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Prospectus Supplement Dated May 14, 2004 Filed Pursuant to Rule 424(b)(3)
to Prospectus Dated January 13, 2004 of
Pioneer Financial Services, Inc. Registration Number 333-103293
================================================================================
UNITED STATES
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 period ended: March 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 333-103293
Pioneer Financial Services, Inc.
(Exact name of Registrant as specified in its charter)
Missouri 44-0607504
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4700 Belleview Avenue, Suite 300, Kansas City, Missouri 64112
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (816) 756-2020
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the Registrant has (1) filed all
documents and 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 [ ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of March 31, 2004
----- --------------------------------
Common Stock, $100 par value 17,136 shares
PIONEER FINANCIAL SERVICES, INC.
FORM 10-Q
March 31, 2004
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item No. Page
1. Consolidated Financial Statements......................................3
Consolidated Balance Sheets at March 31, 2004 and September 30, 2003...3
Consolidated Statements of Income for the three months ended and six
months ended March 31, 2004 and 2003...................................4
Consolidated Statements of Retained Earnings for the six months
ended March 31, 2004 and year ended September 30, 2003.................5
Consolidated Statements of Cash Flows for the six months ended
March 31, 2004 and 2003................................................6
Condensed Notes to Consolidated Financial Statements...................7
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................8
3. Quantitative and Qualitative Disclosures About Market Risk............17
4. Controls and Procedures...............................................18
PART II
OTHER INFORMATION
1 Legal Proceedings.....................................................18
2. Changes in Securities and Use of Proceeds.............................18
3. Defaults upon Senior Securities.......................................18
4. Submission of Matters to a Vote of Security Holders...................18
5. Other Information.....................................................18
6. Exhibits and Reports on Form 8-K......................................19
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
PIONEER FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, September 30,
2004 2003
------------------- -------------------
(unaudited)
Cash $ 1,788,720 $ 2,039,109
Other investments 1,956,929 1,962,614
Finance receivables:
Direct receivables 155,703,084 147,095,062
Retail installment contracts 20,518,965 18,799,693
------------------- -------------------
Finance receivables before
allowance for credit losses 176,222,049 165,894,755
Allowance for credit losses (9,910,868) (9,220,868)
------------------- -------------------
Net finance receivables 166,311,181 156,673,887
Furniture and equipment, net 1,373,733 1,467,077
Deferred income taxes 3,616,227 3,364,700
Prepaid and other assets 455,670 334,859
------------------- -------------------
Total assets $ 175,502,460 $ 165,842,246
=================== ===================
LIABILITIES AND STOCKHOLDER'S EQUITY
March 31, September 30,
2004 2003
------------------- -------------------
(unaudited)
Revolving credit line - banks $ 11,957,000 $ 10,580,000
Revolving credit line - affiliate 2,488,265 1,712,841
Accounts payable 835,208 945,038
Accrued expenses and other
liabilities 10,246,444 10,940,246
Amortizing and single pay term
notes 104,977,372 99,471,296
Junior subordinated notes 22,159,821 21,436,745
------------------- -------------------
Total liabilities $ 152,664,110 $ 145,086,166
------------------- -------------------
Stockholder's equity:
Common stock, $100 par value;
authorized 20,000 shares;
issued and outstanding
17,136 shares 1,713,600 1,713,600
Retained earnings 21,124,750 19,042,480
------------------- -------------------
Total stockholder's equity 22,838,350 20,756,080
------------------- -------------------
Total liabilities and $ 175,502,460 $ 165,842,246
stockholder's equity =================== ===================
See notes to consolidated financial statements.
3
PIONEER FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenue
Finance income $12,964,111 $12,247,687 $26,238,783 $25,183,434
Insurance premiums
and commissions 1,289,552 1,360,896 2,584,533 2,695,656
Other income, fees
and commissions 339,114 333,463 809,968 934,567
------------ ------------ ------------ ------------
Total revenue 14,592,777 13,942,046 29,633,284 28,813,657
Provision for credit
losses 2,134,847 3,010,016 4,823,492 6,422,910
Interest expense 2,231,114 2,405,378 4,434,751 4,832,922
------------ ------------ ------------ ------------
Net revenue 10,226,816 8,526,652 20,375,041 17,557,825
Operating expenses
Employee costs 5,731,005 4,825,395 11,158,471 9,413,931
Facilities 1,175,000 1,295,535 2,453,145 2,527,029
Marketing 678,802 279,843 1,294,321 821,535
Professional fees 576,801 683,625 962,104 1,231,572
Other 282,850 296,281 699,432 665,343
------------ ------------ ------------ ------------
Total operating expenses 8,444,458 7,380,679 16,567,473 14,659,410
Income before income
taxes 1,782,358 1,145,973 3,807,568 2,898,415
Provision for income
taxes 663,047 440,647 1,391,147 1,083,013
------------ ------------ ------------ ------------
Net income $ 1,119,311 $ 705,326 $ 2,416,421 $ 1,815,402
============ ============ ============ ============
Net income per share,
basic and diluted $ 65.32 $ 41.16 $ 141.01 $ 105.94
============ ============ ============ ============
See notes to consolidated financial statements.
4
PIONEER FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Six Months Ended Year Ended
March 31, September 30,
2004 2003
------------------- -------------------
(unaudited)
Retained earnings, beginning of
period $ 19,042,480 $ 15,606,679
Net income 2,416,421 3,979,869
Dividends paid ($19.49 and
$31.75 per share) (334,151) (544,068)
------------------- -------------------
Retained earnings, end of period $ 21,124,750 $ 19,042,480
=================== ===================
See notes to consolidated financial statements.
