U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS Under
Section 12(b) or (g) of the Securities Exchange Act of 1934
Pioneer Bankshares, Inc.
(Name of Small Business Issuer in Its Charter)
Virginia 54-1278721 (State or other jurisdiction of
(I.R.S. Employer incorporation or organization) Identification
No.)
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263 East Main Street
P. O. Box 10
Stanley, Virginia 22851
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (540) 778-2294
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
not applicable not applicable
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK $.50 PAR VALUE
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(Title of class)
<PAGE> 2
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB
TABLE OF CONTENTS
PAGE
PART I.
Item 1. Description of Business 3
Item 2. Management's Discussion and Analysis 8
Item 3. Description of Property 20
Item 4. Security Ownership of Certain Beneficial Owners and
Management 21
Item 5. Directors, Executive Officers, Promoters and Control
Persons 22
Item 6. Executive Compensation 23
Item 7. Certain Relationships and Related Transactions 24
Item 8. Description of Securities 25
PART II.
Item 1. Market Price of and Dividends on the Company's Common
Equity and Other Shareholder Matters 26
Item 2. Legal Proceedings 26
Item 3. Changes in and Disagreements with Accountants 26
Item 4. Recent Sales of Unregistered Securities 26
Item 5. Indemnification of Directors and Officers 26
Part F/S
Index to Financial Statements 28
PART III.
Item 1. Index to Exhibits 48
<PAGE> 3
PART I
Item 1. Description of Business
OVERVIEW
Pioneer Bankshares, Inc., [Holding Company] a Virginia one bank holding
company, headquartered in Stanley, Virginia was incorporated under the laws of
the Commonwealth of Virginia on November 4, 1983. The holding company has a
wholly owned banking subsidiary, Pioneer Bank, Inc. [Bank] which was
incorporated under the laws of the Commonwealth of Virginia on November 9, 1993
and commenced commercial operations as a state charted bank on February 17,
1994.
The primary holdings of the Holding Company consist of all of the stock of
the Bank, real estate holdings leased to the Bank or intended for future Bank
use and a portfolio of equity investment securities.
The Bank is engaged in the general commercial banking business,
primarily serving Page and part of Rockingham Counties and the City of
Harrisonburg in the Shenandoah Valley of Virginia. In addition, the close
proximity and mobile nature of individuals and businesses in adjoining Virginia
counties and nearby cities places these markets within the Bank's targeted
trade area. The Bank also anticipates serving some individuals and businesses
from other areas, including the other counties surrounding Page County.
The Bank offers a full range of banking and related financial services
focused primarily towards serving individuals, small to medium size
businesses, and the professional community. The Bank strives to serve the
banking needs of its customers while developing personal, hometown relationships
with them. The Bank's Directors believe that the marketing of customized banking
services will enable the Bank to continue its position in the financial
services marketplace in this market area.
The Bank provides individuals, professionals and small and medium size
businesses in its market area with responsive and technologically advanced
banking services. These services include competitively priced loans that
are baseded on deposit relationships, easy access to the Bank's decision-
makers, and quick and innovative action necessary to meet a customer's banking
needs. The Bank's capitalization and lending limit enable it to satisfy the
credit needs of a large portion of the targeted market segment. In the event
there are customers whose loan requirements exceed the Bank's lending limit,
the Bank will seek to arrange such loans on a participation basis with other
financial institutions. The Board of Directors believes the Bank's present
capitalization will support substantial growth in deposits and loans.
Location and Market Area
The Bank operates full service branches in Stanley, Luray and Shenandoah,
Virginia and in 1999 opened a full service branch in Harrisonburg, Virginia.
Management will continue to investigate and consider other possible sites that
would enable the Bank to profitably serve its chosen market area.
The opening of any additional banking offices by the Bank will require
prior regulatory approval, which takes into account a number of factors,
including, among others, a determination that the Bank has capital in an amount
deemed necessary to warrant additional expansion and a finding that the pubic
interest will be served. While the Bank plans to seek regulatory approval at the
appropriate time to establish additional banking offices in various parts of our
market area, there can be no assurance when or if the Bank will be able to
undertake such expansion plans.
<PAGE> 4
Banking Services
The Bank accepts deposits, makes consumer and commercial loans, issues
drafts, and provides other services customarily offered by a commercial banking
institution, such as business and personal checking and savings accounts,
walk-up tellers, drive-in windows, and 24-hour automated teller machines. The
Bank is a member of the Federal Reserve System and deposits are insured under
the Federal Deposit Insurance Act to the limits provided thereunder.
The Bank offers residential real estate loans, commercial real estate
loans and a full range of short-to-medium term commercial and personal
loans. Commercial loans include both secured and unsecured loans for
working capital (including inventory and receivables), business expansion
(including acquisition of real estate and improvements) and purchase of
equipment and machinery. Consumer loans may include secured and unsecured loans
for financing automobiles, home improvements, education and personal
investments.
The Bank's lending activities are subject to a variety of lending limits imposed
by state law. While differing limits apply in certain circumstances based on the
type of loan or the nature of the borrower (including the borrower's
relationship to the Bank), in general the Bank is subject to a loan-to-one
borrower limit of an amount equal to 15% of the Bank's capital and surplus in
the case of loans which are not fully secured by readily marketable or other
permissible types of collateral. The Bank voluntarily may choose to impose a
policy limit on loans to a single borrower that is less than the legal lending
limit. The Bank may establish relationships with correspondent banks to sell
interests or participations in loans when loan amounts exceed the Bank's legal
limitations or internal lending policies.
Other bank services include safe deposit boxes, cashier's checks,
certain cash management services, traveler's checks, direct deposit of payroll
and social security checks and automatic drafts for various accounts. The Bank
currently offers ATM card services that can be used by Bank customers throughout
Virginia and other regions. The Bank also offers MasterCard and VISA credit card
services.
The Bank does not have trust powers and the Bank does not anticipate obtaining
trust powers. If the Bank determined to establish a trust department in the
future, the Bank could not do so without the prior approval of the Commission.
The Bank in the future may contract for the provision of trust services to
its customers through outside vendors.
Competition
The banking business is highly competitive. The Bank competes as a
financial intermediary with other commercial banks, savings and loan
associations, credit unions, mortgage banking firms, consumer finance companies,
securities brokerage firms, insurance companies, money market mutual funds and
other financial institutions operating in the western Virginia market area and
elsewhere.
The Bank's market area is a highly competitive, highly branched banking
market. Competition in the market area for loans to small to medium size
businesses and individuals, the Bank's target market, is intense, and pricing is
important. Most of the Bank's competitors have substantially greater resources
and lending limits than the Bank and offer certain services, such as
extensive and established branch networks, that the Bank does not expect to
provide or will not provide in the near future. Moreover, larger institutions
operating in the western Virginia market area have access to borrowed funds
at a lower cost than are available to the Bank. Deposit competition among
institutions in the market area also is strong. While the Bank is not
presently paying above-market rates to attract deposits, it may have to do so
in the future.
<PAGE> 5
Employees
As of March 31, 1999, the Bank had 55 employees, with 44 being full-time
employees. None of its employees are represented by any collective bargaining
agreements and relations with employees are considered excellent.
Supervision and Regulation
The Bank is subject to various state and federal banking laws and
regulations that impose specific requirements or restrictions on and provide for
general regulatory oversight with respect to virtually all aspects of
operations. The following is a brief summary of the material provisions of
certain statutes, rules and regulations that affects the Bank. This summary is
qualified in its entirety by reference to the particular statutory and
regulatory provisions referred to below.
The Bank operates under the supervision of, and subject to regulation and
examination by, the Virginia State Corporation Commission ("Commission") and
the Board of Governors of the Federal Reserve System ("Federal Reserve").
The Bank will be subject to various statutes and regulations administered
by these agencies that govern, among other things, required reserves,
investments, loans, lending limits, acquisitions of fixed assets,
interest rates payable on deposits, transactions among affiliates and the Bank,
the payment of dividends, mergers and consolidations, and the establishment of
branch offices. Federal and state bank regulatory agencies also have the general
authority to eliminate dividends paid by insured banks if such payment is deemed
to constitute an unsafe and unsound practice. As its primary federal regulator,
the Federal Reserve will have the authority to impose penalties, initiate civil
and administrative actions and take other steps to prevent the Bank from
engaging in unsafe and unsound practices.
Under recently enacted federal legislation, the existing restrictions on
interstate bank acquisitions were abolished effective September 29, 1995, and
thereafter bank holding companies from any state were able to acquire banks and
bank holding companies located in any other state. Effective June 1, 1997, and
thereafter, the law allows banks to merge across state lines, subject to earlier
"opt-in" or "opt-out" action by individual states. The law also allows
interstate branch acquisitions and de novo branching if permitted by the host
state. Virginia has recently adopted early "opt-in" legislation that will allow
interstate bank mergers. Virginia also permits interstate branch acquisitions
and de novo branching if reciprocal treatment is accorded Virginia banks in the
state of the acquirer.
The Gramm-Leach-Bliley Act of 1999 (the "Act") was enacted on November 12,
1999. The Act creates a new form of financial organizations called a
financial holding company that may own banks, insurance companies and
securities firms. The Holding Company expects to review the ramifications
of the Act and to make a determination in the future upon what role, if any,
it will play in the strategic plans of the Holding Company.
The Holding Company is a bank holding company within the meaning of the
Bank Holding Company Act of 1956 (the "BHC Act"). As such, the Holding
Company is supervised by the Board of Governors of the Federal Reserve System
(the "Federal Reserve") and is required to file reports with the Federal
Reserve. The Holding Company will also be required to file annual, quarterly
and current reports, proxy statements and other information with the Securities
and Exchange Commission.
Since the number of shareholders of record, of the Bank exceeded 500
during 1999, the Holding Company is now subject to the registration, periodic
reporting, insider reporting and trading restrictions and proxy solicitation
regulations promulgated by the Board of Governors of the Federal Reserve System.
The amount of dividends payable by the Bank will depend upon its earnings
and capital position, and is limited by the federal and state law, regulations
and policy. In addition, Virginia law imposes restrictions on the ability of all
banks chartered under Virginia law to pay dividends. No dividend may be declared
or paid that would impair the Bank's paid-in capital. Each of the Commission
and the Federal Reserve has the general authority to limit dividends paid by
the Bank if such payments are deemed to constitute an unsafe and unsound
practice.
Under current supervisory practice, prior approval of the Federal Reserve
is required if cash dividends declared in any given year exceed the total of its
net profits for such year, plus its retained net profits for the preceding two
years. Also, the Bank may not pay a dividend in an amount greater than its
undivided profits then on hand after deducting current losses and bad debts. For
this purpose, bad debts are generally defined to include the principal amount of
all loans which are in arrears with respect to interest by six months or more,
unless such loans are fully secured and in the process of collection. Federal
law further provides that no issued depository institution may make any capital
distribution (which would include a cash dividend) if, after making the
distribution, the institution would not satisfy one or more of its minimum
capital requirements.
<PAGE> 6
Capital Resources
The various federal bank regulatory agencies, including the Federal
Reserve, have adopted risk-based capital requirements for assessing bank capital
adequacy. Virginia chartered banks must also satisfy the capital requirements
adopted by the Commission. The federal capital standards define capital and
establish minimum capital requirements in relation to assets and off-balance
sheet exposure, as adjusted for credit risk. The risk-based capital standards
currently in effect are designed to make regulatory capital requirements more
sensitive to differences in risk profile among bank holding companies and banks,
to account for off-balance sheet exposure and to minimize disincentives for
holding liquid assets. Assets and off-balance sheet items are assigned to broad
risk categories, each with appropriate risk weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and
off-balance sheet items.
The minimum standard for the ratio of capital to risk-weighted assets
(including certain off-balance sheet obligations, such as standby letters of
credit) is 8.0%. At least half of the risk-based capital must consist of common
equity, retained earnings and qualifying perpetual preferred stock, less
deductions for goodwill and various other tangibles ("Tier I capital"). The
remainder ("Tier 2 capital") may consist of a limited amount of subordinated
debt, certain hybrid capital instruments and other debt securities, preferred
stock and a limited amount of the general valuation allowance for loan losses.
The sum of Tier 1 capital and Tier 2 capital is "total risk-based capital."
The Federal Reserve also has adopted regulations which supplement the
risk-based guidelines to include a minimum leverage ratio of Tier 1 capital to
quarterly average assets ("Leverage Ratio") of 3%. The Federal Reserve has
emphasized that the foregoing standards are supervisory minimums and that a
banking organization will be permitted to maintain such minimum levels of
capital only if it receives the highest rating under the regulatory rating
system and the banking organization is not experiencing or anticipating
significant growth. All other banking organizations are required to maintain a
Leverage Ratio of at least 4.0% to 5.0% of Tier 1 capital. These rules further
provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain capital positions substantially above
the minimum supervisory levels and comparable to peer group averages,
significant reliance on intangible assets. The Federal Reserve continues to
consider a "tangible Tier I leverage ratio" in evaluating proposals for
expansion or new activities. The tangible Tier 1 leverage ratio is the ratio
banking organization's Tier capital, less deductions for intangibles otherwise
inculpable in Tier 1 capital, to tangible assets. The Bank's capital ratios
significantly exceed all requirements at December 31, 1999 and March 31, 2000.
