United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended December 31, 2011
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number: 0-30541
Pioneer
Bankshares, Inc.
(Exact name of registrant as specified in its charter)
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Virginia
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54-1278721
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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263 East Main Street
P. O. Box 10
Stanley, Virginia 22851
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (540) 778-2294
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock – $.50 Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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No
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
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No
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Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
shorter period that the registrant was required to submit and post such
files). Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes
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No
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The aggregate market value of the voting stock held by non-affiliates based on the last reported sales price of $16.50 per share as of June 30, 2011 was $14,823,980. The number of shares outstanding
of the registrant’s common stock is 1,041,373 as of March 29, 2012.
DOCUMENTS
INCORPORATED BY REFERENCE:
Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on May 16, 2012 are incorporated by reference into Part III of this Form 10-K.
Form 10-K
TABLE OF CONTENTS
2
PART I
General
Pioneer Bankshares, Inc. (the “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 Company’s wholly-owned subsidiary, Pioneer Bank, Inc. (the “Bank”) was established as a national bank in 1909. The Bank converted from a
national bank to a state chartered bank, effective April 1994, and changed its name to Pioneer Bank, effective April 1999.
In October 2000, the Bank acquired Valley Finance Service, Inc. (“VFS”), a small loan company located in Harrisonburg,
Virginia. In January 2002, the assets of VFS were merged into the Bank and the subsidiary license for this company was dissolved. VFS now operates as a division and branch of the Bank offering consumer loan services.
Pioneer Bank also owns and operates two subsidiaries, one of which is Pioneer Financial Services, LLC. Income received from insurance
services and non-banking investment services is handled through Pioneer Financial Services, LLC. The second subsidiary owned by Pioneer Bank is Pioneer Special Assets, LLC, which is generally used in conjunction with foreclosed properties, as a
means of minimizing the risk of liability to the Bank.
The primary assets of the Company consist of all of the stock of the
Bank, real estate holdings leased to the Bank, a portfolio of equity investment securities, and minimal cash accounts.
The
Bank is engaged in the general commercial banking business, primarily serving the counties of Page, Greene, Rockingham, and Albemarle, as well as the Cities of Harrisonburg and Charlottesville, 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, but
not limited to, the counties surrounding Page County.
The Bank offers a full range of banking and related financial services
focused primarily towards serving individual consumers, small to medium size commercial businesses, and the professional community. The Bank strives to serve the banking needs of its customers while developing personal, hometown relationships. The
Bank’s Board of Directors and management believe that the marketing of customized banking services will enable the Bank to continue its position in the financial services marketplace.
The Bank provides individual consumers, professionals and small and medium size commercial businesses in its market area with responsive
and technologically advanced banking services. These services include competitively priced loans that are based 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 enables 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 and management believe the Bank’s present capitalization will support substantial growth in deposits and
loans.
Location and Market Area
The Bank currently operates full service branches in Stanley, Luray, Shenandoah, Harrisonburg, Stanardsville, and Charlottesville, Virginia. Management will continue to investigate and consider other
possible sites that would enable the Bank to profitably serve its chosen market area.
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The opening of additional banking offices by the Bank requires 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 public 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 the Bank’s market area, there can be no assurance when or if the Bank will be able to undertake such expansion plans.
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 its deposits are insured under the Federal Deposit Insurance Act to the limits provided
thereunder.
The Bank offers a full range of short-to-medium term commercial and consumer 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 generally include secured
and unsecured loans for financing automobiles, residential financing, 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 internet banking, ATM/Debit Cards, safe deposit boxes, issuance of 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 also offers MasterCard and VISA credit card services. Additionally, the Bank offers a “Bounce
Protection” program which provides overdraft privileges on checking accounts up to predetermined amounts, subject to overdraft fees. The Bank is also licensed to sell property/casualty and life/health insurance, and investment securities, and
does so through its investment subsidiary, Pioneer Financial Services, LLC.
The Bank does not have trust powers and does not
anticipate obtaining trust powers. If the Bank decided to establish a trust department in the future, the Bank could not do so without the prior approval of the Virginia State Corporation Commission. In the interim, the Bank 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.
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The Bank’s service 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. Also, deposit competition among institutions in the market area is strong.
Employees
As of December 31, 2011, the Company had 52 full-time
equivalent employees. None of the employees are represented by any collective bargaining agreements and relations with employees are considered to be good.
Supervision and Regulation
Set forth below is a summary of statutes and
regulations affecting the Company and the Bank. Federal and state laws and regulations provide regulatory oversight for virtually all aspects of both of their operations. This summary is qualified in its entirety by reference to these statutes and
regulations.
Supervision and Regulation of the Company
The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956, and is supervised and subject to examination by the Board of Governors of the Federal Reserve System (the
“Federal Reserve”). The Company and the Bank are also subject to Virginia laws that regulate banks and bank holding companies. Virginia’s banking laws are administered by the Bureau of Financial Institutions of the Virginia State
Corporation Commission (the “Commission”). The Company and the Bank are also affected by rules and regulations of the Federal Deposit Insurance Corporation (the “FDIC”). The various laws and regulations administered by all of
these regulatory agencies affect corporate practices, expansion of business, and provisions of services. Also, monetary and fiscal policies of the United States directly affect bank loans and deposits and may affect our earnings. The future impact
of these policies and of continuing regulatory changes in the financial services industry cannot be predicted. The supervision, regulation and examination of the Bank are intended primarily for the protection of depositors rather than our
stockholders.
As a bank holding company, the institution is required to file with the Federal Reserve periodic reports and
any additional information the Federal Reserve may require. The Company also must provide the Commission with information regarding itself and the Bank. The Federal Reserve examines the Company periodically and may examine its subsidiaries. The
Commission also may examine the Company.
A bank holding company is required to obtain prior approval from the Federal
Reserve before acquiring control of substantially all the assets of any non-affiliated bank or more than 5% of the voting shares of any bank it does not already own, or before it merges or consolidates with another institution or engages in any
business other than banking or managing, controlling or furnishing services to banks and other subsidiaries, and a limited list of activities closely related to or incidental to banking. Similarly, approval of the Virginia Bureau of Financial
Institutions is required for certain acquisitions of other banks and bank holding companies.
The Federal Reserve will
approve the ownership by a bank holding company of shares in a company engaged in activities determined by order or regulation to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto. In other
words, regulatory involvement, and approval, is required for the Company to engage in non-banking activities.
The Company
would be compelled by the Federal Reserve to invest additional capital in the event the Bank experiences either significant loan losses or rapid growth of loans or deposits. The Federal Reserve requires a bank holding company to act as a source of
financial strength and to take measures to preserve and protect its bank subsidiaries.
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Company Capital Guidelines.
The Company operates under the capital adequacy
guidelines established by the Federal Reserve. Under the Federal Reserve’s current risk-based capital guidelines for bank holding companies, the minimum required ratio for total capital to risk weighted assets the Company is required to
maintain is 8%, with at least 4% consisting of Tier 1 capital. Tier 1 capital consists of common and qualifying preferred stock, certain other qualifying instruments, and minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets. These risk-based capital guidelines establish minimum standards, and bank holding companies generally are expected to operate well above the minimum standards.
Financial Modernization Legislation.
A bank holding company generally is restricted to activities related or incidental to
banking. In the past, bank holding companies were specifically prohibited from engaging in the issue, flotation, underwriting, public sale, or distribution of third party securities. Limits also were placed on underwriting and selling insurance. The
permitted activities with respect to bank holding companies and their affiliates were substantially expanded by the Gramm-Leach-Bliley Act, which became effective in March 2000. This act repealed the banking/securities industry anti-affiliation
rules and permits the common ownership of commercial banks, investment banks, and insurance companies under the structure of a financial holding company. Under this law, a bank holding company can elect to be treated as a financial holding company,
which may engage in any activity that the Federal Reserve determines is financial in nature. A financial holding company also may engage in any activity that is complementary to a financial activity and does not pose a substantial risk to the safety
and soundness of the related depository institutions or the financial system generally.
In order for a bank holding company
to qualify as a financial holding company, all of its depository subsidiaries (
i.e.
, banks and thrifts) must be well capitalized and well managed, and must meet their Community Reinvestment Act, or CRA, obligations, as explained below. The
bank holding company also must declare its intention to become a financial holding company to the Federal Reserve and certify that it meets the requirements. Banks and thrifts acquired by a financial holding company within 12 months prior to the
date on which the election is filed may be excluded from this test if they have less than a satisfactory CRA rating, but they must submit a plan to the applicable federal banking agency describing how the CRA rating will be brought into conformance.
The act also establishes a system of functional regulation for financial holding companies and banks providing regulation of
securities by the Securities and Exchange Commission and state securities regulators, regulation of futures by the Commodity Futures Trading Commission, and regulation of insurance activities by the state insurance regulators. Banks may sell title
insurance only when specifically permitted under applicable state law.
The Company does not currently intend to become a
“financial holding company” under the terms of this law, but may consider doing so at some point in the future.
Emergency Economic Stabilization Act of 2008.
In accordance with its stated purpose of restoring liquidity and stability to the
financial system of the United States, the Emergency Economic Stabilization Act of 2008 established the Troubled Asset Relief Program (“TARP”), under which the U.S. Department of the Treasury (“Treasury”) is authorized to
purchase preferred stock from qualified financial institutions. The Company met the requirements to be considered a qualified financial institution.
Under TARP, for organizations like the Company, the federal government’s purchase limitation is generally defined as 3% of risk-weighted assets. The terms of the preferred stock generally provide
that: (i) cumulative dividends will be paid at a rate of 5% for the first five years and 9% thereafter; (ii) any increase in the dividend rate paid on common stock during the first three years will require the consent of the Treasury;
(iii) any repurchase of common stock will require the consent of the Treasury; (iv) conditions and limitations will be placed on executive compensation; and (v) the Treasury will receive warrants, with a term of 10 years, to purchase
a number of shares of common stock having an aggregate market price equal to 15% of the preferred stock amount on the day of investment.
The Company gave consideration to applying for the Treasury’s capital purchase program during 2008. After performing a detailed capital and cost analysis, the Company decided not to participate in
the TARP program.
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Securities.
The Company must also comply with the requirements of the Securities
Exchange Act of 1934, which include the filing of annual, quarterly and other reports with the Securities and Exchange Commission.
Supervision and Regulation of the Bank
General.
The Bank is a state chartered bank and member of the Federal Reserve System. The Federal Reserve and the Commission regulate and monitor all significant aspects of the Bank’s
operations. The Federal Reserve requires quarterly reports on the Bank’s financial condition, and both federal and state regulators conduct periodic examinations of the Bank. The cost of complying with these regulations and reporting
requirements can be significant. In addition, some of these regulations impact investors directly. For example, the Bank may pay dividends only out of its net undivided profits after deducting expenses, bad debts, losses, interest and taxes accrued,
and contribution to capital necessary for the Bank’s original capital to be restored. The Federal Reserve recommends that banks pay dividends only if the net income available to shareholders in the past year fully funds those dividends, and the
expected rate of earnings retention is consistent with capital needs, asset quality, and overall financial condition. Regulatory restrictions on the Bank’s ability to pay dividends may adversely impact the Company’s ability to pay
dividends to its shareholders.
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 Bank operates under the supervision of, and subject to regulation and examination by, the Commission and
the Federal Reserve. The Bank is also 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 the Bank’s primary federal regulator, the Federal Reserve has 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. The amount of dividends payable by the Bank will depend upon its earnings and capital position, and is limited by 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 a bank’s paid-in capital. Both the Commission and the
Federal Reserve have 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 the total of all cash dividends declared in any given quarter will exceed the total of its net profits for that
reporting period. 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.
In addition, the cost of complying with FDIC rules and regulations may negatively impact the Bank’s profitability. For member banks like the Bank, the Federal Reserve has the authority to prevent the
continuance or development of unsound and unsafe banking practices and to approve conversions, mergers and consolidations. Obtaining regulatory approval of these transactions can be expensive, time consuming, and ultimately may not be successful.
Federal and state banking regulators also possess broad powers to take supervisory actions as they deem appropriate. These
supervisory actions may result in higher capital requirements, higher insurance premiums and limitations on the Company’s activities that could have an adverse effect on operations and profitability.
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Regulatory Reform – The Dodd-Frank Act
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into
law. The Dodd-Frank Act significantly restructures the financial regulatory regime in the United States and has a broad impact on the financial services industry as a result of the significant regulatory and compliance changes required under the
act. While some rulemaking under the Dodd-Frank Act has occurred, many of the act’s provisions require study or rulemaking by federal agencies, a process which will take years to fully implement. A summary of certain provisions of the
Dodd-Frank Act is set forth below:
Increased Capital Standards
. The federal banking agencies are required to
establish minimum leverage and risk-based capital requirements for banks and bank holding companies. Among other things, the Dodd-Frank Act provides for new capital standards that eliminate the treatment of trust preferred securities as Tier 1
capital. Existing trust preferred securities are grandfathered for banking entities with less than $15 billion of assets, such as the Company.
Deposit Insurance
. The Dodd-Frank Act makes permanent the $250,000 deposit insurance limit for insured deposits. Amendments to the Federal Deposit Insurance Act also revised the assessment base
against which an insured depository institution’s deposit insurance premiums paid to the Deposit Insurance Fund (the “DIF”) will be calculated. Under the amendments, the assessment base will no longer be the institution’s deposit
base, but rather its average consolidated total assets less its average tangible equity during the assessment period. Additionally, the Dodd-Frank Act makes changes to the minimum designated reserve ratio of the DIF, increasing the minimum from
1.15% to 1.35% of the estimated amount of total insured deposits and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. In December 2010, the FDIC increased the
reserve ratio to 2.0%. The Dodd-Frank Act also provides that, effective one year after the date of enactment, depository institutions may pay interest on demand deposits.
Enhanced Lending Limits
. The Dodd-Frank Act strengthens the existing limits on a depository institution’s credit exposure to one borrower. Current banking law limits a depository
institution’s ability to extend credit to one person (or group of related persons) in an amount exceeding certain thresholds.
The Consumer Financial Protection Bureau (“Bureau”).
The Dodd-Frank Act creates the Bureau within the Federal Reserve Bank. The Bureau will establish rules and regulations under certain
federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services.
Interchange Fees
. The Dodd-Frank Act also provides that debit card interchange fees must be reasonable and proportional to the
cost incurred by the card issuer with respect to the transaction. This provision is known as the “Durbin Amendment.” In June 2011, the Federal Reserve adopted regulations setting the maximum permissible interchange fee as the sum of 21
cents per transaction and 5 basis points multiplied by the value of the transaction, with an additional adjustment of up to one cent per transaction if the card issuer implements certain fraud-prevention standards.
Compensation Practices
. The Dodd-Frank Act provides that the appropriate federal regulators must establish standards prohibiting
as an unsafe and unsound practice any compensation plan of a bank holding company or bank that provides an insider or other employee with “excessive compensation” or could lead to a material financial loss to such firm. In June 2010, prior
to the Dodd-Frank Act, the bank regulatory agencies promulgated the Interagency Guidance on Sound Incentive Compensation Policies, which requires that financial institutions establish metrics for measuring the impact of activities to achieve
incentive compensation with the related risk to the financial institution of such behavior.
Although a significant number of
the rules and regulations mandated by the Dodd-Frank Act have been finalized, many of the new requirements called for have yet to be implemented and will likely be subject to implementing regulations over the course of several years. Given the
uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies, the full extent of the impact such requirements will have on the operations of the Company and the Bank is
unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of business activities, require changes to certain business practices, impose more stringent capital, liquidity and leverage ratio requirements or otherwise
adversely affect the business of the Company and the Bank. These changes may also require the Company to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and
regulatory requirements. The Company believes that the compliance costs incurred in future reporting periods is likely to be increased due to the Dodd-Frank Act.
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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 current 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 1 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 average total consolidated assets (“Leverage ratio”) of 4%. 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, without significant reliance on intangible assets. The Federal Reserve continues to consider a “tangible Tier 1 leverage ratio” in evaluating proposals for expansion or new activities. The
tangible Tier 1 leverage ratio is the ratio of Tier 1 capital, less deductions for intangibles otherwise includable in Tier 1 capital, to total assets. The Bank’s capital ratios significantly exceed all requirements at December 31, 2011.
Deposit Insurance
Federal Deposit Insurance Coverage limits were permanently increased to $250,000 per depositor during 2010. The Bank generally pays a quarterly statutory assessment for this insurance coverage and must
comply with the rules and regulations of the FDIC. Each depository institution is assigned to a risk category based upon capital and supervisory measures. In December 2009, federally insured banking institutions were required to prepay deposit
insurance premiums through December 2012. Future FDIC assessments will be based on the Company’s assigned risk category and certain growth factors, as well as potential regulatory changes related to the insurance coverage and assessment
process.
Effect of Governmental Monetary Policies
Banking is a business that depends on interest rate differentials. In general, the difference between the interest paid by a bank on its deposits and its other borrowings, and the interest received by a
bank on its loans and securities holdings, constitutes the major portion of a bank’s earnings. 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 Board 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.
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SEC Filings
A copy of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, excluding exhibits, as filed with the Securities and Exchange Commission can be obtained without charge
by writing to Pioneer Bankshares, Inc., Attn: Thomas R. Rosazza, President and Chief Executive Officer, at 263 East Main Street, P.O. Box 10, Stanley, Virginia 22851. This information may also be accessed, without charge, by visiting the SEC’s
Electronic Data Gathering and Retrieval Service EDGAR website at www.sec.gov.
Not
Applicable
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Item 1B.
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Unresolved Staff Comments.
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Not Applicable
The
Company’s corporate office is located in Stanley, Virginia and is directly across the street from the Bank’s main branch office. The building was originally built as a residence. It was purchased in 1989 and fully renovated for commercial
use. The building contains approximately 3,252 square feet.
The Bank’s main branch 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 and operations, bookkeeping and credit departments, three drive-through lanes
and a drive-up ATM. This office is owned by the Bank.
The branch in Luray, Virginia is a brick building containing
approximately 3,797 square feet and situated on a 200 x 150 lot. This office is a full service branch with two drive-through lanes and a walk-up ATM. This branch was built in 1989 and is located next to a shopping center. This branch is owned by the
Bank.
The branch in Shenandoah, Virginia is a brick building containing approximately 3,400 square feet and situated on a
300 x 150 lot. This office is a full service branch with two drive-through lanes and a walk-up ATM. This branch was built in 1995 and is owned by the Company.
The branch in Harrisonburg, Virginia is a brick facility, which was constructed in 2003. The building is situated on a 130 x 190 lot, which was originally purchased in 2002. The branch contains
approximately 1,620 square feet. This full-service office is located next to a shopping center and has three drive-through lanes and a drive-up ATM. This branch is owned by the Bank.
The branch in Stanardsville, Virginia is a double-wide modular building containing approximately 1,680 square feet and situated on .644
acre. It is equipped with two drive-through lanes and a drive-up ATM. The branch was established in 2001 and is owned by the Bank.
Valley Finance Service operates as a division/branch of Pioneer Bank and was relocated during the third quarter of 2008 into the Harrisonburg branch facility in an effort to improve operating efficiency
and reduce overhead expenses.
The Bank’s data center is located next to the Bank’s main office in Stanley,
Virginia. The data center building has approximately 25,760 square feet and was originally purchased on September 8, 1970, with substantial renovations being completed in 2005.
The Bank also operates a branch facility in Charlottesville, Virginia. This branch is a leased facility. This office
was opened in March 2005 and primarily offers commercial loans and small business accounts. As of December 31, 2011, this branch was located at 257 Ridge McIntire Road, Charlottesville, Virginia, with plans to relocate to 1710 Seminole Trail,
Suite 4, during the 1
st
quarter of 2012.
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Item 3.
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Legal Proceedings.
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In
the ordinary course of its operations, the Company and its subsidiaries are parties to various legal proceedings. Based on the information presently available, and after consultation with legal counsel, management believes that the ultimate outcome
in such proceedings, in the aggregate, will not have a material adverse effect on the business or the financial condition or results of operations of the Company.
|
Item 4.
|
Mine Safety Disclosures.
|
Not Applicable
PART II
|
Item 5.
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
|
The Common Stock of the Company trades on the OTC Bulletin Board under the symbol “PNBI.OB” and transactions generally involve a small number of
shares. The Bank’s transfer agent is Registrar and Transfer Company, 10 Commerce Drive, Cranford Drive, Cranford, New Jersey, 07016-3572. The following table shows actual trade prices (without commissions) as reported by Scott &
Stringfellow, Inc. Other transactions may have occurred which were not included in the table.
