SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
FORM 10-Q
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-17103
Pioneer Financial Corporation
(Exact name of registrant as specified in its charter)
United States 54-1439439
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
5601 Ironbridge Parkway, Chester, VA 23831
(Address of principal executive office) Zip Code
Registrant's telephone number, including area code: (804) 748-9733
Common Stock ($1.00 par value per share)
(Title and Class)
Indicate by using an X whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
As of May 13, 1994 there were issued and outstanding 2,348,799 shares of the
common stock of Pioneer Financial Corporation.
PIONEER FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Statements of Financial Condition,
March 31, 1994 (unaudited) and
September 30, 1993 3
Statements of Operations, Three Months
and Six Months Ended March 31, 1994 and
1993 (unaudited) 4
Statement of Stockholders' Equity
(unaudited), March 31, 1994 5
Statements of Cash Flows, Six Months
Ended March 31, 1994 and 1993 (unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION 20
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3 Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Materially Important Events
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Consolidated Statements of Financial Condition
Dollars in Thousands - Except Per Share Amounts
(Unaudited)
Assets Mar. 31, 1994 Sept. 30, 1993
Cash 1,001 2,309
Interest bearing deposits 11,211 22,640
Federal funds sold 1,162 197
Securities
Held to maturity (estimated market value of $67,725 71,195 488
and $488)
Available for sale (cost of $58,754 and $135,294) 57,950 136,403
Loans receivable, net 212,638 210,399
Investment in Federal Home Loan Bank stock 6,935 6,763
Real estate, net:
Acquired in settlement of loans 3,882 506
In-substance foreclosure - 3,277
Held for development or resale 14,800 14,319
Properties and equipment, net 4,249 4,327
Accrued interest receivable :
Loans 1,790 2,249
Securities and other interest-earning assets 872 945
Prepaid expenses and other assets 4,501 3,826
Total Assets 392,186 408,648
Liabilities and Stockholders' Equity
Liabilities:
Deposits 310,403 313,674
Securities sold under agreements to repurchase
and other borrowings 9,250 10,300
Advances from Federal Home Loan Bank 20,000 30,000
Advance payments by borrowers for taxes and insurance 1,246 1,013
Other liabilities 524 3,525
Total Liabilities 341,423 358,512
Stockholders' Equity:
Common stock 2,349 2,342
Additional capital 5,851 5,811
Retained earnings 43,072 41,423
Net unrealized gain (loss) on securities available for sale (509) 560
Total Stockholders' Equity 50,763 50,136
Total Liabilities and Stockholders' Equity 392,186 408,648
Book value, per share 21.61 21.40
Consolidated Statements of Operations (Unaudited)
Dollars in Thousands - Except Per Share Amounts
Three Months Ended Six Months Ended
Mar. 31, 1994 Mar. 31, 1993 Mar. 31, 1994 Mar. 31, 1993
Interest income
Loans receivable
Real estate loans 4,214 4,544 8,731 8,705
Other loans 430 252 811 647
Securities
Held to maturity 1,078 2,251 1,180 3,512
Available for sale 556 1,093 1,994 2,253
3 2 3 2
Other interest-earning assets 103 148 450 997
Total interest income 6,384 8,290 13,169 16,116
Interest expense
Deposits 3,103 3,388 6,337 6,912
Short term borrowings 258 865 525 1,682
Long term borrowings - 884 - 1,785
Total interest expense 3,361 5,137 6,862 10,379
Net Interest Income 3,023 3,153 6,307 5,737
Provision for loan losses 84 65 106 200
Net interest income after provision
for loan losses 2,939 3,088 6,201 5,537
Noninterest income
Gain (loss) from securities
Held to maturity - - - 176
Available for sale 161 1,070 242 1,052
Trading 61 42 67 (3)
Gain on sale of loans 164 99 378 332
Loan servicing fees 274 212 554 595
Income (loss) from real estate operations (245) (1,210) (476) (1,100)
Deposit servicing fees 128 122 247 232
Other 13 50 44 105
Total noninterest income 556 385 1,056 1,389
Noninterest expense
Compensation and employee benefits 1,107 1,157 2,248 2,296
Occupancy 455 531 919 1,064
Advertising 59 129 191 273
Data processing services 30 42 57 78
Insurance 259 249 517 510
Other 415 381 723 1,070
Total noninterest expense 2,325 2,489 4,655 5,291
Income before income taxes 1,170 984 2,602 1,635
Income taxes 368 229 718 402
Net income 802 755 1,884 1,233
Earnings per common share 0.33 0.31 0.77 0.50
Dividends paid per common share 0.05 - 0.10 0.10
Average shares outstanding 2,457,095 2,454,879 2,447,053 2,456,339
Consolidated Statement Of Stockholders' Equity (Unaudited)
(Dollars in Thousands)
As of March 31, 1994 Net Unrealized
Gain (Loss) on
Securities Total
Common Additional Retained Available for Stockholders'
Stock Capital Earnings Sale Equity
Balance at
September 30, 1993 2,342 5,811 41,423 560 50,136
Net income for the six
months ended March 31, 1994 - - 1,884 - 1,884
Cash Dividends -
Common Stock,
$0.10 per share - - (235) - (235)
Stock options exercised 7 40 - - 47
Net unrealized gain
(loss) on securities
available for sale - - - (1,069) (1,069)
Balance at March 31, 1994 2,349 5,851 43,072 ( 509) 50,763
Consolidated Statements of Cash Flow (unaudited)
(Dollars in Thousands) Six Months Ended Six Months Ended
