UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-Q  [ X ]

        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the quarterly period ended:June 30, 2009  OR  [    ]

        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the transition period from       to  Commission file number:333-103293  Pioneer Financial Services, Inc. (Exact name of Registrant as specified in its charter)  Missouri
(State or other jurisdiction of
incorporation or organization)

        44-0607504
(I.R.S. Employer
Identification No.)
  4700 Belleview Avenue, Suite 300, Kansas City, Missouri
(Address of principal executive office)

        64112
(Zip Code)
  Registrant's telephone number, including area code:(816) 756-2020
   (Former name, former address and former fiscal year, if changed since last report)  Indicate by check mark whether the Registrant has (1) filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X

        ] No [

        ]
  Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§ 232.405 of this chapter) during the preceding 12  months (or such shorter periods that the Registrant was required to submit and post such files). Yes [

        ] No [

        ]
  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 the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act: Large accelerated filer [   ]

        Accelerated filer [   ]
 Non-accelerated filer   [X]

        Smaller reporting company [   ]
  Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [

        ] No [X]
  
  Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.  Class
Common Stock, no par value

        Outstanding as of August 14, 2009
One Share
  As of August 14, 2009, one 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 June 30, 2009  TABLE OF CONTENTS  PART I FINANCIAL INFORMATION  Item No.

        Page1.

        Condensed Consolidated Financial Statements

        1Condensed Consolidated Balance Sheets at June 30, 2009 and September 30, 2008

        1Condensed Consolidated Statements of Operations for the three months ended and nine months ended June 30, 2009 and 2008

        2Condensed Consolidated Statements of Stockholder's Equity for the nine months ended June 30, 2009 and year ended September 30, 2008

        3Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2009 and 2008

        4Notes to Condensed Consolidated Financial Statements

        52.

        Management's Discussion and Analysis of Financial Condition and Results of Operations

        133.

        Quantitative and Qualitative Disclosures About Market Risk

        254T.

        Controls and Procedures

        25PART II
OTHER INFORMATION1.

        Legal Proceedings

        261A.

        Other Information

        266.

        Exhibits

        28
   
 PART I - FINANCIAL INFORMATION  ITEM 1.Condensed Consolidated Financial Statements PIONEER FINANCIAL SERVICES, INC. Condensed Consolidated Balance Sheets As of June 30, 2009 and September 30, 2008 (unaudited)  ASSETS  June 30,

        

        September 30,2009

        

        2008Cash and cash equivalents - non-restricted

        

        $

        5,893,700

        

        $

        12,747,137Cash and cash equivalents - restricted

        

        

        108,263

        

        

        701,700Investments - restricted

        

        

        8,208,794

        

        

        6,840,531Investments - non-restricted

        

        

        130,000

        

        

        130,000Net finance receivables

        

        

        307,039,218

        

        

        271,729,886Furniture and equipment, net

        

        

        408,403

        

        

        556,604Deferred income tax asset

        

        

        3,661,920

        

        

        2,585,693Prepaid and other assets

        

        

        6,373,682

        

        

        6,319,812Deferred acquisition costs

        

        

        3,090,879

        

        

        2,917,548Goodwill

        

        

        31,474,280

        

        

        29,474,280Intangibles - net

        

        

        15,463,700

        

        

        18,639,800Total assets

        

        $

        381,852,839

        

        $

        352,642,991LIABILITIES AND STOCKHOLDER'S EQUITYRevolving credit line - banks

        

        $

        19,170,000

        

        $

        23,586,000Accounts payable

        

        

        1,214,930

        

        

        1,667,373Accrued expenses and other liabilities

        

        

        8,498,483

        

        

        5,528,119Amortizing term notes

        

        

        220,905,687

        

        

        198,413,822Investment notes

        

        

        33,655,479

        

        

        34,903,686Total liabilities

        

        

        283,444,579

        

        

        264,099,000Stockholder's equity:Common stock, no par value; 1 share issued and outstanding

        

        

        86,394,200

        

        

        84,394,200Accumulated other comprehensive income

        

        

        100,926

        

        

        Retained earnings

        

        

        11,913,134

        

        

        4,149,791Total stockholder's equity

        

        

        98,408,260

        

        

        88,543,991Total liabilities and stockholder's equity

        

        $

        381,852,839

        

        $

        352,642,991
   See Notes to Condensed Consolidated Financial Statements  
 PIONEER FINANCIAL SERVICES, INC. Condensed Consolidated Statements of Operations For the three and nine months ended June 30, 2009 and June 30, 2008 (unaudited)   Three Months Ended

        

        Nine Months EndedJune 30,

        

        June 30,2009

        

        2008

        

        2009

        

        2008Interest income and fees

        

        $

        25,206,017

        

        $

        20,817,742

        

        $

        74,353,836

        

        $

        61,376,841Interest expense

        

        

        4,505,499

        

        

        3,948,776

        

        

        13,311,761

        

        

        12,269,217Net interest income before provisionfor credit losses

        

        

        20,700,518

        

        

        16,868,966

        

        

        61,042,075

        

        

        49,107,624Provision for credit losses

        

        

        4,920,585

        

        

        3,997,782

        

        

        17,462,981

        

        

        17,091,942Net interest income

        

        

        15,779,933

        

        

        12,871,184

        

        

        43,579,094

        

        

        32,015,682Noninterest income:Insurance premiums net of commissions

        

        

        1,051,209

        

        

        959,202

        

        

        3,379,678

        

        

        2,932,528Other

        

        

        255

        

        

        243

        

        

        776

        

        

        (237

        )Total noninterest income

        

        

        1,051,464

        

        

        959,445

        

        

        3,380,454

        

        

        2,932,291Noninterest expense:Compensation and benefits

        

        

        30,831

        

        

        79,340

        

        

        207,090

        

        

        371,444Management and recordkeeping services fee

        

        

        8,716,239

        

        

        7,172,268

        

        

        25,412,496

        

        

        20,427,863Professional and regulatory fees

        

        

        710,317

        

        

        226,404

        

        

        1,554,814

        

        

        892,973Amortization of intangibles

        

        

        1,058,700

        

        

        1,327,800

        

        

        3,176,100

        

        

        3,983,400Other operating expenses

        

        

        470,205

        

        

        608,916

        

        

        1,268,259

        

        

        1,105,607Total noninterest expense

        

        

        10,986,292

        

        

        9,414,728

        

        

        31,618,759

        

        

        26,781,287Income before income taxes

        

        

        5,845,105

        

        

        4,415,901

        

        

        15,340,789

        

        

        8,166,686Provision for income taxes

        

        

        2,308,937

        

        

        1,672,770

        

        

        6,059,613

        

        

        3,152,327Net income

        

        $

        3,536,168

        

        $

        2,743,131

        

        $

        9,281,176

        

        $

        5,014,359Net income per share, basic and diluted

        

        $

        3,536,168

        

        $

        2,743,131

        

        $

        9,281,176

        

        $

        5,014,359
   See Notes to Condensed Consolidated Financial Statements   
 PIONEER FINANCIAL SERVICES, INC. Condensed Consolidated Statements of Stockholders Equity For the nine months ended June 30, 2008 and year ended September 30, 2008 (unaudited)   Accumulated OtherComprehensive

        

        RetainedTotal

        

        Common Stock

        

        Income

        

        EarningsBalance, September 30, 2007

        

        $

        81,571,388

        

        $

        82,394,200

        

        $

        

        

        $

        (822,812

        )Net income

        

        

        7,774,111

        

        

        

        

        

        

        

        

        7,774,111Capital contribution by parent

        

        

        2,000,000

        

        

        2,000,000

        

        

        

        

        

        Adoption of FIN 48 (see note 6)

        

        

        (294,331

        )

        

        

        

        

        

        

        

        (294,331

        )Dividend paid to parent

        

        

        (2,507,177

        )

        

        

        

        

        

        

        

        (2,507,177

        )Balance, September 30, 2008

        

        $

        88,543,991

        

        $

        84,394,200

        

