<PAGE>
 
                                          December 16, 1996


Dear Shareholder:

       Our 1997 Annual Meeting of Shareholders will be held at 10:00 a.m. on
Wednesday, January 8, 1997, at the main office at 25 E. Hickman Street,
Winchester, Kentucky.  At the meeting action will be taken to elect three Direc-
tors to serve for a term of three years.  In addition, we will ratify the
appointment by the Board of Directors of Miller, Mayer, Sullivan & Stevens LLP,
to prepare the fiscal year 1997 audit.  At the meeting I will report on the
business outlook for the fiscal year.  I urge you to attend the meeting.

       The formal notice of the meeting and the Proxy Statement containing
information relative to the meeting follow this letter.

       Please be sure to sign and return the enclosed proxy card whether or not
you plan to attend the meeting so that your shares will be voted.  If you do
attend the meeting, you will have an opportunity to revoke your proxy and vote
in person if you prefer.

       If you have any questions about the meeting or proxy, please visit our
main office at 25 E. Hickman Street, Winchester, Kentucky, or call us at (606)
744-3972.  The Board of Directors appreciates your interest in Pioneer.

       Your Board of Directors has declared a quarterly dividend of $0.35 per 
share payable this date to shareholders of record on December 1, 1996; your 
dividend check is enclosed.  As of March 15, 1996, the annual dividend was 
increased to $1.40 per share, which is payable quarterly rather than annually.

                                          Sincerely,

                                          /s/ Carl C. Norton
                                          ---------------------------------
                                          Carl C. Norton, President
<PAGE>
 
                         PIONEER FINANCIAL CORPORATION
                              WINCHESTER, KENTUCKY

                              25 E. Hickman Street
                          Winchester, Kentucky  40391
                                 (606) 744-3972

                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

                         TO BE HELD ON JANUARY 8, 1997

     Notice is hereby given that the annual meeting of shareholders of Pioneer
Financial Corporation (the "Corporation") will be held at 10:00 a.m. on January
8, 1997 at the home office of the Corporation's wholly-owned subsidiary, Pioneer
Federal Savings Bank, at 25 E. Hickman Street, Winchester, Kentucky, for the
following purposes:

     1.  To elect three Directors of the class whose term of office expires in
1997, to serve for a term of three years;

     2.  To ratify the appointment of Miller, Mayer, Sullivan & Stevens LLP to
serve as the auditors of the Savings Bank for fiscal year 1997; and

     3.  To receive the reports of officers and transact such other business as
may properly come before the meeting.  Management is not aware of any such
other business.

     The Board of Directors has fixed the close of business on December 2, 1996
as the record date for determining shareholders entitled to notice of and to
vote at the annual meeting.

     The Proxy Statement accompanies this Notice.

                                           By Order of the Board of Directors

                                           /s/ Carl C. Norton

                                           CARL C. NORTON, PRESIDENT

Dated this 16th day of December, 1996
Winchester, Kentucky

YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER THIS PROXY MATERIAL CAREFULLY AND
TO FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE TO
ASSURE THAT YOUR VOTES WILL BE COUNTED.  YOU MAY REVOKE YOUR PROXY AT ANY TIME
BEFORE IT IS VOTED BY DELIVERING TO THE SECRETARY OF PIONEER FINANCIAL CORPOR
ATION EITHER A WRITTEN REVOCATION OF THE PROXY OR A DULY EXECUTED PROXY BEARING
A LATER DATE, OR BY APPEARING AT THE ANNUAL MEETING AND VOTING IN PERSON.  A
RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
<PAGE>
 
                         PIONEER FINANCIAL CORPORATION

                              25 E. Hickman Street
                          Winchester, Kentucky  40391
                                 (606) 744-3972

                                PROXY STATEMENT

                        ANNUAL MEETING, JANUARY 8, 1997

THE PROXY AND SOLICITATION

This Proxy Statement is being mailed on December 16, 1996 to the shareholders of
Pioneer Financial Corporation in connection with the solicitation, by the Board
of Directors, of the enclosed form of Proxy for the Annual Meeting of
Shareholders to be held at 10:00 a.m. on Wednesday, January 8, 1997, at the main
office, 25 East Hickman Street, Winchester, Kentucky.  A shareholder may revoke
a writing appointing a Proxy either by giving notice to the Corporation in
writing, by executing a later-dated Proxy, or by appearing at the meeting and
voting in person. The cost of soliciting the Proxy will be borne by Pioneer
Financial Corporation.

PURPOSES OF ANNUAL MEETING

The Annual Meeting has been called for the purposes of:  (1) electing three
Directors of the class whose term of office expires in 1997; and (2) ratifying
the appointment of Miller, Mayer, Sullivan & Stevens LLP, as auditors for the
fiscal year 1997.  In addition, the shareholders may receive reports of
officers, and transact such other business as may properly come before the
meeting.

     The persons named in the enclosed Proxy have been selected by the Board of
Directors and will vote shares represented by valid Proxies.  They have
indicated that, unless otherwise specified in the Proxy, they intend to vote to
elect as Directors the nominees listed on pages 5 and 6.  All of the nominees
are presently members of the Corporation's Board of Directors.

     The Board of Directors has no reason to believe that any of the nominees
will be unable to serve as a Director.  Each of the nominees has agreed to serve
as a Director, if elected, and has heretofore served as a Director.  In the
event, however, of the death or unavailability of any nominee or nominees, the
Proxy to that extent will be voted for such other person or persons as the Board
of Directors may recommend.

