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) |
Large accelerated filer o | Accelerated filer o | |
Non-accelerated filer x | Smaller reporting company o |
Class | Outstanding as of August 11, 2016 | |
Common Stock, no par value | One Share |
Item No. | Page | |
June 30, 2016 | September 30, 2015 | ||||||
(dollars in thousands) | |||||||
ASSETS | |||||||
Cash and cash equivalents - non-restricted | $ | 3,296 | $ | 7,026 | |||
Cash - restricted | 616 | 618 | |||||
Gross finance receivables | 274,852 | 279,986 | |||||
Less: | |||||||
Unearned fees, debt protection claims and policy reserves | (10,016 | ) | (10,507 | ) | |||
Allowance for credit losses | (29,375 | ) | (28,957 | ) | |||
Net finance receivables | 235,461 | 240,522 | |||||
Furniture and equipment, net | 3,504 | 2,777 | |||||
Deferred tax asset, net | 14,489 | 14,951 | |||||
Prepaid and other assets | 8,555 | 9,105 | |||||
Deferred acquisition costs | 1,300 | 1,301 | |||||
Total assets | $ | 267,221 | $ | 276,300 | |||
LIABILITIES AND STOCKHOLDER’S EQUITY | |||||||
Liabilities: | |||||||
Revolving credit line - banks, net | $ | 148,895 | $ | 15,425 | |||
Accounts payable | 82 | 620 | |||||
Accrued expenses and other liabilities | 3,130 | 3,954 | |||||
Voluntary remediation payable | 1,271 | 1,374 | |||||
Amortizing term notes | — | 138,428 | |||||
Subordinated debt, net | 36,868 | 41,108 | |||||
Total liabilities | 190,246 | 200,909 | |||||
Stockholder’s equity: | |||||||
Common stock, no par value; 1 share authorized, issued and outstanding | 86,394 | 86,394 | |||||
Additional paid in capital | 9,022 | 9,022 | |||||
Retained deficit | (18,441 | ) | (20,025 | ) | |||
Total stockholder’s equity | 76,975 | 75,391 | |||||
Total liabilities and stockholder’s equity | $ | 267,221 | $ | 276,300 |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(dollars in thousands) | |||||||||||||||
Interest income and fees | $ | 19,703 | $ | 18,112 | $ | 60,896 | $ | 56,016 | |||||||
Interest expense | 2,689 | 2,635 | 8,751 | 8,448 | |||||||||||
Net interest income before provision for credit losses | 17,014 | 15,477 | 52,145 | 47,568 | |||||||||||
Provision for credit losses | 8,598 | 5,573 | 24,121 | 19,076 | |||||||||||
Net interest income | 8,416 | 9,904 | 28,024 | 28,492 | |||||||||||
Debt protection income, net | |||||||||||||||
Debt protection revenue | 383 | 391 | 1,232 | 1,216 | |||||||||||
Claims paid and change in reserves | (327 | ) | (234 | ) | (636 | ) | (585 | ) | |||||||
Third party commissions | (41 | ) | (43 | ) | (132 | ) | (135 | ) | |||||||
Total debt protection income, net | 15 | 114 | 464 | 496 | |||||||||||
Other revenue | 2 | 1 | 4 | 4 | |||||||||||
Total non-interest income, net | 17 | 115 | 468 | 500 | |||||||||||
Non-interest expense | |||||||||||||||
Management and record keeping services | 7,035 | 5,716 | 21,583 | 17,131 | |||||||||||
Consumer lending software expense | — | 2,313 | — | 2,313 | |||||||||||
Professional and regulatory fees | 467 | 751 | 1,582 | 1,942 | |||||||||||
Other operating expenses | 784 | 693 | 2,019 | 2,113 | |||||||||||
Total non-interest expense | 8,286 | 9,473 | 25,184 | 23,499 | |||||||||||
Income before income taxes | 147 | 546 | 3,308 | 5,493 | |||||||||||
Provision for income taxes | 75 | 199 | 1,250 | 2,122 | |||||||||||
Net income and other comprehensive income | $ | 72 | $ | 347 | $ | 2,058 | $ | 3,371 | |||||||
Net income per share, basic and diluted (1) | $ | 72 | $ | 347 | $ | 2,058 | $ | 3,371 |
(1) | Number of shares outstanding is one. |
Total | Common Stock | Additional Paid in Capital | Retained Deficit | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Balance, September 30, 2014 | $ | 63,150 | $ | 86,394 | $ | — | $ | (23,244 | ) | |||||||
Capital contribution from parent | 9,022 | — | 9,022 | — | ||||||||||||
Net income and other comprehensive income | 3,371 | — | — | 3,371 | ||||||||||||
Dividends paid to parent (1) | (1,591 | ) | — | — | (1,591 | ) | ||||||||||
Balance, June 30, 2015 | $ | 73,952 | $ | 86,394 | $ | 9,022 | $ | (21,464 | ) | |||||||
Balance, September 30, 2015 | $ | 75,391 | $ | 86,394 | $ | 9,022 | $ | (20,025 | ) | |||||||
Net income and other comprehensive income | 2,058 | — | — | 2,058 | ||||||||||||
Dividends paid to parent (1) | (474 | ) | — | — | (474 | ) | ||||||||||
Balance, June 30, 2016 | $ | 76,975 | $ | 86,394 | $ | 9,022 | $ | (18,441 | ) |
(1) | Number of shares outstanding is one. |
Nine Months Ended June 30, | |||||||
2016 | 2015 | ||||||
(dollars in thousands) | |||||||
Cash flows from operating activities: | |||||||
Net income | $ | 2,058 | $ | 3,371 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Provision for credit losses | 24,121 | 19,076 | |||||
Consumer lending software expense | — | 2,313 | |||||
Depreciation and amortization | — | 80 | |||||
Deferred income taxes | 462 | 5,514 | |||||
Interest accrued on investment notes | 1,540 | 1,949 | |||||
Changes in: | |||||||
Voluntary remediation payable | (103 | ) | (13,062 | ) | |||
Accounts payable and accrued expenses | (1,362 | ) | (2,834 | ) | |||
Deferred acquisition costs | 1 | 47 | |||||
Unearned premium reserves | (15 | ) | 111 | ||||
Prepaid and other assets | 550 | (929 | ) | ||||
Net cash provided by operating activities | 27,252 | 15,636 | |||||
Cash flows from investing activities: | |||||||
Finance receivables purchased from affiliate | (121,194 | ) | (136,273 | ) | |||
Finance receivable payments received | 102,149 | 124,511 | |||||
Capital expenditures | (727 | ) | (1,724 | ) | |||
Change in restricted cash | 2 | 1 | |||||
Investments matured | — | 350 | |||||
Net cash used in investing activities | (19,770 | ) | (13,135 | ) | |||
Cash flows from financing activities: | |||||||
Borrowings under lines of credit | 232,963 | 81,110 | |||||
Repayments under lines of credit | (99,493 | ) | (64,130 | ) | |||
Proceeds from borrowings | 15,780 | 52,201 | |||||
Repayments of borrowings | (159,988 | ) | (81,563 | ) | |||
Capital contribution from parent | — | 9,022 | |||||
Dividends paid to parent | (474 | ) | (1,591 | ) | |||
Net cash used in financing activities | (11,212 | ) | (4,951 | ) | |||
Net decrease in cash and equivalents | (3,730 | ) | (2,450 | ) | |||
Cash and cash equivalents - non-restricted, Beginning of period | 7,026 | 7,656 | |||||
Cash and cash equivalents - non-restricted, End of period | $ | 3,296 | $ | 5,206 | |||
Additional cash flow information: | |||||||
Interest paid | $ | 7,795 | $ | 7,096 | |||
Income taxes paid/(refunded) | 1,389 | (743 | ) | ||||
Consumer lending software expense in accounts payable and other liabilities | — | 985 |
June 30, 2016 | September 30, 2015 | ||||||
(dollars in thousands) | |||||||
Finance Receivables: | |||||||
Gross finance receivables | $ | 274,852 | $ | 279,986 | |||
Less: | |||||||
Net deferred loan fees and merchant discounts | (5,953 | ) | (5,959 | ) | |||
Unearned debt protection fees | (3,242 | ) | (3,257 | ) | |||
Debt protection claims and policy reserves | (821 | ) | (1,291 | ) | |||