COMMON STOCK TRADE PRICES
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
17.95
|
|
|
$
|
16.25
|
|
|
Second Quarter
|
|
|
17.00
|
|
|
|
16.00
|
|
|
Third Quarter
|
|
|
16.50
|
|
|
|
13.40
|
|
|
Fourth Quarter
|
|
|
14.11
|
|
|
|
13.50
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
16.00
|
|
|
$
|
13.50
|
|
|
Second Quarter
|
|
|
17.50
|
|
|
|
14.50
|
|
|
Third Quarter
|
|
|
16.00
|
|
|
|
14.50
|
|
|
Fourth Quarter
|
|
|
18.25
|
|
|
|
14.71
|
|
There were 1,041,373 and 1,035,274 shares of the Company’s Common Stock outstanding at the close of
business on December 31, 2011 and 2010, respectively. There were 574 and 570 shareholders of record as of December 31, 2011 and 2010, respectively.
The Company has declared dividends on its Common Stock as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declared Date
|
|
Record
Date
|
|
|
Payment
Date
|
|
|
Per Share
Amount
|
|
|
|
|
|
|
|
3/10/11
|
|
|
3/21/11
|
|
|
|
3/31/11
|
|
|
$
|
.15
|
|
|
6/09/11
|
|
|
6/22/11
|
|
|
|
6/30/11
|
|
|
|
.15
|
|
|
9/08/11
|
|
|
9/21/11
|
|
|
|
9/30/11
|
|
|
|
.15
|
|
|
12/08/11
|
|
|
12/21/11
|
|
|
|
12/30/11
|
|
|
|
.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for 2011
|
|
|
|
|
|
|
|
|
|
$
|
.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/11/10
|
|
|
3/19/10
|
|
|
|
3/31/10
|
|
|
$
|
.15
|
|
|
6/10/10
|
|
|
6/22/10
|
|
|
|
6/30/10
|
|
|
|
.15
|
|
|
9/09/10
|
|
|
9/22/10
|
|
|
|
9/30/10
|
|
|
|
.14
|
|
|
12/09/10
|
|
|
12/21/10
|
|
|
|
12/30/10
|
|
|
|
.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for 2010
|
|
|
|
|
|
|
|
|
|
$
|
.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
The Company’s ability to pay dividends is subject to certain restrictions imposed by
the Federal Reserve and capital requirements of Federal and Virginia banking statutes and regulations. Additionally, the 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 Company’s growth and ability to compete in its market area.
Stock Repurchases
The Company has a stock repurchase program authorized with 5,000 shares remaining available for repurchase. There were no
repurchase transactions during 2011.
|
Item 6.
|
Selected Financial Data.
|
The following
is selected financial data for the Company for the years ending December 31, 2011 and 2010. This information has been derived from audited financial information included in Item 8 of this Form 10-K.
FINANCIAL HIGHLIGHTS
(In thousands, except for per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
$
|
9,305
|
|
|
$
|
9,377
|
|
|
Interest expense
|
|
|
1,443
|
|
|
|
1,764
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
7,862
|
|
|
|
7,613
|
|
|
Provision for loan losses
|
|
|
1,063
|
|
|
|
806
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
6,799
|
|
|
|
6,807
|
|
|
Noninterest income
|
|
|
1,204
|
|
|
|
1,171
|
|
|
Noninterest expense
|
|
|
5,597
|
|
|
|
5,235
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,406
|
|
|
|
2,743
|
|
|
Income tax expense
|
|
|
749
|
|
|
|
884
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
1,657
|
|
|
$
|
1,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Condition, At Year End
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
167,247
|
|
|
$
|
168,158
|
|
|
Deposits
|
|
|
133,880
|
|
|
|
135,959
|
|
|
Loans, net of allowance
|
|
|
133,286
|
|
|
|
130,786
|
|
|
Stockholders’ Equity
|
|
|
20,563
|
|
|
|
19,395
|
|
|
|
|
|
|
Per Share Data
|
|
|
|
|
|
|
|
|
|
Net income per share, basic and diluted
|
|
$
|
1.60
|
|
|
$
|
1.80
|
|
|
Dividends per share
|
|
|
.59
|
|
|
|
.58
|
|
|
Book value per share
|
|
|
19.75
|
|
|
|
18.73
|
|
|
|
|
|
|
Performance Ratios
|
|
|
|
|
|
|
|
|
|
Return on average assets
1
|
|
|
0.97
|
%
|
|
|
1.13
|
%
|
|
Return on average equity
1
|
|
|
8.30
|
%
|
|
|
9.99
|
%
|
|
Dividend payout ratio
|
|
|
36.93
|
%
|
|
|
32.17
|
%
|
|
Average equity to average assets
1
|
|
|
11.71
|
%
|
|
|
11.33
|
%
|
|
1
|
Ratios are based primarily on daily average balances
|
12
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
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, 2011 and 2010, respectively, for the Company. The consolidated financial statements of the Company include the accounts of the Company, the Bank, and Pioneer Financial Services, LLC, and Pioneer Special Assets, LLC,
each of which is a wholly-owned subsidiary of the Bank. This discussion should be read in conjunction with the audited consolidated financial statements and related notes of the Company presented elsewhere herein.
Forward Looking Statements
The report on Form 10-K contains forward-looking statements with respect to the Company’s and the Bank’s financial condition, results of operations and business. These forward-looking statements
involve certain risks and uncertainties. When used in this report or future regulatory filings, in press releases or other public shareholder communications, or in oral statements made with the approval of an authorized executive office, the words
or phrases “will likely result,” “are expect to,” “will continue,” “is anticipated,” “estimate,” “project,” “believe,” or similar expressions are intended to identify
“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We caution the readers and users of this information not to place undue reliance on any such forward-looking statements, which speak
only as of the date made, and advise readers that various factors including regional and national economic conditions, changes in the levels of market rates of interest, credit risk and lending activities, and competitive and regulatory factors
could affect the financial performance of the Company and the Bank and could cause actual results for future periods to differ materially from those anticipated or projected.
The Company and the Bank do not undertake and specifically disclaim any obligation to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
Critical Accounting Policies
General
The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The financial information
contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is
obtained either when earning income, recognizing an expense, recovering an asset, or relieving a liability. We use historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio. Actual losses could
differ significantly from the historical factors. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our
transactions could change.
Allowance for Loan Losses
The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: 1) Accounting for Contingencies, which
requires that losses be accrued when they are probable and can be estimated and 2) Accounting for Impairment of a Loan, which requires that estimated losses be accrued based on the differences between the value of collateral, present value of future
cash flows or values that are observable in the market and the loan balance.
Management evaluates the loan portfolio in
light of national and local economic trends, changes in the nature and value of the portfolio and industry standards. Specific factors considered by management in determining the adequacy of the level of the allowance include internally generated
loan review reports, past due reports, historical loan loss experience and the financial condition of individual borrowers.
13
This review also considers concentrations of loans in terms of geography, business type and
level of risk. Management evaluates the risk elements involved in loans relative to their collateral value and maintains the allowance for loan losses at a level which is adequate to absorb credit losses inherent in the loan portfolio. In addition,
regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgment about information available to them
at the time of their examination.
The methodology used to calculate the allowance for loan losses and the provision for loan
losses is a significant accounting policy, which is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.
Goodwill
Goodwill is included in other assets and totaled $360,000 for
the reporting periods ending December 31, 2011 and 2010. Goodwill is no longer amortized, but instead is evaluated for impairment at least annually. No impairment charges were recognized for the 2011 and 2010 reporting periods.
Financial Overview
The Company reported net earnings of $1.657 million for the year ending December 31, 2011, as compared to $1.859 million for 2010. This represents a decrease of approximately 11%. Total earnings per
share as of December 31, 2011 were $1.60 compared to $1.80 for the prior year.
The Company’s total assets as of
December 31, 2011 were $167.2 million as compared to $168.2 million for the prior year. Investments in securities available for sale increased by approximately $821,000 for the period ending December 31, 2011, as compared to total
securities available for sale at December 31, 2010. Investments in interest bearing deposits decreased by $3.8 million for the period ending December 31, 2011, while investments in Federal Funds Sold also decreased by approximately $1.4
million for the same period in 2010. The Company’s deposit portfolio decreased by approximately $2.1 million during 2011 as compared to the total deposits as of December 31, 2010. The Company’s total capital was $20.6 million as of
December 31, 2011 and remains above the established regulatory guidelines to be considered a well capitalized institution. The capital to asset ratio as of December 31, 2011 was 12.29% compared to 11.53% as of December 31, 2010.
The Company’s book value as of December 31, 2011 was $19.75 per share, as compared to a book value of $18.73 per
share as of December 31, 2010. This represents an increase of 5.45%. Shareholder dividend payments for 2011 totaled $0.59 per share compared to $0.58 per share for the prior year. This represents a 1.72% increase for the company’s
shareholders.
Results of Operations
Net Interest Income
Net interest income increased $249,000 or 3.27%
in 2011. The increase in net interest income for 2011 is primarily attributed to lower market interest rates, which have reduced the interest expense on deposits and borrowings during the year. Interest expense on deposits and borrowings decreased
by $321,000 or 18.20%, while total interest income on loans and investments decreased by $72,000 or 0.77%.
Interest income on
securities available for sale decreased by $114,000 or 35.08% in 2011 compared to a decrease in the prior year of $160,000 or 32.99%. The average yields on securities decreased from 3.96% in 2010 to 3.37% in 2011. The decrease in average yield on
securities is attributed to reinvestment activities during the year at lower market rates. Management makes every effort to maintain a diversified investment strategy as a means of safeguarding the investment portfolio and maintaining adequate cash
flow to support future lending activities.
Interest income on federal funds sold and other deposits was $104,000 in 2011,
compared to $150,000 in 2010. This decrease is primarily attributed to the low rate environment.
14
The net interest margin on earning assets on a tax equivalent basis increased from 4.95% in
2010 to 5.03% in 2011, as a result of the reduced deposit expense related to lower market rates. Interest expense on borrowings decreased by $6,000 or 5.56%, with the average rates paid on borrowings being 1.02% in 2011, compared to 1.04% in 2010.
Yields on total loans decreased from 6.78% in 2010 to 6.74% in 2011. The yield on commercial and agricultural loans decreased from 6.77% in 2010 to 6.41% in 2011. Commercial and residential real estate loan yields decreased from 6.29% in 2010 to
6.20% in 2011. Installment loan yields have increased from 9.67% in 2010 to 9.70% in 2011.
Table I
PIONEER BANKSHARES, INC.
NET INTEREST MARGIN ANALYSIS
(ON A FULLY TAXABLE EQUIVALENT BASIS)
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Average
|
|
|
Income/
Expense
|
|
|
Average
Rates
Earned/
Paid
|
|
|
Average
|
|
|
Income/
Expense
|
|
|
Average
Rates
Earned/
Paid
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
6,057
|
|
|
$
|
388
|
|
|
|
6.41
|
%
|
|
$
|
6,481
|
|
|
$
|
439
|
|
|
|
6.77
|
%
|
|
Real estate
|
|
|
108,179
|
|
|
|
6,711
|
|
|
|
6.20
|
%
|
|
|
107,393
|
|
|
|
6,754
|
|
|
|
6.29
|
%
|
|
Installment
|
|
|
18,038
|
|
|
|
1,750
|
|
|
|
9.70
|
%
|
|
|
16,002
|
|
|
|
1,548
|
|
|
|
9.67
|
%
|
|
Credit card
|
|
|
642
|
|
|
|
103
|
|
|
|
16.04
|
%
|
|
|
616
|
|
|
|
105
|
|
|
|
17.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
|
132,916
|
|
|
|
8,952
|
|
|
|
6.74
|
%
|
|
|
130,492
|
|
|
|
8,846
|
|
|
|
6.78
|
%
|
|
Federal funds sold
|
|
|
3,960
|
|
|
|
10
|
|
|
|
0.25
|
%
|
|
|
2,449
|
|
|
|
6
|
|
|
|
0.24
|
%
|
|
Interest bearing deposits
|
|
|
11,341
|
|
|
|
94
|
|
|
|
0.83
|
%
|
|
|
10,606
|
|
|
|
144
|
|
|
|
1.36
|
%
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
4,707
|
|
|
|
106
|
|
|
|
2.25
|
%
|
|
|
5,439
|
|
|
|
195
|
|
|
|
3.59
|
%
|
|
Nontaxable
2
|
|
|
4,792
|
|
|
|
214
|
|
|
|
4.47
|
%
|
|
|
6,515
|
|
|
|
278
|
|
|
|
4.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earning Assets
|
|
|
157,716
|
|
|
|
9,376
|
|
|
|
5.94
|
%
|
|
|
155,501
|
|
|
|
9,469
|
|
|
|
6.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(2,426
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,250
|
)
|
|
|
|
|
|
|
|
|
|
Nonearning assets
|
|
|
15,159
|
|
|
|
|
|
|
|
|
|
|
|
11,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
170,449
|
|
|
|
|
|
|
|
|
|
|
$
|
164,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing demand deposits
|
|
$
|
23,898
|
|
|
$
|
150
|
|
|
|
0.63
|
%
|
|
$
|
20,238
|
|
|
$
|
129
|
|
|
|
0.64
|
%
|
|
Savings
|
|
|
16,149
|
|
|
|
51
|
|
|
|
0.32
|
%
|
|
|
16,091
|
|
|
|
55
|
|
|
|
0.34
|
%
|
|
Time deposits
|
|
|
69,515
|
|
|
|
1,140
|
|
|
|
1.64
|
%
|
|
|
71,231
|
|
|
|
1,472
|
|
|
|
2.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Bearing Deposits
|
|
|
109,562
|
|
|
|
1,341
|
|
|
|
1.22
|
%
|
|
|
107,560
|
|
|
|
1,656
|
|
|
|
1.54
|
%
|
|
Borrowings
|
|
|
10,010
|
|
|
|
102
|
|
|
|
1.02
|
%
|
|
|
10,426
|
|
|
|
108
|
|
|
|
1.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Bearing Liabilities
|
|
|
119,572
|
|
|
|
1,443
|
|
|
|
1.21
|
%
|
|
|
117,986
|
|
|
|
1,764
|
|
|
|
1.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing deposits
|
|
|
28,868
|
|
|
|
|
|
|
|
|
|
|
|
26,518
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
2,046
|
|
|
|
|
|
|
|
|
|
|
|
1,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
150,486
|
|
|
|
|
|
|
|
|
|
|
|
145,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
19,963
|
|
|
|
|
|
|
|
|
|
|
|
18,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
170,449
|
|
|
|
|
|
|
|
|
|
|
$
|
164,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Earnings
|
|
|
|
|
|
$
|
7,933
|
|
|
|
|
|
|
|
|
|
|
$
|
7,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Yield on Interest Earning Assets
|
|
|
|
|
|
|
|
|
|
|
5.03
|
%
|
|
|
|
|
|
|
|
|
|
|
4.95
|
%
|
|
1
|
Nonaccrual loans are included in computing the average balance.
|
|
2
|
An incremental tax rate of 34% and a 70% dividend exclusion were used to calculate the tax equivalent income. The total tax equivalent adjustment was
approximately $71,000 for 2011 and $92,000 for 2010.
|
15
Table II
PIONEER BANKSHARES, INC.
EFFECT OF RATE-VOLUME CHANGE ON NET INTEREST
INCOME
(On a fully tax equivalent basis)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 Compared to 2010
|
|
|
2010 Compared to 2009
|
|
|
|
|
Increase (Decrease)
|
|
|
Increase (Decrease)
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
(29
|
)
|
|
$
|
(22
|
)
|
|
$
|
(51
|
)
|
|
$
|
(37
|
)
|
|
$
|
19
|
|
|
$
|
(18
|
)
|
|
Real estate
|
|
|
49
|
|
|
|
(92
|
)
|
|
|
(43
|
)
|
|
|
443
|
|
|
|
(256
|
)
|
|
|
187
|
|
|
Installment
|
|
|
197
|
|
|
|
5
|
|
|
|
202
|
|
|
|
23
|
|
|
|
(72
|
)
|
|
|
(49
|
)
|
|
Credit Card
|
|
|
5
|
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(11
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
|
222
|
|
|
|
(116
|
)
|
|
|
106
|
|
|
|
428
|
|
|
|
(320
|
)
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
|
4
|
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks
|
|
|
10
|
|
|
|
(60
|
)
|
|
|
(50
|
)
|
|
|
52
|
|
|
|
(89
|
)
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
(26
|
)
|
|
|
(63
|
)
|
|
|
(89
|
)
|
|
|
(135
|
)
|
|
|
(44
|
)
|
|
|
(179
|
)
|
|
Nontaxable
|
|
|
(74
|
)
|
|
|
10
|
|
|
|
(64
|
)
|
|
|
55
|
|
|
|
(28
|
)
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities
|
|
|
(100
|
)
|
|
|
(53
|
)
|
|
|
(153
|
)
|
|
|
(80
|
)
|
|
|
(72
|
)
|
|
|
(152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earning Assets
|
|
$
|
136
|
|
|
$
|
(229
|
)
|
|
$
|
(93
|
)
|
|
$
|
400
|
|
|
$
|
(481
|
)
|
|
$
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
23
|
|
|
$
|
(2
|
)
|
|
$
|
21
|
|
|
$
|
48
|
|
|
$
|
(77
|
)
|
|
$
|
(29
|
)
|
|
Savings
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
(61
|
)
|
|
|
(61
|
)
|
|
Time deposits
|
|
|
(35
|
)
|
|
|
(297
|
)
|
|
|
(332
|
)
|
|
|
(95
|
)
|
|
|
(736
|
)
|
|
|
(831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
|
(12
|
)
|
|
|
(303
|
)
|
|
|
(315
|
)
|
|
|
(47
|
)
|
|
|
(874
|
)
|
|
|
(921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
115
|
|
|
|
(230
|
)
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
(16
|
)
|
|
|
(305
|
)
|
|
|
(321
|
)
|
|
|
68
|
|
|
|
(1,104
|
)
|
|
|
(1,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Earnings
|
|
$
|
152
|
|
|
$
|
(76
|
)
|
|
$
|
(228
|
)
|
|
$
|
332
|
|
|
$
|
623
|
|
|
$
|
955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Non-interest Income and Expense
Non-interest income increased by $33,000 during 2011 as compared to 2010. This represents an increase of 2.82% and is
primarily attributed increased service charges and gains on securities transactions. Service charge income increased by $58,000 or 6.65%, while gains on securities were $111,000 in 2011 compared to losses of $43,000 in 2010.
Non-interest expense increased by $362,000 or 6.91% from 2010 to 2011. Salaries and benefits increased by $55,000 or 2.19% in 2011
compared to an increase of $410,000 or 19.46% in 2010. The increase in salaries and benefit expense during 2010 is the result of wage increases given to bank employees, as well as the addition of new salary expenses relating to staff positions that
have remained vacant for an extended period of time. Additionally, the salary expense for 2010 was partially impacted by commission based compensation relating to the increased volume of investment transactions handled through the Bank’s
subsidiary, Pioneer Financial Services, LLC. There were limited salary increases or staff changes during 2011. Management’s decisions in recent years regarding salary increases and hiring activities have been of a conservative nature in an
effort to control costs in the uncertain economic environment.
16
Equipment expenses decreased by $118,000 or 27.38% in 2011 compared to 2010 as a result of
normal depreciation fluctuation and reduced maintenance fees related to the bank’s outsourcing of data processing functions. Other expenses increased by $191,000 from 2010 to 2011, which is the net result of increases and decreases in various
operating costs.
Financial Condition
General Uncertainties and Trends
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 which any available information causes serious doubts as to the ability of such borrowers to comply with the loan repayment terms.
Management recognizes that prevailing economic conditions have the potential to adversely impact the Company’s operational results,
including future earnings, liquidity, and capital resources. The continued deterioration in the credit and housing markets, increasing unemployment within our service area, and other economic and market factors are monitored closely by management in
an effort to promptly identify specific trends that could have a direct material effect on the Company.
The Company cannot
predict whether any pending recommendations by the regulatory authorities, if implemented, may have an adverse or material impact on future operational results.
Securities
Securities as of December 31, 2011 totaled $12.9
million, which is a 6.31% increase compared to the December 31, 2010 balance of $12.1 million. This increase is the result of management’s efforts to utilize excess liquidity and cash by investing in additional interest earning assets
throughout the year.
The Company maintains an adequate level of securities to provide for liquidity and as security for
public indebtedness. A schedule of securities including the carrying amount and estimated market value of securities by contractual maturity is shown 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.
