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 December 31, 1993
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)
Virginia 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 December 31, 1993 and February 10, 1993 there were issued and
outstanding 2,343,799 shares and 2,346,799 shares, respectively, 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,
December 31, 1993 (unaudited) and
September 30, 1993 3
Statements of Operations, Three Months
Ended December 31, 1993 and
1992 (unaudited) 4
Statement of Stockholders' Equity
(unaudited), December 31, 1993 5
Statements of Cash Flows, Three Months
Ended December 31, 1993 and 1992 (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 19
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
<TABLE>
Consolidated Statement of Financial Condition
<CAPTION>
Dollars in Thousands - Except Per Share Amounts
(Unaudited)
Assets Dec. 31, 1993 Sept. 30, 1993
<S> <C> <C>
Cash 3,461 2,309
Interest bearing deposits 8,480 22,640
Federal funds sold 765 197
Securities
Held to maturity (estimated market value of $486 486 488
and $488)
Available for sale (cost of $131,225 and $135,294) 131,725 136,403
Loans receivable, net 218,237 210,399
Investment in Federal Home Loan Bank stock 6,848 6,763
Real estate, net:
Acquired in settlement of loans 407 506
In-substance foreclosure 3,281 3,277
Held for development or resale 14,826 14,319
Properties and equipment, net 4,334 4,327
Accrued interest receivable :
Loans 1,811 2,249
Securities and other interest-earning assets 1,248 945
Prepaid expenses and other assets 1,746 3,826
Total Assets 397,655 408,648
Liabilities and Stockholders' Equity
Liabilities:
Deposits 314,758 313,674
Securities sold under agreements to repurchase
and other borrowings 9,775 10,300
Advances from Federal Home Loan Bank 20,000 30,000
Advance payments by borrowers for taxes and insurance 746 1,013
Other liabilities 1,514 3,525
Total Liabilities 346,793 358,512
Stockholders' Equity:
Common stock 2,344 2,342
Additional capital 5,821 5,811
Retained earnings 42,387 41,423
Net unrealized gain on marketable equity securities 310 560
Total Stockholders' Equity 50,862 50,136
Total Liabilities and Stockholders' Equity 397,655 408,648
Book value, per share 21.70 21.40
</TABLE>
<TABLE>
Consolidated Statements of Operations (Unaudited)
<CAPTION>
Dollars in Thousands - Except Per Share Amounts
Three Months Ended
Dec. 31, 1993 Dec. 31, 1992
Interest income
Loans receivable
<S> <C> <C>
Real estate loans 4,517 4,161
Other loans 381 395
Securities
Held to maturity 102 1,261
Available for sale 1,438 1,160
Other interest-earning assets 347 849
Total interest income 6,785 7,826
Interest expense
Deposits 3,234 3,524
Short term borrowings 267 817
Long term borrowings - 901
Total interest expense 3,501 5,242
Net Interest Income 3,284 2,584
Provision for loan losses 22 135
Net interest income after provision
for loan losses 3,262 2,449
Noninterest income
Gain (loss) from securities
Held to maturity - 176
Available for sale 81 (18)
Trading 6 (45)
Gain on sale of loans 214 233
Loan servicing fees 280 383
Income (loss) from real estate operations (231) 110
Deposit servicing fees 119 110
Other 31 55
Total noninterest income 500 1,004
Noninterest expense
Compensation and employee benefits 1,141 1,139
Occupancy 464 533
Advertising 132 144
Data processing services 27 36
Insurance 258 261
Other 308 688
Total noninterest expense 2,330 2,801
Income before income taxes 1,432 652
Income taxes 350 173
Net income 1,082 479
Earnings per common share - assuming no dilution: 0.44 0.19
Dividends paid per common share 0.05 -
Average shares outstanding - assuming no dilution 2,438,954 2,457,768
</TABLE>
<TABLE>
Consolidated Statement Of Stockholders' Equity (Unaudited)
<CAPTION>
(Dollars in Thousands)
As of December 31, 1993 Net Unrealized
Gain (Loss) on
Securities Total
Common Additional Retained Available for Stockholders
Stock Capital Earnings Sale Equity
<S> <C> <C> <C> <C> <C>
Balance at
September 30, 1993 2,342 5,811 41,422 560 50,135
Net income for the three
months ended December 31, 1993 - - 1,082 - 1,082
Cash Dividends -
Common Stock,
$0.10 per share - - (117) - (117)
Stock options exercised 2 10 - - 12
Net unrealized gain
(loss) on securities
available for sale - - - (250) (250)
Balance at December 31, 1993 2,344 5,821 42,387 310 50,862
