SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------
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 March 31, 1998.
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
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Kentucky 61-1273657
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 East Hickman Street, Winchester, Kentucky 40391
- -------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (606) 744-3972
--------------
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
--------- ---------
As of May 8, 1998, 208,233 shares of the registrant's common stock were issued
and outstanding.
Page 1 of 15 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 March 31, 1998 (unaudited)
and September 30, 1997........................................................................... 3
Consolidated Statements of Income for the Three Month Periods
Ended March 31, 1998 and 1997 and the Six-Month Periods
Ended March 31, 1998 and 1997 (unaudited)........................................................ 4
Consolidated Statements of Cash Flows for the Six-Month Periods Ended
March 31, 1998 and 1997 (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................................................................................. 13
Item 2. Changes in Securities............................................................................. 13
Item 3. Defaults Upon Senior Securities................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders............................................... 13
Item 5. Other Information................................................................................. 13
Item 6. Exhibits and Reports on Form 8-K.................................................................. 13
SIGNATURES
PIONEER FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
----------------
As of As of
March 31, September 30,
ASSETS 1998 1997
--------------- ---------------
(unaudited)
Cash $ 969,908 $ 1,188,974
Interest bearing deposits 2,429,181 1,138,456
Federal Funds sold 6,775,000 7,151,000
Available-for-sale securities 5,193,291 5,949,386
Held-to-maturity securities 21,244,311 22,621,995
Loans receivable, net 33,262,531 34,490,871
Loans held for sale 269,500 152,750
Accrued interest receivable 423,347 455,824
Premises and equipment, net 1,357,457 1,412,264
Prepaid expenses and other assets 315,280 263,944
--------------- ---------------
Total assets $ 72,239,806 $ 74,825,464
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 61,480,165 $ 64,585,148
FHLB Advances 661,587 652,225
Advance payments by borrowers for taxes and insurance 17,713 39,607
Federal income tax payable 211,065 216,675
Other liabilities 317,893 593,611
--------------- ---------------
Total liabilities 62,688,423 66,087,266
--------------- ---------------
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 7,616,085 6,957,353
Unallocated Employee Stock Ownership Plan (ESOP) stock (179,365) (224,922)
Net unrealized appreciation on available-for-sale securities 108,998 102
--------------- ---------------
Total stockholders' equity 9,551,383 8,738,198
--------------- ---------------
Total liabilities and stockholders' equity $ 72,239,806 $ 74,825,464
=============== ===============
See accompanying notes to consolidated financial statements.
3
PIONEER FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three-Month Periods For the Six-month Periods
Ended March 31, Ended March 31,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Interest income:
Interest on loans $ 780,324 $ 785,449 $ 1,545,615 $ 1,560,361
Interest and dividends on securities 437,316 532,646 878,884 1,053,518
Other interest income 80,361 78,365 152,888 142,781
----------- ----------- ----------- -----------
Total interest income 1,298,001 1,396,460 2,577,387 2,756,660
----------- ----------- ----------- -----------
Interest expense:
Interest on deposits 620,595 652,846 1,263,435 1,306,309
Interest on FHLB advances 10,954 11,314 21,675 26,545
----------- ----------- ----------- -----------
Total interest expense 631,549 664,160 1,285,110 1,332,854
----------- ----------- ----------- -----------
Net interest income: 666,452 732,300 1,292,277 1,423,806
----------- ----------- ----------- -----------
Provision for loan losses
Net interest income after provision
for loan losses 666,452 732,300 1,292,277 1,423,806
----------- ----------- ----------- -----------
Non-interest income:
Loan and other service fees, net 90,334 95,997 164,335 189,936