At December 31, 2011, the Company had investments in equity securities consisting primarily of common stocks with a total cost of
$1.4 million and corporate bonds with a cost of $470,000, with a combined estimated market value of $2.0 million. The equity securities are generally purchased with the objective of generating additional interest or dividend income. The value of
these investments is sensitive to general trends in the stock market and other economic conditions.
The total available for
sale investment portfolio at December 31, 2011 has a cost of $11.6 million and an estimated fair market value of $12.0 million. These investments include U.S. government and agency securities, state and municipal securities, and fixed
mortgaged-backed securities. The equity securities portfolio is also classified as available for sale.
17
The schedule below summarizes the book value of the portfolio by maturity classification and
shows the weighted average yield in each group on a tax equivalent basis as of December 31, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
Book Value
|
|
|
Weighted
Average
Yield
|
|
|
2010
Book Value
|
|
|
Weighted
Average
Yield
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing within one year
|
|
$
|
81
|
|
|
|
4.83
|
%
|
|
$
|
3,500
|
|
|
|
0.01
|
%
|
|
Maturing after one year & within five years
|
|
|
4,723
|
|
|
|
2.92
|
%
|
|
|
3,487
|
|
|
|
3.69
|
%
|
|
Maturing after five years & within ten years
|
|
|
4,034
|
|
|
|
2.19
|
%
|
|
|
1,751
|
|
|
|
5.04
|
%
|
|
Maturing after 10 years
|
|
|
1,319
|
|
|
|
2.81
|
%
|
|
|
1,040
|
|
|
|
5.50
|
%
|
|
Equity Securities
|
|
|
1,433
|
|
|
|
|
|
|
|
1,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
11,590
|
|
|
|
2.63
|
%
|
|
$
|
10,815
|
|
|
|
2.79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities have been excluded from the weighted average yield calculations in the previous table.
All tax exempt obligations included above have been stated on a tax equivalent basis using a 34% tax rate.
The Company
accounts for investments under 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 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 trade prices as provided by the Company’s investment broker.
Loan Portfolio
Total net loans increased during 2011 from $130.8
million at December 31, 2010 to $133.3 million at December 31, 2011. This is an increase of $2.5 million or 1.91%. The increase in the loan portfolio was mainly in the categories of residential mortgages, commercial non real estate, and
consumer loans. Loans are stated at their face amount, net of unearned discount, and are shown in the following schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
|
|
|
(In Thousands)
|
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
Construction & land loans
|
|
$
|
4,934
|
|
|
$
|
6,283
|
|
|
Residential equity lines of credit
|
|
|
1,766
|
|
|
|
1,534
|
|
|
Residential 1-4 family
|
|
|
52,241
|
|
|
|
48,573
|
|
|
Residential second mortgages 1-4 family
|
|
|
3,616
|
|
|
|
4,161
|
|
|
Residential multifamily
|
|
|
5,346
|
|
|
|
5,439
|
|
|
Commercial agricultural loans
|
|
|
3,412
|
|
|
|
4,125
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial municipal loans
|
|
|
183
|
|
|
|
164
|
|
|
Commercial owner & non-owner occupied
|
|
|
37,826
|
|
|
|
40,911
|
|
|
Total real estate loans
|
|
|
109,324
|
|
|
|
111,190
|
|
|
|
|
|
|
Commercial non real estate loans
|
|
|
6,694
|
|
|
|
4,891
|
|
|
|
|
|
|
Consumer non real estate loans
|
|
|
|
|
|
|
|
|
|
Personal installments
|
|
|
19,245
|
|
|
|
16,688
|
|
|
Credit cards
|
|
|
706
|
|
|
|
659
|
|
|
Overdrafts/other
|
|
|
69
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer installment loans
|
|
|
20,020
|
|
|
|
17,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
|
136,038
|
|
|
|
133,501
|
|
|
Less unearned discount on loans
|
|
|
(323
|
)
|
|
|
(373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loans, less unearned discount
|
|
|
135,715
|
|
|
|
133,128
|
|
|
Less allowance for loan losses
|
|
|
(2,429
|
)
|
|
|
(2,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loans receivable
|
|
$
|
133,286
|
|
|
$
|
130,786
|
|
|
|
|
|
|
|
|
|
|
|
18
The Bank’s policy has been to make collectible 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 residential real estate loans, including equity lines of credit, residential 1–4 family first and second mortgages, and multifamily loans totaled $63.0 million as of December 31, 2011 as
compared to $59.7 million at December 31, 2010. Residential real estate loans are generally made for a period not to exceed 30 years and are secured by first deed of trust, which do not exceed 80% of the appraised value. If the loan to value
ratio exceeds 80%, the Company 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. 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 small business commercial real estate loans, including construction and land loans, agricultural/farm loans, and other business
properties totaled $45.0 million as of December 31, 2011 as compared to $50.8 million at December 31, 2010.
Management has established specific lending criteria relating to real estate and commercial loans as a means of assessing the risk
inherent in the portfolio.
A schedule of remaining maturities of selected loan categories as of December 31, 2011 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2011
|
|
|
|
|
(In Thousands)
|
|
|
|
|
Less than
One Year
|
|
|
One to Five
Years
|
|
|
Greater than
Five Years
|
|
|
Total
|
|
|
Construction & land loans
|
|
$
|
2,440
|
|
|
$
|
2,099
|
|
|
$
|
395
|
|
|
$
|
4,934
|
|
|
Commercial industrial & agricultural loans
|
|
|
1,896
|
|
|
|
3,877
|
|
|
|
906
|
|
|
|
6,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total maturities of selected loans
|
|
$
|
4,336
|
|
|
$
|
5,976
|
|
|
$
|
1,301
|
|
|
$
|
11,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For maturities over one year:
|
|
|
|
|
|
Fixed rates
|
|
$
|
6,899
|
|
|
Variable rates
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
$
|
7,277
|
|
|
|
|
|
|
|
At December 31, 2011 construction loans were 3.70% percent of total net loans and commercial and
agricultural loans were 5.01% of total net loans.
Risk Elements in the Loan Portfolio
The following schedule outlines the non-accrual, restructured, and other non-performing risk elements in the loan portfolio as of
December 31, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(In Thousands)
|
|
|
Non-accrual Loans
|
|
$
|
4,422
|
|
|
$
|
2,589
|
|
|
Loans past due 90 days or more & still accruing
|
|
|
345
|
|
|
|
76
|
|
|
Other real estate owned
|
|
|
1,095
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
5,862
|
|
|
$
|
2,909
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to total loans
|
|
|
1.79
|
%
|
|
|
1.76
|
%
|
|
|
|
|
|
Non-performing assets to total loans
|
|
|
4.32
|
%
|
|
|
2.19
|
%
|
Non-accrual loans are loans on which the interest accruals have been suspended or discontinued as a
result of the borrower’s financial difficulties and delinquency status. 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 uncollectible. The impact on interest income with these accounts being in nonaccrual status was minimal for both reporting
periods presented.
19
Restructured loans are generally defined as those loans on which the original interest rate
or repayment terms have been modified specifically due to the borrower’s financial hardship. Restructured loans totaled $5.5 million as of December 31, 2011, with approximately $2.2 million being classified as performing and in compliance
with their modified terms. Approximately $3.3 million were classified as nonperforming based on their past due or nonaccrual status as of December 31, 2011. Restructured loans as of December 31, 2010 totaled $875,000, with approximately
$432,000 being classified as performing and approximately $443,000 classified as nonperforming.
Impaired loans are those
loans which have been identified by management as problem credits due to various circumstances concerning the borrower’s financial condition and frequent delinquency status. These loans may not be delinquent to the extent that would warrant a
non-accrual classification, however, management has classified these accounts as impaired and is monitoring the circumstances and payment status closely. In most cases, a specific allocation to the Bank’s allowance for loan loss is made for an
impaired loan. Impaired loans not included in the non-accrual totals with specific allocations as of December 31, 2011 totaled approximately $538,000 compared to $448,000 for the prior year. Impaired loans and other potential problem loans are
monitored closely on an on-going basis and allocations are made in accordance with the Company’s allowance for loan loss calculations. Management monitors all past due accounts carefully for any anticipated losses and makes appropriate
allocations of funds for the probable and inherent risk of loss within the portfolio.
Loan Losses and Allowance For Loan Losses
The following schedule outlines the activity in the allowance for loan loss account as of December 31, 2011 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(In Thousands)
|
|
|
Beginning balance
|
|
$
|
2,342
|
|
|
$
|
1,945
|
|
|
Provision charged to expense
|
|
|
1,063
|
|
|
|
806
|
|
|
|
|
|
|
Loan losses:
|
|
|
|
|
|
|
|
|
|
Construction & land loans
|
|
|
391
|
|
|
|
—
|
|
|
Real estate
|
|
|
387
|
|
|
|
205
|
|
|
Commercial non real estate
|
|
|
31
|
|
|
|
—
|
|
|
Consumer non real estate
|
|
|
356
|
|
|
|
353
|
|
|
Total Loan Losses
|
|
|
1,165
|
|
|
|
558
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
Construction & land loans
|
|
|
—
|
|
|
|
—
|
|
|
Real estate
|
|
|
4
|
|
|
|
1
|
|
|
Commercial non real estate
|
|
|
4
|
|
|
|
8
|
|
|
Consumer non real estate
|
|
|
181
|
|
|
|
140
|
|
|
Total Loan Recoveries
|
|
|
189
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loan Losses
|
|
|
976
|
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at End of Period
|
|
$
|
2,429
|
|
|
$
|
2,342
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loan Losses as a Percent of Average loans
|
|
|
0.73
|
%
|
|
|
0.31
|
%
|
A breakdown of the allowance allocations by loan type are presented below for December 31, 2011 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
Amount
|
|
|
Percent of
Allowance
|
|
|
Percent of
Average
Loans
|
|
|
Amount
|
|
|
Percent of
Allowance
|
|
|
Percent of
Average
Loans
|
|
|
|
|
(In Thousands)
|
|
|
Analysis of Ending Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
352
|
|
|
|
14.49
|
%
|
|
|
4.56
|
%
|
|
$
|
222
|
|
|
|
9.48
|
%
|
|
|
4.97
|
%
|
|
Real estate
|
|
|
1,463
|
|
|
|
60.23
|
%
|
|
|
81.39
|
%
|
|
|
1,702
|
|
|
|
72.67
|
%
|
|
|
82.30
|
%
|
|
Consumer
|
|
|
592
|
|
|
|
24.37
|
%
|
|
|
13.57
|
%
|
|
|
406
|
|
|
|
17.34
|
%
|
|
|
12.26
|
%
|
|
Credit card
|
|
|
22
|
|
|
|
0.91
|
%
|
|
|
0.48
|
%
|
|
|
12
|
|
|
|
0.51
|
%
|
|
|
0.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,429
|
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
$
|
2,342
|
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percent of year end loans
|
|
|
|
|
|
|
1.79
|
%
|
|
|
|
|
|
|
|
|
|
|
1.76
|
%
|
|
|
|
|
20
Management’s analysis process for evaluating the adequacy of the allowance for loan
loss is a continual process, which is monitored at least quarterly, or more frequently, as needed. The evaluation process consists of regular periodic reviews of the loans outstanding by loan type. Specific reviews and allocations are made for loans
that have been identified as potential loss, in which the borrower’s financial condition has substantially weakened or habitual past due payment activity has occurred. Specific reviews and allocations are also made for various sectors of the
loan portfolio that have been identified as higher risk categories. Historical loss ratios are applied to the remaining loan portfolio by loan type, based on the most recent loss trends. Management takes into consideration expected recoveries from
prior charge offs as part of its allowance and funding calculation.
Management also evaluates the loan portfolio in light of
national and local economic trends, changes in the nature and value of the portfolio and industry standards. Allocation factors relating to identified loan concentrations and loan growth trends are included in the calculation of the adequacy of the
loan loss reserve. The periodic review of the allowance for loan loss and funding provision considers concentrations of loans in terms of geography, business type or level of risk. Management evaluates the risk elements involved in loans relative to
collateral values and maintains the allowance for loan losses at a level which is adequate to absorb credit losses considered to be inherent in the loan portfolio. Management engages the services of an outside loan review firm periodically to
evaluate the loan portfolio, provide an independent analysis of significant borrowers, and to assist in identifying potential problem credits. The independent loan review report is used by management as an additional tool for monitoring and
minimizing risks that may be inherent in the loan portfolio. Management has also implemented an internal loan review process for the purpose of identifying and monitoring possible loan losses in the portfolio. Other factors considered in
management’s evaluation process are changes in lending policies, procedures and underwriting criteria; changes in the nature and volume of the loan portfolio; the experience, ability, and depth of lending management or other lending personnel;
the volume and severity of past dues, non-accruals, and classified loans; and other external or regulatory requirements. Regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such
agencies may require the Bank to recognize additional losses based on their judgment about information available to them at the time of their examination.
The methodology used to calculate the allowance for loan losses and the provision for loan losses is a significant accounting principle which is based on estimates that are particularly susceptible to
significant changes in the economic environment and market conditions.
The provision for loan losses and changes in the
allowance for loan losses are shown in note 7 of the financial statements included in this report.
The allowance for loan
loss balance of $2.4 million at December 31, 2011 increased by approximately $87,000 from its level at December 31, 2010. The increase in the allowance balance is primarily attributed to specific allocations related to impaired loans and
an increased percentage of non-performing assets, including nonaccruals, past dues, and classified loans. The increase in non-performing assets is partially attributed to a declining economic environment. Management has made allocations based on the
declining economic trends and increases in non-performing assets, as a means of providing sufficient funding for possible losses. The cumulative balance in the allowance for loan loss account was equal to 1.79% and 1.76% of total loans at
December 31, 2011 and December 31, 2010, respectively. The increase in the percentage of allowance to total loans is considered to be directionally consistent with trends in the portfolio.
The allowance is deemed to be within an acceptable range based on management’s evaluation of the losses inherent in the loan
portfolio at the end of this reporting period. The evaluation of the allowance for loan loss account as of December 31, 2011 included specific allocations for certain borrowers, in which the payment performance and collateral value assessment
indicates possible future losses. Management exercises the utmost caution and due diligence in allocating for possible loan losses, and follows a conservative methodology in order to protect its investors and to minimize the potential for large
fluctuations in future provision expenses. Management’s practice of funding the allowance for loan loss account is to make necessary adjustments on a quarterly basis for the foreseeable period in an attempt to effectively match expenses to loan
losses as they are occurring. Large fluctuations or variances outside of the acceptable range as calculated for the necessary allowance for loan loss reserves are recorded directly to income or expense in the reporting period.
Loan charge offs for 2011 increased by $607,000 compared to the prior year, and loan loss recoveries increased by $40,000. This resulted
in an overall increase of $567,000 in net loan charge offs for the period ending December 31, 2011 as compared to December 31, 2010. The increase in charge offs is primarily related to increased foreclosure activities on various real
estate loan types.
21
The provision expense related to the allowance for loan loss for 2011 increased by $257,000
as compared to 2010. This increase is directly related to the charge offs noted above.
Management’s evaluation of the
allowance for loan losses as of December 31, 2011 and December 31, 2010 concluded that the reserved amount was adequate to cover estimated losses inherent in the portfolio. The allowance for loan loss account is monitored closely by
management on an on-going basis, and is periodically adjusted to ensure that an adequate level of loss coverage is maintained.
Premises, Equipment, and Software
The Bank had purchases relating to premises, equipment and other fixed assets of approximately $1.1 million during 2011. These transactions were primarily related to the purchase of a tract of land
located in Ruckersville, Virginia to be used for a potential new branch facility in the near future. Additionally there were certain software and equipment upgrades during 2011.
The Bank continually monitors technological upgrades in the banking industry, and periodically, in order to achieve higher levels of
internal operational efficiency, purchases new or additional equipment relating to such technologies. Management sets specific budget allowances on an annual basis, which are deemed to be adequate to cover expenditures that may arise throughout the
year relating to technological upgrades or enhancements.
The Bank executed new contracts with its core data processing vendor
during 2010 for various system enhancements relating to certain daily processing functions and operational software upgrades. One major element of these new contracts was the change from an in-house daily processing system to an outsourced
environment, in which the core vendor now performs selected back-office operational support functions for the bank. The implementation of these new system functions are expected to provide certain cost savings and increased internal efficiencies to
the Bank.
Deposits
Demand deposits consist of checking accounts including standard consumer accounts, NOW accounts, and money market (MMDA) accounts. The Company’s demand deposits have historically remained relatively
stable; however, these balances fluctuate with normal daily activity. The Company’s total deposits as of December 31, 2011 were $133.9 million compared to $136.0 million at December 31, 2010. This decrease of $2.1 million or 1.53% was
primarily in the category of time deposit and savings accounts. Total interest bearing demand deposits totaled $27.7 million as of December 31, 2011 compared to $23.1 million at December 31, 2010. Total non-interest bearing demand deposits
were $29.2 million as of December 31, 2011 compared to $25.7 million at December 31, 2010.
The Bank’s total
savings deposits include passbook and statement savings accounts. As of December 31, 2011 total savings deposits were $12.0 million compared to $15.7 million as of December 31, 2010. This represents a decrease of approximately $3.7 million
or 23.56%.
Time accounts in the form of certificates of deposit instruments represent approximately 48.49% of the Bank’s
total deposits. Total time deposits were $64.9 million as of December 31, 2011 compared to $71.4 million at December 31, 2010. Time deposits with a balance greater than $100,000 represent 34.82% of the Bank’s total time deposit
portfolio. The maturity schedule as of December 31, 2011 for certificates of deposit over $100,000 are shown below:
|
|
|
|
|
|
|
Maturity:
(in thousands)
|
|
|
|
|
|
|
|
Less than 3 months
|
|
$
|
7,240
|
|
|
3 to 12 months
|
|
|
11,427
|
|
|
1 to 3 years
|
|
|
3,262
|
|
|
Over 3 years
|
|
|
672
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,601
|
|
|
|
|
|
|
|
22
Borrowings
The Bank has a line of credit with the Federal Home Loan Bank of Atlanta upon which credit advances can be made up to 40% of total Bank assets, subject to certain eligibility requirements. This represents
a total credit line of approximately $65.8 million and $65.9 million as of December 31, 2011 and 2010, respectively. FHLB advances bear interest at a fixed or floating rate depending on the terms and maturity of each advance and numerous
renewal options are available. These advances are secured by first lien 1-4 family residential mortgages totaling $52.2 million at December 31, 2011. On certain fixed rate advances, the FHLB may convert the advance to an indexed floating rate
at some set point in time for the remainder of the term. If the advance converts to a floating rate, the Bank may repay all or part of the advance without a prepayment penalty.
At December 31, 2011, total outstanding borrowings with FHLB were $10.5 million compared to $11.0 million as of December 31,
2010. The outstanding balance at December 31, 2011 consisted of two fixed rate advances with scheduled principal payments due quarterly and a final maturity date of March 1, 2013 and July 15, 2014. The interest rates on these
outstanding advances range from 0.71% to 1.14%.
The contractual maturities of the outstanding FHLB advances as of December 31, 2011 are
shown below:
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Due in 2013
|
|
$
|
5,000
|
|
|
Due in 2014
|
|
|
5,500
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,500
|
|
|
|
|
|
|
|
Analysis of Capital
The adequacy of the Company’s capital is reviewed by management on an ongoing basis with reference to its size, composition, quality of assets and liability levels, and consistency with regulatory
requirements and industry standards. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and absorb potential losses.
The Federal Reserve, Comptroller of the Currency, and the Federal Deposit Insurance Corporation have adopted capital guidelines to
supplement the existing definitions of capital for regulatory purposes and to establish minimum capital standards. Specifically, the guidelines categorize assets and off-balance sheet items into four risk-weighted categories. The minimum ratio of
qualifying total capital to risk-weighted assets is 8.00%, of which at least 4.00% must be Tier 1 capital, composed of common equity, retained earnings, and a limited amount of perpetual preferred stock, less certain goodwill items.
The Company’s capital ratios exceed regulatory requirements and are considered to be in the well capitalized category under the
regulatory framework. Total consolidated capital as a percentage of risk-weighted assets was 15.8% at December 31, 2011 compared to 16.4% at December 31, 2010. The ratio of Consolidated Tier 1 Capital to risk-weighted assets was 14.6% as
of December 31 2011 compared to 15.1% at December 31, 2010.