     Miller, Mayer, Sullivan & Stevens LLP and York, Neel & Company, LLP, under
a joint venture agreement, were the auditors of record for the Corporation for
fiscal year 1996.  The joint venture of Miller, Mayer, Sullivan & Stevens LLP
and York, Neel & Company, LLP has been dissolved.  Miller, Mayer, Sullivan &
Stevens LLP, have been appointed by the Board of Directors as auditors of the
Corporation for the fiscal year ending September 30, 1997.  If no contrary
directions are indicated, Proxies will
<PAGE>
 
be voted in favor of ratification of the appointment of auditors.

     The Corporation has no knowledge of any other matters to be presented to
the meeting.  In the event other matters do properly come before the meeting,
the persons named in the Proxy will vote in accordance with their judgment on
such matters.

     Shares may be voted at the meeting in person or by proxy.  The accompanying
proxy is solicited by the Board of Directors of Pioneer Financial Corporation
and is intended to permit each shareholder as of the record date to vote.  All
valid proxies received prior to the meeting will be voted.  Unless marked to the
contrary, such proxies will be voted for the election of three directors, and
for the ratification of the appointment of independent auditors.  If any other
business is brought before the meeting, the proxies will be voted in accordance
with the judgment of the persons voting the proxies.  A shareholder who has
given a proxy may revoke it at any time prior to such proxy being voted at the
meeting by filing with Pioneer Federal an instrument revoking it, or a duly
executed proxy bearing a later date, or by attending the meeting and giving
notice of such revocation.  Attendance at the meeting does not by itself
constitute revocation of a proxy.

     The owners of a majority of the outstanding shares of the Corporation must
be present, in person or by proxy, at the Annual Meeting to constitute a quorum.

     The three nominees for directors receiving a plurality of the votes cast at
the meeting in person or by proxy shall be elected.  All other matters require
for approval the favorable vote of a majority of shares voted at the meeting in
person or by proxy.

     In addition to the use of the mails, proxies may be solicited by the
directors, officers and employees of Pioneer Federal Savings Bank, the wholly-
owned subsidiary of the Corporation, without additional compensation, by
personal interview, telephone, telegraph or otherwise.  Arrangements may also be
made with brokerage firms and other custodians, nominees and fiduciaries who
hold the voting securities of record for the forwarding of solicitation material
to the beneficial owners thereof.  Pioneer Financial Corporation will reimburse
such brokers, custodians, nominees and fiduciaries for the reasonable out-of-
pocket expenses incurred by them in connection therewith.

1998 SHAREHOLDER PROPOSALS

The deadline for shareholders to submit proposals to be considered for
inclusion in the Proxy Statement for the 1998 Annual Meeting of Shareholders is
expected to be September 1, 1997.

                                       2
<PAGE>
 
VOTING SECURITIES

The Board of Directors has fixed the close of business on December 2, 1996 as
the record date for determining shareholders entitled to notice of the meeting
and to vote.  The Corporation has outstanding and entitled to vote at the
meeting 208,233 shares of common stock.  Shareholders are entitled to one vote
for each share held on the record date on all matters presented to the
shareholders at the Annual Meeting except that, in the election of directors,
cumulative voting rules will apply.  Under cumulative voting, each shareholder
is entitled to cast as many votes in the aggregate as shall equal the number of
shares of common stock owned by him or her multiplied by the number of directors
to be elected.  Each shareholder, or his or her Proxy, may cast all of his or
her votes (as thus determined) for a single nominee for director or may
distribute them among two or more nominees, in the shareholder's discretion.  As
to the authority of the persons named as Proxies in the accompanying Proxy card
to cumulate votes, see the section entitled ITEM ONE -NOMINEES FOR ELECTION AS
DIRECTORS FOR TERM OF OFFICE EXPIRING IN 2000.

     The following table sets forth information furnished to the Corporation
with respect to persons known by the Corporation to be the beneficial owners of
more than 5% of the Corporation's common stock (as of September 30, 1996).
<TABLE>
<CAPTION>
 
Name and Address of             Number of Shares         Percent
Beneficial Owner                Beneficially Owned       of Stock
-----------------------         ------------------       ---------
<S>                             <C>                      <C>
Lee Ricketts                          10,736              5.16%
c/o Corner Drug Store
2 N. Main Street
Winchester, Kentucky
</TABLE>

     In addition, Cede & Company holds 25,226 shares (12.11%) as nominal owner
for other persons and entities.  We are assured by members of that firm that
none of the parties for whom it holds Pioneer Financial stock would be the
beneficial owner of more than 5% of the Corporation's stock.

     The following table sets forth, as of December 1, 1996, information
furnished to the Corporation with respect to the beneficial ownership by each
Director and nominee, and by all present Directors and officers as a group, of
the Corporation's common stock.  This table further provides, for each Director,
the age, period from which each has served as a Director of Pioneer Federal
Savings Bank (the Corporation's wholly-owned subsidiary), his principal
occupation or employment, and information with respect to the beneficial
ownership, as such term is defined under Rules and Regulations of the Securities
and Exchange Commission, of the outstanding shares of the Corporation's Common
Stock by each director and by all directors and officers as a group.

