<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 March 31, 1996
--------------
Commission file number 0-14506
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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--1,396,175 common shares as of March 31, 1996.
<PAGE>
INDEX
PIONEER AMERICAN HOLDING COMPANY, CORP.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--March 31, 1996,
December 31, 1995 and March 31, 1995.....................Pages 2-3
Condensed consolidated statements of income--Three months
ended March 31, 1996 and 1995 .............................Page 4
Condensed consolidated statements of cash flows--Three months
ended March 31, 1996 and 1995............................Pages 5-6
Notes to condensed consolidated financial statements--
March 31, 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
<PAGE>
PIONEER AMERICAN HOLDING COMPANY CORP.
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------
March 31, December 31, March 31,
Assets 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $ 10,332 12,677 10,888
Federal funds sold 4,460 8,500 5,750
Securities available for sale (cost of securities of $79,791
on March 31, 1996, $68,469 on December 31, 1995
and $50,500 on March 31, 1995)
U.S. Treasury securities 2,488 2,463 3,602
Federal agency mortgage based obligations 14,762 15,142 16,278
Other obligations of Federal agencies 59,799 48,663 27,266
Obligations of states and political subdivisions 100 101 -
Other securities 2,086 1,959 1,959
---------------------------------------------------------------------------------------------------------------
Total securities available for sale 79,235 68,328 49,105
- ---------------------------------------------------------------------------------------------------------------
Investment securities (approximate market value of
$18,880 on March 31, 1996,$25,993 on Dec 31, 1995
and $51,199 on March 31, 1995)
Other obligations of Federal agencies 9,691 17,697 39,750
Obligations of states and political subdivisions 9,122 8,126 12,078
Corporate notes 200 200 199
Other securities - 10 10
- ---------------------------------------------------------------------------------------------------------------
Total investment securities 19,013 26,033 52,037
- ---------------------------------------------------------------------------------------------------------------
Loans, net of unearned discount and deferred loan fees 202,527 197,297 184,481
Allowance for possible loan losses (2,788) (2,742) (2,756)
- ---------------------------------------------------------------------------------------------------------------
Net loans 199,739 194,555 181,725
- ---------------------------------------------------------------------------------------------------------------
Accrued interest receivable 2,644 2,633 2,573
Premises and equipment 4,991 4,783 3,564
Other real estate owned 1,023 932 869
Other assets 2,083 1,499 2,608
Cost in excess of fair value of net assets acquired
(net of accumulated amortization of $846 March 31, 1996
$836 December 31, 1995 and $807 March 31, 1995) 697 707 736
- ---------------------------------------------------------------------------------------------------------------
Total assets $ 324,217 320,647 309,855
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PIONEER AMERICAN HOLDING COMPANY, CORP.
Consolidated Balance Sheets, Continued (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------
March 31, December 31, March 31,
Liabilities and Stockholders' Equity 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits:
Demand - noninterest bearing $ 31,299 32,915 29,622
NOW and Super NOW 15,662 15,392 15,653
Savings 56,792 54,062 55,594
Money Market 23,985 22,510 22,854
Time 163,658 163,373 155,552
- ------------------------------------------------------------------------------------------------------------
Total deposits 291,396 288,252 279,275
- ------------------------------------------------------------------------------------------------------------
Accrued interest payable 2,298 2,102 2,220
Dividends payable 461 418 417
Note payable 275 275 275
Other liabilities 1,217 1,108 1,427
- ------------------------------------------------------------------------------------------------------------
Total liabilities 295,647 292,155 283,614
- ------------------------------------------------------------------------------------------------------------
Stockholders equity:
Common stock, $10 par value per share,
25,000,000 shares authorized; 1,396,175 shares on
March 31, 1996, 1,393,175 on Dec. 31, 1995 and
1,390,420 on March 31,1995 issued and outstanding 13,962 13,932 13,904
Additional paid-in capital 5 35 62
Undivided profits 14,970 14,618 13,196
Net unrealized holding gains(losses) on
available for sale securities (367) (93) (921)
- ------------------------------------------------------------------------------------------------------------
Total stockholders equity 28,570 28,492 26,241
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders equity $ 324,217 320,647 309,855
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PIONEER AMERICAN HOLDING COMPANY, CORP.
