<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 September 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
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--2,828,912 common shares as of September 30, 1996.
<PAGE>
INDEX
PIONEER AMERICAN HOLDING COMPANY, CORP.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--September 30, 1996,
December 31, 1995 and September 30, 1995...................Pages 2-3
Condensed consolidated statements of income--Three and
Nine months ended September 30, 1996 and 1995..............Page 4
Condensed consolidated statements of cash flows--
Nine months ended September 30, 1996 and 1995..............Pages 5-6
Notes to condensed consolidated financial statements--
September 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)
- ----------------------------------------------------------------------------------------------------------------------------------
September 30, December 31, September 30,
Assets 1996 1995 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $ 15,115 12,677 10,602
Federal funds sold 9,075 8,500 2,900
Securities available for sale (cost of securities of $65,677
on September 30, 1996, $68,469 on December 31, 1995
and $56,266 on September 30, 1995)
U.S. Treasury securities 2,498 2,463 2,546
Federal agency mortgage based obligations 7,817 15,142 20,095
Other obligations of Federal agencies 50,896 48,663 31,748
Obligations of states and political subdivisions 914 101 -
Other securities 2,086 1,959 1,959
- ----------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale 64,211 68,328 56,348
- ----------------------------------------------------------------------------------------------------------------------------------
Investment securities (approximate market value of
$21,959 on September 30, 1996, $25,993 on December 31, 1995
and $45,466 on September 30, 1995)
Other obligations of Federal agencies 10,677 17,697 32,714
Obligations of states and political subdivisions 11,252 8,126 11,626
Corporate notes 200 200 200
Other securities 0 10 10
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 22,129 26,033 44,550
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned discount and deferred loan fees 211,072 197,297 193,913
Allowance for possible loan losses (2,832) (2,742) (2,691)
- ----------------------------------------------------------------------------------------------------------------------------------
Net loans 208,240 194,555 191,222
- ----------------------------------------------------------------------------------------------------------------------------------
Accrued interest receivable 2,469 2,633 2,669
Premises and equipment 5,058 4,783 3,422
Other real estate owned 925 932 903
Other assets 3,605 1,499 2,879
Cost in excess of fair value of net assets acquired
(net of accumulated amortization of $865 September 30, 1996
$836 December 31, 1995 and $827 September 30, 1995) 678 707 716
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 331,505 320,647 316,211
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
PIONEER AMERICAN HOLDING COMPANY, CORP.
Consolidated Balance Sheets, Continued (Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------
September 30, December 31, September 30,
Liabilities and Stockholders' Equity 1996 1995 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits:
Demand - noninterest bearing $ 42,144 32,915 33,985
NOW and Super NOW 23,539 15,392 15,351
Savings 52,371 54,062 52,368
Money Market 23,800 22,510 20,717
Time 155,955 163,373 160,903
- -------------------------------------------------------------------------------------------------------------
Total deposits 297,809 288,252 283,324
- -------------------------------------------------------------------------------------------------------------
Accrued interest payable 1,917 2,102 1,969
Dividends payable 481 418 418
Note payable 275 275 275
Other borrowed money short term - - -
Other liabilities 2,109 1,108 2,188
- -------------------------------------------------------------------------------------------------------------
Total liabilities 302,591 292,155 288,174
- -------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $1 par value per share,
25,000,000 shares authorized; 2,828,912 shares on
September 30, 1996, 2,786,350 on Dec. 31, 1995 and
2,786,350 on September 30, 1995 issued and outstanding 2,829 2,786 2,786
Additional paid-in capital 11,233 11,181 11,181
Undivided profits 15,820 14,618 14,016
Net unrealized holding gains(losses) on
available for sale securities (968) (93) 54
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity 28,914 28,492 28,037
- -------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 331,505 320,647 316,211
- -------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
PIONEER AMERICAN HOLDING COMPANY, CORP.