        $

        

        

        $

        4,149,791Comprehensive income:Net income

        

        

        9,281,176

        

        

        

        

        

        

        

        

        9,281,176Unrealized gain on investments,net of tax of $54,345

        

        

        100,926

        

        

        

        

        

        100,926

        

        

        Total comprehensive income

        

        

        9,382,102

        

        

        

        

        

        100,926

        

        

        9,281,176Capital contribution by parent

        

        

        2,000,000

        

        

        2,000,000

        

        

        

        

        

        Dividend paid to parent

        

        

        (1,517,833

        )

        

        

        

        

        

        

        

        (1,517,833

        )Balance, June 30, 2009

        

        $

        98,408,260

        

        $

        86,394,200

        

        $

        100,926

        

        $

        11,913,134
    See Notes to Condensed Consolidated Financial Statements  
 PIONEER FINANCIAL SERVICES, INC. Consolidated Statements of Cash Flows For the nine months ended June 30, 2009 and 2008 (unaudited)   Nine Months EndedJune 30,2009

        

        2008Cash flows from operating activities:Net income

        

        $

        9,281,176

        

        $

        5,014,359Items not requiring (providing) cash:Provision for credit losses on finance receivables

        

        

        17,462,981

        

        

        17,091,942Depreciation and amortization

        

        

        3,524,737

        

        

        2,967,636Deferred income taxes

        

        

        (1,130,573

        )

        

        (1,284,714

        )Interest accrued on investment notes

        

        

        1,371,163

        

        

        1,331,424Changes in:Accounts payable and accrued expenses

        

        

        2,517,922

        

        

        1,700,252Deferred fees - net

        

        

        3,951,609

        

        

        2,102,143Unearned premium reserves

        

        

        (329,072

        )

        

        39,142Prepaids and other assets

        

        

        (227,201

        )

        

        902,138Net cash provided by operating activities

        

        

        36,422,742

        

        

        29,864,322Cash flows from investing activities:Finance receivables purchased from affiliate

        

        

        (170,612,631

        )

        

        (150,319,978

        )Finance receivables purchased from retail merchants

        

        

        (33,834,376

        )

        

        (13,141,416

        )Finance receivables repaid

        

        

        147,970,428

        

        

        127,896,408Capital expenditures

        

        

        (78,074

        )

        

        (62,587

        )Acquisition of Pioneer Financial Services, Inc.

        

        

        

        

        

        43,594Change in restricted cash

        

        

        593,437

        

        

        2,221,647Investments purchased  restricted

        

        

        (3,638,634

        )

        

        (6,447,205

        )Investments matured - restricted

        

        

        2,362,000

        

        

        3,688,276Investments matured - non-restricted

        

        

        

        

        

        100,000Net cash used in investing activities

        

        

        (57,237,850

        )

        

        (36,021,261

        )Cash flows from financing activities:Net change under lines of credit

        

        

        (4,416,000

        )

        

        8,044,000Proceeds from borrowings

        

        

        90,824,809

        

        

        63,000,000Repayment of borrowings

        

        

        (70,929,305

        )

        

        (61,486,197

        )Dividends paid to parent

        

        

        (1,517,833

        )

        

        (1,135,616

        )Net cash provided by financing activities

        

        

        13,961,671

        

        

        8,422,187Net (decrease) increase in cash and equivalents

        

        

        (6,853,437

        )

        

        2,265,248Cash and cash equivalentsBeginning of period

        

        

        12,747,137

        

        

        3,700,823Cash and cash equivalentsEnd of period

        

        $

        5,893,700

        

        $

        5,966,071Additional cash flow information:Interest paid

        

        $

        10,202,500

        

        $

        10,918,957Income taxes paid

        

        $

        7,300,120

        

        $

        2,786,719Noncash financing activities:Capital contribution from parent

        

        $

        2,000,000

        

        $

        2,000,000Interest accrued on investment notes

        

        $

        1,371,163

        

        $

        1,331,424
   See Notes to Condensed Consolidated Financial Statements  
 PIONEER FINANCIAL SERVICES, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS As of June 30, 2009 and September 30, 2008 and for the nine months ended June 30, 2009 and June 30, 2008 (unaudited)  NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Basis of Presentation The accompanying unaudited condensed 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.  We were acquired on May 31, 2007 by MidCountry Financial Corp., a Georgia corporation (MCFC) as a wholly owned subsidiary (the Transaction).   We are a wholly owned first-tier subsidiary of MCFC. Nature of Operations and Concentration We are headquartered in Kansas City, Missouri.  We purchase finance receivables from the Military Banking Division (MBD) of MidCountry Bank, a federally chartered stock savings association and wholly owned subsidiary of MCFC (MCB). These receivables represent loans exclusively to active-duty or career retired U.S. military personnel or U.S. Department of Defense employees.  We also purchase 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. 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 judgments 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 our financial instruments.  We also used estimates in assigning fair values to our 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 June 30, 2009 and 2008, 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 and nine months ended June 30, 2009 and 2008 are not necessarily indicative of results to be expected for the entire fiscal year.  The condensed consolidated balance sheet as of September 30, 2008 and statement of stockholders equity for the year ended September 30, 2008 have been derived from the audited consolidated balance sheet and statement of stockholders equity. All the information in these condensed financial statements should be considered in conjunction with the financial statements and the notes thereto included in our latest Annual
Report on Form 10-K. Adoption of Accounting Pronouncements During the quarter ended June 30, 2009, we adopted Statement of Financial Accounting Standards (SFAS) No. 165, Subsequent Events which provides guidance on managements assessment of subsequent events.  SFAS No. 165 does not change existing literature regarding recognition and disclosure requirements of Type I and Type II subsequent events; however, it refers to these events as recognized (Type I) and non-recognized (Type II).  We have evaluated whether any recognized or non-recognized events occurred after June 30, 2009, balance sheet date, through August 14, 2009, financial statements issuance date, and determined that there have been no such events or transactions during this time that would have a material effect on the financial statements and therefore require recognition or disclosure in the statements.  
  In June 2009, the Financial Accounting Standards Board (FASB) issued SFAS No. 168, The FASB Accounting Standards CodificationTMand the Hierarchy of Generally Accepted Accounting Principles.  SFAS No. 168 establishes the FASB Accounting Standards CodificationTM(the Codification) to become the source of authoritative U.S. generally accepted accounting principles (U.S. GAAP) recognized by the FASB to be applied by nongovernmental entities.  Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. SFAS No. 168 and the Codification are effective for financial statements issued for interim and annual periods
ending after September 15, 2009.  The adoption of SFAS No. 168 will not have a material impact on our consolidated financial position or results of operations.   
  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 was required to pay the Sellers an additional $5 million in contingent payments, of which $4 million was contributed to us and $1 million to MBD.  MCFC paid the Sellers the final contingent payment of $2 million on March 31, 2009. The Transaction was accounted for using the purchase method in accordance with SFAS No. 141, Business Combinations.  The components of the purchase price were as follows:  The components of the purchase price 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

        

        

        86,229,762Contingent payment on March 31, 2008

        

        

        2,000,000Contingent payment at March 31, 2009

        

        

        2,000,000Total purchase price as of June 30, 2009

        

        $

        90,229,762
   The fair value assigned to intangible assets acquired and assumed liabilities is supported by valuations using estimates and assumptions provided by management. The Company has 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 the Companys intangibles including customer relationships, agent relationships, vendor relationships and system technology;
 

        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

        

        

        238,828,521Equipment and other assets

        

        

        10,388,206Goodwill

        

        

        42,614,842Intangible assets

        

        

        26,200,000Subtotal

        

        

        329,022,342Liabilities

        

        

        (230,213,810

        )Deferred income taxes

        

        

        (8,578,770

        )Total

        

        $

        90,229,762
   
  Immediately subsequent to the Transaction, the Company 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 operations and assets and liabilities of the Company.  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

        

        $

        811,651Furniture 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 June 30, 2009 and September 30, 2008, consisted of the following:  June 30,

        

        September 30,2009

        

        2008Military receivables/loans

        

        $

        318,171,766

        

        $

        297,683,255Retail installment contracts

        

        

        39,819,320

        

        

        21,607,119Total finance receivables

        

        

        357,991,086

        

        

        319,290,374Purchase adjustment (1)

        

        

        

        

        

        (81,730

        )Net deferred loan fees and dealer discounts

        

        

        (18,610,257

        )

        

        (17,025,218

        )Unearned insurance premium reserves

        

        

        (7,191,576

        )

        

        (6,963,814

        )Insurance claims and policy reserves

        

        

        (608,780

        )

        

        (507,470

        )Finance receivables - net of unearned feesand premiums

        

        

        331,580,473

        

        

        294,712,142Allowance for credit losses

        

        

        (24,541,255

        )

        

        (22,982,256

        )Finance receivables - net of allowance

        

        $

        307,039,218

        

        $

        271,729,886
  (1)

        Relates to the fair value adjustments recorded to finance receivables as part of the Transaction.
   