Total unearned fees, debt protection claims and policy reserves | (10,016 | ) | (10,507 | ) | |||
Finance receivables - net of unearned fees, debt protection claims and policy reserves | 264,836 | 269,479 | |||||
Allowance for credit losses | (29,375 | ) | (28,957 | ) | |||
Net finance receivables | $ | 235,461 | $ | 240,522 |
• | Historical credit losses and recovery experience; |
• | Current economic conditions; |
• | Current finance receivables delinquency trends; and |
• | Demographics of the current finance receivables portfolio. |
For the Three Months Ended June 30, 2016 | For the Three Months Ended June 30, 2015 | ||||||
(dollars in thousands) | |||||||
Allowance for credit losses: | |||||||
Balance, beginning of period | $ | 28,775 | $ | 30,347 | |||
Finance receivables charged-off | (9,158 | ) | (8,318 | ) | |||
Recoveries | 1,160 | 1,385 | |||||
Provision | 8,598 | 5,573 | |||||
Balance, end of period | $ | 29,375 | $ | 28,987 | |||
For the Nine Months Ended June 30, 2016 | For the Nine Months Ended June 30, 2015 | ||||||
(dollars in thousands) | |||||||
Allowance for credit losses: | |||||||
Balance, beginning of period | $ | 28,957 | $ | 31,850 | |||
Finance receivables charged-off | (27,236 | ) | (25,927 | ) | |||
Recoveries | 3,533 | 3,988 | |||||
Provision | 24,121 | 19,076 | |||||
Balance, end of period | $ | 29,375 | $ | 28,987 | |||
Gross finance receivables | $ | 274,852 | $ | 258,104 | |||
Allowance for credit losses | (29,375 | ) | (28,987 | ) | |||
Balance, net of allowance | $ | 245,477 | $ | 229,117 |
June 30, 2016 | September 30, 2015 | ||||||
(dollars in thousands) | |||||||
Gross finance receivables | $ | 274,852 | $ | 279,986 | |||
Performing | 260,120 | 264,547 | |||||
Non-performing | 14,732 | 15,439 | |||||
Non-performing loans as a percent of gross balance | 5.36 | % | 5.51 | % |
Age Analysis of Past Due Finance Receivables | |||||||||||||||||||
As of June 30, 2016 | |||||||||||||||||||
60-89 Days | 90-180 Days | Total 60-180 Days | 0-59 Days | Total | |||||||||||||||
Past Due | Past Due | Past Due | Past Due | Finance Receivables | |||||||||||||||
(dollars in thousands) | |||||||||||||||||||
Finance receivables | $ | 5,551 | $ | 8,022 | $ | 13,573 | $ | 261,279 | $ | 274,852 |
Age Analysis of Past Due Finance Receivables | |||||||||||||||||||
As of September 30, 2015 | |||||||||||||||||||
60-89 Days | 90-180 Days | Total 60-180 Days | 0-59 Days | Total | |||||||||||||||
Past Due | Past Due | Past Due | Past Due | Finance Receivables | |||||||||||||||
(dollars in thousands) | |||||||||||||||||||
Finance receivables | $ | 5,836 | $ | 8,426 | $ | 14,262 | $ | 265,724 | $ | 279,986 |
• | All borrowers are primarily active-duty, career retired U.S. military personnel or veterans with prior loan history with us; |
• | All potential borrowers must complete standardized credit applications online via the internet or through applications facilitated in loan production office locations or retail merchant locations; and |
• | All loans must meet additional purchase criteria that were developed from our past credit repayment experience and is periodically revalidated based on current portfolio performance. |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(dollars in thousands) | |||||||||||||||
Loan purchasing: | |||||||||||||||
Loans purchased from CBD | $ | 43,606 | $ | 64,055 | $ | 121,194 | $ | 136,273 | |||||||
Management and record keeping services: | |||||||||||||||
Monthly servicing fee to CBD (1) | $ | 5,488 | $ | 3,539 | $ | 16,924 | $ | 11,163 | |||||||
Monthly special services fee to CBD (2) | 1,216 | 1,851 | 3,595 | 5,019 | |||||||||||
Monthly base fee to CBD (3) | 125 | 125 | 375 | 375 | |||||||||||
Monthly indirect cost allocations to MCFC (4) | 206 | 201 | 689 | 574 | |||||||||||
Total management and record keeping services | $ | 7,035 | $ | 5,716 | $ | 21,583 | $ | 17,131 | |||||||
Other transactions: | |||||||||||||||
Fees paid to CBD in connection with loans purchased (5) | $ | 418 | $ | 602 | $ | 1,175 | $ | 1,425 | |||||||
Tax payments/(refunds) to/(from) MCFC | (153 | ) | (632 | ) | 1,389 | (743 | ) | ||||||||
Dividends paid to MCFC | — | 474 | 474 | 1,591 | |||||||||||
Direct cost allocations to MCFC (6) | 318 | 269 | 1,083 | 755 | |||||||||||
Capital contribution from MCFC | — | — | — | (9,022 | ) | ||||||||||
Other reimbursements to CBD (7) | — | — | — | 1,650 |
(1) | Effective October 1, 2015, the monthly servicing fee to CBD was 0.617% of the outstanding loan principal under the LSMS Agreement. The monthly servicing fee to CBD was 0.496% of the outstanding loan principal for the fiscal year 2015. |
(2) | In fiscal years 2016 and 2015, the monthly fees for special services under the LSMS Agreement are at a rate of 125% of the cost of such services incurred by CBD. |
(3) | In fiscal years 2016 and 2015, the annual base fee was $500,000 and payable monthly to CBD. |
(4) | An annual maximum for the fiscal year 2015 was $765,750. No annual maximum for the fiscal year 2016. |
(5) | Effective October 1, 2015, we pay a $25.00 fee for each loan purchased from CBD to reimburse CBD for loan origination costs. In fiscal 2015, the fee was $26.00 for each loan purchased from CBD. |
(6) | An annual maximum for the fiscal year 2015 was $1,754,800. No annual maximum for the fiscal year 2016. |
(7) | A one-time fee of $1,650,000 to implement a new consumer lending system that was paid in five monthly installments beginning on October 1, 2014. |
Revolving Line of Credit - Banks | Subordinated Debt | Total | ||||||||||
(dollars in thousands) | ||||||||||||
2016 | $ | — | $ | 5,260 | $ | 5,260 | ||||||
2017 | — | 6,609 | 6,609 | |||||||||
2018 | 150,000 | 881 | 150,881 | |||||||||
2019 | — | 5,239 | 5,239 | |||||||||
2020 | — | 5,011 | 5,011 | |||||||||
2021 and beyond | — | 13,862 | 13,862 | |||||||||
Total | $ | 150,000 | $ | 36,862 | $ | 186,862 |
• | Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. |
• | Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). |
• | Level 3 — Unobservable inputs reflect the Company’s judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. The Company develops these inputs based on the best information available, including the Company’s own data. |
June 30, 2016 | September 30, 2015 | ||||||||||||||
Carrying | Carrying | ||||||||||||||
Amount | Fair Value | Amount | Fair Value | ||||||||||||
(dollars in thousands) | |||||||||||||||
Financial assets: | |||||||||||||||
Cash and cash equivalents - non-restricted | $ | 3,296 | $ | 3,296 | $ | 7,026 | $ | 7,026 | |||||||
Cash and cash equivalents - restricted | 616 | 616 | 618 | 618 | |||||||||||
Net finance receivables | 235,461 | 235,434 | 240,522 | 243,126 | |||||||||||
Financial liabilities: | |||||||||||||||
Amortizing term notes | $ | — | $ | — | $ | 138,428 | $ | 139,079 | |||||||
Revolving credit line - banks, net | 148,895 | 148,895 | 15,425 | 15,425 | |||||||||||
Subordinated debt, net | 36,868 | 40,153 | 41,108 | 44,346 |
• | All borrowers are primarily active-duty, career retired U.S. military personnel or veterans with prior loan history with us; |
