SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-28076
PIONEER FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
KENTUCKY 61-1273657
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 EAST HICKMAN STREET, WINCHESTER, KENTUCKY 40391
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (606) 744-3972
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Indicate by check mark 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 ninety days.
Yes X No
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As of February 6, 1997, 208,233 shares of the registrant's common stock were
issued and outstanding.
Page 1 of 14 Pages Exhibit Index at Page N/A
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CONTENTS
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1996
(unaudited) and September 30, 1996....................... 3
Consolidated Statements of Income for the Three
Month Period Ended December 31, 1996 and 1995
(unaudited).............................................. 4
Consolidated Statements of Cash Flows for the
Three-Month Periods Ended December 31, 1996 and 1995
(unaudited).............................................. 5
Notes to Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 7
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings ....................................... 12
Item 2. Changes in Securities ................................... 12
Item 3. Defaults Upon Senior Securities ......................... 12
Item 4. Submission of Matters to a Vote of Security Holders ..... 12
Item 5. Other Information ....................................... 12
Item 6. Exhibits and Reports on Form 8-K ........................ 12
SIGNATURES
PIONEER FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------- ------------
(unaudited)
ASSETS
Cash $ 1,189,228 732,573
Interest bearing deposits 1,726,943 1,529,881
Certificates of deposit 194,000 194,000
Federal Funds Sold 843,751 3,211,000
Available-for-sale securities 7,261,109 7,601,611
Held-to-maturity securities 27,319,796 23,972,497
Loans receivable, net 34,127,850 35,247,421
Loans held for sale 78,972 0
Accrued interest receivable 496,395 535,269
Premises and equipment, net 1,163,116 1,175,987
Prepaid expenses and other assets 113,734 200,898
----------- -----------
Total assets $74,514,894 $74,401,137
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $64,724,828 $64,335,165
FHLB Advances 683,598 698,798
Advance payments by borrowers for taxes and insurance 16,551 26,788
Federal income tax payable 149,362 138,040
Other liabilities 492,637 957,711
----------- -----------
Total liabilities 66,066,976 66,156,502
----------- -----------
Stockholders' equity:
Common stock, $1 par value, 500,000 shares authorized;
208,233 shares issued and outstanding 208,233 208,233
Additional paid-in capital 1,797,432 1,797,432
Retained earnings, substantially restricted 6,401,188 6,213,169
Net unrealized appreciation on
available-for-sale securities 41,065 25,801
----------- -----------
Total stockholders' equity 8,447,918 8,244,635
----------- -----------
Total liabilities and stockholders' equity $74,514,894 $74,401,137
=========== ===========
See accompanying notes to consolidated financial statements.
3
PIONEER FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
FOR THE THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
Interest income:
Interest on loans $ 774,912 $ 743,635
Interest and dividends on securities 520,871 569,066
Other interest income 64,416 94,619
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Total interest income 1,360,199 1,407,320
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Interest expense:
Interest on deposits 653,463 714,664
Interest on FHLB advances 15,231 11,860
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Total interest expense 668,694 726,524
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Net interest income: 691,505 680,796
Provision for loan losses 0 0
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Net interest income after provision
for loan losses 691,505 680,796
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Non-interest income:
Loan and other service fees, net 93,940 101,311
Gain (loss) on sale of securities 0 0
Gain (loss) on sale of loans 27,020 1,699
---------- ----------
Total non-interest income 120,960 103,010
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Non-interest expense:
Compensation and benefits 242,204 227,107
Occupancy expense 40,646 49,996
Office supplies and postage 21,764 24,541
Federal and other insurance premiums 38,116 45,033
Advertising 5,398 7,274
Data processing expense 33,632 33,332
State franchise tax 16,386 15,632
Legal fees 1,653 10,074
Other operating expense 28,824 12,711
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Total non-interest expense 428,623 425,700
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Income before income tax expense 383,842 358,106
Provision for income taxes 122,772 122,424
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Net income $ 261,070 $ 235,682
========== ==========
Earnings per share $ 1.25 $ .86
========== ==========
See accompanying notes to consolidated financial statements.