</TABLE>
<TABLE>
Consolidated Statements of Cash Flow
<CAPTION>
(Dollars in Thousands) Three Months Ended Three Months Ended
December 31, December 31,
1993 1992
Operating Activities
<S> <C> <C>
Net income 1,082 479
Adjustments
Purchase of trading account securities - -
Proceeds from sale of trading account securities 6 (45)
Provision for losses 23 212
Gain on sale of assets (293) (348)
Amortization and depreciation 127 167
(Increase) decrease in accrued interest receivable (245) (857)
Other (231) 600
Net Cash Provided (Absorbed) By Operating Activities 469 208
Investing Activities
Purchase of securities
Investment - (121,183)
Held for sale (120,619) (161)
Proceeds from sale of securities
Investment - 176
Held for sale 121,966 2,991
Proceeds from principal payments and maturities of securities
Investment 1 1,733
Held for sale 3,276 16,351
Proceeds from sale of loans 12,289 14,071
Loan originations and principal payments on loans (19,461) (29,617)
Proceeds from sale of real estate 512 182
Proceeds from sale (purchase) of Federal Home Loan Bank stock (85) (96)
Other (974) (854)
Net Cash Provided (Absorbed) By Investing Activities (3,095) (116,407)
Financing Activities
Net increase in deposits 1,083 5,702
Repurchase of common and preferred stock - -
Cash dividends paid on common stock (117) (246)
Repayments of Federal Home Loan Bank advances (10,000) -
Proceeds from securities sold under agreements
to repurchase and from other borrowings 70,544 -
Payments on securities sold under agreements to
repurchase and other borrowings (71,069) -
Decrease in escrow deposits (267) (390)
Other 12
Net Cash Absorbed By Financing Activities (9,814) 5,066
Increase in Cash and Cash Equivalents (12,440) (111,133)
Cash and Cash Equivalents - beginning of year 25,146 122,776
Cash and Cash Equivalents - end of year 12,706 11,643
</TABLE>
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. (an inactive 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 three month period ended December 31, 1993 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 are computed by dividing earnings by the weighted
average number of shares outstanding during the period. For the quarter
ended December 31, 1993, 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 quarter ended December 31, 1992 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 2,438,954 and
2,457,768 for the quarters ended December 31, 1993 and 1992, respectivly.
Note C--Transfers from loans to real estate acquired through foreclosure
amounted to approximately $0 and $61,000 for the three months ended December
31, 1993 and 1992 respectively. Real estate in-substance foreclosed
transferred to real estate acquired through foreclosure amounted to
approximately $89,000 and $6,385,000 for the three months ended December 31,
1993 and 1992, 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 three months ended December 31, 1993.
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. (an inactive real estate brokerage company). At December 31, 1993, the
Corporation had assets of $397.7 million, total deposits of $314.8 million
and stockholders' equity of $50.9 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.
Changes in Financial Condition
Although total assets have decreased over $10.0 million for the three
month period ended December 31, 1993, there have been no significant
increases or decrease in any one category. Cash and cash equivalents (down
$12.4 million for the quarter) combined with proceeds from the sale of and
principal repayments on securities were used to fund new loans (net increase
of $7.8 million) and to repay $10.0 million of Federal Home Loan Bank
("FHLB") advances.
Stockholders' Equity increased ($726,000 or 1.5%) as net income for the
three month period of $1,082,000 was only slightly offset by a regular
quarterly $0.05 per share common stock dividend totalling $117,000, which was
paid in December, 1993 as well as an adjustment for the net unrealized gain
(loss) on securities available for sale.
Results of Operation
The Association's results of operations are dependent to a large extent
on its net interest income, which is the difference between the interest and
dividend 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 Association's results of operations.