Deposit Insurance
As an institution with deposits to be insured by the Bank Insurance Fund
("BIF") of the FDIC, the Bank also is subject to insurance assessments imposed
by the FDIC. In 1995, the FDIC's Board of Directors voted to revise the range of
assessment premiums applicable to BIF-insured deposits. Under the revised
risk-based assess-rate schedule for BIF-insured deposits, the best-rated banks
will pay an annual fee of $2,000, but no percent-of deposits, while other banks
pay according to their capital position and other factors, with the weakest
paying as much as 0.31% of deposits. The new rate schedule is already in effect.
The actual assessment paid is based on the institution's assessment risk
classification, which is determined based on whether the institution is
considered "well capitalized," "adequately capitalized" or "undercapitalized,"
as such terms have been defined in applicable federal regulations, and whether
such institution is considered by its supervisory agency to be financially sound
or to have supervisory concerns.
<PAGE> 7
Effect of Governmental Monetary Policies
The operations of the Bank will be affected not only by general economic
conditions, but also by the policies of various regulatory authorities. In
particular, the Federal Reserve regulates money, credit conditions and
interest rates in order to influence general economic conditions. These policies
have a significant influence on overall growth and distribution of bank loans,
investments and deposits, and affect interest rates charged on loans or paid for
time and savings deposits. Federal Reserve Board monetary policies have had a
significant effect on the operating results of commercial banks in the past and
are expected to do so in the future.
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
In October of 1998, the Directors of Page Bankshares, Inc., adopted a
Strategic Plan developed to guide the Bank and Holding Company into the 21st
century. The plan looked ten years into the future with annual reviews of both
the strategic and tactical plan goals. It also articulated the corporate
mission, corporate strengths and weaknesses and specific goals for the
future. The document is forward looking, dynamic and serves as our road
map for the future successes.
To prepare the Bank and Holding Company for the 21st century, the Directors
felt it was necessary to change both the names of the Bank and Holding Company.
The Directors felt that the new names were not geographically limiting and
enable the Bank to expand. Effective April 1, 1999, after almost 90 years,
Farmers & Merchants Bank of Stanley changed its name to Pioneer Bank.
Thereafter, on June 8, 1999, the shareholders approved a resolution changing
the name of the holding company from Page Bankshares, Inc. to Pioneer
Bankshares, Inc.
The following is management's discussion of the financial condition and
results of operations on a consolidated basis for the two years ended December
31, 1999 and 1998, respectively, for the Holding Company. The consolidated
financial statements of the Holding Company include the accounts of the
Holding Company and the Bank. This discussion should be read in
conjunction with the consolidated financial statements and related notes
of the Holding Company presented elsewhere herein.
OPERATIONS ANALYSIS - 1999 Compared to 1998
Overview
The Holding Company's net income for 1999 increased $306,196 or 26.9%
from 1998 earnings. Net income per share increased from $.92 in 1998 to $1.23 in
1999. The Holding Company's improved earnings were due to a combination of
factors summarized below.
Net Interest Margins
The net weighted interest margin on earning assets on a tax equivalent
basis increased from 5.41% in 1998 to 5.53% in 1999. The Holding Company's net
yield on average earning assets of 5.53% is in line with its peer group.
Yields on loans decreased from 9.94% in 1998 to 9.85% in 1999. Real estate
loan rates decreased fourteen basis points, while installment loans decreased
twelve basis points. Both declines were due to a general decline in rates of
interest in the market. Commercial loan yields increased as a result of offering
a new commercial loan product. This product was introduced in the later part of
1998 and was more fully utilized in 1999. The product provides funding to
customers based on their inventory or receivables. Additionally, this type of
commercial loan carries a higher rate of interest than the remaining portion of
the commercial loan portfolio. Credit card loan rates increased in 1999 as a
result of the ending of most promotional rates in the beginning of 1999. These
promotional rates were offered in earlier periods in an effort to attract credit
card customers.
To balance its interest rate risk on fixed rate loans, the Bank borrows
from the Federal Home Loan Bank at fixed rates that are determined by market
conditions. This program has helped the Bank meet the needs of its customers who
might otherwise have gone to another financial institution seeking fixed rate
loans.
Tax equivalent yields on securities decreased to 5.70% in 1999 from 5.85%
in 1998. This decrease was primarily a result of a decline in market rates on
all types of debt instruments. This decline in general market rates resulted in
increased call activity in the bond portfolio in 1999. Average investments
increased 8.91% from the previous year. The Company's philosophy of investing
only in securities with short to intermediate maturities allows it to be
responsive to interest rate movements within the market place.
<PAGE> 9
The rates paid on interest bearing deposits decreased to 4.15% in 1999 from
4.50% in 1998. Average rates decreased on all deposit types as a result of
declines in general market rates. Rates on interest bearing demand, savings and
time deposits decreased twelve, forty six and thirty one basis points,
respectively. The improvement in the net interest margin was positively affected
by an increase in the mix of interest bearing deposit liabilities that are low
rate obligations (i.e. demand deposits and savings).
Long term borrowings through the FHLB are incurred only to balance the rate
exposure on fixed rate loans and are used to fund loans with fixed rate
features. Short-term borrowings from the FHLB were incurred for possible Y2K
concerns and have been paid off in the year 2000.
Table II contains a complete yield analysis for the last two years and
Table III contains the rate/volume changes in these years.
Other Income
The Holding Company realized gains of $19,054 in 1999 on the sale of
corporate stocks compared with gains of $39,019 in 1998.
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. In this agreement, the former President
also agreed to forego certain deferred compensation. In 1999, these items
resulted in $239,000 of other income. The former President has filed suit
seeking the return to him of part or all of this amount, as discussed in more
detail below. If the suit is successful, the Holding Company and the Bank may
have to restate its earnings for 1999.
Service charges on deposit accounts increased 34.60% in 1999 from 1998
levels. The increase is attributed to an increase in service charges on deposit
accounts.
Other Expenses
Noninterest expense increased $249,551 or 7.71% in 1999 over 1998 levels.
Salaries and employee benefits decreased 4.51% due to: retirement of a senior
officer the prior year, the presidents position being vacant for part of 1999
and 1998; having a one time charge of $150,000 to accrue a retirement benefit
for a retiring senior officer, offset by increased staffing, including a full
time training director; normal salary increases; and higher health
insurance premiums. Occupancy and equipment expense combined increased by
$85,872 or 18.21% primarily due to the opening of a new branch office in
Harrisonburg, Virginia, the installing of two new stand alone ATMs, the
commencing of check imaging, and general equipment. Other noninterest expenses
increased $237.397 or 20.19%. Approximately half of this increase was
primarily related to professional fees, advertising and supplies related
to the opening of the Harrisonburg, Virginia branch and changes in the
names of the Bank and the Holding Company. The remaining increases were spread
over a variety of expense categories, with no single area increasing
significantly. The Company's overall cost of operations relative to asset size
is comparable to its peer group.
1998 COMPARED TO 1997 OPERATIONS
Net income in 1998 decreased $230,211 or 16.21% over net income in 1997.
Gains on securities transactions decreased $1,908 from 1997 to 1998. The
Holding Company followed its strategy of selectively selling common stocks that
have shown sizable long-term appreciation. The year 1997 was the first year the
Holding Company significantly invested in equity securities.
Other noninterest income was fairly stable for the two-year period.
<PAGE> 10
Noninterest expense increased $514,605 or 18.74% in 1998 over 1997 levels.
Salaries and employee benefits increased 17.63% due to increased staffing and,
normal salary increases and the accrual of a $150,000 retirement benefit for a
senior officer. Other noninterest expenses increased $276,342 or 6.74%. The
increase was spread over a variety of expense categories, with no single area
increasing materially. The Holding Company's overall cost of operations
relative to asset size is comparable to its peer group.
UNCERTAINTIES AND TRENDS
General
Management is of the opinion that loans classified for regulatory purposes
as loss, doubtful, substandard, or special mention do not (i) represent or
result from trends or uncertainties which are reasonably expected to materially
impact future operating results, liquidity, or capital resources, or (ii)
represent material credits of which any available information causes serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms.
Management is not aware of any known trends, events or uncertainties that
will have or that are reasonably likely to have a material effect on the issuers
liquidity, capital resources or operations of the issuers. Additionally,
management is not aware of any current recommendations by the regulatory
authorities which, if they were to be implemented, would have such an effect.
BALANCE SHEET
Investment Securities
Average balances in investment securities increased 8.91% in 1999 compared
to 1998. The Holding Company maintains a high level of earning assets in
investment securities to provide for liquidity and as security for public
indebtedness. A schedule of investment securities is shown in a note to
the consolidated financial statements.
The Holding Company accounts for investments under Statement of
Financial Accounting Standard No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." This statement requires all securities to be
classified at the point of purchase as trading securities, available for
sale or held to maturity. See the notes to the financial statements for a
discussion of the accounting policies for investments. The Holding Company
values its debt securities based on information supplied by its correspondent
banks for actively traded obligations and by market comparison with similar
obligations for non-rated investments. Investments in common stocks are
based on the last trades as provided by the Holding Company's investment
holder.
Yields and Maturities
The yields on taxable and nontaxable investments for 1999 and 1998 are
shown in the yield analysis in Table II. The carrying amount and estimated
market value of debt securities at December 31, 1999 by contractual maturity are
included in a note to the consolidated financial statements.
Management's philosophy is to keep the maturities of investments relatively
short which allows the Company to better match deposit maturities with
investment maturities and thus react more quickly to interest rate changes.
<PAGE> 11
Equity Investments
The Holding Company has investments in common and preferred stock totaling
$901,000 at December 31, 1999, with an estimated market value of
$1,319,000. The investments include common stocks with the objective of
realizing capital gains. The market value of these investments is sensitive
to general trends in the stock market.
RISK ELEMENTS IN THE LOAN PORTFOLIO
The Bank's policy has been to make conservative loans that are held for
future interest income. Collateral required by the Bank is
determined on an individual basis depending on the purpose of the loan
and the financial condition of the borrower.
The Bank's real estate mortgage loans increased 10.83% from $47,624,000
to $52,780,000 at December 31, 1999. Residential real estate loans are generally
made for a period not to exceed 30 years and are secured by first deeds of
trust, which do not exceed 80% of the appraised value. If the loan to value
ratio exceeds 80%, the Bank requires additional collateral or
guarantees. For a majority of the real estate loans, interest is adjustable
after each three or five year period. Fixed rate loans are generally made for a
fifteen-year period. See Table IV for a maturity schedule of fixed and variable
rate loans. In 1999, fixed rate real estate loans have been funded with fixed
rate borrowings from the Federal Home Loan Bank, which allows the Bank to
control its interest rate risk. In addition, the Bank makes home equity loans
secured by second deeds of trust with total indebtedness not to exceed 80% of
the appraised value. Home equity loans are made on a 10-year revolving line of
credit basis.
The Bank's consumer loans increased 11.64% to $14,359,000 at December
31, 1999. Consumer loans are made for a variety of reasons, however, vehicles
secure a majority of the loans.
The majority of commercial loans are made to agri business, small retail
and service businesses.
See Table IV for a schedule of loan maturities.
NONACCRUAL AND PAST DUE LOANS
See Table V for schedule of nonaccrual and past due loans.
Interest accruals are continued on past due, secured loans until the
principal and accrued interest equal the value of the collateral and on
unsecured loans until the financial condition of the creditor deteriorates to
the point that any further accrued interest would be determined to be
uncorrectable. At December 31, 1999 and 1998, there were no restructured loans
on which interest was accruing at a reduced rate or on which payments had been
extended.
LOAN CONCENTRATIONS
At December 31, 1999, no industry category exceeded ten percent of total
loans.
LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES
For each period presented, the provision for loan losses charged to
operations is based on management's judgment after taking into consideration all
factors connected with the collectibility of the existing portfolio. Management
evaluates the loan portfolio in light of economic conditions, changes in the
nature and value of the portfolio, industry standards and other relevant
factors. Specific factors considered by management in determining the amounts
charged to operations include internally generated loan review reports, past due
reports and historical loan loss experience. This review also considers
concentrations of loans in terms of geography, business type or level of risk.
Management evaluates nonperforming loans relative to their collateral value and
makes appropriate adjustments to the allowance for loan losses when needed.
<PAGE> 12
The Bank has not experienced significant loan losses in any of the last two
years. The loss rate on loans outstanding (See Table V) is still below the
Bank's peer group. Based on historical losses, delinquency rates, a thorough
review of the loan portfolio and after considering the elements of the preceding
paragraph, management is of the opinion that the allowance for loan losses is
adequate to absorb future losses in the current portfolio.
See Table V for a summary of the activity in the allowance for loan losses.
The Bank has allocated the allowance according to the amount deemed to
be reasonably necessary to provide for the possibility of losses being incurred
within each of the categories of loans. The allocation of the allowance as shown
in Table V should not be interpreted as an indication that loan losses in future
years will occur in the same proportions or that the allocation indicates future
loan loss trends. Furthermore, the portion allocated to each loan category is
not the total amount available for future losses that might occur within such
categories since the total allowance is a general allowance applicable to the
entire portfolio.
Table V shows the balance and percentage of the Bank's allowance for loan
losses allocated to each major category of loans.