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Dollars in thousands) (Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 4,637 4,342 13,737 12,604
Interest on Federal funds sold 24 155 190 245
Interest on investments:
Taxable 1,281 1,392 3,947 4,248
Non-taxable 156 168 402 517
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 6,098 6,057 18,276 17,614
- ---------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on other borrowed money & note payable 52 45 70 102
Interest on deposits 2,578 2,950 8,078 8,247
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense 2,630 2,995 8,148 8,349
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 3,468 3,062 10,128 9,265
Provision for possible loan losses 80 105 315 315
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,388 2,957 9,813 8,950
- ---------------------------------------------------------------------------------------------------------------------
Other operating income:
Service charges on deposit accounts 296 215 815 622
Gains on sales of securities available for sale - - - 179
Gains on securities held to maturity - - - 3
Other income 159 134 442 465
- ---------------------------------------------------------------------------------------------------------------------
Total other operating income 455 349 1,257 1,269
- ---------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and employee benefits 1,283 1,062 3,791 3,349
Net occupancy expense of bank premises 190 178 635 562
Furniture and Equipment expenses 154 142 464 415
Data processing expense 64 90 181 271
FDIC Insurance 1 (17) 2 291
Other expenses 800 642 2,195 1,953
- ---------------------------------------------------------------------------------------------------------------------
Total other operating expenses 2,492 2,097 7,268 6,841
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of change in
accounting principle 1,351 1,209 3,802 3,378
Income tax expense 403 335 1,140 915
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 948 874 2,662 2,463
- ---------------------------------------------------------------------------------------------------------------------
Per Share Data:
Net income per common share equivalent $ 0.32 0.30 0.91 0.85
- ---------------------------------------------------------------------------------------------------------------------
Weighted average common share and share equivalents 2,920,514 2,909,894 2,918,630 2,902,276
</TABLE>
4
<PAGE>
PIONEER AMERICAN HOLDING COMPANY, CORP
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------
September 30, September 30,
1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,662 2,463
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 (82) (51)
Amortization of premium on investment
securities 84 126
Provision for possible loan losses 235 315
Increase (decrease) in deferred loan fees 12 57
Decrease (increase) in accrued interest receivable 164 353
Depreciation and amortization of premises
and equipment 572 608
Loss (gain) on sales of premises and equipment (7) 3
Loss on sale of other real estate 104 85
Proceeds from the sale of mortgages
and PHEAA loans 2,727 2,229
Net increase in mortgage and PHEAA loans
held for sale, excluding provision for
loans losses and change in deferred
loan fees (1,229) (2,451)
Increase in other assets (1,655) (1,520)
Amortization of goodwill 29 29
Increase in accrued interest payable (185) 254
Increase in other liabilities 1,001 1,033
- -------------------------------------------------------------------------------------------------------
Total adjustments to reconcile net income to net cash
from operating activities 1,770 888
- -------------------------------------------------------------------------------------------------------
Net cash from operating activities 4,432 3,351
- -------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of investment securities
and securities available for sale 36,298 28,464
Proceeds from sales of securities available for sale 6,327 10,710
Purchases of investment securities and securities
available for sale (35,932) (33,782)
Net increase in loans made to customers, excluding
provision for loan losses and change in
deferred loan fees (15,620) (14,558)
Acquisition of premises and equipment (854) (581)
Proceeds from sale of premises and equipment 14 10
Proceeds from sale of other real estate 93 194
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,674) (9,543)
- -------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
PIONEER AMERICAN HOLDING COMPANY, CORP.
Consolidated Statements of Cash Flows, Continued (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------
September 30, September 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. $ 9,557 12,606
Dividends paid (1,356) (1,251)
Exercise stock options 54 -
Increase in Other borrowed money - (3,150)
- -------------------------------------------------------------------------------------------------------
Net cash from financing activities 8,255 8,205
- -------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,013 2,013
Cash and cash equivalents at beginning of year 21,177 11,489
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 24,190 13,502
- -------------------------------------------------------------------------------------------------------
Supplemental Disclosure:
Cash payments for interest 8,333 8,095
Cash payments for income taxes 1,200 880
Transfer of assets from loans
to other real estate 190 358
Net unrealized loss (gain) on securities
available for sale 968 (54)
Tax effect on unrealized loss (gain)
on securities available for sale 498 (28)
- -------------------------------------------------------------------------------------------------------
</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 loan's
yield.
Non-accrual Loans--The accrual of interest on loans is discontinued when
payment of principal or interest is considered doubtful of collection. Loans on
which payments are Ninety days or more past due are considered non-accrual
unless the loan is both well secured and in the process of collection. When
interest accrual is discontinued, the interest receivable which was previously
credited to income is reversed.
Allowance for Possible Loan Losses--The Provision for possible loan losses
charged to operating expenses reflects the amount deemed appropriate by
management to produce a reserve adequate to meet the present risk
characteristics of Pioneer's loan portfolio. Management's judgment is based on
the evaluation of individual loans and their overall risk characteristics, past
experiences with respect to the relationship of its loan losses to the loan
portfolio, the assessment of current economic conditions and other relevant
factors.