March 31, March 31,
1994 1993
Operating Activities
Net income (loss) 1,884 1,233
Adjustments
Purchase of trading account securities (14,751) (90,100)
Proceeds from sale of trading account securities 14,818 90,097
Provision for losses 361 1,201
Gain on sale of assets (680) (1,574)
Amortization and depreciation 246 347
(Increase) decrease in accrued interest receivable 147 (936)
Other (3,526) 423
Net Cash Provided (Absorbed) By Operating Activities ( 1,501) 691
Investing Activities
Purchase of securities
Investment - (121,183)
Held for sale (120,619) (56,950)
Proceeds from sale of securities
Investment - 176
Held for sale 122,565 62,592
Proceeds from principal payments and maturities of securities
Investment 296 4,160
Held for sale 4,290 22,463
Proceeds from sale of loans 24,429 20,661
Loan originations and principal payments on loans (26,224) (42,626)
Proceeds from sale of real estate 1,050 911
Proceeds from sale (purchase) of Federal Home Loan Bank stock (172) (182)
Other (1,609) (1,016)
Net Cash Provided (Absorbed) By Investing Activities 4,006 ( 110,994)
Financing Activities
Net increase (decrease) in deposits (3,271) 10,248
Repurchase of common and preferred stock - (357)
Cash dividends paid on common stock (235) (246)
Repayments of Federal Home Loan Bank advances (10,000) -
Proceeds from securities sold under agreements
to repurchase and from other borrowings 144,398 129,331
Payments on securities sold under agreements to
repurchase and other borrowings (145,448) (129,331)
Decrease in escrow deposits 233 (28)
Other 46 -
Net Cash Provided (Absorbed) By Financing Activities ( 14,277) 9,617
Increase in Cash and Cash Equivalents (11,772) (100,686)
Cash and Cash Equivalents - beginning of year 25,146 122,776
Cash and Cash Equivalents - end of year 13,374 22,090
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
The condensed consolidated financial statements included herein have
been prepared by Pioneer Financial Corporation (the "Corporation" or "Pioneer
Financial"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Pioneer Financial is the
Holding company of Pioneer Federal Savings Bank (the "Bank" or "Pioneer
Federal"), and Pioneer Properties Inc. (a real estate brokerage company).
The majority of the earnings and performance figures herein reflect the
results of Pioneer Federal. Pioneer Federal is a federally chartered savings
bank with executive and administrative offices in Chester, Virginia, which
conducts business through a total of 11 full service retail banking offices
located in central Virginia in the cities of Richmond, Colonial Heights,
Petersburg and Hopewell, Virginia; the counties of Chesterfield and Henrico;
and the town of Chase City, Virginia. The Savings Bank, through a wholly
owned subsidiary also has a separate mortgage loan production office in
Henrico county.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the results of operations
for the applicable periods have been made. All significant intercompany
balances and transactions have been eliminated in consolidation. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading.
It is suggested that these condensed consolidated financial statements
be read in
conjunction with the consolidated financial statements and the
notes thereto in the Company's Annual Report to Stockholders for the year
ended September 30, 1993, filed with the SEC on or about December 28, 1993.
The results for the period covered hereby will not necessarily be indicative
of the operating results for the full year ending September 30, 1994.
PIONEER FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A--Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management
of Pioneer Financial Corp., all adjustments necessary for a fair presentation
of the financial statements have been included. The results of operations
for the six month period ended March 31, 1994 are not necessarily indicative
of the results which may be expected for the entire year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended September 30, 1993.
Note B--Per Share Data
Earnings per share is computed by dividing earnings by the weighted
average number of shares outstanding during the period. For the three and
six months ended March 31, 1994 the weighted average number of shares of
common stock was adjusted for the effects of existing stock options, which
are considered common stock equivalents. The calculation of earnings per
share for the three and six months ended March 31, 1993 did not include the
existing stock options as their dilutive effect was less than three percent.
The weighted average number of shares of common stock outstanding were
2,447,053 and 2,456,339 for the six months ended March 31, 1994 and 1993,
respectively.
Note C--Transfers from loans to real estate acquired through foreclosure
amounted to approximately $0 and $182,000 for the six months ended March 31,
1994 and 1993 respectively. Transfers from loans to real estate insubstance
foreclosed amounted to $56,000 and $355,000 for the six months ended March
31, 1994 and 1993, respectively, while real estate insubstance foreclosed
transferred to real estate acquired through foreclosure amounted to
approximately $3,570,000 and $6,385,000 for the six months ended March 31,
1994 and 1993, respectively.