5
PIONEER FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended March 31,
2004 2003
------------------ -----------------
Cash Flows from Operating Activities:
Net income $ 2,416,421 $ 1,815,402
Items not requiring (providing)
cash:
Provision for credit losses on
finance receivables 4,823,492 6,422,910
Depreciation and amortization 401,647 402,476
Compounded interest added to
junior subordinated debt 571,705 580,308
Deferred income taxes (251,527) (799,422)
Loss on disposal/donation of
equipment 23,701
Changes in:
Accounts payable and accrued
expenses (447,290) 1,870,597
Other (120,811) (45,643)
------------------ -----------------
Net cash provided by
operating activities 7,393,637 10,270,329
------------------ -----------------
Cash Flows from Investing Activities:
Loans originated (97,635,958) (60,876,484)
Loans purchased (9,551,012) (7,978,352)
Loans repaid 92,726,184 59,567,742
Capital expenditures (302,618) (176,758)
Securities purchased -- (313,066)
Securities matured -- 212,886
------------------ -----------------
Net cash used in investing
activities (14,763,404) (9,564,032)
------------------ -----------------
Cash Flows from Financing Activities:
Net borrowing under lines of credit 1,796,082 (607,638)
Proceeds from borrowings 29,389,590 23,133,710
Repayment of borrowings (23,732,143) (22,546,951)
Dividends paid (334,151) (269,035)
------------------ -----------------
Net cash provided by
financing activities 7,119,378 (289,914)
------------------ -----------------
Net Increase/(Decrease) in Cash (250,389) 416,383
Cash, Beginning of Period 2,039,109 1,150,863
-------------------- -----------------
Cash, End of Period $ 1,788,720 $ 1,567,246
==================== =================
Additional Cash Flow Information:
Interest paid $ 4,385,827 $ 4,850,114
Income taxes paid $ 2,100,933 $ 703,387
See notes to consolidated financial statements.
6
PIONEER FINANCIAL SERVICES, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004 and September 30, 2003
(Unaudited)
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Concentration
Pioneer Financial Services, Inc., a Missouri corporation (the
"Company"), is a specialized financial services company which originates and
services consumer loans and provides other products and financial services
exclusively to U.S. active duty or retired career military personnel or U.S.
Department of Defense employees. The Company's revenues are primarily earned
from the making of direct loans and the purchase of retail installment
contracts. The Company also earns revenues from commissions from the sale of
credit-related insurance placed with non-related insurance companies and from
reinsurance premiums on credit accident and health insurance. Additionally,
the Company sells non-loan related products and services, including roadside
assistance programs and discount healthcare cards.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Pioneer Financial Services, Inc. (a wholly-owned subsidiary of Pioneer
Financial Industries, Inc.) and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated from
the accompanying consolidated financial statements. Certain information and
note disclosures normally included in the Company's annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the Company's annual
consolidated financial statements filed with the Securities and Exchange
Commission.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Information with respect to March 31, 2004 and 2003, and the periods
then ended, have not been audited by the Company's independent auditors, but
in the opinion of management reflect all adjustments (which include only
normal recurring adjustments) necessary for the fair presentation of the
financial condition and operations of the Company. The results of operations
for the three months and six months ended March 31, 2004 and 2003 are not
necessarily indicative of results to be expected for the entire fiscal year.
The condensed consolidated balance sheet and retained earnings statement as
of September 30, 2003 has been derived from the Company's audited
consolidated balance sheet and retained earnings statement.
NOTE 2: NET INCOME PER SHARE
Net income per share is computed based upon the weighted-average common
shares outstanding of 17,136 during each period. There are no potentially
dilutive securities issued and outstanding.
7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
The discussion set forth below, as well as other portions of this
quarterly report, contains forward-looking statements within the meaning of
federal securities law. Words such as "may," "will," "expect," "anticipate,"
"believe," "estimate," "continue," "predict," or other similar words,
identify forward-looking statements. Forward-looking statements include
statements regarding our management's intent, belief or current expectation
about, among other things, trends affecting the markets in which we operate,
our business, financial condition and growth strategies. Although we believe
that the expectations reflected in these forward-looking statements are based
on reasonable assumptions, forward-looking statements are not guarantees of
future performance and involve risks and uncertainties. Actual results may
differ materially from those predicted in the forward-looking statements as a
result of various factors, including, but not limited to, those risk factors
set forth in our registration statement on Form S-1, as amended (No.
333-103293). Other factors not identified herein could also have such an
effect. If any of these risk factors occur, they could have an adverse
effect on our business, financial condition and results of operation. When
considering forward-looking statements keep these risk factors in mind.
These forward-looking statements are made as of the date of this filing. You
should not place undue reliance on any forward-looking statement. We are not
obligated to update forward-looking statements and will not update any
forward-looking statements in this Quarterly Report to reflect future events
or developments.
Overview
We originate and service consumer loans and provide other financial
products and services on a worldwide basis, exclusively to active duty or
retired career U.S. military personnel or U.S. Department of Defense
employees. We make direct loans to our customers through our network of
retail sales offices and over the Internet. We also purchase retail
installment sales contracts from retail merchants who sell consumer goods to
active duty or retired career U.S. military personnel or U.S. Department of
Defense employees. We refer to these consumer loans and retail installment
contracts as finance receivables.
Our finance receivables are effectively unsecured with fixed interest
rates and typically have a maturity of less than 48 months. During the first
six months of fiscal 2004, the size of our average finance receivable at
origination was approximately $3,234. A large portion of our customers are
unable to obtain traditional financing from banks, credit unions or savings
and loan associations due to factors such as their age, likelihood of
relocation and lack of credit history.
Further improvement of our profitability is dependent in large part upon
the growth in our outstanding finance receivables, the maintenance of loan
quality, acceptable levels of borrowing costs and operating expenses and the
ongoing introduction of innovative new products and services to our customer
base. Since September 30, 1998, finance receivables have increased at a
12.9% annual compounded rate from $90.3 million to $165.9 million at
September 30, 2003. We anticipate this trend will continue as our
originations grow through existing and planned new retail offices and through
the Internet. Use of the Internet to extend loans is a lower cost method of
origination. We plan to continue to look for opportunities to expand the
Internet portion of our business and add new retail offices as we evaluate
new military markets and possible products.
