Registration Number 333-103293 
 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-Q  xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period ended:  December 31, 2007  OR  o  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
(State or other jurisdiction of incorporation or organization)
        44-0607504
(I.R.S. Employer 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.YesxNo o  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  Large accelerated filer o
        Accelerated filer o
        Non-accelerated filerx
        Smaller reporting company o
  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o
        Nox
  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, 2008Common Stock, no par value
        1 Share
  As of December 31, 2007, 1 share of the Registrant's common stock is outstanding.  The registrant is a wholly owned subsidiary of MidCountry Financial Corp.    PIONEER FINANCIAL SERVICES, INC.  FORM 10-Q December 31, 2007  TABLE OF CONTENTS   PART I FINANCIAL INFORMATION  Item No.
        Page1.
        Consolidated Financial Statements
        1Consolidated Balance Sheets at December 31, 2007 and September 30, 2007
        1Consolidated Statements of Income for the three months ended December 31, 2007 and 2006
        2Consolidated Statements of Stockholder's Equity for the three months ended December 31, 2007, eight months ended May 31, 2007 and years ended September 30, 2007 and 2006
        3Consolidated Statements of Cash Flows for the three months ended December 31, 2007 and 2006
        4Condensed Notes to Consolidated Financial Statements
        52.
        Management's Discussion and Analysis of Financial Condition and Results of Operations
        103.
        Quantitative and Qualitative Disclosures About Market Risk
        214.
        Controls and Procedures
        21PART II
OTHER INFORMATION1.
        Legal Proceedings
        226.
        Exhibits
        23
     PART I - FINANCIAL INFORMATION  ITEM 1.Consolidated Financial Statements PIONEER FINANCIAL SERVICES, INC. Consolidated Balance Sheets As of December 31, 2007 and September 30, 2007 (unaudited)  ASSETSDecember 31,
        
        September 30,2007
        
        2007Cash and cash equivalents - restricted
        
        $
        3,757,677
        
        $
        3,540,231Cash and cash equivalents - non-restricted
        
        
        7,866,063
        
        
        3,700,823Investments - restricted
        
        
        3,300,925
        
        
        3,413,564Investments - non-restricted
        
        
        130,000
        
        
        230,000Net finance receivables
        
        
        247,066,343
        
        
        236,234,550Furniture and equipment, net
        
        
        711,368
        
        
        747,342Prepaid and other assets
        
        
        4,818,144
        
        
        6,083,591Deferred policy acquisition costs
        
        
        445,115
        
        
        2,727,539Goodwill
        
        
        30,499,248
        
        
        28,058,432Intangibles - net
        
        
        22,623,200
        
        
        23,951,000Total assets
        
        $
        323,881,005
        
        $
        308,687,072LIABILITIES AND STOCKHOLDER'S EQUITYRevolving credit line - banks
        
        $
        16,179,495
        
        $
        15,463,000Accounts payable
        
        
        1,823,460
        
        
        1,725,005Accrued expenses and other liabilities
        
        
        5,168,814
        
        
        3,877,235Amortizing term notes
        
        
        180,708,315
        
        
        168,928,850Investment notes
        
        
        35,821,454
        
        
        36,073,502Deferred income tax liability
        
        
        
        
        
        1,048,092Total liabilities
        
        
        239,701,538
        
        
        227,115,684Contingencies (Note 2)Stockholder's equity:Common stock, no par value; 1 share issued and outstanding
        
        
        84,394,200
        
        
        82,394,200Retained earnings (deficit)
        
        
        (214,733)
        
        
        (822,812
        )Total stockholder's equity
        
        
        84,179,467
        
        
        81,571,388Total liabilities and stockholder's equity
        
        $
        323,881,005
        
        $
        308,687,072
  See Condensed Notes to Consolidated Financial Statements  1    PIONEER FINANCIAL SERVICES, INC. Consolidated Statements of Operations For the three months ended December 31, 2007 and December 31, 2006 (unaudited)   Successor
        
        
        
        PredecessorThree Months Ended December 31,
        
        
        
        Three Months Ended December 31,2007
        
        
        
        2006Interest Income and Fees
        
        $
        20,244,071
        
        
        $
        20,366,042Interest Expense
        
        
        4,186,990
        
        
        
        3,887,967Net interest income before provision for loan losses
        
        
        16,057,081
        
        
        
        16,478,075Provision for loan losses
        
        
        7,257,546
        
        
        
        7,907,335Net Interest Income
        
        
        8,799,535
        
        
        
        8,570,740Noninterest Income:Insurance premiums and commissions earned, net
        
        
        1,020,131
        
        
        
        1,231,333Other
        
        
        (670
        )
        
        
        510,060Total noninterest income
        
        
        1,019,461
        
        
        
        1,741,393Noninterest Expense:Compensation and benefits
        
        
        149,766
        
        
        
        4,793,712Management and record keeping services fee
        
        
        6,559,853
        
        
        
        Occupancy and equipment
        
        
        90,585
        
        
        
        1,052,048Advertising
        
        
        28,506
        
        
        
        639,397Professional and regulatory fees
        
        
        132,041
        
        
        
        725,455Data processing
        
        
        
        
        
        
        68,282Amortization of intangibles
        
        
        1,327,800
        
        
        
        Other operating expenses
        
        
        86,795
        
        
        
        1,272,119Total noninterest expense
        
        
        8,375,346
        
        
        
        8,551,013Income before income taxes
        
        
        1,443,650
        
        
        
        1,761,120Provision for income taxes
        
        
        541,244
        
        
        
        684,883Net income
        
        $
        902,406
        
        
        $
        1,076,237Net income per share, basic and diluted
        
        $
        902,406.00
        
        
        $
        62.81
      See Condensed Notes to Consolidated Financial Statements  2    PIONEER FINANCIAL SERVICES, INC. Consolidated Statements of Stockholder's Equity For the three months ended December 31, 2007, eight months ended May 31, 2007 and years ended September 30, 2007 and 2006 (unaudited)   Total
        
        CommonStock
        
        RetainedEarnings(Deficit)PredecessorBalance, September 30, 2006
        
        
        39,010,057
        
        
        1,713,600
        
        
        37,296,457Net income
        
        
        3,035,085
        
        
        
        
        
        3,035,085Dividend paid ($583.60 per share)
        
        
        (10,000,569
        )
        
        
        
        
        (10,000,569
        )Balance, May 31, 2007
        
        $
        32,044,573
        
        $
        1,713,600
        
        $
        30,330,973SuccessorBalance, May 31, 2007
        
        $
        
        
        $
        
        
        $
        Investment by parent
        
        
        86,229,762
        
        
        86,229,762
        
        
        Additional capital contributed
        
        
        7,432,000
        
        
        7,432,000
        
        
        Dividend of business operations to MCFC
        
        
        (11,267,562
        )
        
        (11,267,562
        )
        
        Net loss
        
        
        (822,812
        )
        
        
        
        
        (822,812
        )Balance, September 30, 2007
        
        $
        81,571,388
        
        $
        82,394,200
        
        $
        (822,812
        )Net income
        
        
        902,406
        
        
        
        
        
        902,406Contingent payment by Parent
        
        
        2,000,000
        
        
        2,000,000Adoption of FIN48 (see note 6)
        