Note D--Cash and Equivalents
For the purpose of reporting cash flows, the Corporation considers all
highly liquid debt instruments, such as federal funds and overnight deposits,
to be cash equivalents.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
This Management's Discussion and Analysis should be read in conjunction
with the Management's Discussion and Analysis contained in the company's
Annual Report to Stockholders, which focuses upon relevant matters occurring
during the year commencing October 1, 1992 and ending September 30, 1993.
Accordingly, the ensuing discussion focuses upon material matters at and for
the six months ended March 31, 1994.
General.
Pioneer Financial was incorporated in Virginia in November 1987 and
became the sole shareholder of Pioneer Federal Savings Bank ("Pioneer
Federal"). Presently, the primary business of Pioneer Financial is the
business of Pioneer Federal. Pioneer Financial also owns Pioneer Properties
Inc. which is a real estate brokerage company. At March 31, 1994, the
Corporation had assets of $392.2 million, total deposits of $310.4 million
and stockholders' equity of $50.8 million.
Management estimates that Pioneer Federal has approximately 45.2%
(approximately $115.1 million) of the total financial institution deposits
in the city of Hopewell, Virginia, where it operates its main office and a
branch office. The Savings Bank was chartered as a mutual association in
1933, and became a member of the Federal Home Loan Bank System in 1934. In
July 1984 Pioneer Federal converted to a federal capital stock savings and
loan association and in June 1988 changed its name to Pioneer Federal Savings
Bank upon conversion to a federal capital stock savings bank.
Merger
On February 16, 1994, Pioneer Financial entered into a Reorganization
and Merger Agreement (the "Agreement") providing for the acquisition of
Pioneer Financial by Signet Banking Corporation ("Signet"). The Agreement
provides for the exchange of .6232 shares of Signet common stock, subject to
adjustment under certain conditions, for each share of Pioneer Financial's
common stock, resulting in a price per share of $23.68 based upon the closing
Signet stock price on February 16, 1994. Also as of February 16, 1994,
Pioneer Financial and Signet executed an Option Agreement whereby Pioneer
Financial granted Signet an option to acquire 467,013 shares of Pioneer
Financial's common stock at a price of $21.75 per share, exercisable under
certain specified conditions. The acquisition pursuant to the Agreement is
subject to the ratification of various conditions, including the approval of
various regulatory authorities and the shareholders of Pioneer Financial.
Further, the acquisition must be consummated not later than December 31,
1994.
Changes in Financial Condition
Although assets have decreased over $16.5 million or 4.0% at March 31,
1994, there have been few significant increases or decreases in any one
category from September 30, 1993. Cash, interest bearing deposits and
federal funds sold (down in total $11.8 million for the six month period)
combined with proceeds from the sale of and principal repayments on
securities were used to fund new loans (net increase of $2.2 million) and to
repay $11.1 million of Federal Home Loan Bank ("FHLB") advances and other
borrowings. Also during the quarter ended March 31, 1994, the Corporation
reclassified approximately $71.0 million of securities from the available for
sale category to the held to maturity category of securities. The net
unrealized loss on these securities ($22,000) was recorded as a decrease to
shareholders' equity, and will be amortized into expense over the remaining
life of the securities.
Stockholders' Equity increased ($627,000 or 1.3%) as net income for the
six month period of $1,884,000 was partially offset by two regular quarterly
$0.05 per share common stock dividends totalling $235,000, as well as an
adjustment for the net unrealized loss on securities available for sale.
Results of Operation
The Corporation's results of operations are dependent to a large extent
on its net interest income, which is the difference between the interest
income it receives on its interest-earning assets (principally loans and
securities) and the interest expense, or cost of funds, of its
interest-bearing liabilities (principally deposits and, to a lesser extent,
FHLB
advances and other borrowings). Banking fees, service charges, and other
income; gains or losses on the sale of loans and other assets, and the level
of general and operating expenses (non-interest expense) also have
significant effects on the Corporation's results of operations.
Net Income. The Corporation recorded net income of $802,000 or $.33 per
share for the quarter ended March 31, 1994 as compared to $755,000 or $.31
per share for the prior year's second quarter. This increase was mainly
attributable to an increase in noninterest income combined with a decrease
in noninterest expenses. For the six months ended March 31, 1994 the
Corporation recorded net income of $1,884,000 or $.77 per share compared to
a net income for the same period a year earlier of $1,233,000 or $.50 per
share. This increase was the result of an increase in net interest margin
and a significant decrease in operating expenses, which was only slightly
offset by a decrease in other non-interest income items.
Three and Six Months Ended March 31, 1994 Compared to March 31, 1993
Interest Income. Interest income on all interest earning assets was
$6.4 million for the quarter ended March 31, 1994 as compared to $8.3 million
for the comparable period in 1993, a decrease of $1.9 million or 23.0%. A
$17.7 million increase in the average outstanding balance of loans for the
current quarter was not enough to offset an 11.0% decrease in the average
yield thereon. The majority of this decrease in interest income, however, was
the result of a $103.3 million decrease in the average outstanding balance
and a 14.1% decrease in the average yield of securities. Total interest
income from securities amounted to $1.6 million for the three months ended
March 31, 1994 as compared to $3.3 million for the three months ended March
31, 1993.
