<PAGE>
                                                                      EXHIBIT 13


                         PIONEER FINANCIAL CORPORATION


                         ANNUAL REPORT TO SHAREHOLDERS




                              Fiscal Year Ending

                              September 30, 1997
<PAGE>
 
                         PIONEER FINANCIAL CORPORATION
                         ANNUAL REPORT TO SHAREHOLDERS
                     FISCAL YEAR ENDED SEPTEMBER 30, 1997

                               Table of Contents

                                                                            Page
                                                                            ----

Corporate Profile ..........................................................  1

Consolidated Financial Highlights ..........................................  2

Letter to Shareholders .....................................................  3

Selected Consolidated Financial and Other Data .............................  4

Management's Discussion and Analysis of Financial
     Condition and Results of Operations ...................................  6

Financial Statements ....................................................... 17

         Letter from Auditors .............................................. 17

         Consolidated Balance Sheets  ...................................... 18

         Consolidated Statements of Income ................................. 19

         Consolidated Statements of Stockholders' Equity ................... 20

         Consolidated Statements of Cash Flows ............................. 21

         Notes to Consolidated Financial Statements ........................ 23

Corporate Information ...................................................... 47

Form 10-K .................................................................  48
<PAGE>
 
                         PIONEER FINANCIAL CORPORATION

Corporate Profile

         Pioneer Financial Corporation (herein "the Company"), a Kentucky
corporation, was organized in 1994 as a thrift holding company. On December 20,
1994, the shareholders of Pioneer Federal Savings Bank approved an agreement and
plan of reorganization dated October 31, 1994, whereby the Savings Bank became a
wholly-owned subsidiary of Pioneer Financial Corporation. In accordance with the
Reorganization Plan, the shareholders of Pioneer Federal exchanged their shares
of common stock on a one-for-one basis for common shares in Pioneer Financial
Corporation. Pioneer Federal is the main asset of Pioneer Financial, and the
consolidated financial statements of the Company and of the Bank are included
herein.

         Pioneer Federal Savings Bank (herein "the Bank"), with assets of more
than $74 million at September 30, 1997, is the larger of the two thrift
institutions in Winchester, Kentucky. It currently ranks third in deposits among
the eight financial institutions located in Winchester.

         The business of Pioneer Federal consists primarily of attracting
deposits from the general public and using such deposits, together with other
borrowings and funds, to make residential mortgage loans, commercial real estate
loans (primarily permanent loans), consumer loans (including automobile and
personal loans) and to invest in mortgage-backed securities and other
investments. Pioneer Federal Savings Bank has been in existence since 1885, when
the Commonwealth of Kentucky granted a charter to its predecessor, Winchester
Building & Savings Association. It became a federally-chartered association in
1978, under the name of Pioneer Federal Savings and Loan Association. In 1985,
the Association obtained a federal savings bank charter and changed its name to
Pioneer Federal Savings Bank. Pioneer Federal was issued a federal stock savings
bank charter on July 15, 1987, upon successful completion of its conversion from
mutual to a stock form.

         Pioneer Financial Corporation is subject to regulation by the
Securities and Exchange Commission and the Office of Thrift Supervision. Pioneer
Federal Savings Bank is subject to regulation by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation, which administers the
Savings Association Insurance Fund, that insures Pioneer Federal's deposits.
Pioneer Federal owns stock in the Federal Home Loan Bank of Cincinnati and is a
member of the Federal Home Loan Bank system.

         Pioneer Federal has a wholly-owned subsidiary, Pioneer Service
Corporation, which holds stock in Intrieve, Inc. Intrieve provides on line
computer processing and inquiry service to Pioneer Federal and other thrift
institutions.

         The principal executive offices of the Company and of the Bank are
located at 25 East Hickman Street, Winchester, Kentucky 40391, telephone number
(606) 744-3972.
<PAGE>
 
Consolidated Financial Highlights

<TABLE> 
<CAPTION> 
                                                         September 30,
                                               ---------------------------------
                                                   1997                  1996
--------------------------------------------------------------------------------
<S>                                           <C>                    <C>    
For the Year
         Net interest income                   $ 2,691,733           $ 2,797,403
         Net income                              1,066,945               706,982
At Year End
         Total assets                          $74,825,464           $74,401,137
         Loans receivable, net                  34,490,871            35,247,421
     Savings deposits                           64,585,148            64,335,165
         Stockholders' equity                    8,738,198             8,244,635
         Stockholders' equity
           to total liabilities                   13.2%                   12.5%
--------------------------------------------------------------------------------
</TABLE> 
Capital Stock

         At the present time, there is no established market in which shares of
the Company's capital stock are regularly traded, nor are there any uniformly
quoted prices for such shares. However, Hilliard-Lyons in Lexington, Kentucky is
maintaining a "work-out market" in the stock, with the most recent price being
$43.00 per share.

         During fiscal year 1997, the Company paid quarterly dividends of
35(cent) per share on December 16, 1996, and 40(cent) per share on March 15,
1997, June 16, 1997 and September 15, 1997 to shareholders of record as of
December 2, 1996, March 1, 1997, June 1, 1997 and September 1, 1997,
respectively.

         As of November 5, 1997, Pioneer Financial Corporation had approximately
285 stockholders.

                                       2
<PAGE>
 
          [LETTERHEAD OF PIONEER FINANCIAL CORPORATION APPEARS HERE]


                               December 16, 1997


Dear Shareholder:

         As you can see from the enclosed Annual Report to Shareholders for our
fiscal year ending September 30, 1997, the most recent fiscal year was another
excellent year for Pioneer Federal. It was comparable to 1994 and 1995. You may
remember that the net income for fiscal year ended September 30, 1996 was
significantly lower than 1994, 1995 or 1997 due to a special assessment to
financial institutions who, like Pioneer Federal, were insured by the SAIF
portion of the FDIC. Without the special assessment, Pioneer Federal's net
income for fiscal year 1996 would have been just under $1,000,000.

         Although it happened after the end of the fiscal year, I want to
mention Pioneer Federal's ceasing to operate a branch in Stanton, Kentucky. As
most all of you are aware, this occurred on October 17, 1997. People's Exchange
Bank of Beattyville, Kentucky, Inc., which had earlier given notice of its
intention to move its main bank office to Stanton, Kentucky, made an offer for
our Stanton branch bank building and real estate and Stanton deposits. We valued
our Powell County customers and relationships - many of which had existed before
we ever had a branch office in Powell County. However, acceptance of the offer
was determined to be in the best interests of our shareholders. We did not sell
our Powell County loans other than loans secured by savings accounts (commonly
called "share loans").

         We have finally completed our much-needed renovations at the main
office on Hickman Street this year. I know that it was an inconvenience to our
customers as well as our staff, but we feel that we are more efficiently using
our space and able to provide better service in the renovated space. Thank you
for your indulgence during our reconstruction work.

         As I'm sure you have observed, we have more banking competitors in
Clark County this year than when I wrote you in December, 1996. We are excited
about the challenges and opportunities of the coming year. As always, we are
very grateful for the loyalty and support of our shareholders, customers and
employees.

                                       Sincerely,

                                       /s/ Janet W. Prewitt
                                       -----------------------------
                                       Janet W. Prewitt,
                                       Chairman, Board of Directors

                                       3


<PAGE>
                 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
                            (in Thousands of Dollars)

                            ------------------------
<TABLE> 
<CAPTION> 
                                                                         As of September 30,
                                                   ---------------------------------------------------------------
                                                     1997          1996         1995          1994          1993
                                                   --------      --------     --------      --------      -------- 
<S>                                                <C>           <C>          <C>           <C>           <C> 
Balance Sheet Data
Total amount of:
   Loans receivable, net......................      $34,491       $35,247      $32,214       $29,384       $34,290
   Investments................................       28,571        31,574       38,676        41,104        36,720
   Cash.......................................        1,189           733          790           633           462
   Interest bearing deposits/1/...............        8,289         4,935        5,162         6,271         4,605
   Assets.....................................       74,825        74,401       78,836        79,648        78,432
   Deposits...................................       64,585        64,335       67,088        68,686        68,198
   Borrowings.................................          652           699          742           757           795
   Stockholders' equity.......................        8,738         8,245       10,540         9,806         9,087

Other Data
Number of:
   Loans outstanding..........................        2,346         2,409        2,418         2,344         2,412
   Savings accounts...........................        8,652         9,117        9,207         9,253         9,766
   Full customer service offices open.........            3             3            3             3             3

<CAPTION> 
                                                                       Year ended September 30,
                                                   ---------------------------------------------------------------
                                                     1997          1996         1995          1994          1993
                                                   --------      --------     --------      --------      -------- 
<S>                                                <C>           <C>          <C>           <C>           <C> 
Operations Data
Total amount of:
   Interest income............................     $  5,393      $  5,659     $  5,656      $  5,210      $  5,819
   Interest expense...........................       (2,701)       (2,862)      (2,619)       (2,293)       (2,517)
   Provision for loan losses..................                        (57)         (19)           (5)         (178)
                                                   --------      --------     --------      --------      -------- 
   Net interest income after                          
     provision for loan losses................        2,692         2,740        3,018         2,913         3,123

   Non-interest income........................          489           445          404           389           432

   Non-interest expense.......................        1,572         2,092        1,776         1,718         1,614
                                                   --------      --------     --------      --------      -------- 
   Net income before income taxes and                 
     cumulative effect of change in        
     accounting principles....................        1,609         1,093        1,646         1,584         1,941

   Income tax expense.........................          542           386          568           534           670

   Cumulative effect of change                                                                  
     in accounting principle/2/...............                                                   (18)
                                                   --------      --------     --------      --------      -------- 
   Net income.................................     $  1,067      $    707     $  1,078      $  1,032      $  1,271
                                                   ========      ========     ========      ========      ========
</TABLE> 

------------------------------------
/1/Includes Federal funds sold.

/2/Reflects adoption of Statement of Financial Accounting Standards ("SFAS") No.
   109, "Accounting for Income Taxes."

                                       4
<PAGE>
Key Operating Ratios:

<TABLE> 
<CAPTION> 
                                                       As of and for the years ended September 30,
                                           ----------------------------------------------------------------------
                                             1997            1996           1995            1994           1993
                                           --------        --------       --------        --------       --------
<S>                                        <C>             <C>            <C>             <C>            <C>    
Performance Ratios:
   Return on average assets/1/.......         1.42%           0.89%          1.36%           1.30%           1.61%
   Return on average equity/1/.......        12.86%           6.97%         10.52%          10.83%          14.78%
   Average equity to                         
     average assets1.................        11.07%          12.72%         12.91%          12.05%          10.91% 
   Interest rate spread..............         3.36%           3.18%          3.51%           3.43%           3.96%
   Net interest margin...............         3.72%           3.63%          3.94%           3.78%           4.30%
   Dividend payout...................        30.25%          50.00%          32.7%          30.30%          20.30%

Asset Quality Ratios:
   Nonperforming assets to total            
     assets at end of year...........         0.21%           0.30%          0.24%           0.13%           0.26%
   Allowance for loan losses to                                                                                   
     total assets at end of year.....         0.52%           0.51%          0.45%           0.44%           0.51%
   Allowance for loan losses to                                                                                   
     nonperforming loans at end             
     of year.........................       252.26%         171.30%        183.33%         334.62%         193.20%  
   Allowance for loan losses to             
     total loans receivable, net.....         1.13%           1.06%          1.05%           1.15%           1.17% 

Capital Ratios:
   Equity to total assets at                
     end of year.....................        11.68%          11.08%         13.27%          12.31%          11.58%
   Average equity to                                                                                              
     average assets/1/...............        11.07%          12.72%         12.91%          12.05%          10.91%
   Ratio of average interest                                                                                      
     earning assets to average              
     interest bearing 
     liabilities/1/..................       109.64%         112.01%        112.55%         111.74%         110.30%  
</TABLE> 

--------------------
/1/Average balances are based upon month-end balances.

<PAGE>
 
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                             --------------------
 
General

In accordance with an agreement and plan of reorganization dated October 31,
1994 and approved by shareholders on December 20, 1994, Pioneer Federal Savings
Bank (Pioneer Federal or Bank) became a wholly-owned subsidiary of Pioneer
Financial Corporation (Company). The purpose of the discussion that follows is
to provide insight into the consolidated financial condition and results of
operation of Pioneer Financial Corporation and its subsidiary, Pioneer Federal
Savings Bank.

The primary business of the Company is the operation of the Bank. The assets of
the Company consist of all of the outstanding capital stock of the Bank, and a
note receivable from the Company's Employee Stock Ownership Plan (ESOP).
Therefore, this discussion relates primarily to the Bank.

Historically, the Bank has functioned as a financial intermediary, attracting
deposits from the general public, and using such deposits to make mortgage
loans, and to a lesser extent, consumer loans, and to purchase investment
securities with a significant concentration in mortgage-backed securities. As
such, its earnings have depended primarily on its net interest income, or
"spread," which is the difference between the amount it receives from interest
earned on loans and investments ("interest-earning assets") and the amount it
pays in interest on its deposits ("interest-bearing liabilities"). Results of
operations are also dependent upon the level of the Bank's non-interest income,
including fee income and service charges, and by the level of its non-interest
expenses, the most significant component of which is salaries and employee
benefits.

The operations of the Bank and the entire thrift industry are significantly
affected by prevailing economic conditions and the monetary, fiscal, and
regulatory policies of government agencies. Lending activities are influenced by
the demand for and supply of housing, competition among lenders, the level of
interest rates, and the availability of funds. Deposit flows and costs of funds
are likewise heavily influenced by prevailing market rates of interest on
competing investment alternatives, account maturities, and the levels of
personal income and savings in the Bank's market areas.