4
PIONEER FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THETHREE-MONTHS ENDING
DECEMBER 31,
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 261,070 $ 235,682
Adjustments to reconcile net
income to net cash
provided by operating activities:
Provision for loan losses 0 0
Amortization of investment premium
(discount) 7,881 40,388
Amortization of organizational cost 3,377
Provision for depreciation 13,205 19,340
Amortization of loan fees (27,900) (47,204)
FHLB stock dividend ( 9,100) ( 9,400)
Securities gain (loss) 0 0
Loans originated for sale (2,078,431) (2,222,020)
Proceeds from loans held for sale 2,084,121 2,221,325
Loans held for sale (gain) loss (27,101) 695
Change in:
Income taxes payable 3,459 (145,380)
Interest receivable 38,874 (43,346)
Interest payable 14,976 (26,743)
Accrued liabilities (480,058) 14,824
Prepaid expense 105,198 (59,381)
----------- -----------
Net cash provided by operating
activities (90,421) (2,610)
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CASH FLOWS FROM INVESTING
ACTIVITIES:
Net (increase) decrease in loans 1,068,499 251,635
Matured certificates of deposit 0 94,000
Matured held-to-maturity
securities 748,183 2,050,000
Purchase of held-to-maturity
securities (4,986,379) (9,484,665)
Sale of FHLB stock 0 0
Purchase of premises and equipment (334) 0
Purchase of available-for-sale
securities 0 0
Sale of available-for-sale
securities 0 0
Principal repayments on securities 1,254,913 1,702,912
----------- -----------
Net cash (used) by investing
activities (1,915,118) (5,386,118)
----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase (decrease) in demand
deposits, NOW accounts
and savings accounts 449,577 2,501,763
Net increase (decrease) in
certificates of deposit (59,904) 325,446
Payments on FHLB advances (15,200) (10,638)
Cash dividend payments (72,882) (89,917)
Net increase (decrease) in
custodial accounts (10,237) 20,607
----------- -----------
Net cash provided (used) by
financing activities 291,354 2,747,261
Increase (decrease) in cash and
cash equivalents (1,714,185) (2,641,467)
Cash and cash equivalents,
beginning of period 5,473,454 5,664,527
----------- -----------
Cash and cash equivalents, end of period $ 3,759,269 $ 3,023,060
=========== ===========
Supplemental disclosures:
The Bank made no income tax payments during the three month periods ended
December 31, 1996 and 1995, respectively.
The Bank paid $668,694 and $714,664 in interest on deposits and other
borrowings during the three month periods ended December 31, 1996 and 1995,
respectively.
See accompanying notes to consolidated financial statements.
5
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
Pioneer Financial Corporation (the "Company") was formed at the direction
of Pioneer Federal Savings Bank (the "Bank") to become the holding company
of the Bank. The reorganization was completed on December 24, 1994 under an
Agreement and Plan of Reorganization, dated October 31, 1994. Since the
Reorganization, the Company's primary assets have been the outstanding
capital stock of the Bank, and its sole business is that of the Bank.
Accordingly, the consolidated financial statements and discussions herein
include both the Company and the Bank.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
("GAAP") 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 GAAP for complete
financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) necessary for fair
presentation have been included. The results of operations and other data
for the three month periods ended December 31, 1996 are not necessarily
indicative of results that may be expected for the entire fiscal year
ending September 30, 1997.
2. EARNINGS PER SHARE
------------------
Earnings per share for the three month periods ended December 31, 1996
amounted to $1.25 and $.86 per share, respectively, based on weighted
average common stock shares outstanding. The weighted average number of
common shares outstanding for the three month periods ended December 31,
1996 and 1995 was 208,233 and 272,477 shares respectively.
3. DIVIDENDS
---------
The Company paid dividends of $0.35 per share or $72,882 for the three
month period ended December 31, 1996 compared to $0.33 per share or $89,917
for the same period in 1995.
6
4. MORTGAGE SERVICING RIGHTS
-------------------------
In May 1995 the Financial Accounting Standards Board (FASB) issued SFAS No.