                                       3
<PAGE>
 
<TABLE>
<CAPTION>
                                                            Amount & Nature
Name, Age, Principal (1)                         Current     of Beneficial
Occupation, Directorship            Director      Term        Ownership of     Percent
& Business Experiences               Since       Expires     Common Shares    of Stock
----------------------------      -----------  -----------  ---------------  ----------
<S>                                <C>         <C>          <C>              <C>
Nominees for Director:
Ewart W. Johnson (74)                  1989(4)    1997            5,275        2.53%
  Retired; Director
Nora M. Linville (74)                  1976       1997            2,400        1.15%
  Retired; Director and
  Secretary to the Board
Thomas D. Muncie (59)                  1974       1997            2,850        1.37%
  President, Muncie
  Buick-GMC Truck, Inc.;
  Director
Continuing Directors:
William M. Cress (54)                  1991       1998            1,050         .50%
  Engineer; Director
Carl C. Norton (40)                    1993       1998            5,666        2.72%
  Banker; President and
  Director
Janet W. Prewitt (49)                  1972       1998            5,850        2.81%
  Attorney; Director and
  Chairman of the Board
Robert G. Strode (57)                  1974       1998            6,785        3.26%
  General Contractor; Director
George W. Billings, Jr.  (72)          1980       1999              618         .30%
  Retired; Director
Andrew James Ryan (37)                 1995       1999
  President, Andy Ryan
  Pontiac Nissan, Inc.;
  Director
Nancy M. Lawwill (60)                  1981       1999            2,000         .96%
  Banker; Director,
  Vice President, Treasurer
  and Assistant Secretary
Wayne M. Martin (50)                   1991       1999              500         .24%
  President, WKYT-TV 27;
  Director
Advisory Directors to
  Pioneer Federal Savings Bank:
Roger Davis                                                         400         .19%
Martha W. Hampton                                                 2,400        1.15%
John D. Harrison                                                    500         .24%
Clifford R. Langley                                               5,000        2.40%
Willard M. Martin                                                 5,015        2.41%
Nellie K. Meadows                                                 1,000         .48%
Beckner Shimfessel                                                2,500        1.20%
All directors and executive                                      32,994       15.84%
officers as a group,
excluding advisory directors
(12 persons)
All directors and executive                                      49,809       23.92%
officers as a group,
including advisory directors
(19 persons)
</TABLE>
------------------------
(1)  All members of the Board of Directors have held the positions set forth
     above for at least five years, unless otherwise indicated.
(2)  Includes all shares of Corporation Common Stock owned by each director's
     spouse, or as custodian or trustee over which shares such individuals
     effectively exercise sole voting and investment power.
(3)  Ms. Prewitt is an equity partner in the law firm of White, McCann &
     Stewart.  Her law firm received gross fees from Pioneer Federal of
     $143,191.47 during fiscal year ended September 30, 1996, including
     $29,888.92 of commissions from title insurance written in connection with
     loans made at the Savings Bank.  Ms. Prewitt's share of the gross fees was
     $34,365.95.
(4)  Mr. Johnson was elected director of the Bank on May 28, 1965 and served in
     that position until his resignation on October 17, 1972.  He served as a
     Director Emeritus of the Savings Bank from 1972 until the January, 1989
     Annual Meeting of Shareholders, when he was elected to serve the remaining
     unexpired term then held by Clifford R. Langley.

                                       4
<PAGE>
 
     Each officer, director and beneficial owner of more than 10% of any class
of equity securities of Pioneer Financial Corporation is required to file a
report with the Securities Exchange Commission and/or Office of Thrift
Supervision initially reporting securities beneficially owned by him or her, and
then reporting any change in ownership of securities.  These reports must be
filed by the 10th day of the calendar month following the date on which such a
transaction occurred.  All of the statements of changes in beneficial ownership
of securities to be filed by officers and directors of Pioneer Financial
Corporation have been timely filed in fiscal year 1996, except that: Mrs.
Prewitt had, prior to the death of her father in August, 1996, reported his
6,000 shares as being beneficially owned by her (she having had the power to
vote those shares pursuant to Power of Attorney). Following Mr. White's death,
she failed to timely file the report reducing the number of shares beneficially
owned by her, but she has filed that report in the interim.


NOMINEES AND DIRECTORS WHOSE TERMS OF OFFICE WILL CONTINUE

Pioneer Financial Corporation is governed by a Board of Directors consisting of
eleven members, as set forth in Pioneer's Bylaws.  The Board is divided into
three classes, with the members of each class serving for three year terms.
Information as to each of the nominees and continuing Directors is given below.
Unless stated to the contrary, the Directors have been engaged in their current
occupations for at least the five preceding years.  One class of the Board is
due for election at this Annual Meeting (Item No. One, below).

     The nominees for election as members of the Board of Directors, with
information furnished to the Corporation by them as of December 1, 1996, are as
follows:


   ITEM NO. ONE - NOMINEES FOR ELECTION AS DIRECTORS FOR TERM OF
                       OFFICE EXPIRING IN 2000

EWART W. JOHNSON (age 74) is a retired businessman and former Kentucky State
Parks Commissioner.  He was elected a Director of Pioneer Federal on May 28,
1965 and served in that position until his resignation on October 17, 1972.  He
served as a Director Emeritus of the Savings Bank from 1972 until the January,
1989 Annual Meeting of Shareholders, when he was elected to serve the remaining
unexpired term then held by Clifford R. Langley.  Mr. Johnson serves on the
Operations/Business Plan Committee.

NORA M. LINVILLE (age 74) has been a Director of the Savings Bank since 1976.
She retired from Pioneer Federal as Executive Vice President in 1992, having
been with Pioneer Federal since 1952.  She serves as Secretary to the Board and
on the Executive, Salary and Audit Committees.