Interest income on all interest earning assets for the six months ended
March 31, 1994 was $13.2 million, a decrease of approximately $2.9 million
or 18.3% over the same period in 1993. Although there was a slight (13 basis
point) increase in the average yield on interest earning assets, a 17.6%
decrease in the average outstanding balance of these assets resulted in the
decrease in total interest income. For the six months ended March 31, 1994
the average balance of all interest earning assets was $375.3 millon yielding
7.0%, compared to $455.2 million yielding 6.9% in the previous year. This
$80.0 million decrease in the average balance of all interest earning assets
related to funds used to prepay debt during the year ended September 30,
1993.
For the six month period ended March 31, 1994 interest income on loans
increased by approximately $190,000 or 2.0% for the current year. While
average loans outstanding increased 12.3% for the six month period, the
average yield on these loans decreased 7.5%. For the same two periods,
interest on securities decreased $2.6 million, the direct result of a 38.5%
decrease in the average outstanding balance as well as a 9.6% decrease in
average yield. Interest income on other interest earning assets (FHLB stock,
federal funds sold, and cash) decreased approximately $547,000 or 54.9% due
mainly to a 45.0% decrease in the average outstanding balance of these
assets.
Interest Expense. Total interest expense decreased from $5.1 million
for the quarter ended March 31, 1993 to $3.4 million for the current quarter,
a decrease of over 34%. The majority of this decrease was directly
attributable to a 85.2% decrease in interest expense paid on borrowings.
Total interest on borrowings decreased by $1.5 million during the current
quarter, the direct result of prepaying $45.5 million of FHLB advances in
June, 1993 at an after tax penalty of $2.2 million as well as repaying, upon
maturity, $47.5 million in additional debt with the FHLB. $10.0 million of
such debt was paid in October, 1993, and the remainder had been repaid during
the year ended September 30, 1993. Interest expense on deposits decreased
$286,000 or 8.4% for the current three month period due mainly to an 8.8%
decrease in the average cost of deposits.
Interest expense for the six months ended March 31, 1994 decreased
approximately $3.5 million or 33.9% over the similar period in 1993. A 9.3%
decrease in average cost of deposits, partially offset by a $1.8 million
increase in average outstanding balance resulted in total interest expense
on deposits decreasing by approximately $575,000 or 8.3%. For the six months
ended March 31, 1994, deposits averaged $313.9 million at an average cost of
4.1%, compared to an average balance of $312.1 million and an average cost
of 4.5% for the comparable period in 1993. Total interest on borrowings
decreased by over $2.9 million or 84.9%, the direct result of prepaying FHLB
advances as discussed in the preceding paragraph.
Net Interest Margin. Although net interest margin decreased slightly
($130,000 or 4.1%) for the quarter ended March 31, 1994, net interest spread
increased from 2.4% for the three months ended March 31, 1993 to just over
2.9% for the three months ended March 31, 1994. (See table below)
Although decreases were experienced for the six months ended March 31,
1994 in both interest income and interest expense, net interest margin
increased by almost $570,000 or 9.9%. Net interest spread has increased from
2.0% for the six months ended March 31, 1993 to 3.0% for the current six
month period, reflecting a more rapid decline in cost of liabilities than the
decline in yield on assets.
The following table sets forth information concerning the yields
earned on interest earning assets, the rates paid on interest bearing
liabilities and the resultant net interest rate spread for the three and six
month periods ended March 31, 1994 and 1993. The yields earned and rates
paid are based on average balances.
Three Months Ended Six Months Ended
March 31 March 31
1994 1993 1994 1993
Interest-earning assets:
Real estate loans 8.34% 9.40% 8.59% 9.28%
Other loans 8.87% 9.73% 8.93% 9.74%
Mortgage-backed securities 6.60% 6.45% 6.37% 6.58%
Securities held to maturity 4.10% 8.69% 4.10% 9.12%
Securities available for sale 4.69% 4.44% 4.73% 4.44%
Other investments 4.04% 3.67% 3.56% 3.41%
Total interest-earning assets 6.92% 7.18% 6.99% 6.86%
Interest-bearing liabilities
Deposits 4.04% 4.43% 4.06% 4.48%
Borrowings 3.45% 5.85% 3.09% 5.94%
Total interest-bearing liabilities 3.99% 4.82% 3.98% 4.88%
Net interest rate spread 2.93% 2.36% 3.01% 1.98%
Provision for Possible Loan Losses and Other Asset Valuation Allowances.
Due to an overall improvement in the status of the Savings Bank's classified
assets, additional provisions for possible loan losses were minimal at
$84,000 for the three months ended March 31, 1994 as compared to $65,000 for
the three months ended March 31, 1993, and $107,000 for the six months ended
March 31, 1994 as compared to $200,000 for the same period last year.
Through the Corporation's Asset Classification Policy, management will
continue to monitor the loan portfolio as well as other assets on a quarterly
basis and evaluate the adequacy of total valuation allowances. (See
Provision for Possible Loan Losses).