122 "Accounting for Mortgage Servicing Rights", which amended SFAS No. 65
"Accounting for Certain Mortgage Banking Activities". SFAS No. 122 requires
a mortgage banking enterprise to recognize as separate assets the rights to
service mortgage loans for others; however these servicing rights are
acquired. SFAS No. 122 was effective for the Company and the Bank on
October 1, 1996, and applies prospectively to mortgage banking transactions
occurring after that date.
The Company recognized mortgage servicing rights of $21,411 for the quarter
ended December 31, 1996. The Bank sells certain residential loans,
primarily fixed rate loans secured by single family residences in the
secondary market. The fair value of the mortgage servicing rights were
determined by quoted prices in the secondary market. The mortgage servicing
rights on the loans sold in the secondary market are grouped by their
primary risk characteristics, which is the interest rate. At December 31,
1996 there was no allowance for impairment recognized.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's consolidated assets increased $94,000, or .1% to $74.5 million, at
December 31, 1996 compared to $74.4 million at September 30, 1996. Available-
for-sale securities decreased by $340,000, held-to-maturity securities increased
$3.3 million, loans decreased $1.1 million, cash and cash equivalents plus
certificates of deposit decreased $1.7 million, and other non-interest earning
assets decreased by $161,000.
Available-for-sale securities decreased $340,000 due to receipt of principal
repayments on mortgage backed securities and amortization of investment premium.
Held-to-maturity securities increased $3.3 million due to the purchase of $5.0
million in agency discount notes offset by maturities of mortgage backed
securities of $748,000 and $1.0 million in principal repayments received on
mortgage backed securities and amortization of premiums. In accordance with
SFAS No. 115, unrealized gains or losses on available-for-sale securities are
recorded net of deferred income tax as a separate component of stockholders'
equity. At December 31, 1996, the Company included gross unrealized gains of
$62,200, which net of the tax expense of $21,155, yield $41,065 as a separate
component of stockholders' equity. Per SFAS No. 115, such gains or losses will
not be reflected as a charge or credit to earnings until the underlying gain or
loss, if any, is actually realized at the time of sale.
Liabilities of the Company decreased $89,000 to $66.1 million at December 31,
1996 compared to $66.2 million at September 30, 1996. The decrease in
liabilities was primarily due to the payment of an accrued expense for the
special assessment by the FDIC to recapitalize the SAIF fund which was offset by
a $390,000 increase in deposits.
7
Stockholders' equity increased by $203,000 to $8.4 million at December 31, 1996
compared to $8.2 million at September 30, 1996. The increase is due to net
income of $261,000 offset by the payment of dividends totaling $72,000 and an
increase in the net unrealized appreciation on available-for-sale securities of
$15,000.
The following summarizes the Bank's capital requirements and position at
December 31, 1996 and September 30, 1996.
DECEMBER 31, 1996 SEPTEMBER 30, 1996
----------------- ------------------
(DOLLARS IN THOUSANDS)
AMOUNT PERCENT AMOUNT PERCENT
------ -------- ------ -------
Tangible capital $8,387 11.3% $8,143 10.9%
Tangible capital requirement 1,117 1.5% 1,117 1.5%
------ -------- ------ -------
Excess $7,270 9.8% $7,026 9.4%
====== ======== ====== =======
Core capital $8,387 11.3% $8,143 10.9%
Core capital requirement 2,235 3.0% 2,234 3.0%
------ -------- ------ -------
Excess $6,152 8.3% $5,909 7.9%
====== ======== ====== =======
Tangible capital $8,387 26.8% $8,143 26.1%
General valuation allowance 375 1.2% 364 1.2%
------ -------- ------ -------
Total capital 8,762 28.0% 8,507 27.3%
Risk-based capital requirement 2,504 8.0% 2,498 8.0%
------ -------- ------ -------
Excess $6,258 20.0% $6,009 19.3%
====== ======== ====== =======
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
NET INCOME
- ----------
Net income increased by $25,000 or 10.8% for the three months ended December 31,
1996 as compared to the same period in 1995. The net increase of $25,000 was
due to an increases of $18,000 in non-interest income an increase of $10,000 in
net interest income offset by an increase in non-interest expense of $3,000.