The Bank's interest earning assets have been historically concentrated in real
estate - collateralized instruments, principally single-family residential
loans, and to a lesser extent, loans secured by multi-family residential and
commercial properties, construction loans, home equity lines of credit, second
mortgages on single-family residences and consumer loans, both secured and
unsecured including loans secured by savings accounts. In addition, the Bank
invests in mortgage-backed securities, which are secured by single-family
residential loans and guaranteed by government agencies. The Bank also invests
in U.S. Government Treasury and Agency securities, Federal funds, and interest-
bearing deposits, primarily with the Federal Home Loan Bank of Cincinnati. The
Bank's source of funding for these investments has principally been deposits
placed with the Bank by consumers in the market area it serves.

Asset/Liability Management

Net interest income, the primary component of the Bank's net earnings, is
derived from the difference or "spread" between the yield on interest-earning
assets and the cost of the interest-bearing liabilities. The Bank has sought to
reduce its exposure to changes in interest rates by matching more closely the
effective maturities 

                                       6
<PAGE>
 
or repricing characteristics of its interest-earning assets and interest-bearing
liabilities. The matching of the Bank's assets and liabilities may be analyzed
by examining the extent to which its assets and liabilities are interest-rate
sensitive and by monitoring the expected effects of interest rate changes on an
institution's net interest income and net portfolio value.

An asset or liability is interest-rate sensitive within a specific time period
if it will mature or reprice within that time period. If the Bank's assets
mature or reprice more quickly or to a greater extent than its liabilities, the
Bank's net portfolio value and net interest income would tend to increase during
periods of rising interest rates, but decrease during periods of falling
interest rates. If the Bank's assets mature or reprice more slowly or to a
lesser extent than its liabilities, the Bank's net portfolio value and net
interest income would tend to decrease during periods of rising interest rates.
The Bank's policy has been to mitigate the interest rate risk inherent in the
historical savings institution business of originating long-term loans funded by
short-term deposits by pursuing certain strategies designed to decrease the
vulnerability of its earnings to material and prolonged changes in interest
rates.

Management's principal strategy in managing the Bank's interest rate risk has
been to maintain short and intermediate term assets in the portfolio, including
locally originated adjustable rate mortgage loans. The Bank's policy is to not
actively offer long-term fixed rate loans. Fixed rate loans that are offered and
retained by the Bank are secured by one to four-family owner-occupied dwellings,
primarily for terms of no more than 15 years. Likewise, the interest rate
charged on the Bank's adjustable rate loans typically reprice after one, three,
or five years with maximum periodic interest rate adjustment limits ("caps"). At
September 30, 1997, the Bank had no loans that reprice after five years from
that date. In managing its portfolio investment and mortgage-backed and related
securities, the Bank seeks to purchase investment and mortgage-backed and
related securities that mature on a basis that approximates the estimated
maturities of the Bank's liabilities.

Management has attempted to lengthen the average maturity of its liabilities by
adopting a tiered pricing program for its certificates of deposit. The Bank
offers higher rates of interest on its longer term certificates in order to
encourage depositors to invest in certificates with longer maturities.

Interest Rate Sensitivity Analysis

The Bank's future financial performance depends to a large extent on how
successful it is in limiting the sensitivity of earnings and net asset value to
changes in interest rates. Such sensitivity may be analyzed by examining the
amount by which the market value of the Bank's portfolio equity changes given an
immediate and sustained change in interest rates. Based on the latest
information available, it is estimated that the Bank's market value of portfolio
equity at June 30, 1997 would decrease by approximately $1.0 million or 8% given
a 200-basis point immediate and sustained increase in interest rates. It is
estimated that the Savings Bank's market value of portfolio equity at June 30,
1997 would decrease by approximately $25,000 or 0% given a 200-basis point
immediate and sustained decrease in interest rates. There has been no material
change in the Company's consolidated net assets since June 30, 1997.

Average Balances, Interest, and Average Yields

The Bank's earnings depend primarily on its net interest income, the difference
between the income it receives on its loan portfolio and other investments and
its cost of money, consisting primarily of interest paid on savings deposits.
Net interest income is affected by (i) the difference between rates of interest
earned on its interest-earning assets and rates paid on its interest-bearing
liabilities (commonly known as "the spread"); and 

                                       7
<PAGE>
 
(ii) the relative amounts of its interest-earning assets and interest-bearing
liabilities. When interest-earning assets approximate or exceed interest-bearing
liabilities, any positive spread will generate net interest income. Thrift
institutions have traditionally used interest rate spreads as a measure of net
interest income. Another indicator of an institution's net interest income is
its "net yield on interest-earning assets," which is net interest income divided
by average interest-earning assets.

The following table sets forth certain information relating to the Bank's
average interest-earning assets and interest-bearing liabilities and reflects
the average yield on assets and average cost of liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense by
the average monthly balance of assets or liabilities, respectively, for the
periods presented. During the periods indicated, nonaccruing loans are included
in the net loan category. Average balances are derived from month-end average
balances. Management does not believe that the use of month-end balances instead
of average daily balances has caused any material difference in the information
presented.

                                       8
<PAGE>
 
                       AVERAGE BALANCES AND YIELD/RATES
                           (in thousands of dollars)

                              -------------------
<TABLE> 
<CAPTION> 
                                                                             Year ended September 30,
                                                       ----------------------------------------------------------------------
                                                                      1997                               1996                   
                                                       ---------------------------------  -----------------------------------
                                                        Average                Average     Average                   Average   
                                                       Balance/1/   Interest  Yield/Rate  Balance/1/   Interest    Yield/Rate  
                                                       ----------   --------  ----------  ----------   --------    ----------
<S>                                                    <C>          <C>       <C>         <C>          <C>         <C> 
Interest Earning Assets:
   Loans/2/......................................      $ 35,059     $  3,111      8.87%    $ 33,358    $  3,057         9.16%    
   Investment securities.........................         2,588          117      4.52        5,352         384         7.17    
   Mortgage-backed securities....................        25,856        1,704      6.59       30,064       1,783         5.93    
   Other investments.............................         8,763          461      5.26        8,333         435         5.22    
                                                       --------     --------   --------    --------    --------      --------
     Total interest earning assets...............        72,266        5,393      7.46       77,107       5,659         7.34    
                                                                    --------                           --------
   Non interest earning assets...................         2,715                               2,704                             
                                                       --------                            --------
     Total assets................................      $ 74,981                            $ 79,811                             
                                                       ========                            --------
Interest-bearing Liabilities:
   Savings deposits..............................      $ 65,241        2,652      4.06     $ 68,118       2,816         4.13    
   FHLB advances                                            672           49      7.29          719          46         6.40    
                                                       --------     --------               --------    --------
     Total interest bearing liabilities                  65,913        2,701      4.10       68,837       2,862         4.16    
                                                                    --------                           --------
   Non interest bearing liabilities..............           769                                 825                             
   Stockholders' equity..........................         8,299                              10,149                             
                                                       --------                            --------
     Total liabilities and stockholders' equity..      $ 74,981                            $ 79,811                             
                                                       ========                            ========
Net interest income..............................                   $  2,692                           $  2,797                 
                                                                    ========                           ========
Interest rate spread/3/..........................                                3.36%                                  3.18%    
                                                                               ========                              ========
Net interest margin/4/...........................                                3.72%                                  3.63%    
                                                                               ========                              ========
Ratio of average interest-bearing assets to                                    
average interest-bearing liabilities                                           109.64%                                112.01%    
                                                                               ========                              ========

<CAPTION>                                                         
                                                                 Year ended September 30,
                                                         ---------------------------------------
                                                                           1995                   
                                                         ---------------------------------------
                                                          Average                       Average      
                                                         Balance/1/     Interest      Yield/Rate    
                                                         ----------     --------      ----------
<S>                                                      <C>            <C>           <C> 
Interest Earning Assets:                                      
   Loans/2/......................................        $  31,622      $  2,813          8.90%       
   Investment securities.........................            7,872           474          6.02       
   Mortgage-backed securities....................           31,280         2,019          6.45       
   Other investments.............................            6,368           350          5.50       
                                                         ---------      --------       --------
     Total interest earning assets...............           77,142         5,656          7.33       
   Non interest earning assets...................            2,275      --------                              
                                                         ---------      
     Total assets................................        $  79,417                                     
                                                         =========
Interest-bearing Liabilities:                                                                        
   Savings deposits..............................        $  67,794         2,569          3.79       
   FHLB advances                                               744            50          6.72       
                                                         ---------      --------       --------
     Total interest bearing liabilities                     68,538         2,619          3.82       
   Non interest bearing liabilities..............              630      --------                               
   Stockholders' equity..........................           10,249                                     
                                                         ---------
                                                                                                     
     Total liabilities and stockholders' equity..        $  79,417                                     
                                                         =========
Net interest income..............................                       $  3,037                      
                                                                        ========
Interest rate spread/3/..........................                                         3.51%       
                                                                                       ======== 
Net interest margin/4/...........................                                         3.94%       
                                                                                       ======== 
Ratio of average interest-bearing assets to                                                           
average interest-bearing liabilities                                                    112.56%  
                                                                                       ======== 
</TABLE> 

-------------------------
/1/ Average balances are based on month-end balances.
/2/ Includes loans held for sale.
/3/ Represents the difference between the average yield on interest-earning 
    assets and the average cost of interest-bearing liabilities.
/4/ Represents net interest income as a percentage of the average balance of 
    interest-earnings assets for the same period.

                                       9
<PAGE>
 
Rate/Volume Analysis

The following table sets forth certain information regarding changes in interest
income and interest expense of the Savings Bank for the periods indicated. For
each category of interest-earning asset and interest-bearing liability
information is provided on changes attributable to (1) changes in volume
(changes in volume multiplied by old rate); (2) changes in rate (change in rate
multiplied by old volume); (3) changes in rate-volume (change in rate multiplied
by the change in volume).

<TABLE>
<CAPTION>
                                                                    Year ended September 30,
                               ----------------------------------------------------------------------------------------------------
                                            1997 vs. 1996                1996 vs. 1995                   1995 vs. 1994
                                         Increase/(Decrease)          Increase/(Decrease)              Increase/(Decrease)
                                              Due to                        Due to                           Due to
                               -------------------------------   -------------------------------    ------------------------------
                               Volume    Rate      R/V   Total   Volume    Rate     R/V    Total    Volume   Rate     R/V    Total
                               ------   ------    ----  ------   ------    ----   -----    -----    -----     ---     ---    -----
<S>                             <C>      <C>      <C>     <C>     <C>      <C>      <C>    <C>       <C>     <C>      <C>     <C> 
Interest income:
 Loan portfolio ..............  155.8    (96.7)   (4.9)   54.1    157.5    82.2     4.5    244.2     46.6    48.0     0.8     95.4
 Investments ................. (197.4)  (142.8)   73.2  (267.0)  (151.7)   90.5   (29.0)   (90.2)   235.2     0.5     0.4    236.1
 Mortgage-backed securities .. (249.9)   198.4   (27.8)  (79.3)   (78.4) (164.7)    6.3   (236.8)  (289.3)  285.2   (40.0)   (44.1)
 Other interest income .......   22.4      3.3     0.2    26.0    109.1   (17.8)   (5.5)    85.8     30.7   111.4    16.1    158.2
                               ------   ------    ----  ------   ------   -----   -----    -----    -----   -----    ----    -----
 Total interest-earning assets (269.1)   (37.8)   40.7  (266.2)    36.5    (9.7)  (23.7)    (3.0)    23.2   445.1   (22.7)   445.6
                               ======   ======    ====  ======   ======   =====   =====    =====    =====   =====    ====    =====

Interest expense:
 Savings deposit ............. (117.8)   (47.7)    2.0  (163.5)    12.3   233.5     1.1    246.9    (14.5)  345.3    (2.2)   328.6
 Borrowings and Federal  
    Home Loan Bank Advances ..   (3.0)     6.4    (0.4)    3.0     (1.7)   (2.4)    0.1     (4.0)    (2.1)   (0.2)    0.0     (2.3)
                               ------   ------    ----  ------   ------   -----   -----    -----    -----   -----    ----    -----
 Total interest-bearing 
   liabilities................ (120.8)   (41.3)    1.6  (160.5)    10.6   231.1     1.2    242.9    (16.6)  345.1    (2.2)   326.3
                               ======   ======    ====  ======   ======   =====   =====    =====    =====   =====    ====    =====

Net change in net interest
 income (expense) ............ (148.3)     3.5    39.1  (105.7)    25.9  (240.9)  (24.9)  (239.9)    39.8   100.0   (20.5)   119.3
                               ======   ======    ====  ======   ======   =====   =====    =====    =====   =====    ====    =====
</TABLE>

Note: The total rate and volume variances have been allocated to rate and volume
changes depending on the degree of variance in each category for the year in
question. Changes in both rate and volume are allocated proportionately between
changes in rate and changes in volume. Average balances are derived from
month-end balances. Management does not believe that the use of month-end
balances instead of average daily balances has caused any material difference in
the information presented.

                                      10
<PAGE>
 
Comparison of Financial Condition at September 30, 1997 and 1996

The Company's consolidated assets increased by $400,000 to $74.8 million at
September 30, 1997 compared to $74.4 million at September 30, 1996. Short-term
investments consisting of interest-bearing deposits and Federal funds sold
increased a total of $3.4 million or 40.4% to $8.3 million at September 30,
1997. This increase was funded primarily by principal repayments on
mortgage-backed securities, and the maturity of other investment securities.
Investment securities, including both securities available-for-sale and
securities held-to-maturity totaled $28.6 million at September 30, 1997 compared
to $31.6 million at September 30, 1996.