Sources of Income
We earn revenues and resulting income from finance income derived from
direct consumer lending and retail installment contracts, commissions earned
on the sale of credit insurance products, credit reinsurance premiums, and
commissions earned on the sale of ancillary products and services. For
purposes of the following discussion, "revenues" means the sum of our finance
income, insurance premiums and commissions and other income.
8
Finance Receivables
Our finance receivables are comprised of direct loans and retail
installment contracts. The following table sets forth certain information
about the components of our finance receivables:
As of, and For the Six As of, and For the
Months Ended Year Ended
March 31, September 30,
-------------------------------------------------
2004 2003 2003
-------------------------------------------------
(dollars in thousands, except for average note
balance)
Finance Receivables:
Finance receivable balance $ 176,222 $ 163,875 $ 165,895
Average note balance $ 2,230 $ 2,018 $ 2,117
Total finance income $ 26,239 $ 25,183 $ 50,003
Total number of notes 79,009 81,194 78,364
Direct Loans:
Notes receivable balance $ 155,703 $ 144,684 $ 147,095
Percent of finance receivables 88.36% 88.29% 88.67%
Average note balance $ 2,250 $ 2,023 $ 2,123
Number of notes 69,194 71,519 69,291
Retail Installment Contracts:
Notes receivable balance $ 20,519 $ 19,191 $ 18,800
Percent of finance receivables 11.64% 11.71% 11.33%
Average note balance $ 2,091 $ 1,984 $ 2,072
Number of notes 9,815 9,675 9,073
Net Interest Margin
The principal component of our profitability is our net interest margin,
which is the difference between the interest we earn on finance receivables
and the interest we pay on borrowed funds. In some states, statutes regulate
the interest rates that we may charge our customers while in other states
competitive market conditions establish the interest rates we may charge.
Differences also exist in the interest rates we earn on the various
components of our finance receivable portfolio.
Unlike our interest income, our interest expense is sensitive to general
market interest rate fluctuations. These general market fluctuations
directly impact our cost of funds. Our general inability to increase the
interest rates earned on new and existing finance receivables restricts our
ability to react to increases in our cost of funds. Accordingly, increases in
market interest rates generally will narrow our interest rate spread and
lower our profitability, while decreases in market interest rates generally
will widen our interest rate spread and increase our profitability. An
increase in market interest rates may result in a reduction in our
profitability and impair our ability to pay interest and principal on the
debentures.
9
The following table presents important data relating to our net interest
margin:
As of, and For the As of, and For the
Three Months Six Months
Ended March 31, Ended March 31,
-------------------- --------------------
2004 2003 2004 2003
-------------------- --------------------
(dollars in thousands)
Finance receivables balance $176,222 $163,875 $176,222 $163,875
Average finance receivables (1) $173,962 $165,634 $172,527 $165,665
Average interest bearing
liabilities (1) $138,000 $131,613 $137,483 $131,496
Total finance income $ 12,964 $ 12,248 $ 26,239 $ 25,183
Total interest expense $ 2,231 $ 2,405 $ 4,435 $ 4,833
Provision for credit losses $ 2,135 $ 3,010 $ 4,823 $ 6,423
Net charge-offs $ 1,895 $ 1,910 $ 4,133 $ 4,423
- ---------------------------------
(1) Averages are computed using month-end balances.
Results of Operations
Three Months Ended March 31, 2004 Compared to Three Months Ended March
31, 2003
Finance Receivables. Our aggregate finance receivables increased 0.6%
during the second quarter of fiscal 2004 to $176.2 million on March 31, 2004
from $175.2 million on December 31, 2003. Historically, the second quarter
is typically the lowest period for loan originations and usually results in a
decline in our finance receivables of generally between 2% and 4%. These
loan originations generated the highest second quarter gain in our finance
receivables in company history. This increase was due primarily to increases
in finance receivables from the Internet, which grew by approximately $2.3
million or 3.5% during this period. The Internet is a lower-cost method of
loan origination and proceed distribution. We plan to continue to increase
this distribution platform in the future through our existing channels and
additional third party websites.
Total Revenues. Total revenues in the second quarter of fiscal 2004
increased to $14.6 million from $13.9 million in the second quarter of fiscal
2003, an increase of $0.7 million or 4.67%. This increase was primarily due
to an increase in average finance receivables to $174.0 million in the second
quarter of fiscal 2004 from $165.6 million in the second quarter fiscal 2003,
an increase of 5.1%.
Provision for Credit Losses. The provision for credit losses in the
second quarter of fiscal 2004 decreased to $2.1 million from $3.0 million in
the second quarter of fiscal 2003, a decrease of $0.9 million or 29.1%. Net
charge-offs of finance receivables in the second quarter of fiscal 2004
remained consistent with fiscal 2003 at $1.9 million, while the net
charge-offs as a percentage of average finance receivables for the second
quarter of fiscal 2004 declined to 4.4% compared to 4.6% in fiscal 2003. The
decrease in net charge-offs as a percentage of average finance receivables
reflects the reduction in 60-day delinquent accounts in the portfolio and
enhanced collection efforts. Our allowance for credit losses at March 31,
2004 increased to $9.9 million from $9.7 million at December 31, 2003, an
increase of $0.2 million, or 2.5%. The increase reflects the increase in our
average finance receivables portfolio for the three months ended March 31,
2004. See also "--Credit Loss Experience and Provisions for Credit Loss."
Interest Expense. Interest expense in the second quarter of fiscal 2004
decreased to $2.2 million from $2.4 million in the second quarter of fiscal
2003, a decrease of $0.2 million or 7.2%. This decrease is the result of
lower interest rates charged on our borrowings, even though our average
interest bearing liabilities for the three months ended March 31, 2004
increased by $6.4 million or 4.9% compared to the three months ended March 31,
2003. The
10
weighted average interest rate declined to 6.5% in the second quarter of
fiscal 2004 from 7.2% in the second quarter of fiscal 2003.