        
        (294,327
        )
        
        
        
        
        (294,327
        )Dividend paid
        
        
        
        
        
        
        
        
        Balance, December 31, 2007
        
        $
        84,179,467
        
        $
        84,394,200
        
        $
        (214,733
        )
    See Condensed Notes to Consolidated Financial Statements  3    PIONEER FINANCIAL SERVICES, INC. Consolidated Statements of Cash Flows For the three months ended December 31, 2007 and 2006 (unaudited)  Successor
        
        
        
        PredecessorThree Months EndedDecember 31,2007
        
        
        
        Three Months EndedDecember 31,2006Cash flows from operating activities:Net income
        
        $
        902,406
        
        
        
        $
        1,076,237Items not requiring (providing) cash:Provision for credit losses on finance receivables
        
        
        7,257,546
        
        
        
        
        7,907,335Depreciation and amortization
        
        
        887,166
        
        
        
        
        351,538Loss on disposal/donation of equipment
        
        
        
        
        
        
        
        (778
        )Changes in deferred fees - net
        
        
        1,718,282
        
        
        
        
        (14,590
        )Changes in unearned premium reserves
        
        
        (99,260
        )
        
        
        
        176,091Changes in:Deferred income taxes
        
        
        (841,441
        )
        
        
        
        (1,483,566
        )Accounts payable and accrued expenses
        
        
        416,611
        
        
        
        
        3,237,284Prepaids and other assets
        
        
        1,330,064
        
        
        
        
        (696,108
        )Net cash provided by operating activities
        
        
        11,571,374
        
        
        
        
        10,553,443Cash flows from investing activities:Loans originated
        
        
        
        
        
        
        
        (53,535,804
        )Loans purchased from affiliate
        
        
        (55,875,828
        )
        
        
        
        Loans purchased
        
        
        (4,371,922
        )
        
        
        
        (4,652,377
        )Loans repaid
        
        
        41,153,290
        
        
        
        
        41,675,761Capital expenditures
        
        
        (27,000
        )
        
        
        
        (44,131
        )Change in restricted cash
        
        
        (217,446
        )
        
        
        
        (473,267
        )Investments purchased - restricted
        
        
        (1,082,003
        )
        
        
        
        Investments purchased - non-restricted
        
        
        
        
        
        
        
        (297
        )Investments matured - restricted
        
        
        1,199,276
        
        
        
        
        410,000Investments matured - non-restricted
        
        
        100,000
        
        
        
        
        Net cash used in investing activities
        
        
        (19,121,633
        )
        
        
        
        (16,620,115
        )Cash flows from financing activities:Net borrowing under lines of credit
        
        
        716,495
        
        
        
        
        5,526,436Proceeds from borrowings
        
        
        31,000,000
        
        
        
        
        30,269,233Repayment of borrowings
        
        
        (20,000,996
        )
        
        
        
        (16,537,427
        )Dividends paid
        
        
        
        
        
        
        
        (10,000,569
        )Net cash provided by financing activities
        
        
        11,715,499
        
        
        
        
        9,257,673Net increase in cash and equivalents
        
        
        4,165,240
        
        
        
        
        3,191,001Cash and cash equivalentsBeginning of period
        
        
        3,700,823
        
        
        
        
        1,609,915Cash and cash equivalentsEnd of period
        
        $
        7,866,063
        
        
        
        $
        4,800,916Additional cash flow information:Interest paid
        
        $
        3,571,138
        
        
        
        $
        3,327,375Income taxes paid
        
        $
        68,800
        
        
        
        $
        Noncash financing activities:Capital contribution from parent
        
        $
        2,000,000
        
        
        
        $
        
  See Condensed Notes to Consolidated Financial Statements  4    PIONEER FINANCIAL SERVICES, INC.  CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2007 and December 31, 2006 (Unaudited)  NOTE 1:  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"). All significant intercompany balances and transactions have been eliminated. We were acquired on May 31, 2007 by MidCountry Financial Corp, a Georgia corporation ("MCFC") as a wholly-owned subsidiary (the "Transaction").  We are now a wholly-owned first-tier subsidiary of MCFC. Our accounting for the Transaction follows the requirements of Staff Accounting Bulletin ("SAB") 54, Topic  5-J and Statement of Accounting Standards No. 141, "Business Combinations," which require that purchase accounting treatment of the Transaction be "pushed down" to us resulting in the adjustment of all our net assets to their respective fair values as of the Transaction date. Although we continued as the same legal entity after the Transaction, the application of push down accounting represents the termination of the old accounting entity and the creation of a new one. As a result, the accompanying condensed consolidated financial statements represent two periods: Predecessor, first three months of fiscal 2007, and Successor, first three months of fiscal 2008. There are significant differences in the way we operated in the Predecessor Period to the Successor Period.  Certain fees and revenue we earned in the Predecessor Period are not collected in the Successor Period from our loans.  We are outsourcing origination of military loans and servicing of all loans and pay a fee to MBD in the Successor Period for these activities.  Our expenses include amortization of our intangible assets in the Successor Period pursuant to SFAS No. 142, "Goodwill and Other Intangible Assets."  While comparisons to prior periods are relevant, these changes have an effect on our financial condition, results of operations and cash flow. Immediately subsequent to the Transaction, we declared and paid a dividend to MCFC of our business operation and certain assets and liabilities related to the origination and servicing of our finance receivables.  MCFC contributed these operations to MidCountry Bank ("MCB") which is a wholly-owned subsidiary of MCFC. MCB formed the Military Banking Division ("MBD") which is composed exclusively of the assets and liabilities contributed from MCFC. This transaction is further described in "Note 2:  Transaction and Dividend of Operations and Net Assets to MCFC." As part of the dividend, we entered into a Loan Sale and Master Services Agreement ("LSMS Agreement") with MBD. Under the LSMS Agreement, MBD is obligated to originate loans and we are obligated to purchase those loans that meet our business model and underwriting guidelines. Also under the LSMS Agreement, MBD will provide us with management and record
keeping services. As part of the dividend, substantially all of our employees became employees of MBD. We pay fees for loans purchased and originated by MBD and management and record keeping services provided by MBD. The LSMS is further described in "Note 7:  Related Party Transactions." Nature of Operations and Concentration We are headquartered in Kansas City, Missouri. Prior to June 1, 2007, we originated finance receivables exclusively to active-duty or career-retired U.S. military personnel or U.S. Department of Defense employees. We also purchased finance receivables from retail merchants that sell consumer goods to active-duty or career-retired U.S. military personnel or U.S. Department of Defense employees. We now purchase similar finance receivables from MBD and continue to purchase from retail merchants. Prior to June 1, 2007, we also sold non-loan related products and services including roadside assistance programs and discount cards. In connection with the Transaction, we discontinued the selling of ancillary products and services as of June 1, 2007.  5    Use of Estimates The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect amounts reported in the unaudited condensed consolidated financial statements and in disclosures of contingent assets and liabilities. We use estimates and employ the judgments of management in determining the amount of our allowance for credit losses, insurance claims and policy reserves, deferred loan origination costs, and establishing the fair value of its financial instruments. We also used estimates in assigning fair values to its assets and liabilities after the Transaction.  While the consolidated financial statements and footnotes reflect the best estimates and judgments of management at the time, actual results could differ significantly from those estimates. Information with respect to December 31, 2007 and 2006, and the periods then ended, have not been audited by our 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. The results of operations for the three months ended December 31, 2007 and 2006 are not necessarily indicative of results to be expected for the entire fiscal year. The condensed consolidated balance sheet as of September 30, 2007 and statements of stockholder's equity for the years ended September 30, 2007 and 2006 have been derived from the our audited consolidated balance sheet and statements of stockholder's equity. NOTE 2:  TRANSACTION AND DIVIDEND OF OPERATIONS AND NET ASSETS TO MCFC In connection with the Transaction, MCFC paid the shareholders of PFI (the "Sellers") approximately $68.8 million in cash and 882,353 shares of MCFC's common stock. Under the related purchase agreement, MCFC is also required to pay the Sellers an additional $5 million in contingent payments, of which $4 million will be contributed to us and $1 million to MBD, if we meet any one of certain financial performance goals which will be evaluated and paid in two installments over the 24 months following the acquisition. These goals pertain to net revenue, net income, finance receivable and the number of customer relationships for the calendar year ending December 31, 2007 and 2008. As of December 31, 2007 we met our performance goals for the calendar year, requiring MCFC to pay the Sellers $2 million. This payment is required to be paid to the Sellers on March 31, 2008, and has been accrued for, as of December 31, 2007. The Transaction was accounted for using the purchase method in accordance with SFAS 141, "Business Combinations."  The components of the purchase price at 09/30/2007 were as follows:  Stock in MCFC Financial Corp.
        