The net loan portfolio decreased $700,000 or 2% to $34.5 million at September
30, 1997 compared to $35.2 million at September 30, 1996. The allowance for loan
losses totaled $391,000 and $382,000 at September 30, 1997 and 1996,
respectively. At September 30, 1997, the ratio of the allowance for loan losses
to loans was 1.13% compared to 1.06% at September 30, 1996. The Bank's
non-performing loans were $155,000 at September 30, 1997. The Bank's ratio of
allowance for loan losses to non-performing loans was 252.6% at September 30,
1997 compared to 171.3% at September 30, 1996. The determination of the
allowance for loan losses is based on management's analysis, which is done at a
minimum on a quarterly basis. Various factors are considered, including the
market value of the underlying collateral, growth and composition of the loan
portfolio, the relationship of the allowance for loan losses to outstanding
loans, historical loss experience, delinquency trends and prevailing economic
conditions. Although management believes its allowance for loan losses is
adequate, there can be no assurance that additional allowances will not be
required or that losses on loans will not be incurred.

Premises and equipment increased $200,000 to $1.4 million compared to $1.2
million. The increase was due to remodeling of the Bank's main office.

Deposits totaled $64.6 million at September 30, 1997 compared to $64.3 million
at September 30, 1996. In October of 1997 the Bank finalized the sale of its
Branch bank located in Stanton, Kentucky, which resulted in the transfer of $4.9
million in deposits to the purchaser. The Bank realized a net gain on the sale
of the Branch of approximately $600,000. The sale will allow management to
concentrate efforts and resources in their primary market area of Winchester,
Kentucky.

Stockholders' equity increased $500,000 to $8.7 million at September 30, 1997
compared to $8.2 million at September 30, 1996. The increase was due to net
income for fiscal year 1997 of $1.1 million less dividend payments of $300,000
and the net reduction of $225,000 from unallocated stock in the Employee Stock
Ownership Plan (ESOP). In fiscal year 1997, the Company made a loan of $250,000
to the ESOP Trust for the purpose of acquiring outstanding stock of the Company.
The ESOP Trust used the proceeds of the loan to acquire 6,022 shares of the
Company's common stock, which is collateral for the loan. The stock is released
from collateral in proportion to the principal repayments made on the loan and
allocated to the participants in the Plan. Under generally accepted accounting
principles, the stock is earned by participants over the expected amortization
period of the loan balance.

Comparison of Results of Operations for the Years Ended September 30, 1997 and
1996

Net Income. The Company's consolidated net income for the year ended September
30, 1997 was $1,067,000, compared to $707,000 for the year ended September 30,
1996. In comparing 1997 to 1996, the increase of $360,000 in net income resulted
from a reduction in non-interest expense of $520,000, a decrease 

                                       11
<PAGE>
 
in the provision for loan losses of $57,000 plus an increase in non-interest
income of $44,000 offset by a reduction in net interest income of $105,000 and
an increase in income tax expense of $156,000.

Net Interest Income. Net interest income for the year ended September 30, 1997
was $2.7 million, compared to $2.8 million for the year ended September 30,
1996. The decrease of $105,000 in net interest income for the year ended
September 30, 1997 was due primarily to a decrease in the average balances of
interest earning assets offset in part by a decrease in the average balance of
interest-bearing liabilities for 1997 compared to 1996. The average balance of
interest earning assets in 1997 was $72.3 million with an average yield of
7.46%, compared to average balances of $77.1 million with an average yield of
7.34% for 1996. The average balance of interest-bearing liabilities in 1997 was
$66.0 million with an average cost of funds of 4.10% compared to average
balances of $68.9 million with an average cost of funds of 4.16% for 1996. The
decrease in the average balances of interest earning assets was due primarily to
a decrease in the last quarter of 1996 from the repurchase of stock for $2.7
million, plus a decrease in deposits of approximately $2.7 million, due to the
rotation of the local school board deposits.

Interest Income. Interest income decreased $266,000 from $5.7 million to $5.4
million, or by 4.7% during 1997 compared to 1996. This decrease resulted
primarily from the decrease in the average balance of interest earning assets
from $77.1 million in 1996 compared to $72.3 million in 1997. The average yield
on interest earning assets increased to 7.46% from 7.34% due to an increase in
the average balance of loans from $33.4 million to $35.1 million in 1997
compared to 1996. The increase in loans was funded by repayments of
mortgage-backed securities and the maturity of other investment securities as
part of management's strategy to obtain higher investment yields.

Interest Expense. Interest expense decreased $161,000 from $2.9 million to $2.7
million or by 5.6% during 1997 compared to 1996. This decrease resulted
primarily from a decrease in the average balance of interest-bearing liabilities
from $68.9 million in 1996 compared to $66.0 million in 1997.

Provision for Loan Losses. Bank management determined that no additional
provision for loan losses was required in 1997. The provision for loan losses in
1996 was $57,000. The decision to not provide an additional provision for loan
losses was based on the various factors management uses to evaluate the adequacy
of the allowance for loan losses, with the more significant factors being the
similar composition and size of the loan portfolio in 1997 and 1996, and
favorable delinquency trends, with relatively stable economic conditions.

Non-Interest Income. Non-interest income increased $44,000 for the year ended
September 30, 1997 compared to the same period in 1996. The increase is due to
the recognition in 1997 of the fair market value of mortgage servicing rights
for loans sold in the secondary market, which resulted in additional gains on
the sale of these loans totaling $100,000. The Bank began recognizing mortgage
servicing rights as the result of adopting Statement of Financial Accounting
Standards (SFAS) No. 122 Accounting for Mortgage Servicing Rights in 1997, which
was subsequently superseded by SFAS No. 125 Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This increase
of $100,000 was offset in part by a decrease in loan fees of approximately
$22,000 and a decrease in the gain on the sale of securities of $33,000 in 1997
compared to 1996.

Non-Interest Expense. Non-interest expense decreased $500,000 from 2.1 million
in 1996 to $1.6 million in 1997. The decrease of $500,000 was primarily due to a
$522,000 decrease in Federal or other insurance premiums. This decrease was due
to a special SAIF premium assessment in 1996 of $435,000, plus a reduction in
the insurance rate paid on deposits in 1997 to approximately .06% as compared to
 .23% in 1996.

                                       12
<PAGE>
 
Income Taxes. The Bank's effective income tax rate was 34.0% in 1997 and 35.3%
in 1996. The increase in income tax expense of $156,000 is due to the increase
in income for 1997 as compared to 1996.

Comparison of Results of Operations for the Years Ended September 30, 1996 and
1995

Net Income. Net income decreased by $371,000 or 34.4% to $707,000 for the year
ended September 30, 1996 as compared to $1,078,000 for the same period in 1995.
The net decrease was due to a decrease of $239,000 in net interest income, an
increase of $39,000 in the provision for loan losses, and an increase of
$316,000 in non-interest expense offset by an increase of $41,000 in
non-interest income, and a decrease of $182,000 in income tax expense.

Net Interest Income. Net interest income for the year ended September 30, 1996
was $2.8 million, compared to $3.0 million for the year ended September 30,
1995. The decrease of $240,000 for the year ended September 30, 1996 was
primarily due to a higher cost of funds in 1996 compared to 1995. Average
interest-bearing liabilities in 1996 amounted to $68.9 million, with the average
interest rate paid amounting to 4.16%, compared to the average balance of
interest-bearing liabilities in 1995 of $68.5 million with an average interest
rate paid of 3.82%. Interest expense for 1996 was $2.9 million compared to $2.6
million in 1995. Interest income was $5.7 million in 1996 and 1995.

Interest Income. Interest income was $5.7 million for the years ended September
30, 1996 and 1995. For the year ended September 30, 1996, interest income was
7.34% of average interest earning assets as compared to 7.33% for the year ended
September 30, 1995.

Interest Expense. Interest expense was $2.9 million, or 4.16% of average
interest-bearing liabilities for the year ended September 30, 1996 as compared
to $2.6 million, or 3.82% of average interest-bearing liabilities for the
corresponding period in 1995. The increase in interest expense was primarily the
result of an increase of 34 basis points in the average rate paid on deposits
and an increase of approximately $300,000 in average interest-bearing deposits
in 1996 compared to 1995.

Provision for Loan Losses. The provision for loan losses was approximately
$57,000 and $19,000 for the years ended September 30, 1996 and 1995,
respectively. Management considers many factors in determining the necessary
levels of the allowance for loan losses, including an analysis of specific loans
in the portfolio, estimated value of the underlying collateral, assessment of
general trends in the real estate market, delinquency trends, prospective
economic conditions, inherent loss in the loan portfolio and the relationship of
the allowance for loan losses to outstanding loans. At September 30, 1996, the
allowance for loan losses represented 1.06% of total loans compared to 1.05% at
September 30, 1995.

Non-Interest Income. Non-interest income amounted to $445,000 and $404,000 for
the years ended September 30, 1996 and 1995, respectively. Non-interest income
increased $41,000 in the 1996 period compared to the same period in 1995. The
increase was due to an additional net gain on the sale of securities and loans
of $26,000 plus an increase of $15,000 in service fees on loans and deposits for
the year ended September 30, 1996 as compared to the corresponding period in
1995.

Non-Interest Expense. Non-interest expense increased $316,000 or 17.8% to $2.1
million for the year ended September 30, 1996 compared to $1.8 million for the
same period in 1995. Non-interest expense was 2.6% and 2.2% of average assets
for the years ended September 30, 1996 and 1995, respectively. The increase of
$316,000 was primarily due to an increase of $444,000 in federal insurance
premiums offset by $101,000 

                                       13
<PAGE>
 
decrease in legal fees and a $30,000 decrease in other operating expenses. The
increase of $444,000 in federal insurance premiums was primarily due to a
special assessment of $435,000 assessed by the FDIC to recapitalize the Savings
Association Insurance Fund (SAIF), pursuant to legislation signed by the
President on September 30, 1996. The decrease of $101,000 in legal expenses was
due to special services provided during 1995, which was not a recurring expense,
plus reimbursement of $44,000 in legal fees pursuant to a legal settlement in
fiscal year 1996. The decrease of $30,000 in other operating expenses was
primarily due to a $23,000 decrease in loan related expenses net of
reimbursements.

Income Tax Expense. The provision for income tax expense amounted to
approximately $386,000 and $568,000 for the years ended September 30, 1996 and
1995, respectively. The provision for income tax expense as a percentage of
income before income tax expense amounted to 35.3% and 34.5% for 1996 and 1995,
respectively.

Mortgage Banking Activity

Net loans decreased from $35.2 million at September 30, 1996 to $34.5 million at
September 30, 1997. The Bank's portfolio of loans, owned by others but serviced
by the Bank, increased 3.8% from $50.3 million at September 30, 1996 to $52.2
million at September 30, 1997. The Bank originated all of the loans which it
services.

Liquidity and Committed Resources

The Company's primary source of liquidity is dividends paid by the Bank. The
Bank is subject to certain regulatory limitations with respect to the payment of
dividends to the Company.

The Bank's primary sources of funds are deposits and proceeds from principal and
interest payments on loans and mortgage-backed securities. Additional sources of
liquidity are advances from the FHLB of Cincinnati and other borrowings. At
September 30, 1997, the Bank had outstanding advances from the FHLB of
Cincinnati totaling $652,000.

OTS regulations require that the Bank maintain specified levels of liquidity.
Liquidity is measured as a ratio of cash and certain investments to withdrawable
savings. The minimum level of liquidity required by the regulations is presently
5.0%. As of September 30, 1997, the Bank's liquidity ratio under applicable
federal regulations was 29.13% as compared to 24.8% at September 30, 1996. At
September 30, 1997, the Bank had $29.8 million in certificates of deposit
maturing within one year, and $8.9 million maturing between one and three years.
Management believes, based on past experience, that the Bank will retain much of
the deposits or replace them with new deposits.

As of September 30, 1997, the Bank had $2.6 million in loans approved, but not
closed; none of these were evidenced by written commitments. The Bank
anticipated selling $1.2 million of the loans approved, but not closed.

The Bank is required to maintain specified amounts of capital pursuant to
federal law and regulations promulgated by OTS. The capital standards generally
require the maintenance of regulatory capital sufficient to meet a tangible
capital requirement, a core capital requirement, and a risk-based capital
requirement. At September 30, 1997, the Bank's tangible and core capital totaled
$8.6 million. This amount exceeded the tangible capital requirement of $1.1
million by $7.5 million, and the core capital requirement of $2.2 million 

                                       14
<PAGE>
 
by $6.4 million on that date. At September 30, 1997, the Bank's risk-based
capital totaled $9.0 million, which exceeded its risk-based capital requirement
by $6.6 million.

Impact of Inflation and Changing Prices

The financial statements and notes thereto presented herein have been prepared
in accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time and due to inflation.
The impact of inflation is reflected in the increased cost of the Bank's
operations.

Unlike most industrial companies, nearly all the assets and liabilities of the
Bank are monetary in nature. As a result, changes in interest rates have a
greater impact on the Bank's performance than do the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.

Impact of New Accounting Standards

Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. In June 1996, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
("SFAS 125"). SFAS 125 provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. This statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prospectively. Earlier
or retroactive application is not permitted. The Bank adopted the provisions of
SFAS 125 in January 1997. The impact of the Bank adopting this statement
amounted to an increase in net income of $66,000 for the year ended September
30, 1997.

Accounting for Earnings Per Share. In February 1997, the FASB issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 establishes standards for computing and presenting earnings per share (EPS)
and applies to entities with publicly held common stock or potential common
stock. This statement simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15, Earnings Per Share, and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS and requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.

SFAS 128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier application is not
permitted. This statement requires restatement of all prior-period EPS data
presented. The Company will adopt the statement at the end of the first quarter
in fiscal year 1998. Basic and diluted earnings per share under SFAS 128 would
be identical to earnings per share as presented in the financial statements, and
therefore, will not have any material effect on the Company.

                                       15
<PAGE>
 
Reporting of Comprehensive Income. In June 1997, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards No. 130,
Reporting of Comprehensive Income ("SFAS 130"), which establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of financial statements. This
statement also requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.

This statement is effective for fiscal years beginning after December 15, 1997.
Earlier application is permitted. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. The Company does
not anticipate that adoption of SFAS 130 will have a material effect on the
Company.

