UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
< X > Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Commission File Number: 0-2616
CONSUMERS FINANCIAL CORPORATION
1200 CAMP HILL BY-PASS
CAMP HILL, PA 17011
PENNSYLVANIA 23-1666392
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization) Identification
No.)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which
registered
None Not listed
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which
registered
Common stock (no par) (voting) Not listed
8 1/2% Preferred Stock Series A
(Par Value $1.00 per share) (non-voting)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing such requirements for the past 90 days.
Yes XX No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 40 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Based on the closing price of March 1, 1996, the aggregate market value
of common stock held by non-affiliates of the registrant was $8,502,153.
The number of common shares outstanding of the registrant was 2,616,047
as of March 1, 1996.
PART I
ITEM 1. BUSINESS
GENERAL
Consumers Financial Corporation (the "Company") is an insurance holding
company which, through its subsidiaries, is a leading provider of credit life
and credit disability insurance in the Middle Atlantic region of the United
States. The Company also owns and administers a small block of universal life
insurance business, but no longer markets those products. The insurance
subsidiaries are licensed in 33 states and the District of Columbia and
currently conduct the majority of their business in the states of Pennsylvania,
Delaware, Maryland, Nebraska, Ohio and Virginia. Credit insurance, which
accounted for $33.1 million, or 85%, of the Company's total premium revenues in
1995, is marketed primarily through approximately 900 automobile dealers. In
connection with its credit insurance operations, the Company also markets, as
an agent, an automobile extended service warranty contract and, to a lesser
extent, reinsures certain underwriting risks on warranty business. Universal
life insurance, which accounted for $5.1 million of premium and policy charge
revenues, or 13% of the Company's total premiums and policy charges in 1995,
was marketed, until 1992, through general agents, personal producing general
agents and independent brokers. Additional information regarding the
termination of marketing activities in the Individual Life Division and the
sale of the majority of the Division s in-force business appears below under
"Operations."
The Company, through its wholly-owned subsidiary, Interstate Auto Auction,
Inc. ("Interstate"), conducts wholesale and retail automobile auctions of used
vehicles for automobile dealers, banks and leasing companies.
The Company was formed in 1966 as 20th Century Corporation (a Pennsylvania
business corporation) and adopted its present name on May 30, 1980. The
Company operates through its wholly-owned subsidiaries, principally Consumers
Life Insurance Company (a Delaware life insurance company), Consumers Car Care
Corporation (a Pennsylvania business corporation) and Interstate Auto Auction,
Inc. (a Pennsylvania business corporation). Consumers Life Insurance Company
of North Carolina (a North Carolina life insurance company) and Investors
Fidelity Life Assurance Corp. (an Ohio life insurance company) are
subsidiaries of Consumers Life Insurance Company.
The term "Company" when used herein refers to Consumers Financial
Corporation and its subsidiaries unless the context requires otherwise. The
Company's executive offices are located at 1200 Camp Hill By-Pass, Camp Hill,
Pennsylvania 17011. Its telephone numbers are (717) 761-4230 and (800) 933-
3018.
The Company operates in three industry segments: the Automotive Resource
Division, which markets credit insurance and other products and services to its
automobile dealer customers, the Individual Life Insurance Division and the
Auto Auction Division. These segments exclude the corporate activities of
Consumers Financial Corporation which are insignificant in relation to the
three segments. The Automotive Resource segment consists principally of credit
life and credit disability insurance which is sold primarily through
automobile dealers and, to a limited extent, through banks and other financial
institutions. This segment also generates commission revenues on sales of
automobile warranty contracts and revenues from other related products and
services. The Individual Life segment emphasized the sale of universal life
products which were introduced in 1985, and had previously marketed whole-
life, term, endowment and annuity products. The Auto Auction segment
operates an automobile auction of used vehicles for automobile dealers, banks
and leasing companies.
In March of 1992, the Company announced its decision to terminate the
operations of its Individual Life Insurance Division. The phase-out plan
included discontinuing the sale of insurance policies and the sale of the
Company s existing block of individual business. Effective October 1, 1992,
the Company sold its block of whole life, term and annuity products to an
unaffiliated insurer but continued to administer the block of universal life
policies. As of December 31, 1994, the Company sold its in-force block of
direct universal life insurance business to an unaffiliated insurer. As part
of that transaction, the Company irrevocably assigned to the same insurer,
all of its right, title and interest to a block of universal life business
which had been assumed previously from another unaffiliated insurer. The
Company will continue to administer these blocks of universal life business
until May 1, 1995 unless the arrangement is terminated earlier by the
reinsurer. The Company continues to own and administer an assumed block of
universal life business issued by an unaffiliated insurer.