        $
        15,000,000Cash
        
        
        68,800,473Direct acquisition costs
        
        
        492,000Consideration paid
        
        
        84,292,473Assumption of liabilities
        
        
        1,937,289Total purchase price
        
        $
        86,229,762
  Updates to the purchase price allocated to us due to performance goals met and earned by us as of December 31, 2007:  Purchase price as of 09/30/2007
        
        $
        86,229,762Contingent accrual at 12/31/2007
        
        
        2,000,000Total purchase price as of 12/31/2007
        
        $
        88,229,762
  The purchase price as recorded above does not include $2 million in contingent payments for calendar year 2008, which have not been earned or paid.  The fair value assigned to intangible assets acquired and assumed liabilities is supported by valuations using estimates and assumptions provided by management. We also retained independent appraisers to assist in these valuations. The primary changes to the balance sheet are preliminary and reflect certain assets and liabilities as follows:  
        The recording of the fair value of our intangibles including customer relationships, agent relationships, vendor relationships and system technology;
  6    
        The recording of the fair value of goodwill;
 
        Elimination of the accumulated earnings; and
 
        The recording of the fair value of fixed assets, investment notes, senior debt and finance receivables.
 The purchase price was allocated to the estimated fair value of assets acquired and liabilities assumed as follows:  Cash and other current assets
        
        $
        10,990,773Net finance receivables
        
        
        238,366,357Equipment and other assets
        
        
        10,388,206Goodwill
        
        
        41,639,810Intangible assets
        
        
        26,200,000Subtotal
        
        
        327,585,146Liabilities
        
        
        (230,285,666
        )Deferred income taxes, related to intangibles
        
        
        (9,069,718
        )Total
        
        $
        88,229,762
  Immediately subsequent to the Transaction, we declared and paid a dividend to MCFC of its business operations and certain assets and liabilities related to the origination and servicing of finance receivables. MCFC contributed these operations to MCB which is a wholly-owned subsidiary of MCFC. MCB formed the MBD which is composed exclusively of the operation and assets and liabilities from us. Intangible assets were allocated to the operations and assets and liabilities as a dividend to MCFC based on relative fair values. The dividend is summarized as follows:  Cash and cash equivalents
        
        
        
        $
        811,651Property and Equipment
        
        
        
        
        1,391,211Goodwill
        
        
        
        
        11,140,562Intangibles
        
        
        
        
        200,000Due to parent
        
        
        
        
        3,085,682Other assets
        
        
        
        
        687,559Total Assets
        
        
        
        
        17,316,665Accrued expenses and other liabilities
        
        
        
        
        (5,976,103
        )Deferred tax liabilities, net
        
        
        
        
        (73,000
        )Total liabilities
        
        
        
        
        (6,049,103
        )Assets in excess of liabilities
        
        
        
        $
        11,267,562
  NOTE 3:  FINANCE RECEIVABLES Finance receivables at December 31, 2007 and September 30, 2007, consisted of the following:  December 31,
        
        September 30,2007
        
        2007(unaudited)Military receivables/loans
        
        $
        274,191,942
        
        $
        260,539,876Retail installment contracts
        
        
        18,981,807
        
        
        19,238,395Total finance receivables
        
        
        293,173,749
        
        
        279,778,271Purchase adjustment (1)
        
        
        (1,135,129
        )
        
        (1,749,030
        )Discounts and net deferred loan fees
        
        
        (15,150,563
        )
        
        (13,092,318
        )Unearned insurance premium reserves
        
        
        (6,610,499
        )
        
        (6,718,659
        )Insurance claims and policy reserves
        
        
        (353,959
        )
        
        (345,059
        )Finance receivables - net of unearned fees and premiums
        
        
        269,923,599
        
        
        257,873,205Allowance for credit losses
        
        
        (22,857,256
        )
        
        (21,638,655
        )Finance receivables - net of allowance
        
        $
        247,066,343
        
        $
        236,234,550
   7     (1)
        Relates to the fair value adjustments recorded to finance receivables as part of the Transaction. During first quarter of fiscal 2008 we amortized approximately $613,900 of the purchase adjustment into income.
  NOTE 4:  GOODWILL AND INTANGIBLES  Due to the Transaction, we recorded goodwill and amortizable intangible assets in the form of customer, agent and vendor relationships, trade name, technology for the lending system and the value of business acquired. Goodwill and intangible assets at December 31, 2007 are as follows:  12/31/2007
        
        
        
        9/30/2007Gross CarryingAmount
        
        AccumulatedAmortization
        
        
        
        Net CarryingValue
        
        
        
        Gross CarryingAmount
        
        AccumulatedAmortization
        
        
        
        Net CarryingValueCustomer Relationships
        
        $
        11,000,000
        
        $
        (1,282,359
        )
        
        
        $
        9,717,641
        
        
        
        $
        11,000,000
        
        $
        (710,000
        )
        
        
        $
        10,290,000Agent Relationships
        
        
        700,000
        
        
        (68,820
        )
        
        
        $
        631,180
        
        
        
        
        700,000
        
        
        (38,000
        )
        
        
        $
        662,000Vendor Relationships
        
        
        1,700,000
        
        
        (169,468
        )
        
        
        $
        1,530,532
        
        
        
        
        1,700,000
        
        
        (95,000
        )
        
        
        $
        1,605,000Trade Name
        
        
        7,000,000
        
        
        (542,906
        )
        
        
        $
        6,457,094
        
        
        
        
        7,000,000
        
        
        (317,000
        )
        
        
        $
        6,683,000Technology
        
        
        4,000,000
        
        
        (544,362
        )
        
        
        $
        3,455,638
        
        
        
        
        4,000,000
        
        
        (318,000
        )
        
