<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, 1996
-------------
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, $1.00 Par Value--2,808,486 common shares as of June 30, 1996.
<PAGE>
INDEX
PIONEER AMERICAN HOLDING COMPANY, CORP.
---------------------------------------
PART I. FINANCIAL INFORMATION
- ------ ---------------------
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--June 30, 1996,
December 31, 1995 and June 30, 1995.------------------------Pages 2-3
Condensed consolidated statements of income--Six months
ended June 30, 1996 and 1995--------------------------------Page 4
Condensed consolidated statements of cash flows--Six months
ended June 30, 1996 and 1995.-------------------------------Pages 5-6
Notes to condensed consolidated financial statements--
June 30, 1996.----------------------------------------------Pages 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.---------------------Pages 12-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings-------------------------------------------Page 15
Item 2. Changes in Securities---------------------------------------Page 15
Item 3. Defaults upon Senior Securities-----------------------------Page 15
Item 4. Submission of Matters to a Vote of Security Holders---------Page 15
Item 5. Other Information-------------------------------------------Page 15
Item 6. Exhibits and Reports on form 8-K----------------------------Page 15
SIGNATURES-----------------------------------------------------------Page 16
1
<PAGE>
PIONEER AMERICAN HOLDING COMPANY CORP.
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------
June 30, December 31, June 30,
Assets 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $ 10,826 12,677 11,011
Federal funds sold -- 8,500 13,000
Securities available for sale (cost of securities of
$76,290 on June 30, 1996, $68,469 on December 31,
1995 and $55,572 on June 30, 1995)
U.S. Treasury securities 2,493 2,463 2,555
Federal agency mortgage based obligations 14,278 15,142 19,308
Other obligations of Federal agencies 55,341 48,663 31,386
Obligations of states and political subdivisions -- 101 --
Other securities 2,086 1,959 1,959
- ---------------------------------------------------------------------------------------------------------------
Total securities available for sale 74,198 68,328 55,208
- ---------------------------------------------------------------------------------------------------------------
Investment securities (approximate market value of
$21,292 on June 30, 1996, $25,993 on Dec 31, 1995
and $51,899 on June 30, 1995)
Other obligations of Federal agencies 10,683 17,697 39,732
Obligations of states and political subdivisions 10,855 8,126 11,813
Corporate notes 200 200 199
Other securities -- 10 10
- ---------------------------------------------------------------------------------------------------------------
Total investment securities 21,738 26,033 51,754
- ---------------------------------------------------------------------------------------------------------------
Loans, net of unearned discount and deferred loan fees 207,475 197,297 187,985
Allowance for possible loan losses (2,811) (2,742) (2,641)
- ---------------------------------------------------------------------------------------------------------------
Net loans 204,664 194,555 185,344
- ---------------------------------------------------------------------------------------------------------------
Accrued interest receivable 2,839 2,633 2,999
Premises and equipment 5,132 4,783 3,416
Other real estate owned 993 932 909
Other assets 3,332 1,499 3,120
Cost in excess of fair value of net assets acquired
(net of accumulated amortization of $855 June 30, 1996
$836 December 31, 1995 and $817 June 30, 1995) 688 707 726
- ---------------------------------------------------------------------------------------------------------------
Total assets $324,410 320,647 327,487
===============================================================================================================
</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 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits:
Demand - noninterest bearing $ 34,914 32,915 30,001
NOW and Super NOW 16,004 15,392 15,342
Savings 57,427 54,062 55,568
Money Market 24,050 22,510 20,998
Time 156,069 163,373 167,762
- ---------------------------------------------------------------------------------------------------------------
Total deposits 288,464 288,252 289,671
- ---------------------------------------------------------------------------------------------------------------
Accrued interest payable 2,601 2,102 2,816
Dividends payable 477 418 418
Note payable 275 275 5,000
Other borrowed money short term 2,750 -- 2,020
Other liabilities 1,863 1,108 275
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 296,430 292,155 300,200
- ---------------------------------------------------------------------------------------------------------------
Stockholders equity:
Common stock, $1 par value per share,
25,000,000 shares authorized; 2,808,486 shares on
June 30, 1996, 2,786,350 on Dec. 31, 1995 and
2,786,350 on June 30, 1995 issued and outstanding 2,808 2,786 2,786
Additional paid-in capital 11,200 11,181 11,181
Undivided profits 15,353 14,618 13,560
Net unrealized holding gains(losses) on
available for sale securities (1,381) (93) (240)
- ---------------------------------------------------------------------------------------------------------------
Total stockholders equity 27,980 28,492 27,287
- ---------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders equity $324,410 320,647 327,487
===============================================================================================================
</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,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 4,617 4,212 9,100 8,262
Interest on Federal funds sold 39 68 166 90
Interest on investments:
Taxable 1,377 1,435 2,666 2,856
Non-taxable 130 172 246 349
- -------------------------------------------------------------------------------------------------------------------