23
The following schedule shows a comparative breakdown of the Company’s capital as of
December 31, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(In Thousands)
|
|
|
Tier 1 capital
|
|
|
|
|
|
|
|
|
|
Consolidated Risk-weighted assets
|
|
$
|
137,118
|
|
|
$
|
124,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Tier 1 capital
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
521
|
|
|
$
|
518
|
|
|
Retained Earnings
|
|
|
19,783
|
|
|
|
18,649
|
|
|
Goodwill excluded
|
|
|
(360
|
)
|
|
|
(360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Tier 1 capital
|
|
|
19,944
|
|
|
|
18,807
|
|
|
|
|
|
|
Consolidated Tier 2 capital
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses (1)
|
|
|
1,714
|
|
|
|
1,556
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital
|
|
$
|
21,658
|
|
|
$
|
20,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total risk-based capital ratio
|
|
|
15.8
|
%
|
|
|
16.4
|
%
|
|
Consolidated Tier 1 risk-based capital ratio
|
|
|
14.6
|
%
|
|
|
15.1
|
%
|
|
Consolidated Leverage ratio
|
|
|
11.7
|
%
|
|
|
11.4
|
%
|
|
(1)
|
Limited to 1.25% of gross risk-weighted assets
|
Interest Sensitivity and Liquidity
At December 31, 2011, the
Company had a negative cumulative Gap Rate Sensitivity Ratio of 38.71% for the one-year re-pricing period compared with a negative Gap Sensitivity Ratio of 34.19% at December 31, 2010. This generally indicates that earnings would improve in a
declining interest rate environment as liabilities re-price more quickly than assets. Conversely, earnings would probably decrease in periods during which interest rates are increasing. Management constantly monitors the Company’s interest rate
risk and believes that the current position is an acceptable risk for a growing community bank, which operates primarily in a rural environment.
Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through
liability management. Liquid assets include cash and due from banks, interest-bearing deposits in financial institutions, securities purchased under agreements to resell, federal funds sold, securities available for sale, and loans and investments
maturing within one year.
Liquidity as of December 31, 2011 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 2011 and 2010. The Bank’s membership in the Federal Home Loan Bank System also provides liquidity, as the Bank can borrow funds at various terms and then match such maturities to specific repayment terms of loans. The matching of the
assets 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.
24
The following table reflects the Company’s interest sensitivity and interest rate risk
position as of December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 - 90
|
|
|
91 - 365
|
|
|
1 to 5
|
|
|
Over 5
|
|
|
Not
|
|
|
|
|
|
|
|
Days
|
|
|
Days
|
|
|
Years
|
|
|
Years
|
|
|
Classified
|
|
|
Total
|
|
|
Uses of Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
10,195
|
|
|
$
|
10,989
|
|
|
$
|
68,851
|
|
|
$
|
45,680
|
|
|
|
—
|
|
|
$
|
135,715
|
|
|
Interest Bearing Bank deposits
|
|
|
3,788
|
|
|
|
1,000
|
|
|
|
2,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,788
|
|
|
Investment Securities
|
|
|
—
|
|
|
|
—
|
|
|
|
4,462
|
|
|
|
5,508
|
|
|
|
2,019
|
|
|
|
11,989
|
|
|
Restricted Stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
891
|
|
|
|
891
|
|
|
Federal Funds Sold
|
|
|
1,200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,183
|
|
|
|
11,989
|
|
|
|
75,313
|
|
|
|
51,188
|
|
|
|
2,910
|
|
|
|
156,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing
|
|
|
27,718
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27,718
|
|
|
Savings accounts
|
|
|
12,037
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,037
|
|
|
Time Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over $ 100,000
|
|
|
7,240
|
|
|
|
11,427
|
|
|
|
3,814
|
|
|
|
120
|
|
|
|
—
|
|
|
|
22,601
|
|
|
Other certificates
|
|
|
8,392
|
|
|
|
20,964
|
|
|
|
12,678
|
|
|
|
280
|
|
|
|
—
|
|
|
|
42,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
55,387
|
|
|
|
32.391
|
|
|
|
16,492
|
|
|
|
400
|
|
|
|
—
|
|
|
|
104,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
—
|
|
|
|
—
|
|
|
|
10,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
55,387
|
|
|
|
32,391
|
|
|
|
26,992
|
|
|
|
400
|
|
|
|
—
|
|
|
|
115,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discrete Gap
|
|
|
(40,204
|
)
|
|
|
(20,402
|
)
|
|
|
48,321
|
|
|
|
50,788
|
|
|
|
2,910
|
|
|
|
41,413
|
|
|
|
|
|
|
|
|
|
|
Cumulative Gap
|
|
|
(40,204
|
)
|
|
|
(60,606
|
)
|
|
|
(12,285
|
)
|
|
|
38,503
|
|
|
|
41,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Cumulative Gap to Total Earning
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
-25.68
|
%
|
|
|
-38.71
|
%
|
|
|
-7.85
|
%
|
|
|
24.59
|
%
|
|
|
26.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Commitments
The Company enters into certain off-balance sheet arrangements in the normal course of business to meet the financing needs of its customers. These off-balance sheet arrangements include commitments to
extend credit, standby letters of credit and financial guarantees which would impact the Company’s liquidity and capital resources to the extent customers accept and or use these commitments. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The notes to the Consolidated Financial Statements contain further discussion of the nature, business purpose and elements of risk involved with these
off-balance sheet arrangements. The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures, or capital resources, that is material to investors.
New Accounting Standards
New accounting standards and pronouncements are established by various accountancy governing bodies to provide
guidance in the principles and practices used for maintaining accurate and consistent accounting records. The Company has established monitoring procedures for the review of new accounting pronouncements relating to the banking industry, in order to
ensure that all transactions are in compliance with GAAP. New accounting standards and pronouncements not yet in effect, that are considered to be applicable to the Company, are included in Note 1 of the Consolidated Financial Statements within this
report.
|
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
Not Applicable
25
|
Item 8.
|
Financial Statements and Supplementary Data.
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Pioneer Bankshares, Inc.
Stanley, Virginia
We have audited the accompanying consolidated balance sheets of Pioneer Bankshares, Inc. and subsidiary as of December 31, 2011 and
2010, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for the years ended December 31, 2011, 2010 and 2009. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, 2011 and 2010, and the results of their operations and their cash flows for the years
ended December 31, 2011, 2010 and 2009, in conformity with U.S. generally accepted accounting principles.
/s/ Yount, Hyde & Barbour, P.C.
Winchester, Virginia
March 29, 2012
27
PIONEER BANKSHARES, INC. AND SUBSIDARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2011 AND 2010
(In Thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
3,360
|
|
|
$
|
4,373
|
|
|
Interest-bearing deposits in other banks
|
|
|
6,788
|
|
|
|
10,634
|
|
|
Federal funds sold
|
|
|
1,200
|
|
|
|
2,550
|
|
|
Securities available for sale, at fair value
|
|
|
11,989
|
|
|
|
11,168
|
|
|
Restricted securities, at cost
|
|
|
891
|
|
|
|
947
|
|
|
Loans receivable, net of allowance of $2,429 in 2011 and $2,342 in 2010
|
|
|
133,286
|
|
|
|
130,786
|
|
|
Bank premises and equipment, net
|
|
|
4,127
|
|
|
|
3,359
|
|
|
Accrued interest receivable
|
|
|
727
|
|
|
|
681
|
|
|
Other real estate owned
|
|
|
1,095
|
|
|
|
244
|
|
|
Other assets
|
|
|
3,784
|
|
|
|
3,416
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
167,247
|
|
|
$
|
168,158
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
Noninterest bearing
|
|
$
|
29,210
|
|
|
$
|
25,739
|
|
|
Interest bearing
|
|
|
|
|
|
|
|
|
|
Demand
|
|
|
27,718
|
|
|
|
23,104
|
|
|
Savings
|
|
|
12,037
|
|
|
|
15,746
|
|
|
Time deposits over $100,000
|
|
|
22,601
|
|
|
|
27,545
|
|
|
Other time deposits
|
|
|
42,314
|
|
|
|
43,825
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
|
133,880
|
|
|
|
135,959
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
|
2,304
|
|
|
|
1,804
|
|
|
Borrowings
|
|
|
10,500
|
|
|
|
11,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
146,684
|
|
|
|
148,763
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock; $.50 par value, authorized 5,000,000 shares; outstanding – 1,041,373 and 1,035,274 shares in 2011 and 2010,
respectively
|
|
|
521
|
|
|
|
518
|
|
|
Retained earnings
|
|
|
19,783
|
|
|
|
18,649
|
|
|
Accumulated other comprehensive income, net
|
|
|
259
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
|
|
20,563
|
|
|
|
19,395
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
167,247
|
|
|
$
|
168,158
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
28
PIONEER BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(In Thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
INTEREST AND DIVIDEND INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans including fees
|
|
$
|
8,952
|
|
|
$
|
8,846
|
|
|
$
|
8,738
|
|
|
Interest on securities – taxable
|
|
|
95
|
|
|
|
187
|
|
|
|
379
|
|
|
Interest on securities – nontaxable
|
|
|
116
|
|
|
|
138
|
|
|
|
106
|
|
|
Deposits and federal funds sold
|
|
|
104
|
|
|
|
150
|
|
|
|
187
|
|
|
Dividends
|
|
|
38
|
|
|
|
56
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest and Dividend Income
|
|
|
9,305
|
|
|
|
9,377
|
|
|
|
9,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,341
|
|
|
|
1.656
|
|
|
|
2,577
|
|
|
Borrowings
|
|
|
102
|
|
|
|
108
|
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense
|
|
|
1,443
|
|
|
|
1,764
|
|
|
|
2,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
|
7,862
|
|
|
|
7,613
|
|
|
|
6,668
|
|
|
PROVISION FOR LOAN LOSSES
|
|
|
1,063
|
|
|
|
806
|
|
|
|
1,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
|
|
6,799
|
|
|
|
6,807
|
|
|
|
5,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
930
|
|
|
|
872
|
|
|
|
974
|
|
|
Commission income
|
|
|
83
|
|
|
|
250
|
|
|
|
57
|
|
|
Other income
|
|
|
80
|
|
|
|
92
|
|
|
|
86
|
|
|
Gains (losses) on security transactions
|
|
|
111
|
|
|
|
(43
|
)
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Noninterest Income
|
|
|
1,204
|
|
|
|
1,171
|
|
|
|
1,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
2,572
|
|
|
|
2,517
|
|
|
|
2,107
|
|
|
Occupancy expenses
|
|
|
365
|
|
|
|
350
|
|
|
|
332
|
|
|
Equipment expenses
|
|
|
313
|
|
|
|
431
|
|
|
|
562
|
|
|
ATM expenses
|
|
|
125
|
|
|
|
101
|
|
|
|
116
|
|
|
FDIC assessment
|
|
|
161
|
|
|
|
221
|
|
|
|
330
|
|
|
Sales and franchise tax
|
|
|
144
|
|
|
|
156
|
|
|
|
135
|
|
|
Supplies and printing
|
|
|
131
|
|
|
|
145
|
|
|
|
153
|
|
|
Director compensation and fees
|
|
|
156
|
|
|
|
158
|
|
|
|
165
|
|
|
Loss (Gain) on other real estate owned
|
|
|
119
|
|
|
|
20
|
|
|
|
(29
|
)
|
|
Legal fees
|
|
|
70
|
|
|
|
125
|
|
|
|
60
|
|
|
Professional and audit fees
|
|
|
300
|
|
|
|
239
|
|
|
|
221
|
|
|
Data processing fees
|
|
|
189
|
|
|
|
60
|
|
|
|
—
|
|
|
Telephone
|
|
|
166
|
|
|
|
117
|
|
|
|
110
|
|
|
Other expenses
|
|
|
786
|
|
|
|
595
|
|
|
|
578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Noninterest Expenses
|
|
|
5,597
|
|
|
|
5,235
|
|
|
|
4,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
2,406
|
|
|
|
2,743
|
|
|
|
1,780
|
|
|
INCOME TAX EXPENSE
|
|
|
749
|
|
|
|
884
|
|
|
|
552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
1,657
|
|
|
$
|
1,859
|
|
|
$
|
1,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, basic and diluted
|
|
$
|
1.60
|
|
|
$
|
1.80
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
$
|
0.59
|
|
|
$
|
0.58
|
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
29
PIONEER BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Total
|
|
|
BALANCE DECEMBER 31, 2008
|
|
$
|
509
|
|
|
$
|
16,460
|
|
|
$
|
(164
|
)
|
|
$
|
16,805
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
1,228
|
|
|
|
|
|
|
|
1,228
|
|
|
Changes in unrealized gains on securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during the period (net of tax effect of $190)
|
|
|
|
|
|
|
|
|
|
|
328
|
|
|
|
|
|
|
Reclassification adjustment for gains included in net income (net of tax effect of $32)
|
|
|
|
|
|
|
|
|
|
|
(63
|
)
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,493
|
|
|
Cash Dividends
|
|
|
|
|
|
|
(583
|
)
|
|
|
|
|
|
|
(583
|
)
|
|
Stock issued for compensation
|
|
|
6
|
|
|
|
195
|
|
|
|
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE DECEMBER 31, 2009
|
|
$
|
515
|
|
|
$
|
17,300
|
|
|
$
|
101
|
|
|
$
|
17,916
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
1,859
|
|
|
|
|
|
|
|
1,859
|
|
|
Changes in unrealized gains on securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during the period (net of tax effect of $70)
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
Reclassification adjustment for losses included in net income (net of tax effect of $15)
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,986
|
|
|
Cash Dividends
|
|
|
|
|
|
|
(598
|
)
|
|
|
|
|
|
|
(598
|
)
|
|
Stock issued for compensation
|
|
|
3
|
|
|
|
88
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE DECEMBER 31, 2010
|
|
$
|
518
|
|
|
$
|
18,649
|
|
|
$
|
228
|
|
|
$
|
19,395
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
1,657
|
|
|
|
|
|
|
|
1,657
|
|
|
Changes in unrealized gains on securities, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during the period (net of tax effect of $53)
|
|
|
|
|
|
|
|
|
|
|
104
|
|
|
|
|
|
|
Reclassification adjustment for gains included in net income (net of tax effect of $38)
|
|
|
|
|
|
|
|
|
|
|
(73
|
)
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,688
|
|
|
Cash Dividends
|
|
|
|
|
|
|
(612
|
)
|
|
|
|
|
|
|
(612
|
)
|
|
Stock issued for compensation
|
|
|
3
|
|
|
|
89
|
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE DECEMBER 31, 2011
|
|
$
|
521
|
|
|
$
|
19,783
|
|
|
$
|
259
|
|
|
$
|
20,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
30
PIONEER BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,657
|
|
|
$
|
1,859
|
|
|
$
|
1,228
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
1,063
|
|
|
|
806
|
|
|
|
1,260
|
|
|
(Gain) loss on security transactions
|
|
|
(111
|
)
|
|
|
43
|
|
|
|
(95
|
)
|
|
Net amortization (accretion) on securities
|
|
|
26
|
|
|
|
27
|
|
|
|
19
|
|
|
Deferred income tax (benefit)
|
|
|
(65
|
)
|
|
|
(126
|
)
|
|
|
(152
|
)
|
|
Depreciation
|
|
|
316
|
|
|
|
355
|
|
|
|
390
|
|
|
Stock based compensation
|
|
|
92
|
|
|
|
91
|
|
|
|
201
|
|
|
(Gain) loss of sale on other real estate
|
|
|
119
|
|
|
|
20
|
|
|
|
(29
|
)
|
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
(46
|
)
|
|
|
(37
|
)
|
|
|
76
|
|
|
Other assets
|
|
|
(319
|
)
|
|
|
29
|
|
|
|
(2,425
|
)
|
|
Accrued expenses and other liabilities
|
|
|
500
|
|
|
|
331
|
|
|
|
546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
|
3,232
|
|
|
|
3,398
|
|
|
|
1,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in interest-bearing deposits in other banks
|
|
|
3,846
|
|
|
|
(3,910
|
)
|
|
|
5,172
|
|
|
Net change in federal funds sold
|
|
|
1,350
|
|
|
|
(1,050
|
)
|
|
|
(1,400
|
)
|
|
Net change in restricted securities
|
|
|
56
|
|
|
|
(159
|
)
|
|
|
4
|
|
|
Proceeds from maturities, sales, and principal payments of securities available for sale
|
|
|
19,449
|
|
|
|
15,923
|
|
|
|
19,428
|
|
|
Purchase of securities available for sale
|
|
|
(20,138
|
)
|
|
|
(13,951
|
)
|
|
|
(16,712
|
)
|
|
Net (increase) in loans
|
|
|
(4,775
|
)
|
|
|
(7,189
|
)
|
|
|
(6,656
|
)
|
|
Proceeds on sale of other real estate
|
|
|
242
|
|
|
|
344
|
|
|
|
625
|
|
|
Purchase of bank premises and equipment
|
|
|
(1,084
|
)
|
|
|
(132
|
)
|
|
|
(182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Investing Activities
|
|
|
(1,054
|
)
|
|
|
(10,124
|
)
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand and savings deposits
|
|
|
4,376
|
|
|
|
4,090
|
|
|
|
7,177
|
|
|
Time deposits
|
|
|
(6,455
|
)
|
|
|
(145
|
)
|
|
|
(4,141
|
)
|
|
Proceeds from borrowings
|
|
|
6,000
|
|
|
|
22,060
|
|
|
|
10,000
|
|
|
Curtailments of borrowings
|
|
|
(6,500
|
)
|
|
|
(19,560
|
)
|
|
|
(10,900
|
)
|
|
Dividends paid
|
|
|
(612
|
)
|
|
|
(598
|
)
|
|
|
(583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
|
(3,191
|
)
|
|
|
5,847
|
|
|
|
1,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(1,013
|
)
|
|
|
(879
|
)
|
|
|
2,851
|
|
|
Cash and cash equivalents, beginning of year
|
|
|
4,373
|
|
|
|
5,252
|
|
|
|
2,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
3,360
|
|
|
$
|
4,373
|
|
|
$
|
5,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Paid During the Year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,492
|
|
|
$
|
1,931
|
|
|
$
|
3,007
|
|
|
Income taxes
|
|
|
708
|
|
|
|
892
|
|
|
|
837
|
|
|
Supplemental Disclosure of non-cash activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities available for sale
|
|
|
46
|
|
|
|
212
|
|
|
|
423
|
|
|
Other real estate acquired in settlement of loans
|
|
|
1,212
|
|
|
|
257
|
|
|
|
927
|
|
See Notes to Consolidated Financial Statements.
31
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
|
The accounting and reporting policies of Pioneer Bankshares, Inc. (“Company”), and its subsidiary Pioneer Bank
(“Bank”), conform to accounting principles generally accepted in the United States of America and to accepted practice within the banking industry. A summary of significant accounting policies is as follows:
Consolidation Policy
– The consolidated financial statements of the Company include the Bank and Pioneer Financial Services, LLC, and
Pioneer Special Assets, LLC which are wholly-owned subsidiaries of the Bank. All significant inter-company balances and transactions have been eliminated.
Use of Estimates
– In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate and deferred tax assets, other-than-temporary
impairment of securities, and fair value of financial instruments.
Reclassifications
– Certain reclassifications have been
made to prior period balances to conform to the
current year presentation.
Subsequent Events
– In preparing these financial statements, management has evaluated subsequent events and transactions for potential recognition or disclosure through the date
these financial statements were issued. Management has included within this report any such events determined to be material subsequent events as required.
Securities
– Investment securities which the Company intends to hold until maturity or until called are classified as held to maturity. These investment securities are carried at cost.
Restricted securities include the Bank’s investments in Federal Reserve Bank stock and FHLB stock and are carried at cost.
Securities
which the Company intends to hold for indefinite periods of time, including securities used as part of the Company’s asset/liability management strategy, are classified as available for sale. These 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. At December 31, 2011 and 2010, the Company classified all securities as
available for sale.
Impairment of securities occurs when the fair value of a security is less than its amortized cost. For debt
securities, impairment is considered other-than-temporary and recognized in its entirety in net income if either (i) the Company intends to sell the security or (ii) it is more likely than not that the Company will be required to sell the
security before recovery of its amortized cost basis. If, however, the Company does not intend to sell the security and it is not more-than-likely that the Company will be required to sell the security before recovery, management must determine
what portion of the impairment is attributable to a credit loss, which occurs when the amortized cost of the security exceeds the present value of the cash flows expected to be collected from the security. If there is no credit loss, there
is no other-than-temporary impairment. If there is a credit loss, other-than-temporary impairment exists, and the credit loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive
income.