Other Income. Other income of $556,000 for the three months ended March
31, 1994 was a $171,000 increase over the same period in 1993. An $890,000
decrease in gains from the sale of securities was more than offset by a
$965,000 decrease in expenses incurred in the day to day operations of Real
Estate Held, both for development and acquired in settlement of loans. Also
included in noninterest income in the loss from real estate operations
category were additions to valuation allowances on real estate projects in
the amount of $254,000 during the current year's quarter as compared to
$923,000 for the prior year's quarter. Other increases included gain on sale
of loans and loan servicing fees, up $65,000 and $62,000, respectively, for
the current years second quarter.
Other income was $1,056,000 for the six months ended March 31, 1994, a
decrease of approximately $333,000 from the six months ended March 31, 1993.
Included in this decrease are gains from the sale of securities totalling
only $309,000 for the six months ended March 31, 1994, versus $1,225,000 for
the same period in 1993. This decrease was partially offset by a decrease
in expenses incurred in the day to day operations of Real Estate Held, both
for development and acquired in settlement of loans (income (loss) from real
estate operations has increased over $624,000 for the six month period).
Other increases/decreases for the six month period were minimal.
Other Expenses. Other expenses decreased $165,000 or $6.6% for the
three months ended March 31, 1994. Slight increases in insurance and
miscellaneous expenses ($9,000 and $37,000, respectively) were more than
offset by decreases in all other categories of noninterest expenses.
Other expenses decreased approximately $636,000 for the six months ended
March 31, 1994. The majority of this decrease is due to one time charges
paid during the quarter ended December 31, 1992 related to the acquisition
in November, 1992 of River's Bend on the James, a residential and mixed use
development in southern Chesterfield County. With the exception of insurance
(up only $7,000), all other categories of noninterest expense have
decreased.
On March 31, 1994, Pioneer Federal discovered that a commercial checking
account customer may have engaged in check kiting (i.e, the depositing and
drawing of checks between accounts at two or more banks, neither account of
which has sufficient funds to pay the checks, in a manner that improperly
relies upon the time that it takes a bank of deposit to collect from the
paying bank) by depositing checks from another institution into its deposit
account at Pioneer Federal and immediately writing checks on its Pioneer
Federal account. Those deposited checks were subsequently dishonored when
presented by Pioneer Federal for payment. Based upon Pioneer Financial's
initial estimates, it did not appear that the check kiting activity would
have any significant adverse impact to either Pioneer Financial or the Bank.
As a result of its continued investigation, Pioneer Federal can no longer so
conclude and has since determined that the kiting activity may give rise to
a loss, the full amount of which is still not determinable but could be up
to $1.9 million. The amount of any loss will be subject to, among other
things, the extent of the recovery from the checking account customer and/or
the financial institution which processed the checks, although it is unclear
whether any action for either of such recovery will be successful. PFC has
been advised by its accountants that no allowances for losses are required
at this time. It is unclear what effect, if any a loss to PFC from the
check-kiting activity may have on the Holding Company Merger and Bank merger
with Signet.
Securities.
Securities as of March 31, 1994 were as follows (dollars in thousands):
As of March 31, 1994
Gross
Unrealized Estimated
Amortized Gains Market
Cost (Losses) Value
Held to maturity
Mortgage-backed securities 20,951 ( 984) 19,967
United States Treasury 49,759 (2,486) 47,273
Other securities 485 - 485
Total held to maturity 71,195 (3,470) 67,725
Available for sale
Mortgage-backed securities 1,059 38 1,097
Corporate notes 2,001 17 2,018
United States Treasury 24,940 (1,334) 23,606
Asset management fund 25,050 (175) 24,875
Other securities 5,704 650 6,354
Total - available for sale 58,754 (804) 57,950
Total securities 129,949 (4,274) 125,675
Asset and Liability Management. Management of the Savings Bank strives
to manage the maturity or repricing match between assets and liabilities.
The degree to which Pioneer Federal is "mismatched" in its maturities is the
primary measure of interest rate risk. In periods when long-term interest
rates are higher than short-term interest rates, net interest income can be
increased through the financing of long-term assets with short-term deposits
and borrowings. Although such a strategy may increase profits in the short
run, it increases the risk of exposure to rising interest rates and can
result in funds costs rising faster than asset yields.
The Savings Bank's efforts to match the repricing maturities of assets
and liabilities are hampered by the lack of demand for mortgages or assets
which would re-price often enough to offer protection against rate changes
and certificates of deposit with lengthy maturities. The percentage of asset
tests imposed by the Internal Revenue code and FIRREA require significant
investments in residential loans, thus slowing the Savings Bank's effort to
enlarge its portfolios of assets which re-price quickly and offer a
reasonable return.
The most common measure of interest rate risk is the gap ratio, i.e.,
the difference between interest-earning assets and interest-bearing
liabilities that reprice or mature within one year expressed as a percent of
total assets. Typically the closer the gap ratio is to zero, the less
sensitive is a company's earnings to moderate changes in interest rates.
Pioneer Federal's one year cumulative gap ratio at March 31, 1994 was
- - -17.09%.