• | All potential borrowers must complete standardized credit applications online via the internet or through applications facilitated in loan production office locations or retail merchant locations; and |
• | All loans must meet additional purchase criteria that were developed from our past credit repayment experience and is periodically revalidated based on current portfolio performance. |
June 30, 2016 | September 30, 2015 | ||||||
Finance receivables: | |||||||
Gross finance receivables balance | $ | 274,852,163 | $ | 279,986,099 | |||
Average note balance | $ | 3,768 | $ | 3,383 | |||
Total number of notes | 72,944 | 82,765 |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(dollars in thousands) | |||||||||||||||
Gross finance receivables balance | $ | 274,852 | $ | 258,104 | $ | 274,852 | $ | 258,104 | |||||||
Average gross finance receivables (1) | 270,025 | 246,033 | 278,686 | 248,748 | |||||||||||
Average interest bearing liabilities (1) | 181,208 | 161,717 | 188,771 | 166,260 | |||||||||||
Total interest income and fees | 19,703 | 18,112 | 60,896 | 56,016 | |||||||||||
Total interest expense | 2,689 | 2,635 | 8,751 | 8,448 |
(1) | Averages are computed using month-end balances and exclude any early allotment payments. |
June 30, 2016 | September 30, 2015 | June 30, 2015 | |||||||||
(dollars in thousands) | |||||||||||
Gross finance receivables | $ | 274,852 | $ | 279,986 | $ | 258,104 | |||||
Gross finance receivables balances 60 days or more past due | 13,573 | 14,262 | 11,268 | ||||||||
Gross finance receivables balances 60 days or more past due as a percent of gross finance receivables | 4.94 | % | 5.09 | % | 4.37 | % |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(dollars in thousands) | |||||||||||||||
Finance Receivables: | |||||||||||||||
Finance receivables charged-off | $ | 9,158 | $ | 8,318 | $ | 27,236 | $ | 25,927 | |||||||
Less recoveries | (1,160 | ) | (1,385 | ) | (3,533 | ) | (3,988 | ) | |||||||
Net charge-offs | $ | 7,998 | $ | 6,933 | $ | 23,703 | $ | 21,939 | |||||||
Average gross finance receivables (1) | $ | 270,025 | $ | 246,033 | $ | 278,686 | $ | 248,748 | |||||||
Percentage of net charge-offs to average gross finance receivables (annualized) | 11.85 | % | 11.27 | % | 11.34 | % | 11.76 | % |
(1) | Averages are computed using month-end balances and exclude any early allotment payments. |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(dollars in thousands) | |||||||||||||||
Balance, beginning of period | $ | 28,775 | $ | 30,347 | $ | 28,957 | $ | 31,850 | |||||||
Finance receivables charged-off | 9,158 | 8,318 | 27,236 | 25,927 | |||||||||||
Less recoveries | (1,160 | ) | (1,385 | ) | (3,533 | ) | (3,988 | ) | |||||||
Net charge-offs | 7,998 | 6,933 | 23,703 | 21,939 | |||||||||||
Provision for credit losses | 8,598 | 5,573 | 24,121 | 19,076 | |||||||||||
Balance, end of period | $ | 29,375 | $ | 28,987 | $ | 29,375 | $ | 28,987 |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(dollars in thousands) | |||||||||||||||
Average gross finance receivables (1) | $ | 270,025 | $ | 246,033 | $ | 278,686 | $ | 248,748 | |||||||
Provision for credit losses | 8,598 | 5,573 | 24,121 | 19,076 | |||||||||||
Net charge-offs | 7,998 | 6,933 | 23,703 | 21,939 | |||||||||||
Net charge-offs as a percentage of average gross finance receivables (annualized) | 11.85 | % | 11.27 | % | 11.34 | % | 11.76 | % | |||||||
Allowance for credit losses | $ | 29,375 | $ | 28,987 | $ | 29,375 | $ | 28,987 | |||||||
Allowance as a percentage of average gross finance receivables | 10.88 | % | 11.78 | % | 10.54 | % | 11.65 | % |
(1) | Averages are computed using month-end balances and exclude any early allotment payments. |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Total loans acquired: | |||||||||||||||
Gross balance | $ | 81,406,902 | $ | 105,217,502 | $ | 215,063,848 | $ | 228,766,323 | |||||||
Number of finance receivable notes | 16,716 | 23,137 | 47,012 | 54,781 | |||||||||||
Average note amount | $ | 4,870 | $ | 4,548 | $ | 4,575 | $ | 4,176 | |||||||
June 30, 2016 | September 30, 2015 | ||||||
(dollars in thousands) | |||||||
Revolving credit line: | |||||||
Total facility | $ | 170,000 | $ | 20,750 | |||
Gross balance, end of period | 150,000 | 15,425 | |||||
Maximum available credit (1) | 20,000 | 5,325 | |||||
Term notes: (2) | |||||||
Voting banks | $ | — | $ | 142,442 | |||
Non-voting banks | — | 280 | |||||
Total facility | $ | — | $ | 142,722 | |||
Balance at end of period | — | 138,428 | |||||
Maximum available credit (1) | — | 4,294 | |||||
Total revolving and term notes: (2) | |||||||
Voting banks | $ | — | $ | 163,192 | |||
Non-voting banks | — | 280 | |||||
Total facility | $ | — | $ | 163,472 | |||
Gross balance, end of period | 150,000 | 153,853 | |||||
Maximum available credit (1) | 20,000 | 9,619 | |||||
Credit facility available (3) | 13,629 | 9,619 | |||||
Percent utilization of voting banks | — | % | 94.1 | % | |||
Percent utilization of the total facility | 91.7 | % | 94.1 | % |
(1) | Under the SSLA and as of September 30, 2015, maximum available credit assumes proceeds in excess of the amounts shown below under “Credit facility available” are used to increase qualifying finance receivables and all terms of the SSLA are met, including maintaining a senior indebtedness to consolidated net receivable ratio of not more than 70.0%. |
(2) | Under the SSLA and as of September 30, 2015, includes 48-month amortizing term notes. |
(3) | Under the Credit Agreement and as of June 30, 2016, credit facility available is limited by the borrowing base. Under the SSLA and as of September 30, 2015, credit facility available is based on the existing asset borrowing base and maintaining a senior indebtedness to consolidated net notes receivable ratio of 70.0%. |
Exhibit No. | Description | |
10.1 | Amendment No. 1, dated June 28, 2016, to Credit Agreement dated as of December 23, 2015, among Pioneer Financial Services, Inc., Pioneer Funding, Inc., PSLF, Inc., Pioneer Services Sales Finance, Inc., Pioneer Military Insurance Company, the various financial institutions party thereto, and The PrivateBank and Trust Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 1, 2016). | |
31.1 | Certifications of Chief Executive Officer pursuant to Rule 15d-15e. | |
31.2 | Certifications 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. | |
101 | The following financial information from Pioneer Financial Services, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed with the SEC on August 11, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Operations and Other Comprehensive Income for the three and nine months ended June 30, 2016 (ii) the Consolidated Balance Sheets as of June 30, 2016 and September 30, 2015, (iii) the Consolidated Statements of Cash Flows for the nine months ended June 30, 2016 and June 30, 2015 and (iv) Notes to Consolidated Financial Statements. | |
+ |
Name | Title | Date | ||
