UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
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.)
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 the number of shares outstanding of each of the issuer s
classes of common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock October 31, 1997
$.01 Stated Value 2,596,155 shares
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
NUMBER
Item 1. Financial Statements:
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations -
Nine and Three Months ended September 30, 1997 and 1996 4 - 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7 - 12
Item 2. Management s Discussion and Analysis of Results of
Operations and Financial Condition 13-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> September 30, 1997 December 31, 1996
(in thousands) (Unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturities $32,459 $42,618
Mortgage loans on real estate 2,112 2,286
Policy loans 518
Other invested assets 1,841 1,866
Short-term investments 4,747 3,901
Total investments 41,159 51,189
Cash 503 556
Accrued investment income 596 731
Receivables 16,848 20,290
Prepaid reinsurance premiums 10,926 17,338
Deferred policy acquisition costs 16,877 18,949
Property and equipment 2,074 2,168
Other real estate 1,012 1,115
Other assets 1,495 2,283
$91,490 $114,619
Liabilities, Redeemable Preferred Stock and
Shareholders Equity
Liabilities:
Future policy benefits $21,074 $35,386
Unearned premiums 51,836 56,178
Other policy claims and benefits payable 2,482 2,736
Other liabilities 4,111 5,495
Income taxes:
Current 21 1,185
Deferred 49 296
79,573 101,276
Redeemable preferred stock:
Series A, 8 1/2% cumulative convertible
net of treasury stock 4,679 4,693
Shareholders equity:
Common stock 30 30
Capital in excess of stated value 7,989 7,966
Net unrealized appreciation
of debt and equity securities 230 70
Retained earnings 460 2,009
Treasury stock (1,471) (1,425)
7,238 8,650
$91,490 $114,619
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION> Nine Months Ended Three Months Ended
(in thousands, except per share data) September 30, September 30,
1997 1996 1997 1996
<S> <C> <C>
Revenues:
Premiums written $20,535 $24,328 $7,055 $7,818
Decrease (increase) in unearned premiums 2,858 (146) 521 260
Gross premium income 23,393 24,182 7,576 8,078
Less reinsurance ceded (7,771) (9,261) (2,204) (3,026)
Net premium income 15,622 14,921 5,372 5,052
Net investment income 1,589 1,578 450 540
Net realized investment gains (losses) 224 (158) (22) (136)
Fees and other income 903 1,070 361 318
18,338 17,411 6,161 5,774
Benefits and expenses:
Death and other benefits 9,456 8,187 2,820 2,739
Amortization of deferred policy
acquisition costs 7,080 7,434 2,471 2,477
Operating expenses 3,711 3,556 992 1,202
20,247 19,177 6,283 6,418
Loss from continuing operations before income
tax benefit (1,909) (1,766) (122) (644)
Income tax benefit (828) (440) (231) (363)
Income (loss) from continuing operations (1,081) (1,326) 109 (281)
Discontinued operations:
Income from operations of discontinued
businesses (net of income taxes) 435 57
Loss on disposal of discontinued
businesses (net of income taxes) (125) (7)
(125) 435 (7) 57
Net income (loss) ($1,206) ($891) $102 ($224)
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION> Nine Months Ended Three Months Ended
(in thousands, except per share data) September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Per share data:
Loss from continuing operations ($0.55) ($0.64) ($0.01) ($0.15)
Discontinued operations (0.05) 0.17 0.02
Net loss ($0.60) ($0.47) ($0.01) ($0.13)
Weighted average number of shares
outstanding 2,602 2,614 2,597 2,612
Loss per common share-assuming full dilution * * * *
* Anti-dilutive
Cash dividends declared per common share None None None None
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>(in thousands) 1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,206) ($892)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Deferred policy acquisition costs (7,543) (7,427)
Amortization of deferred policy acquisition costs 7,080 7,854
Other amortization and depreciation 318 351
Change in future policy benefits (3,089) (102)
Change in unearned premiums (4,342) 146
Change in amounts due reinsurers (1,022) (232)
Income taxes (1,828) (426)
Change in prepaid reinsurance premiums 6,411 689
Change in other receivables 4,303 2,006
Change in other liabilities (307) (242)
Other 42 (608)
Total adjustments 23 2,009
Net cash provided by (used in) operating activities (1,183) 1,117
Cash flows from investing activities:
Purchase of investments (12,061) (7,038)
Maturity of investments 738 4,929
Sale of investments 12,832 3,541
Purchase of property and equipment (27)
Net cash provided by investing activities 1,509 1,405
Cash flows from financing activities:
Principal payments on debt (680)
Receipts from universal life and investment products 3,656
Withdrawals on universal life and investment products (4,935)
Purchase of treasury stock (63) (48)
Cash dividends to shareholders (316) (307)
Net cash used in financing activities (379) (2,314)
Net increase (decrease) in cash (53) 208
Cash at beginning of period 556 451
Cash at end of period $503 $659
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1. GENERAL:
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring items) necessary to present fairly the Company's consolidated
financial position as of September 30, 1997, the consolidated results of
its operations for the nine and three months ended September 30, 1997 and
1996 and the consolidated changes in its cash flows for the nine months
ended September 30, 1997 and 1996. Certain prior year amounts have been
reclassified to conform with classifications used for 1997. Such
reclassifications had no impact on operating results.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's 1996 Form 10-K.