The following table provides information as of March 31, 1994 on the
maturity and repricing interval of the Savings Bank's assets and liabilities,
based on their contractual term to maturity and the interest sensitivity gap
of the Savings Bank's assets and liabilities.
MATURITY/REPRICING INTERVAL
Less Than 6 Months 1 to 3 3 to 5 5 to 10 Greater Than
6 Months to 1 Year Years Years Years 10 Years Total
(Dollars in Millions)
Interest-Earning Assets
1 Mortgage Loans 71.0 11.1 23.1 11.3 6.0 70.7 193.2
Mortgage-Backed Securities - - 0.9 - 19.6 1.5 22.0
Other Loans 12.8 - 1.1 1.5 0.9 3.1 19.4
Investment Securities/FHLB Stock 16.3 4.1 6.9 80.4 0.5 5.9 114.1
Federal Funds Sold 1.2 - - - - - 1.2
Other Earning Assets 11.2 - - - - - 11.2
Total Interest-Earning Assets 112.5 15.2 32.0 93.2 27.0 81.2 361.1
Interest-Bearing Liabilities Deposits
Deposits
Demand Deposits 5.4 3.8 7.9 2.1 4.8 - 23.4 (1)
Savings Accounts 5.5 5.0 15.9 10.4 24.8 - 61.5 (1)
Money Market Demand Accounts 27.5 12.6 5.6 2.6 2.4 - 50.7 (1)
Certificates of Deposit 57.7 43.3 40.2 33.6 - - 174.8
Notes Payable 9.3 - - - - - 9.3
FHLB Advances 20.0 - - - - - 20.0
Total Interest-Bearing Liabilities 124.7 64.7 69.6 48.7 32.0 - 339.7
Interest Sensitivity Gap (12.2) (49.5) (37.6) 44.5 (5.0) 81.2 21.4
Cumulative Gap (12.2) (61.7) (99.3) (54.8) (59.8) 21.4
Ratio of Interest-Earning Assets to
Interest-Bearing Liabilities 0.90 0.23 0.46 1.91 0.84 0.00 1.06
Cumulative Ratio of Interest-Earning
Assets to Interest-Bearing Liabilities 0.90 0.67 0.62 0.82 0.82 1.06
Cumulative GAP as a Percent of
Total Earning Assets -3.38% -17.09% -27.50% -15.18% -16.56% 5.93%
<FN>
(1) Repricing of these three types of deposits (demand, savings and money
market demand) are based on repricing assumptions as of December 31,
1993 furnished by the FHLB of Atlanta through their interest rate risk
service.
Real Estate Investment. The Savings Bank's investment in real estate
ventures increased slightly at March 31, 1994 to $14.8 million as compared
to $14.3 million at September 30, 1993.
Federal Home Loan Bank System. Pioneer Federal is a member of the FHLB
System and, as a member, is required to own capital stock in the FHLB of
Atlanta in an amount at least equal to the greater of 1% of the aggregate
outstanding balance of its loans secured by residential real property at the
close of each year, or 5% of its outstanding advances from the FHLB of
Atlanta. As a member of the FHLB System, Pioneer Federal is authorized to
borrow funds from the FHLB of Atlanta to meet withdrawals of savings
accounts, seasonal requirements, and to expand its loan portfolio. At
March 31, 1994, Pioneer Federal owned $6,935,000 of stock and had advances
from the FHLB of $20,000,000, which mature in August of 1994.
Asset Classification. Pursuant to applicable regulations, the Savings
Bank has adopted a policy concerning the classification of problem assets.
Under the policy, problem loans and other assets are classified in three
categories: (i) Substandard, (ii) Doubtful, and (iii) Loss.
An asset is classified Substandard if it is determined to involve a
distinct possibility that the Savings bank could sustain some loss if
deficiencies associated with the loan are not corrected. An asset is
classified as Doubtful if full collection is highly questionable or
improbable. An asset is classified as Loss if it is considered
uncollectible, even if a partial recovery could be expected in the future.
All assets classified as loss are 100% reserved. The Savings Bank also
evaluates assets deserving "special mention" which, while not necessarily
exposing the Savings Bank to loss, do possess credit deficiencies or
potential weaknesses deserving management's close attention. If an asset is
classified pursuant to the Savings Bank's policies (or by regulatory
examiners) general valuation allowances ("GVA's") are then established. (See
Valuation Allowances).
Total classified assets have decreased $4.3 million or 16.1% for the
six month month period ended March 31, 1994, comprised of a $4.9 million
decrease in substandard assets and a $668,000 increase in loss assets. The
following table details information concerning the Savings Bank's classified
assets at March 31, 1994, and the ratio of classified assets to total assets:
Substandard Doubtful Loss Total
(Dollars in Thousands)
Commercial real estate 8,700 - 721 9,421
Mortgage loans 356 - - 356
Construction Loans - - - -
Other loans 244 - 40 284
Real estate held for development 7,105 - 1,065 8,170
Real estate owned 3,881 - 222 4,103
Total Classified Assets 20,286 - 2,048 22,334
Ratio of Classified
Assets to Total Assets 5.17% - 0.52% 5.69%
Non-Performing Assets. Loans are reviewed on a regular basis and are
placed on a non-accrual status when, in the opinion of management, the
collection of additional interest is doubtful. Residential mortgage loans
are placed on non-accrual status when either principal or interest is 90 days
or more past due unless collectability is assured in the near future.