DEPOSITS
The Bank has traditionally avoided brokered and large deposits believing
that they were unstable and thus not desirable. This has proven to be a good
strategy as the local deposit base is considered very stable and small increases
in rates above the competition have resulted in deposit gains in past years.
Certificates of deposit over $100,000 are shown in Table VI.
STOCKHOLDERS' EQUITY
Banking regulators have established a uniform system to address the
adequacy of capital for financial institutions. The rules require minimum
capital levels based on risk adjusted assets. Simply stated, the riskier an
entity's investment, the more capital it is required to maintain. The Bank, as
well as the holding company, is required to maintain these minimum capital
levels. See the notes to the consolidated financial statements for calculations
of actual and minimum capital requirements. The Bank has maintained capital
levels far above the minimum requirements throughout the year. In the unlikely
event that such capital levels are not met, regulatory agencies are empowered to
require the Company to raise additional capital and/or reallocate present
capital.
BORROWINGS
The information concerning borrowings is shown in a note to the
consolidated financial statements.
<PAGE> 13
LIQUIDITY AND INTEREST SENSITIVITY
Liquidity as of December 31, 1999 remains 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. The Bank was a
seller of federal funds for most of 1999. The Bank's membership in the Federal
Home Loan Bank System also provides liquidity, as the Bank borrows money that is
repaid over a ten-year period and uses the money to make fixed rate loans. The
matching of the long-term loans and liabilities helps the Bank reduce its
sensitivity to interest rate changes. The Bank reviews its interest rate gap
periodically and makes adjustments as needed.
There are no off-balance-sheet items that should impair future liquidity.
Table IV contains an analysis, which shows the repricing opportunities
of earning assets and
<PAGE> 14
Table I
Pioneer Bankshares, Inc.
Selected Operating Information
(In thousands, except for per share
information)
Condensed Statement of Income 1998 1999
Interest and dividend income $ 7,454 $ 7,734
Interest expense 3,018 2,949
------ ------
Net interest income 4,436 4,785
Provision for loan losses 204 183
------ ------
Net interest income after provision
for loan losses 4,232 4,602
Noninterest income 584 938
Noninterest expense 3,237 3,487
------ ------
Income before income taxes 1,579 2,053
Income tax expense 441 608
------ ------
Net Income $ 1,138 $ 1,445
====== =======
Total assets at year end $91,492 $100,892
====== =======
Per Share Information 1
Net income per share $ 0.92 $ 1.23
Dividends per share $ 0.40 $ 0.55
Book value per share $ 8.93 $ 9.15
Financial Statement Ratios
Return in average assets 2 1.26% 1.52%
Return on average equity 2 10.06% 13.09%
Dividend payout ratio 43.66% 44.51%
Average equity to 12.48% 11.57%
average asset 2
1 Adjusted for 1999 2 for 1 stocksplit
2 Ratios are based primarily on daily average balances
<PAGE> 15
<TABLE>
Table II
Pioneer Bankshares, Inc.
Net Interest Income/Rates Earned and Paid
(In thousands)
<CAPTION>
1998 1999
Average Income/ Average Average Income/ Average
Expense Rates Expense Rates
Assets Earned Earned
/Paid /Paid
<S> <C> <C> <C> <C> <C> <C>
Loans: 1
Commercial $ 3,463 $ 368 10.63% $ 3,758 $ 416 11.07%
Realestate 46,856 4,149 8.85% 50,109 4,363 8.71%
Installment 10,640 1,507 14.16% 11,357 1,594 14.04%
Credit Card 911 125 13.72% 890 136 15.28%
------- ----- ----- ------ ----- -----
Total loans 61,870 6,149 9.94% 66,114 6,509 9.85%
Investment Securities 2
Fully taxable 10,397 608 5.85% 12,318 702 5.70%
Nontaxable 4,298 406 9.45% 3,687 308 8.34%
Federal funds sold 7,935 429 5.41% 5,396 266 4.93%
Interest bearing deposits in banks 0 0 0.00% 965 54 5.60%
------ ----- ----- ------ ----- -----
Total earning assets 84,500 $7,592 8.98% 88,480 $7,839 8.86%
===== ===== ===== =====
Allowance for loan losses (779) (762)
Nonearning assets 6,929 7,658
------ ------
Total assets $90,650 $95,376
====== ======
Liabilities and Stockholders Equity
Deposits:
Interest bearing demand
deposits $10,198 $ 197 1.93% $10,765 $ 195 1.81%
Savings accounts 10,652 297 2.79% 11,602 270 2.33%
All other time deposits 46,270 2,524 5.45% 46,524 2,393 5.14%
------ ----- ----- ------ ----- -----
Total deposits 67,120 3,018 4.50% 68,891 2,858 4.15%
Borrowings 0 0 0.00% 1,914 91 4.75%
------ ----- ----- ------ ----- -----
Total interest bearing
liabilities 67,120 $3,018 4.50% 70,805 $2,949 4.16%
===== ===== ===== =====
Noninterest bearing deposits 11,206 12,375
Other liabilities 1,011 1,160
------ ------
Total Liabilities 79,337 84,340
Stockholders' Equity 11,313 11,036
------ ------
Total Liabilities and Equity $90,650 $95,376
====== ======
Net Interest Earnings $4,574 $4,890
===== =====
Net interest yield on interest
earning assets 5.41% 5.53%
===== =====
1 Interest on loans includes loan fees ($298 in 1998 and $392 in 1999)
2 An incremental income tax rate of 34% was used to calculate the tax equivalent income
</TABLE>
<PAGE> 16
Table III
Pioneer Bankshares, Inc.
Effect of Rate-Volume Change on Net Interest Income
(On a fully tax equivalent basis)
1998 compared to 1997 1999 compared to 1998
(In thousands) Increase (Decrease) Increase (Decrease)
Volume Rate Total Volume Rate Total
Interest income:
Loans:
Commercial $ 21 $ (69) $ (48) $ 31 $ 17 $ 48
Real estate 177 (328) (151) 288 (74) 214
Installment (52) (41) (93) 102 (15) 87
Credit Card (9) 34 25 (3) 14 11
--- ---- ----- --- ---- ----
Total loans 137 (404) (267) 418 (58) 360
Investment Securities:
Fully taxable 23 5 28 112 (18) 94
Nontaxable 10 (24) (14) (58) (41) (99)
--- ---- ----- ---- ---- ----
Total Securities 33 (19) 14 54 (59) (5)
Federal funds sold 7 2 9 (137) (26) (163)
Interest bearing deposits
in banks 0 0 0 0 54 54
--- ---- ---- --- ---- ---
Total interest income $177 $(421) $(244) $335 $ (89) $246
=== ==== ==== === ==== ===
Interest expense:
Deposits
Interest bearing demand
deposit $ 4 $ 3 $ 7 $ 11 $ (13) $ (2)
Savings 13 (6) 7 26 (53) (27)
All other time deposits 15 9 24 14 (145) (131)
--- ---- ---- --- ---- ----
Total deposits 32 6 38 51 (211) (160)
Borrowings 0 0 0 0 91 91
--- ---- ---- --- ---- ---
Total interest expense $ 32 $ 6 $ 38 $ 51 $(120) $(69)
=== ==== ==== === ==== ===
NOTE: Volume changes have been determined by multiplying the prior years'
average rate by the change in average balances outstanding. The rate change is
the difference between the total change and the volume change.
<PAGE> 17
Table IV
Pioneer Bankshares, Inc.
Interest Sensitivity Analysis - Loan Rate Risk
December 31, 1999
1-90 91-365 1-5 Over 5 Not Total
Days Days Years Years Classified
Uses of Funds:
Loans:
Commercial $ 1,300 $ 2,133 $ 427 $ 38 $ 0 $ 3,898
Real estate 1,701 3,345 15,471 33,368 0 53,885
Installment 203 792 11,183 466 0 12,644
Credit Card 0 0 1,083 0 0 1,083
------ ------ ------ ------ ------ ------
Total loans 3,204 6,270 28,164 33,872 0 71,510
Federal funds sold 2,215 0 0 0 0 2,215
Interest bearing deposit
in banks 4,536 0 0 0 0 4,536
Investment Securities 0 1,591 5,818 6,304 1,319 15,032
------ ------ ------ ------ ------ ------
Total 9,955 7,861 33,982 40,176 1,319 93,293
------ ------ ------ ------ ------ ------
Sources of Funds:
Deposits
Interest bearing
demand deposits 14,239 0 0 0 0 14,239
Savings 10,551 0 0 0 0 10,551
All other time
deposits 7,770 23,632 17,724 0 0 49,126
------ ------ ------ ----- ----- ------
Total deposits 32,560 23,632 17,724 0 0 73,916
Borrowings 4,577 150 800 900 0 6,427
------ ------ ------- ------ ------ ------
Total 37,137 23,782 18,524 900 0 80,343
------ ------ ------- ------ ------ ------
Discrete Gap (27,182) (15,921) 15,458 39,276 1,319 12,950
Cumulative Gap (27,182) (43,103) (27,645) 11,631 12,950
Ratio of Cumulative Gap
to Total Earning
Assets -30.72% -48.71% -31.24% 13.15% 14.64%
Rate Risk:
Loans with predetermined
rates 2,606 5,026 1,935 7,341 0 16,908
Loans with variable/
adjutable rates 598 1,244 26,229 26,531 0 54,602
Table IV reflects the earlier of the maturity or repricing dates for various
assets and liabilities. The above does not make any assumptions with respect to
loan repayments or deposit run offs. Loan principal payments are included in the
earliest period in which the loan matures or can be repriced. Principal payments
on installment loans scheduled prior to maturity are included in the period of
maturity or repricing. Proceeds from the redemption of investments and deposits
are included in the period of maturity.
<PAGE> 18
Table V
Pioneer Bankshares, Inc.
Loan Loss Allowance Activity - Non accrual and Past Due Loans
1998 1999
(In thousands)
Activity
Beginning balance $740 $773
Provision charged to expense 204 183
Loan losses:
Commercial 1 15
Installment 146 137
Real estate 54 64
Credit card 24 5
--- ---
Total loan losses 225 221
--- ---
Recoveries:
Commercial 0 0
Installment 50 33
Real estate 0 6
Credit card 4 5
--- ---
Total loan recoveries 54 44
--- ---
Net loan losses 171 177
--- ---
Balance at end of period $773 $779
=== ===
Net loan losses as a percent
of total loans 0.27% 0.25%
December 31, 1998 December 31, 1999
Amount Percent Percent Amount Percent Percent
Of Of Of Of
Allowance Average Allowance Average
Loans Loans
Analysis Of Ending Allowance Balance
Commercial $414 53.56% 5.60% $360 46.21% 5.68%
Installment 233 30.14% 75.73% 276 35.43% 75.79%
Real estate 104 13.45% 17.20% 123 15.79% 17.18%
Credit card 22 2.85% 1.47% 20 2.57% 1.35%
--- ------ ------ --- ------ ------
Total $773 100.00% 100.00% $779 100.00% 100.00%
=== ====== ====== === ====== ======
1998 1999
Allowance balance as a
percent of average loans 1.25% 1.18%
Nonaccrual and Past Due Loans:
Nonaccruing loans $ 0 $ 0
Loans past due 90 days or more 229 366
Percentage of total loans 0.36% 0.52%
<PAGE> 19
Table VI
Pioneer Bankshares, Inc.
Deposit Maturities - Over $100,000
1998 1999
(In thousands)
CD's Over $100,000
Maturity
Less than 3 months $ 851 $1,703
3 to 12 Months 1,379 2,866
1 to 5 Years 2,808 1,428
Over 5 Years 0 0
----- -----
Total $5,038 $5,997
===== =====
<PAGE> 20
Item 3. Description of Property
The Holding Company's office is located in Stanley Virginia and is
directly across the street from the Bank's main office. Its building was
originally built as a residence. It was purchased in 1989 and fully renovated
for it's commercial use. The building contains approximately 3,252 square feet.
The Bank's main office in Stanley, Virginia, was constructed in 1984,
contains 12,876 square feet on three floors and is situated on approximately two
acres. The building contains a full service branch, administration operations,
bookkeeping and credit departments, three drive-through lanes and an ATM. The
office is an attractive brick building with adequate room for future expansion
and is owned by the Bank.
The branch at Luray, Virginia is a brick building containing
approximately 3,797 square feet and situated on a 200 x 150 lot. It contains a
full service branch with two drive-through lanes and an ATM. This branch is
located next to a shopping center and was built in 1989 and is owned by the
bank.
The branch at Shenandoah is a brick building containing approximately
3,400 square feet and situated on a 300 x 150 lot. It contains a full service
branch with two drive-through lanes and an ATM. This branch was built in 1995
and is owned by the Holding Company.
The branch in Harrisonburg, Virginia is leased on a short-term lease
at $1,842.55 per month. This branch is in a small shopping center and fully
remodeled upon occupancy in August, 1999. This branch is a full service branch
with two drive-through lanes and is equipped with an ATM.
The Jenkins Building is a building adjacent to the bank's main office
and is used as a warehouse facility. It has approximately 25,760 square feet and
was purchased in September 8, 1970.
The Jefferson Building is a building located in Stanley and was
purchased for future expansion. This building was purchased in 1998 and contains
approximately 1,728 square feet.