                                       5
<PAGE>
THOMAS D. MUNCIE (age 59) has been a Director of Pioneer Federal since 1974.  He
is President of Muncie Buick-GMC Truck, Inc., an automobile dealership located
in Winchester.  Mr. Muncie currently serves on the Executive and
Operations/Business Plan Committees.

If any person or persons other than the aforesaid nominees are nominated as
directors, then the Proxies named in the enclosed Proxy card, or their
substitutes, or a majority of them, shall have the right in their discretion to
vote for some number less than all the aforesaid nominees or for less than all
of the aforesaid nominees equally.  If any of the aforesaid nominees becomes
unwilling or unable to accept nomination or election, then the Proxies shall
have the right to vote for any substitute nominee in place of the nominee who
has become unwilling or unable to accept nomination or election.

The Board of Directors has nominated Mrs. Linville and Messrs. Johnson and
Muncie to serve as Directors until 2000, or until their respective successors
shall have been elected and shall qualify.  Election of the nominees requires
the affirmative vote of a plurality of the votes actually cast at the Annual
Meeting.  THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
ELECTION OF THESE NOMINEES AS DIRECTORS.

CONTINUING DIRECTORS

     Present Directors whose term of office will continue after the meeting,
with information furnished to the Savings Bank by them as of December 1, 1996,
are as follows:

            PRESENT DIRECTORS WHOSE TERMS OF OFFICE EXPIRE IN 1998

CARL C. NORTON (age 40) is President of Pioneer Financial Corporation and
Pioneer Federal Savings Bank, and as such is Chairman of all committees of the
Board of Directors.  He is a Winchester native, a past president of the Central
Kentucky League of Savings Institutions and a director of the Winchester Clark
County Chamber of Commerce and the Winchester-Clark County Industrial
Developmental Authority.  Mr. Norton holds a Bachelors degree in accounting from
the University of Kentucky and he is a graduate of the Kentucky School of
Banking and the School of Banking of the South.  Mr. Norton has over sixteen
years of banking experience.  He has served as a director of Pioneer Federal
since January, 1993, and has been employed by Pioneer since February, 1992.
Prior to coming to Pioneer Federal, Mr. Norton was Executive Vice-President and
Chief Managing Officer of First Security Bank of Clark County.

JANET W. PREWITT (age 49) has been a Director of Pioneer Federal since 1972.
She served as the Savings Bank's President from 1976 until 1993, and is
currently Chairperson of the Board of Directors of both Pioneer Financial
Corporation and its wholly-owned subsidiary, Pioneer Federal Savings Bank.  Mrs.
Prewitt is

                                       6
<PAGE>
 
an equity partner in the law firm of White, McCann & Stewart, a general practice
law firm located in Winchester, which serves as general counsel to Pioneer
Federal and Pioneer Financial.  Legal services performed by the law firm are
attended by Mr. John H. Rompf, Jr., and Mrs. Beverly Ann Shea (Mrs. Prewitt's
sister) of the firm, who are not otherwise associated with the Corporation nor
the Savings Bank.  In fiscal 1996, Pioneer Federal paid White, McCann & Stewart
$143,191.47 in legal fees (including the law firm's percentage of commissions
paid on title insurance premiums paid by Pioneer Federal during fiscal 1996 and
some prior years).  Of this sum, $137,703.73 represented fees earned in
connection with title examinations and title insurance for real estate loans,
while the balance represented fees in foreclosure actions and fees for quarterly
and annual reports.

WILLIAM M. CRESS (age 54) is Executive Vice President of Hinkle Contracting
Corporation in Paris, Kentucky.  He has been employed by Hinkle since 1972,
having spent 12 years with the Kentucky Department of Highways prior to that.
He majored in Civil Engineering at the University of Kentucky and is a
Registered Professional Engineer.  He is a native of Powell County and currently
resides in Stanton.  He is Director of Beech Fork Golf Club and past President
of the Plant-Mix Asphalt Industry of Kentucky, Powell County Education
Foundation, and Powell County Alumni Association.  Mr. Cress was an Advisory
Director of the Savings Bank from June 17, 1980 until January 9, 1991, when he
was elected to serve the remaining unexpired term then held by John D. Harrison.
Mr. Cress serves on the Salary and Operations/Business Plan Committees.

ROBERT G. STRODE (age 57) has been a Director of Pioneer Federal since 1974.
Mr. Strode retired in June, 1990 as Vice President of Ag-Gro Fertilizer Company,
a fertilizer processing company located in Winchester.  Mr. Strode currently
serves on the Audit and Executive Committees.

            PRESENT DIRECTORS WHOSE TERMS OF OFFICE EXPIRE IN 1999

GEORGE W. BILLINGS, JR. (age 72) has been a Director of Pioneer Federal since
1980.  He retired as Postmaster for the
United States Postal Service in Stanton, Kentucky in January, 1989.  Mr.
Billings currently serves on the Audit, Salary and Asset/Liability Committees.

NANCY M. LAWWILL (age 60) has been a Director of Pioneer Federal since 1981.
She has served as Pioneer Federal's Treasurer since 1973, as Assistant Secretary
since 1974 and as Vice President since 1994.  She has been with the Savings Bank
since 1966, and is the Savings Bank's data processing and computer coordinator
and is in charge of operations, as well as serving as a Loan Officer.  Mrs.
Lawwill serves on the Loan, Asset/Liability and CRA Committees.