For equity securities, impairment is considered to be other-than-temporary based on the institution’s ability and intent to hold
the investment until a recovery of fair value. Other-than-temporary impairment of an equity security results in a write-down that must be included in income. The Company regularly reviews each security for other-than-temporary impairment based
on criteria that include the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer, a best estimate of the present value of cash flows expected to be collected
from debt securities, the institution’s intention with regard to holding the security to maturity and the likelihood that the Company would be required to sell the security before recovery.
32
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
|
Loans Receivable
– Loans receivable are intended to be held until maturity and are
reported at their outstanding principal balance less any adjustments for charge offs, net of unearned interest, the allowance for loan losses, and deferred loan fees and costs. Interest is computed by methods which generally result in level rates of
return on principal. Interest income is generally not recognized on non-accrual loans and payments received on such loans are applied as a reduction of the loan principal balance. Loan origination fees, net of certain direct origination costs, are
deferred and recognized as an adjustment of the related loan yield using the interest method.
The Company classifies all loans past due when
the payment of principal and interest based upon contractual terms is greater than 30 days delinquent.
The accrual of interest on loans is
generally discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection for all loan classes. Commercial non-real estate classes are placed on nonaccrual status when it is probable that
principal or interest is not fully collectible, or generally when principal or interest becomes 90 days past due, whichever occurs first. Real estate loans, which includes the residential, commercial, and construction land categories, are generally
placed on nonaccrual status when principal and interest becomes 90 days past due. Consumer non-real estate loans, including personal automobile loans and all other individual loans are placed on nonaccrual status at varying intervals, based on the
type of product, generally when principal and interest becomes between 90 days and 120 days past due. Revolving consumer credit card loans are not placed on nonaccrual but are generally charged-off if they reach 120 days past due, with unpaid fees
and finance charges reversed against interest income. Consumer non-real estate loans are typically charged off between 90 and 120 days past due unless the loan is well secured and in the process of collection and are subject to mandatory charge-off
at a specified delinquency date consistent with regulatory guidelines. In most cases, loans are placed on non-accrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All other loan classes are
generally charged off within the range of 90 to 180 days, unless there are specific or extenuating circumstances that warrant further collection or legal actions.
Interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Payments received on
nonaccrual loans are applied as a reduction to the remaining principal balance as long as concern exists as to the ultimate collection of the principal. Loans are generally removed from nonaccrual status when the concern no longer exists as to the
collectability of principal and interest and the borrower has been able to demonstrate a specific period of payment performance.
Allowance for Loan Losses
– The provision for loan losses charged to operations is an amount sufficient to bring the allowance for
loan losses to an estimated balance that management considers adequate to absorb potential losses in the portfolio. This evaluation process is inherently subjective, as it requires estimates that are susceptible to significant revision as more
information becomes available. The allowance evaluation process also gives consideration to risk characteristics associated with each segment of the loan portfolio, which are further defined in Note 6 of this report.
Loans are generally charged against the allowance when management believes the collectability of the principal is unlikely. Recoveries of amounts
previously charged-off are credited to the allowance. Management’s determination of the adequacy of the allowance is based on the evaluation of the composition of the loan portfolio, the value and adequacy of collateral, current economic
conditions, historical loan loss experience, concentrations of credit within the portfolio, loan growth trends, levels of adversely classified loans, past due trends, as well as other factors related to the knowledge and experience of lending
personnel and legal, regulatory, or compliance issues related to lending practices. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions,
particularly those affecting real estate values. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize
additions to the allowance based on their judgments about information available to them at the time of their examination.
33
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
|
The allowance consists of specific and various general components. The specific component relates to
loans that are classified as either substandard or doubtful. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is
lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including length of the delay, the reasons for the delay, the borrower’s
prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by
loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the
loan is collateral dependent. Large commercial real estate loans and construction land loans are reviewed and evaluated on an annual basis or as they become delinquent so as to determine any possible impairment. Residential real estate loans are
specifically evaluated for possible impairment on a case by case basis as they become delinquent or are identified as a potential problem credit. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, the Company does not generally separately identify individual consumer loans for impairment disclosures.
Troubled Debt
Restructurings
– In situations where, for economic or legal reasons related to a borrower’s financial condition, management may grant a concession to the borrower that it would not otherwise consider, the related loan is classified
as a troubled debt restructure (TDR). Management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loan reaches nonaccrual status. These modified terms may
include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for
a reduction of either interest or principal, management measures any impairment on the restructuring as noted above for impaired loans.
Restructured loans totaled $5.5 million as of December 31, 2011, which included $2.2 million that are classified as performing and in compliance
with their modified terms. Approximately $3.3 million of the restructured loans as of December 31, 2011 were classified as nonperforming based on their past due or nonaccrual status. Restructured loans as of December 31, 2010 totaled
$875,000, with approximately $432,000 classified as performing and approximately $443,000 classified as nonperforming.
Transfers of
Financial Assets
– Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from
the Bank – put presumptively beyond reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to
pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return
specific assets.
34
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
|
Foreclosed Assets
– Assets acquired through, or in lieu of, loan foreclosure are held
for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of
carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.
Bank Premises and Equipment
– Land values are carried at cost. Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is charged to income over
estimated useful lives ranging from 3 to 40 years, on a straight-line method.
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 income tax assets and liabilities are determined using the balance sheet method. Under this method, the
net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and
laws.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing
authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period
during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not
offset or aggregated with other positions.
Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest
amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is
reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statements of income.
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.
The Bank’s exposure to credit loss is represented by the contractual amount of these commitments. 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
– For purposes of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks.
Advertising Costs
– The Company follows the policy of charging the production costs of advertising to expense as incurred. Advertising
expense amounted to $42,853, $36,481, and $40,542 for the years ended December 31, 2011, 2010, and 2009, respectively.
Earnings
Per Share
– Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares
that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to
outstanding stock options and are determined using the treasury stock method.
35
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
|
Stock Compensation Plans
– Accounting guidance requires that costs resulting from all
share-based plans be expensed and recognized in the financial statements over the vesting period of each specific stock option granted. Additional information related to the Company’s stock option plan can be found in Note 15 of this financial
report.
Adoption of New Accounting Standards
– In January 2010, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.” ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new
disclosures, and includes conforming amendments to guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for
disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within
those fiscal years. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.
In July 2010, the FASB issued ASU 2010-20, “Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses.” The new disclosure guidance significantly expands the existing requirements and will lead to greater transparency into an entity’s exposure to credit losses from lending arrangements. The extensive
new disclosures of information as of the end of a reporting period became effective for both interim and annual reporting periods ending on or after December 15, 2010. Specific disclosures regarding activity that occurred before the
issuance of the ASU, such as the allowance roll forward and modification disclosures will be required for periods beginning on or after December 15, 2010. The Company has included the required disclosures in its consolidated financial
statements.
In December 2010, the FASB issued ASU 2010-28, “Intangibles – Goodwill and Other (Topic 350) – When to Perform
Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” The amendments in this ASU modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those
reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. The amendments in this ASU are effective for fiscal years, and interim periods within those
years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.
The Securities Exchange Commission (SEC) issued Final Rule No. 33-9002, “Interactive Data to Improve Financial Reporting.” The rule
requires companies to submit financial statements in extensible business reporting language (XBRL) format with their SEC filings on a phased-in schedule. Large accelerated filers and foreign large accelerated filers using U.S. generally accepted
accounting principles (GAAP) were required to provide interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2010. All remaining filers were required to provide interactive data
reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2011. The Company has submitted financial statements in extensible business reporting language (XBRL) format with their SEC filings in accordance
with the phased-in schedule.
36
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
|
In January 2011, the FASB issued ASU 2011-01, “Receivables (Topic 310) – Deferral of the
Effective Date of Disclosures about Troubled Debt Restructurings.” The amendments in this ASU temporarily delayed the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. The delay was
intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what
constitutes a troubled debt restructuring was effective for interim and annual periods ending after June 15, 2011. The Company has adopted ASU 2011-01 and included the required disclosures in its consolidated financial statements.
In April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310) – A Creditor’s Determination of Whether a Restructuring Is a Troubled
Debt Restructuring.” The amendments in this ASU clarify the guidance on a creditor’s evaluation of whether it has granted a concession to a debtor. They also clarify the guidance on a creditor’s evaluation of whether a debtor is
experiencing financial difficulty. The amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011. Early adoption is permitted. Retrospective application to the beginning of the annual period
of adoption for modifications occurring on or after the beginning of the annual adoption period is required. As a result of applying these amendments, an entity may identify receivables that are newly considered to be impaired. For purposes of
measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. The Company has adopted ASU 2011-02 and included the required disclosures
in its consolidated financial statements.
In April 2011, the FASB issued ASU 2011-03, “Transfers and Servicing (Topic 860) –
Reconsideration of Effective Control for Repurchase Agreements.” The amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the
financial assets on substantially the agreed terms, even in the event of default by the transferee and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this ASU are effective for the first
interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted.
The Company is currently assessing the impact that ASU 2011-03 will have on its consolidated financial statements.
In May 2011, the FASB
issued ASU 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This ASU is the result of joint efforts by the FASB and International
Accounting Standards Board (IASB) to develop a single, converged fair value framework on how (not when) to measure fair value and what disclosures to provide about fair value measurements. The ASU is largely consistent with existing fair value
measurement principles in U.S. GAAP (Topic 820), with many of the amendments made to eliminate unnecessary wording differences between U.S. GAAP and International Financial Reporting Standards (IFRS). The amendments are effective for interim and
annual periods beginning after December 15, 2011 with prospective application. Early application is not permitted. The Company is currently assessing the impact that ASU 2011-04 will have on its consolidated financial statements.
37
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 1
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
|
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of
Comprehensive Income.” The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income by eliminating the option to
present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. The single statement of comprehensive income should include the components of net income, a total for net income, the components of other comprehensive income, a total for other
comprehensive income, and a total for comprehensive income. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present all the components of
other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. The amendments do not change the items that must be reported in other comprehensive income, the option for an entity to present components of
other comprehensive income either net of related tax effects or before related tax effects, or the calculation or reporting of earnings per share. The amendments in this ASU should be applied retrospectively. The amendments are effective for fiscal
years and interim periods within those years beginning after December 15, 2011. Early adoption is permitted because compliance with the amendments is already permitted. The amendments do not require transition disclosures. The Company is
currently assessing the impact that ASU 2011-05 will have on its consolidated financial statements.
In September 2011, the FASB issued ASU
2011-08, “Intangible – Goodwill and Other (Topic 350) – Testing Goodwill for Impairment.” The amendments in this ASU permit an entity to first assess qualitative factors related to goodwill to determine whether it is more
likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill test described in Topic 350. The more-likely-than-not threshold is
defined as having a likelihood of more than 50 percent. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value
is less than its carrying amount. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and
interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The Company is currently assessing the
impact that ASU 2011-08 will have on its consolidated financial statements.
In December 2011, the FASB issued ASU 2011-12,
“Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” The
amendments are being made to allow the Board time to re-deliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other
comprehensive income for all periods presented. While the Board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about
reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. All other requirements in ASU 2011-05 are
not affected by ASU 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for
fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin applying these requirements for fiscal years ending after December 15, 2012, and interim and annual periods
thereafter. The Company is currently assessing the impact that ASU 2011-12 will have on its consolidated financial statements.
38
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 2
|
NATURE OF OPERATIONS:
|
The Company operates under a charter issued by the Commonwealth of Virginia and provides commercial banking services to its customers
through its subsidiary bank. As a state chartered member bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the Board of Governors of the Federal Reserve Banking System. The Bank provides services at six
physical locations to customers in the counties of Page, Greene, Rockingham, Albemarle, and the cities of Harrisonburg and Charlottesville, Virginia. The Bank also operates two separate subsidiaries, one being known as Pioneer Financial Services,
LLC, which offers a variety of consumer investment and insurance services. The second subsidiary owned by Pioneer Bank is Pioneer Special Assets, LLC, which is generally used in conjunction with certain foreclosed properties.
|
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 required to be on reserve, was $1.3 million at December 31, 2011 and $1.2 million at December 31, 2010.
|
NOTE 4
|
DEPOSITS IN AND FEDERAL FUNDS SOLD TO BANKS:
|
The Bank had cash deposited in and federal funds sold to other banks, most of which exceed federally insured limits, totaling
approximately $2.1 million and $3.8 million at December 31, 2011 and 2010, respectively. Management has established acceptable risk tolerances relating to uninsured deposits in other banks and diversifies these funds in accordance with policy
guidelines.
|
NOTE 5
|
INVESTMENT SECURITIES:
|
The amortized cost and fair value of investment securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
(In Thousands)
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
4,518
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,518
|
|
|
Mortgage-backed securities
|
|
|
1,725
|
|
|
|
55
|
|
|
|
1
|
|
|
|
1,779
|
|
|
State and municipals
|
|
|
3,444
|
|
|
|
229
|
|
|
|
—
|
|
|
|
3,673
|
|
|
Corporate securities
|
|
|
470
|
|
|
|
29
|
|
|
|
—
|
|
|
|
499
|
|
|
Equity securities
|
|
|
1,433
|
|
|
|
91
|
|
|
|
4
|
|
|
|
1,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,590
|
|
|
$
|
404
|
|
|
$
|
5
|
|
|
$
|
11,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
(In Thousands)
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$
|
4,500
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4,504
|
|
|
Mortgage-backed securities
|
|
|
1,040
|
|
|
|
75
|
|
|
|
—
|
|
|
|
1,115
|
|
|
State and municipals
|
|
|
3,760
|
|
|
|
156
|
|
|
|
—
|
|
|
|
3,916
|
|
|
Corporate securities
|
|
|
478
|
|
|
|
35
|
|
|
|
—
|
|
|
|
513
|
|
|
Equity securities
|
|
|
1,037
|
|
|
|
83
|
|
|
|
—
|
|
|
|
1,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,815
|
|
|
$
|
353
|
|
|
$
|
—
|
|
|
$
|
11,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 5
|
INVESTMENT SECURITIES: (continued)
|
Realized gains and losses on available for sale securities are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
Gains
|
|
$
|
148
|
|
|
$
|
169
|
|
|
$
|
137
|
|
|
Losses
|
|
|
(37
|
)
|
|
|
(212
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gains (Losses)
|
|
$
|
111
|
|
|
$
|
(43
|
)
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and fair value of investment securities at December 31, 2011, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale
|
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
Due within one year
|
|
$
|
81
|
|
|
$
|
81
|
|
|
Due after one year through five years
|
|
|
4,723
|
|
|
|
4,880
|
|
|
Due five years through ten years
|
|
|
4,034
|
|
|
|
4,166
|
|
|
Due after ten years
|
|
|
1,319
|
|
|
|
1,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,157
|
|
|
|
10,469
|
|
|
Equity securities
|
|
|
1,433
|
|
|
|
1,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,590
|
|
|
$
|
11,989
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities with a book value of $704 thousand at December 31, 2011 and $773 thousand at December 31,
2010 were pledged to secure public deposits and for other purposes required by law.
Management recognizes that current economic conditions
and market trends may result in other than temporary impairment classifications for certain securities or equity investments. Management’s evaluation of the individual stocks and securities within the investment portfolios is performed on a
quarterly basis and assesses the unrealized loss positions that exist to determine whether there is potential other than temporary impairment. The key factors considered during this evaluation process are the amount of unrealized loss, percentage
decline in value, length of time in loss position, near-term prospects of the issuer, current market trading activity, financial strength ratings from industry reports, credit quality, credit ratings, continued dividend payments of the issuer,
diversification or multiple holdings within particular funds, as well as management’s intent and ability to hold stocks until such time that they can recover in value and further assessment and determination that the institution will not be
required to sell such investments to meet operational cash flow needs in the near future. In analyzing an issuer’s financial condition, management also considers whether the securities are issued by the federal government or its agencies,
whether downgrades by bond rating agencies have occurred, and industry analysts’ reports.
40
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 5
|
INVESTMENT SECURITIES (Continued):
|
As of December 31, 2011, there were 4 securities in the portfolio that have unrealized losses,
which are considered to be temporary. The schedule of unrealized losses on these securities is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
Backed
Securities
|
|
|
Equity
Securities
|
|
|
Total
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
Fair Value
|
|
$
|
1,020
|
|
|
$
|
127
|
|
|
$
|
1,147
|
|
|
|
|
Unrealized Losses
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
More than 12 Months
|
|
Fair Value
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Unrealized Losses
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Total
|
|
Fair Value
|
|
|
1,020
|
|
|
|
127
|
|
|
|
1,147
|
|
|
|
|
Unrealized Losses
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
As of December 31, 2010, there were no securities in an unrealized loss position.
The Bank also holds additional investments in Federal Home Loan Bank of Atlanta (“FHLB”) in the form of FHLB stock, which is a membership
requirement. Loan advances from FHLB are subject to additional stock purchase requirements, which are generally redeemed as outstanding loan balances are repaid, subject to FHLB’s quarterly excess capital evaluation process.
FHLB evaluates the excess capital stock of its members on a quarterly basis to determine stock repurchase activities. Additionally, FHLB generally pays
quarterly dividends on the outstanding stock investment of each of its members.
FHLB stock is generally viewed as a long term investment and
is considered to be a restricted security, which is carried at cost, because there is no market for the stock other than FHLB or other member institutions. As of December 31, 2011, the Bank’s investment in FHLB stock totaled approximately
$816,000.
Management’s evaluation of FHLB stock for possible impairment is based on the ultimate recoverability of par value rather than
recognizing temporary declines in value. Management’s evaluation of FHLB stock as of December 31, 2011 and 2010 did not consider this investment to be other than temporarily impaired, and therefore, no impairment has been recognized.
41
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans are stated at their face amount, net of unearned discount, and are classified as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
|
|
|
(In Thousands)
|
|
|
Real estate loans
|
|
|
|
|
|
|
|
|
|
Construction & land loans
|
|
$
|
4,934
|
|
|
$
|
6,283
|
|
|
Residential equity lines of credit
|
|
|
1,766
|
|
|
|
1,534
|
|
|
Residential 1-4 family
|
|
|
52,241
|
|
|
|
48,573
|
|
|
Residential second mortgages 1-4 family
|
|
|
3,616
|
|
|
|
4,161
|
|
|
Residential multifamily
|
|
|
5,346
|
|
|
|
5,439
|
|
|
Commercial agricultural loans
|
|
|
3,412
|
|
|
|
4,125
|
|
|
Commercial municipal loans
|
|
|
183
|
|
|
|
164
|
|
|
Commercial owner & non-owner occupied
|
|
|
37,826
|
|
|
|
40,911
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
109,324
|
|
|
|
111,190
|
|
|
|
|
|
|
Commercial non real estate loans
|
|
|
6,694
|
|
|
|
4,891
|
|
|
|
|
|
|
Consumer non real estate loans
|
|
|
|
|
|
|
|
|
|
Personal installments
|
|
|
19,245
|
|
|
|
16,688
|
|
|
Credit cards
|
|
|
706
|
|
|
|
659
|
|
|
Overdrafts/other
|
|
|
69
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer installment loans
|
|
|
20,020
|
|
|
|
17,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
|
136,038
|
|
|
|
133,501
|
|
|
Less unearned discount on loans
|
|
|
(323
|
)
|
|
|
(373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loans, less unearned discount
|
|
|
135,715
|
|
|
|
133,128
|
|
|
Less allowance for loan losses
|
|
|
(2,429
|
)
|
|
|
(2,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loans receivable
|
|
$
|
133,286
|
|
|
$
|
130,786
|
|
|
|
|
|
|
|
|
|
|
|
The Bank grants commercial, real estate and consumer installment loans to its customers. Collateral requirements for
loans are determined on a case by case basis depending upon the purpose of the loan and the financial condition of the borrower. The ultimate collectability of the Bank’s loan portfolio and the ability to realize the value of any underlying
collateral, if needed, are influenced by the economic conditions of its market service area.
The Bank’s loan portfolio is concentrated
in real estate loans, including those secured by residential consumer properties and small business commercial properties. The residential real estate loans, including equity lines of credit, residential 1 – 4 family first and second mortgages,
and multifamily loans totaled $62.9 million as of December 31, 2011 as compared to $59.7 million at December 31, 2010. The small business commercial real estate loans, including construction and land loans, agricultural/farm loans, and
other business properties totaled $45.0 million as of December 31, 2011 as compared to $50.8 million at December 31, 2010. Management has established specific lending criteria relating to real estate loans as a means of assessing the risk
inherent in the portfolio.
Deposit account overdrafts are also classified as loans and totaled $69,000 and $73,000 as of December 31,
2011 and 2010, respectively.