<PAGE> 21
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 31, 2000, certain information
with respect to the beneficial ownership of the Holding Company's common stock,
par value $.50 per share ("Common Stock"), held by each director of the
Holding Company, the executive officers' names in the Summary Compensation
Table in "Item 6, Executive Compensation" herein, and by the directors and
all executive officers as a group.
As of March 31, 2000, the Holding company is not aware of any beneficial
owners of 5% or more of the Holding Company's common stock.
Amount and Nature of
Directors Beneficial Ownership (1) Percent of Class
Patricia G. Baker 8,375 *
Louis L. Bosley 22,850 2.05%
Robert E. Long, Chairman 11,310 1.01%
Harry F. Louderback 17,700 1.59%
E.Powell Markowitz 1,430 *
Kyle L. Miller 9,830 *
Mark N. Reed 3,680 *
David N. Slye 1,230 *
Amount and Nature of
Directors Beneficial Ownership (1) Percent of Class
Executive
Officers
Thomas R. Rosazza, President 16,480 1.48%
All Directors and Executive
Officers as a Group 92,345 8.27%
Less than 1% *
(1) For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 of the Securities Exchange Act
of 1934 under which, in general, a person is deemed to be the beneficial
owner of a security if he has or shares the power to vote or direct the
voting of the security or the power to dispose of or direct the disposition
of the security, or if he has the right to acquire beneficial ownership of
the security within sixty days. Shares of Common Stock which are subject to
stock options are deemed to be outstanding for the purpose of computing the
percentage of outstanding Common Stock owned by such person or group but
not deemed outstanding for the purpose of computing the percentage of
Common Stock owned by any other person or group.
<PAGE> 22
Item 5. Directors, Executive Officers, Promoters and Control Persons
The following table sets forth information with respect to the directors
and executive officers of the Holding Company.
Term Principal Occupation
Directors Age Expires During Past Five Years
Robert E. Long 69 2003 Real estate agent. Director
since 1989 and of the Bank
since 1989.
Kyle Miller 65 2003 Retired State Police and
Business
Manager. Director since 1986
and of the Bank since 1986.
Patricia G. Baker 57 2003 Retired bank officer.
Director since 1989 and of
the Bank since 1989.
Thomas R. Rosazza 58 2001 President, Pioneer
Bankshares, Inc. Director
since 1984 and of the Bank
since 1973.
David N. Slye 47 2001 Insurance agent. Director
since 1996 and of the Bank
since 1996.
Harry F. Louderback 59 2001 Farmer/retired from FBI.
Director since 1998 and of
the Bank since 1998.
Louis L. Bosley 68 2002 Businessman - auto service.
Director since 1984 and of
the Bank since 1976.
Mark N. Reed 42 2002 Attorney at Law. Director
since 1994 and of the Bank
since 1994.
E. Powell Markowitz 48 2002 Businessman -
Hotel/Restaurant. Director
since 1999 and of the Bank
since 1999.
The Board of Directors has five standing committees, namely;
Personnel/Compensation, Merger/Acquisition, Audit/Compliance, Shareholder
Relations and Strategic Planning.
Directors of the Holding Company receive a fee of $150 for each meeting of
the Board of Directors they attend and $150 for each Board committee meeting
they attend.
<PAGE> 23
Item 6. Executive Compensation
Summary
The following table sets forth a summary of certain information concerning
the compensation paid by the Holding Company and the Bank for services rendered
in all capacities during the year ended December 31, 1999 to the President and
Chief Executive Officer of the Bank. No other executive officer of the Holding
Company and/or Bank had total compensation during the fiscal year which exceeded
$100,000.
Summary Compensation Table
Annual Compensation (1)
Name and Year Salary Bonus Other
Principal Position
Thomas R. Rosazza 1999 $77,917 $30,000 None
President
(1) Does not include certain perquisites and other personal benefits, the
amount of which are not shown because the aggregate amount of such
compensation during the year did not exceed the lesser of $50,000 or
10% of total salary and bonus reported for such executive officer.
<PAGE> 24
Item 7. Certain Relationships and Related Transactions
During 1999, the Bank extended credit to its directors. All such loans were
made in the ordinary course of business, were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable credits on terms that do not involve more than the normal risk
or collectibility or present other unfavorable features. The aggregate dollar
amount of these loans was $526,000 and $331,000 at December 31, 1999 and
December 31, 1998, respectively.
<PAGE> 25
Item 8. Description of Securities
The following summary of the terms of the capital shares of the Company is
qualified in its entirety by reference to the Holding Company's Certificate of
Incorporation and Bylaws, which are filed as Exhibits to this Form 10-SB.
The Holding Company is authorized to issue 5,000,000 shares of Common
Stock, par value $.50 per share. As of December 31, 1999, based on information
available to the Holding Company, the Holding Company had issued and outstanding
1,187,810 shares of Common Stock held by 502 holders of record. Shares of common
stock are not deposits and are not insured by the FDIC.
Holders of shares of Holding Company Common Stock are entitled to receive
dividends when and as declared by the Board of Directors out of funds legally
available therefore. The Holding Company's ability to pay dividends will be
dependent upon its earnings and financial condition and certain legal
requirements. Upon the liquidation, dissolution or winding up of the Holding
Company, whether voluntary or involuntary, holders of Holding Company Common
Stock are entitled to share ratably, after satisfaction in full of all
liabilities, in all remaining assets of the Holding Company available for
distribution. The dividend and liquidation rights of the Holding Company Common
Stock will be subject to the rights of any Preferred Stock that may be issued
and outstanding.
Holders of Holding Company Common Stock are entitled to one vote per share
on all matters submitted to shareholders. There are no preemptive rights to
purchase additional shares of any class of the Holding Company's capital stock.
Holders of Holding Company's Common Stock will have no conversion or redemption
rights. The shares of Bank Common Stock are fully paid and nonassessable.
Certain Protective Provisions
General. The Holding Company 's Articles of Incorporation and the Virginia
Stock Corporation Act (the "Virginia SCA") contain certain provisions designed
to enhance the ability of the Board of Directors to deal with attempts to
acquire control of the Bank. These provisions and the ability to set the voting
rights, preferences and other terms thereof, may be deemed to have an
anti-takeover effect and may discourage takeover attempts which have not been
approved by the Board of Directors (including takeovers which certain
stockholders may deem to be in their best interest). To the extent that such
takeover attempts are discouraged, temporary fluctuations in the market price of
Holding Company Common Stock resulting from actual or rumored takeover attempts
may be inhibited. These provisions also could discourage or make more difficult
a merger, tender offer or proxy contest, even though such transaction may be
favorable to the interests of stockholders, and could potentially adversely
affect the market price of Holding Company Common Stock.
<PAGE> 26
PART II
Item 1. Market Price of and Dividends on the Registrant's Common and Other
Shareholder
Matters
The Common Stock of the Holding Company is not currently traded on any
established market.
As of March 31, 2000, there were 514 holders of Common Stock.
The Holding Company has declared dividends on its Common Stock as follows:
Declared Record Payment Per Share Amount
Date Date Date
1/15/98 12/31/97 1/22/98 $.60
6/11/98 6/30/98 7/13/98 $.20
1/14/99 1/25/99 2/5/99 $.60
6/10/99 6/30/99 7/15/99 $.10
12/13/99 1/19/00 2/2/00 $.15
1/13/00 1/19/00 2/2/00 $.20
3/9/00 3/31/00 4/14/00 $.10
The Holding Company is subject to certain restrictions imposed by the
reserve and capital requirements of federal and Virginia banking statutes and
regulations. Additionally, the Holding Company intends to follow a policy of
retained earnings sufficient for the purpose of maintaining net worth and
reserves of the Bank at adequate levels and to provide for the Holding Company's
growth and ability to compete in its market area.
Item 2. Legal Proceedings
As of the date hereof, there are no legal proceedings pending against the
Bank, except Waters v. Pioneer Bank and Pioneer Bankshares, an action brought
in the Circuit Court of Harrisonburg, Virginia. In this action, Gaylon Waters,
the former president of the Bank, seeks recovery of an amount of money up to
$350,000 recovered by the Bank and Holding Company from Mr. Waters in
settlement of certain claims for amounts alleged by the Bank and the Holding
Company to have been improperly taken from the Bank and the Holding Company.
The Holding Company and Bank believe that all amounts it received were properly
recovered from Mr. Waters and is vigorously defending the action.
Item 3. Changes in and Disagreements with Accountants
None
Item 4. Recent Sales of Unregistered Securities
None
Item 5. Indemnification of Officers and Directors
The Articles of Incorporation of the Holding Company contain a
provision which, subject to certain exceptions described below, eliminates the
liability of a director or officer to the Holding Company or its shareholders
for monetary damages for any breach of duty as a director or officer. This
provision does not eliminate such liability to the extent that it is proven that
the director or officer engaged in willful misconduct or a knowing violation of
criminal law or of any federal or state securities law.
<PAGE> 27
The Articles of Incorporation require indemnification of any person
against liability incurred in connection with any proceeding to which that
person is made a party by reason of (i) his service to the Holding Company as a
director or officer or (ii) his service as director, officer, trustee, or
partner to some other enterprise at the request of the Holding Company, except
in the event of willful misconduct or a knowing violation of the criminal law.
The Articles of Incorporation also authorize the Holding Company's Board of
Directors to contract in advance to indemnify any director or officer by a
majority vote of a quorum of disinterested directors.
The elimination of liability and indemnification provisions contained in
the Holding Company's Articles of Incorporation may be limited in connection
with certain actions brought by state or federal banking agencies under state
and federal law.
<PAGE> 28
PART F/S
The audited balance sheet of the Holding Company as of December 31, 1999, and
related statements of income, changes in shareholders' equity and cash flows for
the period from January 1, 1998 through December 31, 1999, together with the
report of Independent Auditors, are attached hereto as Annex A following the
signature page.
Index to Financial Statements
Page
Independent Auditors' Report 29
Statement of Financial Condition as of December 31, 1999 and 1998 30
Statement of Income for the Years ended
December 31, 1999 and 1998 31
Statement of Stockholders' Equity for the years ended
December 31, 1999 and 1998 32
Statement of Cash Flows for the years ended
December 31, 1999 and 1998 33
Notes to Financial Statements 34
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Pioneer Bankshares, Inc.
We have audited the consolidated balance sheets of Pioneer Bankshares, Inc.
and subsidiary as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pioneer
Bankshares, Inc. and subsidiary as of December 31, 1999 and 1998, and the
results of their operations and cash flows for the years then ended in
conformity with generally accepted accounting principles.
S. B. HOOVER & COOMPANY, L.L.P.
February 4, 2000
<PAGE> 30
PIONEER BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS 1999 1998
Cash and due from banks (Note 3) $5,198,869 $4,399,503
Federal funds sold 2,215,000 6,620,000
Interest-bearing deposits in banks 4,536,011
Investment securities
Available for sale (Note 5) 11,475,187 6,345,803
Held to maturity (fair value was $3,541,000
and $8,076,000 in 1999 and 1998,
respectively) (Note 5) 3,556,585 7,906,376
Loans receivable (Note 6), net of allowance for
loan losses of $779,000 in 1999 and $773,000
in 1998 (Note 7) 69,252,023 62,288,028
Bank premises and equipment, net (Note 8) 2,909,495 2,682,889
Accrued interest receivable 559,994 550,535
Other assets 1,189,019 698,738
--------- ---------
Total Assets $100,892,183 $91,491,872
=========== ==========
LIABILITIES
Deposits
Noninterest bearing $12,246,396 $11,428,099
Interest bearing
Demand 10,516,300 10,290,703
Savings 10,411,914 10,774,274
Time deposits over $100,000 (Note 9) 5,064,680 4,828,343
Other time deposits (Note 9) 44,199,879 41,889,798
---------- ----------
Total Deposits 82,439,169 79,211,217
Treasury tax and loan deposit note 76,904 33,225
Accrued expenses and other liabilities 1,297,425 1,187,715
Borrowings (Note 10) 6,350,000
---------
Total Liabilities 90,163,498 80,432,157
---------- ----------
STOCKHOLDERS' EQUITY
Common stock; $.50 par value, authorized
5,000,000 shares; outstanding - 1,121,670
shares in 1999; 1,187,810 shares
in 1998 560,835 593,905
Retained earnings (Note 14) 10,177,020 10,351,815
Accumulated other comprehensive income (9,170) 113,995
--------- ---------
Total Stockholders' Equity 10,728,685 11,059,715
---------- ----------
Total Liabilities and Stockholders'
Equity $100,892,183 $91,491,872
The accompanying notes are an integral part of this statement.