/s/ Timothy L. Stanley | Chief Executive Officer and Vice | August 11, 2016 | ||
Timothy L. Stanley | Chairman (Principal Executive Officer) | |||
/s/ Pamela D. Johnson | Chief Financial Officer | August 11, 2016 | ||
Pamela D. Johnson | (Principal Financial Officer and Principal Accounting Officer) |
Exhibit No. | Description | |
10.1 | Amendment No. 1, dated June 28, 2016, to Credit Agreement dated as of December 23, 2015, among Pioneer Financial Services, Inc., Pioneer Funding, Inc., PSLF, Inc., Pioneer Services Sales Finance, Inc., Pioneer Military Insurance Company, the various financial institutions party thereto, and The PrivateBank and Trust Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 1, 2016). | |
31.1 | Certifications of Chief Executive Officer pursuant to Rule 15d-15e. | |
31.2 | Certifications 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. | |
101 | The following financial information from Pioneer Financial Services, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed with the SEC on August 11, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Operations and Other Comprehensive Income for the three and nine months ended June 30, 2016 (ii) the Consolidated Balance Sheets as of June 30, 2016 and September 30, 2015, (iii) the Consolidated Statements of Cash Flows for the nine months ended June 30, 2016 and June 30, 2015 and (iv) Notes to Consolidated Financial Statements. | |
+ |
Date: August 11, 2016 | |
/s/ Timothy L. Stanley | |
Timothy L. Stanley | |
Chief Executive Officer |
Date: August 11, 2016 | |
/s/ Pamela D. Johnson | |
Pamela D. Johnson | |
Chief Financial Officer |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects the financial condition and results of operations of the Company. |
August 11, 2016 | |
/s/ Timothy L. Stanley | |
Timothy L. Stanley | |
Chief Executive Officer |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects the financial condition and results of operations of the Company. |
August 11, 2016 | |
/s/ Pamela D. Johnson | |
Pamela D. Johnson | |
Chief Financial Officer |
Document and Entity Information - shares |
9 Months Ended | |
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Jun. 30, 2016 |
Aug. 11, 2016 |
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Document and Entity Information | ||
Entity Registrant Name | PIONEER FINANCIAL SERVICES INC | |
Entity Central Index Key | 0001216752 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --09-30 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 1 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q3 |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Jun. 30, 2016 |
Sep. 30, 2015 |
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Statement of Financial Position [Abstract] | ||
Common stock, par value (in dollars per share) | ||
Common stock, share issued | 1 | 1 |
Common stock, share outstanding | 1 | 1 |
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
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Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
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Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 72 | $ 347 | $ 2,058 | $ 3,371 |
Other comprehensive loss: | ||||
Total comprehensive income | $ 2,058 | $ 3,371 |
Consolidated Statements of Stockholder's Equity - USD ($) $ in Thousands |
Total |
Common Stock |
Additional Paid-in Capital |
Retained (Deficit) Earnings |
---|---|---|---|---|
Balance at Sep. 30, 2014 | $ 63,150 | $ 86,394 | $ 0 | $ (23,244) |
Increase (Decrease) in Stockholder's Equity | ||||
Capital contribution from parent | 9,022 | 9,022 | ||
Total comprehensive income | 3,371 | 3,371 | ||
Dividends paid to parent | (1,591) | (1,591) | ||
Balance at Jun. 30, 2015 | $ 73,952 | 86,394 | 9,022 | (21,464) |
Increase (Decrease) in Stockholder's Equity | ||||
Common stock, share outstanding | 1 | |||
Balance at Sep. 30, 2015 | $ 75,391 | 86,394 | 9,022 | (20,025) |
Increase (Decrease) in Stockholder's Equity | ||||
Total comprehensive income | 2,058 | 2,058 | ||
Dividends paid to parent | (474) | (474) | ||
Balance at Jun. 30, 2016 | $ 76,975 | $ 86,394 | $ 9,022 | $ (18,441) |
Increase (Decrease) in Stockholder's Equity | ||||
Common stock, share outstanding | 1 |
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
9 Months Ended |
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Jun. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited consolidated financial statements include the accounts of Pioneer Financial Services, Inc. and its wholly owned subsidiaries (collectively “we,” “us,” “our” or the “Company”). Intercompany balances and transactions have been eliminated. As of June 30, 2016 and June 30, 2015, there were no other comprehensive income components. We are a wholly owned subsidiary of MidCountry Financial Corp., a Georgia corporation (“MCFC”). The Company’s consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended September 30, 2015 filed with the Securities and Exchange Commission (“SEC”) on December 17, 2015. In the opinion of the management of the Company, all significant intercompany accounts and transactions have been eliminated in consolidation, and all adjustments necessary for a fair presentation of the financial condition and results of operations for the periods presented have been included to present fairly these consolidated financial statements in accordance with GAAP. Nature of Operations and Concentration We are headquartered in Kansas City, Missouri. We purchase finance receivables from the Consumer Banking Division (“CBD”) of MidCountry Bank (“MCB”), a federally chartered savings bank and wholly owned subsidiary of MCFC. These receivables represent loans primarily to active-duty or career retired U.S. military personnel. New Accounting Pronouncements In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). This standard sets forth a “current expected credit loss” (CECL) model which, when adopted, will require the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost as well as certain off-balance sheet credit exposures. The standard is effective for public entities for fiscal years beginning after December 15, 2019 and interim periods within those years. The Company is currently assessing the impact of this standard on its financial position, results of operations and disclosures. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard supersedes Topic 840, Leases, and requires an entity that enters into a lease, with some specified scope exemptions, to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. Upon adoption, entities are required to use a modified retrospective transition method for existing leases and apply the new standard for the earliest year presented in the financial statements. The standard is effective for public entities for fiscal years beginning after December 15, 2018 and interim periods within those years. The Company is currently assessing the impact of this standard on its financial position, results of operations and disclosures. In the first quarter of fiscal 2016, the Company adopted FASB ASU No. 2015-03, Interest- Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The adoption of this standard did not have a material impact on our financial position, results of operations or disclosures. Use of Estimates The preparation of the unaudited consolidated financial statements requires management to make estimates and assumptions that affect amounts reported in the unaudited consolidated financial statements and in disclosures of contingent assets and liabilities. We use estimates and employ judgments in determining the amount of our allowance for credit losses, debt protection claims and policy reserves, deferred tax assets and liabilities and establishing the fair value of our financial instruments. While the unaudited consolidated financial statements and footnotes reflect the best estimates and judgments at the time, actual results could differ from those estimates. |