42
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 6
|
LOANS: (continued)
|
The following table reflects the detailed breakdown of impaired loans with a recorded allowance by loan
class for the year ended December 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans with a Recorded Allowance
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
|
|
|
|
|
|
|
Construction & Land Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial properties
|
|
$
|
572
|
|
|
$
|
572
|
|
|
$
|
175
|
|
|
$
|
829
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Residences
|
|
$
|
856
|
|
|
$
|
856
|
|
|
$
|
252
|
|
|
$
|
955
|
|
|
$
|
27
|
|
|
Multifamily Dwellings
|
|
$
|
763
|
|
|
$
|
763
|
|
|
$
|
75
|
|
|
$
|
763
|
|
|
$
|
51
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural Loans
|
|
$
|
361
|
|
|
$
|
361
|
|
|
$
|
100
|
|
|
$
|
363
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
Commercial – Non Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial loans
|
|
$
|
585
|
|
|
$
|
585
|
|
|
$
|
273
|
|
|
$
|
424
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
3,137
|
|
|
$
|
3,137
|
|
|
$
|
875
|
|
|
$
|
3,334
|
|
|
$
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans without a Recorded Allowance as of December 31, 2011
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Residences
|
|
$
|
501
|
|
|
$
|
501
|
|
|
$
|
382
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner Occupied
|
|
$
|
1,261
|
|
|
$
|
1,261
|
|
|
$
|
1,261
|
|
|
$
|
56
|
|
|
Non-owner Occupied
|
|
$
|
1,771
|
|
|
$
|
1,771
|
|
|
$
|
1,773
|
|
|
$
|
71
|
|
|
|
|
|
|
|
|
Commercial – Non Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial loans
|
|
$
|
176
|
|
|
$
|
176
|
|
|
$
|
177
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
3,709
|
|
|
$
|
3,709
|
|
|
$
|
3,593
|
|
|
$
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 6
|
LOANS: (continued)
|
The following table reflects the detailed breakdown of impaired loans with a recorded allowance by loan
class for the year ended December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans with a Recorded Allowance
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
|
|
|
|
|
|
|
|
Construction & Land Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial properties
|
|
$
|
1,378
|
|
|
$
|
1,378
|
|
|
$
|
540
|
|
|
$
|
1,416
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Residences
|
|
$
|
982
|
|
|
$
|
982
|
|
|
$
|
180
|
|
|
$
|
651
|
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-owner occupied
|
|
$
|
220
|
|
|
$
|
662
|
|
|
$
|
175
|
|
|
$
|
220
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Commercial – Non Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial loans
|
|
$
|
241
|
|
|
$
|
241
|
|
|
$
|
120
|
|
|
$
|
202
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
2,821
|
|
|
$
|
3,263
|
|
|
$
|
1,015
|
|
|
$
|
2,489
|
|
|
$
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no impaired loans without a recorded allowance as of December 31, 2010.
44
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 6
|
LOANS: (continued)
|
The following table reflects the amounts of outstanding delinquencies by loan class as of
December 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due Loans by Class
|
|
30-59
Days
|
|
|
60-89
Days
|
|
|
90 Days
or More
|
|
|
Total
Past Due
|
|
|
Total
Current
|
|
|
Total
Loans
|
|
|
|
|
|
|
|
|
|
|
Construction & Land Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,332
|
|
|
$
|
1,332
|
|
|
Commercial
|
|
|
—
|
|
|
|
572
|
|
|
|
—
|
|
|
|
572
|
|
|
|
1,691
|
|
|
|
2,263
|
|
|
Other – Land only
|
|
|
51
|
|
|
|
34
|
|
|
|
—
|
|
|
|
85
|
|
|
|
1,254
|
|
|
|
1,339
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Lines of Credit
|
|
|
18
|
|
|
|
—
|
|
|
|
9
|
|
|
|
27
|
|
|
|
1,739
|
|
|
|
1,766
|
|
|
1-4 Family Residences
|
|
|
3,404
|
|
|
|
383
|
|
|
|
739
|
|
|
|
4,526
|
|
|
|
54,848
|
|
|
|
55,857
|
|
|
Multifamily Dwellings
|
|
|
763
|
|
|
|
—
|
|
|
|
—
|
|
|
|
763
|
|
|
|
4,583
|
|
|
|
5,346
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
—
|
|
|
|
574
|
|
|
|
—
|
|
|
|
574
|
|
|
|
21,640
|
|
|
|
22,214
|
|
|
Non-owner occupied
|
|
|
—
|
|
|
|
78
|
|
|
|
—
|
|
|
|
78
|
|
|
|
15,534
|
|
|
|
15,612
|
|
|
Agricultural / Farm loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,412
|
|
|
|
3,412
|
|
|
Municipals
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
183
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
Commercial – Non Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
165
|
|
|
$
|
165
|
|
|
Industrial
|
|
|
51
|
|
|
|
13
|
|
|
|
323
|
|
|
|
387
|
|
|
|
6,127
|
|
|
|
6,514
|
|
|
Municipals
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
Consumer – Non Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Cards
|
|
|
24
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24
|
|
|
|
682
|
|
|
|
706
|
|
|
Automobile loans
|
|
|
340
|
|
|
|
92
|
|
|
|
41
|
|
|
|
473
|
|
|
|
13,432
|
|
|
|
13,905
|
|
|
Other personal loans
|
|
|
145
|
|
|
|
20
|
|
|
|
51
|
|
|
|
216
|
|
|
|
5,193
|
|
|
|
5,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals Gross Loans
|
|
$
|
4,796
|
|
|
$
|
1,766
|
|
|
$
|
1,163
|
|
|
$
|
7,725
|
|
|
$
|
128,313
|
|
|
$
|
136,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 6
|
LOANS: (continued)
|
The following table reflects the amounts of outstanding delinquencies by loan class as of
December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due Loans by Class
|
|
30-59
Days
|
|
|
60-89
Days
|
|
|
90 Days
or More
|
|
|
Total
Past Due
|
|
|
Total
Current
|
|
|
Total
Loans
|
|
|
|
|
|
|
|
|
|
|
Construction & Land Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
708
|
|
|
$
|
708
|
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
589
|
|
|
|
589
|
|
|
|
3,878
|
|
|
|
4,467
|
|
|
Other – Land only
|
|
|
118
|
|
|
|
88
|
|
|
|
—
|
|
|
|
206
|
|
|
|
902
|
|
|
|
1,108
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Lines of Credit
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27
|
|
|
|
1,507
|
|
|
|
1,534
|
|
|
1-4 Family Residences
|
|
|
2,894
|
|
|
|
1,011
|
|
|
|
623
|
|
|
|
4,528
|
|
|
|
48,206
|
|
|
|
52,734
|
|
|
Multifamily Dwellings
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,439
|
|
|
|
5,439
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
69
|
|
|
|
402
|
|
|
|
—
|
|
|
|
471
|
|
|
|
24,763
|
|
|
|
25,234
|
|
|
Non-owner occupied
|
|
|
182
|
|
|
|
—
|
|
|
|
220
|
|
|
|
402
|
|
|
|
15,275
|
|
|
|
15,677
|
|
|
Agricultural / Farm loans
|
|
|
—
|
|
|
|
—
|
|
|
|
5
|
|
|
|
5
|
|
|
|
4,120
|
|
|
|
4,125
|
|
|
Municipals
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
164
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
Commercial – Non Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
159
|
|
|
$
|
164
|
|
|
Industrial
|
|
|
517
|
|
|
|
47
|
|
|
|
46
|
|
|
|
610
|
|
|
|
4,082
|
|
|
|
4,692
|
|
|
Municipals
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Consumer – Non Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Cards
|
|
|
26
|
|
|
|
5
|
|
|
|
—
|
|
|
|
31
|
|
|
|
628
|
|
|
|
659
|
|
|
Automobile loans
|
|
|
368
|
|
|
|
144
|
|
|
|
96
|
|
|
|
608
|
|
|
|
11,903
|
|
|
|
12,511
|
|
|
Other personal loans
|
|
|
108
|
|
|
|
28
|
|
|
|
7
|
|
|
|
143
|
|
|
|
4,107
|
|
|
|
4,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals Gross Loans
|
|
$
|
4,309
|
|
|
$
|
1,730
|
|
|
$
|
1,586
|
|
|
$
|
7,625
|
|
|
$
|
125,876
|
|
|
$
|
133,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 6
|
LOANS: (continued)
|
The following table represents loans 90 days delinquent and still accruing interest and loans in a
nonaccrual status as of December 31, 2011 by loan class (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
90 days past due
&
still accruing interest
|
|
|
Nonaccrual
Loans
|
|
|
|
|
|
|
Construction & Land Loans
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
572
|
|
|
|
|
|
|
Residential Real Estate
|
|
|
|
|
|
|
|
|
|
Equity Lines of Credit
|
|
|
9
|
|
|
|
—
|
|
|
1-4 Family Residences
|
|
|
274
|
|
|
|
1,416
|
|
|
Multifamily dwellings
|
|
|
—
|
|
|
|
763
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
—
|
|
|
|
621
|
|
|
Non-owner occupied
|
|
|
—
|
|
|
|
175
|
|
|
Agricultural / Farm loans
|
|
|
—
|
|
|
|
361
|
|
|
|
|
|
|
Commercial Non-Real Estate
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
|
47
|
|
|
|
460
|
|
|
|
|
|
|
Consumer – Non Real Estate
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
6
|
|
|
|
12
|
|
|
Other personal loans
|
|
|
9
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals Gross Loans
|
|
$
|
345
|
|
|
$
|
4,422
|
|
|
|
|
|
|
|
|
|
|
|
47
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 6
|
LOANS: (continued)
|
The following table represents loans 90 days delinquent and still accruing interest and loans in a
nonaccrual status as of December 31, 2010 by loan class (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
90 days past due
&
still accruing interest
|
|
|
Nonaccrual
Loans
|
|
|
|
|
|
|
Construction & Land Loans
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
—
|
|
|
$
|
1,378
|
|
|
|
|
|
|
Residential Real Estate
|
|
|
|
|
|
|
|
|
|
1-4 Family Residences
|
|
|
—
|
|
|
|
652
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
Non-owner occupied
|
|
|
—
|
|
|
|
412
|
|
|
Agricultural / Farm loans
|
|
|
5
|
|
|
|
—
|
|
|
|
|
|
|
Commercial Non-Real Estate
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
$
|
46
|
|
|
$
|
123
|
|
|
|
|
|
|
Consumer – Non Real Estate
|
|
|
|
|
|
|
|
|
|
Automobile loans
|
|
|
18
|
|
|
|
24
|
|
|
Other personal loans
|
|
|
7
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals Gross Loans
|
|
$
|
76
|
|
|
$
|
2,589
|
|
|
|
|
|
|
|
|
|
|
|
Loans past due greater than 90 days and still accruing interest at December 31, 2011 and 2010 totaled $345,000 and
$76,000, respectively. Management continually monitors past due accounts and places these accounts in nonaccrual status if the payment plans are not adhered to. Nonaccrual loans excluded from impaired loan disclosure amounted to $619,000 and
$216,000, at December 31, 2011 and 2010, respectively. The nonaccrual loans excluded from impaired loan disclosure at December 31, 2011 consisted of one large residential real estate loan in which an insurance settlement was pending, and
several smaller balance consumer loans, which were paying as agreed or in process of collection.
The loan portfolio is comprised of various
categories or segments, each of which have certain risk characteristics that are evaluated at the time of loan origination and periodically thereafter. Construction loans carry risks associated with whether or not the project will be completed
according to schedule and within its original budget, as well as valuation risk associated with the overall value of the collateral upon completion. Residential real estate loans carry risks associated with continued credit-worthiness and financial
stability of the borrower, as well as potential valuation changes relating to collateral. Commercial real estate loans carry risks associated with the continued operations of the business, as well as sufficient cash flow and profitability to service
the debt. Additionally, commercial real estate loans are subject to risks associated with potential collateral valuation changes. Commercial non-real estate loans, including those in the industrial and agricultural categories, carry similar risks to
the commercial real estate loans, as they are dependent upon the continued successful business operations and cash flow. Commercial non-real estate loans also carry a risk associated with collateral being more difficult to assess. Consumer loans
carry risks associated with the continued credit-worthiness and financial stability of the borrower, as well as potential for rapid depreciation or reduced value of the collateral, especially in automobile lending.
48
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 6
|
LOANS: (continued)
|
Management has developed an internal loan risk rating system as part of its credit analysis process.
Loans are assigned an appropriate risk grade at the time of origination based on specific assessment factors relating to the borrower’s ability to meet contractual obligations under the loan agreement. This process includes reviewing
borrowers’ financial information, historical payment experience, credit documentation, public information, and other information specific to each borrower. Commercial loan grade assessments also include consideration of business cash flow and
debt obligations. Risk grades are generally reviewed on an annual basis for credit relationships with total credit exposure of $500,000 or more, or at any point management becomes aware of information affecting the borrower’s ability to fulfill
their obligations. Management utilizes both internal and external loan review processes as a means of monitoring the appropriateness of risk ratings across the loan portfolio.
The specific loan risk rating categories included in the Bank’s internal rating system include pass credits, pass-watch, special mention, substandard, doubtful, and loss. Pass credits generally
consist of loans secured by cash or cash equivalents and loans to borrowers with a strong cash flow ratio, stable financial net worth and above average sources of liquidity to meet financial obligations. Pass-watch credits generally consist of loans
to borrowers that may have minor, yet manageable, weaknesses related to the stability of cash flow and repayment sources and may require periodic monitoring. Special mention credits are loans that have identified weaknesses or adverse trends in the
borrower’s financial position that could potentially impact the bank’s credit position at some future date if not monitored closely. Substandard credits are those loans that have been identified as having a well-defined, specific, or major
weakness in the primary cash flow sources or upon which significant reliance is being placed on secondary sources of repayment due to the borrower’s financial difficulties. Potential for losses related to substandard credits is evaluated on a
regular basis with specific allocations being made as needed, as well as other corrective actions necessary to protect the institution. Loans categorized as doubtful also have well defined weaknesses with the added characteristic of the likelihood
that collection of payment in full is highly questionable or perhaps improbable. Loans classified as loss are considered to be totally uncollectible or of such little value that their continuance on the bank’s books as an asset is not
warranted.
49
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 6
|
LOANS: (continued)
|
The following table represents a summary of the Bank’s loan portfolio by class and internal risk
rating as of December 31, 2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Pass-
Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
Loans
|
|
|
|
|
|
|
|
|
|
|
|
Construction & Land Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
1,326
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,332
|
|
|
Commercial
|
|
|
—
|
|
|
|
1,690
|
|
|
|
—
|
|
|
|
573
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,263
|
|
|
Other – Land only
|
|
|
1,125
|
|
|
|
191
|
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,339
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Lines of Credit
|
|
|
1,730
|
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,766
|
|
|
1-4 Family Residences
|
|
|
44,640
|
|
|
|
7,267
|
|
|
|
2,459
|
|
|
|
1,491
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,857
|
|
|
Multifamily Dwellings
|
|
|
2,688
|
|
|
|
1,895
|
|
|
|
—
|
|
|
|
763
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,346
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
7,169
|
|
|
|
10,463
|
|
|
|
2,679
|
|
|
|
1,903
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,214
|
|
|
Non-owner occupied
|
|
|
3,269
|
|
|
|
8,434
|
|
|
|
2,138
|
|
|
|
1,771
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,612
|
|
|
Agricultural / Farm loans
|
|
|
895
|
|
|
|
1,798
|
|
|
|
358
|
|
|
|
361
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,412
|
|
|
Municipals
|
|
|
181
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
Commercial – Non Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
|
21
|
|
|
|
144
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
165
|
|
|
Industrial
|
|
|
2,526
|
|
|
|
3,232
|
|
|
|
7
|
|
|
|
565
|
|
|
|
184
|
|
|
|
—
|
|
|
|
6,514
|
|
|
Municipals
|
|
|
15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
Consumer – Non Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Cards
|
|
|
682
|
|
|
|
24
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
706
|
|
|
Automobile loans
|
|
|
13,883
|
|
|
|
—
|
|
|
|
22
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,905
|
|
|
Other personal loans
|
|
|
5,296
|
|
|
|
71
|
|
|
|
40
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals Gross Loans
|
|
$
|
85,446
|
|
|
$
|
35,253
|
|
|
$
|
7,726
|
|
|
$
|
7,429
|
|
|
$
|
184
|
|
|
$
|
—
|
|
|
$
|
136,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 6
|
LOANS: (continued)
|
The following table represents a summary of the Bank’s loan portfolio by class and internal risk
rating as of December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Pass-
Watch
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
Loans
|
|
|
|
|
|
|
|
|
|
|
|
Construction & Land Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
699
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
708
|
|
|
Commercial
|
|
|
778
|
|
|
|
2,117
|
|
|
|
—
|
|
|
|
1,572
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,467
|
|
|
Other – Land only
|
|
|
898
|
|
|
|
183
|
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,108
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Lines of Credit
|
|
|
1,514
|
|
|
|
20
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,534
|
|
|
1-4 Family Residences
|
|
|
44,943
|
|
|
|
5,094
|
|
|
|
2,490
|
|
|
|
207
|
|
|
|
—
|
|
|
|
—
|
|
|
|
52,734
|
|
|
Multifamily Dwellings
|
|
|
2,813
|
|
|
|
772
|
|
|
|
1,180
|
|
|
|
674
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,439
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
|
10,268
|
|
|
|
12,862
|
|
|
|
1,703
|
|
|
|
401
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,234
|
|
|
Non-owner occupied
|
|
|
2,339
|
|
|
|
11,336
|
|
|
|
—
|
|
|
|
1,782
|
|
|
|
220
|
|
|
|
—
|
|
|
|
15,677
|
|
|
Agricultural / Farm loans
|
|
|
963
|
|
|
|
2,564
|
|
|
|
598
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,125
|
|
|
Municipals
|
|
|
138
|
|
|
|
26
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
Commercial – Non Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural
|
|
|
11
|
|
|
|
153
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
164
|
|
|
Industrial
|
|
|
1,688
|
|
|
|
2,753
|
|
|
|
128
|
|
|
|
—
|
|
|
|
123
|
|
|
|
—
|
|
|
|
4,692
|
|
|
Municipals
|
|
|
35
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
Consumer – Non Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Cards
|
|
|
628
|
|
|
|
31
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
659
|
|
|
Automobile loans
|
|
|
12,470
|
|
|
|
6
|
|
|
|
35
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,511
|
|
|
Other personal loans
|
|
|
3,842
|
|
|
|
74
|
|
|
|
332
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals Gross Loans
|
|
$
|
84,027
|
|
|
$
|
38,000
|
|
|
$
|
6,493
|
|
|
$
|
4,638
|
|
|
$
|
343
|
|
|
|
—
|
|
|
$
|
133,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 6
|
LOANS: (continued)
|
Loans modified and classified as troubled debt restructures during the reporting period ending
December 31, 2011 are reported in the table below. These loans are also included in the impaired loan disclosures previously presented within this report. At December 31, 2011, there were a total of $5.5 million in loans classified as
troubled debt restructurings, with approximately $3.9 million being loans that were modified during the current year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in 000’s)
|
|
As of
December 31, 2011
|
|
|
|
|
Number of
TDR
modifications
|
|
|
Pre-modification
outstanding
recorded
investment
|
|
|
Post-modification
outstanding
recorded
investment
|
|
|
Construction / land loans
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Residential real estate loans
|
|
|
2
|
|
|
|
793
|
|
|
|
800
|
|
|
Commercial real estate loans
|
|
|
3
|
|
|
|
2,575
|
|
|
|
2,577
|
|
|
Commercial non-real estate loans
|
|
|
4
|
|
|
|
493
|
|
|
|
493
|
|
|
Consumer non-real estate loans
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9
|
|
|
$
|
3,861
|
|
|
$
|
3,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans classified as troubled debt restructures are monitored for payment default on an on-going
basis. During 2011 there were two accounts that subsequently defaulted within 12 months of the original modification date, with default being defined as payments being 90 days past due. These defaults occurred during the 3
rd
and 4
th
quarters of 2011. The table below reflects the outstanding recorded investment for defaulted troubled debt
restructures as of December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in 000’s)
|
|
As of
December 31, 2011
|
|
|
|
|
Number of
Contracts
|
|
|
Recorded
investment
|
|
|
|
|
|
|
Commercial non-real estate
|
|
|
2
|
|
|
$
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2
|
|
|
$
|
202
|
|
|
|
|
|
|
|
|
|
|
|
52
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 7
|
ALLOWANCE FOR LOAN LOSSES (ALLL):
|
A summary of transactions in the allowance for loan losses is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Balance at beginning of year
|
|
$
|
2,342
|
|
|
$
|
1,945
|
|
|
$
|
1,651
|
|
|
Provision charged to operating expense
|
|
|
1,063
|
|
|
|
806
|
|
|
|
1,260
|
|
|
Recoveries of loans charged off
|
|
|
189
|
|
|
|
149
|
|
|
|
194
|
|
|
Loan charge-offs
|
|
|
(1,165
|
)
|
|
|
(558
|
)
|
|
|
(1,160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
2,429
|
|
|
$
|
2,342
|
|
|
$
|
1,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The summary table below includes the allowance allocations and total loans evaluated both individually and collectively
for impairment, as well as a roll-forward representation of the activity that has occurred in the allowance account during the period ending December 31, 2011(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction &
Land Loans
|
|
|
Residential
Real Estate
|
|
|
Commercial
Real Estate
|
|
|
Commercial
Non-Real
Estate
|
|
|
Consumer
Non-Real
Estate
|
|
|
Total
|
|
|
ALLL ending balance 12/31/2010
|
|
$
|
575
|
|
|
$
|
587
|
|
|
$
|
540
|
|
|
$
|
222
|
|
|
$
|
418
|
|
|
$
|
2,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(391
|
)
|
|
|
(387
|
)
|
|
|
—
|
|
|
|
(31
|
)
|
|
|
(356
|
)
|
|
|
(1,165
|
)
|
|
Recoveries
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
4
|
|
|
|
181
|
|
|
|
189
|
|
|
Provision
|
|
|
27
|
|
|
|
614
|
|
|
|
(106
|
)
|
|
|
157
|
|
|
|
371
|
|
|
|
1,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLL ending Balance 12/31/11
|
|
$
|
211
|
|
|
$
|
818
|
|
|
$
|
434
|
|
|
$
|
352
|
|
|
$
|
614
|
|
|
$
|
2,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated individually for impairment
|
|
|
175
|
|
|
|
327
|
|
|
|
100
|
|
|
|
273
|
|
|
|
—
|
|
|
|
875
|
|
|
|
|
|
|
|
|
|
|
Evaluated collectively for impairment
|
|
|
36
|
|
|
|
491
|
|
|
|
334
|
|
|
|
79
|
|
|
|
614
|
|
|
|
1,554
|
|
|
|
|
|
|
|
|
|
|
Total Gross Loans 12/31/2011
|
|
$
|
4,934
|
|
|
$
|
62,969
|
|
|
$
|
41,421
|
|
|
$
|
6,694
|
|
|
$
|
20,020
|
|
|
$
|
136,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated individually for impairment
|
|
|
572
|
|
|
|
2,121
|
|
|
|
3,393
|
|
|
|
760
|
|
|
|
—
|
|
|
|
6,846
|
|
|
|
|
|
|
|
|
|
|
Evaluated collectively for impairment
|
|
|
4,362
|
|
|
|
60,848
|
|
|
|
38,028
|
|
|
|
5,934
|
|
|
|
20,020
|
|
|
|
129,192
|
|
53
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 7
|
ALLOWANCE FOR LOAN LOSSES: (continued)
|
The summary table below includes the allowance allocations and total loans evaluated both individually
and collectively for impairment by loan segment as of December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction &
Land
Loans
|
|
|
Residential
Real Estate
|
|
|
Commercial
Real Estate
|
|
|
Commercial
Non-Real
Estate
|
|
|
Consumer
Non-Real
Estate
|
|
|
Total
|
|
|
ALLL ending balance 12/31/2010
|
|
$
|
575
|
|
|
$
|
587
|
|
|
$
|
540
|
|
|
$
|
222
|
|
|
$
|
418
|
|
|
$
|
2,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated individually for impairment
|
|
|
540
|
|
|
|
180
|
|
|
|
175
|
|
|
|
120
|
|
|
|
—
|
|
|
|
1,015
|
|
|
|
|
|
|
|
|
|
|
Evaluated collectively for impairment
|
|
|
35
|
|
|
|
407
|
|
|
|
365
|
|
|
|
102
|
|
|
|
418
|
|
|
|
1,327
|
|
|
|
|
|
|
|
|
|
|
Total Gross Loans 12/31/2010
|
|
$
|
6,283
|
|
|
$
|
59,707
|
|
|
$
|
45,200
|
|
|
$
|
4,891
|
|
|
$
|
17,420
|
|
|
$
|
133,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evaluated individually for impairment
|
|
|
1,378
|
|
|
|
982
|
|
|
|
220
|
|
|
|
241
|
|
|
|
—
|
|
|
|
2,821
|
|
|
|
|
|
|
|
|
|
|
Evaluated collectively for impairment
|
|
|
4,905
|
|
|
|
58,725
|
|
|
|
44,980
|
|
|
|
4,650
|
|
|
|
17,420
|
|
|
|
130,680
|
|
54
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 7
|
ALLOWANCE FOR LOAN LOSSES: (continued)
|
Management’s evaluation of the adequacy of the allowance for loan loss for the
period ended December 31, 2011 included certain changes to the Bank’s methodology with regard to the historical allocation factors, which were implemented during the 2
nd
quarter of 2011. Management reviewed the historical loss ranges and has performed additional analysis to determine a
more appropriate historical period by loan type based on the most significant areas of loss history for each loan category. This further analysis was performed in light of the continuing economic challenges and the Bank’s current loan portfolio
trends, with regard to charge offs and loan growth activities. Additionally, the allowance for loan loss allocation factors relating to commercial and residential real estate concentrations, commercial loan growth, and classified loans have been
increased to more appropriately reflect the increased risk that is deemed to be associated with these loan categories under the current economic conditions.