<PAGE> 31
PIONEER BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
INTEREST AND DIVIDEND INCOME:
Loans including fees $6,512,534 $6,153,509
Debt securities - taxable 655,184 583,490
Debt securities - nontaxable 202,749 267,918
Deposits and federal funds sold 319,958 429,139
Equity securities 47,142 24,391
--------- ---------
Total Interest and Dividend Income 7,737,567 7,458,447
--------- ---------
INTEREST EXPENSE:
Deposits 2,857,557 3,017,765
Borrowings 91,017
---------
Total Interest Expense 2,948,574 3,017,765
--------- ---------
NET INTEREST INCOME 4,788,993 4,440,682
PROVISION FOR LOAN LOSSES (Note 7) 182,500 204,000
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 4,606,493 4,236,682
--------- ---------
NONINTEREST INCOME:
Service charges on deposit accounts 526,700 421,777
Other income 387,980 118,815
Gain on security transactions (Note 5) 19,054 39,018
--------- ---------
Total Noninterest Income 933,734 579,610
--------- ---------
NONINTEREST EXPENSES:
Salaries and benefits 1,516,146 1,589,864
Occupancy expenses 241,373 196,434
Equipment expenses 315,938 275,005
Other expenses 1,413,367 1,175,970
--------- ---------
Total Noninterest Expenses 3,486,824 3,237,273
--------- ---------
INCOME BEFORE INCOME TAXES 2,053,403 1,579,019
INCOME TAX EXPENSE (Note 13) 608,743 440,555
--------- ---------
NET INCOME $1,444,660 $1,138,464
========= =========
EARNINGS PER SHARE
Net income $ 1.23 $ .92
========== ==========
Weighted Average Shares Outstanding 1,172,935 1,238,490
========= =========
The accompanying notes are an integral part of this statement.
<PAGE> 32
PIONEER BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
Accumulated
Additional Other
Common Paid in Retained Comprehensive
Total Stock Capital Earnings Income
BALANCES,
DECEMBER 31,
1997 $11,327,120 $ 621,680 $ 71,300 $10,611,280 $ 22,860
Comprehensive Income
Net income 1,138,464 1,138,464
Net change in
unrealized gains
on securities
available for
sale, net of
income taxes 91,135 91,135
Total Comprehensive
Income 1,229,599
Dividends declared (497,104) (497,104)
Retirement of common
stock (999,900) (27,775) (71,300) (900,825)
----------- -------- -------- --------
BALANCES,
DECEMBER 31,
1998 11,059,715 593,905 10,351,815 113,995
Comprehensive Income
Net income 1,444,660 1,444,660
Net change in
unrealized gains
on securities
available for sale,
net of income taxes (123,165) (123,165)
Total Comprehensive
Income 1,321,495
Dividends declared (643,064) (643,064)
Retirement of common
stock (1,009,052) (33,010) (976,042)
Other (409) (60) (349)
-------- -------- -------- --------
BALANCES,
DECEMBER 31,
1999 $10,728,685 $ 560,835 $- $10,177,020 $ (9,170)
========== ======== ======== ========== ========
The accompanying notes are an integral part of this statement.
<PAGE> 33
PIONEER BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,444,660 $1,138,464
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 182,500 204,000
Depreciation 239,898 232,085
Net change in:
Accrued income (9,459) 61,067
Other assets (23,983) (58,136)
Accrued expense and other liabilities 157,364 236,626
-------- ---------
Net Cash Provided by Operating Activities 1,990,980 1,814,106
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in federal funds sold 4,405,000 (2,585,000)
Net increase in interest bearing deposits (4,536,011)
Proceeds from maturities and sales of securities
available for sale 2,125,885 4,559,689
Proceeds from maturities and calls of securities
held to maturity 3,962,586 2,331,848
Purchase of securities available for sale (7,426,089) (3,873,051)
Purchase of securities held to maturity (15,995) (1,332,812)
Net increase in loans (7,146,495) (1,535,510)
Purchase of bank premises and equipment (466,504) (576,638)
Investment in life insurance policies (63,098) (63,098)
-------- ---------
Net Cash Used in Investing Activities (9,160,721) (3,074,572)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in:
Demand and savings deposits 681,534 1,099,833
Time deposits 2,546,418 1,818,396
Short-term borrowings 43,680 8,439
Proceeds from borrowings 6,500,000
Curtailments of borrowings (150,000)
Purchase and subsequent retirement of common stock (1,009,461)
(999,900)
Dividends paid (643,064) (497,104)
-------- ---------
Net Cash Provided by Financing Activities 7,969,107 1,429,664
--------- ---------
CASH AND CASH EQUIVALENTS
Net increase in cash and cash equivalents 799,366 169,198
Cash and cash equivalents, beginning of year 4,399,503 4,230,305
--------- ---------
Cash and Cash Equivalents, End of Year $5,198,869 $4,399,503
========= =========
Supplemental Disclosure of Cash Paid During the Year for:
Interest $2,910,000 $3,076,740
Income taxes 634,000 547,000
The accompanying notes are an integral part of this statement.
<PAGE> 34
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 NATURE OF OPERATIONS:
Pioneer Bankshares, Inc. ("Company"), through its subsidiary the Pioneer Bank
("Bank"), operates under a charter issued by the Commonwealth of Virginia and
provides commercial banking services. As a state chartered bank, the Bank is
subject to regulation by the Virginia Bureau of Financial Institutions and the
Federal Reserve Bank. The Bank provides services at four separate locations to
customers located primarily in Page and Rockingham Counties of Virginia.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of the Bank conform to generally accepted
accounting principles and to accepted practice within the banking industry. A
summary of significant accounting policies is as follows:
Consolidation Policy - The consolidated financial statements include Pioneer
Bankshares, Inc. and Pioneer Bank which is a wholly-owned subsidiary. All
significant intercompany balances and transactions have been eliminated.
Use of Estimates - Management uses estimates and assumptions in preparing
financial statements; actual results could differ significantly from those
estimates. These estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities and the
reported revenue and expenses.
Investment Securities - Investment securities which the Bank intends to hold
until maturity or until called are classified as Held to Maturity. These
investment securities are carried at cost, adjusted for amortization of premium
and accretion of discounts.
Investment securities which the Bank intends to hold for indefinite periods of
time, including investment securities used as part of the Bank's asset/liability
management strategy, are classified as available for sale. These investment
securities are carried at fair value. Net unrealized gains and losses, net of
deferred income taxes, are excluded from earnings and reported as a separate
component of stockholders' equity until realized.
Gains and losses on the sale of investment securities are determined using the
specific identification method.
Loans Receivable - Loans receivable are intended to be held until maturity and
are shown on the statements of financial condition net of unearned interest and
the allowance for loan losses. Interest is computed by methods which generally
result in level rates of return on principal. Interest on past due and problem
loans is accrued until serious doubt arises as to the collectibility of the
interest.
Allowance for Loan Losses - The allowance for loan losses is increased by
charges to income and decreased by charge-offs (net of recoveries). Management's
periodic evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated value
of any underlying collateral, and current economic conditions.
Bank Premises and Equipment - Bank premises and equipment are stated at cost
less accumulated depreciation. Depreciation is charged to income over the
estimated useful lives of the assets on a combination of straight-line and
accelerated methods.
<PAGE> 35
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
Income Taxes - Amounts provided for income tax expense are based on income
reported for financial statement purposes rather than amounts currently payable
under income tax laws. Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
Financial Instruments - In the ordinary course of business, the Bank has entered
into off-balance-sheet financial instruments consisting of commitments to extend
credit, commitments under credit-card arrangements, commercial letters of
credit, and standby letters of credit. Such financial instruments are recorded
in the financial statements when they are funded or related fees are incurred or
received.
The Bank uses the same credit policies in making commitments as it does for
other loans. Commitments to extend credit are generally made for a period of one
year or less and interest rates are determined when funds are disbursed.
Collateral and other security for the loans are determined on a case-by-case
basis. Since some of the commitments are expected to expire without being drawn
upon, the contract or notional amounts do not necessarily represent future cash
requirements.
Cash and Cash Equivalents - Cash and cash equivalents include cash on hand and
deposits at other financial institutions whose initial maturity is ninety days
or less.
Comprehensive Income - The Company adopted SFAS 130, Reporting Comprehensive
Income, as of January 1, 1998. Accounting principles generally require that
recognized revenue, expenses, gains and losses be included in net income.
Although certain changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate component of
the equity section of the balance sheet, such items, along with net income, are
components of comprehensive income. The adoption of SFAS 130 had no effect on
the Company's net income or stockholders' equity.
Earnings Per Share - Earnings per share are based on the weighted average number
of shares outstanding. Prior period per share amounts have been restated to
reflect the 1999 stock split.
NOTE 3 CASH AND DUE FROM BANKS:
The Bank is required to maintain average reserve balances based on a percentage
of deposits. The average balance of cash, which the Federal Reserve Bank
requires to be on reserve, was $683,000 and $652,000 for the years ended
December 31, 1999 and 1998, respectively.
NOTE 4 DEPOSITS IN AND FEDERAL FUNDS SOLD TO BANKS:
The Bank has cash deposited in and federal funds sold to other banks, most of
which exceed federally insured limits, totaling $9,155,000 and $8,927,000 at
December 31, 1999 and 1998, respectively.
<PAGE> 36
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 INVESTMENT SECURITIES:
The amortized cost and fair value of investment securities are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses
Value
December 31, 1999
Available for sale
U.S. government and
agency securities $10,563,000 $ 1,000 $ 407,000 $10,157,000
Equity securities 901,000 431,000 14,000 1,318,000
--------- -------- --------- ---------
$11,464,000 $ 432,000 $ 421,000 $11,475,000
========== ======== ========= ==========
Held to Maturity
U.S. government and
agency securities $1,759,000 $ 2,000 $ 24,000 $1,737,000
State and municipals 1,253,000 29,000 1,282,000
Mortgage-backed 545,000 23,000 522,000
--------- -------- --------- ---------
$3,557,000 $ 31,000 $ 47,000 $3,541,000
========= ======== ========= =========
December 31, 1998
Available for sale
U.S. government and
agency securities $5,031,000 $ 38,000 $ 10,000 $5,059,000
Equity securities 1,133,000 210,000 56,000 1,287,000
--------- -------- --------- ---------
$6,164,000 $ 248,000 $ 66,000 $6,346,000
========= ======== ========= =========
Held to Maturity
U.S. government and
agency securities $3,123,000 $ 44,000 $ $3,167,000
State and municipals 3,646,000 124,000 3,770,000
Mortgage-backed 746,000 10,000 8,000 748,000
Equity securities 391,000 391,000
--------- -------- --------- ---------
$7,906,000 $ 178,000 $ 8,000 $8,076,000
========= ======== ========= =========
The amortized cost and fair value of investment securities at December 31, 1999,
by contractual maturity, are shown in the following schedule. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<PAGE> 37
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 INVESTMENT SECURITIES (CONTINUED):
Securities Available for Sale Securities Held to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or less $1,224,000 $1,219,000 $ 201,000 $ 204,000
Due after one year through
five years 5,061,000 4,867,000 2,513,000 2,514,000
Due five years through
ten years 3,378,000 3,263,000 298,000 301,000
Due after ten years 900,000 807,000
-------- --------
10,563,000 1 0,156,000 3,012,000 3,019,000
Mortgage-backed 545,000 522,000
Equity securities 901,000 1,319,000
-------- ---------
$11,464,000 $11,475,000 $3,557,000 $3,541,000
Realized gains and losses on marketable equity transactions are summarized
below:
1999 1998
Gains $ 197,000 $ 121,000
Losses 178,000 82,000
-------- --------
Net Gains $ 19,000 $ 39,000
======== ========
Investment securities with a book value of $818,000 and $1,463,000 at December
31, 1999 and 1998, respectively, were pledged to secure public deposits and for
other purposes required by law.
NOTE 6 LOANS:
Loans are stated at their face amount, net of unearned discount, and are
classified as follows at December 31:
1999 1998
Real estate loans $52,780,000 $47,624,000
Commercial and industrial loans 4,007,000 3,285,000
Loans to individuals, primarily collateralized
by autos 14,359,000 12,862,000
All other loans 364,000 591,000
-------- ---------
Total Loans 71,510,000 64,362,000
Less unearned discount 1,479,000 1,301,000
--------- ---------
Loans, less unearned discount 70,031,000 63,061,000
Less allowance for loan losses 779,000 773,000
-------- ---------
Net Loans Receivable $69,252,000 $ 62,288,000
<PAGE> 38
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 LOANS (CONTINUED):
The Bank grants commercial, real estate and consumer installment loans to its
customers. Collateral requirements for loans are determined on a loan by loan
basis depending upon the purpose of the loan and the financial condition of the
borrower.
The Company has a blanket lien against their one to four person mortgage loans
as collateral for borrowings with the Federal Home Loan Bank of Atlanta.
NOTE 7 ALLOWANCE FOR LOAN LOSSES:
A summary of transactions in the allowance for loan losses are as follows:
1999 1998
Balance, beginning of year $ 773,000 $ 740,000
Provision charged to operating expenses 183,000 204,000
Recoveries of loans charged off 45,000 54,000
Loans charged off (222,000) (225,000)
--------- ---------
Balance, End of Year $ 779,000 $ 773,000
========= =========
NOTE 8 BANK PREMISES AND EQUIPMENT:
Bank premises and equipment included in the financial statements at December 31,
are as follows:
1999 1998
Land $ 342,000 $ 342,000
Land improvements and buildings 2,580,000 2,507,000
Furniture and equipment 2,832,000 2,439,000
--------- ---------
5,754,000 5,288,000
Less accumulated depreciation 2,845,000 2,605,000
--------- ---------
Net $2,909,000 $2,683,000
========= =========
NOTE 9 DEPOSITS:
At December 31, 1999, the scheduled maturities of certificates of deposit are as
follows:
2000 $31,379,000
2001 10,264,000
2002 3,169,000
2003 2,102,000
2004 2,189,000
----------
Total $49,103,000
==========
<PAGE> 39
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 BORROWINGS:
Advances from the Federal Home Loan Bank of Atlanta (FHLB) for the year ended
December 31, 1999, totaled $6,500,000. The debt is comprised of two separate
borrowings.