  The following table sets forth changes in the components of our allowance for credit losses on finance receivables as of the end of the periods presented:  For the NineMonths EndedJune 30,2009Balance as of September 30, 2008

        

        $

        22,982,256Charge-offs:Finance receivablescharged-off

        

        

        (18,333,481

        )Recoveries

        

        

        2,429,499Net charge-offs

        

        

        (15,903,982

        )Provision for credit losses

        

        

        17,462,981Balance as of June 30, 2009

        

        $

        24,541,255
   NOTE 4:  GOODWILL AND INTANGIBLES  Due to the Transaction, the Company has 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 June 30, 2009 and September 30, 2008 are as follows:  June 30, 2009

        

        

        

        September 30, 2008Gross

        

        

        

        

        

        

        

        Net

        

        

        

        Gross

        

        

        

        

        

        

        

        NetCarrying

        

        

        

        Accumulated

        

        

        

        Carrying

        

        

        

        Carrying

        

        

        

        Accumulated

        

        

        

        CarryingAmount

        

        

        

        Amortization

        

        

        

        Value

        

        

        

        Amount

        

        

        

        Amortization

        

        

        

        ValueCustomer relationships

        

        $

        11,000,000

        

        

        

        $

        (4,432,000

        )

        

        

        $

        6,568,000

        

        

        

        $

        11,000,000

        

        

        

        $

        (2,999,200

        )

        

        

        $

        8,000,800Agent relationships

        

        

        700,000

        

        

        

        

        (240,700

        )

        

        

        

        459,300

        

        

        

        

        700,000

        

        

        

        

        (161,000

        )

        

        

        

        539,000Vendor relationships

        

        

        1,700,000

        

        

        

        

        (583,600

        )

        

        

        

        1,116,400

        

        

        

        

        1,700,000

        

        

        

        

        (393,000

        )

        

        

        

        1,307,000Trade name

        

        

        7,000,000

        

        

        

        

        (1,868,000

        )

        

        

        

        5,132,000

        

        

        

        

        7,000,000

        

        

        

        

        (1,221,000

        )

        

        

        

        5,779,000Technology

        

        

        4,000,000

        

        

        

        

        (1,871,000

        )

        

        

        

        2,129,000

        

        

        

        

        4,000,000

        

        

        

        

        (1,223,000

        )

        

        

        

        2,777,000Valuation of business acquired -unearned premium

        

        

        1,600,000

        

        

        

        

        (1,541,000

        )

        

        

        

        59,000

        

        

        

        

        1,600,000

        

        

        

        

        (1,363,000

        )

        

        

        

        237,000Total amortizable intangibles

        

        $

        26,000,000

        

        

        

        $

        (10,536,300

        )

        

        

        $

        15,463,700

        

        

        

        $

        26,000,000

        

        

        

        $

        (7,360,200

        )

        

        

        $

        18,639,800Goodwill

        

        $

        31,474,280

        

        

        

        $

        

        

        

        

        $

        31,474,280

        

        

        

        $

        29,474,280

        

        

        

        $

        

        

        

        

        $

        29,474,280
  Intangible assets other than goodwill, which are determined to have finite lives, are amortized on a straight-line or accelerated basis over their estimated useful lives between three and ten years. Management evaluated goodwill at September 30, 2008, in accordance with SFAS No. 142, Goodwill and Other Intangible Assets, and determined that there was no impairment.  The Company includes its goodwill in its only segment.  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, 2008, and no events or changes in circumstances that indicate the carrying amount of an asset may not be recoverable.  Under the related purchase agreement, MCFC was required to pay the Sellers an additional $5 million in contingent payments, of which $4 million was contributed to us and $1 million to MBD.  MCFC paid the Sellers the final contingent payment of $2 million on March 31, 2009.  As a result of this
contribution, goodwill was increased by $2 million on March 31, 2009. NOTE 5: NET INCOME PER SHARE Net income per share is computed based upon the weighted-average common shares outstanding of one share for the three and nine month periods ended June 30, 2009 and the three and nine month periods ended June 30, 2008.  There are no potentially dilutive securities issued and outstanding.  
 NOTE 6: INCOME TAXES We adopted the provisions of FASB Interpretation (FIN) No. 48 on October 1, 2007.  FIN No. 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.  The total gross liability for unrecognized tax benefits as of June 30, 2009 was approximately $1.2 million.  The unrecognized tax benefits are included in other liabilities in the condensed consolidated balance sheet as of June 30, 2009.  Interest and penalties are recorded as a component of income tax expense. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain tax positions will increase or decrease during the next 12 months; however, the Company does not expect the change to have a significant effect on the consolidated results of operations or financial position.  NOTE 7: RELATED PARTY TRANSACTIONS  Due to the Transaction, we entered into a Loan Sale and Master Services Agreement (LSMS Agreement) with MBD.  Under the LSMS Agreement, we buy certain military loans that MBD originates and receive management and recordkeeping services from MBD.  During the third quarter of fiscal 2009, the total loans we purchased from MBD pursuant to the LSMS Agreement were $54.3 million, bringing the year to date fiscal 2009 total to $170.6 million.  We have paid $8.7 to MBD for management and recordkeeping services pursuant to the LSMS Agreement for the third quarter of fiscal 2009.  Management fee expense paid to MBD for the nine months of fiscal 2009 totaled $25.4 million.  NOTE 8:  RESTRICTED INVESTMENTS We record our restricted investments at fair market value.  The following table represents the restricted investments as of June 30, 2009 and September 30, 2008:  As of June 30, 2009

        

        

        

        As of September 30, 2008Gross

        

        Gross

        

        

        

        

        

        

        

        Gross

        

        GrossBook

        

        Unrealized

        

        Unrealized

        

        Market

        

        

        

        Book

        

        Unrealized

        

        Unrealized

        

        MarketValue

        

        Gains(1)

        

        (Losses)(1)

        

        Value

        

        

        

        Value

        

        Gains

        

        (Losses)

        

        ValueRestricted Investments:Certificates of Deposit

        

        $

        300,000

        

        $

        8,830

        

        $

        

        

        $

        308,830

        

        

        

        $

        800,000

        

        $

        

        

        $

        

        

        $

        800,000Government Bonds

        

        

        7,351,393

        

        

        293,748

        

        

        (143,062

        )

        

        7,502,079

        

        

        

        

        5,537,444

        

        

        

        

        

        

        

        

        5,537,444Corporate Bonds

        

        

        402,130

        

        

        

        

        

        (4,245

        )

        

        397,885

        

        

        

        

        503,087

        

        

        

        

        

        

        

        

        503,087$

        8,053,523

        

        $

        302,578

        

        $

        (147,307

        )

        $

        8,208,794

        

        

        

        $

        6,840,531

        

        $

        

        

        $

        

        

        $

        6,840,531
  (1)

        The unrealized gain on investments of $155,271 net of tax of $54,345 represents the accumulated other comprehensive income of $100,926.
   