The following table represents the cumulative effect of the changes in the allowance for loan loss methodology for the period ending December 31, 2011 as compared to the evaluation factors used in
the period ending December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Segment:
|
|
Calculated
Provision
Based on
Current
Methodology
|
|
|
Calculated
Provision
Based on
Prior
Methodology
|
|
|
Difference
|
|
|
Construction & Land Loans
|
|
$
|
27
|
|
|
$
|
26
|
|
|
$
|
1
|
|
|
Residential Real Estate
|
|
|
614
|
|
|
|
577
|
|
|
|
37
|
|
|
Commercial Real Estate
|
|
|
(106
|
)
|
|
|
(130
|
)
|
|
|
24
|
|
|
Commercial Non-Real Estate
|
|
|
157
|
|
|
|
157
|
|
|
|
—
|
|
|
Consumer Non-Real Estate
|
|
|
371
|
|
|
|
268
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
1,063
|
|
|
$
|
898
|
|
|
$
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 8
|
BANK PREMISES and EQUIPMENT:
|
Bank premises, equipment and computer software included in the financial statements at December 31, 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(In Thousands)
|
|
|
Land
|
|
$
|
1,627
|
|
|
$
|
691
|
|
|
Land improvements and buildings
|
|
|
4,487
|
|
|
|
4,463
|
|
|
Furniture and equipment
|
|
|
4,705
|
|
|
|
4,664
|
|
|
Computer software
|
|
|
1,424
|
|
|
|
1,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,243
|
|
|
|
11,159
|
|
|
Less accumulated depreciation
|
|
|
8,116
|
|
|
|
7,800
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
4,127
|
|
|
$
|
3,359
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization related to bank premises, equipment and software included in operating expense for 2011 was
$316,000. Depreciation and amortization expenses for 2010 and 2009 were $355,000 and $390,000, respectively.
|
NOTE 9
|
LEASE COMMITMENTS:
|
The Company has lease commitments relating to its Charlottesville branch location. As of December 31, 2011, this branch was
located at 257 Ridge McIntire Road, Charlottesville, Virginia, with plans to relocate to 1710 Seminole Trail, Suite 4, during the 1st quarter of 2012. The original lease agreement term for this branch expires November 30, 2012 and the lease
agreement for the new location expires February 28, 2015, with an option of renewal thereafter. The following is a schedule of future estimated lease requirements under these agreements:
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
2012
|
|
$
|
61
|
|
|
2013
|
|
|
37
|
|
|
2014
|
|
|
37
|
|
|
2015
|
|
|
6
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
141
|
|
|
|
|
|
|
|
Lease expense, included in occupancy expense, was $31,000 for December 31, 2011 and was $22,000 for the years ending
December 31, 2010 and December 31, 2009.
56
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank’s total deposit portfolio consists primarily of demand checking accounts, savings accounts and time deposit accounts.
Total deposits were $133.9 million and $136.0 million as of December 31, 2011 and 2010, respectively.
The Bank has one customer with
large deposit balances exceeding 5% of total deposits as of December 31, 2011. The total deposit balances for this customer as of December 31, 2011 were $8.2 million or 6.09% of total deposits.
At December 31, 2011, time deposit scheduled maturities (in thousands) are as follows:
|
|
|
|
|
|
|
2012
|
|
$
|
48,018
|
|
|
2013
|
|
|
8,366
|
|
|
2014
|
|
|
4,130
|
|
|
2015
|
|
|
2,505
|
|
|
2016
|
|
|
1,496
|
|
|
2017 & thereafter
|
|
|
400
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
64,915
|
|
|
|
|
|
|
|
The Bank has a line of credit with the Federal Home Loan Bank of Atlanta upon which credit advances can be made up to 40% of total Bank
assets, subject to certain eligibility requirements. This represents a total credit line of approximately $65.8 million and $65.9 million as of December 31, 2011 and 2010, respectively. FHLB advances bear interest at a fixed or floating rate
depending on the terms and maturity of each advance and numerous renewal options are available. These advances are secured by first lien 1-4 family residential mortgages totaling $52.2 million at December 31, 2011. On certain fixed rate
advances, the FHLB may convert the advance to an indexed floating rate at some set point in time for the remainder of the term. If the advance converts to a floating rate, the Bank may repay all or part of the advance without a prepayment penalty.
At December 31, 2011, total outstanding borrowings with FHLB were $10.5 million compared to $11.0 million as of December 31, 2010.
The outstanding borrowings at December 31, 2011 consisted of two fixed rate advances with scheduled principal payments due quarterly and a final maturity date of March 1, 2013 and July 15, 2014. The interest rates on these outstanding
advances range from 0.71% to 1.14%.
The contractual maturities of the outstanding FHLB advances as of December 31, 2011 are shown below:
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
Due in 2013
|
|
$
|
5,000
|
|
|
Due in 2014
|
|
|
5,500
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,500
|
|
|
|
|
|
|
|
57
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 12
|
DIVIDEND LIMITATION ON SUBSIDIARY BANK:
|
A principal source of funds of the Company is dividend transfers paid by the Bank. The amount of dividends the Bank may pay to the
Company is regulated by the Federal Reserve. As of December 31, 2011, the maximum amount of dividends the Bank can pay to the Company is $4.2 million or 20.67% of the consolidated net assets, without requesting permission from the Federal
Reserve Bank. Additionally, recent regulatory guidance has been implemented, which establishes certain limitations based on current quarterly earnings.
The Company files income tax returns in the U.S. federal jurisdiction and the state of Virginia. The Company is no longer subject to
U.S. federal, state and local income tax examinations by tax authorities for years prior to 2008.
The components of income tax expense are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
Current income tax expense
|
|
$
|
814
|
|
|
$
|
1,010
|
|
|
$
|
704
|
|
|
Deferred income tax (benefit)
|
|
|
(65
|
)
|
|
|
(126
|
)
|
|
|
(152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
$
|
749
|
|
|
$
|
884
|
|
|
$
|
552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reasons for the differences between income tax expense and the amount computed by applying the statutory federal
income tax rate are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
Income taxes computed at the applicable federal income tax rate
|
|
$
|
818
|
|
|
$
|
933
|
|
|
$
|
605
|
|
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt income and dividends
|
|
|
(47
|
)
|
|
|
(58
|
)
|
|
|
(49
|
)
|
|
State income taxes
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
3
|
|
|
Other
|
|
|
(22
|
)
|
|
|
14
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
|
|
$
|
749
|
|
|
$
|
884
|
|
|
$
|
552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, the net deferred tax asset was made up of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
$
|
637
|
|
|
$
|
639
|
|
|
Deferred compensation
|
|
|
28
|
|
|
|
32
|
|
|
Other real estate owned
|
|
|
90
|
|
|
|
42
|
|
|
Other
|
|
|
105
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
860
|
|
|
|
787
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3
|
|
|
|
8
|
|
|
Cash surrender value of life insurance
|
|
|
46
|
|
|
|
43
|
|
|
Securities available for sale
|
|
|
141
|
|
|
|
124
|
|
|
Other
|
|
|
89
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
279
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Assets
|
|
$
|
581
|
|
|
$
|
533
|
|
|
|
|
|
|
|
|
|
|
|
58
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 14
|
REGULATORY MATTERS:
|
The Company (on a consolidated basis) and the Bank are 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 Company’s financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Prompt corrective action provisions are not applicable to the bank holding company.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and 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, 2011 and 2010, that the Company and the Bank met all capital adequacy requirements to which they were subject.
As of December 31, 2011, the most recent notification from the bank’s primary federal 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, and 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 Company’s and the Bank’s actual
capital amounts and ratios are also presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
|
|
|
|
|
|
|
|
For Capital
|
|
|
To Be Well
|
|
|
|
|
Actual
|
|
|
Adequacy Purposes
|
|
|
Capitalized
|
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
(in thousands)
|
|
|
As of December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
21,658
|
|
|
|
15.8
|
%
|
|
$
|
10,969
|
|
|
|
³
8.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Pioneer Bank
|
|
$
|
18,682
|
|
|
|
15.2
|
%
|
|
$
|
9,862
|
|
|
|
³
8.0
|
%
|
|
$
|
12,327
|
|
|
|
³
10.0
|
%
|
|
Tier I Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
19,944
|
|
|
|
14.6
|
%
|
|
$
|
5,485
|
|
|
|
³
4.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Pioneer Bank
|
|
$
|
17,130
|
|
|
|
13.9
|
%
|
|
$
|
4,931
|
|
|
|
³
4.0
|
%
|
|
$
|
7,396
|
|
|
|
³
6.0
|
%
|
|
Tier I Capital to Average Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
19,944
|
|
|
|
11.7
|
%
|
|
$
|
6,798
|
|
|
|
³
4.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Pioneer Bank
|
|
$
|
17,130
|
|
|
|
10.2
|
%
|
|
$
|
6,693
|
|
|
|
³
4.0
|
%
|
|
$
|
8,366
|
|
|
|
³
5.0
|
%
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
20,363
|
|
|
|
16.4
|
%
|
|
$
|
9,959
|
|
|
|
³
8.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Pioneer Bank
|
|
$
|
17,065
|
|
|
|
14.0
|
%
|
|
$
|
9,774
|
|
|
|
³
8.0
|
%
|
|
$
|
12,217
|
|
|
|
³
10.0
|
%
|
|
Tier I Capital to Risk Weighted Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
18,807
|
|
|
|
15.1
|
%
|
|
$
|
4,979
|
|
|
|
³
4.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Pioneer Bank
|
|
$
|
15,528
|
|
|
|
12.7
|
%
|
|
$
|
4,887
|
|
|
|
³
4.0
|
%
|
|
$
|
7,330
|
|
|
|
³
6.0
|
%
|
|
Tier I Capital to Average Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
18,807
|
|
|
|
11.4
|
%
|
|
$
|
6,616
|
|
|
|
³
4.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Pioneer Bank
|
|
$
|
15,528
|
|
|
|
9.6
|
%
|
|
$
|
6,493
|
|
|
|
³
4.0
|
%
|
|
$
|
8,116
|
|
|
|
³
5.0
|
%
|
59
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 15
|
STOCK OPTION PLAN:
|
The Company’s 1998 Stock Incentive Plan (the “Plan”) was adopted by the Board of Directors on June 11, 1998 and
approved by the shareholders on June 11, 1999. This ten year Plan expired in June of 2008 with respect to the issuance of new option grants. However, grants previously issued under this Plan may still be exercised within the original terms.
Generally, the Plan provided for the grants of incentive stock options and non-qualified stock options. The exercise price of an Option could
not be less than 100% of the fair market value of the common stock (or if greater, the book value) on the date of the grant. The option terms applicable to each grant were determined at the grant date, but no Option could be exercisable in any
event, after ten years from its grant date.
A summary of the activity in the Company’s stock option plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Term
(In Years)
|
|
|
Intrinsic Value
of Unexercised
In-the-Money
Options
(In Thousands)
(
1
)
|
|
|
Options outstanding, 12/31/10
|
|
|
5,600
|
|
|
$
|
17.13
|
|
|
|
3.50
|
|
|
$
|
5
|
|
|
Options Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
800
|
|
|
|
12.75
|
|
|
|
|
|
|
|
|
|
|
Options Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, 12/31/11
|
|
|
4,800
|
|
|
$
|
17.86
|
|
|
|
3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, 12/31/11
|
|
|
4,800
|
|
|
$
|
17.86
|
|
|
|
3.00
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of stock options exercised in 2011 and 2010 was $3,400 and $1,800, respectively.
|
(
1
)
|
The aggregate intrinsic value of a stock option in the table above represents the total pre-tax
intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on December 31,
2011. This amount changes based on market value of the Company’s stock. The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Back-Scholes option
pricing model.
|
60
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 16
|
EARNINGS PER SHARE:
|
The following shows the weighted average number of shares used in computing earnings per share and the effect on weighted average
number of shares of diluted potential common stock. Potential dilutive common stock had no effect on income available to common shareholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Shares
|
|
|
Per
Share
Amount
|
|
|
Shares
|
|
|
Per
Share
Amount
|
|
|
Shares
|
|
|
Per
Share
Amount
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
1,036,898
|
|
|
$
|
1.60
|
|
|
|
1,031,160
|
|
|
$
|
1.80
|
|
|
|
1,022,931
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
1,036,898
|
|
|
$
|
1.60
|
|
|
|
1,031,160
|
|
|
$
|
1.80
|
|
|
|
1,022,931
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For 2011, 2010, and 2009, stock options representing 4,800, 5,600, and 6,400 average shares, respectively, were not
included in computing diluted earnings per share because their effects were anti-dilutive.
|
NOTE 17
|
OFF-BALANCE SHEET COMMITMENTS:
|
The contract or notional amount of financial instruments with off-balance sheet risks are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(In Thousands)
|
|
|
Unfunded lines of credit (commercial and personal)
|
|
$
|
6,216
|
|
|
$
|
5,110
|
|
|
Loan commitments and letters of credit (commercial and personal)
|
|
|
4,184
|
|
|
|
4,110
|
|
|
Credit card unused credit limits
|
|
|
1,395
|
|
|
|
1,355
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Bank, is based on management’s credit
evaluation of the counter-party.
Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection
agreements are commitments for possible future extensions of credit to existing customers. These lines of credit generally are un-collateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to
which the Bank is committed.
Commercial and standby letters of credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved
in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral supporting those commitments for which collateral is deemed necessary.
61
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 18
|
TRANSACTIONS WITH RELATED PARTIES:
|
During the year, executive 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. Deposit account balances of executive officers and directors
totaled $1.9 million and $1.8 million as of December 31, 2011 and 2010, respectively. Loan transactions to such related parties are shown in the following schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(In Thousands)
|
|
|
Total loans, beginning of year
|
|
$
|
239
|
|
|
$
|
658
|
|
|
New loans
|
|
|
122
|
|
|
|
—
|
|
|
Payments
|
|
|
(148
|
)
|
|
|
(419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, end of year
|
|
$
|
213
|
|
|
$
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 19
|
FAIR VALUE MEASUREMENTS:
|
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value
disclosures. In accordance with the Fair Value Measurements and Disclosures topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer the liability in an orderly
transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial
instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The recent fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market
participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation
techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of
significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
Fair Value Hierarchy
In accordance with this guidance, the Company groups financial
assets and financial liabilities generally measured at fair value into three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value.
|
|
|
|
|
|
|
Level 1
|
|
–
|
|
Valuation is based on quoted prices in active markets for identical assets and liabilities.
|
|
|
|
|
|
Level 2
|
|
–
|
|
Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities
in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
|
|
|
|
|
|
Level 3
|
|
–
|
|
Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.
|
62
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 19
|
FAIR VALUE MEASUREMENTS (continued):
|
The following describes the valuation techniques used by the Company to measure certain financial assets
and liabilities recorded at fair value on a recurring basis in the financial statements:
Securities available for sale
: Securities
available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent
valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value
of identical or similar securities by using pricing models that considers observable market data (Level 2).