Disclosure about Segments and Related Information. In June 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"), which establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders. This
statement also establishes standards for related disclosures about products and
services, geographic areas, and major customers. This statement requires the
reporting of financial and descriptive information about an enterprise's
reportable operating segments.

This statement is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. The Company does not anticipate that the
adoption of SFAS 131 will have a material effect on the Company.

Dividends on and Price Range of Common Stock. During fiscal year 1997, the
Company declared dividends in the following amounts:

<TABLE>
<S>                                                          <C>
December 15, 1996............................................35(cent) per share
March 15, 1997...............................................40(cent) per share
June 16, 1997................................................40(cent) per share
September 15, 1997...........................................40(cent) per share
</TABLE>
                                                            
Under OTS regulations, the Bank may not pay cash dividends on its common stock
if, as a result thereof, its regulatory capital would be reduced below its
regulatory requirement. The Bank exceeded all of the minimum regulatory capital
requirements during the entire fiscal year.

The Company's stock sold for $41.50 per share at the beginning of the fiscal
year; the Company's stock sold for up to $41.50 per share at midyear, and the
last sale during the fiscal year was at $43.00 per share.

Certifying Accountant. Miller, Mayer, Sullivan, & Stevens, LLP has been
appointed as the Company's independent auditor for the fiscal year ending
September 30, 1997 pursuant to the recommendation of the Audit Committee of the
Board of Directors. A representative of Miller, Mayer, Sullivan, & Stevens, LLP
is expected to be present at the annual meeting with an opportunity to make a
statement if he desires to do so and to answer appropriate questions with
respect to the firm's audit of the Company's consolidated financial statements
and records for the fiscal year ended September 30, 1997.

                                       16
<PAGE>
 
      [LETTERHEAD OF MILLER, MAYER, SULLIVAN & STEVENS LLP APPEARS HERE]



Board of Directors
Pioneer Financial Corporation
Winchester, Kentucky


We have audited the accompanying consolidated balance sheets of Pioneer
Financial Corporation and Subsidiary as of September 30, 1997 and 1996 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the years in the three year period ended September 30, 1997. These
consolidated financial statements are the responsibility of the management of
Pioneer Financial Corporation (Company). Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pioneer Financial
Corporation and Subsidiary as of September 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three year
period ended September 30, 1997 in conformity with generally accepted accounting
principles.



/s/ Miller, Mayer, Sullivan, & Stevens, LLP

Lexington, Kentucky
October 31, 1997
<PAGE>
 
                  PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           September 30, 1997 and 1996

                                ---------------

<TABLE>
<CAPTION>

ASSETS                                                                                   1997               1996
                                                                                      -----------        ----------
<S>                                                                                   <C>               <C>     
Cash and due from banks                                                               $ 1,188,974       $   732,573
Interest bearing deposits                                                               1,138,456         1,529,881
Federal funds sold                                                                      7,151,000         3,211,000
Certificates of deposit                                                                                     194,000
Securities available-for-sale, at fair value                                            5,949,386         7,601,611
Securities held-to-maturity, fair value of $22,608,182                                 
   and $23,520,598 for 1997 and 1996, respectively                                     22,621,995        23,972,497 
Loans receivable, net                                                                  34,490,871        35,247,421
Loans held for sale                                                                       152,750
Accrued interest receivable                                                               455,824           535,269
Premises and equipment, net                                                             1,412,264         1,175,987
Other assets                                                                              263,944           200,898
                                                                                      -----------       -----------

           Total assets                                                               $74,825,464       $74,401,137
                                                                                      ===========       ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                                                              $64,585,148       $64,335,165
Advances from Federal Home Loan Bank                                                      652,225           698,798
Advance payments by borrowers for taxes and insurance                                      39,607            26,788
Other liabilities                                                                         810,286         1,095,751
                                                                                      -----------       -----------

           Total liabilities                                                           66,087,266        66,156,502
                                                                                      -----------       -----------

Stockholders' equity
   Common stock, $1 par value, 500,000 shares authorized; 208,233 shares,                 
       issued and outstanding for 1997 and 1996, respectively                             208,233           208,233 
   Additional paid-in capital                                                           1,797,432         1,797,432
   Retained earnings, substantially restricted                                          6,957,353         6,213,169
   Unallocated Employee Stock Ownership Plan (ESOP) stock                                (224,922)
   Net unrealized appreciation on securities available-for-sale,                
       net of tax of $53 in 1997 and $13,292 in 1996                                          102            25,801
                                                                                      -----------       -----------

           Total stockholders' equity                                                   8,738,198         8,244,635
                                                                                      -----------       -----------

           Total liabilities and stockholders' equity                                 $74,825,464       $74,401,137
                                                                                      ===========       ===========
</TABLE>

                    The accompanying notes are an integral 
                part of the consolidated financial statements.

                                       18
<PAGE>
 
                  PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
             for the years ended September 30, 1997, 1996, and 1995

                                ---------------

<TABLE> 
<CAPTION> 
                                                                         1997             1996              1995
                                                                      ----------       ----------        ----------
<S>                                                                   <C>              <C>               <C>       
Interest income:
   Interest on loans                                                  $3,110,644       $3,057,393        $2,812,782
   Interest and dividends on securities                                1,821,596        2,167,280         2,493,348
   Other interest income                                                 460,739          434,493           349,560
                                                                      ----------       ----------        ----------
       Total interest income                                           5,392,979        5,659,166         5,655,690
                                                                      ----------       ----------        ----------

Interest expense:
   Interest on deposits                                                2,652,734        2,815,403         2,569,375
   Interest on borrowings                                                 48,512           46,360            49,526
                                                                      ----------       ----------        ----------
       Total interest expense                                          2,701,246        2,861,763         2,618,901
                                                                      ----------       ----------        ----------

Net interest income                                                    2,691,733        2,797,403         3,036,789
Provision for loan losses                                                                  57,433            19,000
                                                                      ----------       ----------        ----------
       Net interest income after provision for loan losses             2,691,733        2,739,970         3,017,789
                                                                      ----------       ----------        ----------

Non-interest income:
   Loan and other service fees, net                                      381,132          409,519           394,470
   Gain (loss) on sale of securities                                                       33,310             1,822
   Gain on sale of loans                                                 108,494            2,698             7,546
                                                                      ----------       ----------        ----------
                                                                         489,626          445,527           403,838
                                                                      ----------       ----------        ----------
Non-interest expense:
   Compensation and benefits                                             892,855          863,508           848,817
   Occupancy expenses, net                                               172,074          190,194           203,789
   Office supplies and expenses                                           97,386          110,441           103,926
   Federal and other insurance premiums                                   94,633          616,705           172,036
   Legal expenses                                                          7,634            3,827           104,953
   Data processing expenses                                              143,000          136,616           141,176
   State franchise tax                                                    65,545           64,790            64,409
   Other operating expenses                                               98,907          106,117           136,875
                                                                      ----------       ----------        ----------
                                                                       1,572,034        2,092,198         1,775,981
                                                                      ----------       ----------        ----------
Income before income tax expense                                       1,609,325        1,093,299         1,645,646
Income tax expense                                                       542,380          386,317           568,143
                                                                      ----------       ----------        ----------
Net income                                                            $1,066,945       $  706,982        $1,077,503
                                                                      ==========       ==========        ==========

Earnings per share                                                    $     5.12       $     2.76        $     3.95
                                                                      ==========       ==========        ==========
</TABLE> 

                    The accompanying notes are an integral
                part of the consolidated financial statements.

                                       19
<PAGE>
 
                  PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
             for the years ended September 30, 1997, 1996, and 1995

                                ---------------
<TABLE>
<CAPTION>
                                                                                             Net      
                                                                                          Unrealized    Unallocated   
                                                                                         Appreciation    Employee    
                                                              Additional                 on Securities    Stock          Total    
                                                    Common      Paid-In     Retained       Available-    Ownership    Stockholders'
                                                    Stock       Capital     Earnings       for-Sale     Plan Stock       Equity   
                                                  ---------   -----------  -----------   -------------  ----------    ------------
<S>                                               <C>         <C>          <C>           <C>            <C>           <C>         
Balance, September 30, 1994                       $ 272,477   $ 2,351,858  $ 7,181,168                                $ 9,805,503 
   Net Income                                                                1,077,503                                  1,077,503 
   Declaration of dividend                                                    (351,495)                                  (351,495)
   Cumulative effect October 1, 1994 of                                                       64,189                       64,189 
     change in accounting for securities                                                                                          
   Change in net unrealized gain on                                                          (55,922)                     (55,922)
    securities available-for-sale, net of                                                                                         
    deferred income taxes                                                                                                         
                                                  ---------   -----------  -----------     ---------    ----------    ----------- 
                                                                                                                                  
Balance, September 30, 1995                         272,477     2,351,858    7,907,176         8,267                   10,539,778 
   Net Income                                                                  706,982                                    706,982 
   Declaration of dividend                                                    (353,533)                                  (353,533)
   Stock repurchase (64,244 shares)                 (64,244)     (554,426)  (2,047,456)                                (2,666,126)
   Change in net unrealized gain on                                                                                               
   securities available-for-sale, net                                                                                             
   of deferred income taxes                                                                   17,534                       17,534 
                                                  ---------   -----------  -----------     ---------    ----------    ----------- 
                                                                                                                                  
Balance, September 30, 1996                         208,233     1,797,432    6,213,169        25,801                    8,244,635 
   Net income                                                                1,066,945                                            
   Declaration of dividend                                                    (322,761)                                           
   Unallocated ESOP stock                                                                                 (249,913)               
   ESOP shares earned in 1997                                                                               24,991                
   Change in net unrealized gain on securities                                                                                    
   available-for-sale, net of deferred income                                                                                     
   taxes                                                                                      25,699                              
                                                  ---------   -----------  -----------     ---------    ----------    ----------- 
                                                                                                                                  
Balance, September 30, 1997                       $ 208,233   $ 1,797,432  $ 6,957,353     $     102    $ (224,922)   $ 8,738,198 
                                                  =========   ===========  ===========     =========    ==========    ===========  
</TABLE>

                     The accompanying notes are an integral
                 part of the consolidated financial statements.

                                       20
<PAGE>
 
                  PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
             for the years ended September 30, 1997, 1996, and 1995

                                ---------------

<TABLE>
<CAPTION>
                                                                   1997             1996             1995
                                                               -------------    -------------    ------------
<S>                                                            <C>              <C>              <C>         
Operating activities

Net income                                                     $  1,066,945     $    706,982     $ 1,077,503 
Adjustments to reconcile net income to net cash                                                              
provided by operating activities:                                                                            
   Provision for loan losses                                                          57,433          19,000 
   Amortization of investment premium (discount)                     77,724          168,615         108,179 
   Amortization of organizational cost                               13,507           13,507          12,382 
   Provision for depreciation                                        48,522           53,365          79,900 
   ESOP benefit expense                                              24,991 
   Amortization of loan fees                                        (95,694)         (92,303)        (48,617)
   FHLB stock dividend                                              (46,500)         (27,400)        (36,900)
   Securities (gain)loss, net                                                        (33,310)         (1,822)
   Loans originated for sale                                    (10,554,724)     (10,162,642)     (7,457,985)
   Proceeds from loans held for sale                             10,663,218       10,165,340       7,465,531 
   Gain on sale of loans                                           (108,494)          (2,698)         (7,546)
   Change in:
         Prepaid expense                                           (122,060)          46,028         (57,523)
         Interest receivable                                         79,444          139,885         (58,475)
         Interest payable                                            12,497           15,914           5,886 
         Accrued liabilities                                       (376,592)         627,438          55,866 
         Income taxes payable                                       137,381         (118,385)         11,364 
                                                               ------------     ------------     ----------- 

   Net cash provided by operating activities                        820,165        1,557,769       1,166,743
                                                               ------------     ------------     ----------- 

Investing activities

Net (increase) decrease in loans                                    699,494       (2,998,846)     (2,800,413)
Principal repayments, mortgage-backed securities                  5,288,984        6,486,307       3,995,015
Purchase of premises and equipment                                 (284,799)         (51,941)        (18,494)
Redemption of FHLB stock                                                              55,200          91,800
Proceeds from sale of securities available-for-sale                                                4,488,932
Purchase of securities available-for-sale                                         (3,614,506)     (5,679,519)
Purchase of securities held-to-maturity                          (8,991,996)     (10,484,665)     (8,074,208)
Maturity of securities held-to-maturity                           6,635,575       14,578,264       7,548,430 
Maturity of certificates of deposit                                 194,000           94,000                 
                                                               ------------     ------------     ----------- 

   Net cash provided (used) by investing activities               3,541,258        4,063,813        (448,457)
                                                               ------------     ------------     ----------- 
</TABLE>

                                   Continued

                    The accompanying notes are an integral
                part of the consolidated financial statements.

                                       21
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
               CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
            for the years ended September 30, 1997, 1996, and 1995

                                ---------------
<TABLE>
<CAPTION>

                                                                         1997             1996             1995
                                                                      ----------       ----------       ----------
<S>                                                                   <C>              <C>              <C> 
Financing activities

Net increase (decrease) in demand deposits,                             (365,680)      (1,678,188)      (4,229,812)
   NOW accounts and savings accounts
Net increase (decrease) in certificates of deposit                       615,663       (1,074,568)       2,632,198
Cash dividends                                                          (322,762)        (353,533)        (351,495)
Federal Home Loan Bank Advance, repayments                               (46,573)         (43,632)         (14,606)
Net increase (decrease) in custodial accounts                             12,818            3,392            5,492
Stock repurchase                                                                       (2,666,126)
ESOP stock purchase                                                     (249,913)
                                                                      ----------       ----------       ----------

   Net cash provided (used) by financing activities                     (356,447)      (5,812,655)      (1,958,223)
                                                                      ----------       ----------       ----------

Increase (decrease) in cash and cash equivalents                       4,004,976         (191,073)      (1,239,937)

Cash and cash equivalents, beginning of year                           5,473,454        5,664,527        6,904,464
                                                                      ----------       ----------       ----------

Cash and cash equivalents, end of year                                $9,478,430       $5,473,454       $5,664,527
                                                                      ==========       ==========       ==========

Supplemental Disclosures
   Cash payments for:
         Interest on deposits                                         $2,688,749       $2,811,085       $2,563,490
         Income taxes                                                 $  405,000       $  505,000       $  627,000
</TABLE>

                    The accompanying notes are an integral
                part of the consolidated financial statements.