Three Months Ended December 31, 1993 Compared to December 31, 1992
Interest Income. Interest income on all interest earning assets for the
three months ended December 31, 1993 was $6.8 million, a decrease of
approximately $1.0 million or 13.3% over the same period in 1992. Although
there was a 53 basis point increase in the average yield on interest earning
assets, a 15.7% decrease in the average outstanding balance of these assets
resulted in the decrease in total interest income. For the three months
ended December 31, 1993 the average balance of all interest earning assets
was $380.7 millon yielding 7.1%, compared to $451.5 million yielding 6.5% in
the previous year.
For the three month period ended December 31, 1993 interest income on
loans increased by approximately $342,000 or 7.5% for the current year.
While average loans outstanding increased 14.2% for the three month period,
the average yield on these loans decreased only 2.5%. For the same two
periods, interest on securities decreased $880,000, the direct result of a
30.0% decrease in the average outstanding balance as well as a 5.7% decrease
in average yield. Interest income on other interest earning assets (FHLB
stock, federal funds sold, and cash) decreased approximately $502,000 or
59.1% due mainly to a 49.8% decrease in the average outstanding balance of
these assets.
Interest Expense. Interest expense for the three months ended December
31, 1993 decreased approximately $1.7 million or 33.2% over the similar
period in 1992. A 9.8% decrease in average cost of deposits, partially
offset by a $4.7 million increase in average outstanding balance resulted in
total interest expense on deposits decreasing by approximately $290,000 or
8.2%. For the three months ended December 31, 1993, deposits averaged $314.7
million at an average cost of 4.1%, compared to an average balance of $309.9
million and an average cost of 4.5% for the comparable period in 1992. Total
interest on borrowings decreased by over $1.5 million or 84.5%, the direct
result of prepaying $45.5 million of FHLB 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. With the exception of $10.0 million of
this debt paid in October, 1993, all of this debt was repaid during the year
ended September 30, 1993.
Net Interest Margin. Although decreases were experienced for the
quarter ended December 31, 1993 in both interest income and interest expense,
net interest margin increased by almost $700,000 or 27.1%. Net interest
spread has increased from 1.6% for the quarter ended December 31, 1992 to
3.1% for the quarter ended December 31, 1993.
<TABLE>
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 month
period ended December 31, 1993 and 1992. The yields earned and rates paid
are based on average balances.
<CAPTION>
Three Months Ended
December 31
1993 1992
Interest-earning assets:
<S> <C> <C>
Real estate loans 8.84% 9.03%
Other loans 8.98% 9.76%
Mortgage-backed securities 6.21% 7.72%
Securities held to maturity - 7.57%
Securities available for sale 4.77% 4.33%
Other investments 3.35% 3.33%
Total interest-earning assets 7.06% 6.53%
Interest-bearing liabilities
Deposits 4.09% 4.54%
Borrowings 2.71% 6.05%
Total interest-bearing liabilities 3.97% 4.94%
Net interest rate spread 3.08% 1.59%
</TABLE>
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 ($23,000)
for the three months ended December 31, 1993 as compared to $135,000 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 monthly basis and evaluate the adequacy of total valuation
allowances. (See Provision for Possible Loan Losses).
Other Income. Other income was $500,000 for the three months ended
December 31, 1993, a decrease of approximately $503,000 from the three months
ended December 31, 1992. The majority of this decrease is related to
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 decreased over $341,000 for the three month period).
Other decreases included loan servicing fees (down $102,000 for the three
month period), the result of the payoffs of loans serviced for others.
Other Expenses. Other expenses decreased approximately $471,000 for the
three months ended December 31, 1993. 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 compensation and employee benefits which increased only
slightly, all other categories of noninterest expense have decreased.
Net Income. The Corporation recorded net income of $1,082,000 or $0.44
per share, which compares to a net income for the same period a year earlier
of $479,000 or $.19 per share. As previously discussed, 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.
Securities.
<TABLE>
Securities as of December 31, 1993 were as follows (dollars in
thousands):
<CAPTION>
Unrealized Estimated
Amortized Gains Market
Cost (Losses) Value
<S> <C> <C> <C>
Held to maturity
Other securities 486 - 486
Total Investments 486 - 486
Available for sale
Mortgage-backed securities 22,946 (59) 22,887
Corporate notes 2,001 17 2,018
United States Treasury 74,862 (1,088) 73,774
Asset management fund 25,050 (75) 24,975
Other securities 6,366 1,705 8,071
Total - Held for sale 131,225 500 131,725
131,711 500 132,211
</TABLE>
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 December 31, 1993 was
- - -12.31%.