  NOTE 9:  FAIR VALUE MEASUREMENTS Restricted investments in debt and equity securities measured and reported at fair value are classified and disclosed in one of the following categories under SFAS No. 157 Fair Value Measurement:  

        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.
 The following table summarizes the Companys restricted investments as of June 30, 2009:  Input Levels for Fair Value MeasurementsDescription

        

        Level 1

        

        Level 2

        

        Level 3

        

        TotalAssets:Restricted Investments

        

        $

        8,208,794

        

        $

        

        

        $

        

        

        $

        8,208,794Total

        

        $

        8,208,794

        

        $

        

        

        $

        

        

        $

        8,208,794
   
  NOTE 10:  DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS A financial instrument is defined as cash, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity on potentially favorable or unfavorable terms.  Fair value estimates are made at a point in time, based on relevant market data and information about the financial instrument. Fair values should be calculated based on the value of one trading unit without regard to any premium or discount that may result from concentrations of ownership of a financial instrument, possible tax ramifications, estimated transaction costs that may result from bulk sales or the relationship between various financial instruments. No readily available market exists for a significant portion of the Companys financial instruments. Fair value estimates for these instruments are based on judgments regarding current economic conditions, currency and interest rate risk characteristics, loss experience, and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. Therefore, the calculated fair value
estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. Changes in assumptions could significantly affect the estimates.  The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:  Cash and Cash Equivalents Carrying value approximates fair value due to their liquid nature. Investment Securities Fair value for investment securities are based on quoted market prices. Finance Receivables The fair values of finance receivables is estimated by discounting future cash flows using current rates at which similar finance receivables would be made to borrowers with similar credit ratings and for the same remaining maturities. The carrying amount of finance receivables approximate fair value due to their stated interest rates approximating a market rate for instruments with similar remaining maturities and credit profiles. Revolving Line of Credit The carrying amounts of a revolving line of credit approximate their fair value due to the variable interest rates. Amortizing Term Notes The fair value of the amortizing term notes with fixed interest rates are estimated using the discounted cash flow analysis based on the Companys current incremental borrowing rates for similar types of borrowing arrangements. Investment Notes The fair value of investment notes and other junior subordinated debentures is estimated by discounting future cash flows using current rates at which similar investment notes and other junior subordinated debentures would be offered to lenders for the same remaining maturities. The carrying amounts of borrowings approximate their fair value.  As of June 30, 2009

        

        As of September 30, 2008Carrying

        

        

        

        CarryingAmount

        

        Fair Value

        

        Amount

        

        Fair ValueFinancial assets:Cash and cash equivalents - non-restricted

        

        $

        5,893,700

        

        $

        5,893,700

        

        $

        12,747,137

        

        $

        12,747,137Cash and cash equivalents  restricted

        

        

        108,263

        

        

        108,263

        

        

        701,700

        

        

        701,700Investment securities  restricted

        

        

        8,208,794

        

        

        8,208,794

        

        

        6,840,531

        

        

        6,840,531Investment securities - non-restricted

        

        

        130,000

        

        

        130,000

        

        

        130,000

        

        

        130,000Finance receivables

        

        $

        307,039,218

        

        $

        307,397,209

        

        $

        271,729,886

        

        $

        269,686,428Financial liabilities:Revolving credit line

        

        $

        19,170,000

        

        $

        19,170,000

        

        $

        23,586,000

        

        $

        23,586,000Amortizing term notes

        

        

        220,905,687

        

        

        222,447,617

        

        

        198,413,822

        

        

        201,403,389Investment notes

        

        $

        33,655,479

        

        $

        33,601,319

        

        $

        34,903,686

        

        $

        34,137,956
   
  NOTE 11:  BORROWINGS Secured Senior Lending Agreement On June 12, 2009, the Company entered into a Secured Senior Lending Agreement (the SSLA) with the lenders listed on the SSLA (the lenders) and UMB Bank, N.A. (the Agent).  The SSLA replaces and supersedes the Senior Lending Agreement, dated as of June 9, 1993, as subsequently amended and restated (the SLA).  The initial term of the SSLA ends on March 31, 2010 and is automatically extended annually unless any lender gives written notice of its objection by March 1 of each calendar year.  The assets of all the borrowers secure the loans extended under the SSLA for the benefit of the lenders and other holders of the notes issued pursuant to the SSLA or the SLA (the Senior Debt).  The facility is an uncommitted facility that provides common terms and conditions pursuant to which the individual lenders may make loans to the borrowers in the future. If a lender were to elect not to participate in future fundings, any existing borrowings from that lender under the revolving credit line would be payable in accordance with the underlying note.  All amortizing notes outstanding at that time would continue to be serviced under the original term of the note. Substantially all of our assets secure this debt under the SSLA.  The SSLA also limits, among other things, our ability to (1) incur additional debt from the lenders beyond that allowed by specific financial ratios and tests, (2) borrow or incur other additional debt except as permitted in the SSLA, (3) pledge assets, (4) pay dividends, (5) consummate certain asset sales and dispositions, (6) merge, consolidate or enter into a business combination with any other person, (7) pay to MCFC service charge fees each year except as provided in the SSLA, (8) purchase, redeem, retire or otherwise acquire any of our outstanding equity interests, (9) issue additional equity interests, (10) guarantee the debt of others without reasonable compensation and only in the ordinary course of business or (11) enter into management agreements with our affiliates. Under the SSLA, we are subject to certain financial covenants that require that we, among other things, maintain specific financial ratios and satisfy certain financial tests.  In part, these covenants require us to: (1) maintain an allowance for credit losses equal to or greater than the allowance for credit losses shown on our audited financial statements as of the end of our most recent fiscal year and at no time less than 5.25% of our consolidated net receivables, (2) limit our senior indebtedness as of the end of each quarter to not greater than four times our tangible net worth, (3) maintain a positive net income in each fiscal year, (4) limit our senior indebtedness as of the end of each quarter to not greater than 80% of our consolidated net receivables, and (5) maintain a consolidated total required capital of at least $75 million plus 50% of the cumulative positive net income earned by us during each
of our fiscal years ending after September 30, 2008.  Any part of the 50% of positive net income not distributed by us as a dividend for any fiscal year within 120 days after the last day of such fiscal year must be added to our consolidated total required capital and may not be distributed as a dividend or otherwise.  No part of the consolidated total required may be distributed as a dividend. In connection with the execution of the SSLA, MCFC entered into an Unlimited Continuing Guaranty and a Negative Pledge Agreement in favor of the Agent. As of June 30, 2009, the lenders have indicated a willingness to participate in fundings up to an aggregate of $202 million during the next 12 months, including $178 million which is currently outstanding.  In addition, the Company has borrowings of $62 million from withdrawing banks (the withdrawing banks) who had previously participated in the SLA. Maturities The following table represents outstanding obligations of our current SSLA lenders and withdrawing banks as of June 30, 2009:  SSLA Lenders

        

        Withdrawing Banks

        

        Total2009

        

        $

        14,515,151

        

        $

        9,065,580

        

        $

        23,580,7312010

        

        

        54,012,962

        

        

        25,476,386

        

        

        79,489,3482011

        

        

        46,512,085

        

        

        16,021,950

        

        

        62,534,0352012

        

        

        33,830,596

        

        

        10,051,875

        

        

        43,882,4712013

        

        

        9,806,967

        

        

        1,612,135

        

        

        11,419,102Total

        

        $

        158,677,761

        

        $

        62,227,926

        