                                       22
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               ----------------


1.       Summary of Significant Accounting Policies

         On December 20, 1994, the stockholders of Pioneer Federal Savings Bank
         (Bank) approved an agreement and Plan of Reorganization dated October
         31, 1994, whereby the Bank through a reverse merger became a wholly
         owned subsidiary of Pioneer Financial Corporation (Company), a unitary
         savings and loan holding company. In accordance with the Reorganization
         Plan, stockholders of the Bank exchanged their shares of common stock
         on a one for one basis for common shares in the Company's common stock,
         which represented 100% of the outstanding stock of the Company.

         The Company is a corporation organized under the laws of Kentucky. The
         Company is a savings and loan holding company whose activities are
         primarily limited to holding the stock of the Bank. The Bank is a
         federally chartered stock savings bank and a member of the Federal Home
         Loan Bank System. As a member of this system, the Bank is required to
         maintain an investment in capital stock of the Federal Home Loan Bank
         of Cincinnati (FHLB) in an amount equal to at least the greater of 1%
         of its outstanding loan and mortgage-backed securities or .3% of total
         assets as of December 31 of each year.

         The Bank conducts a general banking business in central Kentucky which
         primarily consists of attracting deposits from the general public and
         applying those funds to the origination of loans for residential,
         consumer, and nonresidential purposes. The Bank's profitability is
         significantly dependent on net interest income which is the difference
         between interest income generated from interest-earning assets (i.e.
         loans and investments) and the interest expense paid on
         interest-bearing liabilities (i.e. customer deposits and borrowed
         funds). Net interest income is affected by the relative amount of
         interest-earning assets and interest-bearing liabilities and the
         interest received or paid on these balances. The level of interest
         rates paid or received by the Bank can be significantly influenced by a
         number of environmental factors, such as governmental monetary policy,
         that are outside of management's control.

         The consolidated financial information presented herein has been
         prepared in accordance with generally accepted accounting principles
         (GAAP) and general accounting practices within the financial services
         industry. In preparing consolidated financial statements in accordance
         with GAAP, management is required to make estimates and assumptions
         that affect the reported amounts of assets and liabilities and the
         disclosure of contingent assets and liabilities at the date of the
         financial statements and revenues and expenses during the reporting
         period. Actual results could differ from such estimates.

         The following is a summary of the Company's significant accounting
         policies which have been consistently applied in the preparation of the
         accompanying consolidated financial statements.

                                      23
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                ---------------


         Principles of Consolidation. The consolidated financial statements
         include the accounts of the Company and the Bank. All significant
         intercompany accounts and transactions have been eliminated.

         Loan Origination Fees. The Bank accounts for loan origination fees in
         accordance with Statement of Accounting Standards (SFAS) SFAS No. 91
         "Accounting for Nonrefundable Fees and Costs Associated with
         Originating or Acquiring Loans and Initial Direct Cost of Leases."
         Pursuant to the provisions of SFAS No. 91, origination fees received
         from loans, net of direct origination costs, are deferred and amortized
         to interest income using the level-yield method, giving effect to
         actual loan prepayments. Additionally, SFAS No. 91 generally limits the
         definition of loan origination costs to the direct costs attributable
         to originating a loan, i.e., principally actual personnel costs. Fees
         received for loan commitments that are expected to be drawn upon, based
         on the Bank's experience with similar commitments, are deferred and
         amortized over the life of the loan using the level-yield method. Fees
         for other loan commitments are deferred and amortized over the loan
         commitment period on a straight-line basis.

         Investment Securities. On October 1, 1994, the Bank adopted Statement
         of Financial Accounting Standards(SFAS) No. 115 "Accounting for Certain
         Investments in Debt and Equity Securities." SFAS No. 115 requires that
         all investments in debt securities and all investments in equity
         securities that have readily determinable fair values be classified
         into three categories. Securities that management has positive intent
         and ability to hold until maturity are classified as held-to-maturity.
         Securities that are bought and held specifically for the purpose of
         selling them in the near term are classified as trading securities. All
         other securities are classified as available-for-sale. Securities
         classified as trading and available-for-sale are carried at market
         value. Unrealized holding gains and losses for trading securities are
         included in current income. Unrealized holding gains and losses for
         available-for-sale securities are reported as a net amount in a
         separate component of stockholders' equity until realized. Investments
         classified as held-to-maturity are carried at amortized cost. The
         cumulative effect of this change was to increase stockholders' equity
         by $97,256, net of deferred taxes of $33,067, as of October 1, 1994.

         Securities that management has the intent and ability to hold to
         maturity are classified as held-to-maturity, and carried at cost,
         adjusted for amortization of premium or accretion of discount over the
         term of the security, using the level yield method. Included in this
         category of investments is the FHLB stock which is a restricted stock
         carried at cost. Securities available-for-sale are carried at market
         value. Adjustments from amortized cost to market value are recorded in
         stockholders' equity net of deferred income tax until realized. The
         identified security method is used to determine gains or losses on
         sales of securities.

         Regulations require the Bank to maintain an amount of cash and U.S.
         government and other approved securities equal to a prescribed
         percentage (5% at September 30, 1997 and 1996) of 

                                  (Continued)

                                      24
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                ---------------


         deposit accounts (net of loans secured by deposits) plus short-term
         borrowings. At September 30, 1997 and 1996, the Bank met these
         requirements.

         Office Properties and Equipment. Office properties and equipment are
         stated at cost less accumulated depreciation. Depreciation is computed
         using the straight line method and the double declining balance method
         over the estimated useful lives of the related assets. The gain or loss
         on the sales of property and equipment is recorded in the year of
         disposition.

         Real Estate Owned. Real estate owned is generally comprised of property
         acquired through foreclosure or deed in lieu of foreclosure. Foreclosed
         real estate is initially recorded at fair value, net of selling
         expenses, establishing a new cost basis. Expenses relating to holding
         property, including interest expense, are not capitalized. These
         expenses are charged to operations as incurred. Valuations are
         periodically performed by management, and an allowance for losses is
         established by a charge to operations if the carrying value of a
         property exceeds its net realizable value.

         Loans Receivable. Mortgage loans held for sale are valued at the lower
         of cost or market, as calculated on an aggregate loan basis. All other
         loans are stated at the principal amount outstanding. The Bank has
         adequate liquidity and capital, and it is generally management's
         intention to hold such assets to maturity.

         The allowance for loan losses is increased by charges to income and
         decreased by charge-offs (net of recoveries). Management's periodic
         evaluation of the adequacy of the allowance is based on the Bank's past
         loan loss experience, known and inherent risks in the portfolio,
         adverse situations that may affect the borrower's ability to pay,
         estimated value of any underlying collateral, and current economic
         conditions. While management uses the best information available,
         future adjustments may be necessary if conditions differ substantially
         from assumptions used in management's evaluation. In addition, various
         regulatory agencies, as an integral part of their examination process,
         periodically review the allowance for loan losses and may require
         additions to the allowances based on their judgment about information
         available to them at the time of their examination.

         Interest earned on loans receivable is recorded in the period earned.
         Uncollectible interest on loans that are contractually past due is
         charged off or an allowance is established based on management's
         periodic evaluation. The allowance is established by a charge to
         interest income equal to all interest previously accrued, and income is
         subsequently recognized only to the extent cash payments are received
         until, in management's judgment, the borrower's ability to make
         periodic interest and principal payments is back to normal, in which
         case the loan is returned to accrual status.

                                  (Continued)

                                      25
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                ---------------


         In June 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
         for Impairment of a Loan." This promulgation, which was amended by SFAS
         No. 118 as to certain income recognition and disclosure provisions,
         became effective as to the Company in fiscal 1996. The new accounting
         standards require that impaired loans be measured based upon the
         present value of expected future cash flows discounted at the loan's
         effective interest rate, or as an alternative, at the loan's observable
         market price or fair value of the collateral. The Bank's current
         procedures for evaluating impaired loans result in carrying such loans
         at the lower of cost or fair value.

         The Bank adopted SFAS No. 114, as subsequently amended, on October 1,
         1995, without material effect on consolidated financial condition or
         results of operations.

         A loan is defined under SFAS No. 114 as impaired when, based on current
         information and events, it is probable that a creditor will be unable
         to collect all amounts due according to the contractual terms of the
         loan agreement. In applying the provisions of SFAS No. 114, the Bank
         considers its investment in one-to-four family residential loans and
         consumer installment loans to be homogenous and therefore excluded from
         separate identification for evaluation of impairment. With respect to
         the Bank's investment in impaired multi-family and nonresidential
         loans, such loans are collateral dependent, and as a result, are
         carried as a practical expedient at the lower of cost or fair value.

         Collateral dependent loans when put in non-accrual status are
         considered to constitute more than a minimum delay in repayment and are
         evaluated for impairment under SFAS No. 114 at that time.

         Deposits. The Bank's deposits are insured by the Savings Association
         Insurance Fund ("SAIF"), which is administered by the Federal Deposit
         Insurance Corporation ("FDIC"). On September 30, 1996, the President
         signed legislation, which among other things, recapitalized the Savings
         Association Insurance Fund through a special assessment on savings
         financial institutions, such as the Bank. The special assessment
         amounted to $435,000 for the Bank and is included in the Federal and
         other insurance premium expense for the year ended September 30, 1996.
         As a result of the recapitalization of the SAIF, the Bank's assessment
         rate for insurance on deposits, beginning in 1997, was reduced from 23%
         to approximately 6% on deposits under $100,000.

         Income Taxes. The Company accounts for federal income taxes in
         accordance with the provisions of SFAS No. 109, "Accounting for Income
         Taxes." SFAS No. 109 established financial accounting and reporting
         standards for the effects of income taxes that result from the
         Company's activities within the current and previous years. Pursuant to
         the provisions of SFAS No. 109, a deferred tax liability or deferred
         tax asset is computed by applying the current statutory tax rates to
         net taxable or deductible differences between the tax basis of an asset
         or liability and its reported amount in the financial statements that
         will result in taxable or deductible amounts in future periods.
         Deferred tax assets are recorded only to the extent that the amount of
         net deductible temporary differences or carryforward attributes may be
         utilized against current period earnings, 

                                  (Continued)

                                      26
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                ---------------


         carried back against prior years earnings, offset against taxable
         temporary differences reversing in future periods, or utilized to the
         extent of management's estimate of future taxable income. A valuation
         allowance is provided for deferred tax assets to the extent that the
         value of net deductible temporary differences and carryforward
         attributes exceeds management's estimates of taxes payable on future
         taxable income. Deferred tax liabilities are provided on the total
         amount of net temporary differences taxable in the future.

         The Company files a consolidated federal income tax return with the
         Bank. The current income tax expense or benefit is allocated to each
         Corporation included in the consolidated tax return based on their tax
         expense or benefit computed on a separate return basis.

         Effect of Implementing New Accounting Standards. In June of 1996, the
         FASB issued SFAS No. 125 "Accounting for Transfers and Servicing of
         Financial Assets and Extinguishments of Liabilities," which superseded
         SFAS No. 122, "Accounting for Mortgage Servicing Rights," and amended
         SFAS No. 65 "Accounting for Certain Mortgage Baning Activities." SFAS
         No. 125 requires the Company to recognize, as separate assets, rights
         to service mortgage loans for others; however, these servicing rights
         are acquired. SFAS No. 125 was effective for the Company on January 1,
         1997, and applied prospectively to mortgage banking transactions
         occurring after that date.

         The Company recognized mortgage servicing rights of $105,716 for the
         year ended September 30, 1997. Amortization of the mortgage servicing
         rights totaled $6,087 for the same period. The Bank sells certain
         residential loans, primarily fixed rate loans secured by single family
         residences in the secondary market. The fair value of the mortgage
         servicing rights was determined by quoted prices in the secondary
         market. The mortgage servicing rights on the loans sold in the
         secondary market are grouped by their primary risk characteristics,
         which is the interest rate. The mortgage servicing rights are being
         amortized in proportion to and over the period of net servicing income
         earned on the related loans being serviced. At September 30, 1997,
         there was no allowance recognized for impairment of the recorded
         balance of mortgage servicing rights.

         Cash and Cash Equivalents. For purposes of reporting consolidated cash
         flows, the Bank considers cash, balances with banks, federal funds
         sold, and interest bearing deposits in other financial institutions
         with original maturities of three months or less to be cash
         equivalents. Cash and cash equivalents includes approximately $8.2
         million on deposit with other banks which is not covered by FDIC
         insurance.

         Reclassification. Certain presentations of accounts previously reported
         have been reclassified in these consolidated financial statements. Such
         reclassifications had no effect on net income or retained income as
         previously reported.