Gain (loss) on sale of fixed assets (654)
Gain (loss) on sale of branch 567,614
Gain (loss) on sale of loans 71,025 26,495 91,998 52,168
----------- ----------- ----------- -----------
Total non-interest income 161,359 122,492 823,293 242,104
----------- ----------- ----------- -----------
Non-interest expense:
Compensation and benefits 184,668 211,923 456,612 454,127
Occupancy expense 43,652 61,827 86,852 102,473
Office supplies and postage 23,568 29,238 52,666 51,002
Federal and other insurance premiums 12,402 6,309 32,351 44,425
Advertising 1,898 9,414 8,349 14,812
Data processing expense 31,375 34,703 76,269 68,335
State franchise tax 15,150 16,386 31,680 32,772
Legal fees 45,191 8,097 55,492 9,750
Other operating expense 12,520 26,962 51,537 55,786
----------- ----------- ----------- -----------
Total non-interest expense 370,424 404,859 851,808 833,482
----------- ----------- ----------- -----------
Income before income tax expense 457,387 449,933 1,263,762 832,428
Provision for income taxes 156,914 160,720 431,085 283,492
----------- ----------- ----------- -----------
Net income $ 300,473 $ 289,213 $ 832,677 $ 548,936
=========== =========== =========== ===========
Earnings per common share $ 1.48 $ 1.39 $ 4.10 $ 2.64
=========== =========== =========== ===========
Earnings per common share
assuming dilution $ 1.48 $ 1.39 $ 4.10 $ 2.64
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
4
PIONEER FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
------------------------
For the six-months ending
March 31,
--------------------------------
1998 1997
-------------- --------------
Cash flows from operating activities:
Net income $ 832,677 $ 548,936
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses
Amortization of investment premium (discount) 29,068 (38,694)
Amortization of organizational cost 6,754 6,754
Provision for depreciation 31,201 26,410
Gain on sale of branch (567,614)
Amortization of loan fees (60,918) (51,958)
FHLB stock dividend (20,200) (18,200)
Loans originated for sale (8,062,196) (4,617,359)
Proceeds from loans held for sale 8,154,194 4,623,979
Loans held for sale (gain) loss (91,998) (6,620)
ESOP benefit expense 8,494
Change in:
Income taxes payable (61,708) 8,787
Interest receivable 32,477 33,661
Interest payable (11,733) (33,282)
Accrued liabilities (263,985) (624,867)
Prepaid expense (58,090) 127,274
-------------- --------------
Net cash provided by operating activities (103,577) (15,179)
-------------- --------------
Cash flows from investing activities:
Net (increase) decrease in loans 1,172,508 761,098
Matured certificates of deposit 96,000
Matured held-to-maturity securities 4,500,000 6,759,561
Purchase of held-to-maturity securities (4,644,116) (4,986,379)
Purchase of premises and equipment (33,780) (49,769)
Purchase of available-for-sale securities
Sale of available-for-sale securities
Principal repayments on securities 2,434,018 2,385,712
-------------- --------------
Net cash (used) by investing activities 3,428,630 4,966,223
-------------- --------------
Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW accounts and savings accounts (1,086,201) 917,427
Net increase (decrease) in certificates of deposit (2,018,783) 64,273
Proceeds from FHLB advance 34,000
Payments on FHLB advances (24,638) (22,927)
Cash dividend payments (173,902) (156,175)
Net increase (decrease) in custodial accounts (21,894) (9,505)
Proceeds from sale of branch 625,000
Payment on ESOP loan 37,024
-------------- --------------
Net cash provided (used) by financing activities (2,629,394) 793,093
-------------- --------------
Increase (decrease) in cash and cash equivalents 695,659 5,744,137
Cash and cash equivalents, beginning of period 9,478,430 5,473,454
-------------- --------------
Cash and cash equivalents, end of period $ 10,174,089 $ 11,217,591
============== ==============
SUPPLEMENTAL DISCLOSURES:
The Bank made income tax payments during the six month periods ended March 31,
1998 and 1997, respectively of $475,000 and $155,000. The Bank paid $1,296,843
and $1,339,591 in interest on deposits and other borrowings during the six
month periods ended March 31, 1998 and 1997, 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, which 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 six month period ended March 31, 1998 are not necessarily
indicative of results that may be expected for the entire fiscal year
ending September 30, 1998.