In March of 1996, the Company announced that it had retained a
financial advisor to assist management in evaluating various
alternatives to best serve the interests of its shareholders. The recent
losses incurred in the Company's core credit insurance operation have lead to
this action in order to preserve shareholder value. The various alternatives
being considered include the sale of the insurance operations (either the
existing business and the marketing organization or only the marketing
organization), the sale of the auto auction business, the sale of the entire
Company or a combination of the Company with another organization. Bids are
currently being solicited for both the insurance operations and the auto
auction business. There can be no assurance that any one of these alternatives
can be completed in 1996; however, the Company believes that it is reasonably
possible that one of the alternatives outlined above may be consummated
in 1996.
The following table sets forth for the periods indicated the contribution
to revenues, which are comprised of premiums written (before reinsurance
ceded), policy charges, net investment income, realized investment gains and
other revenues, of each of the product lines within the Company's three
industry segments:
<TABLE>
<CAPTION> Years Ended December 31,
(in thousands) 1995 1994 1993
<S> <C> <C> <C>
Automotive Resource Division
Credit Insurance:
Life $14,742 $15,443 $14,450
Disability 20,973 21,739 19,802
Warranty contracts 1,684 1,647 1,851
Other products and services 129 170 168
37,528 38,999 36,271
Individual Life Insurance Division
Traditional life 40 49 25
Universal life 5,714 (1) 8,276 9,882
Annuities 5 4 11
Other 22 189 476
5,781 8,518 10,394
Auto Auction Division 3,221 3,304 2,328
Corporate 21 10 18
Net realized investment
gains (losses) - not allocated (119) (476) 671
Total revenues (before
reinsurance ceded) $46,432 $50,355 $49,682
</TABLE>
(1) Includes $3.2 million in policy charge revenues which relate to business
which was 100% coinsured to another insurer as of December 31, 1994. The
coinsurance arrangement will be replaced by an assumption and novation
agreement following approval by the appropriate regulatory authorities.
The following table sets forth for the periods indicated the contribution
to pre-tax income (loss) of each of the product lines within the Company's
three industry segments:
<TABLE>
<CAPTION> Years Ended December 31,
(in thousands) 1995 1994 1993
<S> <C> <C> <C>
Automotive Resource Division:
Credit insurance:
Life ($945) ($469) $348
Disability (1,397) (843) (2,137)
Warranty contracts 219 321 313
Other products and services (6) (22) 24
(2,129) (1,013) (1,452)
Individual Life Insurance Division:
Traditional life (29) 32
Universal life (217) 169 (990)
Annuities (1) (3) (4)
Other (291) (80)
(247) (93) (1,074)
Insurance division results (2,376) (1,106) (2,526)
Auto Auction Division 771 469 181
Corporate (279) (333) (266)
(1,884) (970) (2,611)
Realized investment gains (losses) (119) (476) 671
Pre-tax loss before gain on sale
of insurance business (2,003) (1,446) (1,940)
Gain on sale of insurance business 403
Total pre-tax loss ($2,003) ($1,043) ($1,940)
</TABLE>
The following table sets forth certain information pertaining to the
Company's industry segments:
<TABLE>
<CAPTION> Years Ended December 31,
(in thousands) 1995 1994 1993
<S> <C> <C> <C>
Premiums written and policy charges
(before reinsurance):
Automotive Resource Division $33,832 $34,916 $31,944
Individual Life Insurance 5,077 () 6,179 7,566
Fees and other income:
Automotive Resource Division $1,465 $1,215 $944
Individual Life Insurance 182 253 565
Auto Auction Division 3,200 3,294 2,317
Corporate 16 28
Net investment income:
Automotive Resource Division $2,231 $2,868 $3,383
Individual Life Insurance 522 2,086 2,263
Auto Auction Division 21 10 11
Corporate 5 10 (10)
Benefits and expenses:
Automotive Resource Division $25,638 $24,400 $26,658
Individual Life Insurance 3,182 7,704 10,541
Auto Auction Division 2,450 2,835 2,147
Corporate 300 343 284
Pre-tax income (loss), excluding
realized investment gains and gain
on sale of insurance business:
Automotive Resource Division ($2,129) ($1,013) ($1,452)
Individual Life Insurance (247) (93) (1,074)
Auto Auction Division 771 469 181
Corporate (279) (333) (266)
</TABLE>
(1) See footnote on page 4 of this Form 10-K.
Additional segment information is contained in Note 18 of the Notes to
Consolidated Financial Statements appearing elsewhere in this Form 10-K.
OPERATIONS
The Company's principal subsidiaries, which are engaged in the credit
insurance and, until 1992, the individual life insurance business, are
Consumers Life Insurance Company, Consumers Life Insurance Company of North
Carolina and Investors Fidelity Life Assurance Corp. Together these companies
are licensed in 33 states and the District of Columbia. As noted in Item I. -
General, the Company disposed of a significant portion of its individual life
business in October 1992 and December 1994.