The following table presents the
balances of financial assets measured at fair value on a recurring basis as of December 31, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
Description
|
|
Balances
Outstanding
(In Thousands)
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
As of December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government & Agency Securities
|
|
$
|
4,518
|
|
|
$
|
—
|
|
|
$
|
4,518
|
|
|
$
|
—
|
|
|
Mortgage-backed Securities
|
|
|
1,779
|
|
|
|
—
|
|
|
|
1,779
|
|
|
|
—
|
|
|
State & Municipals
|
|
|
3,673
|
|
|
|
—
|
|
|
|
3,673
|
|
|
|
—
|
|
|
Corporate Securities
|
|
|
499
|
|
|
|
—
|
|
|
|
499
|
|
|
|
—
|
|
|
Equity Securities
|
|
|
1,520
|
|
|
|
1,442
|
|
|
|
78
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available –for-sale securities
|
|
$
|
11,989
|
|
|
$
|
1,442
|
|
|
$
|
10,547
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government & Agency Securities
|
|
$
|
4,504
|
|
|
$
|
—
|
|
|
$
|
4,504
|
|
|
$
|
—
|
|
|
Mortgage-backed Securities
|
|
|
1,115
|
|
|
|
—
|
|
|
|
1,115
|
|
|
|
—
|
|
|
State & Municipals
|
|
|
3,916
|
|
|
|
—
|
|
|
|
3,916
|
|
|
|
—
|
|
|
Corporate Securities
|
|
|
513
|
|
|
|
—
|
|
|
|
513
|
|
|
|
—
|
|
|
Equity Securities
|
|
|
1,120
|
|
|
|
1,042
|
|
|
|
78
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available –for-sale securities
|
|
$
|
11,168
|
|
|
$
|
1,042
|
|
|
$
|
10,126
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value
of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.
The following
describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements:
Impaired Loans
: The Fair Value Measurement accounting standard also applies to loans measured for impairment including impaired loans measured at an observable market price (if available), or at
the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation which is then adjusted for
the cost related to liquidation of the collateral.
63
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 19
|
FAIR VALUE MEASUREMENTS (continued):
|
Loans are designated as impaired when, in the judgment of management based on current information and
events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the
fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority
of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market
data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3.
The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business financial
statement if not considered significant using observable market data. Internal collateral evaluations relating to commercial loans secured by business assets such as inventory and equipment are generally performed on an annual basis. However, since
this is not a formalized or certified valuation, these evaluations are considered to be level 3 for fair value disclosure and reporting purposes. Likewise, values for inventory and accounts receivables collateral are based on financial statement
balances or aging reports (Level 3). Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the
Consolidated Statements of Income.
For residential and commercial real estate loans considered to be collateral dependent, appraisals or
updated collateral evaluations are generally obtained in conjunction with specific allowance allocations and/or anticipated foreclosure proceedings, on a case by case basis, depending upon the strength of additional mitigating arrangements with
individual borrowers.
The outstanding principal balance of impaired loans considered to be collateral dependent in the level 3 category as of
December 31, 2011 totaled approximately $643,000. These loans primarily consisted of business asset loans and certain real estate properties with appraisal valuations that were in the process of being updated. As a general rule, management
utilizes a significant discount factor for outdated appraisals when calculating its allowance allocation estimates and making specific reserves. Local professional realtors are also contacted regarding potential fair market values in an effort to
ensure that the discounted values are within reasonable ranges on individual properties. Additionally, updated tax assessed values are also considered in this evaluation process on a case by case basis.
Other Real Estate Owned
: Certain assets such as other real estate owned (OREO) are measured at the lower of loan balance or fair value less cost
to sell. Fair value of OREO properties held are generally based on current appraisal values with data less than two years old being considered Level 2 and any older valuation data being considered Level 3, as previously defined above.
The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying values
|
|
|
Description of Assets:
|
|
Balances
Outstanding
(In Thousands)
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
As of December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans, net of allowance
|
|
$
|
2,262
|
|
|
$
|
—
|
|
|
$
|
1,904
|
|
|
$
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Real Estate Owned
|
|
$
|
1,095
|
|
|
$
|
—
|
|
|
$
|
1,095
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans, net of allowance
|
|
$
|
1,806
|
|
|
$
|
—
|
|
|
$
|
1,111
|
|
|
$
|
695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Real Estate Owned
|
|
$
|
244
|
|
|
$
|
—
|
|
|
$
|
244
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 19
|
FAIR VALUE MEASUREMENTS (continued):
|
Accounting guidance 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 Company’s financial instruments lack an available trading market; significant estimates, assumptions
and present value calculations are required to determine estimated fair value. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and Due From Banks and Federal Funds Sold
– For those short-term instruments, the carrying amount is a reasonable estimate
of fair value.
Interest Bearing Deposits in Other Banks
– Fair values are based on quoted reinvestment market rates available for
similar deposits accounts as of the date of this report.
Securities
– Fair values, excluding restricted stock, are based on
quoted market prices or dealer quotes.
Loans Receivable
– For certain homogeneous categories of loans, such as some residential
mortgages, and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting
the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
Deposits and Borrowings
– The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. The fair value of all other deposits and borrowings is determined using the discounted cash flow method. The discount
rate was equal to the rate currently offered on similar products.
Accrued Interest
– The carrying amounts of accrued interest
approximates fair value.
Off-Balance-Sheet Financial Instruments
– The fair value of commitments to extend credit is estimated
using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counter party. For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair value of stand-by letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations
with the counter parties at the reporting date.
65
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 19
|
FAIR VALUE MEASUREMENTS (continued):
|
At December 31, 2011 and 2010, the fair value of loan commitments and stand-by letters of credit
were immaterial. Therefore, they have not been included in the following table.
Estimated fair value and the carrying value of financial
instruments at December 31, 2011 and 2010 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Carrying
Value
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Value
|
|
|
Estimated
Fair Value
|
|
|
|
|
(In Thousands)
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
3,360
|
|
|
$
|
3,360
|
|
|
$
|
4,373
|
|
|
$
|
4,373
|
|
|
Interest bearing deposits in other banks
|
|
|
6,788
|
|
|
|
6,812
|
|
|
|
10,634
|
|
|
|
10,632
|
|
|
Federal funds sold
|
|
|
1,200
|
|
|
|
1,200
|
|
|
|
2,550
|
|
|
|
2,550
|
|
|
Securities available for sale
|
|
|
11,989
|
|
|
|
11,989
|
|
|
|
11,168
|
|
|
|
11,168
|
|
|
Loans, net
|
|
|
133,286
|
|
|
|
136,142
|
|
|
|
130,786
|
|
|
|
133,269
|
|
|
Accrued interest receivable
|
|
|
727
|
|
|
|
727
|
|
|
|
681
|
|
|
|
681
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
|
29,210
|
|
|
|
29,210
|
|
|
|
25,739
|
|
|
|
25,739
|
|
|
Interest bearing
|
|
|
27,718
|
|
|
|
27,718
|
|
|
|
23,104
|
|
|
|
23,104
|
|
|
Savings deposits
|
|
|
12,037
|
|
|
|
12,037
|
|
|
|
15,746
|
|
|
|
15,746
|
|
|
Time deposits
|
|
|
64,915
|
|
|
|
65,798
|
|
|
|
71,370
|
|
|
|
72,313
|
|
|
Borrowings
|
|
|
10,500
|
|
|
|
10,551
|
|
|
|
11,000
|
|
|
|
11,073
|
|
|
Accrued interest payable
|
|
|
196
|
|
|
|
196
|
|
|
|
246
|
|
|
|
246
|
|
The Company, through its bank subsidiary, assumes interest rate risk (the risk that general interest rate levels will
change) as a result of its normal operations. As a result, the fair value of their financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable. Management attempts to match maturities of
assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to repay in a rising rate environment and more likely to repay in a falling rate environment.
Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest
rate risk.
The Bank has a 401(k) Profit Sharing Plan covering employees who have completed six months of service and are at least 21 years of age.
Employees may contribute compensation subject to certain limits based on federal tax laws. The Bank makes matching contributions up to 3 percent of an employee’s annual compensation contributed to the Profit Sharing Plan. Additional amounts may
be contributed, at the option of the Bank’s Board of Directors. Employer contributions vest to the employee at 100% after six years of service. A year of vesting service is a Plan year during which an employee is credited with at least 1,000
hours of service. For the years ended December 31, 2011, 2010 and 2009, total expense attributable to this 401(k) plan amounted to approximately $47,000, $44,000 and $35,000, respectively.
The Bank also provides a cafeteria insurance plan including medical, life, and long-term disability coverage for eligible employees. The net expense
attributable to this insurance plan was approximately $194,000, $195,000, and $179,000 for the years ending December 31, 2011, 2010, and 2009, respectively.
66
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 21
|
PARENT CORPORATION ONLY FINANCIAL STATEMENTS:
|
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
(In Thousands)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
132
|
|
|
$
|
1,051
|
|
|
Investment in subsidiary
|
|
|
17,677
|
|
|
|
16,043
|
|
|
Securities available for sale
|
|
|
2,019
|
|
|
|
1,633
|
|
|
Bank premises and equipment, net
|
|
|
571
|
|
|
|
595
|
|
|
Other assets
|
|
|
215
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
20,614
|
|
|
$
|
19,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
Accrued expenses & other liabilities
|
|
$
|
51
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
51
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
521
|
|
|
|
518
|
|
|
Retained earnings
|
|
|
19,783
|
|
|
|
18,649
|
|
|
Accumulated other comprehensive income, net
|
|
|
259
|
|
|
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
|
|
20,563
|
|
|
|
19,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
20,614
|
|
|
$
|
19,440
|
|
|
|
|
|
|
|
|
|
|
|
67
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 21
|
PARENT CORPORATION ONLY FINANCIAL STATEMENTS: (continued)
|
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(In Thousands)
|
|
|
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from subsidiary
|
|
$
|
—
|
|
|
$
|
260
|
|
|
$
|
322
|
|
|
Interest income
|
|
|
23
|
|
|
|
23
|
|
|
|
23
|
|
|
Dividend income
|
|
|
27
|
|
|
|
48
|
|
|
|
63
|
|
|
Security gains (losses)
|
|
|
98
|
|
|
|
(167
|
)
|
|
|
(38
|
)
|
|
Rent income
|
|
|
85
|
|
|
|
84
|
|
|
|
83
|
|
|
Other income
|
|
|
—
|
|
|
|
5
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income
|
|
|
233
|
|
|
|
253
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
|
75
|
|
|
|
75
|
|
|
|
65
|
|
|
Occupancy expenses
|
|
|
45
|
|
|
|
35
|
|
|
|
35
|
|
|
Equipment expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other operating expenses
|
|
|
98
|
|
|
|
75
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
|
218
|
|
|
|
185
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income tax expense (benefit) and undistributed income of subsidiary
|
|
|
15
|
|
|
|
68
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE (BENEFIT)
|
|
|
40
|
|
|
|
(57
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before undistributed income of subsidiary
|
|
|
55
|
|
|
|
125
|
|
|
|
313
|
|
|
Undistributed income of subsidiary
|
|
|
1,602
|
|
|
|
1,734
|
|
|
|
915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
1,657
|
|
|
$
|
1,859
|
|
|
$
|
1,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
PIONEER BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 21
|
PARENT CORPORATION ONLY FINANCIAL STATEMENTS: (continued)
|
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,657
|
|
|
$
|
1,859
|
|
|
$
|
1,228
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed subsidiary income
|
|
|
(1,602
|
)
|
|
|
(1,734
|
)
|
|
|
(915
|
)
|
|
Net amortization and accretion on securities
|
|
|
7
|
|
|
|
7
|
|
|
|
6
|
|
|
(Gain) Loss on security sales
|
|
|
(98
|
)
|
|
|
167
|
|
|
|
38
|
|
|
Depreciation
|
|
|
24
|
|
|
|
26
|
|
|
|
24
|
|
|
Stock based compensation
|
|
|
92
|
|
|
|
91
|
|
|
|
201
|
|
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(96
|
)
|
|
|
(21
|
)
|
|
|
89
|
|
|
Accrued expenses and other liabilities
|
|
|
6
|
|
|
|
45
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
|
(10
|
)
|
|
|
440
|
|
|
|
575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of securities available for sale
|
|
|
2,795
|
|
|
|
1.548
|
|
|
|
162
|
|
|
Purchase of securities available for sale
|
|
|
(3,092
|
)
|
|
|
(451
|
)
|
|
|
(299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used In) Investing Activities
|
|
|
(297
|
)
|
|
|
1.097
|
|
|
|
(137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(612
|
)
|
|
|
(598
|
)
|
|
|
(583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Financing Activities
|
|
|
(612
|
)
|
|
|
(598
|
)
|
|
|
(583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(919
|
)
|
|
|
939
|
|
|
|
(145
|
)
|
|
Cash and Cash Equivalents, Beginning of Year
|
|
|
1,051
|
|
|
|
112
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Year
|
|
$
|
132
|
|
|
$
|
1,051
|
|
|
$
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
Item 9.
|
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
|
Not Applicable
|
Item 9A.
|
Controls and Procedures.
|
Disclosure
Controls and Procedures
The Company’s management, including the Chief Executive Officer and Chief Financial Officer,
evaluated the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934), as amended (the “Exchange Act”) as of December 31, 2011. Based on this evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms. There were no significant changes in the Company’s internal controls over financial reporting that occurred during the year
ended December 31, 2011 that have materially affected or are reasonable likely to materially affect the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal controls over financial reporting. Internal controls are designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Management regularly monitors its internal controls
over financial reporting, and actions are taken to correct deficiencies as they are identified.
Under the supervision and
with the participation of management, including the principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting. This assessment was based on
criteria established in
Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that the Company maintained effective internal
control over financial reporting as of December 31, 2011; as such term is defined in the Exchange Act Rules 13a-15(f).
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Further, because
of changes in conditions, internal control effectiveness may vary over time.
This annual report does not include an
attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant
to the rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
|
|
|
/s/ THOMAS R. ROSAZZA
|
|
Thomas R. Rosazza
|
|
President and Chief Executive Officer
|
|
|
|
/s/ LORI G. HASSETT
|
|
Lori G. Hassett
|
|
Vice President and Chief Financial Officer
|
|
Item 9B.
|
Other Information.
|
Not
Applicable
70
Part III
|
Item 10.
|
Directors, Executive Officers, and Corporate Governance.
|
Other than as provided below, all required information on (i) the directors and executive officers of the Company, (ii) compliance by Company directors and executive officers with
Section 16(a) of the Securities Exchange Act of 1934, (iii) the Company’s Code of Ethics and (iv) the Company’s Audit Company is detailed in the Company’s Definitive Proxy Statement for the annual meeting of
shareholders (“Definitive Proxy Statement”), which is expected to be filed with the Securities and Exchange Commission within the required time period, and is incorporated herein by reference. The following provides information on
executive officers who are not directors of the Company and are not included in the Definitive Proxy Statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Occupation
|
|
Executive Officer
|
|
Age
|
|
|
|
|
During Past Five Years
|
|
|
|
|
|
|
Lori G. Hassett
|
|
|
45
|
|
|
|
|
Vice President/Chief Financial Officer, Pioneer Bankshares, Inc. and Pioneer Bank
|
|
Item 11.
|
Executive Compensation.
|
Information on executive compensation is provided in the Definitive Proxy Statement and is incorporated herein by reference.
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
Information on security ownership of certain beneficial owners and management is provided in the Definitive Proxy Statement, and is
incorporated herein by reference.
Equity Compensations Plan Information
The following table sets forth information as of December 31, 2011 with respect to certain compensation plans under which equity
securities of the Company are authorized for issuance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Securities to be
issued upon
exercise of
outstanding
options,
warrants,
and
rights
(a)
|
|
|
Weighted-
average
exercise price
of outstanding
options,
warrants,
and
rights
(b)
|
|
|
Number of
securities
remaining
available for
future issuance
under
equity
compensation
plans (excluding
securities reflected
in column (a))
(c)
|
|
|
Equity Compensation plans approved by security holders
|
|
|
4,800 shares
|
|
|
$
|
17.86
|
|
|
|
0
|
|
|
Equity Compensation plans not approved by security holders
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
|
4,800 shares
|
|
|
$
|
17.86
|
|
|
|
0
|
|
71
|
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence.
|
Information on certain relationships and related transactions, and director independence is detailed in the Definitive Proxy Statement, and is incorporated herein by reference.
|
Item 14.
|
Principal Accounting Fees and Services.
|
Information on principal accounting fees and services is provided in the Definitive Proxy Statement and is incorporated herein by reference.
PART IV
|
Item 15.
|
Exhibits, Financial Statement Schedules.
|
(a)
|
|
(1)
|
The response to this portion of Item 15 is included in Item 8 of this report.
|
|
|
(2)
|
The response to this portion of Item 15 is included in Item 8 of this report.
|
|
|
(3)
|
The following exhibits are attached hereto or incorporated by reference as part of this Form 10-K and this list includes the Exhibit Index.
|
|
|
|
|
|
Exhibit
No.
|
|
Description of Exhibit
|
|
|
|
|
3.1
|
|
Articles of Incorporation of Pioneer Bankshares, Inc. (incorporated by reference to Exhibit 3.1 of Pioneer Bankshares, Inc.’s Form 10-K filed May 2, 2000, as
amended).
|
|
|
|
|
3.2
|
|
Bylaws of Pioneer Bankshares, Inc. (incorporated by reference to Exhibit 3.2 of Pioneer Bankshares, Inc.’s Form 10-SB filed May 2, 2000, as amended).
|
|
|
|
|
10.1
|
|
Pioneer Bankshares, Inc. (Formerly Page Bankshares, Inc.), 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10 of Pioneer Bankshares, Inc.’s Form 10-QSB filed
August 12, 2002).
|
|
|
|
|
21
|
|
List of subsidiaries.
|
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith).
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith).
|
|
|
|
|
32
|
|
Certifications of Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
|
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Presentation Linkbase Document
|
|
|
(c)
|
Financial Statement Schedules
|
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
Pioneer Bankshares, Inc.
|
|
|
|
|
|
|
|
|
|
By: /s/ THOMAS R. ROSAZZA
|
|
Date: 3/29/2012
|
|
|
|
Thomas R. Rosazza
|
|
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
Date: 3/29/2012
|
|
|
|
By: /s/ LORI G. HASSETT
|
|
|
|
|
|
Lori G. Hassett
|
|
|
|
|
|
Vice President and Chief Financial Officer
|
73
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ ROBERT E. LONG
|
|
Director
|
|
March 22, 2012
|
|
Robert E. Long
|
|
|
|
|
|
|
|
|
|
/s/ KYLE L. MILLER
|
|
Director
|
|
March 22, 2012
|
|
Kyle L. Miller
|
|
|
|
|
|
|
|
|
|
/s/ PATRICIA G. BAKER
|
|
Director
|
|
March 23, 2012
|
|
Patricia G. Baker
|
|
|
|
|
|
|
|
|
|
/s/ DAVID N. SLYE
|
|
Director
|
|
March 23, 2012
|
|
David N. Slye
|
|
|
|
|
|
|
|
|
|
/s/ HARRY F. LOUDERBACK
|
|
Director
|
|
March 22, 2012
|
|
Harry F. Louderback
|
|
|
|
|
|
|
|
|
|
/s/ JAMES F. PRINTZ
|
|
Director
|
|
March 22, 2012
|
|
James F. Printz
|
|
|
|
|
|
|
|
|
|
/s/ MARK N. REED
|
|
Director
|
|
March 23, 2012
|
|
Mark N. Reed
|
|
|
|
|
|
|
|
|
|
/s/ E. POWELL MARKOWITZ
|
|
Director
|
|
March 22, 2012
|
|
E. Powell Markowitz
|
|
|
|
|
|
|
|
|
|
/s/ THOMAS R. ROSAZZA
|
|
President, Chief Executive Officer
|
|
March 23, 2012
|
|
Thomas R. Rosazza
|
|
and Director
|
|
|
|
|
|
|
|
/s/ LORI G. HASSETT
|
|
Vice President,
|
|
March 27, 2012
|
|
Lori G. Hassett
|
|
Chief Financial Officer
|
|
|
74
Grafico Azioni Pioneer Bankshares (PK) (USOTC:PNBI)
Storico
Da Gen 2025 a Feb 2025
Grafico Azioni Pioneer Bankshares (PK) (USOTC:PNBI)
Storico
Da Feb 2024 a Feb 2025