        
        $
        3,682,000Valuation of Business Acquired
        
        
        1,600,000
        
        
        (768,885
        )
        
        
        $
        831,115
        
        
        
        
        1,600,000
        
        
        (571,000
        )
        
        
        $
        1,029,000Total amortizable intangibles
        
        $
        26,000,000
        
        $
        (3,376,800
        )
        
        
        $
        22,623,200
        
        
        
        $
        26,000,000
        
        $
        (2,049,000
        )
        
        
        $
        23,951,000Goodwill
        
        $
        30,086,694
        
        $
        
        
        
        
        $
        30,086,694
        
        
        
        $
        28,058,432
        
        $
        
        
        
        
        $
        28,058,432
  Intangible assets other than goodwill, which are determined to have finite lives, are amortized on a straight-line or accelerated bases over their estimated useful lives between three and ten years. Management evaluated goodwill at September 30, 2007, in accordance with SFAS No. 142 and determined that there was no impairment. Management also evaluates amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairments of amortizable intangible assets, as of September 30, 2007. NOTE 5: NET INCOME SHARE Net income per share is computed based upon the weighted-average common shares outstanding of 1 for the first three months of fiscal year 2008 and 17,136 for the first three months of fiscal year 2007. There are no potentially dilutive securities issued and outstanding. NOTE 6: INCOME PER TAXES The Financial Accounting Standards Board ("FASB") issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" ("FIN 48,") dated June 2006.  FIN 48 requires companies to recognize the tax benefits of uncertain tax positions only when the position is "more likely than not" to be sustained assuming examination by tax authorities.  The amount recognized represents the largest amount of tax benefit that is greater than 50% likely of being ultimately realized.  A liability is recognized for any benefit claimed, or expected to be claimed, in a tax return in excess of the benefit recorded in the financial statements, along with any interest and penalty (if applicable) on the excess. We adopted the provisions of FIN 48 on October 1, 2007.  As a result, we recorded a charge of approximately $294,000 to the October 1, 2007, retained deficit.  As of the adoption date, we had a gross unrecognized tax benefit (FIN48 liability) of approximately $1,020,000.  Approximately $468,000, if recognized, would favorably affect our effective tax rate.  There was no additional charge recorded for the period ended December 31, 2007.  The FIN 48 liability is carried in other liabilities in the consolidated balance sheet as of December 31, 2007.  Interest and penalties recognized are recorded as a  8    component of income tax expense.  Accrued interest and penalties were approximately $339,000 as of October 1, 2007 and $378,500 as of December 31, 2007. NOTE 7: RELATED PARTY TRANSACTIONS Due to the Transaction we entered into a LSMS Agreement with MBD. Under the LSMS agreement, we buy certain military loans that MBD originates and receive management and record keeping services. During the first quarter of fiscal 2008, the total loans, net of deferred fees, we purchased from MBD pursuant to the LSMS agreement were $55.9 million. Total expenses paid to MBD during this period for services received for management and record keeping services pursuant to the LSMS agreement were $6.6 million. NOTE 8: NEW ACCOUNTING PRONOUNCEMENTS In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"(SFAS No. 157), which enhances existing guidance for measuring assets and liabilities using fair values. SFAS No. 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. SFAS No. 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under SFAS No. 157, fair value measurements are disclosed by level within that hierarchy. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of
SFAS No. 157 on our consolidated financial condition and results of operations. In February 2007, the FASB issued SFAS No. 159, "Fair Value Option for Financial Assets and Financial Liabilities"(SFAS No. 159), which permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The provision of SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of adopting SFAS No. 159 on our consolidated financial condition and results of operations.  9    ITEM 2.Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements The discussion set forth below, in the quarterly report of Pioneer Financial Services, Inc. ("PFS"), with its wholly owned subsidiaries (collectively "we," "us," "our" or the "company"), 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 annual report on Form 10-K for the period ended September 30, 2007 ("annual report") under Item 1ARisk Factors. 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 are a wholly-owned subsidiary of MidCountry Financial Corp., a Georgia corporation ("MCFC"). Prior to May 31, 2007, we were a wholly-owned subsidiary of Pioneer Financial Industries, Inc., a Nevada corporation ("PFI"). On May 31, 2007, MCFC acquired 100% of PFI's common stock (the "Transaction"). The Transaction resulted in a change in control effective May 31, 2007. Pursuant to the Transaction, MCFC reorganized our operations. Prior to June 1, 2007, we originated loans exclusively to active-duty or career-retired U.S. military personnel or U.S. Department of Defense employees. In connection with the Transaction, activities related to the origination and servicing of loans are now being conducted by our affiliate, the Military Banking Division of MidCountry Bank (a wholly-owned subsidiary of MCFC and referred to throughout as "MBD"). In addition, generally all of our former employees work for MBD. We purchase consumer loans, on a worldwide basis, made exclusively to active-duty or retired career U.S. military personnel or U.S. Department of Defense employees. We purchase primarily from two different types of sources. Our largest source of military loans is MBD, an affiliate who originates direct loans through a network of loan production offices and via the Internet. Military families use these loan proceeds to purchase goods and services. We also purchase retail installment contracts from retail merchants that sell consumer goods to active-duty or retired career U.S. military personnel or U.S. Department of Defense employees. We plan to hold these military loans and retail installment contracts until repaid. We have entered into a Loan Sale and Master Services Agreement ("LSMS") with MBD which outlines the terms of the sale and servicing of these loans. Finance receivables, whether originated or purchased, are effectively unsecured and consist of loans originated by us or purchased from MBD and retail merchants. All finance receivables have fixed interest rates and typically have a maturity of less than 48 months. During the first three months of fiscal 2008, the size of the average finance receivable at origination was approximately $3,292. A large portion of our customers are unable to obtain financing from traditional sources due to factors such as their age, frequent relocations and lack of credit history, which may not allow them to build relationships with these sources. Improvement of our profitability is dependent upon the growth in amount of finance receivables we are able to acquire from MBD and retail merchants and the maintenance of loan quality. Lending and Servicing Operations Primary Supplier of Loans We have retained MBD as a primary supplier of loans. Under the LSMS Agreement, MBD is obligated to use our underwriting criteria (which was developed from our past customer credit repayment experience and is periodically revalidated based on current portfolio performance). This criteria primarily requires the following:  10    
        All borrowers must be U.S. military personnel and U.S. defense department employees.
 
        All potential borrowers must complete standardized credit applications either in person at one of MBD's loan production offices or online via the Internet.
 
        A thorough review must be conducted on all applicants' military service history. This includes verification of status including rank and credit history using major credit reporting. Other review procedures may be conducted as deemed necessary.
 