The results of operations for the nine months ended September 30, 1997
are not necessarily indicative of the results to be expected for the
full year.
2. INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
liabilities and assets are as follows (in 000's):
<TABLE>
<CAPTION> September December
30, 31,
1997 1996
<S> <C> <C>
Deferred tax liabilities:
Fixed maturities $117 $33
Deferred policy acquisition costs 5,741 6,366.
00
Other 318 359
6,176 6,758
Deferred tax assets:
Future policy benefits and financial 5,158 5,796
reinsurance
Net operating loss carryforwards 1,794 1,589
Other 399 301
7,351 7,686
Valuation allowance for deferred tax (1,224) (1,224)
assets
6,127 6,462
Net deferred tax liability $49 $296
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
2. INCOME TAXES (CONTINUED):
Significant components of the provision for income taxes are as
follows (in 000's):
<TABLE>
<CAPTION> Nine months Three Months
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Current:
Federal ($609) ($435) ($121) ($48)
State 82 5 31 (80)
Total current (527) (430) (90) (128)
Deferred (301) (10) (141) (235)
Income tax benefit
related to
operations (828) (440) (231) (363)
Income tax expense
(benefit) included
discontinued
Current (47) 305 12 122
Deferred (26) (23) (26) (77)
(73) 282 (14) 45
Total income tax benefit ($901) ($158) ($245) ($318)
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
2. INCOME TAXES (CONTINUED):
The reconciliation of the provision for income taxes and the amount which
would have been provided at statutory rates is as follows (in 000's):
<TABLE>
<CAPTION> 1997 1996
<S> <C> <C>
Loss from continuing operations
before income tax benefit ($1,909) ($1,766)
Income tax benefit at 34% statutory rate on
pre-tax loss ($649) ($600)
Dividends received deduction (149) (114)
Effect of rate difference on net operating loss (4) 242
carryback
State income taxes 54 16
Items not includable for tax purposes 28 68
Other, net (108) (52)
Actual income tax benefit ($828) ($440)<PAGE>
3. COMMITMENTS AND CONTINGENCIES:
In August 1997, the Company received a notice of proposed adjustment from
the Internal Revenue Service as a result of a recently completed tax
examination for the years ended December 31, 1992 and 1993. The Company
is currently seeking to have the adjustment rescinded. Based on the
current status of this matter, the Company does not believe it is
probable that a material amount of additional taxes will be due.
In connection with the cancellation of a joint venture agreement in 1996,
the Company had agreed to pay $500,000 in cash to its former joint
venture partner at the time the merger with LaSalle Group, Inc. (LaSalle)
was consummated. As a result of the termination of the merger agreement,
as discussed in Note 5, the $500,000 payment will not be made. The
agreement with the joint venture partner provides that in the event the
merger with LaSalle was not completed, any payment to the joint venture
partner would be determined under a separate calculation as follows:
(a) if the Company enters into a transaction similar to the LaSalle
transaction in which it is acquired by or merged with another entity, the
parties have agreed to negotiate a mutually acceptable termination price;
(b) if the Company enters into a transaction whereby, as part of a plan
to terminate its insurance operations and sell all of its
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED):
assets, it sells its credit insurance marketing organization to an
unrelated third party, the Company has agreed to pay its former partner a
pro rata share of the proceeds, if any, it receives from the sale of the
marketing organization. The Company agreed to make such payments to the
joint venture partner as consideration for terminating the venture, which
will allow the Company or its successors to retain the profits or losses
on credit insurance premiums previously reinsured to the partner.