Operating Expense. Operating expenses in the second quarter of fiscal
2004 increased to $8.4 million from $7.4 million in the second quarter of
fiscal 2003, an increase of $1.0 million or 14.4%. This increase was
primarily due to employment costs and advertising costs. Employment costs
increased as a result of building infrastructure in the retail network and
renewed efforts to create a technology solution for our lending software system
and integration with our internet lending software system to enhance
efficiencies in the future. In addition, in the first quarter 2004 we entered
into agreements with third parties, who sell products via the Internet, to
provide financing solutions for their military customer base. Advertising costs
increased due to additional marketing efforts to build brand awareness.
These increases were partially offset by a reduction in professional fees.
Net Income. Income before taxes in the second quarter of fiscal 2004
was $1.8 million and net income was $1.1 million compared to income before
taxes of $1.1 million and net income of $.7 million during the second quarter
of fiscal 2003.
Six Months Ended March 31, 2004 Compared to Six Months Ended March 31,
2003
Finance Receivables. Our aggregate finance receivables increased 6.2%
during the first six months of fiscal 2004 to $176.2 million from $165.9
million on September 30, 2003, compared to a 3.0% increase during the first
six months of fiscal 2003 to $163.9 million from $159.0 million on September
30, 2002. This increase was due primarily to increases in finance
receivables from the Internet, which grew by more than $8.7 million or 14.8%
during this period. The Internet is a lower-cost method of loan origination
and proceed distribution, and we plan to continue to increase this
distribution channel in the future.
Total Revenues. Total revenues for the first six months of fiscal 2004
increased to $29.6 million from $28.8 million for the first six months of
fiscal 2003, an increase of $0.8 million or 2.84%. This increase was
primarily due to the increase in average finance receivables to $172.5
million in fiscal 2004 from $165.7 million in fiscal 2003, an increase of
4.1%.
Provision for Credit Losses. The provision for credit losses in the
first six months of fiscal 2004 decreased to $4.8 million from $6.4 million
in the first six months of fiscal 2003, a decrease of $1.6 million or 24.9%.
Net charge-offs of finance receivables in the first six months of fiscal 2004
decreased to $4.1 million from $4.4 million in the first six months of fiscal
2003, a decrease of $0.3 million or 6.8%. Net charge-offs were 4.8% of the
average finance receivable balance for the six months ended March 31, 2004
compared to 5.3% for the six months ended March 31, 2003. This decline
reflects the reduction in 60-day delinquent accounts as a percentage of
finance receivables from 2.9% on September 30, 2003 to 2.5% on March 31,
2004. Our allowance for credit losses at March 31, 2004 increased to $9.9
million from $9.2 million at September 31, 2003, an increase of $0.7 million
or 7.5%. The increase in the allowance for credit losses reflects the
increase in our average finance receivables portfolio for the six months
ended March 31, 2004. See also "--Credit Loss Experience and Provisions for
Credit Loss."
Interest Expense. The interest expense for the first six months of
fiscal 2004 decreased to $4.4 million from $4.8 million in the first six
months of fiscal 2003, a decrease of $.4 million or 8.2%. This decrease is
the result of lower interest rates charged on our borrowings, even though our
average interest bearing liabilities for the six months ended March 31, 2004
increased by $6.0 million or 4% compared to the six months ended March 31,
2003. The weighted average interest rate declined to 6.5% in the first six
months of fiscal 2004 from 7.3% in the first six months of fiscal 2003.
Operating Expense. Operating expenses for the first six months of
fiscal 2004 increased to $16.6 million from $14.7 million in the first six
months of fiscal 2003, an increase of $1.9 million or 13.0%. This increase
is the result of increasing advertising expenses and rising employment
costs. The employment costs increase was primarily due to continued building
of infrastructure in the retail network and renewed efforts to create a
technology solution for our lending software system and integration with our
internet lending software system to enhance efficiencies in the future. In
addition, in the first quarter of 2004 we entered into agreements with third
parties, who sell products via the Internet, to provide financing solutions
for their military customer base. Competitive compensation and rising
11
benefit costs have compounded this variance. Advertising costs increased due
to additional marketing efforts to build brand awareness. These increases
were partially offset by a reduction in professional fees.
Net Income. Income before taxes of $3.8 million and net income of $2.4
million for the first six months of fiscal 2004 compared to $2.9 million and
net income of $1.8 million for the first six months of fiscal 2003.
Delinquency Experience
Our customers are required to make monthly payments of interest and
principal. We analyze our delinquencies on a recency delinquency basis. A
loan is delinquent under the recency method when a full payment (95% or more
of the contracted payment amount) has not been received for 60 days after the
last full payment. We rarely grant extensions or deferments, or allow
account revision, rewriting, renewal or rescheduling in order to bring
otherwise delinquent accounts current.
The following sets forth our delinquency experience for accounts for
which payments are 60 days or more past due and allowance for credit losses
for our finance receivables:
As of the Six Months Ended As of
March 31, September 30,
2004 2003 2003
--------------------------------------------
(dollars in thousands)
Finance receivables balances $ 176,222 $ 163,875 $ 165,895
Finance receivables balances 60
days or more past due $ 4,388 $ 5,266 $ 4,836
Finance receivables balances 60
days or more past due as a percent
of finance receivables 2.49% 3.21% 2.92%
Credit Loss Experience and Provision for Credit Losses
General
Our provisions for credit losses are charged to income in amounts
sufficient to maintain our allowance for credit losses at a level considered
adequate to cover the probable losses inherent in our existing finance
receivable portfolio. Historical credit loss experience, delinquency of
finance receivables, the value of underlying collateral, current economic
conditions, current military activities and management's judgment are factors
used in assessing the overall adequacy of the allowance and corresponding
provision for credit losses. Our allowance for credit losses is developed
primarily for our direct finance receivable portfolio as our retail
installment contracts are generally covered by dealer reserves.