FINANCE RECEIVABLES |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FINANCE RECEIVABLES | FINANCE RECEIVABLES Our finance receivables are primarily loans to active-duty or career retired U.S. military personnel. During the third quarter of fiscal 2016, we purchased $81.4 million of loans from CBD compared to $105.2 million during the third quarter of fiscal 2015. Approximately 42.5% of the amount of loans we purchased in the third quarter of fiscal 2016 were refinancings of outstanding loans compared to 34.7% during the third quarter of fiscal 2015. The following table represents finance receivables for the periods presented:
Management has an established methodology to determine the adequacy of the allowance for credit losses that assesses the risks and losses inherent in the finance receivable portfolio. Our portfolio consists of a large number of relatively small-balance, homogenous accounts. No account is large enough to warrant individual evaluation for impairment. The allowance for credit losses for finance receivables is maintained at an amount that management considers sufficient to cover estimated losses inherent in the finance receivables portfolio. Our allowance for credit losses is sensitive to historical losses, economic assumptions and delinquency trends driving statistically modeled reserves. We consider numerous qualitative and quantitative factors in estimating the allowance for credit losses, including the following:
We also use internally developed data in this process. We utilize a statistical model based on credit risk trends, growth rate and charge off data, when incorporating historical factors to estimate losses. These results and management’s judgment are used to estimate inherent losses and to establish the allowance for credit losses for each segment of our finance receivables portfolio. As part of the on-going monitoring of the credit quality of our entire finance receivables portfolio, management tracks certain credit quality indicators of our customers including trends related to (1) net charge-offs, (2) non-performing loans and (3) payment history. There is uncertainty inherent in these estimates, making it possible that they could change in the near term. We make regular enhancements to our allowance estimation methodology that have not resulted in material changes to our allowance balance. The following table sets forth changes in the components of our allowance for credit losses on finance receivables during the periods presented:
The accrual of interest income is suspended when three full payments (95% or more of the contracted payment amount) has not been received and accrued interest is limited to no more than 92 days. The Company has experience with borrowers missing payments during times of financial hardship. The Company’s experience indicates, however, that missed payments do not render loans uncollectible. Non-accrual status, therefore, does not equate to a determination that a loan is uncollectible. Accordingly, payments received from a borrower on a non-accrual loan may be recognized as interest income. Non-performing assets represent those finance receivables where the accrual of interest income has been suspended. As of June 30, 2016, we had $14.7 million in finance receivables that were non-performing loans, compared to $15.4 million in finance receivables as of September 30, 2015. As of June 30, 2016, we had $0.9 million in accrued interest for finance receivables that were classified as non-performing. As of September 30, 2015, we had $0.9 million in accrued interest for finance receivables that were classified as non-performing. We consider a loan impaired when a full payment has not been received for the preceding six calendar months and is 30 days contractually past due. Impaired loans are removed from our finance receivable portfolio, including any accrued interest, and charged against the allowance for credit losses. We do not restructure troubled debt as a form of curing delinquencies. A large number of our customers are unable to obtain financing from traditional sources due to factors such as employment history, frequent relocations and lack of credit history. These factors may not allow them to build relationships with traditional sources of financing. We manage credit risk by closely monitoring the performance of the portfolio and through our purchasing criteria. The following reflects the credit quality of our finance receivables portfolio:
As of June 30, 2016 and September 30, 2015, past due finance receivables, on a recency basis, are as follows:
Additionally, we employ purchasing criteria, developed from our past customer credit repayment experience. The purchasing criteria are periodically evaluated based on current portfolio performance. These criteria require the following:
These criteria are used to help minimize the risk of purchasing loans where there is unwillingness or inability to repay. The CBD limits the loan to an amount the customer could reasonably be expected to repay. On April 22, 2015, CBD modified its lending criteria and scoring model to use credit score information provided by the FICO Score 8 model, in combination with certain credit overlays. The Company modified its purchasing guidelines to accept loans originated by CBD with the FICO 8 model and certain credit overlays. |
RELATED PARTY TRANSACTIONS |
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Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RELATED PARTY TRANSACTIONS | RELATED PARTY TRANSACTIONS We entered into the Fifth Amended and Restated Loan Sale and Master Services Agreement (“LSMS Agreement”) with CBD on December 23, 2015. Under the LSMS Agreement, we buy certain loans that CBD originates and receive ongoing management and record-keeping services from CBD. We also receive certain management and other administrative services from MCFC. The following table represents the related party transactions associated with the LSMS Agreement and other related party transactions for the periods presented.
