<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 1995
Commission file number 0-14506
Pioneer American Holding Company, Corp.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2319931
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
41 North Main Street, Carbondale PA 18407
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(717) 282-2662
---------------------------------------------------
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by the Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as the latest practical date.
Common Stock, $10.00 Par Value--1,393,175 common shares as of June 30, 1995.
<PAGE>
INDEX
PIONEER AMERICAN HOLDING COMPANY, CORP.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--June 30, 1995,
December 31, 1994 and June 30, 1994.....................Pages 2-3
Condensed consolidated statements of income--Six months
ended June 30, 1995 and 1994..............................Page 4
Condensed consolidated statements of cash flows--Six months
ended June 30, 1995 and 1994............................Pages 5-6
Notes to condensed consolidated financial statements--
June 30, 1995..........................................Pages 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................Pages 11-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................Page 14
Item 2. Changes in Securities.......................................Page 14
Item 3. Defaults upon Senior Securities.............................Page 14
Item 4. Submission of Matters to a Vote of Security Holders.........Page 14
Item 5. Other Information...........................................Page 14
Item 6. Exhibits and Reports on form 8-K............................Page 14
SIGNATURES..........................................................Page 15
1
<PAGE>
PIONEER AMERICAN HOLDING COMPANY CORP.
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
---------------------------------------------------------------------------------------------------------------------------
June 30, December 31, June 30,
Assets 1995 1994 1994
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $ 11,011 11,489 10,248
Federal funds sold 13,000 - 2,975
Mortgage loans held for sale 1,535
Securities available for sale (cost of securities of $55,572
on June 30, 1995, $53,186 on December 31, 1994
and $52,810 on June 30, 1994)
U.S. Treasury securities 2,555 3,532 3,669
Federal agency mortgage based obligations 19,308 17,012 20,905
Other obligations of Federal agencies 31,386 28,199 27,068
Other securities 1,959 1,724 296
---------------------------------------------------------------------------------------------------------------------------
Total securities available for sale 55,208 50,467 51,938
---------------------------------------------------------------------------------------------------------------------------
Investment securities (approximate market value of
$51,899 on June 30, 1995, $50,479 on Dec 31, 1994
and $30,754 on June 30, 1994)
U.S. Treasury securities - 415 -
Other obligations of Federal agencies 39,732 39,767 18,773
Obligations of states and political subdivisions 11,813 12,424 12,331
Corporate notes 199 299 299
Other securities 10 10 10
---------------------------------------------------------------------------------------------------------------------------
Total investment securities 51,754 52,915 31,413
---------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned discount and deferred loan fees 187,985 179,872 164,049
Allowance for possible loan losses (2,641) (2,699) (2,807)
---------------------------------------------------------------------------------------------------------------------------
Net loans 185,344 177,173 161,242
---------------------------------------------------------------------------------------------------------------------------
Accrued interest receivable 2,999 3,023 2,110
Premises and equipment 3,416 3,462 3,166
Other real estate owned 909 824 1,234
Other assets 3,120 2,310 2,666
Cost in excess of fair value of net assets acquired
(net of accumulated amortization of $817 June 30, 1995,
$798 December 31, 1994 and $778 June 30, 1994) 726 745 765
---------------------------------------------------------------------------------------------------------------------------
Total assets $327,487 302,408 269,292
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
PIONEER AMERICAN HOLDING COMPANY, CORP.
Consolidated Balance Sheets, Continued (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
------------------------------------------------------------------------------------------------------------------------------
June 30, December 31, June 30,
Liabilities and Stockholders' Equity 1995 1994 1994
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits:
Demand - noninterest bearing $ 30,001 29,157 27,121
NOW and Super NOW 15,342 16,526 16,048
Savings 55,568 55,333 57,978
Money Market 20,998 24,824 25,806
Time 167,762 144,878 113,693
------------------------------------------------------------------------------------------------------------------------------
Total deposits 289,671 270,718 240,646
------------------------------------------------------------------------------------------------------------------------------
Accrued interest payable 2,816 1,716 1,328
Dividends payable 418 416 388
Short term borrowings 5,000 3,150 -
Note payable 275 275 -
Other liabilities 2,020 1,155 1,776
------------------------------------------------------------------------------------------------------------------------------
Total liabilities 300,200 277,430 244,138
------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $10 par value per share,
25,000,000 shares authorized; 1,393,175 shares on
June 30, 1995, 1,387,445 on Dec. 31, 1994 and
1,387,445 on June 30,1994 issued and outstanding 13,932 13,875 13,874
Additional paid-in capital 35 92 92
Undivided profits 13,560 12,806 11,763
Net unrealized holding gains(losses) on
available for sale securities (240) (1,795) (575)
------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 27,287 24,978 25,154
------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $327,487 302,408 269,292
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
PIONEER AMERICAN HOLDING COMPANY, CORP.