                                       7
<PAGE>
 
WAYNE M. MARTIN (age 50) was elected to Pioneer Federal's Board of Directors on
January 9, 1991, to serve the remainder of Mr. Beckner Shimfessel's term.  He is
President and General Manager for WKYT-TV 27 in Lexington, and has been with
WKYT since March, 1987.  He is a Winchester native, and is President-elect of
the Kentucky Broadcasters Association.  Mr. Martin holds a Bachelors degree in
Business Administration, a Masters degree in Education and a Rank I
Administrative certification - all from Morehead State University.  He also
serves on the Board of Trustees of Cardinal Hill, is Chairman of the Greater
Lexington United marketing Committee, Director and Vice President of the Child
Advocacy Center of the Bluegrass, and is an Elder of First Christian Church,
Winchester, Kentucky.  Mr. Martin currently serves on the Salary, CRA and
Executive Committees.

ANDREW JAMES RYAN (age 37) was elected a Director of Pioneer Federal and Pioneer
Financial on December 1, 1995 to fill the remainder of the term of Michael S.
Houlihan, who died suddenly on November 28, 1995.  Mr. Ryan is President of Andy
Ryan Pontiac Nissan, Inc, an automobile dealership in Winchester.  He was
General Manager of White Chevrolet and Pontiac of Manchester from 1982 until
moving to Winchester in November, 1991 to assume his current duties.  He is
President of the Winchester New Car Dealers Association, a member of the
Winchester Rotary and Kiwanis Clubs, and is a deacon of First Christian Church,
Winchester, Kentucky.  Mr. Ryan currently serves on the Operations/Business Plan
Committee.

ADVISORY DIRECTORS

Pioneer Federal Savings Bank, Pioneer Financial's wholly-owned subsidiary, has
seven Advisory Directors who are elected to that position by the Board of
Directors when, in the opinion of the Board of Directors, the Savings Bank would
benefit from the particular expertise of such persons.  These Directors are
assigned to the various committees of the Bank's Board of Directors.  Advisory
Directors do not have voting or other authority at the Board and committee
meetings.  Advisory Directors who have served as Directors of the Savings Bank
carry the honorary title of Director Emeritus.  Directors are routinely asked to
serve as Advisory Directors upon retirement as Directors.  The following persons
currently serve as Advisory Directors to the Savings Bank:  Clifford R. Langley,
John D. Harrison, Beckner Shimfessel and Willard M. Martin (all of whom were
appointed Directors Emeritus upon retirement from the Board of Directors); Roger
Davis, Martha W. Hampton, Nellie K. Meadows (all of whom are residents of Powell
County, Kentucky, where a branch office of the Savings Bank is located).

FAMILY ASSOCIATIONS AMONG DIRECTORS AND OFFICERS

Wayne M. Martin, Director, is the son of Willard M. Martin, a Director Emeritus
of the Savings Bank.

                                       8
<PAGE>
 
COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors of the Corporation and of Pioneer Federal Savings Bank,
its principal subsidiary, have established the following committees, the members
of which are designated annually by the Board of Directors of the Corporation
and of the Savings Bank.  The President serves as Chairman of all committee
meetings (except Salary Committee), and the Chairman of Pioneer Financial's
Board serves as an ex-officio member of all committees.

     Loan Committee.  The Loan Committee meets at least weekly, and makes
decisions on all mortgage loan applications.  All loans approved are presented
to the Board of Directors for ratification, except that loans to a borrower who
owes or would owe the Savings Bank more than $200,000 are presented to the Board
of Directors for approval.  Regular members of the Loan Committee include the
Executive Officers of the Savings Bank and its Loan Officers.

     Audit Committee.  The Audit Committee meets on an as-needed basis.  The
committee nominates the independent auditor, discusses accounting changes, and
analyzes the financial position of the Savings Bank.  Members of the Audit
Committee include Messrs. Strode, Billings, Willard Martin and Mrs. Linville.

     Asset/Liability Committee.  The Asset/Liability Committee meets quarterly
to analyze the Savings Bank past and present performance and the risks inherent
in future strategies, which may be employed by the Bank.  Members of the
Asset/Liability Committee are Mrs. Prewitt, Mrs. Lawwill, Mr. Billings and Mr.
Tony Parrish, the Savings Bank's Chief Financial Officer.

     Operations/Business Plan Committee.  The Operations/Business Plan Committee
meets on an as-needed basis, to discuss, analyze, and monitor operation systems
and procedures of the Corporation and of the Savings Bank.  Members of the
committee include Messrs. Cress, Johnson, Muncie, Shimfessel, and Ryan.

     CRA (Community Reinvestment Act) Committee.  This Committee meets
periodically to review HMDA (Home Mortgage Disclosure Act) data and CRA
activities conducted by the Savings Bank.  This Committee also sets CRA policy
and direction for the upcoming months.  Members of the CRA Committee include
Mrs. Hampton, Mrs. Prewitt, Mrs. Lawwill, and Messrs. Norton, Wayne Martin, and
Trent.

     Executive Committee.  The Executive Committee acts for the Board of
Directors between Board meetings.  Committee members include Mrs. Linville, and
Messrs. Norton, Wayne Martin, Strode and Muncie.  The committee meets on an as-
needed basis.

     Salary Committee.  The Salary Committee meets on an as-needed basis to
review salaries of employees.  Members of this

                                       9
<PAGE>
 
committee include Mrs. Linville, and Messrs. Billings, Cress and Wayne Martin.