2. EARNINGS PER SHARE
Earnings per common share for the three month periods ended March 31, 1998
and 1997 amounted to $1.48 and $1.39 per share, respectively, based on
weighted average common stock shares outstanding of 203,411 and 208,233,
respectively. Earnings per common share for the six months period ended
March 31, 1998 and 1997 amounted to $4.10 and $2.64 per share, based on
weighted average common stock shares outstanding of 203,179 and 272,477,
respectively. Shares of common stock held by the ESOP are considered
outstanding when they are committed to be released.
3. DIVIDENDS
The Company paid dividends of $0.46 per share or $93,017 for the three
month period ended March 31, 1998 compared to $0.40 per share or $83,293
for the same period in 1997. The Company paid dividends of $0.86 per share
of $173,902 for the six month period ended March 31, 1998 compared to
$0.75 per share or $156,175 for the same period in 1997.
4. POSSIBLE YEAR 2000 COMPUTER PROGRAM PROBLEMS
A great deal of information has been disseminated about the global
computer crash that may occur in the year 2000. Many computer programs
that can only distinguish the final two digits of the year entered (a
common programming practice in earlier years) are expected to read entries
for the year 2000 as the year 1900 and compute payment, interest, or
delinquency based on the wrong date or are expected to be unable to
compute payment, interest, or delinquency. Rapid and accurate data
processing is essential to the operations of the Company. Data processing
is also essential to most other financial institutions and many other
companies.
6
All of the material data processing applications of the Company that could be
affected by this problem are provided by a third party service bureau. The
service bureau used by the Company has advised the Company that it expects to
resolve this potential problem before the year 2000. However, if the service
bureau is unable to resolve this problem in time, the Company would likely
experience significant data processing delays, mistakes, and failures. These
delays, mistakes, and failures could have a significant adverse impact on the
financial condition and results of operations of the Company.
7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Total assets decreased $2.6 million, or 3.5%, from $74.8 million at
September 30, 1997 to $72.2 million at March 31, 1998. The decrease primarily
reflected a $2.1 million decrease in investment securities and a $1.1 million
decrease in loans receivable offset by $695,000 increase in cash and cash
equivalents. The decrease in assets was due primarily to the transfer of
deposits to the Purchaser as part of the sale of the Stanton Branch bank.
The Company's aggregate investment securities portfolio decreased $2.1 million,
or 7.5%, to $26.4 million at March 31, 1998 from $28.5 million at September 30,
1997. Securities classified as available-for-sale and recorded at market value
per SFAS No. 115 decreased $756,000, due to a $921,000 decrease in principal
repayments and amortization of investment premiums offset by a $165,000 increase
due solely to the increase in the market value of such securities. Securities
classified as held-to-maturity decreased $1.4 million due primarily to principal
repayments.
Under SFAS No. 115, unrealized gains or losses on securities available-for-sale
are recorded net of deferred income tax as a separate component of stockholders'
equity. At March 31, 1998, the Company included net unrealized gains of
approximately $109,000 in stockholders' equity. At September 30, 1997, the
Company included net unrealized gains of approximately $100 in stockholders'
equity. Per SFAS No. 115, such gains or losses will not be reflected as a charge
or credit to earnings until the underlying securities are sold, and then only to
the extent of the amount of gain or loss, if any, actually realized at the time
of sale.
Deposits decreased $3.1 million, or 4.8%, from $64.6 million at September 30,
1997 to $61.5 million at March 31, 1998. This decrease was primarily due to the
sale of the Company's branch office in Stanton, Kentucky. The agreement to sell
the Stanton Branch was finalized October 29, 1997, whereby the Bank transferred
to the Purchaser deposits totaling $4.9 million. In addition, loans secured by
deposits transferred in the agreement totaling $34,000 and property and
equipment having a book value of approximately $50,000 were included in the
sale. The net gain realized by the Bank in connection with this sale was
$568,000. The $4.9 million deposits transferred in connection with this sale
amounted to approximately 7.6% of the Bank's total deposits.