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Dollars in thousands) (Dollars in thousands)
-----------------------------------------------------------------------------------------------------------------------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 4,212 3,487 8,262 7,005
Interest on Federal funds sold 68 27 90 75
Interest on investments:
Taxable 1,435 1,086 2,856 2,083
Non-taxable 172 177 349 344
-----------------------------------------------------------------------------------------------------------------------------------
Total interest income 5,887 4,777 11,557 9,507
-----------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on other borrowed money & note payable 36 - 57 -
Interest on deposits 2,766 1,776 5,297 3,509
-----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,802 1,776 5,354 3,509
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income 3,085 3,001 6,203 5,998
Provision for possible loan losses 90 80 210 210
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,995 2,921 5,993 5,788
-----------------------------------------------------------------------------------------------------------------------------------
Other operating income:
Service charges on deposit accounts 206 178 407 355
Gains on sales of securities available for sale 172 50 179 57
Gains on securities held to maturity 3 - 3 -
Other income 144 107 331 239
-----------------------------------------------------------------------------------------------------------------------------------
Total other operating income 525 335 920 651
-----------------------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 1,128 1,031 2,287 2,083
Net occupancy expense of bank premises 190 167 384 350
Furniture and equipment expenses 142 130 273 264
Data processing expense 90 81 181 162
FDIC Insurance 154 134 308 268
Other expenses 724 615 1,311 1,070
-----------------------------------------------------------------------------------------------------------------------------------
Total other operating expenses 2,428 2,158 4,744 4,197
-----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of change in
accounting principle 1,092 1,098 2,169 2,242
Income tax expense 310 350 580 670
-----------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in accounting
principle 782 748 1,589 1,572
Cumulative effect of change in accounting
for income taxes - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Net income $ 782 748 1,589 1,572
-----------------------------------------------------------------------------------------------------------------------------------
Per Share Data:
Income before cumulative effect of change in
accounting principle 0.54 0.52 1.10 1.10
Cumulative effect of change in accounting for
income taxes - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Net income per common share equivalent $ 0.54 0.52 1.10 1.10
-----------------------------------------------------------------------------------------------------------------------------------
Weighted average common share and share equivalents 1,449,449 1,430,850 1,448,967 1,427,765
</TABLE>
4
<PAGE>
PIONEER AMERICAN HOLDING CONMPANY, CORP
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
-------------------------------------------------------------------------------------------------------------------------
June 30, June 30,
1995 1994
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,589 1,572
Adjustments to reconcile net income to net
cash from operating activities:
Net gain on sales of securities available
for sale (179) (57)
Net gain on held to maturity securities (3) -
Accretion of discount on securities
and money market investments (30) (64)
Amortization of premium on investment
securities 84 79
Provision for possible loan losses 210 210
Increase (decrease) in deferred loan fees 10 (50)
Decrease (increase) in accrued interest receivable 23 (44)
Depreciation and amortization of premises
and equipment 403 343
Loss (gain) on sales of premises and equipment 2 (1)
Loss on sale of other real estate 76 34
Gain on lease termination - (78)
Loss (gain) on sale of mortgage
and PHEAA loans (24) 31
Increase in other assets (1,609) (1,118)
Amortization of goodwill 19 19
Increase in accrued interest payable 1,100 277
Increase in other liabilities 865 607
-------------------------------------------------------------------------------------------------------------------------
Total adjustments to reconcile net income to net cash
from operating activities 947 188
-------------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 2,536 l,760
-------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of investment securities
and securities available for sale 3,855 5,161
Proceeds from sales of securities available for sale 10,710 4,270
Purchases of investment securities and securities
available for sale (15,662) (13,350)
Proceeds from the sale of mortgage and PHEAA loans 1,470 4,921
Net increase in loans made to customers, excluding
provision for loan losses and change in
deferred loan fees (10,161) (6,987)
Acquisition of premises and equipment (359) (390)
Proceeds from sales of premises and equipment - 17
Proceeds from sale of other real estate 163 263
-------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,984) (6,095)
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
PIONEER AMERICAN HOLDING COMPANY, CORP.