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------
March 31, March 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 4,483 4,050
Interest on Federal funds sold 127 22
Interest on investments:
Taxable 1,289 1,421
Non-taxable 116 177
- ------------------------------------------------------------------------------------------------------------------
Total interest income 6,015 5,670
- ------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on other borrowed money & note payable 4 21
Interest on deposits 2,830 2,531
- ------------------------------------------------------------------------------------------------------------------
Total interest expense 2,834 2,552
- ------------------------------------------------------------------------------------------------------------------
Net interest income 3,181 3,118
Provision for possible loan losses 120 120
- ------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,061 2,998
- ------------------------------------------------------------------------------------------------------------------
Other operating income:
Service charges on deposit accounts 253 201
Gains on sales of securities available for sale - 7
Other income 126 187
- ------------------------------------------------------------------------------------------------------------------
Total other operating income 379 395
- ------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 1,238 1,159
Net occupancy expense of bank premises 231 194
Furniture and equipment expenses 161 131
Data processing expense 57 91
FDIC Insurance 1 154
Other expenses 612 587
- ------------------------------------------------------------------------------------------------------------------
Total other operating expenses 2,300 2,316
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of
change in accounting principle 1,140 1,077
Income tax expense 327 270
- ------------------------------------------------------------------------------------------------------------------
Net income $ 813 807
- ------------------------------------------------------------------------------------------------------------------
Per Share Data:
Net income per common share equivalent $ 0.56 0.56
- ------------------------------------------------------------------------------------------------------------------
Weighted average common share and share equivalents 1,458,868 1,448,444
</TABLE>
<PAGE>
PIONEER AMERICAN HOLDING COMPANY, CORP
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------
March 31, March 31,
1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 813 807
Adjustments to reconcile net income to net
cash from operating activities:
Net gain on sales of securities available
for sale - (7)
Accretion of discount on securities
and money market investments (50) (15)
Amortization of premium on investment
securities 38 43
Provision for possible loan losses 120 120
Increase (decrease) in deferred loan fees (6) 8
Decrease (increase) in accrued interest receivable (11) 449
Depreciation and amortization of premises
and equipment 192 199
Loss on sale of other real estate 41 24
Proceeds from the sale of mortgages
and PHEAA loans 669 145
Net increase in mortgage and PHEAA loans
held for sale, excluding provision for
for loans losses and change in deferred
loan fees (1,278) (834)
Increase in other assets (443) (748)
Amortization of goodwill 10 10
Increase in accrued interest payable 196 504
Increase in other liabilities 109 272
- -----------------------------------------------------------------------------------------------
Total adjustments to reconcile net income to net cash
from operating activities (413) 170
- -----------------------------------------------------------------------------------------------
Net cash from operating activities 400 977
- -----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of investment securities
and securities available for sale 23,814 1,255
Proceeds from sales of securities available for sale - 3,017
Purchases of investment securities and securities
available for sale (28,104) (729)
Net increase in loans made to customers, excluding
provision for loan losses and change in
deferred loan fees (4,823) (4,223)
Acquisition of premises and equipment (400) (301)
Proceeds from sale of other real estate 2 162
- -----------------------------------------------------------------------------------------------
Net cash used in investing activities (9,511) (819)
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PIONEER AMERICAN HOLDING COMPANY, CORP.