     Nominating Committee.  Pursuant to the Corporation's By-laws, the Board of
Directors as a whole acts as a Nominating Committee for selecting the
management's nominees for election as Directors.  The Nominating Committee must
deliver its written nominations to its secretary at least 20 days prior to the
Annual Meeting.  No other nominations for Directors shall be voted upon at the
Annual Meeting, except those made by shareholders in writing delivered to the
secretary at least 10 days prior to the Annual Meeting.  If the Nominating
Committee does not act prior to 20 days before the Annual Meeting, then
nominations may be made at the meeting by any shareholder entitled to vote.  The
Board, at its September 17, 1996 meeting, nominated Mrs. Linville and Messrs.
Johnson and Muncie for election as Directors for the above-listed term.

     During the fiscal year ended September 30, 1996, the Savings Bank's Board
of Directors held 12 regular meetings and 1 special meeting.  The Savings Bank's
Loan Committee met 52 times, while the Salary Committee met once during fiscal
1996.  The Operations/Business Plan Committee met once; the Executive Committee
met 9 times during the fiscal year.  The Audit Committee held 1 formal meeting,
to receive the report of the Corporation's auditors for fiscal year 1996.  The
CRA Committee met once; the Asset/Liability Committee held 2 meetings.  A Powell
County Branch Committee (consisting of Directors and Advisory Directors from
Powell County) meets on a regular basis to discuss procedures and issues
particularly pertinent to the operation of the Powell County Branch.  This
Committee held 8 meetings during fiscal 1996.  During Fiscal 1996, the
Corporation's Board of Directors held 4 regular meetings and 3 special meetings,
and 1 unanimous consents without meeting.  No Director of the Corporation
attended fewer than 75% of the total meetings of the Board of Directors and
committees on which such Board member served during this period, except for Mr.
Johnson, who was out of the state for a significant period of time.  Further,
Mr. Beverly White, a Director Emeritus of the Savings Bank, became ill during
fiscal 1996, and eventually resigned.  He missed three regular meetings of the
Savings Bank's Board of Directors prior to his resignation, but did not accept a
Director's fee for those months.

DIRECTORS' FEES

Directors are paid by Pioneer Federal Savings Bank a fee of $400 per month, plus
$25 for each committee meeting attended.  Directors Emeritus are paid $400 per
month; other Advisory Directors are paid $200 per month.   Directors who are
officers of the Corporation receive no fees for serving on the Board of
Directors or for attending Board meetings or committee meetings.

                                       10
<PAGE>
 
OFFICERS WHO ARE NOT DIRECTORS

The following information is supplied with respect to officers and significant
employees of Pioneer Federal Savings Bank, the Corporations principal
subsidiary, who do not serve on the Corporation's nor the Savings Bank's Board
of Directors. No arrangements or understandings exist between the Corporation or
Pioneer Federal and any person listed below pursuant to which such person was
elected as an officer.

<TABLE> 
<CAPTION> 

                                  POSITIONS CURRENTLY HELD
       NAME              AGE        WITH PIONEER FEDERAL
    <S>                  <C>    <C> 
    Janet Tutt            54    Assistant Treasurer since 1980;
                                 employee of Pioneer since 1974

    Doris Estes           48    Bypass Branch Manager and Loan
                                 Officer since August, 1993;
                                 Employee of Pioneer since 1984

    Dianna Davis          47    Stanton Branch Manager/Loan Officer
                                 since October, 1995 and an
                                 employee of the Bank since 1985

    Bobby R. Trent        47    Compliance/Security since June,
                                 1995; was previously Chief Operations
                                 Officer/Compliance Officer with
                                 Salt Lick Deposit Bank

    Vicki Rupard          36    Loan Officer since September, 1995;
                                 Was previously Mortgage
                                 Administrative Assistant with
                                 Peoples Commercial Bank

   Anthony Parrish        30    Chief Financial Officer since
                                 April, 1996; was previously
                                 employed as Sr. Vice-President and
                                 Chief Financial Officer at Peoples
                                 Commercial Bank

   Rob Agee               29    Loan officer since June, 1996; was
                                 previously a Mortgage Loan Officer
                                 with Pikeville National Bank

</TABLE> 

REMUNERATION OF OFFICERS

The following table sets forth for the fiscal year ended September 30, 1996,
certain information as to compensation received by all executive officers of the
Corporation as a group for services in all capacities to the Corporation.
During such period, only one executive officer of the Corporation or of Pioneer
Federal received total cash compensation in excess of $60,000.00, that being
President Carl C. Norton.  Mr. Norton's cash compensation by Pioneer Federal
during fiscal 1996 was

                                       11
<PAGE>
 
$86,402.34.  Ms. Prewitt's  compensation as Chairman of the Board of Pioneer
Federal and of the Corporation, when added to her equity portion of the fees
paid by Pioneer to White, McCann & Stewart, did not exceed $60,000.00 during
fiscal 1996 or any prior year.
<TABLE>
<CAPTION>
 

     NUMBER OF PERSONS            CAPACITIES IN                    CASH
         IN GROUP                 WHICH SERVED               COMPENSATION (1)
--------------------------     ------------------           ----------------
<S>                            <C>                          <C>
All Executive Officers         Executive Officers              $185,262.79
  as a Group (4 persons,        (including Chief
  4 positions)                  Financial Officer)
Other Significant Employees    Controller, Branch              $188,380.02
  as a group (7 persons,        Manager, Asst. Treas.,
  5 positions)                  Loan Officers, Compliance/
                                Security
</TABLE>