Consolidated Statements of Cash Flows, Continued (Unaudited)
(Dollars in thousands)
--------------------------------------------------------------------------------
June 30, June 30,
1995 1994
--------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in demand, NOW and Super NOW,
savings, money market and time deposits $ 18,953 3,091
Dividends paid (833) (767)
Notes payable - 275
Increase in Other borrowed money 1,850 -
Exercise of stock options - 149
--------------------------------------------------------------------------------
Net cash from financing activities 19,970 2,748
--------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 12,522 (1,587)
Cash and cash equivalents at beginning of year 11,489 14,810
--------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 24,011 13,223
--------------------------------------------------------------------------------
Supplemental Disclosure:
Cash payments for interest 4,254 3,232
Cash payments for income taxes 950 875
Transfer of assets from loans
to other real estate 324 250
Net unrealized loss (gain) on securities
available for sale 240 575
Tax effect on unrealized loss (gain)
on securities available for sale 124 297
6
<PAGE>
Notes to Condensed Consolidated Financial Statements
(1) Summary of Significant Accounting Policies:
Business--Pioneer American Holding Company Corp. (the "Company") and its
wholly owned subsidiary, Pioneer American Bank, National Association ("Pioneer")
provide a wide range of banking services to individual and corporate customers
through its branch banks in Lackawanna, Luzerne and Wayne counties in
Pennsylvania. Pioneer is subject to competition from other financial
institutions and other financial services companies. Pioneer is subject to the
regulations of certain federal agencies and undergoes periodic examinations by
those regulatory authorities.
Basis of Financial Statement Presentation--The accompanying consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles and include the accounts of the Company and its
wholly-owned subsidiary, Pioneer. All material intercompany balances and
transactions between the Company and its subsidiary have been eliminated. In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance for
possible loan losses and the valuation of real estate acquired in connection
with foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for possible loan losses and real estate owned,
management obtains independent appraisals for significant properties to the
extent considered practical.
Mortgage Loans Held for Sale--The Company has identified certain loans
as held for sale. These loans consist primarily of fixed rate residential
mortgages and are recorded at the lower of cost or estimated market value.
Securities Available for Sale--Securities available for sale are
accounted for at fair value and the unrealized gains and losses are accounted
for as a separate component of stockholders equity, net of tax.
Investment Securities Held to Maturity--Investment securities held to
maturity are carried at cost, adjusted for the amortization of the related
premiums or the accretion of the related discounts into interest income using a
method which approximates level-yield over the estimated remaining period until
maturity. The Company believes it has the intent and ability to hold to maturity
its portfolio of investment securities as part of its portfolio of long-term
interest earning assets.
Interest Revenue and Expenses--Interest revenue and expenses are accrued
on various methods which approximate a level or cost when related to principal
amounts outstanding. Unearned discount on loans is amortized to income by a
method which also approximates a level yield on the principal amounts
outstanding.
Loan Fees--Loan origination fees and direct loan origination costs are
recognized over the life of the related loan as an adjustment of the loan's
yield.
Non-accrual Loans--The accrual of interest on loans is discontinued when
payment of principal or interest is considered doubtful of collection. Loans on
which payments are ninety days or more past due are considered non-accrual
unless the loan is both well secured and in the process of collection. When
interest accrual is discontinued, the interest receivable which was previously
credited to income is reversed.
Allowance for Possible Loan Losses--The Provision for possible loan
losses charged to operating expenses reflects the amount deemed appropriate by
management to produce a reserve adequate to meet the present risk
characteristics of Pioneer's loan portfolio. Management's judgment is based on
the evaluation of individual loans and their overall risk characteristics, past
experiences with respect to the relationship of its loan losses to the loan
portfolio, the assessment of current economic conditions and other relevant
factors.
Management believes that the allowance for possible loan losses is
adequate. While management uses available information to make its evaluations,
future adjustments to the allowance may be necessary if economic conditions
differ substantially from the assumptions used in making the evaluations. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review Pioneer's allowance for possible loan losses. Such
agencies may require Pioneer to recognize additions to the allowances based on
their judgments about information available to them at the time of their
examination.