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DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS AND INVESTMENTS |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS AND INVESTMENTS | DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS AND INVESTMENTS In accordance with GAAP, fair value measurements require that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. GAAP also establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value as follows: Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories:
For the first nine months of fiscal 2016 and the fiscal year ended September 30, 2015 there were no significant transfers in or out of Levels 1, 2 or 3. The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments: Cash and Cash Equivalents - Non-restricted and Restricted — The carrying value approximates fair value due to their liquid nature and is classified as Level 1 in the fair value hierarchy. Finance Receivables — The fair value of finance receivables is estimated by discounting the receivables using current rates at which similar finance receivables would be made to borrowers with similar credit ratings and for the same remaining maturities as of the fiscal quarter or year end. In addition, the best estimate of losses inherent in the portfolio is deducted when computing the estimated fair value of finance receivables. If the Company’s finance receivables were measured at fair value in the financial statements these finance receivables would be classified as Level 3 in the fair value hierarchy. Amortizing Term Notes — The fair value of the amortizing term notes with fixed interest rates is estimated using a discounted cash flow analysis based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. If the Company’s amortizing term notes were measured at fair value in the financial statements, these amortizing term notes would be categorized as Level 2 in the fair value hierarchy. Revolving Line of Credit - Banks — The fair value of revolving line of credit borrowings is estimated to approximate carrying value. Management believes the variable terms of the credit agreement approximate market terms. If the Company’s revolving line of credit borrowings were measured at fair value in the financial statements, these revolving line of credit borrowings would be categorized as Level 2 in the fair value hierarchy. Subordinated Debt — The fair value of subordinated debt is estimated by discounting future cash flows using current rates at which similar subordinated debt would be offered for the same remaining maturities. If the Company’s subordinated debt were measured at fair value in the financial statements, the subordinated debt would be categorized as Level 2 in the fair value hierarchy. The carrying amounts and estimated fair values of our financial instruments at June 30, 2016 and September 30, 2015 are as follows:
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BORROWINGS |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BORROWINGS | BORROWINGS Revolving Credit Line - Banks On December 23, 2015, the Company entered into a Credit Agreement (the "Credit Agreement") with various financial institutions referenced in the Credit Agreement (the "Lenders"), and The PrivateBank and Trust Company ("Agent") as administrative agent for the Lenders and as syndication agent. Under the Credit Agreement, the Lenders have agreed to make available to the Company a revolving credit facility up to a maximum of $170.0 million. Borrowing availability under the revolving credit facility is limited to eligible receivables ("Borrowing Base") as defined in the Credit Agreement. As of June 30, 2016, the Company's Borrowing Base and available revolving credit line was $163.6 million. On December 23, 2015, the Company's outstanding borrowings and accrued interest under the Secured Senior Lending Agreement ("SSLA") were paid off and replaced with borrowings of $162.4 million under the Credit Agreement. Outstanding borrowings under the Credit Agreement at June 30, 2016 were $150.0 million bearing a weighted average interest rate of 4.83%. The Credit Agreement will terminate on December 21, 2018 or earlier, if certain events occur. The Credit Agreement gives the Company access to funding from the Lenders, who are committed severally, but not jointly, to making loans on a revolving basis from time to time, until such Lender’s commitment is terminated. Our assets secure the loans extended under the Credit Agreement for the benefit of the lenders ("Senior Debt"). Each revolving loan can be divided into tranches, including (1) a loan that bears interest at prime plus 3.25% ("Base Rate") or (2) a loan that bears an interest rate offered in the London Interbank Eurodollar market for the relevant interest period plus 4.25% ("LIBOR"). As of June 30, 2016, $140.0 million of LIBOR borrowings were outstanding with an interest rate of 4.69%. As of June 30, 2016, $10.0 million of Base Rate borrowings were outstanding with an interest rate of 6.75%. In addition, we are paying our lenders a fifty basis point quarterly non-use fee for the unused portion of the $170.0 million credit facility. In the third fiscal quarter of fiscal 2016 non-use fees were $0.03 million. As of June 30, 2016, debt issuance costs of $1.1 million were netted with the outstanding borrowings under the revolving credit line on the balance sheet. As a means of managing its exposure to rising interest rates, the Company has a $50 million notional interest rate cap agreement at June 30, 2016 that expires on December 21, 2018. The interest rate cap is indexed to 1-month LIBOR and has a strike rate of 2.5%. The interest rate cap is reflected on the consolidated balance sheet at its estimated fair value of $0.2 million at June 30, 2016. Under the Credit Agreement, we are subject to certain financial covenants that require that we, among other things, maintain specific financial ratios and satisfy certain financial tests. These covenants and other terms, which if not complied with could result in a default under the Credit Agreement, which if not waived by our lenders, could result in the acceleration of the indebtedness evidenced by the Credit Agreement. In part, these covenants require us to: (1) maintain a minimum loss reserve amount, (2) maintain certain average cash collection percentages, (3) maintain a minimum fixed charge coverage ratio, (4) maintain leverage ratios below a maximum, and (5) limit the amount and type of additional debt we issue. There are also certain restrictions on the amount and timing of dividends we may pay. In the second and third quarters of fiscal 2016, the Company had certain unintentional defaults under the Credit Agreement that were triggered by our exceeding the allowable borrowing base and not making timely interest payments, respectively, under the Credit Agreement. The Company cured each event of default upon learning of such defaults. The Lenders waived any rights to remedies they may have been entitled to under the Credit Agreement as a result of the defaults due to exceeding the allowable borrowing base and not making timely interest payments, respectively, under the Credit Agreement. On June 28, 2016, the Company entered into Amendment No. 1 (the “Amendment”) to the Credit Agreement with the Lenders and Agent. The Amendment deleted and replaced two definitions under Section 1.1 including: (1) "Change of Control," which was amended to be the departure of both Timothy L. Stanley, the Company's Chief Executive Officer, and Pamela D. Johnson, the Company's Chief Financial Officer, from their current roles with the Company; and (2) "LLR Advance Rate," which was amended to mean the lesser of (i) 85% and (ii) the difference between (a) 100% and (b) 1.75 multiplied by the Loss to Liquidation Ratio as of the last day of the then most recently ended fiscal month. The Amendment also stated that the Company is not to permit, as of the last day of any Computation Period, the average cash collection percentage for all fiscal months during that Computation Period to be less than 3.50% as of each fiscal quarter end beginning June 30, 2016 through December 31, 2017 and not less than 3.75% thereafter. The Credit Agreement replaced the SSLA that we entered into on June 12, 2009. We entered into the SSLA with the lenders listed on the SSLA and UMB Bank, N.A. Our assets secured the loans extended under the SSLA for the benefit of the lenders and other holders of the notes issued pursuant to the SSLA. The facility was an uncommitted credit facility that provided common terms and conditions pursuant to which the individual lenders that were a party to the SSLA could choose to make loans to us. Under the SSLA the aggregate notional balance outstanding under amortizing notes was $138.4 million at September 30, 2015. There were 222 amortizing term notes outstanding at September 30, 2015, with a weighted-average interest rate of 5.68%. Interest on the amortizing notes was fixed at 270 basis points over the 90-day moving average of like-term treasury notes when issued. The interest rate could not be less than 5.25%. All amortizing notes had terms not to exceed 48 months, payable in equal monthly principal and interest payments. Interest on amortizing notes was payable monthly. In addition, we were paying our lenders a quarterly uncommitted availability fee in an amount equal to ten basis points multiplied by the quarterly average aggregate outstanding principal amount of all amortizing notes held by the lenders. In the third fiscal quarter of 2015, uncommitted availability fees were $0.1 million. Under the SSLA, advances outstanding under the revolving credit line were $15.4 million at September 30, 2015. Interest on borrowings under the revolving credit line was payable monthly and was based on prime or 4.00%, whichever is greater. On September 2, 2015, MCFC entered into a confidential Memorandum of Understanding ("MOU") with its primary federal regulator. Pursuant to the MOU, the Company's senior borrowings are limited to $170.6 million, without prior approval from MCFC's primary federal regulator. Subordinated Debt Investment Notes We have borrowings through the issuance of investment notes (with accrued interest) with an outstanding notional balance of $30.1 million, which includes a $0.01 million purchase adjustment at June 30, 2016, and $41.1 million, which includes a $0.04 million purchase adjustment at September 30, 2015. The purchase adjustments relate to fair value adjustments recorded as part of the purchase of the Company by MCFC. These investment notes are nonredeemable before maturity by the holders, issued at various interest rates and mature one to ten years from date of issue. At our option, we may redeem and retire any or all of the debt upon 30 days written notice. The average investment note payable was $51,072 and $52,714, with a weighted average interest rate of 9.13% and 9.23% at June 30, 2016 and September 30, 2015, respectively. On April 29, 2015, we filed with the SEC our post-effective amendment to remove from registration all securities that remain unsold under our amended registration statement originally filed with the SEC on January 28, 2011 (the "Registration Statement"). We subsequently filed a Form RW, on June 5, 2015, to withdraw Post-Effective Amendment No. 4 to the Registration Statement, pursuant to which no securities were sold and which was never declared effective by the SEC. We no longer offer and sell investment notes pursuant to the Registration Statement. Series Subordinated Debt At June 30, 2016 the Company had outstanding borrowings of $5.0 million in Series A subordinated debentures. The debentures have one, two and three year maturities at issuance with corresponding interest rates of 5.5%, 6.5% and 7.5%, respectively. The average Series A subordinated debenture payable was $80,000 with a weighted average interest rate of 8.09% at June 30, 2016. In April 2016, the Company commenced an offering of up to $9.0 million in Series B subordinated debentures to certain investors in a private placement. The Series B offering will expire on August 31, 2016. The debentures have two, three and four year maturities at issuance with corresponding interest rates of 5.5%, 6.5% and 8.0%, respectively. At June 30, 2016 the Company had outstanding borrowings of $1.7 million in Series B subordinated debentures. The average Series B subordinated debenture payable was $75,652 with a weighted average interest rate of 7.97% at June 30, 2016. Subordinated Debt - Parent Our Credit Agreement allows for a line of credit with MCFC. Funding on this line of credit is provided as needed at our discretion and dependent upon the availability of funds from MCFC and is due upon demand. The maximum principal balance on this line of credit is $25.0 million. Interest is payable monthly and is based on prime or 5.0%, whichever is greater. As of June 30, 2016 and September 30, 2015 the outstanding balance under this line of credit was zero. Under the MOU, the Company's subordinated borrowings are limited to $44.0 million, without prior approval from MCFC's primary federal regulator. Maturities A summary of contractual maturities for the revolving line of credit and subordinated debt as of June 30, 2016, is as follows. The revolving line of credit maturities exclude debt issuance costs of $1.1 million. Subordinated debt maturities exclude the purchase adjustment of $0.01 million.
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VOLUNTARY REMEDIATION |
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Jun. 30, 2016 | |
Regulated Operations [Abstract] | |
Voluntary Remediation | VOLUNTARY REMEDIATION In June 2013, MCB received a letter from the Office of the Comptroller of the Currency (the "OCC") regarding certain former business practices of CBD that the OCC alleged violated Section 5 of the Federal Trade Commission Act. In July 2013, MCB responded in writing to the OCC regarding its analysis of the former business practices and stated that it did not believe it engaged in practices that rose to the level of a violation of law. On July 22, 2014, MCB's Board of Directors directed management to develop a plan of self-remediation to address the sales and marketing practices in question. While developing the self-remediation plan, it was determined on September 1, 2014 that MCB's affiliates who benefited from the practices in question should also adopt self-remediation plans and participate proportionately in the execution of the overall plan of self-remediation. On September 26, 2014, the Boards of Directors of MCB, Heights Finance Funding Co. and the Company approved self-remediation plans (the "Plans") and entered into an Affiliate Remediation Payment Agreement ("ARP Agreement"). In accordance with the Plans, remediation payments are made to certain customers impacted by the practices in question. The ARP Agreement requires, among other provisions, that all professional fees and other costs be split on a proportionate basis between affiliates based on customer remediation payments under the Plans, effective September 1, 2014. The OCC has indicated acceptance of the Plans and management will continue to implement the Plans as outlined below. Under the terms of the Plans, an independent administrator of the Plans has been engaged. The implementation of the Plans required an initial cash contribution to be placed with the administrator approximating the cash payments to customers, plus an additional 10%. On October 10, 2014, the Company deposited its portion of the cash contribution in the amount of approximately $8.4 million. The Company received a $9.0 million capital infusion from MCFC on October 10, 2014 prior to funding the $8.4 million cash remediation obligation. Under the Plans, the Company's proportionate share of liability for customer remediation is approximately $13.5 million. The Company accrued an additional $1.0 million in fiscal year 2014 related to the estimated proportionate share of further legal, administrator, audit and data fees. As of June 30, 2016, the Company's remaining liability for remediation was $1.3 million and is reflected on the balance sheet as "Voluntary remediation payable." All planned customer mailings and payments, under the Plans, have been completed as of June 30, 2016. The Company expects the completion of Plans by the end of fiscal 2016. |
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
9 Months Ended |
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Jun. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying unaudited consolidated financial statements include the accounts of Pioneer Financial Services, Inc. and its wholly owned subsidiaries (collectively “we,” “us,” “our” or the “Company”). Intercompany balances and transactions have been eliminated. As of June 30, 2016 and June 30, 2015, there were no other comprehensive income components. We are a wholly owned subsidiary of MidCountry Financial Corp., a Georgia corporation (“MCFC”). The Company’s consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended September 30, 2015 filed with the Securities and Exchange Commission (“SEC”) on December 17, 2015. In the opinion of the management of the Company, all significant intercompany accounts and transactions have been eliminated in consolidation, and all adjustments necessary for a fair presentation of the financial condition and results of operations for the periods presented have been included to present fairly these consolidated financial statements in accordance with GAAP. |
Nature of Operations | Nature of Operations and Concentration We are headquartered in Kansas City, Missouri. We purchase finance receivables from the Consumer Banking Division (“CBD”) of MidCountry Bank (“MCB”), a federally chartered savings bank and wholly owned subsidiary of MCFC. These receivables represent loans primarily to active-duty or career retired U.S. military personnel. |
Use of Estimates | Use of Estimates The preparation of the unaudited consolidated financial statements requires management to make estimates and assumptions that affect amounts reported in the unaudited consolidated financial statements and in disclosures of contingent assets and liabilities. We use estimates and employ judgments in determining the amount of our allowance for credit losses, debt protection claims and policy reserves, deferred tax assets and liabilities and establishing the fair value of our financial instruments. |
FINANCE RECEIVABLES (Tables) |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of finance receivables | The following table represents finance receivables for the periods presented:
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Schedule of changes in the components of allowance for credit losses on finance receivables | The following table sets forth changes in the components of our allowance for credit losses on finance receivables during the periods presented:
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Schedule of the credit quality of the Company's finance receivables | The following reflects the credit quality of our finance receivables portfolio:
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Schedule of age analysis of past due financing receivables | As of June 30, 2016 and September 30, 2015, past due finance receivables, on a recency basis, are as follows:
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RELATED PARTY TRANSACTIONS (Tables) |
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Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of related party transactions associated with LSMS agreement and other related transactions | The following table represents the related party transactions associated with the LSMS Agreement and other related party transactions for the periods presented.