(1)  In addition to cash compensation, all executive officers of the Savings
Bank are participants in the Savings Bank's group life insurance and Blue
Cross/Blue Shield major medical insurance plans, the costs of which are paid by
the Savings Bank.  The Savings Bank maintains a "401(k)" employee profit sharing
plan as described under the Employees' Retirement Income Security Act of 1974.
The Plan became effective December 19, 1985.  Under the Plan, the Savings Bank
may make contributions in accordance with Section 401(k) of the Internal Revenue
Code.  The Savings Bank's contributions are allocated to each participant based
on the ratio the participant's compensation bears to the total compensation.
Employees may also contribute to the Plan.  The Plan covers all full-time
employees who have attained the age of 20 1/2 years once they have completed 6
months of service at an anniversary date of the Plan.  The participant's account
balance vests at 20% after completing 2 years of service; this vesting is
increased by 20% for each year thereafter, with 100% vesting after 6 years of
service.  Upon retirement, the employee may withdraw all or parts of his vested
portion of the Plan at his discretion (in accordance with Section 401(k)).  The
Board Chairperson of the Savings Bank participates in the "401(k)" plan.  During
fiscal 1996 the Savings Bank made no contributions to the "401(k)" plan on
behalf of the Executive Officers or Other Significant Employees.

In addition, Pioneer Federal Savings Bank established an Employee Stock
Ownership Plan on October 31, 1994.  Under the Plan, the Savings Bank may make
contributions in accordance with Section 401(a) of the Internal Revenue code in
the form of cash or stock for employees of the Savings Bank who are eligible on
attainment of age 20 1/2 and completion of at least a six-month period of
service are eligible to participate.  The Savings Bank made a cash contribution
to the ESOP of $30,512.44 made during fiscal 1996; of this sum, $10,796.00 was
contributed to the ESOP on behalf of the Executive Officers and $4,312.74 was
contributed to the ESOP on behalf of the Other Significant Employees.

                                       12
<PAGE>
 
The following chart shows annual compensation (there being no long-term
compensation) of the Corporation's President and Chief Managing Officer for the
last three fiscal years (including his compensation by Pioneer Federal Savings
Bank):

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
 
                                                   ANNUAL COMPENSATION
NAME AND PRINCIPAL    FISCAL YEAR  -----------------------------------------------
POSITION              ENDED 9/30         SALARY         BONUS     OTHER (BENEFITS)
--------------------  -----------  ----------------  -----------  ----------------
<S>                   <C>          <C>               <C>          <C>
 
Carl C. Norton,          1996         $83,892.34      $ 2,500.00     $10,656.35
President and            1995         $79,999.92      $ 2,500.00     $ 9,374.60
Chief Managing           1994         $72,115.84      $ 2,700.00     $ 8,993.84
Officer
</TABLE>

TRANSACTIONS INVOLVING DIRECTORS AND OFFICERS

Pioneer Federal currently offers loans to its officers and Directors for various
purposes consistent with the Corporation's and the Savings Bank's regular
lending policies as limited by applicable law and regulation.  These loans are
made in the ordinary course of business, are made on the same terms and
conditions as those prevailing at the time for comparable transactions with non-
affiliated persons, and, in the judgment of management, do not involve more than
normal risk of collectibility or present other unfavorable features.

     Set forth below is certain information relating to loans made to Pioneer
Federal executive officers and Directors (and their affiliates and immediate
family members) whose total aggregate loan balances exceeded $60,000.00 at any
time during the year ended September 30, 1996.  Loans which were originated by
the Savings Bank but have been sold on the secondary market are note included.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Borrower and                      Original    Original      Current
   Type of              When        Loan      Interest     Interest     9/30/96
    Loan             Originated    Amount       Rate         Rate       Balance
--------------------------------------------------------------------------------
<S>                  <C>          <C>         <C>          <C>       <C>
Wayne Martin,           8/29/96   $51,375.00       9%           9%   $ 51,375.00
Director:
 residential/
 real estate
 
Chris Martin, son of    5/30/96    52,700.00       6%           6%   $ 52,439.20
Director Martin
residential/
real estate
(first mortgage,
home)

Andrew James Ryan,      6/28/96   196,000.00       9%           9%   $ 53,455.00
Director:
residential/
real estate,
(construction loan - in process)                                     -----------
                                                                     $157,269.20

</TABLE> 

                                       13
<PAGE>
 
During the year ended September 30, 1996, there were no loans made to Pioneer
Federal officers (who are not considered principal officers for the purposes of
the annual audit) whose total aggregate loan balances exceeded $60,000 at any
time during the fiscal year.  Loans which were originated by the Savings Bank
but have been sold on the secondary market are not included.

LEGAL PROCEEDINGS

  Four shareholders combined to form East Kentucky Holdings, a general
partnership, in 1994.  On July 24, 1994, the Savings Bank filed a lawsuit styled
                                                                                
Pioneer Federal Savings Bank v. Fred M. Higgins, Catherine H. Howard, Charles
-----------------------------------------------------------------------------
Lester Key, Phillip R. Perry, individually and d/b/a East Kentucky Holdings, a
------------------------------------------------------------------------------
Kentucky general partnership, (collectively, the "EKH Group") in the United
----------------------------                                               
States District Court, Eastern District of Kentucky, Civil Action No. 94-232.
The Complaint alleged that the EKH Group, acting in concert, engaged in a tender
offer with respect to the Bank's stock without complying with the disclosure and
filing requirements of Sections 14(d) and 14(e) of the Williams Act, the Change
in Bank Control Act and the applicable regulations.  Through that lawsuit, the
Bank sought an injunction requiring the EKH Group to cease their tender offer
activities, to comply with applicable laws and to restrict their activities with
respect to the Bank.