Stockholders' equity increased approximately $813,000, or 9.3%, to $9.6 million
at March 31, 1998 compared to $8.7 million at September 30, 1997. The increase
was due to net income of $833,000, an increase of $109,000 in net unrealized
appreciation on investments held-for-sale and an increase of $45,000 related to
the ESOP's release of shares from collateral offset by a decrease of $174,000
due to the payment of dividends.
8
The following summarizes the Bank's capital requirements and position at
March 31, 1998 and September 30, 1997.
March 31, 1998 September 30, 1997
------------------------ ------------------------
(Dollars in thousands)
Amount Percent Amount Percent
---------- ---------- ---------- ----------
Core capital $ 9,331 12.91% $ 8,638 11.50%
Core capital requirement 2,891 4.00% 2,245 3.00%
---------- ---------- ---------- ----------
Excess $ 6,440 8.91% $ 6,393 8.50%
========== ========== ========== ==========
Core capital $ 9,331 32.43% $ 8,638 28.60%
General valuation allowance 386 1.25% 378 1.20%
---------- ---------- ---------- ----------
Total capital 9,717 33.86% 9,016 29.80%
Risk-based capital requirement 2,397 8.0% 2,419 8.00%
---------- ---------- ---------- ----------
Excess $ 7,320 25.68% $ 6,597 21.80%
========== ========== ========== ==========
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Net Income. Net income increased $11,000 or 3.9% for the quarter ended
March 31, 1998 to $300,000, compared to $289,000 for the same period in 1997.
The net increase of $11,000 was due to an increase of $39,000 in non-interest
income, a decrease in non-interest expense of $34,000, and a decrease of $4,000
in income tax expense offset by a decrease of $66,000 in net interest income.
Interest Income. Interest income decreased $98,000 or 7.1% for the quarter
ended March 31, 1998 compared to the same period in 1997. Interest income was
$1.3 million, or 7.56% of average interest-earning assets for the quarter ended
March 31, 1998 as compared to $1.4 million, or 7.82% of interest-bearing assets
for the quarter ended March 31, 1997. The decrease in interest income of $98,000
was due to a decrease in the average balance of interest-earning assets of
$2.8 million plus a decrease of 26 basis points on the average rate earned on
interest earning assets for the quarter ended March 31, 1998 compared to the
same period in 1997.
Interest Expense. Interest expense decreased $32,000 or 5.0% for the quarter
ended March 31, 1998 compared to the same period in 1997. Interest expense was
$632,000, or 4.11% of average deposits and FHLB advances for the quarter ended
March 31, 1998 as compared to $664,000, or 4.07% for the quarter ended March 31,
1997. The decrease of $32,000 was primarily due to a $4.3 million decrease in
the average balance of interest-bearing liabilities during the quarter ended
March 31, 1998 compared to the same period in 1997.
Provision for Loan Losses. There was no provision for loan losses for the
quarters ended March 31, 1998 and 1997. 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.
9
Non-Interest Income. Non-interest income amounted to $161,000 and $122,000 for
the quarters ended March 31, 1998 and 1997, respectively. The increase of
$39,000 was primarily due to an increase of $44,000 in gain on sale of loans as
customers responded to the declining interest rates with the Bank showing an
increase in originating loans, which were sold in the secondary market.
Non-Interest Expense. Non-interest expense totaled $370,000 and $404,000 for
the three months ended March 31, 1998 and 1997, respectively, a decrease of
$34,000, or 8.5%, and such expense amounted to 2.0% and 2.2% of average assets
for the three months ended March 31, 1998 and 1997, respectively. The decrease
was primarily due to a decrease in compensation and benefits of $27,000, a
decrease in occupancy expense of $18,000, a decrease in office expense of
$6,000, a decrease in advertising of $8,000, a decrease of $3,000 in data
processing plus a decrease of $15,000 in other operating expenses offset by an
increase of $37,000 in legal expenses and an increase of $6,000 in federal and
other insurance premiums. The decreases in compensation and benefits, occupancy
expense, office supplies, and data processing were due to the operation of the
Stanton branch bank in the 1997 quarter, which showed no expenditures for the
corresponding period in 1998 as the branch was sold during the first quarter of
fiscal year 1998. The increase in legal expenses was attributed to professional
services rendered pertaining to possible acquisition.