The following table sets forth the amounts of life insurance in force at the
dates indicated:
<TABLE>
<CAPTION> December 31,
(in thousands) 1995 1994 1993
<S> <C> <C> <C>
Direct and assumed:
Credit $1,434,897 $1,427,252 $1,409,081
Individual life 697,176 838,667 1,080,249
2,132,073 2,265,919 2,489,330
Reinsurance ceded (947,363) (1,184,134) (894,119)
Net in force $1,184,710 $1,081,785 $1,595,211
</TABLE>
For information concerning future policy benefits and unearned premiums,
see Notes 1 and 9 of the Notes to Consolidated Financial Statements appearing
elsewhere in this Form 10-K. Reserves for life insurance are developed using
generally accepted actuarial principles which are widely recognized in the
insurance industry. Methods of developing credit disability insurance claims
reserves vary widely in the industry. The Company's methods of establishing
credit disability claims reserves are based on its prior claims experience.
During the last three years, the difference between actual claims on credit
disability policies and amounts reserved has not been significant.
Automotive Resource Division
The Company sells credit insurance in connection with consumer credit
transactions, substantially all of which are automobile purchases. Credit life
insurance provides funds in the event of the insured's death for payment of a
specified loan or loans owed by the insured. Similarly, credit disability
insurance provides for the periodic paydown of such loans during the term of
the insured's disability. In most cases, the entire premium is paid at the
time the insurance is issued. Premiums collected are remitted to the Company
net of commissions. Credit insurance generally is written on a decreasing term
basis with the policy benefit initially being the full amount of the loan and
thereafter decreasing in amounts corresponding to the repayment schedule. The
primary beneficiary under credit insurance is the lender, with any proceeds in
excess of the unpaid portion of the loan payable to a named second beneficiary
or the insured's estate.
The Company underwrites all of its credit insurance certificates as to
certain health matters including cancer, heart disease, AIDS and AIDS related
complex (ARC). The Company also establishes maximum age limits beyond which
individuals are not eligible for coverage. The Company believes that its
comprehensive training programs increase the ability of its automobile dealer
accounts to sell insurance to a significant percentage of automobile
purchasers, which creates a larger and more diverse pool of insureds, thereby
reducing its mortality and morbidity risk. The Company typically experiences a
higher level of claims on disability policies during the first quarter of each
year.
The Company has concentrated credit insurance sales efforts mainly in seven
states, and was ranked for 1994 (the most recent year for which statistics are
available) by A.M. Best Company according to the volume of direct written
premiums as shown in the following table:
<TABLE>
<CAPTION> Credit Life Credit Disability
Number Number
Company of Company of
State Ranking Insurers Ranking Insurers
<S> <C> <C> <C> <C>
Delaware 4 54 2 55
Maryland 13 63 10 66
Nebraska 9 70 5 68
North Carolina 28 74 26 72
Ohio 23 87 19 85
Pennsylvania 5 57 4 60
Virginia 19 71 13 75
</TABLE>
The Company's success in selling credit insurance is dependent upon
establishing and maintaining favorable relationships with automobile dealers.
To accomplish these goals, the Company provides finance and insurance training
programs which assist dealers in arranging financing and increasing sales of
credit insurance; it offers certain dealers the opportunity to participate in
profits of the credit insurance business generated by them through reinsurance
arrangements; and it provides administrative support and claims handling
procedures to dealers. The Company also seeks the endorsement of local and
state automobile dealer and other credit insurance producing member
associations. To assist the Company in developing dealer relationships, the
Company employs two home office sales managers, three finance and insurance
training specialists and 17 salaried field representatives who solicit and
service accounts. The Company's dealer relationships may be terminated by the
Company or the dealers at any time without penalty. In addition to its direct
sales efforts, the Company also purchases closed blocks of credit insurance
from unaffiliated companies and administers the purchased business until all
coverages expire.
The credit insurance business is the major source of the Company's revenues
and, until 1991, provided the majority of its profits as well. As indicated
above, approximately 85% of the Company's premium revenues during 1995 were
derived from its credit insurance business. Automobile sales account for
substantially all of the credit insurance sold by the Company, and have been
and will continue to be affected, directly and indirectly, by automobile
prices, interest rates, the availability of consumer credit and general
economic conditions. The credit insurance industry and the Company s credit
business have both been adversely affected in recent years by the increase in
the number of automobiles which are leased instead of purchased. This is
principally due to the lack of availability of approved credit insurance
products applicable to leases and to a reluctance on the part of automobile
dealers to emphasize the sale of credit insurance products on lease
transactions. The Company has credit insurance products available for lease
transactions in most of the states in which it actively markets.