        $

        220,905,687
  
  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, 2008 (annual report) under Part I Item 1ARisk Factors and this quarterly report on Form 10-Q and our quarterly reports on Form 10-Q for the periods ended December 31, 2008 and March 31, 2009 (quarterly reports) under Part II  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 on Form 10-Q to reflect future events or developments. Overview We are a wholly owned subsidiary of MidCountry Financial Corp., a Georgia corporation (MCFC).  We purchase consumer loans, on a worldwide basis, made exclusively to active-duty or career retired 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 the Military Banking Division (MBD) of MidCountry Bank, a federally chartered stock savings association and wholly owned subsidiary of MCFC (MCB), an affiliate who originates military loans through a network of loan production offices and via the internet. Military families use these loan proceeds to purchase goods and services.  On June 12, 2009, we entered into an Amended and Restated Non-Recourse Loan Sale and Master Services Agreement (LSMS Agreement) with MBD that outlines the terms of
the sale and servicing of these loans.  We also purchase retail installment contracts 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 plan to hold these military loans and retail installment contracts until repaid. Our 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 third quarter of fiscal 2009, the average size of a loan when purchased was approximately $3,052.  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.  These factors may not allow them to build relationships with sources of financing. Improvement of our profitability is dependent upon the growth in amount of finance receivables we are able to acquire from MBD or 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).  These criteria primarily require the following: 

        All borrowers must be active-duty or career retired U.S. military personnel or U.S. Department of Defense 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 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 over 20 years of 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 developed a proprietary scoring model that focuses on the unique characteristics of the military market, as well as traditional credit scoring variables that 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 cannot 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, the majority of finance receivables we own are under $10,000, repayable in equal monthly installments and have 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. An 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 or for the sole purpose of creating fee income.  Generally, we purchase 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 25.97% of the amount of military loans purchased in the third quarter were refinanced 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 Agreement, we transferred the use of 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. Retail Installment Contracts.We also purchase retail installment contracts that meet our quality standards and return on investment objectives from approximately 195 retail merchant locations.  Retail installment contracts are finance receivable notes generated during the purchase of consumer goods by active-duty or career retired 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, reserve agreements with many retail merchants 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 Recordkeeping Services We have retained MBD to provide management and recordkeeping services.  MBD will service our finance receivables in the same manner as we did prior to the Transaction. For these management and recordkeeping services, we pay MBD a monthly fee in an amount equal to .70% (8.4% 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 insufficient (NSF) fees, associated with these loans and retail installment contracts.  For these services, we also pay MBD an annual fee of $33.86 for each military loan and retail installment
contract owned by us at the end of the prior fiscal year. The annual fee is paid in monthly installments. This fee is adjusted annually on the basis of the annual increase or decrease in the Consumer Price Index. 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 loan processing 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 generate revenues primarily from interest earned on the military loans purchased from MBD, loans previously originated by us and retail installment contracts purchased from retail merchants. 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 third quarter of fiscal 2009, our revenues and resulting income came primarily from interest income earned on the military loans purchased from MBD, loans previously originated by us and retail installment contracts purchased from retail merchants.  We also earned revenues from 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:  June 30,

        

        September 30,2009

        

        2008(dollars in thousands, except average note balance)Finance receivables:Total finance receivables balance

        

        $

        357,991

        

        $

        319,290Average note balance

        

        $

        2,523

        

        $

        2,608Total number of notes

        

        

        141,894

        

        

        122,449Military loans:Total military receivables

        

        $

        318,172

        

        $

        297,683Percent of total finance receivables

        

        

        88.88

        %

        

        93.23

        %Average note balance

        

        $

        2,585

        

        $

        2,655Number of notes

        

        

        123,063

        

        

        112,110Retail installment contracts:Total retail installment contract receivables

        

        $

        39,819

        

        $

        21,607Percent of total finance receivables

        

        

        11.12

        %

        

        6.77

        %Average note balance

        

        $

        2,115

        

        $

        2,090Number of notes

        

        

        18,831

        

        

        10,339
     
  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.  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 end of the periods presented:  Three Months Ended

        

        Nine Months EndedJune 30,

        

        June 30,2009

        

        2008

        

        2009

        

        2008(dollars in thousands)

        

        (dollars in thousands)Total finance receivables balance

        

        $

        357,991

        

        $

        299,509

        

        $

        357,991

        

        $

        299,509Average total finance receivables  (1)

        

        $

        356,226

        

        $

        292,583

        

        $

        345,468

        

        $

        289,778Average interest bearing liabilities (1)

        

        $

        270,642

        

        $

        221,811

        

        $

        266,163

        

        $

        223,568Total interest income and fees

        

        $

        25,206

        

        $

        20,817

        

        $

        74,354

        

        $

        61,377Total interest expense

        

        $

        4,505

        

        $

        3,949

        

        $

        13,312

        

        $

        12,269
  (1)

        Averages are computed using month-end balances.
   
  Results of Operations and Financial Condition  Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008  Total Finance Receivables.Our aggregate finance receivables increased 19.5% to $358.0 million on June 30, 2009 from $299.5 million on June 30, 2008. Our aggregate finance receivables increased 2.8% during the third quarter fiscal 2009 from $348.3 million on March 31, 2009 compared to a 4.3% increase during third quarter of fiscal 2008 from $287.2 million on March 31, 2008.   Our primary supplier of loans, MBD, saw a 4.4% decrease in its originations of loans during the third quarter of fiscal 2009 over the same period in fiscal 2008, while our loan acquisitions from retail merchants increased by 127.3% during this same period.  The increase in the loan acquisitions from retail merchants is due to an increase in our network of retail merchants as well as new relationships with larger regional merchants. See further discussion in the
section entitled Loan Acquisition / Origination. Interest Income and Fees.Interest income and fees represented 96.0% of our total revenue for the third quarter of fiscal 2009. Interest income and fees increased to $25.2 million from $20.8 million for the third quarter of fiscal 2008, an increase of $4.4 million or 21.1%.  This increase was primarily due to an increase in aggregate average finance receivables as discussed above. Interest Expense.Interest expense in the third quarter of 2009 increased to $4.5 million from $3.9 million in the third quarter of fiscal 2008, an increase of $0.6 million or 15.4%.  Our average interest bearing liabilities increased to $270.6 million in the third quarter of fiscal 2009 from $221.8 million in the third quarter of fiscal 2008, an increase of $48.8 million or 22.0%, resulting in increased borrowing costs between the two periods.   This increase was offset by a decrease in the yield, which declined to 6.7% for the third quarter of fiscal 2009 from 7.1% during the same period of fiscal 2008. Provision for Credit Losses.The provision for credit losses in the third quarter of fiscal 2009 increased to $4.9 million from $4.0 million in the third quarter of fiscal 2008, an increase of 0.9 million or 23.1%.  While the provision increased, we saw a decline in our net charge-offs as a percentage of our average total finance receivables to 5.3% compared to 6.1% during the third quarter fiscal 2008.  In addition, there has been an increase in loans that are 60 days or more delinquent.  As a percentage of our aggregate finance receivables, these loan balances increased to 2.7% in third quarter fiscal 2009 from 2.6% in third quarter fiscal 2008.  See further discussion in the section entitled Allowance for Credit Losses. Noninterest Income.  Noninterest income consists of revenue from credit reinsurance premiums which increased to $1.1 million in the third quarter of fiscal 2009 compared to $1.0 million in the third quarter of fiscal 2008, an increase of $0.1 million or 9.6%.  The increase in credit reinsurance premiums is directly related to the increase in our loan acquisitions. Noninterest Expense.  Noninterest expenses in the third quarter of fiscal 2009 increased to $11.0 million from $9.4 million in the third quarter of fiscal 2008, an increase of $1.6 million or 17.0%.  The increase was primarily due to the increase in our management and recordkeeping services fees for the quarter.  Management and recordkeeping services fees in the third quarter fiscal 2009 increased by $1.5 million from the third quarter of the fiscal 2008, due to a 19.5% increase in our aggregate finance receivables.   
  Nine Months Ended June 30, 2009 Compared to Nine Months Ended June 30, 2008  Total Finance Receivables.Our aggregate finance receivables increased 12.1% during the first nine months of fiscal 2009 to $358.0 million from $319.3 million on September 30, 2008, compared to a 7.0% increase during the first nine months of fiscal 2008 to $299.5 million from $279.8 million on September 30, 2007.  Our primary supplier of loans, MBD, saw an increase of 12.2% in its originations of military loans during the first nine months of fiscal 2009 over the same period in fiscal 2008, thus increasing our ability to acquire more loans. Our loan acquisitions from retail merchants increased by 157.1% during the first nine months of fiscal 2009 over the same period in fiscal 2008, due to an increase in our network of retail merchants as well as new relationships with larger regional merchants. See further discussion in the section
entitled Loan Acquisition / Origination. Interest Income and Fees.Interest income and fees for the first nine months of fiscal 2009 increased to $74.4 million from $61.4 million for the first nine months of fiscal 2008, an increase of $13.0 million or 21.2%.  This increase was primarily due to the 19.0% increase in year-to-date average total finance receivables which were $345 million in fiscal 2009 compared to $290 million in fiscal 2008. Interest Expense.Interest expense in the first nine months of fiscal 2009 increased to $13.3 million from $12.3 million in the first nine months of fiscal 2008, an increase of $1.0 million or 8.1%.  Our average interest bearing liabilities for the nine months ended June 30, 2009 increased by $42.6 million or 19.1% compared to the nine months ended June 30, 2008, resulting in increased borrowing costs between the two periods. This increase was offset by a decrease in the yield which declined to 6.7% for the first nine months of fiscal 2009 from 7.3% during the same period of fiscal 2008. Provision for Credit Losses.The provision for credit losses in the first nine months of fiscal 2009 increased to $17.5 million from $17.1 million in the first nine months of fiscal 2008, an increase of $0.4 million or 2.3%.   During the first nine months of fiscal year 2009, we saw a decline in net charge-offs as a percentage of our average aggregate finance receivables to 7.1% compared to 7.5% for the first nine months of fiscal 2008.  Loans that are 60 days or more delinquent have also increased slightly to $9.8 million at June 30, 2009 from $9.7 million at September 30, 2008, an increase of $0.1 million or 1.3%.  See further discussion in the section entitled Allowance for Credit Losses. Noninterest Income.  Total noninterest income in the first nine months of fiscal 2009 increased to $3.4 million from $2.9 million in the first nine months of fiscal 2008, an increase of $0.5 million or 17.2%.  The increase in credit reinsurance premiums is directly related to the increase in our loan acquisitions. Noninterest Expense.Noninterest expenses in the first nine months of fiscal 2009 increased to $31.6 million from $26.8 million in the first nine months of fiscal 2008, an increase of $4.8 million or 17.9%.  This increase was primarily due to an increase in our management and recordkeeping services fees. For the first nine months of fiscal 2009 management and recordkeeping services fees increased $5.0 million from the first nine months of fiscal 2008, due to an increase of 12.1% in our aggregate finance receivables for the same period.  
   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. The following table sets forth our delinquency experience as of the end of the periods presented for accounts for which payments are 60 days or more past due.  As of