Income Tax Expense. The provision for income tax expense amounted to $157,000
and $161,000 for the quarters ended March 31, 1998 and 1997, respectively, which
as a percentage of income before income tax expense amounts to 34.3% for 1998
and 35.7% for 1997.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
Net Income. Net income increased by $284,000 or 51.7% for the six months ended
March 31, 1998 as compared to the same period in 1997. The net increase of
$284,000 was due to an increase of $581,000 non-interest income offset by a
decrease of $132,000 in net interest income, an increase in non-interest expense
of $18,000 plus an increase in income tax expense of $147,000.
Interest Income. Interest income decreased $179,000 or 6.5% for the six months
ended March 31, 1998 compared to the same period in 1997. Interest income was
$2.6 million or 7.54% of average interest-earning assets for the six months
ended March 31, 1998 as compared to $2.8 million or 7.71% of interest-earning
assets for the six months ended March 31, 1997. The decrease in interest income
of $179,000 was due to a decrease of $3.1 million in the average balance of
interest earning assets plus a decrease of 17 basis points on the average rate
earned on interest earning assets for the six months ended March 31, 1998
compared to the same period in 1997.
Interest Expense. Interest expense decreased $48,000 or 3.6% for the six
months ended March 31, 1998 compared to the same period in 1997. Interest
expense was $1.3 million or 4.20% of average deposits and FHLB advances for the
six month period ended March 31, 1998 as compared to 1.3 million or 4.07% of
average deposit and FHLB advances for the six month period ended March 31, 1997.
The decrease of $48,000 was due to a $4.3 million decrease in the average
balance of deposits during the six month period ended March 31, 1998 compared to
the same period in 1997 offset by an increase of 13 basis points on the average
rate paid on deposits.
10
Provision for Loan Losses. There was no provision for loan losses for the six
month periods ended March 31, 1998 and 1997. 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 $823,000 and $242,000 for
the six months ended March 31, 1998 and 1997, respectively. For the six month
period ended March 31, 1998, the Bank recognized a gain of $568,000 from the
sale of its branch office in Stanton, Kentucky, which is included in non-
interest income.
Non-Interest Expense. Non-interest expense increased $18,000 to $851,000 for
the six month period ended March 31, 1998 compared to $833,000 for the same
period in 1997. Non-interest expense was 2.3% of average assets for the six
month period ended March 31, 1998 and 2.2% of average assets for the six month
period ended March 31, 1997. The increase of $18,000 was primarily due to an
increase of $45,000 in legal expenses offset by a decrease of $12,000 in
occupancy expenses and a decrease of $16,000 in federal and other insurance
premiums. The increase of $45,000 in legal expenses was primarily due to
professional services rendered pertaining to possible acquisition. The decrease
of $12,000 in occupancy expenses was due to expenses related to the Stanton
branch included in operations for the six months ended March 31, 1997 which were
not in operations for the six months ended March 31, 1998. The decrease of
$16,000 in federal insurance premiums was the result of the 1996
recapitalization of the SAIF insurance fund, which resulted in lower assessments
on the Bank's deposit base.
Income Tax Expense. The provision for income tax expense amounted to $431,000
and $283,000 for the six month period ended March 31, 1998 and 1997,
respectively, which as a percentage of income before income tax expense amounts
to 34.1% for 1998 and 1997.
11
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.
March 31, September 30,
1998 1997
--------- ---------
(amounts in thousands)
Loans accounted for on a non-accrual basis:/1/
Real estate:
Residential...................................... $ $ 3
Commercial.......................................
Consumer.......................................... 3
--------- ---------
Total.......................................... $ $ 6
========= =========
Accruing loans which are contractually past due
90 days or more:
Real estate:
Residential...................................... 74 149
Commercial....................................... 65
Consumer..........................................