7
<PAGE>
Notes to Condensed Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued:
Premises and Equipment--Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed on a
straight-line basis over the estimated lives of the related assets as follows:
building 20-33 years; building and land improvements 5-10 years; equipment 3-12
years; and leasehold improvements over 10-15 years. No depreciation is taken on
capital projects-in-progress until such projects are completed and placed in
service. Maintenance and repairs are charged to operations as incurred.
Other Real Estate Owned--Other real estate owned consists of real estate
acquired through foreclosure and is stated at the lower of estimated fair value,
less estimated disposal costs, or cost. Allowances for declines in value
subsequent to acquisition were not necessary at both June 30, 1995 and 1994.
While management uses the best information available to make its evaluations,
future adjustments to the valuation of other real estate may be necessary if
economic conditions differ significantly from the assumption used in making the
evaluation.
Cost in Excess of Fair Value of Net Assets Acquired--Cost in excess of
fair value of net assets acquired arose from an acquisition in 1976 and is being
amortized on a straight-line basis over a period of 40 years.
Income Taxes-- Effective January 1, 1993 the Company adopted Financial
Accounting Standards Board (FASB) Statement No. 109, Accounting for Income
Taxes, (SFAS No. 109) which changes the method by which the Company accounts for
deferred income taxes. Under SFAS No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
periods in which those temporary differences are expected to be recovered or
settled.
Prior to 1993, the Company accounted for income taxes in accordance with
Accounting Principles Board Opinion No. 11. Accordingly, certain income and
expense items were recognized differently for financial reporting purposes than
for income tax purposes. Provisions for deferred taxes were made to recognize
those timing differences.
Cash and Cash Equivalents-- For purposes of reporting cash flows, cash
and cash equivalents include cash on hand, amounts due from banks, and Federal
funds sold. Generally, Federal funds are sold for one-day periods.
Recently Issued Accounting Standards--In December 1990, the FASB adopted
Statement of Financial Accounting Standards (SFAS) No. 106, Employers'
Accounting for Postretirement Benefits Other than Pensions. Since the Company
provided no such benefits, implementation of SFAS No. 106 has had no effect on
its financial statements.
In November 1992, the FASB issued Statement of Financial Accounting
Standards 112, Employers' Accounting for Postemployment Benefits. This statement
is effective for fiscal years beginning after December 15, 1993. Generally, the
Company does not offer postemployment benefits as defined in this Statement. The
Company believes implementation of this Statement will not have a material
effect on its financial statements.
In 1993, the FASB issued Statement of Financial Accounting standards
(SFAS) No. 114, Accounting by Creditors for Impairment of Loans. SFAS No. 114
requires certain impaired loans to be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate, the
loan's market price or the fair value of the collateral if the loan is
collateral dependent. This statement is effective for fiscal years beginning
after December 15, 1994 and will be reflected on a prospective basis. The
Company believes implementation of this statement will not have a material
effect on its financial condition.
(2) Investment Securities
Effective January 1, 1994, the Company adopted Financial Accounting
Standards Board Statement No. 115, Accounting for Certain Investments in Debt
and Equity Securities (SFAS No. 115) which changes the accounting and reporting
for investments in equity securities that have readily determinable fair values
and for all investments in debt securities.
The effect of this change was the classification of applicable
investments in three categories consisting of held-to-maturity, trading and
available for sale. Trading securities are bought and held principally for the
purpose of selling them in the near term.
8
<PAGE>
Notes to Condensed Consolidated Financial Statements, continued
(2) Continued:
Trading securities are accounted for at their fair value with the unrealized
gains and losses included in current earnings. The Company has not classified
any of it's investments as trading during the first six months ended June 30,
1995. All other securities not included in trading or
held to maturity are classified as available for sale.
Securities available for sale are accounted for at fair value.
Unrealized gains and losses on securities available for sale are accounted for
as a separate component of stockholders' equity, net of tax.
Securities available for sale at June 30, 1995, December 31, 1994 and June 30,
1994 are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
Cost Market Value Cost Market Value Cost Market Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 2,510 2,555 3,506 3,532 3,511 3,669
Federal agency mortgage based obligations 19,642 19,308 18,513 17,012 21,558 20,905
Other obligations of Federal agencies 31,461 31,386 29,443 28,199 27,445 27,068
Other Securities 1,959 1,959 1,724 1,724 296 296
----------------------------------------------------------------------
Securities available for sale $55,572 55,208 53,186 50,467 52,810 51,938
----------------------------------------------------------------------
</TABLE>
The adjustment in stockholders' equity for the unrealized loss of the
securities available for sale at June 30, 1995, net of tax, was $240,000.