Total interest income 6,163 5,887 12,178 11,557
- -------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on other borrowed money & note payable 14 36 18 57
Interest on deposits 2,670 2,766 5,500 5,297
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 2,684 2,802 5,518 5,354
- -------------------------------------------------------------------------------------------------------------------
Net interest income 3,479 3,085 6,660 6,203
Provision for possible loan losses 115 90 235 210
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,364 2,995 6,425 5,993
- -------------------------------------------------------------------------------------------------------------------
Other operating income:
Service charges on deposit accounts 266 206 519 407
Gains on sales of securities available for sale -- 172 - 179
Gains on securities held to maturity -- 3 - 3
Other income 157 144 283 331
- -------------------------------------------------------------------------------------------------------------------
Total other operating income 423 525 802 920
- -------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 1,270 1,128 2,508 2,287
Net occupancy expense of bank premises 214 190 445 384
Furniture and equipment expenses 149 142 310 273
Data processing expense 60 90 117 181
FDIC Insurance 0 154 1 308
Other expenses 783 724 1,395 1,311
- -------------------------------------------------------------------------------------------------------------------
Total other operating expenses 2,476 2,428 4,776 4,744
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of
change in accounting principle 1,311 1,092 2,451 2,169
Income tax expense 410 310 737 580
- -------------------------------------------------------------------------------------------------------------------
Net income $ 901 782 1,714 1,589
===================================================================================================================
Per Share Data:
Net income per common share equivalent $ 0.31 0.27 0.59 0.55
===================================================================================================================
Weighted average common share and share equivalents 2,917,482 2,898,898 2,917,596 2,897,934
</TABLE>
4
<PAGE>
PIONEER AMERICAN HOLDING COMPANY, CORP
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------
June 30, June 30,
1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,714 1,589
Adjustments to reconcile net income to net
cash from operating activities:
Net gain on sales of securities available
for sale -- (179)
Net gain on held to maturity securities -- (3)
Accretion of discount on securities
and money market investments (70) (30)
Amortization of premium on investment
securities 68 84
Provision for possible loan losses 235 210
Increase (decrease) in deferred loan fees (16) 10
Decrease (increase) in accrued interest receivable (206) 23
Depreciation and amortization of premises
and equipment 381 403
Loss (gain) on sales of premises and equipment (7) 2
Loss on sale of other real estate 43 76
Proceeds from the sale of mortgages
and PHEAA loans 1,262 1,470
Net increase in mortgage and PHEAA loans
held for sale, excluding provision for
loans losses and change in deferred
loan fees (1,399) (1,713)
Increase in other assets (1,170) (1,609)
Amortization of goodwill 19 19
Increase in accrued interest payable 499 1,100
Increase in other liabilities 755 865
- -------------------------------------------------------------------------------------------------------
Total adjustments to reconcile net income to net cash
from operating activities 394 728
- -------------------------------------------------------------------------------------------------------
Net cash from operating activities 2,108 2,317
- -------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of investment securities
and securities available for sale 31,095 3,855
Proceeds from sales of securities available for sale -- 10,710
Purchases of investment securities and securities
available for sale (34,619) (15,662)
Net increase in loans made to customers, excluding
provision for loan losses and change in
deferred loan fees (10,325) (8,472)
Acquisition of premises and equipment (737) (359)
Proceeds from sale of premises and equipment 14 --
Proceeds from sale of other real estate 30 163
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (14,542) (9,765)
- -------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
PIONEER AMERICAN HOLDING COMPANY, CORP.
Consolidated Statements of Cash Flows, Continued (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------
June 30, June 30,
1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities:
Net increase in demand, NOW and Super NOW,
savings, money market and time deposits. $ 212 18,953
Dividends paid (879) (833)
Increase in Other borrowed money 2,750 1,850
- -------------------------------------------------------------------------------------------------------
Net cash from financing activities 2,083 19,970
- -------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents (10,351) 12,522
Cash and cash equivalents at beginning of year 21,177 11,489
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $10,826 24,011
- -------------------------------------------------------------------------------------------------------
Supplemental Disclosure:
Cash payments for interest 5,019 4,254
Cash payments for income taxes 800 950
Transfer of assets from loans
to other real estate 134 324
Net unrealized loss (gain) on securities
available for sale 1,381 240
Tax effect on unrealized loss (gain)
on securities available for sale 711 124
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
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, Wayne, Wyoming, Susquehanna and
Monroe counties in Northeastern 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 loans
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 Pioneers loan portfolio. Managements 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 Pioneers 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, 1996 and 1995.