Management believes that the allowance for possible loan losses is adequate.
While management uses available information to make its evaluations, future
adjustments to the allowance may be necessary if economic conditions differ
substantially from the assumptions used in making the evaluations. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review Pioneer's allowance for possible loan losses. Such agencies
may require Pioneer to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
7
<PAGE>
Notes to Condensed Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued:
Premises and Equipment--Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed on a
straight-line basis over the estimated lives of the related assets as follows:
building 20-33 years; building and land improvements 5-10 years; equipment 3-12
years; and leasehold improvements over 10-15 years. No depreciation is taken on
capital projects-in-progress until such projects are completed and placed in
service. Maintenance and repairs are charged to operations as incurred.
Other Real Estate Owned--Other real estate owned consists of real estate
acquired through foreclosure and is stated at the lower of estimated fair value,
less estimated disposal costs, or cost. Allowances for declines in value
subsequent to acquisition were not necessary at both September 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
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
September 30, 1996, the Company had impaired loans with a total recorded
investment of $927,000 and an average recorded investment for the Nine-month
period ended September 30, 1996, of $1,144,000. As of September 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 $975,000 and
$354,000, respectively. The amount of the recorded investment in impaired loans
for which there was no related allowance for credit losses at September 30, 1996
is $0. 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.
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
8
<PAGE>
Notes to Condensed Consolidated Financial Statements, continued
(1) Continued:
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. .
In June 1996, the FASB issued No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This
Statement provides accounting and reporting standards for transfer and servicing
of financial assets and extinguishments of liabilities based on consistent
application of a financial - components approach that focuses on control. It
distinguishes transfer of financial assets that are sales from transfer that are
secured borrowings. SFAS No 125 is required to be adopted by the company in
1997. Management does not expect the adoption of this statement to materially
effect the Company's results of operation 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 Nine months ended
September 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.
9
<PAGE>
Notes to Condensed Consolidated Financial Statements, continued
(2) Continued
Securities available for sale at September 30, 1996, December 31, 1995 and
September 30, 1995 are summarize as follows:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
Cost Market Value Cost Market Value Cost Market Value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $ 2,500 2,498 2,465 2,463 2,507 2,546
Federal agency mortgage based obligations 7,969 7,817 15,246 15,142 20,345 20,095
Other obligations of Federal agencies 52,208 50,896 48,699 48,663 31,455 31,748
Obligations of States and Political
subdivisions 914 914 100 101
Other Securities 2,086 2,086 1,959 1,959 1,959 1,959
------------------------------------------------------------------------------
Securities available for sale: $ 65,677 64,211 68,469 68,328 56,266 56,348
------------------------------------------------------------------------------
</TABLE>
The adjustment in stockholders' equity for the unrealized loss of the
securities available for sale at September 30, 1996, net of tax, was $(968,000).
Included in net deferred tax assets is $498,000 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 September 30, 1996, December
31, 1995 and September 30, 1995 consist of held-to-maturity securities are
summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31, September 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 10,677 10,425 17,697 17,540 32,714 33,248
Obligations of State and Political
subdivisions 11,252 11,333 8,126 8,240 11,626 12,006
Corporate Notes 200 201 200 203 200 203
Other Securities - - 10 10 10 9
------------------------------------------------------------------------------------------
Investment Securities: $ 22,129 21,959 26,033 25,993 44,550 45,466
------------------------------------------------------------------------------------------
</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 September 30, 1996 was $1,592,000 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 September 30, 1996, the amount of
such balances was $48,000.
10
<PAGE>
Notes to Condensed Consolidated Financial Statements, continued
(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 September 30, 1996 there were 25,000,000 shares of common stock at $1 par
value authorized with 2,828,912 shares issued and outstanding.
Through September 30, 1996 the Company has issued and outstanding 182,725
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, in the second quarter
26,711 and in the third quarter 28,842 of previously issued options.
The market value of the common shares of the Company at September 30, 1996
was $22.00. The impact of all the options issued and outstanding on the
calculation of earnings per share was additional incremental common stock
equivalents of 89,718 shares year to date and 91,602 shares for the third
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 September 30, 1996 and
1995, respectively.
The Bank has a savings and investment plan. Employees who have completed one
year of service with 1,000 hours of employment during that year are eligible to
participate.
The Company maintains employment contracts with its President, Senior
Executive Vice President and Executive Vice President. The Company also
maintains insurance contracts for its President and Senior Executive Vice
President.