Consolidated Statements of Cash Flows, Continued (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------
March 31, March 31,
1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities:
Net increase in demand, NOW and Super NOW,
savings, money market and time deposits. $ 3,144 8,557
Dividends paid (418) (416)
Increase in Other borrowed money - (3,150)
- ------------------------------------------------------------------------------------------------
Net cash from financing activities 2,726 4,991
- ------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents (6,385) 5,149
Cash and cash equivalents at beginning of year 21,177 11,489
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 14,792 16,638
- ------------------------------------------------------------------------------------------------
Supplemental Disclosure:
Cash payments for interest 2,638 2,048
Cash payments for income taxes 375 400
Transfer of assets from loans
to other real estate 134 232
Net unrealized loss (gain) on securities
available for sale 556 1,395
Tax effect on unrealized loss (gain)
on securities available for sale 189 474
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<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 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.
<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 March 31, 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
loan's effective interest rate, the loan's 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 Company's results of operations or financial condition. As of
March 31, 1996, the Company had impaired loans with a total recorded investment
of $1,160,000 and an average recorded investment for the three-month period
ended March 31,1996, of $1,149,000. As of March 31, 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 $825,000 and $248,000, respectively. The
amount of the recorded investment in impaired loans for which there was no
related allowance for credit losses at March 31, 1996 is $335,000. 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 management's 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 Company's 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.
<PAGE>
Notes to Condensed Consolidated Financial Statements, continued
(1) Continued:
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 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 Company's 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 Company's 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 Company's 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 it's investments as trading during the first three months
ended March 31, 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 March 31, 1996, December 31, 1995 and
March 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
Market Market Market
Cost Value Cost Value Cost Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 2,491 2,488 2,465 2,463 3,504 3,602
Federal agency mortgage based obligations 14,897 14,762 15,246 15,142 17,109 16,278
Other obligations of Federal agencies 60,217 59,799 48,699 48,663 27,928 27,266
Obligations of States and Political subdivsions 100 100 100 101
Other Securities 2,086 2,086 1,959 1,959 1,959 1,959
----------------------------------------------------------------------
Securities available for sale $ 79,791 79,235 68,469 68,328 50,500 49,105
======================================================================
</TABLE>
The adjustment in stockholders' equity for the unrealized loss of the
securities available for sale at March 31, 1996, net of tax, was $(367,000).
Included in net deferred tax assets is $189,000 for this same unrealized loss.
<PAGE>
Notes to Condensed Consolidated Financial Statements, continued
(2) Continued:
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 March 31, 1996, December 31,
1995 and March 31, 1995 consist of held-to-maturity securities are summarized as
follows:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
Market Market Market
Cost Value Cost Value Cost Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ - - - - - -
Other obligations of Federal agencies 9,691 9,551 17,697 17,540 39,750 38,865
Obligations of States and Political subdivsions 9,122 9,127 8,126 8,240 12,078 12,123
Corporate Notes 200 202 200 203 199 202
Other Securities - - 10 10 10 9
----------------------------------------------------------------------
Investment Securities $ 19,013 18,880 26,033 25,993 52,037 51,199
======================================================================
</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 March 31, 1996 was $1,202,000 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 March 31, 1996, the amount
of such balances was $61,000.
(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 March 31, 1996 there were 25,000,000 shares of common stock at $10 par
value authorized with 1,396,175 shares issued and outstanding.
Through March 31, 1996 the Company has issued and outstanding 119,139
options to purchase shares of the Company, exercisable at between $16.00 to
$26.00 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 5,000 of previously issued
options.
The market value of the common shares of the Company at March 31, 1996 was
$41.00. The impact of all the options issued and outstanding on the calculation
of earnings per share was additional incremental common stock equivalents of
62,693 shares.
(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 March 31, 1996 and 1995, respectively.
<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.
<PAGE>
Financial Review Management's Discussion and Analysis of Financial Condition
and Result of Operation
Highlights
Total Assets were $324,217,000 at March 31, 1996 and $309,855,000 at March
31, 1995 which is an increase of $14,362,000 or 4.6%. Deposits increased by
$12,121,000 from $279,275,000 at March 31, 1995 which is an increase of 4.3% at
March 31, of 1996. Total loan volume as of March 31, 1995 stood at $181,725,000,
increasing by $18,014,000 or 9.9% to $199,739,000 at March 31, 1996. At March
31, 1996, total assets increased $3,570,000 over December 31, 1995, deposits
increased $3,144,000 or 1.1% and loans increased $5,184,000 or 2.7%.