                                  (Continued)

                                      27
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                ---------------


2.       Investment Securities

         The cost and estimated fair value of securities held by the Bank as of
         September 30, 1997 and 1996 are summarized as follows:

<TABLE>
<CAPTION>

                                                                                 1997
                                                    ------------------------------------------------------------- 
                                                                       Gross           Gross         
                                                     Amortized       Unrealized      Unrealized
                                                        Cost           Gains           Losses         Fair Value 
                                                    ------------    -----------     -----------      ------------
<S>                                                 <C>             <C>            <C>               <C>       
Securities, available-for-sale:
   SBA Pools                                         $ 2,657,013                    $     9,608      $  2,647,405
   Mortgage-Backed Securities                          3,292,217         9,764                          3,301,981
                                                     -----------    -----------     -----------      ------------
                                                     $ 5,949,230    $    9,764      $     9,608      $  5,949,386 
                                                     ===========    ===========     ===========      ============
Securities, held to maturity:  
   Debt Securities:                                  
   U.S. Government and Federal Agencies              $ 4,000,625    $      615      $                $  4,006,240
   Municipals Bonds                                      717,536         8,771                            726,307
                                                     -----------    -----------     -----------      ------------
                                                       4,723,161         9,386                          4,732,547
                                                     -----------    -----------     -----------      ------------
   Mortgage-Backed Securities                         17,343,534        10,629          33,828         17,320,335
                                                     -----------    -----------     -----------      ------------ 

   Federal Home Loan Bank of Cincinnati,   
   capital stock - 5,553                                 555,300                                          555,300               
                                                     -----------    -----------     -----------      ------------  
                                                     $22,621,995    $   20,015      $    33,828      $ 22,608,182              
                                                     ===========    ===========     ===========      ============  
</TABLE> 

                                  (Continued)

                                      28
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                ---------------


<TABLE> 
<CAPTION> 

                                                                                 1996
                                                       ----------------------------------------------------------
                                                                        Gross           Gross         
                                                        Amortized     Unrealized      Unrealized
                                                          Cost          Gains           Losses        Fair Value
                                                       -----------   -------------   ------------    ------------
<S>                                                  <C>             <C>             <C>             <C> 
                        Securities, available-for-sale:
   SBA Pools                                            $3,068,229         $8,043    $                 $3,076,272
   Mortgage-Backed Securities                            4,494,290         44,614          13,565       4,525,339
                                                       -----------    -----------     -----------     -----------
                                                        $7,562,519        $52,657         $13,565      $7,601,611
                                                       ===========    ===========     ===========     ===========
Securities, held-to-maturity:
  Debt Securities:
   U.S. Government and Federal Agencies                   $500,000   $                     $1,565        $498,435
   Municipal Bonds                                         817,221          1,024                         818,245
                                                       -----------    -----------     -----------     -----------
                                                         1,317,221          1,024           1,565       1,316,680
                                                       -----------    -----------     -----------     -----------

   Mortgage-Backed Securities                           22,146,476         74,622         525,980      21,695,118
                                                       -----------    -----------     -----------     -----------
   Federal Home Loan Bank of Cincinnati,               
   capital stock - 5,088 shares                            508,800                                        508,800
                                                       -----------    -----------     -----------     -----------

                                                       $23,972,497    $    75,646     $   527,545     $23,520,598
                                                       ===========    ===========     ===========     ===========
</TABLE> 
         The amortized cost and estimated market value of debt securities at
         September 30, 1997, by contractual maturity, are as follows:

<TABLE> 
<CAPTION> 
                                                                      Estimated
                                                     Amortized         Market
                                                       Cost             Value
                                                    ----------       -----------
        <S>                                         <C>              <C>  
        Due in one year or less                     $3,105,937       $3,105,930
        Due after one year through five years        1,499,190        1,498,828
        Due after five years through ten years       
        Due after ten years                            118,034          127,789
                                                    ----------       ---------- 
                                                    $4,723,161       $4,732,547
                                                    ==========       ==========
</TABLE> 
         Effective October 1, 1994, the Bank changed its policy in accounting
         for debt and equity securities to conform with the requirements of SFAS
         No. 115 "Accounting for Certain Investments in Debt and Equity
         Securities." The unrealized gain on securities available-for-sale of
         $155 net of deferred income taxes of $53 has been recorded as a
         separate component of stockholders' equity as of September 30, 1997.

         For the year ended September 30, 1997, the Bank received $6,635,575
         from the maturity and call of U.S. Government instruments, debt
         securities backed by U.S. Government agencies, and mortgage-backed
         securities, all of which were classified as securities
         held-to-maturity.

                                  (Continued)

                                      29
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             --------------------

         For the year ended September 30, 1996, the Bank received $14,578,264
         from the maturity and call of U.S. Government instruments and debt
         securities backed by U.S. Government agencies, all of which were
         classified as securities held-to-maturity. The Bank recognized a gain
         of $33,310 on the call of a Federal National Mortgage Association
         (FNMA) bond.

         For the year ended September 30, 1995, the Bank received $548,050 from
         the sale of equity securities and $3,940,882 from the sale of
         mortgage-backed securities, all of which were classified as securities
         available-for-sale. The Bank recognized a gain of $506,267 on the sale
         of the equity securities and a $504,445 loss on the sale of the
         mortgage-backed securities.

         The Bank has pledged mortgage-backed securities totaling $3,605,000 to
         secure certain municipal deposits as of September 30, 1997.

  3.     Loans Receivable

         Loans receivable, net at September 30, 1997 and 1996 consists of the
         following:

<TABLE>
<CAPTION>
                                                                                             1997                 1996
                                                                                         ------------          ------------
        <S>                                                                              <C>                   <C>         
        Loans secured by first lien mortgages on real estate:
            Residential, one-to-four family properties                                   $ 20,503,214          $ 21,252,055
            Multi-family and commercial properties                                          1,088,140             2,127,870
            Agricultural loans                                                                545,793               565,313
            Construction loans                                                              1,074,654             1,808,092

        Other loans:
            Commercial loans                                                                5,818,338             4,796,056
            Loans secured by deposits                                                         964,993             1,048,311
            Home equity loans                                                               2,000,421             1,662,736
            Other secured loans                                                             3,562,910             2,710,992
            Signature loans, unsecured                                                        250,893               271,109
                                                                                         ------------          ------------
                                                                                           35,809,356            36,242,534

            Loans in process                                                                 (731,545)             (403,128)
            Allowance for loan losses                                                        (391,341)             (382,469)
            Deferred loan origination fees                                                   (195,599)             (209,516)
                                                                                         ------------          ------------

                   Loans receivable, net                                                 $ 34,490,871          $ 35,247,421
                                                                                         ============          ============
</TABLE>

         The Bank services loans sold to other associations or governmental
         agencies of approximately $52,235,331, $50,317,000, and $50,138,000, as
         of September 30, 1997, 1996, and 1995, respectively.

                                  (Continued)

                                       30
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             --------------------

       The Bank provides an allowance to the extent considered necessary to
       provide for losses that may be incurred upon the ultimate realization of
       loans. The changes in the allowance for loss on loans is analyzed as
       follows:

<TABLE>
<CAPTION>
                                                                    Year Ended September 30,
                                                           ------------------------------------------
                                                             1997             1996             1995
                                                           --------         --------         --------
        <S>                                                <C>              <C>              <C>     
        Balance at beginning or period                     $382,469         $352,244         $347,618
        Additions charged to operations                                       57,433           19,000
        Charge-offs                                          (4,069)         (36,901)         (18,433)
        Recoveries                                           12,941            9,693            4,059
                                                           --------         --------         --------

        Balance at end of period                           $391,341         $382,469         $352,244
                                                           ========         ========         ========
</TABLE>

       At September 30, 1997, the Bank had identified impaired loans totaling
       $5,206. The allowance for loan losses included $5,206 related to these
       impaired loans. At September 30, 1996, the Bank had identified impaired
       loans totaling $18,000. The allowance for loan losses at September 30,
       1996 included $18,000 related to those impaired loans. The average amount
       of impaired loans for the year ended September 30, 1997 and 1996 was
       $11,600 and $34,800, respectively. Interest income received and
       recognized on impaired loans totaled $599 and $2,324 for the year ended
       September 30, 1997 and 1996, respectively.

       The following is a summary of non-performing loans (in thousands) for
       the years ended September 30, 1997, 1996, and 1995, respectively:

<TABLE>
<CAPTION>
                                                                    September 30,
                                                      ----------------------------------------

                                                       1997             1996            1995
                                                      ------           ------           ------
        <S>                                           <C>              <C>              <C>   
        Non-accrual loans                                 $6              $18              $41
        Loans past due 90 days or more                   149              205              151
                                                      ------           ------           ------

        Total non-performing loan balances            $  155           $  223           $  192
                                                      ======           ======           ======
</TABLE>

         If interest on non-accrual loans had been accrued, such income would
         have been approximately $4,436, $5,035, and $2,391 for 1997, 1996, and
         1995, respectively.

         Loans to executive officers and directors, including loans to
         affiliated companies of which executive officers and directors are
         principal owners, and loans to members of the immediate family of such
         persons at September 30, 1997 and 1996 are summarized as follows:

<TABLE>
<CAPTION>
                                                       September 30,
                                                 -------------------------
                                                   1997             1996
                                                 --------         --------
        <S>                                      <C>              <C>     
        Balance at beginning or period           $203,576         $132,127
               Additions during year              247,373          222,827
               Repayments                        (135,159)        (151,378)
                                                 --------         --------

        Balance at end of period                 $315,790         $203,576
                                                 ========         ========
</TABLE>

                                  (Continued)

                                       31
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             --------------------

4.       Premises and Equipment

         Office premises and equipment at September 30, 1997 and 1996 includes
         the following:

<TABLE>
<CAPTION>
                                                            Useful
                   Description                               Life               1997              1996
                   -----------                            -----------        ----------        ----------
         <S>                                              <C>                <C>               <C>       
         Land, buildings, and improvements                30-45 years        $1,850,235        $1,637,310
         Furniture, fixtures, and equipment                5-10 years           790,986           720,748
                                                          -----------        ----------        ----------

         Balance at end of period                                             2,641,221         2,358,058

                Less accumulated depreciation                                (1,228,957)       (1,182,071)
                                                                             ----------        ---------- 
       
                                                                             $1,412,264        $1,175,987
                                                                             ==========        ==========
</TABLE>
      
         Depreciation expense for the years ended September 30, 1997, 1996, and
         1995 amounted to $48,522, $53,365, and $79,900, respectively.

5.       Deposits

         Deposit accounts at September 30, 1997 and 1996 are summarized as
         follows:

<TABLE>
<CAPTION>

                                                                                       September 30,
                                                                                 -------------------------
                                                                                     1997          1996
                                                                                 -----------   -----------

         <S>                                                                     <C>           <C>        
         Demand deposit accounts, non-interest bearing                           $ 2,889,357   $ 2,463,426

         Passbook accounts with a weighted average rate of 2.95% and 2.94% at      9,482,320     9,757,570
         September 30, 1997 and 1996,  respectively

         NOW and MMDA deposits with a weighted average rate of 2.55% and 2.48%    12,907,666    13,424,027
         at September 30, 1997 and 1996, respectively
                                                                                 -----------   -----------

                                                                                  25,279,343    25,645,023

         Certificate of deposits with a weighted average interest rate of         39,305,805    38,690,142
         5.30% and 5.24% at September 30, 1997 and 1996, respectively
                                                                                 -----------   -----------

                Total Deposits                                                   $64,585,148   $64,335,165
                                                                                 ===========   ===========

         Jumbo certificates of deposit (minimum denomination of $100,000)        $ 6,991,246   $ 6,064,944
                                                                                 ===========   ===========
</TABLE>

                                  (Continued)

                                       32
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             --------------------

         Certificates of deposit by maturity at September 30, 1997 and 1996 (in
         thousands) are as follows:

<TABLE>
<CAPTION>
                                          September 30,
                                        -----------------
                                         1997      1996
                                        -------   -------
         <S>                            <C>       <C>    
         Less than 1 year               $29,823   $25,659
         1-2 years                        7,477    10,291
         2-3 years                        1,511     1,421
         Maturing in years thereafter       495     1,319
                                        -------   -------

                                        $39,306   $38,690
                                        =======   =======
</TABLE>


         Certificates of deposit by maturity and interest rate category at
         September 30, 1997 (in thousands) are as follows:

<TABLE>
<CAPTION>
                                                  Amount Due
                            ----------------------------------------------------
                            Less Than                          After 3                
                             One Year  1-2 Years   2-3 Years    Years     Total 
                            ---------  ---------   ---------   -------  --------
         <S>                 <C>         <C>         <C>         <C>     <C>       
         2.01--4.00%         $   317     $           $           $       $   317
         4.01--6.00%          27,858      6,482         697       205     35,242
         6.01--8.00%           1,648        995         814       290      3,747
                             -------     ------      ------      ----    -------
                             $29,823     $7,477      $1,511      $495    $39,306
                             =======     ======      ======      ====    =======
</TABLE>
     
         Interest expense on deposits for the periods indicated are as follows:

<TABLE>
<CAPTION>

                                             Years Ended September 30,
                                        ------------------------------------
                                           1997         1996         1995
                                        ----------   ----------   ----------

         <S>                            <C>          <C>          <C>       
         Money market and NOW account   $  348,167   $  415,846   $  395,111
         Savings Accounts                  276,786      288,054      307,751
         Certificates                    2,027,781    2,111,503    1,866,513
                                        ----------   ----------   ----------

                                        $2,652,734   $2,815,403   $2,569,375
                                        ==========   ==========   ==========
</TABLE>


         The Bank maintains arrangements for clearing NOW and MMDA accounts with
         the Federal Home Loan Bank of Cincinnati. The Bank is required to
         maintain adequate collected funds in its Demand Account to cover
         average daily clearings. The Bank was in compliance with this
         requirement at September 30, 1997 and 1996.