The Company borrowed $2,000,000 at a fixed interest rate of 6.09%, with
repayments of $50,000 due quarterly. Additionally, there was a $4,500,000
advance on a line of credit. The interest rate was computed daily and ranged
from 5% to 5.9%. The borrowings are secured by qualifying mortgage loans owned
by the Company.
Interest on the debt is due monthly and interest expense of $91,000 was incurred
in 1999. The maturities of debt as of December 31, 1999 are as follows:
2000 $ 4,550,000
2001 200,000
2002 200,000
2003 200,000
2004 200,000
Thereafter 1,000,000
----------
Total $ 6,350,000
==========
NOTE 11 OTHER INCOME:
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. Additionally, the former President
agreed to forgo certain deferred incentive compensation. In 1999, these items
amounted to $233,000 of other income.
NOTE 12 OTHER EXPENSE:
Other expense in the consolidated statement of income includes the following
components:
1999 1998
Supplies and printing $ 209,000 $ 134,000
Directors fees 101,000 103,000
Professional fees 133,000 82,000
Life insurance 95,000 131,000
Other 875,000 726,000
--------- ---------
Total $1,413,000 $1,176,000
<PAGE> 40
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 INCOME TAXES:
The components of income tax expense are as follows:
1999 1998
Current income tax expense $ 583,000 $ 472,000
Deferred income taxes (benefit) 26,000 (31,000)
--------- --------
Income Tax Expense $ 609,000 $ 441,000
========= ========
The reasons for the differences between income tax expense and the amount
computed by applying the statutory federal income tax rate are as follows:
1999 1998
Income taxes computed at the applicable
federal income tax rate $ 635,000 $ 537,000
Increase (decrease) resulting from:
Tax-exempt municipal income (71,000) (100,000)
Other 45,000 4,000
--------- --------
Income Tax Expense $ 609,000 $ 441,000
========= ========
The deferred tax effects of temporary differences are as follows:
1999 1998
Provision for loan losses $ (2,000) $ (11,000)
Deferred compensation 14,000 (29,000)
Depreciation 15,000 (1,000)
Cash surrender value of life insurance 10,000 6,000
Other (11,000) 4,000
--------- --------
Deferred Income Taxes (Benefit) $ 26,000 $ (31,000)
========= ========
At December 31, the net deferred tax asset was made up of the following:
1999 1998
Deferred Tax Assets:
Provision for loan losses $ 190,000 $ 188,000
Deferred compensation 105,000 119,000
Securities available for sale 138,000
---------
Total 433,000 307,000
Deferred Tax Liabilities:
Depreciation 130,000 115,000
Cash surrender value of life insurance 38,000 28,000
Securities available for sale 9,000
Other 7,000 18,000
--------- --------
Total 175,000 170,000
Net Deferred Tax Asset $ 258,000 $ 137,000
========= ========
<PAGE> 41
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 DIVIDEND LIMITATION ON SUBSIDIARY BANK:
The principal source of funds of the Company is dividends paid by the Bank. The
amount of dividends the Bank may pay is regulated by the Federal Reserve. As of
January 1, 2000, maximum amount of dividends the Bank can pay to the Company is
$75,000, without requesting permission from the Federal Reserve Bank.
NOTE 15 REGULATORY MATTERS:
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1999, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the institution's
primary regulator categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Bank must maintain minimum total risk-based, Tier I risk-based, Tier I
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the institution's
category.
The Bank's actual capital amounts and ratios are also presented below: (in
thousands)
For Capital To Be Well
Actual Adequacy Purposes Capitalized
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1999:
Total Capital (to Risk Weighted
Assets) $9,062 14.7% $4,932 =>8.0% $6,165 =>10.0%
Tier I Capital (to Risk Weighted
Assets) 8,293 13.5% 2,457 =>4.0% 3,686 => 6.0%
Tier I Capital (to Average Assets)8,293 8.8% 2,827 =>3.0% 4,712 => 5.0%
As of December 31, 1998:
Total Capital (to Risk Weighted
Assets) $9,058 16.2% $4,484 =>8.0% $5,609 =>10.0%
Tier I Capital (to Risk Weighted
Assets) 8,357 15.0% 2,442 =>4.0% 3,366 => 6.0%
Tier I Capital (to Average Assets)8,357 9.3% 2,709 =>3.0% 4,516 => 5.0%
<PAGE> 42
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 LENDING COMMITMENTS:
The contract or notional amount of financial instruments with off-balance sheet
risk are as follows:
1999 1998
Lines of Credit (commercial and personal) $2,731,000 $3,136,000
Loan commitments and letters of credit
(commercial and personal) 845,000 810,000
Credit card unused credit limits 2,128,000 2,378,000
NOTE 17 TRANSACTIONS WITH RELATED PARTIES:
During the year, officers and directors (and companies controlled by them) were
customers of and had transactions with the Company in the normal course of
business. These transactions were made on substantially the same terms as those
prevailing for other customers and did not involve any abnormal risk.
Loan transactions to such related parties are shown in the following schedule:
1999 1998
Total loans, beginning of year $ 331,000 $ 388,000
New loans 265,000 46,000
Payments (70,000) (103,000)
-------- ---------
Total Loans, End of Year $ 526,000 $ 331,000
======== =========
NOTE 18 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 (SFAS 107) "Disclosures
About the Fair Value of Financial Statements" defines the fair value of a
financial instrument as 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 Bank's financial instruments
lack an available trading market, significant estimates, assumptions and present
value calculations are required to determine estimated fair value.
<PAGE> 43
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED):
Estimated fair value and the carrying value of financial instruments at December
31, 1999 and 1998 are as follows (in thousands):
1999 1998
---- ----
Estimated Carrying Estimated Carrying
Fair Value Value Fair Value Value
Financial Assets
Cash $ 5,199 $ 5,199 $ 4,400 $ 4,400
Interest bearing deposits 4,536 4,536
Federal funds sold 2,215 2,215 6,620 6,620
Securities available for sale 11,475 11,475 6,346 6,346
Securities held to maturity 3,541 3,557 8,076 7,906
Loans 64,166 69,252 55,999 62,288
Accrued interest receivable 560 560 551 551
Financial Liabilities
Demand Deposits:
Non-interest bearing 12,246 12,246 11,428 11,428
Interest bearing 10,516 10,516 10,291 10,291
Savings deposits 10,412 10,412 10,774 10,774
Time deposits 49,398 49,265 47,312 46,718
Short-term debt 77 77 33 33
Long-term debt 5,906 6,350
The carrying value of cash and cash equivalents, other investments, deposits
with no stated maturities, short-term borrowings, and accrued interest
approximates fair value. The fair value of securities was calculated using the
most recent transaction price or a pricing model, which takes into consideration
maturity, yields and quality. The remaining financial instruments were valued
based on the present value of estimated future cash flows, discounted at various
rates in effect for similar instruments during the month of December 1999.
<PAGE> 44
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS:
BALANCE SHEETS
ASSETS 1999 1998
Cash and cash equivalents $ 415,744 $ 334,522
Investment in subsidiary 8,024,770 8,375,294
Securities available for sale 1,318,544 1,287,240
Due from subsidiaries 206,485
Bank premises and equipment, net 1,095,785 1,134,131
Income tax refund 14,850 7,229
--------- ---------
Total Assets $11,076,178 $11,138,416
========== ==========
LIABILITIES
Dividends payable $ 169,791 $ 934
Deferred income taxes 177,221 77,766
Other liabilities 481
---------
Total Liabilities 347,493 78,700
--------- ---------
STOCKHOLDERS' EQUITY
Common stock 560,835 593,905
Retained earnings 10,177,020 10,351,815
Accumulated other comprehensive income (9,170) 113,996
--------- ---------
Total Stockholders' Equity 10,728,685 11,059,716
---------- ----------
Total Liabilities and Stockholders' Equity $11,076,178 $11,138,416
========== ==========
<PAGE> 45
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS
(CONTINUED):
STATEMENTS OF NET INCOME AND RETAINED EARNINGS
INCOME 1999 1998
Dividends from affiliate $1,500,178 $ 999,900
Interest income 1,827 883
Dividend income 18,478 14,012
Security gains 3,768 2,399
Rent income 82,874 82,874
Other income 2,264 16
--------- ---------
Total Income 1,609,389 1,100,084
--------- ---------
EXPENSES
Occupancy expenses 39,911 39,434
Furniture and equipment expenses 9,112 6,671
Other operating expenses 54,651 59,642
--------- ---------
Total Expenses 103,674 105,747
--------- ---------
Net income before income tax benefit and
increase in undistributed equity of affiliates 1,505,715 994,337
INCOME TAX BENEFIT 3,000 5,000
--------- ---------
Income before increase in undistributed equity
of affiliates 1,508,715 999,337
Increase (decrease) in undistributed income of
affiliates (64,055) 139,127
--------- ---------
NET INCOME 1,444,660 1,138,464
Retained earnings, beginning of year 10,351,815 9,710,455
Dividends on common stock (643,064) (497,104)
Retirement of common stock (976,042)
Other (349)
---------
Retained Earnings, End of Year $10,177,020 $10,351,815
========== ==========
<PAGE> 46
PIONEER BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 PARENT CORPORATION ONLY FINANCIAL STATEMENTS
(CONTINUED):
STATEMENTS OF CASH FLOWS
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,444,660 $1,138,464
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed subsidiary income 64,055 (139,127)
Gain on sale of securities (3,768) (2,398)
Depreciation 39,912 39,435
Decrease (increase) in due from subsidiary (206,485) (48,501)
Decrease (increase) in other receivables (7,621) 27,699
Increase (decrease) in accrued expenses (333) 1,175
--------- ---------
Net Cash Provided by Operating Activities 1,330,420 1,016,747
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available
for sale 970,807 480,372
Purchase of securities available for sale (735,120) (917,899)
Purchase of fixed assets (1,566) (189,802)
--------- ---------
Net Cash Provided by (Used in) Investing
Activities 234,121 (627,329)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of common stock (1,009,112) (999,900)
Dividends paid in cash (474,207) (497,104)
--------- ---------
Net Cash Used in Financing Activities (1,483,319) (1,497,004)
---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents 81,222 (1,107,586)
Cash and Cash Equivalents, Beginning of Year 334,522 1,442,108
--------- ---------
Cash and Cash Equivalents, End of Year $ 415,744 $ 334,522
========= =========
<PAGE> 47
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant causes this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Pioneer Bankshares, Inc.
By: THOMAS R. ROSAZZA
Thomas R. Rosazza
President
Date: May 1, 2000
<PAGE> 48
PART III
Items 1. Index to Exhibits
The following exhibits are filed as part of this Form 10-SB, and this list
includes the exhibit index:
No. Description
3.1 Articles of Incorporation of Pioneer Bankshares, Inc.
3.2 Bylaws of Pioneer Bankshares, Inc.
4.2 Specimen Common Stock Certificate of Pioneer Bankshares, Inc.
<PAGE> 49
ARTICLES OF INCORPORATION
OF
PAGE BANKSHARES, INC.
1. The name of the corporation is: PAGE BANKSHARES, INC.
2. The purpose of the corporation is to conduct any business not required
to be specifically stated herein.
3. The corporation shall have authority to issue 25,000 shares of the par
value of $10 each.
4. No stockholder shall have the preemptive right to subscribe to additional
shares of capital stock of the corporation or to securities convertible
into such shares or to options, warrants or rights to subscribe to such
shares.
5. The initial number of the Directors shall be nine. Their names and
addresses are:
NAMES ADDRESSES
Louis Bosley P.O. Box 188,
Stanley, VA 22851
Roy W. Comer Route 1, Box 256,
Shenandoah, VA 22849
S. Aylor Grubbs P.O. Box 76,
Stanley, VA 22851
H. Wilson Kite, Sr. Route 1, Box 114,
Shenandoah, VA 22849
Douglas C. Will P.O. Box 28,
Luray, VA 22835
R. Harry Long Route 2, Box 90,
Luray, VA 22835
Hubert L. Roller P.O. Box 67,
Stanley, VA 22651
Thomas R. Rosazza P.O. Box 297,
Shenandoah, VA. 22849
C. Gaylon Waters Route 1, Box 391
Stanley, VA 22851
<PAGE> 50
6. The initial registered office of the corporation shall be located at Main
Street, (P.O. Box 10), Stanley, Virginia 22851, in the County of Page and
the initial registered agent shall be C. Gaylon Waters, who is a resident
of Virginia and a Director of the corporation and whose business address is
Main Street, (P.O. Box 10), Stanley, Virginia 22851.
7. No Director of the corporation shall be removed from his office as a
Director except by the affirmative vote of the holders of 80 percent of the
shares of the corporation's capital stock, issued, outstanding and entitled
to vote.