Consumer loans generally are charged off when the loan becomes over 120 days
delinquent. Commercial, business and real estate loans are placed on
non-accrual status when the loan is 90 days or more past due, unless
circumstances require alternate treatment ( a loan can be past due more than
90 days and still be accruing interest). Interest accrued and unpaid at the
time a loan is placed on non-accrual status is charged against interest
income.
The following table sets forth information with respect to the Savings
Bank's non-performing loans at the dates indicated.
03/31/94 09/30/93 09/30/92 09/30/91
Loans accounted for on a
non-accrual basis:
Real Estate:
Residential 202 91 376 1,893
Commercial - - 243 1,545
Commercial Business - 363 391 1,144
Consumer 20 - 17 21
Total 222 454 1,027 4,603
Accruing loans which are
contractually past due
90 days or more:
Real Estate:
Residential 154 143 322 582
Commercial 6,753(1) 3,998 - -
Commercial Business 250 238 849 -
Consumer - - - -
Total 7,157 4,379 1,171 582
Total of nonaccrual and
90 days past due loans 7,379(2) 4,833 2,198 5,185
Percentage of Total Loans 3.47% 2.30% 1.33% 2.92%
<FN>
(1) Pioneer Federal is currently involved in negotiations with the borrower
regarding the repayment of this loan secured by an office building that
has since been demolished because of its proximity to a sinkhole that
developed in February, 1994. Pioneer Federal intends to continue
negotiations with the borrower, who purchased the office building from
a then-existing customer of Pioneer, and does not expect that resolution
of the loan will result in a significant loss to PFC.
<FN>
(2) Nonperforming loans which are classified assets as well are as
follows:
Special Mention 6,420
Substandard 590
Doubtful -
Loss 356
Total 7,366
Valuation Allowances. It is the Savings Bank's policy to establish
specific valuation allowances for loss against specific assets based on
current appraisals, discounted cash flow analysis and other factors when
possible losses are indicated on the loans or other assets. At March 31,
1994 allowances related to specific assets (loans and real estate) amounted
to $2.2 million.
In addition to specific valuation allowances, the Corporation also
calculates general valuation allowances ("GVA's") using two methods. The
first method applies certain percentages to classified asset balances which
have first been reduced for any specific valuation allowances. GVA's of
this type totalled $2.5 million at March 31, 1994. In addition to this type
of GVA, the Corporation also calculates GVA's on pass and unreviewed assets
(all assets that are not classified), based on, among other factors,
historical loss experience for each type of loan, trends in connection with
portfolio amounts and composition, and current economic conditions relating
to the collectability of loans in the portfolio. GVA's of this type totalled
$1.4 million at March 31, 1994. Total valuation allowances, both specific
and general, totalled $6.1 million at March 31, 1994.
The following table sets forth the breakdown of the allowance for losses
by category at the dates indicated.
Analysis of Valuation Allowances
Specific Valuation Allowances 3/31/94 12/31/93 9/30/93 9/30/92
Loans:
Residential Mortgage 49 49 38 356
Commercial Mortgage 721 521 653 739
Construction - - - -
Commercial Business 31 23 100 146
Consumer 35 42 73 183
Total Specific Valuation Allowance - Loans 836 635 864 1,424
Percent of Total Loans 0.4% 0.3% 0.4% 0.8%
Real Estate
In-substance Foreclosure - - - -
Real Estate Held for Development 1,138 890 807 154
Real Estate Owned 222 216 431 841
Total Specific Valuation Allowance - Real Estate 1,360 1,106 1,238 995
Percent of Total Real Estate 7.3% 6.0% 6.8% 4.3%
Total Specific Valuation Allowance 2,196 1,741 2,102 2,419
Percent of Total Loans/Real Estate 1.0% 0.7% 0.9% 1.3%
General Valuation Allowances
Loans:
Residential Mortgage 129 110 112 107
Commercial Mortgage 1,997 2,001 2,012 2,614
Construction 484 467 441 117
Commercial Business 178 196 191 67
Consumer 18 22 22 115
Total GVA - Loans 2,806 2,796 2,778 3,020
Percent of Total Loans 1.3% 1.3% 1.3% 1.8%
Real Estate:
In-substance Foreclosures - 365 364 -
Real Estate Held for Development 748 772 722 -
Real Estate Owned 388 41 118 -
Total GVA - Total Real Estate 1,136 1,178 1,204 -
Percent of Total Real Estate 6.1% 6.4% 6.7% -
Total GVA's 3,942 3,974 3,982 3,020
Percent of Total Loans/Real Estate and Other 1.7% 1.6% 1.7% 1.6%
Total Valuation Allowances 6,138 5,715 6,084 5,439
Percent of Total Loans/Real Estate and Other 2.6% 2.3% 2.7% 2.9%
Real Estate Owned. Real estate owned includes property acquired in
settlement of loans and loans classified as insubstance foreclosure.