        Loan repayment terms must generally be structured to repay the entire loan prior to the customer's estimated separation from the military.
  To the extent MBD originates loans under these standards, MBD is obligated to sell such loans, net of deferred loans, to us and we are obligated to purchase such loans. Loans purchased from MBD and those previously originated by us prior to the transaction are referred to as "military loans." See our annual report under "Item 1A. Risk FactorsMBD may modify underwriting and servicing standards and does not have to lend to the traditional customers who meet our business model and lending guidelines. Each of these may materially adversely affect our business operations, cash flow, results of operations, financial condition and profitability."  Loan Purchasing Generally.We have 20+ years experience underwriting, originating, monitoring and servicing consumer loans to the military market and have developed a deep understanding of the military and the military lifestyle. Through this extensive knowledge of our customer base, we had developed a proprietary scoring model that focuses on the unique characteristics of the military market, as well as traditional credit scoring variables which are currently utilized by MBD when originating loans in this market.  We incorporated these proprietary underwriting guidelines and scoring model into our loan origination system to facilitate auto-decisioning and risk-based pricing on our loans. For the loans we purchase, MBD now uses our proprietary underwriting guidelines and scoring model when it originates loans. Under these guidelines, in evaluating the creditworthiness of potential customers, MBD primarily examines the individual's debt to income ratio, discretionary income, military rank, time served in the military and prior credit experience. Loans are limited to amounts that the customer could reasonably be expected to repay from that discretionary income. Loan repayment terms are generally structured to repay the entire loan prior to the customer's estimated separation from the military. However, when we purchase loans from MBD, we can not predict when or whether a customer may unexpectedly leave the military or when or whether other events could occur which result in not being repaid prior to a customer's departure from the military. We only purchase loans made to consumers who fit our business model and underwriting guidelines. When we purchase loans from MBD, we use our standard underwriting guidelines to predict the relative likelihood of credit applicants repaying their obligation to us. In general, each finance receivable we own is under $10,000 repayable in equal monthly installments and has terms no longer than 48 months. A risk in all consumer lending and retail sales financing transactions is the customer's unwillingness or inability to repay obligations. Unwillingness to repay is usually evidenced by a consumer's historical credit repayment record. An inability to repay occurs after initial credit evaluation and funding and usually results from lower income due to early separation from the military or reduction in rank, major medical expenses, or divorce. Occasionally, these types of events are so economically severe that the customer files for protection under the bankruptcy laws. Standard underwriting guidelines are used at the time the customer applies for a loan to help minimize the risk of unwillingness or inability to repay. These guidelines were developed from past customer credit repayment experience and are periodically revalidated based on current portfolio performance. We use these guidelines to
predict the relative likelihood of credit applicants repaying their obligation to us. We purchase loans made to consumers who fit our underwriting guidelines. The amount and interest rate of the military loan or retail sales finance transaction purchased are set by MBD or the retail merchant based upon our underwriting guidelines considering the estimated credit risk assumed. As a customer service, we consider purchasing a new loan from MBD if an existing borrower has demonstrated a positive payment history with us and where the transaction created an economic benefit to the customer after fully underwriting the new loan request to ensure proper debt ratio, credit history and payment performance. We will not purchase refinancings made to cure delinquency nor for the sole purpose of creating fee income. Generally, we purchase  11    refinancing of existing loans when a portion of the new loan proceeds is used to repay the balance of the existing loan and the remaining portion is advanced to the customer. Approximately 35.1% of the amount of all military loans originated or purchased were refinancings from outstanding loans. Military Loans Purchased from MBD.We purchase military loans from MBD if they meet our lending guidelines. In connection with the Transaction, MBD was provided the rights to our lending guidelines and extensive experience with lending to the military marketplace. Pursuant to the LSMS, we transferred our underwriting model and system to MBD. However, we retained ownership of this model and the lending system. MBD now originates these loans directly through its loan production offices and over the Internet. Prior to June 1, 2007, we originated loans through our retail network of 19 offices located in 13 states. Retail Installment Contracts.We also purchase retail installment contracts, which meet our quality standards and return on investment objectives from approximately 90 retail merchants. Retail installment contracts are finance receivable notes generated during the purchase of consumer goods by active-duty or retired career U.S. military personnel or U.S. Department of Defense employees. These customers have demonstrated an apparent need to finance a retail purchase and a willingness to use credit. We generally acquire these contracts without recourse to the originating merchant. However, some retail merchant reserve agreements allow us to withhold funds from the merchant's proceeds to create reserves to be used in the event a customer defaults and the loan is deemed uncollectible. Retail installment contracts generally have maximum terms of 48 months. Management and Record Keeping Services We have retained MBD to provide management and record keeping services pursuant to the "LSMS." MBD will service our finance receivables in the same manner as we did prior to the Transaction. For these management and record keeping services, we pay MBD a monthly fee in an amount equal to .67% (8% annually) of the outstanding principal balance of the military loans and retail installment contracts serviced as of the last day of each month. The fee will be adjusted annually on the basis of the annual increase or decrease in the Consumer Price Index. Also, as part of its compensation for performing these management and recording keeping services, MBD retains all ancillary revenue, including late charges and NSF fees, associated with these loans and retail installment contracts. For these services, we also pay MBD an annual fee of $32.00 for each military loan and retail installment contract
owned by us at the end of the prior fiscal year. The annual fee will be paid in monthly installments. This fee will be adjusted annually on the basis of the annual increase or decrease in the Consumer Price Index.  The "LSMS" may be terminated by either party with 180 days written notice and expires on May 13, 2012. To facilitate MBD's servicing of the military loans and retail installment contracts, we have granted MBD (i) the non-exclusive rights to use certain intellectual properties, including our trade names and service marks, and (ii) the right to use our Daybreak system and related hardware and software. We have also granted MBD non-exclusive rights to market additional products and services to our U.S. military borrowers. We retain all other borrower relationships. Sources of Income We obtain revenues primarily from interest earned on the military loans purchased from MBD, loans previously originated by us and retail installment contracts purchased. We also earn revenues from credit reinsurance premiums. For purposes of the following discussion, "revenues" means the sum of our finance income and reinsurance premiums. In the first quarter of fiscal 2008, our revenues and resulting income came primarily from interest income derived from direct consumer lending and retail installment contracts and credit reinsurance premiums. Finance Receivables Our finance receivables are comprised of "military loans" and retail installment contracts. The following table sets forth certain information about the components of our finance receivables as of the end of the periods presented:  12     Successor
        
        
        
        PredecessorThree Months Ended December 31, 2007
        
        
        
        Three Months Ended December 31, 2006(dollars in thousands, except for average note balance)Finance Receivables:Total Finance receivables balance
        
        $
        293,174
        
        
        
        $
        290,895Average note balance
        
        $
        2,697
        
        
        
        $
        2,736Total interest income and fees
        
        $
        20,244
        
        
        
        $
        20,366Total number of notes
        
        
        108,713
        
        
        
        
        106,306Military Loans:Total military receivables
        
        $
        274,192
        
        
        
        $
        267,986Percent of total finance receivables
        
        
        93.53
        %
        
        
        
        92.12
        %Average note balance
        
        $
        2,775
        
        
        
        $
        2,840Number of notes
        
        
        98,810
        
        
        
        
        94,363Retail Installment Contracts:Total retail installment contract receivables
        
        $
        18,982
        
        
        
        $
        22,909Percent of total finance receivables
        
        
        6.47
        %
        
        
        
        7.88
        %Average note balance
        
        $
        1,917
        
        
        
        $
        1,918Number of notes
        
        
        9,903
        
        
        