8. Except as set forth below, the affirmative vote of holders of 80 percent of
the shares of the corporation's capital stock, issued, outstanding, and
entitled to vote shall be required to approve any of the following:
(a) any merger or consolidation of the corporation with or into any
other corporation; or
(b) any share exchange in which a corporation, person or entity acquires
the issued or outstanding shares of capital stock of the corporation
pursuant to a vote of shareholders; or
(c) any issuance of shares of the corporation that results in the
acquisition of control of the corporation by any person, firm or
corporation or group of one or more thereof that previously did not
control the corporation; or
(d) any sale, lease, exchange, mortgage, pledge or other transfer, in one
transaction or a series of transactions, of all, or substantially all,
of the assets of the corporation to any other corporation, person, or
entity; or
(e) the adoption of a plan for the liquidation or dissolution of the
corporation proposed by any other corporation, person or entity; or
(f) any proposal in the nature of a reclassification or reorganization that
would increase the proportionate voting rights of any other
corporation, person or entity; or
(g) any transaction similar to, or having similar effect as, any of the
foregoing transactions,
If, in any such case, as of the record date for the determination of
shareholders entitled to notice thereof and to vote thereon, such other
corporation, person or entity is the beneficial owner, directly or
indirectly, of more than 5 percent of the shares of capital stock of the
corporation issued, outstanding and entitled to vote.
If any of the transactions identified above in this Section 8 is with a
corporation, person or entity that is not beneficial owner directly or
indirectly, of more than 5 percent of the shares of capital stock of the
corporation issued, outstanding and entitled to vote, then the affirmative
vote of holders of more than two-thirds of the shares of the corporation's
capital stock issued, outstanding and entitled to vote shall be required to
approve any of such transactions.
The Board of Directors of the corporation shall have the power and duty to
determine, for purposes of this Section 8, on the basis of information
known to the Board, if and when such other corporation, person or entity
is the beneficial owner, directly or indirectly, of more than 5 percent of
the shares of capital stock of the corporation issued, outstanding and
entitled to vote and/or if any transaction is similar to, or has a similar
effect as, any of the transactions identified above in this Section 8. Any
such determination shall be conclusive and binding for all purposes of
this Section 8. The provisions of this Section 8 shall not apply to any
transaction which is approved in advance by a majority of those Directors
(a) who were Directors before the corporation, person or entity acquired
beneficial ownership of 5 percent or more of the shares of capital stock
of the corporation and who are not affiliates of such corporation, person
or entity and (b) who became Directors at the recommendation of the
Directors referred to in (a) above.
<PAGE> 51
9. The Board of Directors of the corporation, when evaluating any offer of
another party to (a) make a tender or exchange offer for any equity
security of the corporation, (b) merge or consolidate the corporation
with another corporation, (c) purchase or otherwise acquire all or
substantially all of the properties and assets of the corporation, or
(d) engage in any transaction similar to, or having similar effects as,
any of the foregoing transactions, shall, in connection with the
exercise of its judgment in determining what is in the best interests
of the corporation and its shareholders, give due consideration to
all-relevant factors, including without limitation the social and
economic effects of the proposed transaction on the depositors,
employees, suppliers, customers and other constituents of the
corporation and its subsidiaries and on the communities in which the
corporation and its subsidiaries operate or are located, the business
reputation of the other party, and the Board of Directors' evaluation
of the then value of the corporation in a freely negotiated sale and of
the future prospects of the corporation as an independent entity.
10. Each Director and officer shall be indemnified by the corporation
against liabilities, fines, penalties and claims imposed upon or
asserted against him (including amounts paid in settlement) by reason
of having been such a Director or officer, whether or not then
continuing so to be, and against all expenses (including counsel fees)
reasonably incurred by him in connection therewith, except in relation
to matters as to which he shall have been finally adjudged to be liable
by reason of having been guilty of gross negligence or willful
misconduct in the performance of his duty as such Director or officer.
In the event of any other judgment against such Director or officer or
in the event of a settlement, the indemnification shall be made only if
the corporation shall be advised, in case none of the persons involved
shall be or have been a Director of the corporation, by the Board of
Directors, and otherwise by independent counsel to be appointed by the
Board of Directors, that in its or his opinion such Director or officer
was not guilty of gross negligence or willful misconduct in the
performance of his duty, and, in the event of a settlement, that such
settlement was or, if still to be made is, in the best interests of the
corporation. If the determination is to be made by the Board of
Directors, it may rely, as to all questions of law, on the advice of
independent counsel. Every reference herein to Director or officer
shall include every Director or officer or former Director or officer
of the corporation and every person who may have served at its request
as a Director or officer of another corporation in which the
corporation owns shares of stock or of which it is a creditor or, in
case of non-stock corporation, to which the corporation contributes
and, in all of such cases, his executors and administrators. The right
of indemnification hereby provided shall not be exclusive of any other
rights to which any Director or officer may be entitled.
<PAGE> 52
11. The provisions of Sections 7 through 11 of these Articles may not be
amended, nor shall any amendment be adopted that is inconsistent with any
of the provisions of such Sections 7 through 11 hereof except upon the
affirmative vote of the holders of at least 80 percent of the share of the
corporation's capital stock, issued, outstanding and entitled to vote.
IN WITNESS WHEREOF, we have executed these Articles of Incorporation as
Incorporators on this 25th day of October, 1983.
Louis L. Bosley, Incorporator Douglas C; Will, Incorporator
P.O. Box 188, P.O. Box 28,
Stanley, Virginia 22851 Luray, Virginia 22835
Roy W. Comer, Incorporator R. Harry Long, Incorporator
Route 1, Box 256, Route 2, Box 90,
Shenandoah, Virginia 22849 Luray, .Virginia 22835
S. Aylor Grubbs, Incorporator Hubert L. Roller, Incorporator
P. O. Box 76, P.O. Box 67,
Stanley, Virginia 22851 Stanley, Virginia 22851
H. Wilson Kite; Sr.; Incorporator
Route 1, Box 114,
Shenandoah, Virginia 22849
Thomas R. Rosazza, Incorporator
P.O. Box 297,
Shenandoah, Virginia 22849
C. Gaylon Waters, Incorporator
Route 1, Box 391,
Stanley, VA 22851
<PAGE> 53
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
CLERK OF THE COMMISSION
P. O. BOX 1197
20 BANK STREET
RICHMOND, VIRGINIA 23209
ARTICLES OF AMENDMENT OF PAGE BANKSHARES, INC.
ONE
The name of the corporation is Page Bankshares, Inc.
TWO
By unanimous resolution of the Board of Directors pursuant to the
provisions of Section 13.1-706 of the Code of Virginia, 1950, as amended, the
original Articles of Incorporation of Page Bankshares, Inc., which authorized
the issuance of 25,000 shares of common stock at a par value of $10.00 each, are
hereby amended to authorize the issuance of 37,500 shares of common stock at a
par value of $10.00 each in order to permit a dividend of one share of common
stock to be issued to each shareholder for every two shares of common stock
being held and outstanding according to the corporate books as of December 31,
1988.
THREE
This Article of Amendment of the original Articles of Incorporation of
Page Bankshares, Inc. was adopted by the unanimous vote of the Board of
Directors on the 26th day of January, 1989, and the Certificate of Amendment
shall become effective as of the date of: issuance by the Commission.
The undersigned chairman of the Board of Directors hereby certifies and
declares that the facts herein contained are true are correct as of this 15th
day of February, 1989.
PAGE BANKSHARES, INC.
By: DOUGLAS C. WILL, CHAIRMAN
-------------------------
Douglas C. Will, Chairman
Board of Directors of
Page Bankshares, Inc.
<PAGE> 54
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
CLERK OF THE COMMISSION
P.O. BOX 1197
20 BANK STREET
RICHMOND, VIRGINIA 23209
ARTICLES OF AMENDMENT OF PAGE BANKSHARES, INC.
ONE
The name of the corporation is PAGE BANKSHARES, INC.
TWO
By unanimous resolution of the Board of Directors pursuant to the
provisions of Section 13.1-706 (3) of the Code of Virginia, 1950, as amended,
the Articles of Incorporation of Page Bankshares, Inc., which authorized the
issuance of, 37,500 shares of common stock at a par value of $10.00 each, are
hereby amended to authorize the issuance of 75,000 shares of common stock at a
par value of $10.00 each in order to permit a dividend on one share of common
stock to be issued to each shareholder for every one share of common stock being
held and outstanding according to the corporate books as of December 31, 1992.
THREE
This Article of Amendment of the Articles of Incorporation of Page
Bankshares, Inc. was adopted by the unanimous vote of the Board of Directors on
the 8th day of April, 1993, and the Certificate of Amendment shall become
effective as of the date of issuance by the Commission.
The undersigned Chairman of the Board of Directors hereby certifies and
declares that the facts herein contained are true and correct as of this 8th day
of April, 1993.
PAGE BANKSHARES, INC.
BY: DOUGLAS C. WILL, CHAIRMAN
--------------------------
Douglas C. Will, Chairman
Board of Directors of
Page Bankshares, Inc.
<PAGE> 55
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
April 23, 1993
The State Corporation Commission has found the accompanying articles
submitted on behalf of
PAGE BANKSHARES, INC.
to comply with the requirements of law, and confirms payment of all related
fees.
Therefore, it is ORDERED that this
CERTIFICATE OF AMENDMENT
be issued and admitted to record with the articles of amendment in the Office of
the Clerk of the Commission, effective April 23, 1993 at 2:35 PM.
The corporation is granted the authority conferred on it by law in accordance
with the articles, subject the conditions and restrictions imposed by law.
STATE CORPORATION COMMISSION
By
Commissioner
<PAGE> 56
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
CLERK OF THE COMMISSION
P.O. BOX 1197
20 BANK STREET
RICHMOND, VIRGINIA 23209
ARTICLES OF AMENDMENT OF PAGE BANKSHARES, INC.
ONE
The name of the corporation is PAGE BANKSHARES, INC.
TWO
The Articles of Incorporation are amended as follows.
A. The number of shares of common stock that the corporation is authorized
to issue is increased from seventy five thousand shares to two million shares.
B. The par value of each share of common stock is decreased from ten
dollars ($10.00) per share to one dollar ($1.00) per share.
C. The Board of Directors of the corporation shall be composed of nine
Directors and the Board shall be divided into three classes, a first class,
second class and third class with three Directors in each class. The initial
term of office of the Directors of the first class shall expire at the annual
meeting of stockholders one year after their election under these amended
articles; the term of office of Directors of the second class shall expire at
the annual meeting of stockholders two years after their election under these
amended articles; and the initial term of the third class of Directors shall
expire at the annual meeting of stockholders three years after their election
under these amended articles. Following their aforesaid initial terms under
these amended articles, each class of Directors shall thereafter be elected for
a three year term.
THREE
The foregoing amendments were adopted on April 25, 1995.
FOUR
The foregoing amendments were proposed by the Board of Directors and
submitted to the shareholders in accordance with Chapter Nine of Title 13.1 of
the Code of Virginia.
A. The corporation has only one class of stock and there are 63,238
shares of stock outstanding and entitled to vote on these amendments.
B. 52,562 shares of stock were voted in favor of these amendments;
2,196 shares of stock were voted against these amendments.
<PAGE> 57
FIFTH
The Certificate of Amendment shall become effective as of the date of
issuance by the Commission.
The undersigned President of Page Bankshares, Inc. hereby certifies and
declares that the facts herein contained are true and correct as of this 2
day of May, 1995.
PAGE BANKSHARES, INC.
By: C. GAYLON WATERS
----------------
C. Gaylon Waters, its President
on behalf of the Corporation
<PAGE> 58
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
PAGE BANKSHARES, INC.
ONE
The name of the corporation is PAGE BANKSHARES, INC.
TWO
The articles of incorporation of the corporation are amended as follows:
The par value of each share of common stock shall be reduced from One ($1.00)
Dollar par value to Fifty Cents ($.50) par value.
THREE
The foregoing amendment was adopted on April 27, 1999.
FOUR
The amendment was adopted by unanimous consent of all the Directors of the Board
of Directors of the corporation. Stockholder approval is not required pursuant
to Virginia Code Section 13.1-706 (4).
The undersigned, Thomas R. Rosazza, president of Page Bankshares, Inc.,
declares that the facts herein stated are true as of May21, 1999.
PAGE BANKSHARES, INC.
By THOMAS R. ROSAZZA
Thomas R. Rosazza, President
Date. May21, 1999
<PAGE> 59
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
June 3, 1999
The State Corporation Commission has found the accompanying articles
submitted on behalf of
PAGE BANKSHARES, INC.
to comply with the requirements of law, and confirms payment of all related
fees.
Therefore, it is ORDERED that this
CERTIFICATE OF AMENDMENT
be issued and admitted to record with the articles of amendment in the Office of
the Clerk of the Commission, effective June 3, 1999, at 11:21 AM.
The corporation is granted the authority conferred on it by law in accordance
with the articles, subject to the conditions and restrictions imposed by law.
STATE CORPORATION COMMISSION
BY
Commissioner
<PAGE> 60
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
PAGE BANKSHARES, INC.
ONE
The name of the corporation is PAGE BANKSHARES, INC.
TWO
The articles of incorporation of the corporation are amended as follows:
(A) The name of the corporation is changed to PIONEER BANKSHARES, INC. (B) The
number of shares the corporation is authorized to issue is increased
to Five Million (5,000,000) shares of common stock.
THREE
The foregoing amendments were adopted on June 8, 1999.