The Company's ability to retain credit insurance premiums written is
limited by applicable statutory surplus requirements. For this reason, the
Company reinsures substantial percentages of its credit insurance premiums on
a written basis under quota share agreements with unaffiliated insurance
companies. These reinsurance agreements provide statutory surplus relief,
thereby increasing the Company's capacity to write credit insurance. An effect
of this reinsurance is, however, to reduce the profit that the Company might
otherwise realize on its credit insurance business. The agreements contain an
experience adjustment computation which results in the ultimate cost of this
reinsurance being a stated percentage of the amount of statutory surplus
provided. Security funds are maintained by the Company in amounts which are
generally proportional to the ceded unearned premiums. This reinsurance does
not discharge the Company's primary liability as the original insurer.
The Company also markets, in an agency capacity, extended service automobile
warranty products through its wholly-owned subsidiary, Consumers Car Care
Corporation. These products are underwritten by unaffiliated insurance
companies, administered by unaffiliated third party administrators and sold
primarily through automobile dealers, who also sell the Company's credit
insurance. The Company, through another subsidiary, also assumes a portion of
the risks on these extended service contracts pursuant to a reinsurance
arrangement with one of the unaffiliated insurers who underwrite the business.
Other related products and services are also offered to the Company's automobile
dealer customers.
Individual Life Insurance Division
In March of 1992, the Company announced the termination of this Division's
marketing activities and announced its intent to sell its existing blocks of
whole-life, term, annuity and universal life business. Effective October 1,
1992, the traditional whole-life, term and annuity business was sold for $5.6
million to the Londen Insurance Group of Phoenix, Arizona. In early 1993, the
Company rejected offers it received for the sale of its universal life business
after determining that the offers were too low in relation to the projected
future profits on that block of business.
Effective December 31, 1994, the Company sold its direct universal life
business and irrevocably assigned all its right, title and interest in a block
of assumed universal life business (coinsured from AMEX Life Assurance Company
on a 90% quota share basis) to American Merchants Life Insurance Company,
Jacksonville, Florida, for $5.5 million. The Company continued to provide all
policyholder administrative functions for this business pursuant to a service
agreement until May 1, 1995.
The Company had experienced continuing losses in its individual life
operation due to insufficient premium levels to support the cost of operations.
With the sale of the direct universal life business and the AMEX business to
American Merchants and the termination of operations of CLMC Insurance Agency,
Inc. (a general agency which marketed life insurance and annuity products
through unaffiliated insurers), significant reductions have been made in various
direct and indirect costs. Although the remaining block of assumed universal
life business has generally been profitable, the Company is exploring
opportunities to sell this business to the direct writer or another purchaser as
part of its plan to sell its insurance operations.
The table below sets forth for the periods indicated the amount of policy
charge revenues (for universal life products) and premiums written (for other
individual life insurance products).
<TABLE>
<CAPTION> Years Ended December 31,
(in thousands) 1995 1994 1993
<S> <C> <C> <C>
Universal life $5,037 (1.) $6,130 $7,533
Traditional life 40 49 25
Annuities 8
$5,077 $6,179 $7,566
</TABLE>
(1) See footnote on page 4 of this Form 10-K.
Auto Auction Division
The Company's wholly-owned subsidiary, Interstate Auto Auction, Inc.,
conducts wholesale automobile auctions of used vehicles at its facility in
Mercer, Pennsylvania (about 50 miles north of Pittsburgh). The Youngstown Auto
Auction business acquired in July of 1993 to expand the Company s auction
operations, relocated to Lordstown, Ohio in 1994 in order to attract additional
accounts and business to the auction. The Company subsequently ceased all
operations at Lordstown effective December 31, 1994 and transferred a portion of
its business operations to Interstate. In January 1995, Interstate began
conducting the bi-weekly bank repossession auction previously held at Lordstown.
This resulted in the termination, as of the end of 1994, of all of Lordstown's
expenses while maintaining a portion of its revenue base at Interstate with
virtually no incremental costs. Interstate s customers include automobile
dealers and leasing companies. In connection with its weekly auctions,
Interstate provides a body shop repair and conditioning service and an
arbitration service through which disputes between buyers and sellers can be
resolved.
In 1995, approximately 35,000 cars were registered for sale at Interstate
through the regular weekly consignment auction, and approximately 56% of all
vehicles registered were sold. In 1994, approximately 32,000 cars were
registered and 59% of the cars registered were sold. Auction fees are
generally paid by the seller for each vehicle sold and an additional fee is
paid by the purchaser. The purchaser s fees vary according to the price
paid for the automobile.
Between 1986 and 1992, significant revenues and profits were generated in
connection with a contract with Ford Motor Company wherein Ford's executive and
fleet lease vehicles were sold through special monthly auctions held by
Interstate. The purchasers at these sales were limited to Ford's new car
dealers. In November 1992, Ford terminated its contract with Interstate.
Interstate is a member of the National Automobile Auction Association. It
is also bonded and maintains an Auction House License with the Pennsylvania
Department of Motor Vehicles.