        

        As of

        

        As ofJune 30,

        September 30,

        June 30,2009

        

        2008

        

        2008(dollars in thousands)Total finance receivables

        

        $

        357,991

        

        $

        319,290

        

        $

        299,509Total finance receivables balances 60 days or more past due

        

        $

        9,780

        

        $

        9,658

        

        $

        7,763Total finance receivables balances 60 days or more past due as a percent of  total finance receivables

        

        

        2.73

        %

        

        3.02

        %

        

        2.59

        %
    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 to charge off finance receivables at 180 days past due or earlier if management deems it appropriate.  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.  
 The following table presents net charge-offs on military loans and net charge-offs as a percentage of military loans as of the end of the periods presented:  Three Months Ended

        

        Nine Months EndedJune 30,

        

        June 30,2009

        

        2008

        

        2009

        

        2008(dollars in thousands)

        

        (dollars in thousands)Military loans:Military receivablescharged-off

        

        $

        5,427

        

        $

        4,852

        

        $

        17,735

        

        $

        17,369Less recoveries

        

        

        808

        

        

        591

        

        

        2,195

        

        

        1,793Net charge-offs

        

        $

        4,619

        

        $

        4,261

        

        $

        15,540

        

        $

        15,576Average military receivables

        

        $

        318,272

        

        $

        273,674

        

        $

        313,753

        

        $

        270,878Percentage of net charge-offsto average militaryreceivables (1)

        

        

        5.80

        %

        

        6.23

        %

        

        6.60

        %

        

        7.67

        %
   (1)

        Averages are computed using month-end balances
   Retail Installment Contracts.Under many of our arrangements with retail merchants, 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 with such retail merchant.  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. 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 end of the periods presented.   Three Months Ended

        

        Nine Months EndedJune 30,

        

        June 30,2009

        

        2008

        

        2009

        

        2008(dollars in thousands)

        

        (dollars in thousands)Retail installment contracts:Contracts charged-off

        

        $

        128

        

        $

        253

        

        $

        598

        

        $

        904Less recoveries

        

        

        76

        

        

        67

        

        

        234

        

        

        157Net charge-offs

        

        $

        52

        

        $

        186

        

        $

        364

        

        $

        747Average retail installment contact receivables (1)

        

        $

        37,954

        

        $

        18,909

        

        $

        31,715

        

        $

        18,900Percentage of net charge-offs to retail installment contract receivables

        

        

        0.55

        %

        

        3.93

        %

        

        1.53

        %

        

        5.27

        %
  (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 end of the periods presented:   Three Months Ended

        

        Nine Months EndedJune 30,

        

        June 30,2009

        

        2008

        

        2009

        

        2008(dollars in thousands)

        

        (dollars in thousands)Average total finance receivables (1)

        

        $

        356,226

        

        $

        292,583

        

        $

        345,468

        

        $

        289,778Provision for credit losses

        

        $

        4,921

        

        $

        3,998

        

        $

        17,463

        

        $

        17,092Net charge-offs

        

        $

        4,671

        

        $

        4,447

        

        $

        15,904

        

        $

        16,323Net charge-offs as a percentage ofaverage total finance receivables

        

        

        5.25

        %

        

        6.08

        %

        

        6.14

        %

        

        7.51

        %Allowance for credit losses

        

        $

        24,541

        

        $

        22,408

        

        $

        24,541

        

        $

        22,408Allowance as a percentage of averagetotal finance receivables

        

        

        6.89

        %

        

        7.66

        %

        

        7.10

        %

        

        7.73

        %
  (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 credit losses and recoveries of previous credit losses.  The provision for credit losses is 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 a group.  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; and
 

        demographics of the current finance receivable portfolio.
  The following table sets forth changes in the components of our allowance for credit losses on finance receivables as of the end of the periods presented:  Three Months Ended

        

        

        

        Nine Months EndedJune 30,

        

        

        

        June 30,2009

        

        2008

        

        

        

        2009

        

        2008(dollars in thousands)

        

        

        

        (dollars in thousands)Balance, beginning of period

        

        $

        24,291

        

        $

        22,857

        

        

        

        $

        22,982

        

        $

        21,639Charge-offs:Finance receivables charged-off

        

        

        (5,555

        )

        

        (5,105

        )

        

        

        

        (18,333

        )

        

        (18,273

        )Recoveries

        

        

        885

        

        

        658

        

        

        

        

        2,429

        

        

        1,950Net charge-offs

        

        

        (4,671

        )

        

        (4,447

        )

        

        

        

        (15,904

        )

        

        (16,323

        )Provision for credit losses

        

        

        4,921

        

        

        3,998

        

        

        

        

        17,463

        

        

        17,092Balance, end of period

        

        $

        24,541

        

        $

        22,408

        

        

        

        $

        24,541

        

        $

        22,408
  
  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 purchased from MBD increased during the first nine months of fiscal 2009 to $269.1 million from $239.7 million for the first nine months of fiscal 2008, an increase of $29.4 million or 12.3%. The loan acquisitions from retail merchants increased during the first nine months of fiscal 2009 to $34.9 million from $13.6 million for the first nine months of fiscal year 2008, an increase of $21.3 million or 157.1%. We have increased our network of retail merchant locations to 195 in June 2009 from 100 in June of 2008. We have been able to increase our network of retail merchants due to an effort in developing relationships with larger regional merchants that have stores where there is a military presence,
expansion into new markets and increased marketing efforts, while continuing to focus on services to better accommodate the needs of our new and existing retail merchants. The following table sets forth our overall purchases of military loans and retail installment contracts as of the end of the periods presented:  Three Months Ended