     The EKH Group filed a Counterclaim which sought to enjoin an alleged tender
offer by the Savings Bank, its officers, directors, agents and others acting in
concert with them.  The Counterclaim also requested the Court to order the
Savings Bank to declare a dividend to its shareholders, to seek competitive
bids for its legal services, to evaluate and disclose bona fide offers to
purchase the Bank, and to fully disclose and address any conflicts of interest
of the Bank's directors.

     Pioneer and the members of the EKH group entered into a Mutual Release and
Agreed Order of Dismissal of the civil matter.  The Savings Bank redeemed the
EKH stock at a price per share of $41.50 in July, 1996, following confirmation
from the Office of Thrift Supervision (OTS) that the redemption was consistent
with all statutes, rules, regulations, policies, directives or orders of the
OTS.

     The redemption included the 58,069 shares of stock of the EKH group and
6,175 shares of stock owned by the Corporation's chairman, Janet W. Prewitt, and
certain of those persons presumed to be acting in concert with her.  The
redemption of the shares of Ms. Prewitt, etc., is necessitated by the EKH
redemption to keep the ownership of the Corporation's stock by Ms. Prewitt and
those presumed to be acting in concert with her below 10% and thus avoid her
undergoing the personal expense and time involved in a control filing with the
OTS.

                                       14
<PAGE>
 
               ITEM NO. TWO - SELECTION OF INDEPENDENT AUDITOR

Miller, Mayer, Sullivan & Stevens LLP, have been appointed as the Corporation'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 meeting with an opportunity to make a statement if he desires to
do so and to answer appropriate questions with respect to that firm's
examination of the Corporation's financial statements and records for the fiscal
year ended September 30, 1996.

     The appointment of the auditors must be approved by a majority of the votes
cast by the stockholders of the Corporation at the Meeting.  THE BOARD OF
DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE
APPOINTMENT OF AUDITORS.

                         ITEM NO. THREE - OTHER MATTERS

The Board of Directors is not aware of any business to come before the Meeting
other than those matters described above in this Proxy Statement.  However, if
any other matters should properly come before the Meeting, it is intended that
Proxies in the accompanying form will be voted in respect thereof in accordance
with the judgment of the person or persons holding the Proxies.

ANNUAL REPORT

The Annual Report of the Corporation for the fiscal year ended September 30,
1996 is enclosed herewith.  The consolidated financial statements of the
Corporation and its subsidiary and the accompanying notes and report of
independent auditors, the quarterly data and supplementary information on the
effects of inflation, the selected financial data for each of the last five
fiscal years, and management's discussion and analysis of the summary of
operations contained in the Annual Report are incorporated by reference in this
Proxy Statement.

                              By Order of the Board of Directors

                              /s/ Carl C. Norton

                              CARL C. NORTON, PRESIDENT

Dated this 16th day of December, 1996, 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.

                                       15
<PAGE>
 
                                REVOCABLE PROXY
                 SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
                         PIONEER FINANCIAL CORPORATION

     The undersigned shareholder hereby appoints the Board of Directors of
Pioneer Financial Corporation, with full power of substitution, to act as proxy
for and to vote the stock of the undersigned at the annual meeting of
Shareholders of Pioneer Financial Corporation, Winchester, Kentucky, to be held
at its registered office, 25 East Hickman Street, Winchester, Kentucky, on
Wednesday, January 8, 1997, at 10:00 A.M., Eastern Standard time, or any
adjournment thereof, for the purposes stated in the Notice of Annual Meeting.

     The undersigned hereby directs this proxy to be voted as follows:

1.  Election of the following as Directors to serve until the Annual Meeting 
in January, 2000, or until their successors are elected and qualified (this 
proxy will be voted for each nominee listed unless:  (a) the box labelled 
"AGAINST" is marked, or (b) the nominee's name is marked out by striking 
through, in which event another name may be substituted):

  Ewart W. Johnson                               FOR  [ ]      AGAINST  [ ]    
                       -------------------------                
  Nora M. Linville                               FOR  [ ]      AGAINST  [ ]    
                       -------------------------                
  Thomas D. Muncie                               FOR  [ ]      AGAINST  [ ]    
                       -------------------------                

2.  Ratification of the appointment of Miller, Mayer, Sullivan & Stevens LLP, to
serve as the independent auditors of the Corporation for fiscal year 1997;

   FOR  [ ]   AGAINST  [ ]    ABSTAIN  [ ]

3.  The undersigned further authorizes my/our proxies to vote this proxy for or
against any other business as may properly come before the meeting, in the
discretion of the above-named proxies:

   FOR  [ ]   AGAINST  [ ]    ABSTAIN  [ ]

THIS PROXY WILL BE VOTED AS DIRECTED.  IF NO CONTRARY DIRECTION IS INDICATED,
THIS PROXY WILL BE VOTED FOR THE ABOVE PROPOSITIONS.

                                           Dated:____________________________
    
                                           __________________________________
                                                    (Stockholder)
    
                                           __________________________________
                                                    (Stockholder)
(Please sign and date this proxy.  Please sign
exactly as indicated above.)