--------- ---------
Total.......................................... 139 149
========= =========
Total of loans accounted for as non-accrual or as
accruing past due 90 days or more................. $ 139 $ 155
========= =========
Percentage of total loans.......................... .42% .45%
========= =========
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.
At March 31, 1998, the Bank did not have any loans in non-accrual status.
Accordingly, all income earned for the six months ended March 31, 1998 on the
loans in the table above has been included in income.
At March 31, 1998, there were no loans identified by management, which were not
reflected in the preceding 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.
12
Mortgage Banking Activity. Mortgage loans of $8.1 million were originated for
sale during the six month period ended March 31, 1998; the Bank retained the
servicing for all loans sold.
The portfolio of loans owned by others, but serviced by the Bank increased 4.6%
to $54.6 million at March 31, 1998 compared to $52.2 million at September 30,
1997. All of the loans serviced by the Bank, but owned by others, were
originated by the Bank.
Liquidity and Capital Resources. The Bank's principal sources of funds for
operations are deposits from its primary market area, principal, and interest
payments on loans, and proceeds from maturing investment securities. The
principal uses of funds by the Bank include the origination of mortgage and
consumer loans and the purchase of investment securities.
The Bank is required by current OTS regulations to maintain specified liquid
assets of at least 4% of its net withdrawable accounts plus short-term
borrowings. Short-term liquid assets (those maturing in one year or less) may
not be less than 1% of the Bank's liquidity base. At March 31, 1998, the Bank's
liquidity was 21.34%. Management believes that the liquidity levels maintained
are adequate to meet potential deposit outflows, loan demand, and normal
operations.
The bank must satisfy two capital standards, as set by the OTS. These standards
include a ratio of core capital to adjusted total assets of 4.0%, and a
combination of core and "supplementary" capital equal to 8.0% of risk-weighted
assets. At March 31, 1998, the Bank's capital was in excess of these
requirements.
At March 31, 1998, the Bank had outstanding commitments to originate loans
totaling $1.6 million, excluding $4.3 million in approved, but unused lines of
credit. Of the loan commitments, the Bank anticipates selling $1.4 of the loans
approved, but not closed. Management believes that the Bank's sources of funds
are sufficient to fund all of its outstanding commitments. Certificates of
deposit, which are scheduled to mature in one year or less from March 31, 1998,
totaled $27.2 million. Management believes that a significant percentage of such
deposits will remain with the Bank.
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.
Recent Developments. The Board of Directors of Pioneer announced a definitive
agreement was executed on May 7, 1998, whereby Central Bancshares, Inc.
("Central") located in Lexington, Kentucky would acquire Pioneer. The agreement
has been approved by the boards of Pioneer and Central and is subject to
approval by the regulators and the shareholders of Pioneer. Under the terms of
the agreement, Central will pay the shareholders of Pioneer a total of
$20,510,950 in cash or $98.50 per share for the 208,233 shares of Pioneer stock
outstanding. The transaction is expected to be completed in the third quarter of
1998.
13
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 None
The Company's Annual Meeting of Stockholders was held on January 14,
1998. 174,422 shares of Pioneer Financial Corporation, Inc. common
stock were represented at the annual meeting in person or by proxy.
Stockholders voted in favor of the election of four nominees for
director. The voting results for each nominee were as follows:
Votes in
Nominee Favor of Election
-------------------------------------- -------------------------
Carl C. Norton 175,672
William M. Cress 171,172
Robert G. Strode 175,172
Janet W. Prewitt 175,672
Shareholders voted in favor of the appointment of Miller, Mayer,
Sullivan, & Stevens, LLP as auditors for the Company for the fiscal
year ending September 30, 1998. Votes were cast as follows: 174,272
votes in favor and 150 votes abstained.
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 March 31, 1998.
14
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: May 8, 1998
----------------------------------------------
Carl C. Norton, President
(Duly Authorized Officer)
Date: May 8, 1998
----------------------------------------------
Carolyn O. Vermillion, Controller
(Principal Financial and Accounting Officer)
15