        
        11,943
  Net Interest Margin The principal component of our profitability is net interest margin, which is the difference between the interest earned on our finance receivables and the interest paid on borrowed funds. Some states and federal statutes regulate the interest rates that may be charged to our customers. In addition, competitive market conditions also impact the interest rates. Our interest expense is sensitive to general market interest rate fluctuations. These general market fluctuations directly impact our cost of funds. General inability to increase the interest rates earned on new and existing finance receivables restricts our ability to react to increases in cost of funds. Accordingly, increases in market interest rates generally will narrow interest rate spreads and lower profitability, while decreases in market interest rates generally will widen interest rate spreads and increase profitability. The following table presents important data relating to our net interest margin as of the ends of the periods presented:  13     Successor
        
        
        
        PredecessorThree Months EndedDecember 31,
        
        
        
        Three Months EndedDecember 31,2007
        
        
        
        2006(dollars in thousands)Total finance receivables balance
        
        $
        293,174
        
        
        
        $
        290,895Average total finance receivables  (1)
        
        $
        288,066
        
        
        
        $
        285,760Average interest bearing liabilities (1)
        
        $
        226,952
        
        
        
        $
        222,242Total interest income and fees
        
        $
        20,244
        
        
        
        $
        20,366Total interest expense
        
        $
        4,187
        
        
        
        $
        3,888(1)   Averages are computed using month-end balances.
  Results of Operations Our accounting for the Transaction follows the requirements of Staff Accounting Bulletin ("SAB") 54, Topic 5-J, and Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," which require that purchase accounting treatment of the Transaction be "pushed down," resulting in the adjustment of all of our net assets to their respective fair values as of the Transaction date. Although we continued as the same legal entity after the Transaction, the application of push down accounting represents the termination of the old accounting entity and the creation of a new one. As a result, our consolidated financial statements are presented for two periods:  Predecessor and Successor, which relate to the period preceding the Transaction, the three months ended December 31, 2006, and the period succeeding the Transaction, the three months ended December 31, 2007, respectively. There are significant differences in the way we operated in the Predecessor Period to the Successor Period. Certain fees and revenue we earned in the Predecessor Period are not collected in the Successor Period. We are outsourcing origination of military loans and servicing of all loans and pay a fee to MBD in the Successor Period for these activities. Our expenses include amortization of our intangible assets in the Successor Period pursuant to SFAS No. 142, "Goodwill and Other Intangible Assets." While comparisons to prior periods are relevant, these changes have a material effect on our financial condition, results of operations and cash flow. Three Months Ended December 31, 2007 Compared to Three Months Ended December 31, 2006 Total Finance Receivables.Our aggregate finance receivables increased 4.8% during the first quarter of fiscal 2008 to $293.2 million on December 31, 2007 from $279.8 million on September 30, 2007. Increased loan purchases from MBD, in the first quarter of fiscal 2008 helped to contribute to the highest dollar amount of finance receivables in our history. Historically, the first quarter has had increased originations. Our primary supplier of loans, MBD, saw an increase in its originations of military loans during the first quarter of fiscal 2008 over what we originated for the same period in fiscal 2007, thus increasing our ability to acquire more loans. Our average finance receivables also increased during this period from $285.5 million in the first quarter of fiscal 2007 to $288.1 million in the first quarter of fiscal 2008. Finance Revenues.Finance revenues, which were 94.8% of our total revenue, for the first quarter of fiscal 2008 decreased slightly to $20.2 million from $20.4 million for the first quarter of fiscal 2007, a decrease of $0.2 million or 1.0%. As part of the Transaction, MBD now retains certain fees related to military loans. These fees amounted to approximately $2.0 million in the first three months of fiscal 2007. This loss of fees attributed to the reduction in revenues. This reduction was mostly offset by the increase in average finance receivables. The increase in average finance receivables resulted in an increase in revenue of approximately $1.4 million. Interest Expense.Interest expense in the first quarter of fiscal 2008 increased to $4.2 million from $3.9 million in the first quarter of fiscal 2007, an increase of $.3 million or 7.7%. Our average interest bearing liabilities for the three  14    months ended December 31, 2007 increased by $4.7 million or 2.1% compared to the three months ended December 31, 2006. The weighted average interest rate increased to 7.4% in the first quarter of fiscal 2008 from 7.0% in the first quarter of fiscal 2007. This increase is primarily due to a reduction in lower cost amortizing notes placed in previous years which have now reached maturity. The average rate being paid on amortizing notes maturing in first quarter of fiscal 2008 was 5.5%, compared to an average rate of 6.9% paid for replacement amortizing notes during the same time period. Provision for Credit Losses.The provision for credit losses in the first quarter of fiscal 2008 decreased to $7.3 million from $7.9 million in the first quarter of fiscal 2007, a decrease of $.6 million or 8.2%. This decrease is due to a positive trend in our net charge-offs.  First quarter of 2008 net charge offs decreased 8.4% compared to net charge offs for the fourth quarter of fiscal 2007. Allowance for credit losses at December 31, 2007 increased to $22.9 million compared to $21.6 million at September 30, 2007. This increase is primarily the result of the increase in finance receivables. Although our net charge offs are showing positive trends we are continuing to maintain the level of  the allowance due to uncertainty in the economic environment and more frequent and longer term deployments in the military market. Noninterest Expenses. Noninterest expenses in the first quarter of fiscal 2008 decreased to $8.4 million from $8.6 million in the first quarter of fiscal 2007, a decrease of $.2 million or 2.3%. Included in first quarter fiscal 2008 are $1.3 million of amortizing intangibles that are not applicable to the first quarter of 2007. As a result of the Transaction, we now pay MBD a management and record keeping fee to reimburse for services now performed after the reorganization of our business operations. For the first quarter of fiscal 2008 this expense was $6.6 million. Net Income.Income before taxes in the first quarter of fiscal 2008 was $1.4 million and net income was $.9 million compared to income before taxes of $1.8 million and net income of $1.1 million during the first quarter of fiscal 2007. These decreases were primarily attributed to amortization of intangibles of $1.3 million for the first quarter of fiscal 2008. We did not have intangibles prior to the Transaction. The resulting $1.1 million increase in net income after the affect of intangibles is primarily due to better cost control. Delinquency Experience Our customers are required to make monthly payments of interest and principal.  Our servicer, MBD, under our supervision, analyzes our delinquencies on a recency delinquency basis utilizing our guidelines. 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 30 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. For the first quarter of fiscal 2007, finance receivables were charged-off when management deemed them to be uncollectible through normal collection procedures or before they become 270 days past due. In connection with the Transaction, we changed our charge-off methodology to coordinate it with MCFC's charge-off methodology.  Accordingly, we now charge-off finance receivables at 180 days past due or earlier if management deems it appropriate.  As ofDecember 31,
        
        
        
        As ofSeptember 30,2007
        
        
        
        2007(dollars in thousands)Total finance receivables
        
        $
        293,174
        
        
        
        $
        279,778Total finance receivables balances 60 days or more past due
        
        $
        11,345
        
        
        
        $
        11,693Total finance receivables balances 60 days or more past due as a percent of total finance receivables
        
        
        3.87
        %
        
        
        