<TABLE>
The following table provides information as of December 31, 1993,
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.
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Mortgage Loans 74.3 28.2 18.2 16.0 5.7 53.6 196.0
Mortgage-Backed Securities - - 1.3 - 19.7 2.0 23.0
Other Loans 12.8 0.9 1.9 1.9 0.7 4.0 22.2
Investment Securities/FHLB Stock 20.7 5.4 6.8 78.9 0.5 3.7 116.0
Federal Funds Sold 0.8 - - - - - 0.8
Other Earning Assets 8.5 - - - - - 8.5
Total Interest-Earning Assets 117.1 34.5 28.2 96.8 26.6 63.3 366.5
Interest-Bearing Liabilities Deposits
Deposits
Demand Deposits 5.2 4.1 8.5 2.3 3.0 2.0 25.1 (1)
Savings Accounts 5.3 4.9 15.7 10.1 14.6 9.7 60.3 (1)
Money Market Demand Accounts 27.8 12.7 5.6 2.6 1.5 1.0 51.2 (1)
Certificates of Deposit 61.0 45.9 40.2 31.0 - - 178.1
Notes Payable 9.8 - - - - - 9.8
FHLB Advances - 20.0 - - - - 20.0
Total Interest-Bearing Liabilities 109.1 87.6 70.0 46.0 19.1 12.7 344.5
Interest Sensitivity Gap 8.0 (53.1) (41.8) 50.8 7.5 50.6 22.0
Cumulative Gap 8.0 (45.1) (86.9) (36.1) (28.6) 22.0
Ratio of Interest-Earning Assets to
Interest-Bearing Liabilities 1.07 0.39 0.40 2.10 1.39 4.98 1.06
Cumulative Ratio of Interest-Earning
Assets to Interest-Bearing Liabilities 1.07 0.77 0.67 0.88 0.91 1.06
Cumulative GAP as a Percent of
Total Earning Assets 2.18% -12.31% -23.71% -9.85% 7.80% 6.00%
<FN>
(1) Repricing of these three types of deposits (demand, savings and money
market demand) are based on repricing assumptions as of September 30, 1993
furnished by the FHLB of Atlanta thru their interest rate risk service.
</TABLE>
Real Estate Investment. The Savings Bank's investment in real estate
ventures increased slightly at December 31, 1993 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
December 31, 1993, Pioneer Federal owned $6,848,200 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).
<TABLE>
Total classified assets have decreased $4.4 million or 16.5% for the
three month period ended December 31 1993, comprised of a $4.7 million
decrease in substandard assets and a $291,000 increase in loss assets. The
following table details information concerning the Savings Bank's classified
assets at December 31, 1993, and the ratio of classified assets to total
assets:
<CAPTION>
Substandard Doubtful Loss Total
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial real estate 8,700 - - 8,700
Mortgage loans 255 520 775
Construction Loans - - - -
Other loans 265 - 45 310
Real estate held for development 4,051 - 216 4,267
Real estate owned 7,281 - 890 8,171
Total Classified Assets 20,552 - 1,671 22,223
Ratio of Classified
Assets to Total Assets 5.17% - 0.42% 5.59%
</TABLE>
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.
<TABLE>
The following table sets forth information with respect to the Savings
Bank's non-performing loans at the dates indicated.
<CAPTION>
12/31/93 09/30/93 09/30/92 09/30/91
<S> <C> <C> <C> <C>
Loans accounted for on a
non-accrual basis:
Real Estate:
Residential 94 91 376 1,893
Commercial - - 243 1,545
Commercial Business - 363 391 1,144
Consumer 34 - 17 21
Total 128 454 1,027 4,603
Accruing loans which are
contractually past due
90 days or more:
Real Estate:
Residential 161 143 322 582
Commercial 6,761 3,998 - -
Commercial Business 237 238 849 -
Consumer - - - -
Total 7,159 4,379 1,171 582
Total of nonaccrual and
90 days past due loans 7,287(1) 4,833 2,198 5,185
Percentage of Total Loans 3.34% 2.30% 1.33% 2.92%
<FN>
(1) Nonperforming loans which are classified assets as well are as
follows:
<S> <C>
Special Mention 6,761
Substandard 490
Doubtful -
Loss 36
Total 7,287
</TABLE>
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 December 31,
1993 allowances related to specific assets (loans and real estate) amounted
to $1.7 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 $2.6 million at December 31, 1993. 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 collectibility of loans in the portfolio. GVA's of this type totalled
$1.4 million at December 31, 1993. Total valuation allowances, both specific
and general, totalled $5.7 million at December 31, 1993.