BEST'S RATINGS
In 1995, Consumers Life Insurance Company received a C rating (Marginal)
from A.M. Best Company, principally because of its substantial amount of
financial reinsurance and its relatively small capital base. In 1994 Consumers
had a C- rating (Marginal). In 1992 and 1993, Consumers had an NA-9 rating
(Not Rated at Company Request), which is assigned to any company which is
otherwise eligible for a letter rating, but has requested that the rating not
be published. The NA-9 designation was requested by Consumers while it
completed the restructuring of its individual life insurance operations. In
1991, Consumers was rated "B" (Good). Consumers Life Insurance Company of North
Carolina is currently rated "NA-3" (Insufficient Operating Experience), while
Investors Fidelity Life Assurance Corp. is classified as "NA-9." Best's letter
ratings range from A++ (Superior) to D (Below Minimum Standards), with letters
E and F assigned to companies under state supervision or in liquidation. Best's
ratings are based on a comparative analysis of the statutory financial condition
and operating performance of the companies, rated as determined by their
publicly available reports.
INVESTMENTS
The Company's general investment policy with respect to assets of its
insurance subsidiaries has been to invest in both fixed maturity securities and
mortgages with intermediate terms (generally not more than seven years).
Investments in mortgages have allowed the Company to obtain higher yields while
maintaining maturities in the five to seven year range. Prior to the sale of
most of the Company s universal life business, the Company's investment policy
also included investing in certain mortgage-backed securities which provided
competitive yields on assets supporting these interest sensitive products.
The Company's mortgage loan portfolio, which relates primarily to commercial
real estate, is concentrated in the central Pennsylvania area. Specifically,
about 75% of the $7 million in mortgage loan balances at December 31, 1995 are
secured by properties within a 60 mile radius of Harrisburg. The Company
considers this strategy to be conservative because this region has historically
not been particularly susceptible to wide economic swings in recessionary times,
due to the diversity of industries throughout the area and the presence of
government operations and military installations. See the Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing elsewhere in this Form 10-K for further information concerning
mortgage loans and investments.
Investments in government and corporate bonds are limited to those with a
Moody s or Standard & Poors rating of A or better. The Company buys U.S.
Treasury Notes for their yield and superior liquidity features. The Company
also purchases U.S. Government agency bonds and corporate bonds provided such
bonds are part of large liquid issues (over $100 million) and, in the case of
corporate bonds, represent economic balance and diversification. The Company
may also buy foreign bonds denominated in U.S. dollars (Yankee Bonds), thereby
avoiding exposure to foreign currency risk. Short-term investments are
maintained primarily to meet anticipated cash requirements arising from
operations. As of December 31, 1995, the fixed maturities portfolio did not
contain any non-investment grade securities. The Company defines a non-
investment grade security as any security rated below Baa3 by Moody s Investors
Service and below BBB by Standard and Poor s Rating Service. The assets of the
Company's non-insurance subsidiaries generally have been invested in short-term
instruments.
The following table sets forth the Company's investment results for the
periods indicated:
<TABLE>
<CAPTION> Years Ended December 31,
1995 1994 1993
Net Net Net
Investment Yield Investment Yield Investment Yield
Income % Income % Income %
<S> <C> <C> <C> <C> <C> <C>
Interest:
Fixed maturities $2,175 6.8 $2,773 6.4 $3,285 8.0
Mortgage loans 692 8.1 2,138 10.1 2,467 9.9
Policy loans 58 13.9 (1) 250 6.6 221 6.1
Short-term
investments 186 4.4 168 3.3 155 1.9
Real estate 332 30.7 (2) 177 15.5 150 13.2
Other 38 1.8 117 6.3 67 3.6
3,481 7.2 5,623 7.4 6,345 7.9
Investment expenses (702) (0.9) (649) (0.9) (698) (0.9)
$2,779 6.3 $4,974 6.5 $5,647 7.0
</TABLE>
(1) Includes $27,000 in interest which should have been included in 1994
income. If this income had been included in 1994, the yield in 1995
would have been 7.4% and the 1994 yield would have been 7.3%.
(2) Includes $170,000 in rental income related to a property classified as non-
investment real estate. Excluding this income, the real estate yield is
6.8%.
COMPETITION
The Company competes with numerous other credit insurance companies, many of
which are larger than the Company and have greater financial and marketing
resources. The principal competitive factors in the automobile credit insurance
industry are commission levels, the quality of training for dealers, the variety
of related products, the availability of dealer incentive programs and the level
of administrative support and efficiency of claims handling procedures. The
Company believes that it is able to compete successfully on the basis of these
factors.
The Company pays relatively high commissions in order to remain competitive
in states that do not mandate maximum commissions. In states which have
established maximum commissions by regulation, there is generally no commission
competition among companies. The elimination of the existing commission limits
in Pennsylvania, Maryland and Nebraska, the only states where the Company has
any significant amount of business which regulate commission levels, could have
a detrimental effect on the Company's business because agents could negotiate
for higher commissions on the sale of credit insurance without a corresponding
increase in premiums. The Company is not aware that any of these states is
considering elimination of maximum commission regulations.