Included in net deferred tax assets is $124,000 for this same unrealized loss.
Held-to-maturity securities are those securities for which the Company
has the ability and interest to hold the security until maturity. These
securities are accounted for at amortized cost. Securities at June 30, 1995,
December 31, 1994 and June 30, 1994 consist of held-to-maturity securities are
summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
Cost Market Value Cost Market Value Cost Market Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ - - 415 415 - -
Other Obligations of Federal Agencies 39,732 39,688 39,767 37,704 18,773 17,984
Obligations of State and Political Subdivisions 11,813 12,000 12,424 12,049 12,331 12,440
Corporate Notes 199 202 299 302 299 320
Other Securities 10 9 10 9 10 10
----------------------------------------------------------------------
Investment Securities $51,754 51,899 52,915 50,479 31,413 30,754
----------------------------------------------------------------------
</TABLE>
(3) Restrictions on Cash and Due from Banks--Pioneer is required to maintain
certain average reserve balances as established by the Federal Reserve Bank.
The amount of those reserve balances for the reserve computation period which
included June 30, 1995 was $1,100,000 which amount was satisfied through the
restriction of vault cash.
Pioneer is also required to maintain certain balances at correspondent
banks based upon activity with the correspondent. At June 30, 1995, the amount
of such balances was $31,000.
9
<PAGE>
Notes to Condensed Consolidated Financial Statements, continued
(4) Stockholders' Equity and Per Share Data-- In the fourth quarter of 1993 the
Company's Board of Directors declared a two for one stock split effected in the
form of a stock dividend which was approved by the Company's shareholders. The
split was effective on February 7, 1994. Also approved was an increase in the
number authorized shares of common stock from 1,000,000 ($10 par value) to
25,000,000 ($10 par value). These financial statements have been adjusted to
reflect the stock split.
At June 30, 1995 there were 25,000,000 shares of common stock at $10 par
value authorized with 1,393,175 shares issued and outstanding.
Through June 30, 1995 the Company has issued and outstanding 124,139
options to purchase shares of the Company, exercisable at between $16.00 to
$26.00 per share. In the first quarter Officers of the Company exercised 5,475
and in the second quarter 5,015 of previousily issued options.
The market value of the common shares of the Company at June 30, 1995
was $36.75. The impact of all the options issued and outstanding on the
calculation of earnings per share was additional incremental common stock
equivalents of 55,792 shares year to date and 56,274 shares for the second
quarter.
(5) Employee Benefit Plan--The Bank has an employee stock ownership plan which
includes substantially all employees who have at least one year of service.
During 1989 and 1990, Pioneer American Bank, N.A. Employee Stock Ownership Plan
(ESOP) obtained lines of credit from another financial institution in the amount
of $650,000 of which there was no outstanding balance at June 30, 1995 and 1994,
respectively.
The Bank has a savings and investment plan. Employees who have completed
one year of service with 1,000 hours of employment during that year are eligible
to participate.
The Company maintains employment contracts with its President, Senior
Executive Vice President and Executive Vice President. The Company also
maintains insurance contracts for its President and Senior Executive Vice
President.
10
<PAGE>
Financial Review Management's Discussion and Analysis of Financial Condition and
Result of Operation
Highlights
Total Assets were $327,487,000 at June 30, 1995 and $269,292,000 at June
30, 1994 which is an increase of $58,195,000 or 21.6%. Deposits increased by
$49,025,000 from $240,646,000 at June 30, 1994 which is an increase of 20.4% at
June 30, of 1995. The increase in deposits was the result of a special
certificate of deposit that was offered during the month of July, 1994 which
increased time deposits approximately 21.6%. In addition, demand deposits
non-interest bearing grew approximately 10.6% through retail growth. These new
monies were used to fund retail loan growth and securities purchases. Total loan
volume as of June 30, 1994 stood at $161,242,000, increasing by $24,102,000 or
14.9% to $185,344,000 at June 30, 1995. At June 30, 1995, total assets increased
$25,079,000 over December 31, 1994, deposits increased $18,953,000 or 7.0% and
loans increased $8,171,000 or 4.6%.
The average earning assets were $288,438,000 during the six months ended
June 30, 1995 and $248,513,000 during the six months ended June 30, 1994. This
is an increase of $39,925,000 or 16.1%.