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--The Company accounts for income taxes in accordance with
Financial Accounting Standards Board (FASB) Statement No. 109, Accounting for
Income Taxes, (SFAS No. 109) 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.
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 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 loans
effective interest rate, the loans market price or the fair value of the
collateral if the loan is collateral dependent. In October 1994, the FASB issued
SFAS No. 118, Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures (SFAS No. 118), which amends SFAS No. 114 and
requires certain related disclosures. Both SFAS No. 114 and 118 were effective
for the Company beginning January 1, 1995 and have been reflected prospectively
from that date. The implementation of these statements did not have a material
effect on the Companys results of operations or financial condition. As of June
30, 1996, the Company had impaired loans with a total recorded investment of
$1,230,000 and an average recorded investment for the Six-month period ended
June 30,1996, of $1,153,000. As of June 30, 1996, the amount of recorded
investment in impaired loans for which there is a related allowance for credit
losses and amount of the allowance is $1,047,000 and $275,000, respectively. The
amount of the recorded investment in impaired loans for which there was no
related allowance for credit losses at June 30, 1996 is $183,000. The aggregate
amount of impaired loans are measured under the fair value measurement method.
For purposes of applying the measurement criteria for impaired loans under SFAS
No. 114, as amended, the Company excludes large groups of smaller-balance
homogeneous loans, primarily consisting of residential real estate loans and
consumer loans, as well as commercial, financial, and agricultural loans with
balance less the $100,000. For applicable loans, the Company evaluates the need
for impairment recognition when a loan becomes nonaccrual, or earlier if based
on managements assessment of the relevant facts and circumstances, it is
probable that a creditor will be unable to collect all assets due according to
the contractual terms of the loan agreement. The Companys policy for the
recognition of interest income on impaired loans is the same as for nonaccrual
loans (described previously). Cash receipts on impaired loans are not recognized
as income, but are applied to principal. Impaired loans are charged off when the
Company determines that foreclosure is probable and the fair value of the
collateral is less than the recorded investment of the impaired loan.
In March 1995, the FASB issued SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
8
<PAGE>
Notes to Condensed Consolidated Financial Statements, continued
(1) Continued:
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable, and that any related impairment be based on
the fair value of the asset. In addition, long-lived assets to be disposed of
must generally be reported at the lower of carrying amount or fair value, less
cost to sell. SFAS No. 121 is required to be adopted by the Company in 1996.
Management does not expect the adoption of this statement to materially effect
the Companys results of operations or financial condition.
In May 1995, the FASB issued SFAS No. 122, Accounting for Mortgage
Servicing Rights and Excess Servicing Receivables and for Securitization of
Mortgage Loans. This statement will prospectively require the Company, which
services mortgage loans for others in return for a fee, to recognize these
servicing assets, regardless of how they were acquired. Additionally, the
Company will be required to assess the fair value of these assets at each
reporting date to determine impairment. SFAS No. 122 is required to be adopted
by the Company in 1996. Management does not expect the adoption of this
statement to materially effect the Companys results of operations or financial
condition.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-based
Compensation. This statement encourages the adoption of fair value accounting
for stock options issued to employees. Further, in the event that fair value
accounting is not adopted, the statement requires proforma disclosure of net
income and earnings per share as if fair value accounting had been adopted. SFAS
No. 123 is required to be adopted by the Company in 1996. Management expects
that it will not adopt fair value accounting for stock options issued to
employees and, therefore, does not expect the adoption of this statement to
materially effect the Companys results of operations or 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.
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 its investments as trading during the first Six months ended
June 30, 1996. 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, 1996, December 31, 1995 and June
30, 1995 are summarize as follows:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
Cost Market Value Cost Market Value Cost Market Value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 2,501 2,493 2,465 2,463 2,510 2,555
Federal agency mortgage based obligations 14,495 14,278 15,246 15,142 19,642 19,308
Other obligations of Federal agencies 57,208 55,341 48,699 48,663 31,461 31,386
Obligations of States and Political subdivisions -- -- 100 101
Other Securities 2,086 2,086 1,959 1,959 1,959 1,959
------------------------------------------------------------------------------
Securities available for sale: $76,290 74,198 68,469 68,328 55,572 55,208
==============================================================================
</TABLE>
9
<PAGE>
Notes to Condensed Consolidated Financial Statements, continued
(2) Continued:
The adjustment in stockholders' equity for the unrealized loss of the
securities available for sale at June 30, 1996, net of tax, was $(1,381,000).