Direct Loans
Our charge-off policy is based on an account-by-account review of
delinquent receivables on a recency basis. Finance receivables are
charged-off when management deems them to be uncollectible through our normal
collection procedures or they become 270 days past due. The 270-day limit is
required by our senior lending agreement. Approximately 40% of our
charge-offs occur before an account is 180 days delinquent. Our primary
source of charge-offs is when a customer leaves the military prior to
repaying the finance receivable. We generally structure our loans so that
the entire amount is repaid prior to a customer's estimated separation from
the military, and the number of our customers who depart the military early
has remained relatively constant over time. We, however, cannot predict when
or whether a customer may depart from the military early. Accordingly, we
cannot implement any policy or procedure to ensure that we are repaid in full
prior to our customer leaving the military. Our second greatest source of
loss is when a customer declares bankruptcy.
12
The following table presents net charge-offs on direct loans and net
charge-offs as a percentage of direct loans. The decrease shown on this table
in the percentage of net charge-offs to average monthly balance outstanding
resulted primarily from more effective collection efforts:
As of, and For As of, and For
the Three the Six
Months Ended Months Ended
March 31, March 31,
-------------------------------------------
2004 2003 2004 2003
-------------------------------------------
(dollars in thousands)
Direct Loans:
Loans charged-off $ 2,223 $ 2,240 $ 4,707 $ 4,991
Less recoveries 312 256 559 504
-------------------------------------------
Net charge-offs $ 1,911 $ 1,984 $ 4,148 $ 4,487
===========================================
Average monthly balance of
outstanding (1) $154,769 $146,600 $153,552 $146,520
Percentage of net
charge-offs to average
monthly balance outstanding (2) 4.94% 5.41% 5.40% 6.12%
- -----------------------------
(1) Averages are computed using month-end balances.
(2) March 31, 2004 and 2003 are annualized for comparison purpose.
Retail Installment Contracts
Under our retail merchant reserve arrangements, we withhold a percentage
(usually between five and ten percent) of the principal amount of the retail
installment contract purchased. The amounts withheld from a particular
retail merchant are recorded in a specific reserve account. Any losses
incurred on the retail installment contracts purchased from that retail
merchant are charged against its specific reserve account. Upon the retail
merchant's request, and no more often than annually, we pay the retail
merchant the amount by which its specific reserve account exceeds 15% of the
aggregate outstanding balance on all retail installment contracts purchased
from them, less losses we have sustained, or reasonably could sustain, due to
debtor defaults, collection expenses, delinquencies and breaches of our
agreement with the retail merchant. Our allowance for credit losses is
charged only to the extent that the loss on a retail installment contract
exceeds the originating retail merchant's specific reserve account at the
time of the loss.
13
The following table presents net charge-offs on retail installment
contracts and net charge-offs as a percentage of retail installment contracts:
As of, and For As of, and For
the Three the Six
Months Ended Months Ended
March 31, March 31,
---------------------------------------
2004 2003 2004 2003
---------------------------------------
(dollars in thousands)
Retail Installment Contracts:
Contracts charged-off $ 6 $ 26 $ 24 $ 58
Less recoveries 22 100 39 122
---------------------------------------
Net charge-offs $ (16) $ (74) $ (15) $ (64)
=======================================
Average monthly balance of
outstanding (1) $ 19,193 $ 19,034 $18,975 $ 19,146
Percentage of net charge-offs
to average
monthly balance outstanding (2) -0.33% -1.56% -0.16% -0.67%
- ----------------------------
(1) Averages are computed using month-end balances.
(2) March 31, 2004 and 2003 are annualized for comparison purpose.
The following table presents our allowance for credit losses on direct
loans and retail installment contracts:
As of, and For As of, and For
the Three the Six
Months Ended Months Ended
March 31, March, 31
------------------------------------------
2004 2003 2004 2003
------------------------------------------
(dollars in thousands)
Average finance receivables (1) $173,962 $165,634 $172,527 $165,665
Provision for credit losses $ 2,135 $ 3,010 $ 4,823 $ 6,423
Net charge-offs $ 1,895 $ 1,910 $ 4,133 $ 4,423
Net charge-offs as a
percentage of
average finance receivables (2) 4.36% 4.61% 4.79% 5.34%
Allowance for credit losses $ 9,911 $ 8,221 $ 9,911 $ 8,221
Allowance as a percentage of
average finance receivables 5.70% 4.96% 5.74% 4.96%
- -----------------------------
(1) Averages are computed using month-end balances.
(2) March 31, 2004 and 2003 are annualized for comparison purpose.
Allowance for Credit Losses
The allowance for credit losses is maintained at an amount which
management considers sufficient to cover estimated future losses. The
Company has developed policies and procedures for assessing the adequacy of
the allowance for credit losses which take into consideration the historical
credit loss experience of the Company, delinquency trends, current economic
conditions, current or future military deployments, and the composition of
the finance receivable portfolio. The Company uses various ratio analyses in
evaluating prior finance receivable losses and delinquency experience. These
and other analyses are used to measure historical movement of finance
receivables through various levels of repayment, delinquency, and loss.
These results and management's judgment are used to estimate future losses
and in establishing the current provision and allowance for credit losses.
These estimates are influenced by factors outside the Company's control, such
as economic conditions and current or future military deployments. There is
uncertainty inherent in these estimates, making it reasonably possible that
they could
14
change in the near term. See our registration statement on Form S-1, as
amended (No. 333-103293), "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Critical Accounting Policies."