Average total assets during the six months ended June 30, 1995 were
$310,249,000 and $266,463,000 for the six months ended June 30, 1994. The return
on average total assets was 1.0% for the six months ended June 30, 1995 and 1.2%
for the same period of 1994. Return on average equity for the first six months
of 1995 and 1994 were 12.2% and 12.5% respectively. Average equity for both
periods was $26,012,000 for the first six months of 1994 and $25,213,000 for the
first six months of 1994.
Net Interest Revenue
Net interest income for the first six months of 1995 increased $205,000 or
3.4% compared with the same period of 1994. While total interest revenue
increased $2,050,000 or 21.6%, interest paid increased by $1,845,000 or 52.6%
resulting in a net effect of a increase of $205,000 or 3.4% in net interest
income. The increase in interest income from the change in the volume of assets
was primarily a result of an increase in the securitues portfolio. This increase
was offset by an increase in the volume of interest bearing deposits which
increased interest expense. Net income per share was $1.10 for the first six
months of 1995 and $1.10 for the first six months of 1994. Earnings per share
data is based on share equivalent of 1,448,967 June 30, 1995 and 1,427,765
shares June 30, 1994. Net income increased $17,000 or 1.1% comparing the first
six months of 1995 to the first six months of 1994, and is attributed to the
increase in net interest revenue. Also other operating income was up during 1995
from the prior period, due to an increase in securities gain. Offsetting the
increase in income was the increase in other operating expenses due to an
increase in salaries and benefits. This increase was primarily the result of an
increase in full-time equivilents for the three new branches opened in 1994.
Provision and Reserve for Possible Loan Losses
Six Months Ended June 30,
1995 1994
-----------------------------
Balance at beginning of period $2,699,000 2,604,000
Recoveries 25,000 94,000
Less: Charge Offs 293,000 101,000
Provision for Loan Losses 210,000 210,000
-----------------------------------------------------------------------
Balance at end of period $2,641,000 2,807,000
-----------------------------------------------------------------------
The provision for possible loan losses for the first six months of 1995
amounted to $210,000. It was $210,000 for the first six months of 1994. Net
charges offs for the first six months of 1995 totaled $268,000 while net charge
offs for the same period of 1994 were $7,000. The ratio of net charge offs
during the first six months of 1995 to average loans outstanding during the same
period was .15% and for the first six months of 1994 was .004%.
The reserve for possible loan losses at June 30, 1995 totaled $2,641,000,
decreasing $166,000, 5.9% from $2,807,000 at June 30, 1994. These additions have
brought the Company ratio of reserve for possible loan losses to total loans
outstanding to 1.4% at June 30, 1995, and the same ratio as of June 30, 1994 was
1.7%.
11
<PAGE>
Financial Review Management's Discussion and Analysis of Financial Condition and
Result of Operation, continued
Other Operating Revenue
Other operating revenue for the first six months of 1994 was $651,000
increasing 41.3% to $920,000 reported for the first six months of 1995. Included
in other income in 1995 was $75,000 from life insurance proceeds due to the
death of a bank director. The gain on sale of securities available for sale was
up $122,000. This represented the largest increase in total other operating
revenue, comparing the first six months of 1995 to the first six months of 1994.
Service charge income on deposit accounts increased in 1995 due to an increase
in the fees collected for returned items.
Other Operating Expenses
Total other operating expenses were $4,197,000 in the first six months
of 1994 while other operating expenses were $4,744,000 in the first six months
of 1995; reflecting a increase of $547,000 or 13.0% for the first six months of
1995. Other expenses increased $241,000 or 22.5% comparing the first six months
of 1995 to the first six months of 1994. Salaries and employee benefits which
represent the most significant portion of non-interest expenses, increased by
9.8%. The 1995 increase is attributed to normal salary and benefit increases and
an increase in full time equivalents which included the addition of staff for
three new branches opened in 1994.
Income Taxes
The provision for income taxes for the first six months of 1995 was
$580,000 and $670,000 for the first six months of 1994. This reflects the
current tax rates and the level of income for both periods. This is the
estimated provision for income tax for the period as determined by operations of
the corporation.