        

        Nine Months EndedJune 30,

        

        June 30,2009

        

        2008

        

        2009

        

        2008(dollars in thousands)

        

        (dollars in thousands)Total loans acquired/originated:Gross balance

        

        $

        93,964

        

        $

        91,098

        

        $

        303,976

        

        $

        253,302Number of finance receivable notes

        

        

        31,306

        

        

        29,143

        

        

        98,458

        

        

        79,296Average note amount

        

        $

        3,001

        

        $

        3,126

        

        $

        3,087

        

        $

        3,194Military loans:Gross balance

        

        $

        82,094

        

        $

        85,875

        

        $

        269,076

        

        $

        239,727Number of finance receivable notes

        

        

        26,902

        

        

        27,338

        

        

        85,530

        

        

        74,563Average note amount

        

        $

        3,052

        

        $

        3,141

        

        $

        3,146

        

        $

        3,215Retail installment contracts:Gross balance

        

        $

        11,870

        

        $

        5,223

        

        $

        34,900

        

        $

        13,575Number of finance receivable notes

        

        

        4,404

        

        

        1,805

        

        

        12,928

        

        

        4,733Average note amount

        

        $

        2,695

        

        $

        2,894

        

        $

        2,700

        

        $

        2,868
    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 the cash generated from loan repayments and operations.  This amount is generally cash used in investing activities.  Cash used in investing activities in the nine months of fiscal 2009 was approximately $57.2 million, which was funded from $36.4 million from operating activities and $14.0 million from financing activities.  Cash used in investing activities in the first nine months of fiscal 2008 was approximately $36.0 million, which was funded from $29.9 million of cash from operating activities and $8.4 million from financing activities.  The increase of $21.2
million, when comparing cash used in investing activities in first nine months of fiscal 2009 from first nine months of fiscal year 2008, resulted primarily from a 19.5% increase in aggregate finance receivables.  We have not sold any investment notes since December 31, 2006.  Financing activities primarily consist of borrowing and repayments of debt incurred under our Secured Senior Lending Agreement dated June 12, 2009 (the SSLA).  With ongoing strains in the financial markets, we see liquidity, capital and earnings challenges for some lenders in our credit group that may reduce their ability to participate in our credit facility or may cause a decrease in their willingness to lend at the current levels.  In addition we have borrowings of $62 million from withdrawing banks who previously participated in the SLA; this capacity needs to be replaced to fund finance receivables.  
 Senior Indebtedness-Bank Debt. On June 12, 2009, we entered into the SSLA with certain lenders.  The SSLA replaced and superseded the Senior Lending Agreement, dated as of June 9, 1993, as subsequently amended and restated, (the SLA).  The Company filed a Form 8-K on June 18, 2009 that provides a brief description of the material terms of the SSLA. As of June 30, 2009, we had $240.1 million of senior debt outstanding compared to $222.1 million at September 30, 2008, an increase of $18.0 million or 8.1%.  The SSLA is an uncommitted facility that provides common terms and conditions pursuant to which individual lenders that are a party to the SSLA may choose to make loans to us in the future.  Any lender may elect not to participate in any future fundings at any time without penalty.  As of June 30, 2009, we could request up to $23.8 million in additional funds and remain in compliance with the terms of the SSLA.  No lender, however, has any contractual obligation to lend us these additional funds.  As of June 30, 2009, we were in compliance with all loan covenants. One lender increased the amount they are willing to lend us and a new bank has joined the SSLA.  While we had $24 million available in additional funds on June 30, 2009, the addition of this new bank at $15 million increased our available funds to approximately $38 million.  However, included in the $38 million is a portion of our borrowings from banks that are no longer funding us.  This creates a diminishing capacity in the future as these notes amortize and mature.  We are also in discussions with other lenders who may be interested in joining the group and will likely continue a cautious approach in our lending to conserve available funds. As of June 30, 2009, the lenders have indicated a willingness to participate in fundings up to an aggregate of $202 million during the next 12 months, including $178 million which is currently outstanding.  In addition, the Company has borrowings of $62 million from other withdrawing banks who had previously participated in the SLA. Senior Indebtedness Table.As of June 30, 2009 and September 30, 2008, the total borrowings and availability under the SSLA and our revolving line of credit from MCFC consisted of the following amounts for the end of the periods presented:  As of

        

        

        

        As ofJune 30,

        

        

        

        September 30,2009

        

        

        

        2008(dollars in thousands)Revolving credit line:Total facility

        

        $

        31,000

        

        

        

        $

        40,000Balance at end of period

        

        $

        19,170

        

        

        

        $

        23,586Maximum available credit (1)

        

        $

        11,830

        

        

        

        $

        16,414Term notes (2):Total facility

        

        $

        232,851

        

        

        

        $

        260,892Balance at end of period

        

        $

        220,906

        

        

        

        $

        198,466Maximum available credit (1)

        

        $

        11,945

        

        

        

        $

        62,426Total revolving and term notes(2):Total facility

        

        $

        263,851

        

        

        

        $

        300,892Balance at end of period

        

        $

        240,076

        

        

        

        $

        222,052Maximum available credit (1)

        

        $

        23,775

        

        

        

        $

        78,840Credit facility available (3)

        

        $

        23,775

        

        

        

        $

        20,110Percent utilization of the total facility

        

        

        90.99

        %

        

        

        

        73.80

        %
   (1)  This represents the 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 SSLA are met, including maintaining a senior indebtedness to net notes receivable ratio of not more than 80%.  (2)  Includes 48-month amortizing term notes.  (3)  Credit available is based on the existing asset borrowing base and maintaining a senior indebtedness to consolidated notes receivable ratio of not more than 80%.  This amount is the same as maximum available credit due to funding availability as of June 30, 2009.  As noted above, with the addition of the new bank, this amount has increased to $38 million.   
  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 June 30, 2009, we had outstanding principal, accumulated accrued interest, and other junior subordinated debt securities of $33.0 million with a weighted average interest rate of 9.49%. As part of the Transaction, we recorded certain liabilities at market value.  The table below is a reconciliation of these adjustments as of June 30, 2009.  Investment NotesNotional value

        

        $

        33,038,106Purchase adjustment (1)

        

        

        617,373Recorded value

        

        $

        33,655,479
  (1)

        Relates to the fair value adjustment recorded as part of the Transaction.
  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 income from finance receivables is generally not sensitive to fluctuations in market interest rates.  The primary exposure that we face is a change 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 under Item 7: Managements Discussion and Analysis of Financial Condition and Results of Operations - 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 as of June 30, 2009:  Decrease/increase:

        

        

        -2%

        

        

        -1%

        

        

        0%

        

        

        +1%

        

        

        +2%Revolving credit line

        

        $

        (383,400

        )

        $

        (191,700

        )

        $

        

        

        $

        191,700

        

        $

        383,400Amortizing term notes

        

        

        (2,538,983

        )

        

        (1,692,655

        )

        

        (846,328

        )

        

        

        

        

        846,328Investment note

        

        

        (51,814

        )

        

        (25,777

        )

        

        260

        

        

        26,108

        

        

        52,335Total impact on interest expense

        

        $

        (2,974,197

        )

        $

        (1,910,132

        )

        $

        (846,068

        )

        $

        217,808

        