INTEREST INCOME
- ---------------
Interest income decreased $47,000 for the quarter ended December 31, 1996
compared to the same period in 1995. Interest income was $1.4 million or 7.59%
of average interest-earning assets for the quarter ended December 31, 1996 as
compared to $1.4 million or 7.33% of interest-earning assets for the quarter
ended December 31, 1995. The decrease in interest income of $47,000 was due to
a decrease in the average balance of interest earning assets offset by the
increase of 26 basis points on the average rate earned on interest earning
assets for the quarter ended December 31, 1996 compared to the same period in
1995.
8
INTEREST EXPENSE
- ----------------
Interest expense was $669,000 or 4.07% of average deposits and FHLB advances for
the quarter ended December 31, 1996 as compared to $727,000 or 4.19% of average
deposit and FHLB advances for the quarter ended December 31, 1995. The decrease
of $58,000 was due primarily to the decrease in interest paid on deposits. The
decrease in interest paid on deposits was due to a 12 basis point decrease in
the average rate paid on deposits, and a $4 million decrease in the average
balance of deposits during the quarter ended December 31, 1996 compared to the
same period in 1995.
PROVISION FOR LOAN LOSSES
- -------------------------
There was no provision for loan losses for the quarters ended December 31, 1996
and 1995. Management considers many factors in determining the necessary level
of the allowance for loan losses, including an analysis of specific loans in the
portfolio, estimated value of the underlying collateral, assessment of general
trends in the real estate market, delinquency trends, prospective economic and
regulatory conditions, inherent loss in the loan portfolio, and the relationship
of the allowance for loan losses to outstanding loans. There can be no
assurance that management will not decide to increase the allowance for loan
losses or that regulators, when reviewing the Bank's loan portfolio in the
future, will not request the Bank to increase such allowance, either of which
could adversely affect the Bank's earnings. Further, there can be no assurance
that the Bank's actual loan losses will not exceed its allowance for loan
losses.
NON-INTEREST INCOME
- -------------------
Non-interest income amounted to $121,000 and $103,000 for the quarters ended
December 31, 1996 and 1995, respectively. Non-interest income is primarily
generated from fees on loans and fees received for servicing loans.
For the quarter ending December 31, 1996 the Bank recognized $21,000 in
loan servicing rights income pursuant to FASB No. 122 which was adopted
October 1, 1996.
NON-INTEREST EXPENSE
- --------------------
Non-interest expense increased $3,000 to $429,000 for the quarter ended December
31, 1996 compared to $426,000 for the same period in 1995. Non-interest expense
was 2.3% of average assets for the quarter ended December 31, 1996 and 2.1% of
average assets for the quarter ended December 31, 1995.
INCOME TAX EXPENSE
- ------------------
The provision for income tax expense amounted to $123,000 and $122,000 for the
quarters ended December 31, 1996 and 1995, respectively, which as a percentage
of income before income tax expense amounts to 32.0% for 1996 and 34.1% for
1995.
9
NON-PERFORMING ASSETS
- ---------------------
The following table sets forth information with respect to the Bank's non-
performing assets at the dates indicated. No loans were recorded as restructured
loans within the meaning of SFAS No. 15 at the dates indicated.
DECEMBER 31, 1996 SEPTEMBER 30 1996
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(amounts in thousands)
Loans accounted for on a non-accrual basis:(1)
Real Estate:
Residential $ 3 $ 3
Commercial
Consumer 12 15
---- ----
Total $ 15 $ 18
==== ====
Accruing loans which are contractually past due
90 days or more:
Real Estate:
Residential 0 205
Commercial
Consumer 48
---- ----
Total 48 205
==== ====
Total of loans accounted for as non-accrual or as
accruing past due 90 days or more $ 63 $223
==== ====
Percentage of total loans .18% .63%
==== ====
Other non-performing assets (2) $ $
==== ====
(1) Non-accrual status denotes loans which management believes may have defined
weaknesses whereby accrued interest is inadequately protected by the current
net worth and paying capacity of the obligor, or of the collateral pledged.