Included in net deferred tax assets is $711,000 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, 1996, December 31,
1995 and June 30, 1995 consist of held-to-maturity securities are summarized as
follows:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
Cost Market Value Cost Market Value Cost Market Value
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ -- -- -- -- -- --
Other obligations of Federal agencies 10,683 10,331 17,697 17,540 39,732 39,688
Obligations of State and Political subdivisions 10,855 10,760 8,126 8,240 11,813 12,000
Corporate Notes 200 201 200 203 199 202
Other Securities -- -- 10 10 10 9
------------------------------------------------------------------------------------
Investment Securities: $21,738 21,292 26,033 25,993 51,754 51,899
------------------------------------------------------------------------------------
</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, 1996 was $1,250,000 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, 1996, the amount
of such balances was $47,000.
(4) Stockholders' Equity and Per Share Data-- In the second quarter of 1996
the Company's Board of Directors declared a two for one stock split effected in
the form of a stock dividend. The split is effective on July 15, 1996. These
financial statements have been adjusted to reflect the stock split.
At June 30, 1996 there were 25,000,000 shares of common stock at $1 par
value authorized with 2,808,486 shares issued and outstanding.
Through June 30, 1996 the Company has issued and outstanding 211,567
options to purchase shares of the Company, exercisable at between $8.00 to
$13.00 per share. Such options were issued with exercise prices equal to the
market value of the Company's common shares at the time of the grant. In the
first quarter Officers of the Company exercised 10,000 and in the second quarter
26,711 of previously issued options.
The market value of the common shares of the Company at June 30, 1996 was
$21.00. The impact of all the options issued and outstanding on the calculation
of earnings per share was additional incremental common stock equivalents of
109,110 shares year to date and 108,996 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, 1996 and 1995, respectively.
10
<PAGE>
Notes to Condensed Consolidated Financial Statements, continued
(5) Continued:
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.
11
<PAGE>
Financial Review Management's Discussion and Analysis of Financial Condition
and Result of Operation
Highlights
Total Assets were $324,410,000 at June 30, 1996 and $327,487,000 at June
30, 1995 which is a decrease of $3,077,000 or 1.0%. Deposits decreased by
$1,207,000 from $289,671,000 at June 30, 1995 which is a decrease of .4% at June
30, of 1996. Total loan volume as of June 30, 1995 stood at $185,344,000,
increasing by $19,320,000 or 10.4% to $204,664,000 at June 30, 1996. At June 30,
1996, total assets increased $3,763,000 over December 31, 1995, deposits
increased $212,000 or .1% and loans increased $10,109,000 or 5.2%.
The average earning assets were $304,303,000 during the six months ended
June 30, 1996 and $288,438,000 during the six months ended June 30, 1995. This
is an increase of $15,865,000 or 5.5%.
Average total assets during the six months ended June 30, 1996 were
$324,976,000 and $310,249,000 for the six months ended June 30, 1995. The return
on average total assets was 1.1% for the six months ended June 30, 1996 and 1.0%
for the same period of 1995. Return on average equity for the first six months
of 1996 and 1995 were 12.0% and 12.2% respectively. Average equity for both
periods was $28,638,000 for the first six months of 1996 and $26,012,000 for the
first six months of 1995.
Net income per share was $0.59 for the first six months of 1996 and $0.55
for the first six months of 1995. Earnings per share data is based on share
equivalent of 2,917,596 June 30, 1996 and 2,897,934 shares June 30, 1995. Net
income increased $125,000 or 7.9% comparing the first six months of 1996 to the
first six months of 1995, and is attributed to the increase in net interest
revenue. Also other operating income was down during 1996 from the prior period,
due to a decrease in gains on sale of securities available for sale and other
income. Offsetting the decrease in other income was the decrease in other
operating expenses due to a decrease in FDIC insurance.