11
<PAGE>
Financial Review Management's Discussion and Analysis of Financial Condition and
Result of Operation
Highlights
Total Assets were $331,505,000 at September 30, 1996 and $316,211,000 at
September 30, 1995 which is an increase of $15,294,000 or 4.8%. Deposits
increased by $14,485,000 from $283,324,000 at September 30, 1995 which is a
increase of 5.1% at September 30, of 1996. Total loan volume as of September 30,
1995 stood at $191,222,000, increasing by $17,018,000 or 8.9% to $208,240,000 at
September 30, 1996. At September 30, 1996, total assets increased $10,858,000
over December 31, 1995, deposits increased $9,557,000 or 3.3% and loans
increased $13,685,000 or 7.0%.
The average earning assets were $303,748,000 during the Nine months ended
September 30, 1996 and $292,464,000 during the Nine months ended September 30,
1995. This is an increase of $11,284,000 or 3.7%.
Average total assets during the Nine months ended September 30, 1996 were
$324,852,000 and $314,431,000 for the Nine months ended September 30, 1995. The
return on average total assets was 1.1% for the Nine months ended September 30,
1996 and 1.0% for the same period of 1995. Return on average equity for the
first Nine months of 1996 and 1995 were 12.3% and 12.4% respectively. Average
equity for both periods was $28,779,000 for the first Nine months of 1996 and
$26,521,000 for the first Nine months of 1995.
Net income per share was $0.91 for the first Nine months of 1996 and $0.85
for the first Nine months of 1995. Earnings per share data is based on share
equivalent of 2,918,630 September 30, 1996 and 2,902,276 shares September 30,
1995. Net income increased $199,000 or 8.1% comparing the first Nine months of
1996 to the first Nine months of 1995, and is attributed to the increase in net
interest revenue. This increase was offset by a lesser increase in total other
operating expense due to an increase in salaries and employee benefits.
Net Interest Revenue
Net interest income for the first Nine months of 1996 increased $863,000 or
9.3% compared with the same period of 1995. While total interest revenue
increased $662,000 or 3.8%, interest paid increased by $201,000 or 2.4%
resulting in a net effect of a increase of $863,000 or 9.3% in net interest
income. The increase in interest income was the result of a $11,284,000 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
Nine Months Ended September 30,
1996 1995
---------------------------------------
Balance at beginning of period $ 2,742,000 2,699,000
Recoveries 13,000 38,000
Less: Charge Offs 238,000 361,000
Provision for Loan Losses 315,000 315,000
- -----------------------------------------------------------------------------
Balance at end of period $ 2,832,000 2,691,000
- -----------------------------------------------------------------------------
The provision for possible loan losses for the first Nine months of 1996
amounted to $315,000. It was $315,000 for the first Nine months of 1995. Net
charge offs for the first Nine months of 1996 totaled $225,000 while net charge
offs for the same period of 1995 were $323,000. The ratio of net charge offs
during the first Nine months of 1996 to average loans outstanding during the
same period was .11% and for the first Nine months of 1995 was .18%.
12
<PAGE>
Financial Review Management's Discussion and Analysis of Financial
Condition and Result of Operation, continued
The reserve for possible loan losses at September 30, 1996 totaled
$2,832,000, increasing $141,000, 5.2% from $2,691,000 at September 30, 1995.
These additions have brought the Company ratio of reserve for possible loan
losses to total loans outstanding to 1.4% at September 30, 1996, and the same
ratio as of September 30, 1995 was 1.4%
Non-performing loans are listed as follows:
09/30/96 09/30/95
-------------- -------------
Non Accrual $ 3,244,000 $ 2,447,000
Restructured 554,000 1,069,000
-------------- -------------
$ 3,798,000 $ 3,516,000
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 September 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 Nine months of 1995 was 1,269,000
decreasing 1.0% to $12,000 reported for the first Nine 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 $6,841,000 in the first Nine months of
1995 while other operating expenses were $7,268,000 in the first Nine months of
1996; reflecting an increase of $427,000 or 6.2% for the first Nine 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 13.2% as well as an increase of 13.0% for net
occupancy expense of bank premises.
Income Taxes
The provision for income taxes for the first Nine months of 1996 was
$1,140,000 and $915,000 for the first Nine 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 through 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
None
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: November 7, 1996 By /s/ Donald A. Hoyle, Jr
-----------------------------------
Donald A. Hoyle, Jr
President & C.E.O.
Date: November 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 HOLDING COMPANY, CORP.
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<S> <C>
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