Because the Company markets its extended service warranty products primarily
in connection with its marketing of credit insurance to automobile dealers, its
ability to sell this product is a function of its ability to compete in the
credit insurance market. The availability of financially sound insurance
underwriters and capable third party warranty administrators are additional
factors which affect the Company's ability to market its extended service
warranty products effectively.
The marketing areas for the auto auction include western Pennsylvania,
western New York, eastern Ohio and the West Virginia panhandle. Interstate
competes with five automobile auctions in its market areas. The principal
competitive factors are the quality of management, the amount of auction fees
charged, location in relation to major metropolitan markets, the quality of the
physical plant and facilities and other services offered, such as title
guarantees. The Company believes that it is able to compete effectively on the
basis of these factors.
REGULATION
The Company's insurance operations are subject to regulation and supervision
in the states in which it is licensed. The extent of such regulation varies
from state to state, but, in general, each state has statutory restrictions and
a supervisory agency which has broad discretionary administrative powers. Such
regulation is designed primarily to protect policyholders and relates to the
licensing of insurers and their agents, the approval of policy forms, the
methods of computing financial statement reserves, the form and content of
financial reports and the type and concentration of permitted investments. The
Company's insurance subsidiaries are subject to periodic examination by the
insurance departments in the states of their formation and are also subject to
joint regulatory agency examination and market conduct examinations in the other
states in which they are authorized to do business.
Certain states in which the Company is licensed have regulations limiting
the credit insurance premium rates or the commissions payable to agents or, in
some cases, limiting both rates and commissions payable. In addition, some
states have regulations that require credit insurance claims ratios to be a
specified percentage of earned premiums. If an insurer's claims ratio is below
the prescribed benchmark, it is required to reduce premium rates and,
conversely, if the claims ratio is higher than the benchmark, the insurer may
request an increase in premium rates.
The dividends which a life insurance company may distribute are subject to
regulatory requirements based upon minimum statutory capital and surplus and/or
statutory earnings. In addition to regulatory considerations, the overall
financial strength of each operating entity is considered before dividends are
paid. Additionally, the amount of dividends a life insurance company can pay
is subject to certain tax considerations. See Notes 2 and 16 of the Notes to
Consolidated Financial Statements appearing elsewhere in this Form 10-K.
The Company is also subject to regulation under the insurance holding
company laws of various states in which it does business. These laws vary from
state to state, but generally require insurance holding companies and insurers
that are subsidiaries of holding companies to register and file certain reports,
including information concerning their capital structures, ownership, financial
condition and general business operations, and require prior regulatory agency
approval of changes in control of an insurer, most dividends and intercorporate
transfers of assets within the holding company structure. The purchase of more
than 10% of the outstanding shares of the Company's Common Stock by one or more
affiliated parties would require the prior approval of certain state insurance
departments which regulate the Company.
EMPLOYEES AND AGENTS
As of December 31, 1995, the Company had approximately 97 full-time
employees, including its management and sales personnel. In addition, as of
that date there were approximately 900 licensed agents selling credit insurance
and vehicle extended service contracts, most of whom were full-time employees of
automobile dealers, banks and other financial institutions.
The Company has adequate insurance coverage against employee dishonesty,
theft, forgery and alteration of checks and similar items. The Company does not
have similar coverage for its agents. There can be no assurance that the
Company will be able to continue to obtain such coverage in the future or that
it will not experience uninsured losses.
ITEM 2. PROPERTIES
Since September 1989, the Company has maintained its executive and business
offices in a leased building located at 1200 Camp Hill By-Pass, Camp Hill,
Pennsylvania. The office building contains approximately 44,500 square feet of
office space. Prior to 1993, the Company leased the entire facility at an
annual rental of $421,000, plus insurance, taxes and utilities. As a result of
the termination in 1992 of all new business functions in the Individual Life
Insurance Division, the Company now occupies approximately 67% of the available
office space. The Company has leased about 85% of the remaining space to third
party tenants. Annual rental income to the Company under these sub-leases
totals $105,000. In March of 1994, the Company exercised its option to acquire
a 50% interest in its home office building, which reduced the Company s annual
rent to $204,000. The option price was approximately $1.75 million. Except as
otherwise noted, the business operations of the Company and all of the
subsidiaries are conducted at the above address in Camp Hill, Pennsylvania.
In connection with its insurance operations, Consumers Life Insurance
Company maintains a branch office in leased facilities in Philadelphia,
Pennsylvania. The branch office primarily provides supervision, sales and
service for credit insurance agents doing business in the eastern Pennsylvania,
Delaware and New Jersey areas. Annual rental for this office is $27,000.