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DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS AND INVESTMENTS (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of carrying amount and fair value of financial assets and liabilities | The carrying amounts and estimated fair values of our financial instruments at June 30, 2016 and September 30, 2015 are as follows:
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BORROWINGS (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of maturities for the amortizing notes and investment notes (net of purchase price adjustments) | A summary of contractual maturities for the revolving line of credit and subordinated debt as of June 30, 2016, is as follows. The revolving line of credit maturities exclude debt issuance costs of $1.1 million. Subordinated debt maturities exclude the purchase adjustment of $0.01 million.
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FINANCE RECEIVABLES (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||||
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Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
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Dec. 31, 2013 |
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Finance receivables | ||||||||
Loans purchased from CBD | $ 121,194 | $ 136,273 | ||||||
Gross finance receivables | $ 274,852 | $ 258,104 | 274,852 | 258,104 | $ 279,986 | |||
Less: Net deferred loan fees and dealer discounts | (5,953) | (5,953) | (5,959) | |||||
Less: Unearned debt protection fees | (3,242) | (3,242) | (3,257) | |||||
Less: Debt protection claims and policy reserves | (821) | (821) | (1,291) | |||||
Less: Total unearned fees | (10,016) | (10,016) | (10,507) | |||||
Finance receivables - net of unearned fees and unapplied finance receivable payments | 264,836 | 264,836 | 269,479 | |||||
Allowance for credit losses | (29,375) | (28,987) | (29,375) | $ (28,987) | $ (28,775) | (28,957) | $ (31,850) | $ (30,347) |
Net finance receivables | 235,461 | $ 235,461 | $ 240,522 | |||||
Military loans | ||||||||
Finance receivables | ||||||||
Loans purchased from CBD | $ 81,400 | $ 105,200 | ||||||
Percentage of loans purchased as refinancing of outstanding loans | 42.50% | 34.70% |
FINANCE RECEIVABLES (Details 2) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||||||
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Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Dec. 31, 2013 |
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Receivables [Abstract] | |||||||||
Accounts individually evaluated for impairment | $ 0 | ||||||||
Allowance for credit losses: | |||||||||
Balance, beginning of period | $ 28,957 | $ 31,850 | |||||||
Finance receivables charged-off | $ (9,158) | $ (8,318) | (27,236) | (25,927) | |||||
Recoveries | 1,160 | 1,385 | 3,533 | 3,988 | |||||
Provision | 8,598 | 5,573 | 24,121 | 19,076 | |||||
Balance, end of period | 29,375 | 28,987 | 29,375 | 28,987 | |||||
Finance receivables, net of allowance | |||||||||
Finance receivables | 274,852 | $ 279,986 | $ 258,104 | ||||||
Allowance for credit losses | $ (29,375) | $ (28,987) | $ (28,957) | $ (31,850) | (29,375) | $ (28,775) | $ (28,957) | (28,987) | $ (30,347) |
Balance, net of allowance | $ 245,477 | $ 229,117 |
FINANCE RECEIVABLES (Details 4) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Sep. 30, 2015 |
Jun. 30, 2015 |
---|---|---|---|
Finance receivables past due | |||
Gross finance receivables | $ 274,852 | $ 279,986 | $ 258,104 |
60-89 Days Past Due | |||
Finance receivables past due | |||
Financing Receivable, Recorded Investment, Past Due | 5,551 | 5,836 | |
90-180 Days Past Due | |||
Finance receivables past due | |||
Financing Receivable, Recorded Investment, Past Due | 8,022 | 8,426 | |
Total 60-180 Days Past Due | |||
Finance receivables past due | |||
Financing Receivable, Recorded Investment, Past Due | 13,573 | 14,262 | |
0-59 Days Past Due | |||
Finance receivables past due | |||
Financing Receivable, Recorded Investment, Past Due | $ 261,279 | $ 265,724 |
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS AND INVESTMENTS (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Sep. 30, 2015 |
---|---|---|
Financial assets: | ||
Cash - restricted | $ 616 | $ 618 |
Fair Value | ||
Financial assets: | ||
Cash and cash equivalents - non-restricted | 3,296 | 7,026 |
Cash - restricted | 616 | 618 |
Net finance receivables | 235,434 | 243,126 |
Financial liabilities: | ||
Amortizing term notes | 0 | 139,079 |
Revolving credit line - banks, net | 148,895 | 15,425 |
Investment notes | 40,153 | 44,346 |
Carrying Amount | ||
Financial assets: | ||
Cash and cash equivalents - non-restricted | 3,296 | 7,026 |
Cash - restricted | 616 | 618 |
Net finance receivables | 235,461 | 240,522 |
Financial liabilities: | ||
Amortizing term notes | 0 | 138,428 |
Revolving credit line - banks, net | 148,895 | 15,425 |
Investment notes | $ 36,868 | $ 41,108 |
BORROWINGS (Details 2) - Revolving line of credit - USD ($) $ in Millions |
9 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Sep. 30, 2015 |
|
Subordinated debt - parent | ||
Maximum principal balance on the facility | $ 25.0 | |
Outstanding balance | $ 0.0 | $ 0.0 |
Minimum | ||
Subordinated debt - parent | ||
Variable rate basis | Prime | |
Interest rate during the period (as a percent) | 5.00% |
VOLUNTARY REMEDIATION (Details) - USD ($) $ in Millions |
Sep. 26, 2014 |
Jun. 30, 2016 |
Oct. 10, 2014 |
---|---|---|---|
Regulatory Liabilities [Line Items] | |||
Amount of cash remediation obligation deposited (percent) | 10.00% | ||
Escrow deposit | $ 8.4 | ||
Customer remediation liability | $ 13.5 | $ 1.3 | |
Administrative expense | $ 1.0 | ||
MCFC | |||
Regulatory Liabilities [Line Items] | |||
Capital infusion | $ 9.0 |
Label | Element | Value |
---|---|---|
Increase (Decrease) in Accounts Payable and Other Operating Liabilities | us-gaap_IncreaseDecreaseInAccountsPayableAndOtherOperatingLiabilities | $ 985 |
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