Net Interest Revenue
Net interest income for the first six months of 1996 increased $457,000 or
7.4% compared with the same period of 1995. While total interest revenue
increased $621,000 or 5.4%, interest paid increased by $164,000 or 3.1%
resulting in a net effect of a increase of $457,000 or 7.4% in net interest
income. The increase in interest income was the result of a $15,865,000 increase
in the total average of interest earning assets. The volume and rate increase in
interest income was primarily driven by an increase in lending activity. This
increase was offset by a lesser increase in interest bearing deposits. The
Company offered special deposit rates to support the opening of seven new
branches from December 1994 through November 1995, which resulted in both an
increase in volume and rate of interest costing liabilities. This increase in
funds was utilized in funding the growth in the loan portfolio.
Provision / Reserve for Possible Loan Losses and Nonperforming Loans
Six Months Ended June 30,
1996 1995
---------------------------
Balance at beginning of period $2,742,000 2,699,000
Recoveries 6,000 25,000
Less: Charge Offs 172,000 293,000
Provision for Loan Losses 235,000 210,000
- --------------------------------------------------------------------
Balance at end of period $2,811,000 2,641,000
- --------------------------------------------------------------------
The provision for possible loan losses for the first six months of 1996
amounted to $235,000. It was $210,000 for the first six months of 1995. Net
charge offs for the first six months of 1996 totaled $166,000 while net charge
offs for the same period of 1995 were $268,000. The ratio of net charge offs
during the first six months of 1996 to average loans outstanding during the same
period was .08% and for the first six months of 1995 was .15%.
12
<PAGE>
Financial Review Management's Discussion and Analysis of Financial Condition
and Result of Operation, continued
The reserve for possible loan losses at June 30, 1996 totaled $2,811,000,
increasing $170,000, 6.4% from $2,641,000 at June 30, 1995. These additions have
brought the Company ratio of reserve for possible loan losses to total loans
outstanding to 1.4% at June 30, 1996, and the same ratio as of June 30, 1995 was
1.4%.
Non-performing loans are listed as follows:
06/30/96 06/30/95
-------- --------
Non Accrual $2,715,000 $2,214,000
Restructured 628,000 1,065,000
---------- ----------
$3,343,000 $3,279,000
The Company generally places a loan on a non-accrual status when, in the
opinion of management the borrower does not have the ability to meet the
original terms of the loan. The Company also reserves the accrued interest on
all loans over ninety days past due unless the Bank considers the loan to be
well secured and in the process of collection.
The comparability of the above information was not affected by the adoption
of SFAS No. 114. There are no impaired loans under SFAS No. 114 which are not
included in the above table.
The loan loss reserve as of June 30, 1996 has been deemed adequate by
management. 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, and the requirements of SFAS
No. 114.
Other Operating Revenue
Other operating revenue for the first six months of 1995 was 920,000
decreasing 12.8% to $802,000 reported for the first six months of 1996. Included
in other income in 1995 was $75,000 from life insurance proceeds due to the
death of a bank director and a gain on securities of $181,000. Service charge
income on deposit accounts increased in 1996 to offset other income due to an
increase in the fees collected for return items and an increase in the number of
accounts subject to service charge routines of the Bank.
Other Operating Expenses
Total other operating expenses were $4,744,000 in the first six months of
1995 while other operating expenses were $4,776,000 in the first six months of
1996; reflecting an increase of $32,000 or .7% for the first six months of 1996.
The decrease level of insurance premium for FDIC Insurance was offset by an
increase in salaries, employee benefits and net occupancy expense of bank
premises. The 1996 increase is attributable to normal salary increases and an
increase in full time equivalent, which included the additional of staff for
four new branches opened from June 1995 through November 1995. Salary and
employee benefit increased by 9.7% as well as an increase of 15.9% for net
occupancy expense of bank premises.
Income Taxes
The provision for income taxes for the first six months of 1996 was
$737,000 and $580,000 for the first six months of 1995. 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.
13
<PAGE>
Financial Review Management's Discussion and Analysis of Financial Condition
and Result of Operation, continued
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. 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 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.
14
<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 results of operation, stockholder's 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 4, 1996.
(b) Two Directors were elected at this meeting for four year terms as
follows:
Donald A. Hoyle, Jr.
Richard Chojnowski
(c) An amendment to the Company's Articles of Incorporation to change the
par value of the Company's Common Stock and Preferred Stock from
$10.00 per share to $1.00 per share was approved.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
None
15
<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: August 7, 1996 By /s/ Donald A. Hoyle, Jr.
--------------- ----------------------------------
Donald A. Hoyle, Jr
President & C.E.O.
Date: August 7, 1996 By /s/ John W. Reuther
--------------- ----------------------------------
John W. Reuther
Senior Executive Vice President &
Chief Financial Officer
16
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<NAME> PIONEER AMERICAN
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