        $

        1,282,063
   ITEM 4T.Controls and Procedures We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (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 quarterly 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 June 30, 2009.   Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures are effective.  There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date the evaluation was completed.  
 PART II - OTHER INFORMATION ITEM 1.Legal Proceedings The Company is subject to legal proceedings and claims that arise in the ordinary course of business.  In the opinion of management, the amount of ultimate liability with respect to these actions will not have a material adverse effect on the financial position or results of operations of the Company. ITEM 1A. Risk Factors In our annual report, we have identified important risks and uncertainties that could affect our results of operations, financial position, cash flow or business and that could cause them to differ materially from our historical results of operations, financial position, cash flow or business, or those contemplated by forward-looking statements made herein or elsewhere, by or on behalf of us.  Additional factors that could cause or contribute to such differences include, but are not limited to, those factors described below. Our profitability and future growth depend on our continued access to financing from sources such as banks. The profitability and growth of our business and our ability to purchase loans currently depend on our ability to access senior debt at competitive rates, and we cannot guarantee that such financing will be available in the future.  Our senior debt is comprised of individual loans from lenders, which are a party to the SSLA.  The SSLA is an uncommitted facility which provides common terms and conditions pursuant to which individual lenders that are a party to the SSLA may choose to make loans to us in the future.  No lender has an obligation to make any additional future loans to us.  As of August 2009, we could request up to $38 million in additional funds and remain in compliance with the terms of the SSLA.  No lender, however, has any contractual obligation to lend us these additional funds.  If we are unable to renew or replace the senior debt or find alternative financing at reasonable
rates, we may be forced to reduce the number of loans we acquire.  If we are forced to reduce the number of loans we acquire, there can be no assurance that we will be able to pay the interest and principal on the investment notes.  With the ongoing strains in the financial markets, we see liquidity, capital and earnings challenges for some lenders in our credit group which may reduce their ability to participate in the credit group or may cause a decrease in their willingness to lend at the current levels.  In addition the Company has borrowings of $62 million from withdrawing banks who had previously participated in the SLA; this capacity needs to be replaced to fund finance receivables. Recent Supreme Court ruling may expose national banks and thrifts to state enforcement of state consumer protection laws and bring into question federal preemption. Recently, the United States Supreme Court invalidated a regulation of the Office of the Comptroller of the Currency (the OCC) that purported to preempt enforcement of state consumer protection laws.  Although the Supreme Court's holding does not allow a state to exercise visitorial powers over an OCC-chartered institution, it does allow state attorneys general to bring judicially enforced actions against OCC-chartered institutions to enforce state consumer protection laws.  The Supreme Courts holding addresses OCC regulations, not the regulations of the Office of Thrift Supervision (OTS) that govern our operations, as well as the operations of MCB and MCFC.  However, courts may interpret the holding as permitting state attorneys general to enforce state consumer protection laws against all lending institutions, including OTS-chartered
institutions.   Further, the Secretary of the Treasury submitted to Congress the Federal Depository Institutions Supervision and Regulations Improvements Act of 2009 (FDISRIA) to implement a proposed merger of the OCC and the OTS (as discussed below).  If courts conclude that the Supreme Court's recent holding applies to federal savings banks, or if Congress adopts FDISRIA in its current form and effects the merger of the OTS and OCC, we may be exposed to increased state enforcement of consumer protection laws.  An increase in state enforcement actions could have an affect on our business, in which case we might need to amend our business model to comply with the consumer protection laws of each state in which MBD originates and services loans. 
 Potential regulatory changes may impact the lending practices of our vendors requiring us to make changes to our business model. Under FDISRIA, the administration has proposed the creation of a new federal government agency, the National Bank Supervisor (NBS) that would charter and supervise all federally-chartered depository institutions, and all federal branches and agencies of foreign banks. It is proposed that the NBS take over the responsibilities of the OCC, which currently charters and supervises nationally chartered banks, and the responsibility for the institutions currently supervised by the OTS, which supervises federally chartered thrifts and thrift holding companies, such as MCFC, MCB and us.  In furtherance of the proposal, the Secretary of the Treasury submitted to Congress the FDISRIA which would implement the proposed merger if adopted in its current form.  In addition, under the administrations proposal, the thrift charter, under which MCB is organized, could be eliminated.
 If the administrations proposal is finalized, MCB may be subject to a new charter mandated by the NBS. There is no assurance as to how this new charter, or the supervision by the NBS, will affect MCBs operations going forward. The administrations proposal also includes the creation of a new federal agency designed to enforce consumer protection laws.  The Consumer Financial Protection Agency (CFPA) could have the authority to protect consumers of financial products and services and to regulate all providers (bank and non-bank) of such services. The CFPA would be authorized to adopt rules for all providers of consumer financial services, supervise and examine such institutions for compliance and enforce compliance through orders, fines and penalties. The rules of the NBS and CFPA could serve as a floor and individual states would be permitted to adopt and enforce stronger consumer protection laws. If adopted as proposed, we, along with MCFC, MCB and our vendors of loans, could
become subject to multiple laws affecting the provision of loans and other credit services to consumers, which may substantially increase the cost of providing such services. At this time, we do not know whether the administrations proposal for regulatory change will be adopted and if so, the final form of such change.  The impact of such new and additional regulation on our vendors and on us is unknown but it may impact our business.  In such case, we might need to amend our business model to comply with these changes and ensure that our vendors have complied with these changes.  
 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 the Company 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 (Incorporated by reference to Exhibit 4.14 of the Post Effective Amendment No. 3 to the Registration Statement filed with the Securities and Exchange Commission dated January 6, 2006 (Commission No. 333-103293)).
 4.15

        Amendment No. 1 to Senior Lending Agreement dated August 14, 2007 between the Company and various lenders named therein.
 4.16

        Amendment No. 2 to Senior Lending Agreement dated October 18, 2007 between the Company and various lenders named therein.
 4.17

        Third Amendment to Amended and Restated Senior Lending Agreement dated January 1, 2009 among the Company, Pioneer Military Lending of Nevada, LLC, Pioneer Military Lending of Georgia, LLC, Military Acceptance Corporation, Inc., Pioneer Funding, Inc. and various lenders named therein.
 4.18

        Secured Senior Lending Agreement dated as of June 12, 2009 among the Company, certain of the Companys subsidiaries, the listed lenders and UMB Bank, N.A., as Agent (Incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K dated June 18, 2009).
 4.19

        Negative Pledge Agreement dated as of June 12, 2009, between MidCountry Financial Corp. and UMB Bank, N.A., as agent (Incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K dated June 18, 2009).
 10.1

        Trademark Licensing Agreement dated October 10, 2000 between the Company and Pioneer Licensing Services, Inc. (Incorporated by reference to Exhibit 10.6 of the Initial Registration Statement).
 10.3

        Employment Agreement dated January 30, 2007 between the Company and Thomas H. Holcom, Jr. (Incorporated by reference to Exhibit 10.3 of the Companys annual report on Form 10-K for the period ended September 30, 2008).
 10.4

        Employment Agreement dated February 1, 2007 between the Company and Laura V. Stack. (Incorporated by reference to Exhibit 10.4 of the Companys annual report on Form 10-K for the period ended September 30, 2008).
 10.5

        Amended and Restated Non-Recourse Loan Sale and Master Services Agreement dated as of June 12, 2009 among MidCountry Bank through its Pioneer Military Lending Division, Pioneer Funding, listed other affiliated entities of the Company and UMB Bank, N.A. (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated June 18, 2009).
 10.6

        Unlimited Continuing Guaranty, dated as of June 12, 2009, from MidCountry Financial Corp. in favor of UMB Bank, N.A., as Agent (Incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K dated June 18, 2009).
 21

        Subsidiaries (Incorporated by reference to Exhibit 21 of the Annual Report on form 10-K for the year ended September 30, 2008).
 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.
  
 SIGNATURES  Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PIONEER FINANCIAL SERVICES, INC.  Name

        

        Title

        

        Date/s/ Thomas H. Holcom

        

        Chief Executive Officer and Sole Director

        

        August 14, 2009Thomas H. Holcom

        

        (Principal Executive Officer)/s/ Laura V. Stack

        

        Chief Financial Officer, Treasurer and Asst. Secretary

        

        August 14, 2009Laura V. Stack(Principal Financial Officer and Principal Accounting Officer)