The following table sets forth changes in the components of our
allowance for credit losses on direct loans and retail installment contracts:
As of, and For the Three As of, and For the Six
Months Ended Months Ended
March 31, March 31,
----------------------------------------------------
2004 2003 2004 2003
----------------------------------------------------
(dollars in thousands)
Balance beginning of period $ 9,671 $ 7,121 $ 9,221 $ 6,221
----------------------------------------------------
Charge-offs:
Loans charged-off (2,229) (2,266) (4,731) (5,049)
Recoveries 334 356 598 626
----------------------------------------------------
Net charge-offs (1,895) (1,910) (4,133) (4,423)
Provision for credit losses 2,135 3,010 4,823 6,423
----------------------------------------------------
Balance end of period $ 9,911 $ 8,221 $ 9,911 $ 8,221
====================================================
Loan Origination
Our loan origination is an important factor in determining our future
revenues. Loan origination for the first six months of fiscal 2004 increased
to $107.2 million from $96.0 million for the first six months of fiscal year
2003, an increase of $11.2 million or 11.6%. This increase is primarily due
to the increased demand for our loans in the second quarter of fiscal 2004
that generated $46.0 million in volume, which is a second quarter company
record. Historically, demand for our loans decrease during the second
quarter and while that did occur, the decrease was not as dramatic due in
part to troop rotations. Military rotations are expected to continue in the
coming months, which may impact demand for our loans in the future.
The following table sets forth our overall loan originations and lending
activities by direct loans and retail installment contracts:
As of, and For the Three As of, and For the Six
Months Ended Months Ended
March 31, March 31,
----------------------------------------------------
2004 2003 2004 2003
----------------------------------------------------
(dollars in thousands, except for average note
amounts)
Total Loan Origination:
Gross balance $ 46,041 $ 33,533 $ 107,187 $ 96,010
Number of notes 14,052 10,746 33,144 31,553
Average note amount $ 3,276 $ 3,121 $ 3,234 $ 3,043
Direct Loans:
Gross balance $ 40,298 $ 29,630 $ 97,636 $ 88,032
Number of notes 11,927 9,592 29,840 29,165
Average note amount $ 3,379 $ 3,089 $ 3,272 $ 3,018
Retail Installment
Contracts:
Gross balance $ 5,743 $ 3,903 $ 9,551 $ 7,978
Number of notes 2,125 1,154 3,304 2,388
Average note amount $ 2,703 $ 3,382 $ 2,891 $ 3,341
15
Liquidity and Capital Resources
A relatively high ratio of borrowings to invested capital is customary
in consumer finance activities due to the quality and term of the assets
employed. Investing activities are our principal use of cash, which is to
make new loans and purchase retail installment contracts. We use our
borrowings to fund the difference, if any, between the cash used to make new
loans and purchase retail installment contracts, and the cash generated from
loan repayments. Cash used in investing activities in the first six months
of fiscal 2004 was approximately $14.8 million, which was funded from $7.4
million of cash from operating activities and $7.1 million from financing
activities. Cash used in investing activities in the first six months of
fiscal 2003 was approximately $9.6 million, which was funded from $10.3
million from operating activities.
Financing activities primarily consist of borrowings and repayments
relating to our bank debt, an unsecured revolving credit line from our parent
and our junior subordinated debentures. We anticipate that our cash inflow
from operations, borrowings under our senior lending agreement, and the
proceeds from the sale of subordinated debentures will be adequate to meet
our cash out flows to fund anticipated growth in our finance receivables,
operating expenses, repayment of indebtedness, and planned capital
expenditures.
On or before March 31st of each year, each bank that is a party to the
senior lending agreement is to deliver to us a written indication of whether
or not it wishes to participate in future fundings and the amounts that it
expects to be willing to fund during the next 12 months. As of April 1,
2004, ten of the eleven banks that are a party to our senior lending
agreement have indicated in writing their willingness to participate in the
fundings up to an aggregate of $200 million, up from $185.5 million in fiscal
year 2003.
Senior Indebtedness-Bank Debt
Our senior lending agreement is an uncommitted facility, which provides
common terms and conditions pursuant to which individual banks that are a
party to this agreement may choose to make loans to us in the future. Any
bank may elect not to participate in any future fundings at any time without
penalty. As of March 31, 2004, we could request up to $21.6 million in
additional funds and remain in compliance with the terms of our senior
lending agreement. No bank, however, has any contractual obligation to lend
us these additional funds. As of March 31, 2004, we were in material
compliance with all loan covenants.
Senior Indebtedness-Parent Debt
We also have a revolving line of credit, payable on demand, from our
parent, Pioneer Financial Industries, Inc. Interest on this facility accrues
at the prime rate plus 2%. At March 31, 2004, there was $2.5 million
outstanding under this credit facility with an interest rate of 6.0%.
16
Senior Indebtedness Table
As of March 31, 2004 and 2003 and September 30, 2003, the total
borrowings and availability under our senior lending agreement and our
revolving line of credit from our parent company consisted of:
As of
As of March 31, September 30,
---------------------------------------------
2004 2003 2003
------------- ------------- -------------
(dollars in thousands)
Revolving Credit Line (1):
Total facility $ 34,923 $ 29,000 $ 31,000
Balance at end of period $ 14,445 $ 12,588 $ 12,293
Maximum available credit $ 20,478 $ 16,412 $ 18,707
Term Notes (2):
Total facility $ 154,233 $ 133,448 $ 140,036
Balance at end of period $ 104,977 $ 99,536 $ 99,471
Maximum available credit $ 49,256 $ 33,912 $ 40,565
Total Revolving and Term
Notes (1)(2):
Total facility $ 189,156 $ 162,448 $ 171,036
Balance at end of period $ 119,422 $ 112,124 $ 111,764
Maximum available credit (3) $ 69,734 $ 50,324 $ 59,273
Credit facility available (4) $ 21,555 $ 12,400 $ 13,575
Percent utilization of the
total facility 63.13% 69.02% 65.34%
- --------------------------
(1) Includes revolving credit line from our parent.
(2) Includes amortizing notes.
(3) Maximum available credit assuming proceeds in excess of the amounts
shown below under "Credit Facility Available" are used to increase
qualifying finance receivables and all terms of the senior lending
agreement are met, including maintaining a Senior Indebtedness to Net
Receivable Ratio of not more than 80%.
(4) Credit facility available based on the existing asset borrowing base and
maintaining a Senior Indebtedness to Net Receivable Ratio of not more than
80%.