Properties acquired in settlement of loans and loans classified as
in-substance foreclosure are initially valued at the lower of cost or fair
value
based on available appraisals at foreclosure or in consideration of estimated
sales price and costs of disposal as well as the estimated cost of holding
and maintaining the property. Carrying values are periodically adjusted to
the lower of the adjusted cost or net realizable value throughout the
remaining holding period. Loans classified as insubstance foreclosures
consist of loans accounted for as foreclosed property even though legal
foreclosure has not occurred. Although the collateral underlying these loans
has not been repossessed, the borrower has no equity in the collateral at its
current estimated fair value, proceeds for repayment are expected to come
only from the operation or sale of the collateral, and either the borrower
has abandoned control of the project or it is doubtful the borrower will
rebuild equity in the collateral or repay the loan by other means in the
foreseeable future.
During the year ended September 30, 1993, the Corporation determined
that seven loans with outstanding balances of $3,767,331 had been insubstance
foreclosed, and, although formal foreclosure proceedings had not been
initiated, the investment in the loans had been reported in the same manner
as collateral that has been formally repossessed, regardless of whether the
related loan is formally restructured. Of the seven properties, six were
sold during the quarter ended December 31, 1993. The remaining property, at
a carrying value of $3.4 million was formally foreclosed upon during the
quarter ended March 31, 1994. Subsequent to March 31, 1994, this property
was sold at no additional loss to the Corporation. As of March 31, 1994
there were no loans classified as insubstance foreclosed.
The following table sets forth the balances in repossessed property at
March 31, 1994, and the allowance for loss by type of property.
Less: Less: Net
Asset Specific General Carrying
Balances Allowance Value
(Dollars in Thousands)
Real Estate Owned
Single Family Residential 56 - 6 50
Multi-Family Residential 3,627 125 350 3,152
Construction 116 30 8 78
Commercial 305 67 24 214
Total Real Estate Owned 4,104 222 388 3,494
Liquidity and Capital Resources. Under current regulations the Savings
Bank is required to maintain liquid assets at 5% or more of its net
withdrawable deposits plus short-term borrowings. With total liquidity of
24.6% at March 31, 1994, the Savings Bank more than met the 5% requirement.
At December 31, 1993, the Savings Bank had outstanding loan commitments
totalling $13.5 million.
On August 9, 1989, the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") was enacted into law to restructure the
regulation of the thrift industry. The legislation affects the thrift
industry in several ways, including more stringent capital requirements and
new investment limitations and restrictions. On November 8, 1989, the OTS
published a final rule implementing three new capital standards. The
regulation requires institutions to have a minimum regulatory tangible
capital of 1.5% of total assets, a minimum core capital ratio of 3.0%, and,
as of December 31, 1992, a 8.0% risk-based capital ratio.
The following table sets forth the capital position of the Savings Bank
as calculated under FIRREA as of March 31, 1994, (in thousands):
Excess
Actual % of Required % of % of
Amount Assets* Amount Assets* Amount Assets(1)
Core 35,627 9.08% 11,686 3.00% 23,941 6.08%
Tangible 35,627 9.08% 5,843 1.50% 29,784 7.58%
Risk-weighted 38,822 17.09% 18,177 8.00% 20,645 9.09%
<FN>
(1) Based upon adjusted total assets for the core and tangible capital
requirements, and risk-weighted assets for the risk-based capital
requirement.
On September 3, 1992, the OTS issued a proposed rule which would set
forth the methodology for calculating an interest rate component that would
be incorporated in the OTS regulatory capital rule. This recent proposal
replaces an earlier proposal by the OTS to calculate interest rate risk.
Under the new proposal, only savings associations with "above normal"
interest rate risk exposure (i.e., where an institution's market value
portfolio equity would decline in value by more than 2% of assets in the
event of a hypothetical 200-basis-point move in interest rates) would be
required to maintain additional capital. The additional capital that such
an institution would be required to maintain would be equal to one half the
difference between its measured interest rate risk and 2%, multiplied by the
market value of its assets. That dollar amount of capital would be in
addition to an institution's existing risk-based capital requirement. If
adopted in final form, this proposal could increase the amount of regulatory
capital required to be held by the Corporation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Corporation, the Savings Bank, and a subsidiary
thereof are defendants in certain claims and legal actions
arising in the ordinary course of business including legal
proceedings wherein the Savings Bank enforces its security
interest in mortgage loans. In the opinion of management,
after consultation with legal counsel, the ultimate
disposition of these matters is not expected to have a
material adverse effect on the consolidated financial
position of the Corporation.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Report on Form 8-K
A. No exhibits
B. A current report on Form 8-K was filed on February 17,
1994 to report the execution by the Corporation of an
agreement to be acquired by Signet Banking
Corporation.
No other reports on Form 8-K were filed during the quarter
ended March 31, 1994.
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 FINANCIAL CORPORATION
(Registrant)
Date May 13, 1994 By: /s/ G. R. Whittemore
G. R. Whittemore
President and Chief Executive Officer
Date May 13, 1994 By: /s/ H. Lee Rettig
H. Lee Rettig
Chief Accounting Officer