Investors Fidelity Life Assurance Corp. maintains an office in leased
facilities in Columbus, Ohio. This office primarily provides sales support and
supervision for credit insurance agents in the State of Ohio. Annual rental for
this office is $12,000 plus insurance, taxes and utilities.
Interstate's auction facilities are situated on approximately 50 acres of
land owned by Interstate. The auction building contains approximately 44,500
square feet which includes seven auction lanes, a restaurant and various lounges
and other amenities.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various lawsuits which are ordinary and routine
litigation incidental to its business. None of these lawsuits is expected to
have a materially adverse effect on the Company's financial condition or
operations. See Note 13 of the Notes to Consolidated Financial Statements
appearing elsewhere in this Form 10-K for additional information concerning
litigation matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the Fourth Quarter of 1995 to the
shareholders of the Company for their consideration through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Consumers Financial Corporation common stock and Convertible Preferred
Stock, Series A, are traded on the NASDAQ, National Market System. Ticker
symbols are CFIN and CFINP, respectively.
<TABLE>
<CAPTION> 1995 QUARTERLY STOCK PRICES
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Common Stock
High 3 3 3/4 4 4 1/4
Low 2 2 1/2 3 3 1/4
Convertible Preferred Stock
Series A
High 8 1/2 8 3/4 9 9 1/2
Low 7 1/2 7 1/2 7 1/2 8
</TABLE>
Directors, officers and employees of Consumers Financial Corporation have a
sizeable ownership position in Consumers, which is derived from the Company s
belief that this provides a strong incentive for all parties involved to enhance
shareholder value. At December 31, 1995, the Company s Employee Stock Ownership
Plan held 10.7% of the total common stock outstanding.
As of December 31, 1995, there were 7,054 shareholders of record who
collectively held 2,621,090 common shares and 161 shareholders of the
Convertible Preferred Stock, Series A, who held 481,461 shares. Seven
institutions held approximately 138,700 shares of common stock at year end.
Dividends on both the Company s common stock and Convertible Preferred
Stock, Series A, are declared by the Board of Directors. A common stock
dividend was not declared in 1995; however, common stock dividends had been paid
for 14 consecutive years through 1994. The 1994 common stock cash dividend was
$.05 per share. The Convertible Preferred Stock, Series A, dividends are paid
quarterly on the first day of January, April, July and October. The annual
Convertible Preferred Stock, Series A, cash dividend is $.85 per share.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>(Not covered by Independent Auditor s Report)
(dollar amounts in thousands, except per 1995 1994 1993 1992 1991
share amounts)
<S> <C> <C> <C> <C> <C>
Total revenues (before reinsurance ceded) $46,432 $50,355 $49,682 $51,124 $55,167
Premiums written and policy charges
(before reinsurance ceded) 38,909 41,095 39,510 39,700 42,090
Net investment income 2,779 4,974 5,647 7,498 8,525
Net return on average investments 6.0% 6.7% 7.2% 7.4% 7.9%
Income (loss) before cumulative effect of
change in accounting principles (1,601) (1,212) (815) 523 (3,326)
Cumulative effect of change in accounting 299 (710)
Net income (loss) (1,601) (913) (1,525) 523 (3,326)
Income (loss) per common and common
equivalent share:
Income (loss) before cumulative effect
In accounting principles (0.78) (0.62) (0.46) 0.02 (1.26)
Cumulative effect of change in 0.11 (0.26)
Net income (loss) (0.78) (0.51) (0.72) 0.02 (1.26)
Total assets 123,322 125,276 144,393 174,003 164,087
Total debt 2,537 3,389 4,683 5,987 7,220
Shareholders equity and redeemable 15,671 15,226 19,502 21,295 21,442
Shareholders equity per common share 4.20 3.96 5.41 5.91 5.88
Return on average total equity, including
preferred stock (9.9%) (5.1%) (7.4%) 2.8% (13.4%)
Cash dividends declared per common share NONE 0.05 0.05 0.05 0.14
Life insurance in force (before reinsurance 2,132,07 2,265,91 2,489,33 2,917,02 36,587
</TABLE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION> Year Ended December 31,
(in thousands, except per share amounts) 1995 1994 1993