        4.18
        %
   15    Credit Loss Experience and Provision for Credit Losses General.The allowance for credit losses is maintained at an amount which management considers sufficient to cover estimated future losses. We utilize a statistical model based on potential credit risk trends incorporating both historical and prospective factors to estimate losses. 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 our control, such as economic conditions, current or future military deployments and completion of military service prior to repayment of loan. There is uncertainty inherent in these estimates, making it reasonably possible that they could change in the near term. See our annual report "Item 1A. Risk Factors  If a customer leaves the military prior to repaying loans, there is an
increased risk loans will not be repaid." Military Loans.Our charge-off policy is based on an account-by-account review of delinquent receivables on a recency basis. Our primary sources of charge-offs occur when a customer leaves the military prior to repaying the finance receivable or is subject to longer term and more frequent deployments. Generally, loans purchased or originated by us are structured so that the entire amount is repaid prior to a customer's estimated separation from the military. When buying loans, however we, cannot predict when or whether a customer may depart from the military early. Accordingly, we cannot implement policies or procedures for MBD to follow to ensure that we will be repaid in full prior to a customer leaving the military. Nor can we predict when a customer may be subject to deployment at a duration or frequency that causes a default on their loans. Another
source of loss is when a customer declares bankruptcy. See our annual report "Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations  Nonearning Assets." In connection with the Transaction, we implemented a change in our charge-off methodology to charge-off loans no later than 180 days delinquent from 270 days delinquent. The following table presents net charge-offs on direct loans and net charge-offs as a percentage of direct loans as of the ends of the periods presented:  Successor
        
        
        
        PredecessorThree Months Ended December 31,
        
        Three Months Ended December 31,2007
        
        
        
        2006(dollars in thousands)Military Loans:Loans charged-off
        
        $
        6,416
        
        
        
        $
        5,132Less recoveries
        
        
        545
        
        
        
        
        374Net charge-offs
        
        $
        5,871
        
        
        
        $
        4,758Average military receivables (1)
        
        $
        269,106
        
        
        
        $
        262,713Percentage of net charge-offs to average military receivables
        
        
        8.73
        %
        
        
        
        7.24
        %(1)    Averages are computed using month-end balances.
  Retail Installment Contracts.Under some of our arrangements with retail merchant, we may 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, as specified in the agreement. Upon the retail merchant's request, and no more often than annually, we will 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.  16    The following table presents net charge-offs on retail installment contracts and net charge-offs as a percentage of retail installment contracts as of the ends of the periods presented.  Successor
        
        
        
        PredecessorThree Months Ended December 31,
        
        Three Months Ended December 31,2007
        
        
        
        2006(dollars in thousands)Retail Installment Contracts:Contracts charged-off
        
        $
        193
        
        
        
        $
        74Less recoveries
        
        
        25
        
        
        
        
        21Net charge-offs
        
        $
        168
        
        
        
        $
        53Average retail installment contact receivables (1)
        
        $
        18,960
        
        
        
        $
        23,047Percentage of net charge-offs to retail installment contract receivables
        
        
        3.54
        %
        
        
        
        0.92
        %(1)      Averages are computed using month-end balances.
  Allowance for Credit Losses.The following table presents our allowance for credit losses on finance receivables as of the ends of the periods presented:  Successor
        
        
        
        PredecessorThree Months Ended December 31,
        
        Three Months Ended December 31,2007
        
        
        
        2006(dollars in thousands)Average total finance receivables (1)
        
        $
        288,066
        
        
        
        $
        285,760Provision for credit losses
        
        $
        7,258
        
        
        
        $
        7,907Net charge-offs
        
        $
        6,039
        
        
        
        $
        4,811Net charge-offs as a percentage of average total finance receivables
        
        
        8.39
        %
        
        
        
        6.73
        %Allowance for credit losses
        
        $
        22,858
        
        
        
        $
        19,202Allowance as a percentage of average total finance receivables
        
        
        7.93
        %
        
        
        
        6.72
        %(1)    Averages are computed using month-end balances.
  We maintain an allowance for credit losses, which represents management's best estimate of probable losses in the outstanding finance receivable portfolio. The allowance for credit losses is reduced by actual credit losses and is increased by the provision for loan losses and recoveries of previous losses. The provision for finance receivable losses are charged to earnings to bring the total allowance to a level considered necessary by management. As the portfolio of finance receivables consists of a large number of relatively small, homogenous accounts, the finance receivables are evaluated for impairment as groups. Management considers numerous factors in estimating losses in our credit portfolio, including the following: 
        Prior credit losses and recovery experience
 
        Current economic conditions
 
        Current finance receivable delinquency trends
 
        Demographics of the current finance receivable portfolio
  17    In connection with the Transaction, we changed our charge-off methodology to coordinate it with MCFC's charge-off policy. MCFC charges-off delinquent loans when management deems them to be uncollectible or when they become 180 days past due on a recency basis. Prior to the Transaction, we used a maximum of 270 days past due. The following table sets forth changes in the components of our allowance for credit losses on finance receivables as of the ends of the periods presented:  Successor
        
        
        
        PredecessorThree Months Ended December 31,
        
        Three Months Ended December 31,2007
        
        
        
        2006(dollars in thousands)Balance, beginning of period
        
        $
        21,639
        
        
        
        $
        16,106Charge-offs:Loans charged-off
        
        
        (6,609
        )
        
        
        
        (5,206
        )Recoveries
        
        
        570
        
        
        
        
        395Net charge-offs
        
        
        (6,039
        )
        
        
        
        (4,811
        )Provision for credit losses
        
        
        7,258
        
        
        
        
        7,907Balance, end of period
        
        $
        $22,858
        
        
        
        $
        19,202
  Loan Acquisition / Origination Asset growth is the most important factor in determining our future revenues. We are dependent upon MBD and retail merchants to increase their originations for our future growth. Loans originated by us or purchased from MBD or retail merchants increased for the first three months of fiscal 2008 to $96.0 million from $90.6 million in loans originated and purchased for the first three months of fiscal year 2007, an increase of $5.4 million or 6.0%. See "Results of Operations  Three Months Ended December 31, 2007 Compared to the Three Months ended December 31, 2006  Finance Receivables." The following table sets forth our overall loan originations and lending activities by military loans and retail installment contracts as of the ends of the periods presented:  Successor
        
        PredecessorThree Months EndedDecember 31, 2007
        
        Three Months EndedDecember 31, 2006(dollars in thousands, except for average note amounts)Total Loans Acquired/Originated:Gross balance
        