                                  (Continued)

                                       33
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             --------------------

6.       Advances from Federal Home Loan Bank

         The advances from the Federal Home Loan Bank consist of the following:

<TABLE>
<CAPTION>

                                           September 30,
                                        -------------------
        Maturity Date   Interest Rate     1997       1996
        -------------   -------------   --------   --------
        <S>             <C>             <C>        <C>     
           1/1/2006        6.80%        $173,573   $186,460
           2/1/2007        6.35%         337,153    362,467
           4/1/2007        7.50%         116,283    124,282
           7/1/2025        5.50%          25,216     25,589
                                        --------   --------
                                        $652,225   $698,798
                                        ========   ========
</TABLE>

        The following summarizes the amounts due on FHLB advances by year for
        each of the next five fiscal years and thereafter.
<TABLE>
<CAPTION>

        Fiscal Year                                              Amount
        -----------                                              ------
        <S>                                                      <C> 
        1998                                                     $49,835
        1999                                                      53,261
        2000                                                      56,923
        2001                                                      60,839
        2002                                                      65,026
        Subsequent to 2002                                       366,341
                                                                --------
                                                                $652,225
                                                                ========
</TABLE>

        At September 30, 1997 and 1996, the Bank had a cash management advance
        line of credit with the Federal Home Loan Bank of Cincinnati that allows
        the Bank to borrow up to $4,000,000 for a maximum thirty day period at a
        fixed rate or for a maximum of ninety days at a variable rate. No
        commitment fees are paid under the agreement. There were no borrowings
        against this line of credit at September 30, 1997.

        These advances are collateralized by Federal Home Loan Bank stock
        totaling $555,300 and a blanket agreement against certain real estate
        loans amounting to $978,338.

7.      Income Taxes

        Effective January 1, 1993, the Bank adopted SFAS No. 109 "Accounting for
        Income Taxes" which requires an asset and liability approach to
        accounting for income taxes.


                                  (Continued)

                                       34
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               ----------------


The provision for income taxes for the periods indicated consist of the
following:

<TABLE>         
<CAPTION>       
                                                          Year Ended September 30,         
                                                ------------------------------------------ 
                                                   1997             1996           1995    
                                                ----------       ----------     ---------- 
<S>                                             <C>              <C>            <C>        
Federal income tax expense:
   Current expense                              $ 741,031        $ 377,730      $ 526,821
   Deferred tax benefit                          (198,651)           8,587         41,322
                                                ----------       ----------     ---------- 

                                                $ 542,380        $ 386,317      $ 568,143
                                                ==========       ==========     ========== 
</TABLE>

Deferred income taxes result from temporary differences in the recognition of
income and expenses for tax and financial statement purposes. The source of
these temporary differences and the tax effect of each are as follows:
 
<TABLE>             
<CAPTION>           
                                                          Year Ended September 30,         
                                                ------------------------------------------ 
                                                   1997             1996           1995    
                                                ----------       ----------     ---------- 
<S>                                             <C>              <C>            <C>        
FHLB stock                                      $  12,784        $   3,598      $    (878)
Allowance for loan losses                        (230,498)          12,153         44,860
Other, net                                         19,063           (7,164)        (2,660)
                                                ----------       ----------     ---------- 
 
 Net deferred tax (benefit) expense             $(198,651)       $   8,587      $  41,322
                                                ==========       ==========     ========== 
</TABLE>

For the periods indicated, total income tax expense differed from the amounts
computed by applying the U.S. Federal income tax rate of 34% to income before
income taxes as follows:

<TABLE>        
<CAPTION>      
                                                          Year Ended September 30,         
                                                ------------------------------------------ 
                                                   1997             1996           1995    
                                                ----------       ----------     ---------- 
<S>                                             <C>              <C>            <C>        
Expected income tax expense at federal tax rate $ 547,171        $ 371,722      $ 559,520
Other, net                                         (4,791)          14,595          8,623
                                                ----------       ----------     ---------- 
     Total income tax expense                   $ 542,380        $ 386,317      $ 568,143
                                                ==========       ==========     ========== 
Effective income tax rate                           33.7%            35.3%          34.5%
                                                ==========       ==========     ========== 
</TABLE>

                                  (Continued)

                                       35
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               ----------------                        


Net deferred tax assets included in other assets at September 30, 1997 and net
deferred tax liabilities included in other liabilities at September 30, 1996
consisted of the following:

<TABLE>
<CAPTION>

                                                     1997        1996
                                                  ----------  ----------
<S>                                               <C>         <C>
Deferred tax assets:                                            
  Allowance for loan losses                       $ 124,409   $ 
  Deferred loan fee income                           61,057      71,235
                                                  ----------  ---------- 
                                                    185,466      71,235
                                                  ----------  ---------- 

Deferred tax liabilities:
  FHLB stock                                         99,670      86,886
  Allowance for loan losses                                     106,089
  Other, net                                         11,946      16,300
                                                  ----------  ---------- 
                                                    111,616     209,275
                                                  ----------  ---------- 
  Net deferred taxes (asset) payable              $  73,850   $(138,040)
                                                  ==========  ========== 
</TABLE>

     For the years ended September 30, 1996 and 1995, the Bank was allowed a
     special bad debt deduction limited generally to eight percent (8%) of
     otherwise taxable income and subject to certain limitations based on
     aggregate loans and savings account balances at the end of the year. If the
     amounts qualifying as deductions under the Internal Revenue Code provision
     were later used for purposes other than bad debt losses, they would be
     subject to Federal income tax at the then current corporation rate.

     In 1996, the Internal Revenue Service repealed this special provision for
     thrift institutions, such as the Bank, for determining the allowable tax
     bad debt reserves. Effective for tax years ending December 31, 1996 or
     after, fiscal year September 30, 1997 for the Bank, all thrift institutions
     are taxed as other banking institutions. Institutions under $500 million in
     assets are allowed to use the reserve method of determining their bad debt
     deduction based on their actual experience while larger institutions (over
     $500 million) must use the specific charge off method in determining their
     deduction. Tax bad debt reserves accumulated since December 31, 1987 must
     be included in taxable income of the Bank prorated over a six year period,
     beginning in the tax year effected by the change. This change did not have
     a material impact on the Bank as a deferred tax liability was provided for
     these accumulated reserves. The accumulated tax bad debt reserves as of
     December 31, 1987, which amounts to approximately $1,598,000 is only
     subject to being taxed at a later date under certain circumstances, such as
     the Bank converting to a type of institution that is not considered a bank
     for tax purposes. These financial statements do not include any deferred
     tax liability related to the accumulated tax bad debt reserves as of
     December 31, 1987.

8.   Stockholders' Equity and Regulatory Capital

     Regulatory Capital. The Bank is subject to minimum regulatory capital
     requirements promulgated by the Office of Thrift Supervision (OTS). Such
     minimum capital standards generally require the


                                  (Continued)

                                       36
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               ----------------


     maintenance of regulatory capital sufficient to meet each of three tests,
     hereinafter described as the tangible capital requirement, the core capital
     requirement and the risk-based capital requirement. The tangible capital
     requirement provides for minimum tangible capital (defined as stockholders'
     equity less all intangible assets) equal to 1.5% of adjusted total assets.
     The core capital requirement provides for minimum core capital (tangible
     capital plus certain forms of supervisory goodwill and other qualifying
     intangible assets such as capitalized mortgage servicing rights) equal to
     3.0% of adjusted total assets. The risk-based capital requirement provides
     for the maintenance of core capital plus general loss allowances equal to
     8.0% of risk-weighted assets. In computing risk-weighted assets, the
     Savings Bank multiplies the value of each asset on its statement of
     financial condition by a defined risk-weighting factor, e.g., one-to-four
     family residential loans carry a risk-weighted factor of 50%.

     As of September 30, 1997, the Bank's regulatory capital exceeded all
     minimum regulatory capital requirements as shown in the following table:

<TABLE>
<CAPTION>

                                                                       Regulatory Capital                                  
                                       ---------------------------------------------------------------------------------   
                                         Tangible                     Core                      Risk-based                 
                                         Capital       Percent       Capital       Percent       Capital       Percent     
                                       ------------  -----------  ------------   ----------   -------------  -----------   
                                                                         (in thousands)                                    
                                       ---------------------------------------------------------------------------------   
<S>                                    <C>            <C>         <C>            <C>          <C>            <C>           
Capital under generally                $      8,638            %  $      8,638            %   $       8,638            %   
accepted accounting principles                                                                                             
                                                                                                                           
Adjustments:                                    -0-                        -0-                          -0-                
   Net unrealized appreciation                                                                                             
   on securities available-for-sale 
                                                                                                                           
  General valuation allowances                                                                          378                
                                                                                                                           
Regulatory capital computed                  8,638          11.5         8,638          11.5          9,016         29.8   
Minimum capital requirement                  1,123           1.5         2,245           3.0          2,419          8.0   
                                       -----------  ------------  ------------  ------------  -------------  -----------  
                                                                                                                           
Regulatory capital-excess              $     7,515         10.0%  $      6,393          8.5%  $       6,597        21.8%   
                                       ===========  ============  ============  ============  =============  ===========     
</TABLE>

       Retained Earnings Restriction. Retained earnings includes tax bad debt
       reserves of $1,598,000 accumulated prior to December 31, 1987 for which
       no Federal income tax has been provided. These tax bad debt reserves are
       only taxable in certain circumstances, such as if the Bank converted to
       an institution that did not qualify as a bank for tax purposes (see 
       Note 7).

       Liquidation Account. Upon conversion to a capital stock savings bank,
       eligible account holders who continued to maintain their deposit accounts
       in the Bank were granted priority in the event of the future liquidation
       of the Bank through the establishment of a special "Liquidation Account"
       in an amount equal to the consolidated net worth of the Bank at September
       30, 1986. The Liquidation Account was $2,531,513 at September 30, 1986
       and is reduced in proportion to reductions in the balance of eligible
       account holders as determined on each subsequent fiscal year end. The
       existence 

                                  (Continued)

                                       37
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               ----------------


        of the Liquidation Account will not restrict the use or application of
        net worth except with respect to the cash payment of dividends.

        Dividend Restrictions: The payment of cash dividends by the Bank on its
        Common Stock is limited by regulations of the OTS. Interest on savings
        accounts will be paid prior to payments of dividends on common stock.
        The Bank may not declare or pay a cash dividend to the Company in excess
        of 100% of its net income to date during the current calendar year plus
        the amount that would reduce by one-half the Bank's capital ratio at the
        beginning of the year without prior OTS approval. Additional limitation
        on dividends declared or paid, or repurchases of the Bank stock are tied
        to the Bank's level of compliance with its regulatory capital
        requirements.

9.      Stock Repurchase

        During the fiscal year ended September 30, 1996, pursuant to a Stock
        Purchase Agreement approved by the Board of Directors and the Office of
        Thrift Supervision, the Company purchased 64,244 shares of the Company's
        outstanding stock, of which 58,069 shares were owned by a group of
        stockholders collectively known as the "EKH Group." The 64,244 shares of
        common stock were purchased in July of 1996 at a total cost of
        $2,666,126.

10.     Retirement Benefits

        Profit Sharing Plan. On December 17, 1985, the Board of Directors of the
        Bank adopted an employee pension benefit plan (referred to as a "401K
        Profit Sharing Plan") as described under the Employees' Retirement
        Income Security Act of 1974. The Plan became effective December 19,
        1985. The Plan covers all full-time employees who have attained the age
        of 20 1/2 years and have been employed six months prior to the
        anniversary date of the Plan. Under the Plan, the Bank makes
        discretionary contributions based on profits, in accordance with Section
        401(k) of the Internal Revenue Code. The Bank did not make any
        contributions to the Plan for the years ended September 30, 1997, 1996,
        and 1995.

        Employee Stock Ownership Plan. On October 31, 1994, the Board of
        Directors of the Bank established an Employee Stock Ownership Plan (the
        "ESOP") in which employees meeting age and service requirements are
        eligible to participate. The ESOP is effective beginning January 1,
        1994. The ESOP Plan covers all employees who have attained the age of 20
        1/2 with six months service prior to the entry date. Contributions to
        the Plan are determined by the Board of Directors for each plan year and
        can be made in the form of company stock, cash, or other consideration.

        On April 11, 1997 the Board of Directors of the Company authorized a
        loan to the ESOP Trust in the amount of $249,913. The ESOP Trust used
        the proceeds of the loan to acquire 6,022 shares of the Company's
        outstanding stock from persons affiliated with the Bank. The loan is to
        be repaid in ten annual installments, beginning December 1, 1997.
        Interest is based on the prime rate published 


                                  (Continued)

                                       38
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               ----------------


        in the Wall Street Journal and is adjusted annually. The stock is
        pledged as collateral on the loan. The Bank is expected to make annual
        contributions sufficient to meet the debt service requirements. As the
        debt is repaid, ESOP shares which were initially pledged as collateral
        are released from collateral, based on the proportion of debt service
        paid in that year, and allocated to Plan participants.

        The Company accounts for its ESOP in accordance with the Statement of
        Position 93-6, "Employers Accounting for Employee Stock Ownership Plans"
        (Statement). The Statement prescribes the accounting treatment for
        initially leveraged ESOPs, which requires among other things that:

        a.     For ESOP shares committed to be released in a period to
               compensate employees directly, employers should recognize
               compensation costs equal to the average fair value (as determined
               on a monthly basis) of the shares committed to be released;

        b.     Dividends on unallocated shares used to repay ESOP loans are
               not considered dividends for financial reporting purposes;

        c.     For an internally leveraged ESOP, the Company loan receivable
               and the ESOP note payable as well as the related income/expense
               are not reflected in the consolidated financial statements;

        d.     For earnings per share computations, ESOP shares that have
               been committed to be released should be considered outstanding.
               ESOP shares that have not been committed to be released should
               not be considered outstanding.

        ESOP compensation was $24,991, $30,512, and $24,425 for the years ended
        September 30, 1997, 1996, and 1995, respectively. For 1997, 602 shares
        were committed to be released from collateral. At September 30, 1997,
        there were 5,420 unallocated ESOP shares having a fair value of
        $224,922.

11.     Related Parties

        Mrs. Janet White Prewitt serves the Company as Chairman of the Board of
        Directors. Mrs. Prewitt is an equity partner in the law firm of White,
        McCann, and Stewart that serves as general counsel to Pioneer Federal
        Savings Bank. The fees paid to the Law Firm for fiscal years 1997, 1996,
        and 1995, were $90,948, $103,969, and $77,385, respectively. (See Note 4
        for a summary of loans to officers and directors). In addition, White,
        McCann, and Stewart receives commissions on title insurance premiums
        related to real estate mortgages originated by the Bank. These
        commissions amounted to $10,858, $29,889, and $14,915 for the years
        ended September 30, 1997, 1996, and 1995, respectively.