Outstanding Subordinated Debt
We also fund our liquidity needs through the sale of unsecured junior
subordinated debentures. These debentures have varying fixed interest rates
and are subordinate to all senior indebtedness. We can redeem these
debentures at any time upon 30 days written notice. As of March 31, 2004, we
had issued approximately $22.2 million of these junior subordinated
debentures at a weighted average interest rate of 9.40%.
The sale of these debentures provides us with additional liquidity and
capital resources. Issuing these debentures increases our tangible net worth
which allows us to borrow larger amounts under our senior lending agreement.
To finance growth in our finance receivables portfolio, we intend to borrow
additional funds under our senior lending agreement from time to time as we
sell additional debentures.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Our profitability and financial performance are sensitive to changes in
the U.S. Treasury yields and the spread between the effective rate of
interest we receive on customer loans and the interest rates we pay on our
borrowings. Our finance income is generally not sensitive to fluctuations in
market interest rates. The primary exposure that we face is changes in
interest rates on our borrowings. A substantial and sustained increase in
market interest rates could adversely affect our growth and profitability.
The overall objective of our interest rate risk management strategy is to
mitigate the effects of changing interest rates on our interest expense
through the utilization of short-term variable rate debt and medium and long
term fixed rate debt. We have not entered into any derivative instruments to
manage our interest rate risk.
17
ITEM 4. Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to
ensure that information required to be disclosed in the Company's reports
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the Securities and
Exchange Commission, and that such information is accumulated and
communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosures. Any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives. Our management, under the
supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of the design and
operation of our disclosure controls and procedures within 90 days of the
filing date of this quarterly report on Form 10-Q. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that
the design and operation of our disclosure controls and procedures are
effective. There were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to
the date the evaluation was completed.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
We are subject to claims and lawsuits that primarily involve routine
matters in the ordinary course of business. We believe that the disposition
or ultimate resolution of such claims and lawsuits will not have a material
adverse effect on our financial position or results of operations.
ITEM 2. Changes in Securities and Use of Proceeds
On May 13, 2003, the Securities and Exchange Commission declared our
registration statement on Form S-1, as amended (File No. 333-103293),
effective. On January 13, 2004 the Securities and Exchange Commission
declared our post effective amendment as filed on Form S-1 (File No.
333-103293), effective. Pursuant to the registration statement, and the
accompanying prospectus, we registered and are offering up to $25,000,000 in
aggregate principal amount of our junior subordinated debentures, with a
maximum aggregate offering price of $25,000,000 on a continuous basis with an
expected termination in May 2005. We commenced the offering of these junior
subordinated debentures on May 20, 2003. We are currently offering the
debentures through our officers and employees directly without an underwriter
or agent. From May 20, 2003 to March 31, 2004, we sold 151 debentures in an
approximate aggregate principal amount of $2,935,000. For the quarter ended
March 31, 2004 we sold 50 debentures in the approximate aggregate principal
amount of $925,000. Costs incurred in connection with the preparation of the
initial registration statement on Form S-1 were approximately $315,000. Our
expenses incurred in connection with the issuance and distribution of the
junior subordinated debentures from the date our registration statement
became effective, May 13, 2003, through March 31, 2004 were approximately
$246,000. Expenses incurred in the second quarter of fiscal 2004 were
approximately $48,000. Net proceeds from the offering through March 31,
2004, were approximately $2,374,000.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
18
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Articles of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement on
Form S-1, as amended, filed with the Securities and Exchange
Commission on February 8, 2003 (Commission No. 333-103293) (the
"Initial Registration Statement")).
3.2 Certificate of Amendment to Articles of Incorporation of the
Company (Incorporated by reference to Exhibit 3.2 of the Initial
Registration Statement).
3.3 Amended and Restated By-Laws of the Company (Incorporated by
reference to Exhibit 3.3 of the Initial Registration Statement).
4.1 Form of indenture (Incorporated by reference to Exhibit 4.1 of the
Initial Registration Statement).
4.2 Form of debenture (Incorporated by reference to Exhibit 4.2 of the
Initial Registration Statement).
4.3 Form of debenture prior to November 1, 2002 (Incorporated by
reference to Exhibit 4.3 of the Initial Registration Statement).
4.7 Form of Agreement between the Company and various banks named in
Amended and Restated Senior Lending Agreement (Incorporated by
reference to Exhibit 4.7 of the Initial Registration Statement).
4.8 Promissory Note dated August 1, 2000, between the Company and Pioneer
Financial Industries, Inc. (Incorporated by reference to Exhibit
4.8 of the Initial Registration Statement).
4.9 Amended and Restated Senior Lending Agreement dated October 1, 2003
among the Company and various banks named therein.
10.1 Form of Readi-Loan Licensing Agreement (Incorporated by reference
to Exhibit 10 of the Initial Registration Statement).
10.2 Office Building Lease dated January 31, 2001, between the Company
and Belletower Partners, L.L.C. (Incorporated by reference to
Exhibit 10.2 of the Initial Registration Statement).
10.3 Addendum to Office Building Lease between the Company and
Belletower Partners, L.L.C. (Incorporated by reference to Exhibit
10.3 of the Initial Registration Statement).
10.4 First Amendment to Office Building Lease dated July 19, 2001,
between the Company and Belletower Partners, L.L.C. (Incorporated
by reference to Exhibit 10.4 of the Initial Registration Statement).
10.5 Employment Contract between the Company and Randall J. Opliger
(Incorporated by reference to Exhibit 10.5 of the Initial
Registration Statement).
10.6 Trademark Licensing Agreement dated October 10, 2000 between the
Company and Pioneer Licensing Services, Inc. (Incorporated by
reference to Exhibit 10.6 of the Initial Registration Statement).
10.7 Transfer of Shares dated as of September 30, 2003 between the
Company and Pioneer Financial Industries, Inc. (Incorporated by
reference to Exhibit 10.7 of the Annual Report on Form 10-K for the
fiscal year ended September 30, 2003).