        $
        96,019
        
        $
        90,611Number of finance receivable notes
        
        
        29,163
        
        
        25,332Average note amount
        
        $
        3,292
        
        $
        3,577Military Loans:Gross balance
        
        $
        91,626
        
        $
        85,746Number of finance receivable notes
        
        
        27,599
        
        
        23,702Average note amount
        
        $
        3,320
        
        $
        3,618Retail Installment Contracts:Gross balance
        
        $
        4,393
        
        $
        4,865Number of finance receivable notes
        
        
        1,564
        
        
        1,630Average note amount
        
        $
        2,809
        
        $
        2,985
  Liquidity and Capital Resources A relatively high ratio of borrowings to invested capital is customary in the consumer finance industry. Our principal use of cash is to purchase military loans and retail installment contracts. We use borrowings to fund the difference, if any, between the cash used to purchase military loans and retail installment contracts and operations, and the  18    cash generated from loan repayments and operations. This amount is generally cash used in investing activities. Cash used in investing activities in the first three months of fiscal year 2008 was approximately $19.5 million, which was funded from operating activities of $12.0 million and $11.7 million from financing activities. Cash used in investing activities in the first three months of fiscal year 2007 was approximately $16.6 million, which was funded from operating activities of $10.6 million and $9.3 million from financing activities. In the first three months of fiscal 2007, financing activities primarily consisted of borrowings and repayments relating to bank debt, an unsecured revolving credit line from our parent, investment notes and dividends. We have not sold any investment notes since December 31, 2006. In the first three months of fiscal 2008, financing activities primarily consist of borrowing and repayments relating to our Senior Lending Agreement. We anticipate that our cash inflow from operations and borrowings under our Senior Lending Agreement will be adequate to meet our cash outflows to fund anticipated growth in 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 December 31, 2007, all the banks that are a party to our senior lending agreement have indicated in writing their willingness to participate in fundings up to an aggregate of $326.0 million. Senior Indebtedness-Bank Debt.As of December 31, 2007 we had $197.2 million of senior debt outstanding compared to $184.8 million at September 30, 2007, an increase of $12.4 million or 6.7%. 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 December 31, 2007, we could request up to $24.6 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 December 31, 2007, we were in compliance with all loan covenants. Senior Indebtedness-Related Party.We had a revolving line of credit, payable on demand, from our former parent, Pioneer Financial Industries, Inc. Interest on this facility accrued at the prime rate plus 2%. At December 31, 2006, there was $.5 million outstanding under this credit facility with an interest rate of 10.25%. As of December 31, 2007 we had no outstanding line of credit with a related party. Senior Indebtedness Table.As of December 31, 2007 and September 30, 2007, the total borrowings and availability under our senior lending agreement and our revolving line of credit from our parent company consisted of the following amounts for the ends of the periods presented:  As ofDecember 31,
        
        
        As ofSeptember 30,2007
        
        
        2007(dollars in thousands)Revolving Credit Line (1):Total facility
        
        $
        48,000
        
        
        $
        45,000Balance at end of period
        
        $
        16,179
        
        
        $
        15,463Maximum available credit (3)
        
        $
        31,821
        
        
        $
        29,537Term Notes (2):Total facility
        
        $
        278,000
        
        
        $
        260,000Balance at end of period
        
        $
        180,988
        
        
        $
        169,345Maximum available credit (3)
        
        $
        118,980
        
        
        $
        116,100Total Revolving and Term Notes (1) (2):Total facility
        
        $
        326,000
        
        
        $
        305,000Balance at end of period
        
        $
        197,167
        
        
        $
        184,808Maximum available credit (3)
        
        $
        150,801
        
        
        $
        145,637Credit facility available (4)
        
        $
        24,623
        
        
        $
        27,558
   19     Percent utilization of the total facility
        
        
        60.48
        %
        
        
        60.59
        %(1)   Includes revolving credit line from our parent.(2)   Includes 48-month amortizing term 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 80.0%.(4)   Credit facility available based on the existing asset borrowing base and maintaining a Senior Indebtedness to Net Receivable Ratio of not more than 80.0%.
  Outstanding Investment Notes.Prior to December 31, 2006, we funded certain capital and financial needs through the sale of investment notes. These notes have varying fixed interest rates and are subordinate to all senior indebtedness. We can redeem these notes at any time upon 30 days written notice. As of December 31, 2007, we had outstanding $35.1 million of these notes at a weighted average interest rate of 9.36%. We do not intend to issue any additional investment notes at this time. As part of the Transaction, we recorded certain liabilities at market value. The table below is a reconciliation of these adjustments as of December 31, 2007.  Amortizing Term Notes
        
        Investment NotesNotional value
        
        $
        180,988,375
        
        $
        35,059,904Purchase adjustment (1)
        
        
        (280,060
        )
        
        761,550Recorded Value
        
        $
        180,708,315
        
        $
        35,821,454(1) Relates to the fair value adjustment recorded as part of the Transaction.
   20    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. For more information about this item see our annual report
of Form 10-K; Item 7, "Liquidity and Capital Resources-Interest Rate Risk Management." The following shows the estimated impact on earnings of changes in interest rates on variable rate debt:  Decrease/increase:
        
        -2%
        
        -1%
        
        0%
        
        +1%
        
        +2%Revolving credit line
        
        $
        (323,590
        )
        $
        (161,795
        )
        $
        
        
        $
        161,795
        
        $
        323,590Amortizing term notes
        
        
        (1,375,819
        )
        
        (624,005
        )
        
        127,808
        
        
        879,622
        
        
        1,631,436Total impact on interest expense
        
        $
        (1,699,409
        )
        $
        (785,800
        )
        $
        127,808
        
        $
        1,041,417
        
        $
        1,955,026
  ITEM 4.Controls and Procedures We maintain 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 our reports under the Exchange Act is recorded, processed, summarized and reported as of the end of the period covered by this report (evaluation date), and that such information is accumulated and communicated to our 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 as of December 31, 2007.  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.  21    PART II - OTHER INFORMATION ITEM 1.Legal Proceedings We are currently involved in various litigation matters in the ordinary course of business.  22    ITEM 6.Exhibits Exhibit No.
        Description
 3.1
        Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 of our Registration Statement on Form S-1, as amended, filed with the Securities and Exchange Commission on February 18, 2003 (Commission No. 333-103293) (the "Initial Registration Statement").
 3.2
        Certificate of Amendment to Articles of Incorporation (Incorporated by reference to Exhibit 3.2 of the Initial Registration Statement).
 3.3
        Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.3 of the Initial Registration Statement).
 4.1
        Amended and Restated Indenture dated as of December 15, 2004 (Incorporated by reference to Exhibit 4.1 of the Post Effective Amendment No. 2 to the Registration Statement filed with the Securities and Exchange Commission dated December 17, 2004 (Commission No. 333-103293) ("Post Effective Amendment No.2").
 4.2
        Form of investment note certificate (Incorporated by reference to Exhibit 4.2 of the Post Effective Amendment No. 2).
 4.3
        Form of junior subordinated debenture prior to November 1, 2002 (Incorporated by reference to Exhibit 4.3 of the Initial Registration Statement).
 4.9
        Amended and Restated Senior Lending Agreement dated May 31, 2007 among us and various banks named therein. (Incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K dated May 31, 2007 and filed with the Securities and Exchange Commission on June 6, 2007).
 4.11
        Form of Rate Supplement (Incorporated by reference to Exhibit 4.11 of the Post Effective Amendment No. 2).
 4.12
        Form of IRA Application (Incorporated by reference to Exhibit 4.12 of the Post Effective Amendment No. 2).
 4.13
        Form of Offer to Purchase (Incorporated by reference to Exhibit 4.13 of the Post Effective Amendment No. 2).
 4.14
        Form of IRA Application.
 10.6
        Trademark Licensing Agreement dated October 10, 2000 between us and Pioneer Licensing Services, Inc. (Incorporated by reference to Exhibit 10.6 of the Initial Registration Statement).
 10.11
        Loan Sale and Master Servicing Agreement dated as of June 1, 2007 between us and MBD (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated May 31, 2007 and filed with the Securities and Exchange Commission on June 6, 2007).
 21
        Subsidiaries.
 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.
  23    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.By:
        /s/ Thomas H. HolcomThomas H. HolcomChief Executive OfficerApril 1, 2008
    24