(2) Loans more than 90 days past due will continue to accrue interest when there
is no well defined weakness in the loan regarding net worth and paying
capacity of the obligor or of the collateral pledged which would cause
management to believe that interest accrued will be uncollectible.
If income on non-accrual loans had been accrued, such income would have amounted
to approximately $4,249 for the three month period ended December 31, 1996.
At December 31, 1996, there were no loans identified by management which were
not reflected in the preceeding table but as to which known information about
possible credit problems of borrowers caused management to have serious doubts
as to the ability of the borrowers to comply with present loan repayment terms.
10
MORTGAGE BANKING ACTIVITY
- -------------------------
Mortgage loans of $2.1 million were originated for sale during the three month
period ended December 31, 1996; the Bank retained the servicing for all loans
sold.
The portfolio of loans owned by others but serviced by the Bank increased .2% to
$50.4 million at December 31, 1996 compared to $50.3 million at September 30,
1996. All of the loans serviced by the Bank, but owned by others, were
originated by the Bank.
LIQUIDITY AND COMMITTED RESOURCES
- ---------------------------------
As of December 31, 1996, the liquidity ratio under applicable federal
regulations was 21.85% as compared to 24.81% at September 30, 1996. Principal
sources of funds during the three months ended December 31, 1996 included loan
principal repayments, principal repayments on mortgage backed securities,
proceeds from matured and called securities and proceeds from the sale of loans.
As of December 31, 1996 loans approved but not closed amounted to $2.7 million.
Of these, none were evidenced by written commitments. The Bank anticipated
selling $1.3 million of the loans approved but not closed. As of December 31,
1996, there were commitments to sell loans which had been closed totaling
$79,000.
IMPACT OF INFLATION AND CHANGING PRICES
- ---------------------------------------
The consolidated financial statements and notes thereto presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time and due to inflation. The impact of inflation is
reflected in the increased cost of the Company's operations. Unlike most
industrial companies, nearly all the assets and liabilities of the Company are
monetary in nature. As a result, interest rates have a greater impact on the
Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.
11
PART II. OTHER INFORMATION
-----------------
Item 1. LEGAL PROCEEDINGS None
Item 2. CHANGES IN SECURITIES None
Item 3. DEFAULTS UPON SENIOR SECURITIES None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Pioneer Financial Corporation was held on
January 8, 1997 pursuant to notice. Proxies were solicited by the Corporation.
Directors elected at the meeting were Ewart W. Johnson, Nora M. Linville, and
Thomas D. Muncie for terms of office to expire at the annual meeting three years
hence; all were nominated by management and had held the office of Director for
terms expiring in January 1997. Present directors whose terms of office expire
in 1998 include: Carl C. Norton, Janet W. Prewitt, William M. Cress, and Robert
G. Strode. Present directors whose terms of office expire in 1999 include:
George W. Billings, Nancy M. Lawwill, Wayne M. Martin, and Andrew Ryan. All of
management's nominees were elected to the class indicated above pursuant to vote
of the stockholders. The voting for the directors was as follows:
Ewart W. Johnson 160,961 votes
Nora M. Linville 161,284 votes
Thomas D. Muncie 160,909 votes
Shareholders voted on the ratification of appointment of auditors. The voting
in regard to the appointment of auditors was 160,418 voted for, 0 votes against,
and 633 votes abstaining.
Item 5. OTHER INFORMATION None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) The following exhibit is filed herewith:
Exhibit 27: Financial Data Schedule
(2) No Form 8-K was filed for the quarter ended December 31, 1996
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIONEER FINANCIAL CORPORATION
Date: February 6, 1997
-------------------------------------------
Carl C. Norton, President
(Duly Authorized Officer)
Date: February 6, 1997
-------------------------------------------
Anthony D. Parrish, Chief Financial Officer
(Principal Financial and Accounting Officer)
13