Non-Performing Loans
Non-performing loans are listed as follows:
06/30/95 06/30/94
-------- --------
Non Accrual $ 673,000 $ 762,000
Loans 90 days or more past due 1,541,000 1,461,000
Restructured 1,065,000 750,000
---------- ----------
$3,279,000 $2,973,000
The loan loss reserve as of June 30, 1995 has been deemed adequate by
management. The allowance for loan loss as of June 30, 1995 was $2,641,000. This
amount is sufficient to cover inherent losses given the moderate past due,
nonperforming and classified levels. Determination for loan loss reserve
adequacy follows the guidelines in the Comptroller's Banking Circular
No.201(revised), including risk loss analysis, specific allocations for
problematic credits and provision for class loans.
Capital Management and Liquidity and Rate Sensitivity
The objectives of the Corporation's capital management policy places and
emphasis on both current financial positioning and future capital needs based on
anticipated growth. These objectives are maintained by management which monitors
its liquidity requirements though its asset/liability management program. This
program, with other management analysis, enables the bank to meet its cash flow
requirements and adapt to the changing needs of the Corporation's customers and
the requirements of regulatory agencies. The Corporation's principal source of
liquidity has been short-term U.S. Government and U.S. Agency obligations, and
various corporate notes. Money market investments and portfolio investments are
kept liquid in order to effectively match our current deposit structure.
12
<PAGE>
Financial Review Management's Discussion and Analysis of Financial Condition and
Result of Operation, continued
Capital Management and Liquidity and Rate Sensitivity, continued
The Corporation is affected by changes in the level of rates of interest.
Earnings will be sensitive to interest rate changes to the degree that the
average yield on assets responds differently to a change in interest rates than
does average cost of funds. Adequate liquidity affords the Corporation
flexibility in meeting consumer loan demand and deposit fluctuations.
The Corporation actively manages the interest rate sensitivity
characteristics of its assets and liabilities to control the effects of changes
in the general level of interest rates upon net interest revenue. This is
accomplished by the asset/liability committee which consists of senior
management and the board of directors, who are responsible for management
decisions as to the asset/liability maturity mix.
Effects of Inflation
The economic outlook for the remaining part of 1995 and early spring of
1996 remains unsettled and uncertain. The Federal Reserve may have the task of
sustaining expansion while stemming inflationary trends, in the realm of current
fiscal policy. Economic conditions are reviewed by management in a continuing
effort to adjust to the changing economic environment. The effects of these
changes on the banking industry as a whole in the Company's market area are
reviewed by management in order to compete at a level consistent with the goals
of profitability and sound management policy.
Increases in the rate of inflation can increase longer term interest
rates, which can reduce the value of investment securities, mortgage loans and
other fixed rate and term assets. Inflationary periods also may tend to increase
the borrowing needs of consumers, leading to requests for additional funds,
which can expand total loans above expected levels and therefore require
increased efforts to ensure the maintenance of adequate capital.
The banking industry is affected by inflation in a different manner than
other industries, although certain changes have similar effects on both banks
and other business enterprises. Current economic indicators are moving in the
direction of possible inflationary changes. Interest rates have been increasing
in response to economic changes and which will affect the Asset/ Liability
policy of the bank. Rates on Deposits and Loans are changed as necessary with
consideration of economic and market conditions. Our continuing efforts to
monitor all phases of the financial condition of all assets which can be
affected by inflation includes the pricing of collateral on a regular basis. The
coming months will reveal the effect of inflationary fluctuations on the
economy.
13
<PAGE>
Part II.
Item 1. Legal Proceedings
The nature of the business of Pioneer American Holding Company Corp. and its
subsidiary, Pioneer American Bank, N.A., generates a certain amount of
litigation involving matters arising in the ordinary course of business.
However, in the opinion of management, there are no proceedings pending to which
Pioneer American or its subsidiary are parties or to which their property is
subject, which, if determined adversely, would be material in relation to
Pioneer American's shareholders' equity or financial condition. In addition, no
material proceedings are pending or are known to be threatened or contemplated
against Pioneer American or its subsidiary by governmental authorities or other
parties.
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Executives
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of Pioneer American Holding Company Corp. was held
on June 6, 1995.
(b) Three Directors were elected at this meeting for four year terms as
follows:
Gene E. Goldenziel
William K. Nasser
John W. Walski
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
None
14
<PAGE>
SIGNATURES *
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIONEER AMERICAN HOLDING COMPANY, CORP.
Date: July 26, 1995 By /s/ Donald A. Hoyle, Jr
-----------------------------------
Donald A. Hoyle, Jr
President & C.E.O.
Date: July 26, 1995
By /s/ John W. Reuther
-----------------------------------
John W. Reuther
Senior Executive Vice President &
Chief Financial Officer
15
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