------ ------ ------
Discrete Gap (18,425) (9,664) 32,175 13,592 448 18,126
Cumulative Gap (18,425) (28,089) 4,086 17,678 18,126
Ratio of Cumulative Gap
To Total Earning Assets -20.38% -31.07% 4.52% 19.55% 20.05%
<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. Since the date of Mr. Waters' resignation through
March 31, 2000, the Bank and the Holding Company charged approximately
$340,000.00 against the escrowed shares. As a result of these charges, the Bank
and the Holding Company believe that they have recovered substantially all 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.
As a result of these events, the Bank and the Holding Company have implemented a
number of internal controls and procedures designed to prevent the reoccurrence
of such events. Specifically, the Bank and the Holding Company have implemented
new expenditure confirmation policies that require proper documentation and
multiple signatures in order to obtain most expense reimbursements. In addition,
the internal and external audit functions of the Bank and Holding Company have
been enhanced to require frequent monitoring of the expenditure of Bank funds.
<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 -
On April 11, 2000, the Annual Shareholders Meeting was held. At this meeting
Patricia G. Baker [votes for 891,973, against 4,380], Robert L. Long [votes for
892,549, against 3,804] and Kyle L. Miller [votes for 891,413, against
4,940] were elected to serve as directors. Their term will expire in 2003.
After the meeting, the Board of Directors consisted of Patricia G. Baker,
Louis L. Bosley, Robert E. Long, Harry F. Louderback, Edwin P. Markowitz,
Kyle L. Miller, Mark N. Reed, Thomas R. Rosazza and David N. Slye.
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
The Company did not file any reports on Form 8-K for the quarter
ending June 30, 2000.
<PAGE> 19
EXHIBIT INDEX
Exhibit
Index Page Number
27 Financial Data Schedule for the quarter
ending June 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: August 14, 2000