10.8 Capital Contribution Agreement dated as of September 30, 2003
between the Company and Pioneer Financial Industries, Inc.
(Incorporated by reference to Exhibit 10.8 of the Annual Report on
Form 10-K for the fiscal year ended September 30, 2003).
10.9 Stock Purchase Agreement dated October 29, 2003 between the Company
and Pioneer Financial Industries, Inc. (Incorporated by reference
to Exhibit 10.9 of the Annual Report on Form 10-K for the fiscal
year ended September 30, 2003).
10.10 Stock Purchase Agreement dated October 29, 2003 between the Company
and Pioneer Financial Industries, Inc. (Incorporated by reference
to Exhibit 10.10 of the Annual Report on Form 10-K for the fiscal
year ended September 30, 2003).
12 Statement regarding computation of ratios (Incorporated by
reference to Exhibit 12 of the Initial Registration Statement).
21 Subsidiaries of the Company.
25 Statement of eligibility of trustee (Incorporated by reference to
Exhibit 25 of the Amendment No. 1).
31.1 Certification of Chief Executive Officer pursuant to Rule 15d-15e.
19
31.2 Certification of Chief Financial Officer pursuant to Rule 15d-15e.
32.1 18 U.S.C. Section 1350 Certification of Chief Executive Officer.
32.2 18 U.S.C. Section 1350 Certification of Chief Financial Officer.
(b) Reports on Form 8-K
None.
20
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 SERVICES, INC.
Name Title Date
- ---- ----- ----
s/s WILLIAM D. SULLIVAN Chief Executive Officer May 11, 2004
- ------------------------ and Sole Director
William D. Sullivan (Principal Executive Officer)
s/s RANDALL J. OPLIGER Chief Financial Officer, May 11, 2004
- ------------------------ Treasurer and Secretary
Randall J. Opliger (Principal Financial Officer
and Principal Accounting Officer)
21
3.1 Restated Articles of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement on
Form S-1, as amended, filed with the Securities and Exchange
Commission on February 8, 2003 (Commission No. 333-103293) (the
"Initial Registration Statement")).
3.2 Certificate of Amendment to Articles of Incorporation of the
Company (Incorporated by reference to Exhibit 3.2 of the Initial
Registration Statement).
3.3 Amended and Restated By-Laws of the Company (Incorporated by
reference to Exhibit 3.3 of the Initial Registration Statement).
4.1 Form of indenture (Incorporated by reference to Exhibit 4.1 of the
Initial Registration Statement).
4.2 Form of debenture (Incorporated by reference to Exhibit 4.2 of the
Initial Registration Statement).
4.3 Form of debenture prior to November 1, 2002 (Incorporated by
reference to Exhibit 4.3 of the Initial Registration Statement).
4.7 Form of Agreement between the Company and various banks named in
Amended and Restated Senior Lending Agreement (Incorporated by
reference to Exhibit 4.7 of the Initial Registration Statement).
4.10 Promissory Note dated August 1, 2000, between the Company and Pioneer
Financial Industries, Inc. (Incorporated by reference to Exhibit
4.8 of the Initial Registration Statement).
4.11 Amended and Restated Senior Lending Agreement dated October 1, 2003
among the Company and various banks named therein.
10.1 Form of Readi-Loan Licensing Agreement (Incorporated by reference
to Exhibit 10 of the Initial Registration Statement).
10.2 Office Building Lease dated January 31, 2001, between the Company
and Belletower Partners, L.L.C. (Incorporated by reference to
Exhibit 10.2 of the Initial Registration Statement).
10.3 Addendum to Office Building Lease between the Company and
Belletower Partners, L.L.C. (Incorporated by reference to Exhibit
10.3 of the Initial Registration Statement).
10.4 First Amendment to Office Building Lease dated July 19, 2001,
between the Company and Belletower Partners, L.L.C. (Incorporated
by reference to Exhibit 10.4 of the Initial Registration Statement).
10.5 Employment Contract between the Company and Randall J. Opliger
(Incorporated by reference to Exhibit 10.5 of the Initial
Registration Statement).
10.6 Trademark Licensing Agreement dated October 10, 2000 between the
Company and Pioneer Licensing Services, Inc. (Incorporated by
reference to Exhibit 10.6 of the Initial Registration Statement).
10.7 Transfer of Shares dated as of September 30, 2003 between the
Company and Pioneer Financial Industries, Inc. (Incorporated by
reference to Exhibit 10.7 of the Annual Report on Form 10-K for the
fiscal year ended September 30, 2003).
10.8 Capital Contribution Agreement dated as of September 30, 2003
between the Company and Pioneer Financial Industries, Inc.
(Incorporated by reference to Exhibit 10.8 of the Annual Report on
Form 10-K for the fiscal year ended September 30, 2003).
10.9 Stock Purchase Agreement dated October 29, 2003 between the Company
and Pioneer Financial Industries, Inc. (Incorporated by reference
to Exhibit 10.9 of the Annual Report on Form 10-K for the fiscal
year ended September 30, 2003).
10.10 Stock Purchase Agreement dated October 29, 2003 between the Company
and Pioneer Financial Industries, Inc. (Incorporated by reference
to Exhibit 10.10 of the Annual Report on Form 10-K for the fiscal
year ended September 30, 2003).
12 Statement regarding computation of ratios (Incorporated by
reference to Exhibit 12 of the Initial Registration Statement).
21 Subsidiaries of the Company.
25 Statement of eligibility of trustee (Incorporated by reference to
Exhibit 25 of the Amendment No. 1).
31.1 Certification of Chief Executive Officer pursuant to Rule 15d-15e.
31.2 Certification of Chief Financial Officer pursuant to Rule 15d-15e.
32.1 18 U.S.C. Section 1350 Certification of Chief Executive Officer.
32.2 18 U.S.C. Section 1350 Certification of Chief Financial Officer.
22