                                  (Continued)

                                       39
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               ----------------

12.     Financial Instruments with Off-Balance Sheet Risk and Concentration of
        Credit Risk

        The Bank is party to financial instruments with off-balance sheet risk
        in the normal course of business to meet the financing needs of its
        customers. These financial instruments include mortgage commitments
        outstanding which amounted to approximately $2,634,854 and $1,107,600
        for the year ended September 30, 1997 and 1996, respectively plus unused
        lines of credit granted to customers totaling $2,242,683 and $1,689,376
        at September 30, 1997 and 1996, respectively. The mortgage loan
        committments at September 30, 1997 and 1996 included fixed rate loan
        commitments of $610,955 and $370,000, respectively. In addition, at
        September 30, 1997 and 1996, respectively, the Bank had made loan
        commitments for real estate loans secured by first mortgages totaling
        $1,235,202 and $1,169,350, which it anticipated selling in the secondary
        market. These instruments involve, to varying degrees, elements of
        credit and interest rate risk in excess of the amount recognized in the
        consolidated balance sheets.

        The Bank's exposure to credit loss in the event of nonperformance by the
        other party to the financial instrument for loan commitments and
        consumer lines of credit are represented by the contractual amount of
        those instruments. The Bank uses the same credit policies in making
        commitments and conditional obligations as it does for on-balance sheet
        instruments. Since many of the loan commitments may expire without being
        drawn upon, the total commitment amount does not necessarily represent
        future requirements. The Bank evaluates each customer's credit
        worthiness on a case-by-case basis. The amount of collateral obtained
        upon extension of credit is based on management's credit evaluation of
        the counterparty. Collateral held varies, but primarily includes
        residential real estate.

        The Bank has concentrated its lending activity within a 90 mile radius
        of Winchester, Kentucky. Therefore, a substantial portion of its
        debtors' ability to honor their contracts is dependent on the economy of
        this area.

13.     Earnings Per Share

        Earnings per share for the year ended September 30, 1997, 1996, and 1995
        was calculated by dividing net income $1,066,945, $706,982, and
        $1,077,503 by the weighted average number of shares of common stock
        outstanding during the year, which were 208,233, 256,417, and 272,477
        shares for the years ended September 30, 1997, 1996, and 1995,
        respectively.

14.     Disclosures about Fair Value of Financial Instruments

        In December 1991, the FASB issued SFAS No. 107, "Disclosures About Fair
        Value of Financial Instruments." This statement extends the existing
        fair value disclosure practices for some instruments by requiring all
        entities to disclose the fair value of financial instruments (as
        defined), 

                                  (Continued)

                                       40
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             --------------------


        both assets and liabilities recognized and not recognized in the
        statements of financial condition, for which it is practicable to
        estimate fair value.

        There are inherent limitations in determining fair value estimates, as
        they relate only to specific data based on relevant information at that
        time. As a significant percentage of the Bank's financial instruments do
        not have an active trading market, fair value estimates are necessarily
        based on future expected cash flows, credit losses, and other related
        factors. Such estimates are accordingly, subjective in nature,
        judgmental and involve imprecision. Future events will occur at levels
        different from that in the assumptions, and such differences may
        significantly affect the estimates.

        The statement excludes certain financial instruments and all
        nonfinancial instruments from its disclosure requirements. Accordingly,
        the aggregate fair value amounts presented do not represent the
        underlying value of the Company. Additionally, the tax impact of the
        unrealized gains or losses has not been presented or included in the
        estimates of fair value.

        The following methods and assumptions were used by the Company in
        estimating its fair value disclosures for financial instruments.

        Cash and Cash Equivalents. The carrying amounts reported in the
        statement of financial condition for cash and short-term instruments
        approximate those assets' fair values.

        Investment Securities. Fair values for investment securities are based
        on quoted market prices, where available. If quoted market prices are
        not available, fair values are based on quoted market prices of
        comparable instruments. No active market exists for the Federal Home
        Loan Bank capital stock. The carrying value is estimated to be fair
        value since if the Bank withdraws membership in the Federal Home Loan
        Bank, the stock must be redeemed for face value.

        Loans Receivable. The fair value of loans was estimated by discounting
        the future cash flows using the current rates at which similar loans
        would be made to borrowers with similar credit ratings and for the same
        remaining maturities.

        Deposits. The fair value of savings deposits and certain money market
        deposits is the amount payable on demand at the reporting date. The fair
        value of fixed-maturity certificates of deposit is estimated using the
        rates currently offered for deposits of similar remaining maturities.

        Loan Commitments and Unused Home Equity Lines of Credit. The fair value
        of loan commitments and unused home equity lines of credit is estimated
        by taking into account the remaining terms of the agreements and the
        present credit-worthiness of the counterparties.

                                  (Continued)

                                       41
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             --------------------


        The estimated fair value of the Company's financial instruments at
        September 30, 1997 are as follows:

<TABLE>
<CAPTION>
                                                          Carrying             Fair
                                                           Amount              Value
                                                        -----------         -----------
<S>                                                     <C>                 <C>       
        Assets
           Cash and cash equivalents                    $ 9,478,430         $ 9,478,430
           Securities available-for-sale                  5,949,386           5,949,386
           Securities held-to-maturity                   22,621,995          22,608,182
           Loans receivable, net                         34,490,871          34,932,118

        Liabilities
           Deposits                                      64,585,148          64,916,792
           FHLB advances                                    652,225             443,565

        Unrecognized Financial Instruments
           Loan commitments                                                   2,634,854
           Unused lines of credit                                             2,242,683
</TABLE>

                                  (Continued)

                                       42
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             --------------------



15.     Pioneer Financial Corporation Financial Information (Parent Company
        Only)

        The parent company's principal assets are its investment in the Bank and
        cash balances on deposit with the Bank. The following are condensed
        financial statements for the parent company as of and for the year ended
        September 30, 1997.

                          Pioneer Financial Corporation
                   Condensed Statement of Financial Condition
                               September 30, 1997
<TABLE>
        <S>                                                                       <C>           
        Assets:
          Cash and due from banks                                                 $       24,679
          Investment in subsidiary                                                     8,636,473
          Organizational cost, net                                                        28,140
          Other assets                                                                    48,906
                                                                                  --------------

              Total assets                                                        $    8,738,198
                                                                                  ==============

        Liabilities and Stockholders' Equity:

        Liabilities                                                               $
                                                                                  --------------

        Stockholders' equity:
          Common stock                                                                   208,233
          Additional paid-in capital                                                   1,797,432
          Retained earnings                                                            6,957,353
          Unallocated Employee Stock Ownership Plan (ESOP) stock                        (224,922)
          Net unrealized appreciation on securities available-for-sale                       102
                                                                                  --------------

              Total liabilities and stockholders' equity                          $    8,738,198
                                                                                  ==============
</TABLE>

                                  (Continued)

                                       43
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             --------------------


                          Pioneer Financial Corporation
                          Condensed Statement of Income
                          year ended September 30, 1997
<TABLE>
        <S>                                                                    <C>           
        Income:
          Cash dividends from Bank                                             $      572,762
                                                                               --------------

        Expense:
          Amortization of organizational expense                                       13,508
          Other operating                                                               2,181
                                                                               --------------

                                                                                       15,689
                                                                               --------------

        Income before income tax benefit                                              557,073

        Income tax benefit                                                              5,334
                                                                               --------------

        Net income before equity in undistributed net income of subsidiary            562,407

        Equity in undistributed net income of subsidiary                            1,077,300
                                                                               --------------

          Net income                                                           $    1,639,707
                                                                               ==============
</TABLE>

                                  (Continued)

                                       44
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             --------------------


                          Pioneer Financial Corporation
                        Condensed Statement of Cash Flows
                          year ended September 30, 1997
<TABLE>

        <S>                                                               <C>           
        Operating activities:
          Net income                                                      $    1,639,707
          Adjustments to reconcile net income to net cash provided
          by operating activities:
              Equity in undistributed net income of subsidiary                (1,077,300)
              Amortization of organizational cost                                 13,508
              Increase in receivables                                             (5,334)
                                                                          --------------

          Net cash provided by operating activities                              570,581
                                                                          --------------

        Investing activities:

          Net cash provided (used) by investing activities

        Financing activities:
          Dividends paid                                                        (322,762)
          Loan to Employee Stock Ownership Plan (ESOP)                          (249,913)
                                                                          --------------
          Net cash used by financing activities                                 (572,675)
                                                                          --------------

        Decrease in cash and cash equivalents                                     (2,094)

        Cash and cash equivalents at beginning of period                          26,773
                                                                          --------------

        Cash and cash equivalents at end of period                        $       24,679
                                                                          ==============
</TABLE>

                                  (Continued)

                                       45
<PAGE>
 
                 PIONEER FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             --------------------

16.     Pioneer Service Corporation

        On August 30, 1978, the Savings Bank formed Pioneer Service Corporation,
        a wholly owned subsidiary, by purchasing its stock for $16,000. The
        Subsidiary was created to hold stock in a not for profit corporation
        that provides on line computer processing and inquiry service for the
        Bank and other savings and loan institutions.

        Summary balance sheets for the wholly owned subsidiary, Pioneer Service
        Corporation are as follows:

        
                           PIONEER SERVICE CORPORATION
                   Balance Sheets, September 30, 1997 and 1996

                             --------------------

<TABLE>
<CAPTION>

                                                1997        1996  
                                              --------    --------
         <S>                                  <C>         <C>     
         ASSETS                                                   
                                                                  
         Cash                                 $    653    $    653
         Investments                            15,000      15,000
                                              --------    --------
                                              $ 15,653    $ 15,653
                                              ========    ========
                                                                  
         STOCKHOLDERS' EQUITY                                     
                                                                  
         Common stock                         $ 16,000    $ 16,000
         Paid-in capital                         1,000       1,000
         Deficit                                (1,347)     (1,347)
                                              --------    --------
                                              $ 15,653    $ 15,653
                                              ========    ======== 
</TABLE>



        The Service Corporation incurred expenses of $-0- and $30 for the years
        ended September 30, 1997 and 1996, respectively.

17.     Subsequent Events

        On May 23, 1997, the Bank entered into a purchase and assumption
        agreement with People's Exchange Bank of Beattyville, Kentucky, Inc. to
        sell and assign certain assets and certain deposit liabilities of its
        branch office in Stanton, Kentucky. This agreement was finalized and
        settled on October 29, 1997. Deposit accounts transferred to the
        purchaser amounted to $4,930,683. In addition, the Bank sold loans
        totaling $34,370, which were secured by deposits transferred in the
        Agreement, plus property and equipment having a book value of $50,000.
        The transaction resulted in a net gain to the Bank of approximately
        $575,000.

                                       46
<PAGE>
 
                             CORPORATE INFORMATION
<TABLE> 
<CAPTION> 

OFFICES
<S>                             <C>                        <C> 
Executive offices:              Branch offices:
 25 East Hickman Street          Pioneer Drive             Pendleton Street
 Winchester, KY 40391            Winchester, KY 40391      Stanton, KY  40380
 (606) 744-3972                  (606) 744-3896            (Branch closed 10/97)


                                   DIRECTORS

William M. Cress                                           Robert G. Strode
Exec. Vice President,                                      Retired Vice President,
 Hinkle Contracting Corporation,                            Ag-Gro Fertilizer Company
 Stanton, KY

Ewart W. Johnson                                           Nancy M. Lawwill
Retired, Lexington, KY                                     Vice President, Treasurer
                                                             and Assistant Secretary,
                                                             Pioneer Federal

Nora M. Linville                                           Wayne M. Martin
Secretary, Pioneer Federal                                 President and General
 and Retired Executive                                      Manager, WKYT-TV,
 Vice President                                             Lexington, KY

Thomas D. Muncie                                           Carl C. Norton
President, Muncie Buick-GMC                                President and Secretary,
 Truck, Inc.                                                Pioneer Financial;
                                                            President, Pioneer Federal

Janet W. Prewitt                                           Andrew James Ryan
Board Chair, Pioneer Financial                             President, Andy Ryan
 and Pioneer Federal; Asst.                                 Pontiac-Nissan, Inc.
 Secretary, Pioneer Financial;
 and Attorney, White, McCann
 & Stewart


                              ADVISORY DIRECTORS

Clifford R. Langley                                        Beckner Shimfessel
Winchester, KY                                             Retired Clark County Clerk

Willard M. Martin
Retired Housing Authority
Executive Director
</TABLE> 

                                       47
<PAGE>
 
                   OTHER OFFICERS AND SIGNIFICANT EMPLOYEES

Janet R. Tutt                                      Lisa Earlywine
Assistant Treasurer                                Loan Officer

Doris Estes                                        Bobby R. Trent
Branch Manager/                                    Compliance/Security
 Loan Officer
                                                   Dianna Davis
Vicki Rupard                                       Branch Manager/Loan Officer,
Loan Officer                                        Stanton Branch (now closed)

AUDITORS                                           LEGAL COUNSEL

Miller, Mayer, Sullivan & Stevens LLP              White, McCann & Stewart
2365 Harrodsburg Road                              125 S. Main Street
Lexington, KY  40504                               Winchester, KY  40391


ANNUAL MEETING

         The Annual Meeting of the shareholders of Pioneer Financial Corporation
will be held on Wednesday, January 14, 1998, at 10:00 a.m. at the main office,
25 East Hickman Street, Winchester, Kentucky.

FORM 10-K

         A COPY OF THE CORPORATION'S FORM 10-K AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE
RECORD DATE UPON WRITTEN REQUEST TO THE SECRETARY, PIONEER FINANCIAL
CORPORATION, 25 EAST HICKMAN STREET, WINCHESTER, KENTUCKY 40391.


                                       48