<TABLE>
The following table sets forth the breakdown of the allowance for losses
by category at the dates indicated.
<CAPTION>
Analysis of Valuation Allowances
Specific Valuation Allowances 12/31/93 9/30/93 9/30/92
Loans:
<S> <C> <C> <C>
Residential Mortgage 49 38 356
Commercial Mortgage 521 653 739
Construction - - -
Commercial Business 23 100 146
Consumer 42 73 183
Total Specific Valuation Allowance - Loans 635 864 1,424
Percent of Total Loans 0.3% 0.4% 0.8%
Real Estate
In-substance Foreclosure - - 0
Real Estate Held for Development 890 807 154
Real Estate Owned 216 431 841
Total Specific Valuation Allowance - Real Estate 1,106 1,238 995
Percent of Total Real Estate 6.0% 6.8% 4.3%
Total Specific Valuation Allowance 1,741 2,102 2,419
Percent of Total Loans/Real Estate 0.7% 0.9% 1.3%
General Valuation Allowances
Loans:
Residential Mortgage 110 112 107
Commercial Mortgage 2,001 2,012 2,614
Construction 467 441 117
Commercial Business 196 191 67
Consumer 22 22 115
Total GVA - Loans 2,796 2,778 3,020
Percent of Total Loans 1.3% 1.3% 1.8%
Real Estate:
In-substance Foreclosures 365 364 0
Real Estate Held for Development 772 722 0
Real Estate Owned 41 118 0
Total GVA - Total Real Estate 1,178 1,204 0
Percent of Total Real Estate 6.4% 6.7% 0.0%
Total GVA's 3,974 3,982 3,020
Percent of Total Loans/Real Estate and Other 1.6% 1.7% 1.6%
Total Valuation Allowances 5,715 6,084 5,439
Percent of Total Loans/Real Estate and Other 2.3% 2.7% 2.9%
</TABLE>
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 in-substance 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 subsequent to
December 31, 1993.
<TABLE>
The following table sets forth the balances in repossessed property
(held for sale and in-substance foreclosed) at December 31, 1993, and the
allowance for loss by type of property.
<CAPTION>
Less: Less: Net
Asset Specific General Carrying
Balances Allowance Allowance Value
(Dollars in Thousands)
Real Estate Owned
<S> <C> <C> <C> <C>
Single Family Residential 112 5 11 96
Multi-Family Residential 3,627 109 352 3,166
Construction 116 22 0 94
Commercial 412 80 42 290
Total Real Estate Owned 4,267 216 405 3,646
</TABLE>
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
24.4% at December 31, 1993, the Savings Bank more than met the 5%
requirement. At December 31, 1993, the Savings Bank had outstanding loan
commitments totalling $7.7 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.
<TABLE>
The following table sets forth the capital position of the Savings Bank
as calculated under FIRREA as of December 31, 1993, (in thousands):
<CAPTION>
Excess
Actual % of Required % of % of
Amount Assets* Amount Assets* Amount Assets*
<S> <C> <C> <C> <C> <C> <C>
Core 35,351 8.89% 11,781 3.00% 23,570 5.89%
Tangible 35,351 8.89% 5,890 1.50% 29,461 7.39%
Risk-weighted 38,552 16.47% 18,725 8.00% 19,827 8.47%
<FN>
* Based upon adjusted total assets for the core and tangible capital
requirements, and risk-weighted assets for the risk-based capital
requirement.
</TABLE>
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 is a defendent in certain claims and
legal actions arising in the ordinary course of business. 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. From time to time, the
Savings Bank is a party to legal proceedings wherein it
enforces its security interest in mortgage loans made by its
loan department.
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
Not Applicable.
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 February 14, 1994 By: \s\ G. R. Whittemore
G. R. Whittemore
President and Chief Executive Officer
Date February 14, 1994 By: \s\ H. Lee Rettig
H. Lee Rettig
Chief Accounting Officer