The average earning assets were $302,770,000 during the three months ended
March 31, 1996 and $283,257,000 during the three months ended March 31, 1995.
This is an increase of $19,513,000 or 6.9%.
Average total assets during the three months ended March 31, 1996 were
$322,743,000 and $304,521,000 for the three months ended March 31, 1995. The
return on average total assets was 1.0% for the three months ended March 31,
1996 and 1.1% for the same period of 1995. Return on average equity for the
first three months of 1996 and 1995 were 11.3% and 12.8% respectively. Average
equity for both periods was $28,682,000 for the first three months of 1996 and
$25,136,000 for the first three months of 1995.
Net income per share was $0.56 for the first three months of 1996 and $0.56
for the first three months of 1995. Earnings per share data is based on share
equivalent of 1,458,868 March 31, 1996 and 1,448,444 shares March 31, 1995. Net
income increased $6,000 or 0.7% comparing the first three months of 1996 to the
first three 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 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 three months of 1996 increased $63,000 or
2.1% compared with the same period of 1995. While total interest revenue
increased $345,000 or 6.1%, interest paid increased by $282,000 or 11.1%
resulting in a net effect of a increase of $63,000 or 2.1% in net interest
income. The increase in interest income was the result of a $19,513,000 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
Three Months Ended March 31,
1996 1995
-----------------------------
Balance at beginning of period $ 2,742,000 2,699,000
Recoveries 1,000 15,000
Less: Charge Offs 75,000 78,000
Provision for Loan Losses 120,000 120,000
- ------------------------------------------------------------------------------
Balance at end of period $ 2,788,000 2,756,000
- ------------------------------------------------------------------------------
The provision for possible loan losses for the first three months of 1996
amounted to $120,000. It was $120,000 for the first three months of 1995. Net
charge offs for the first three months of 1996 totaled $74,000 while net charge
offs for the same period of 1995 were $63,000. The ratio of net charge offs
during the first three months of 1996 to average loans outstanding during the
same period was .04% and for the first three months of 1995 was .04%.
<PAGE>
Financial Review Management's Discussion and Analysis of Financial Condition
and Result of Operation, continued
The reserve for possible loan losses at March 31, 1996 totaled $2,788,000,
increasing $32,000, 4.0% from $2,756,000 at March 31, 1995. These additions have
brought the Company ratio of reserve for possible loan losses to total loans
outstanding to 1.4% at March 31, 1996, and the same ratio as of March 31, 1995
was 1.5%
Non-performing loans are listed as follows:
03/31/96 03/31/95
-------- --------
Non Accrual $ 2,417,000 $ 1,992,000
Restructured 555,000 1,071,000
----------- ------------
$ 2,972,000 $ 3,063,000
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 March 31, 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 three months of 1995 was 395,000
decreasing 4.1% to $379,000 reported for the first three months of 1996.
Included in other income in 1995 was $75,000 from life insurance proceeds due to
the death of a bank director. 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 $2,316,000 in the first three months of
1995 while other operating expenses were $2,300,000 in the first three months of
1996; reflecting a decrease of $16,000 or .7% for the first three 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 6.8% as well as an increase of 19.1% for net
occupancy expense of bank premises.
Income Taxes
The provision for income taxes for the first three months of 1996 was
$327,000 and $270,000 for the first three 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.
<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 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.
<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
None
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
None
<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: May 7, 1996 By /s/ Donald A. Hoyle, Jr
-------------------------------
Donald A. Hoyle, Jr
President & C.E.O.
Date: May 7, 1996
By /s/ John W. Reuther
-------------------------------
John W. Reuther
Senior Executive Vice President &
Chief Financial Officer
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<CURRENCY> U.S.DOLLARS
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
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0
0
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