<S> <C> <C>
Primary Earnings Per Share
Reconciliation of net income (loss) per Statements
of Operations to amount used in primary
per share computation:
Net loss ($1,601) ($913) ($1,525)
Preferred dividend requirement (409) (409) (413)
Accretion in carrying value of preferred (36) (36) (36)
Net loss, as adjusted ($2,046) ($1,358) ($1,974)
Reconciliation of weighted average number of shares
outstanding to amount used in primary earnings
share computation:
Weighted average number of common shares
outstanding 2,634 2,690 2,740
Add weighted average number of shares
from assumed exercise of stock
Weighted average number of shares of
Stock and equivalents outstanding 2,634 2,690 2,740
Net loss per common and common equivalent share ($0.78) ($0.51) ($0.72)
</TABLE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION> Year Ended December 31,
(in thousands, except per share amounts) 1995 1994 1993
<S> <C> <C> <C>
Fully Diluted Earnings Per Share
Reconciliation of net income (loss) per Statements
of Operations to amount used in fully diluted
Earnings per share computation:
Net loss ($1,601) ($913) ($1,525)
Reconciliation of weighted average number of shares
outstanding, as adjusted, per primary
on preceding page, to amount used in fully
diluted earnings per share computation:
Weighted average number of shares
as adjusted per primary computation
Preceding page 2,634 2,690 2,740
Add shares issuable from assumed
8 1/2 % cumulative convertible 713 714 726
Weighted average number of shares of
Stock and equivalents outstanding 3,347 3,404 3,466
Fully Diluted Earnings Per Share * * *
</TABLE>
* Anti-dilutive
EXHIBIT 21
SUBSIDIARIES OF CONSUMERS FINANCIAL CORPORATION
Consumers Financial Corporation (23-1666392) owns 100% of the outstanding
common stock of the following subsidiaries:
Consumers Life Insurance Company 21-0706531
CLMC Insurance Agency, Inc. 25-1681245
Interstate Auto Auction, Inc. 25-1211251
Consumers Car Care Corporation 23-1720565
Investors Consolidated Reinsurance, Ltd. 31-1057420
Consumers Limited 25-1493313
Consumers II Limited 25-1718532
Consumers Life Insurance Company owns 100% of the outstanding common stock of
the following subsidiaries:
Consumers Life Insurance Company of North Carolina 56-0663555
Investors Fidelity Life Assurance Corp. 31-0646177
Consumers Life Insurance Company and Consumers Life Insurance Company of North
Carolina each own 50% of the outstanding common stock of the following
subsidiary:
Consumers Reinsurance Company 86-0414938
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994 DEC-31-1995 DEC-31-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994 DEC-31-1995 DEC-31-1994
<DEBT-HELD-FOR-SALE> 35,048,212 28,180,436 0 0
<DEBT-CARRYING-VALUE> 0 0 0 0
<DEBT-MARKET-VALUE> 0 0 0 0
<EQUITIES> 74,064 74,305 0 0
<MORTGAGE> 7,041,033 9,938,267 0 0
<REAL-ESTATE> 1,020,158 1,144,246 0 0
<TOTAL-INVEST> 48,994,969 47,030,814 0 0
<CASH> 450,861 1,253,620 0 0
<RECOVER-REINSURE> 20,022,311 22,623,139 0 0
<DEFERRED-ACQUISITION> 21,925,999 21,654,591 0 0
<TOTAL-ASSETS> 123,321,640 125,275,584 0 0
<POLICY-LOSSES> 36,581,642 38,608,986 0 0
<UNEARNED-PREMIUMS> 57,942,946 56,550,854 0 0
<POLICY-OTHER> 2,850,660 2,848,180 0 0
<POLICY-HOLDER-FUNDS> 3,718 1,911 0 0
<NOTES-PAYABLE> 2,536,982 3,388,589 0 0
4,656,642 4,620,674 0 0
0 0 0 0
<COMMON> 30,310 30,608 0 0
<OTHER-SE> 10,984,112 10,574,688 0 0
<TOTAL-LIABILITY-AND-EQUITY> 123,321,640 125,275,584 0 0
22,043,759 24,576,149 5,573,580 6,824,360
<INVESTMENT-INCOME> 2,79,336 4,974,268 572,313 1,160,004
<INVESTMENT-GAINS> (119,571) (475,913) (83,762) (440,985)
<OTHER-INCOME> 4,863,011 4,762,053 1,154,388 1,171,524
<BENEFITS> 12,126,943 12,527,456 3,258,082 2,907,660
<UNDERWRITING-AMORTIZATION> 10,734,171 11,921,035 2,705,238 3,001,579
<UNDERWRITING-OTHER> 8,708,834 10,431,342 2,570,819 2,738,234
<INCOME-PRETAX> (2,003,413) (1,043,276) (1,317,620) 67,430
<INCOME-TAX> (402,615) 168,709 (415,499) (52,288)
<INCOME-CONTINUING> 0 0 0 0
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 (298,551) 0 (597,102)
<NET-INCOME> (1,600,798) (913,434) (902,121) 119,718
<EPS-PRIMARY> (0.78) (0.51) (0.39) 0
<EPS-DILUTED> 0 0 0 0
<RESERVE-OPEN> 0 0 0 0
<PROVISION-CURRENT> 0 0 0 0
<PROVISION-PRIOR> 0 0 0 0
<PAYMENTS-CURRENT> 0 0 0 0
<PAYMENTS-PRIOR> 0 0 0 0
<RESERVE-CLOSE> 0 0 0 0
<CUMULATIVE-DEFICIENCY> 0 0 0 0
</TABLE>