FOUR
The amendments were proposed by the Board of Directors and submitted to the
shareholders in accordance with Chapter 9 of Title 13.1 of the Code of Virginia.
The corporation has only one class of stock, and that class has 1,184540 shares
outstanding and entitled to vote of these amendments. 1,000,599 shares were
voted in favor of the adoption of the name change amendment and 11,588 shares
were voted against its adoption. 887,479 shares were voted in favor of the
adoption of the increase in the number of authorized shares to five million
shares and 123,546 shares voted against its adoption. Accordingly the amendments
were duly adopted by the shareholders of the corporation.
The undersigned, Thomas R. Rosazza, president of Page Bankshares, Inc.,
declares that the facts herein stated are true as of June 21, 1999.
PAGE BANKSHARES, INC
By THOMAS R. ROSAZZA
Thomas R. Rosazza, President
Date June21, 1999
<PAGE> 61
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
July 8, 1999
The State Corporation Commission has found the accompanying articles
submitted on behalf of
PIONEER BANKSHARES, INC. (formerly PAGE BANKSHARES, INC.)
to comply with the requirements of law, and confirms payment of all related
fees.
Therefore, It is ORDERED that this
CERTIFICATE OF AMENDMENT
be issued and admitted to record with the articles of amendment in the Office of
the Clerk of the Commission effective July 6.1999, at 02:48 PM.
The corporation is granted the authority conferred on it by law in accordance
with the articles, subject to the conditions and restrictions imposed by law.
STATE CORPORATION COMMISSION
By
Commissioner
<PAGE> 62
BYLAWS
OF
PAGE BANKSHARES, INC.
ARTICLE I
Stockholders' Meetings
The annual meeting of the stockholders of the corporation shall be held annually
on a date to be fixed by the Board of Directors (beginning in 1985). If that day
is a legal holiday, the annual meeting shall be held on the next succeeding day
not a legal holiday. Notice of the annual meeting shall be mailed, postage
prepaid, at least ten days prior to the date thereof, addressed to each
shareholder at his address appearing on the books of the corporation.
All meetings of the stockholders shall be held at the time and place stated in
the notice of the meeting. Meetings of the stockholders shall be held whenever
called by the President, by a majority of the Directors or by stockholders
holding at least 1/10 of the number of shares of capital stock entitled to vote
then outstanding. Notice of such meetings shall be mailed, postage prepaid, at
least ten days prior to the date thereof, addressed to each shareholder at his
address appearing on the books of the corporation
The holders of a majority of the outstanding shares of capital stock entitled to
vote shall constitute a quorum at any meeting of the stockholders. Less than a
quorum may adjourn the meeting to a fixed time and place, no further notice of
any adjourned meeting being required. Each stockholder shall be entitled to one
vote in person or by proxy for each share entitled to vote then outstanding in
his name on the books of the corporation.
The transfer books for shares of capital stock of the corporation may be closed
by order of the Board of Directors for not exceeding 50 days for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholder or any adjournment thereof or entitled to receive payment of any
dividend or in order to make a determination of stock holders for any other
purpose. In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the record date for any such determination of
stockholders, such date to be not more than fifty days preceding the date on
which the particular action requiring such determination of the stockholders is
to be taken.
The Chairman of the Board, if there be one, shall preside over all meetings of
the stockholders. If he is not present, or there is none in office, the
President shall preside. If neither the Chairman of the Board nor the President
is present, a Vice President shall preside, or, if none be present, a Chairman
shall be elected by the meeting. The Secretary of the corporation shall act as
Secretary of all the meetings, if he be present. If he is not present, the
Chairman shall appoint a Secretary of the meeting. The Chairman of the meeting
may appoint one or more inspectors of the election to determine the
qualification of voters, the validity of proxies and the results of ballots.
<PAGE> 63
ARTICLE II
Board of Directors
The number of the Directors shall be nine. This number may be increased or
decreased at any time by amendment of these Bylaws, but shall always be a number
of not less than three. Directors must be stockholders. A majority of the
Directors shall constitute a quorum. Less than a quorum may adjourn the meeting
to a fixed time and place, no further notice of any adjourned meeting being
required.
The Directors shall be divided into three classes, and each class shall consist
of three Directors, so long as the Bylaws provide that the number of Directors
shall be nine, and if the same be amended, then each class is to be as nearly
equal in number as possible. The term of office of Directors of the first class
shall expire at the first annual meeting of stockholders, and the three
vacancies in this class of Directors shall then be filled by an election of
those Directors at the first annual meeting of stockholders, and the Directors
of this class shall serve for a term of three years thereafter; the term of
office of Directors of the second class shall expire at the second annual
meeting of stockholders, and the three vacancies in this class of Directors
shall then be filled by an election of those Directors at the second annual
meetings of stockholders, and the Directors of this class shall serve for a term
of three years thereafter; and the term of office of Directors of the third
class shall expire at the third annual meeting of stockholders, and the
vacancies in this third class of Directors shall be filled by an election of
Directors to this class by the stockholders at the third annual meeting, and the
Directors of this class shall also serve for a term of three years.
Nominations for election to the Board of Directors may be made by the Board of
Directors, or by any stockholder, however, nominations, other than those made by
the Board of Directors, shall be in writing, and shall be delivered or mailed to
the President of the corporation, not less than seven days prior to any meeting
of shareholders called for the election of Directors. Such notification shall
contain the following information to the extent known to the notifying
shareholder: (a) the name and address of each proposed nominee; (b) the
principal occupation of each proposed nominee; (c) the total number of shares of
stock of the corporation that will be voted for each proposed nominee; (d) the
name and residence address of the notifying shareholder; and (e) the number of
shares of stock of the corporation owned by the notifying shareholder.
Nominations not made in accordance herewith may, in the discretion of the
Chairperson of the meeting, be disregarded by such Chairperson, and upon the
Chairperson's instruction, all votes cast for such nominee may be disregarded at
the meeting.
The election of any class of Directors taking place at any annual meeting of
stockholders shall be by a plurality of the ballot cast by the stockholders
voting in person or by proxy.
Any vacancy arising among the Directors, including a vacancy resulting from an
increase by not more than two in the number of Directors, may be filled by the
remaining Directors unless sooner filled by the stockholders in meeting.
Meetings of the Board of Directors, including a vacancy resulting from an
increase by not more than two in the number of Directors, may be filled by the
remaining Directors unless sooner filled by the stockholders in meeting.
Meetings of the Board of Directors shall be held at times fixed by resolution of
the Board or upon the call of the President or of a majority of the members of
the Board. Notice of any meeting not held at a time fixed by a resolution of the
Board shall be given at least two days before the meeting at his residence or
business address or by delivering such notice to him or by telephoning or
telegraphing it to him at least one day before the meeting. Any such notice
shall contain the time and place of the meeting. Meetings may be held without
notice if all of the Directors are present or those not present waive notice
before or after the meeting.
<PAGE> 64
ARTICLE III
Committees
The Board of Directors may designate by resolution adopted by a majority of all
the Directors two or more of the Directors to constitute an Executive Committee.
The Executive Committee, when the Board of Directors is not in session, may to
the extent permitted by law exercise all of the powers of the Directors and
authorize the seal of the corporation to be affixed as required. The Executive
Committee may make rules for the holding and conducting of its meetings, the
notice thereof required and the keeping of its records.
Other committees, consisting of two or more Directors, may be designated by a
resolution adopted by a majority of the Directors present at a meeting at which
a quorum is present and shall have the powers and authority of the Board of
Directors to the extent specified in the resolution of appointment and not
prohibited by law.
ARTICLE IV
Officers
The Board of Directors, promptly after such annual meeting and election of that
year's class of Directors, shall elect a President, (who shall be one of the
Directors), and a Secretary and may elect a Chairman of the Board, one or more
Vice Presidents and a Treasurer and may appoint such other officers as it may
deem proper. Any officer may hold more than one office except that the same
person shall not be President and Secretary. The term of office shall be until
the first meeting of the Board of Directors following the next annual meeting of
the stockholders and until their respective successors are elected) but any
officer may be removed at any time by the vote of the Board of Directors.
Vacancies among the officers shall be filled by the Directors. The officers of
the corporation shall have such duties as generally pertain to their respective
offices, as well as such powers and duties as from time to time may be delegated
to them by the Board of Directors.
ARTICLE V
Certificate of Stock
Each stockholder shall be entitled to a certificate or certificates of stock in
such form as may be approved by the Board of Directors signed by the President
or a Vice President and by the Secretary or an Assistant Secretary or the
Treasurer or any Assistant Treasurer.
All transfers of stock of the corporation shall be made upon its books by
surrender of the certificate for the shares transferred accompanied by an
assignment in writing by the holder and may be accomplished either by the holder
in person or by a duly authorized attorney in fact.
In case of the loss, mutilation or destruction of a certificate of stock, a
duplicate certificate may be issued upon such terms not in conflict with law as
the Board of Directors may prescribe.
<PAGE> 65
The Board of Directors may also appoint one or more Transfer Agents and
Registrars and may require stock certificates to be countersigned by a Transfer
Agent or registered by a Registrar or may require stock certificates to be both
countersigned by a Transfer Agent and Registered by a Registrar. If certificates
of capital stock of the corporation are signed by a Transfer Agent or by a
Registrar (other than the corporation itself or one of its employees), the
signature thereon of the officers of the corporation and the seal of the
corporation thereon may be facsimiles, engraved or printed. In case any officer
or officers who shall have signed, or whose facsimile signature or signatures
shall have been used on, any such certificate or certificates shall cease to be
such officer or officers of the corporation, whether because of death,
resignation or otherwise, before such certificate or certificates shall have
been delivered by the corporation, such certificate or certificates may
nevertheless be issued and delivered as though the person or persons who signed
such certificates or whose facsimile signature or signatures shall have been
used thereon had not ceased to be such officer or officers of the corporations.
ARTICLE VI
Seal
The seal of the corporation shall be a flat-faced circular die, of which there
may be any number of counterparts, with the word "SEAL" and the name of the
corporation engraved thereon.
ARTICLE VII
Voting of Stock Held
Unless otherwise provided by a vote of the Board of Directors, the President or
any Vice President may appoint attorneys to vote any stock in any other
corporation owned by this corporation or may attend any meeting of the holders
of stock of such corporation and vote such shares in person.
<PAGE> 66
RESOLUTION ADOPTED BY THE
BOARD OF DIRECTORS OF
PAGE BANKSHARES, INC.
ON JUNE 8,1999 WITHOUT A MEETING
RESOLVED, that Article I of the By-Laws of the corporation be amended as
follows: the first and second sentences of paragraph three on page 2 shall be
deleted and the replaced with
The president of the corporation shall preside over all meetings of the
stockholders. If he/she is not present or if there is none in office or he/she
request so request, then the chair of the board shall preside.
The foregoing resolution was unanimously adopted by all the directors of Page
Bankshares, Inc, without a meeting on June 8, 1999, as evidenced by their
signature at the foot of this resolution.
THOMAS ROSAZZA, DIRECTOR ROBERT LONG, DIRECTOR
- --------------------------------- ---------------------
Thomas Rosazza, Director Robert Long, Director
LOUIS BOSLEY, DIRECTOR KYLE MILLER, DIRECTOR
- --------------------------------- ---------------------
Louis Bosley, Director Kyle Miller, Director
PAT BAKER, DIRECTOR MARK N. REED, DIRECTOR
- --------------------------------- ----------------------
Pat Baker, Director Mark N. Reed, Director
HARRY LOUDERBACK, DIRECTOR DAVID SLYE, DIRECTOR
- -------------------------------- ----------------------
Harry Louderback, Director David Slye, Director
E. POWELL MARKOWITZ, DIRECTOR
- -------------------------------- ----------------------
E. Powell Markowitz, Director
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PIONEER
BANKSHARE, INC. FORM 10SB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001113026
<NAME> PIONEER BANKSHARES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,199
<INT-BEARING-DEPOSITS> 4,536
<FED-FUNDS-SOLD> 2,215
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,475
<INVESTMENTS-CARRYING> 3,557
<INVESTMENTS-MARKET> 3,541
<LOANS> 69,252
<ALLOWANCE> 779
<TOTAL-ASSETS> 100,892
<DEPOSITS> 82,439
<SHORT-TERM> 4,627
<LIABILITIES-OTHER> 1,297
<LONG-TERM> 1,800
0
0
<COMMON> 561
<OTHER-SE> 10,168
<TOTAL-LIABILITIES-AND-EQUITY> 100,892
<INTEREST-LOAN> 6,512
<INTEREST-INVEST> 858
<INTEREST-OTHER> 367
<INTEREST-TOTAL> 7,738
<INTEREST-DEPOSIT> 2,858
<INTEREST-EXPENSE> 91
<INTEREST-INCOME-NET> 4,789
<LOAN-LOSSES> 183
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 3,486
<INCOME-PRETAX> 2,053
<INCOME-PRE-EXTRAORDINARY> 2,053
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,445
<EPS-BASIC> 1.23
<EPS-DILUTED> 1.23
<YIELD-ACTUAL> 4.58
<LOANS-NON> 0
<LOANS-PAST> 366
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 773
<CHARGE-OFFS> 222
<RECOVERIES> 45
<ALLOWANCE-CLOSE> 779
<ALLOWANCE-DOMESTIC> 779
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