Reinsured risks would give rise to liability to the insurance
subsidiaries only in the event that the reinsuring company might be unable
to meet its obligations under the reinsurance agreements in force.
In March 1997, the Company received a demand for arbitration and
statement of claim from a former general agency with whom the Company
had a partnership agreement. The partnership agreement provided that the
agency would market universal life insurance business for the Company,
pursuant to specific criteria established by the Company, and would also
be entitled to a share of the profits, if any, which arose from the
business produced. The claimant is seeking monetary damages to
compensate it for the Company s alleged failure to share profits and for
other alleged losses resulting from the Company s rejection of policy
applications involving unacceptable risks. While management believes
this claim is completely without merit and intends to vigorously defend
itself in this matter, the ultimate outcome of this claim cannot be
determined at this time.
In connection with the sale of the business and related operating assets
of Interstate Auto Auction, Inc. in November 1996, the Company provided
the buyer with limited indemnifications with respect to certain potential
environmental liabilities asserted within two years from the closing date.
The Company does not believe that these limited indemnifications will
have a materially adverse effect on the Company s financial position or
results of operations.
Certain claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against the Company or its
subsidiaries. In the opinion of management, based on opinions of legal
counsel, adequate reserves, if deemed necessary, have been established
for these matters and their outcome will not result in a significant
effect on the financial condition or future operating results of the
Company or its subsidiaries. The Company has taken certain income tax
positions in previous years that it believes are appropriate. If such
positions were to be successfully challenged by the Internal Revenue
Service, the Company could incur additional income taxes as well as
interest and penalties.
Management believes that the ultimate outcome of any such challenges will
not have a material effect on the Company s financial statements.
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
4. REINSURANCE:
The effect of reinsurance on premiums written and earned for the
periods ended September 30, 1997 and 1996 was as follows:
</TABLE>
<TABLE>
<CAPTION> 1997 1996
(in 000's) Written Earned Written Earned
<S> <C> <C> <C> <C>
Direct $21,408 $23,931 $25,531 $25,340
Assumed 734 1,068 1,742 1,787
Ceded (4,449) (9,376) (10,761) 1,145
Net $17,693 $15,623 $16,512 $15,677
</TABLE>
Ceded benefits incurred through September 30, 1997 and 1996 are
$4,567,904 and $7,622,896, respectively. These losses were deducted
in arriving at death and other benefits and the increase in future
policy benefits in the Consolidated Statements of Operations.
5. OTHER DEVELOPMENTS
On July 25, 1997, the Company terminated its merger agreement with
LaSalle because, despite continued assurances to the contrary, LaSalle
was unable to provide the cash funds necessary to complete the merger
transaction, which would have provided the Company s common shareholders
with cash of $3.78 per share. On July 28, 1997, the Company signed a
letter of intent to sell its credit insurance operations, which includes
its inforce block of credit insurance policies and its marketing
organization and customer accounts to Life of the South Corporation.
The sale transaction is subject to insurance regulatory approval and the
approval of the Company s shareholders. The original letter of intent
was amended in September 1997 to modify certain aspects of the proposed
transaction.
The selling price for the marketing organization is contingent upon the
amount of premiums produced by the Company s current customer accounts in
the future and will be received over a five-year period. During this
period, the Company intends to liquidate its remaining assets and pay all
creditors and preferred shareholders. All remaining assets will then be
distributed to the Company s common shareholders. However, if prior to
completing the liquidation process, the Company receives an offer or
offers to sell, merge or otherwise combine the Company with another
organization which the Board of Directors believes are more favorable to
the shareholders, the Company will pursue these potential transactions in
lieu of a liquidation.
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
5. OTHER DEVELOPMENTS (CONTINUED)
If the sale of the Company s inforce block of insurance business is
completed on the terms which have been agreed to, the transaction is
expected to result in a significant loss to the Company. The after-tax
loss is estimated to be between $3.7 million and $4.2 million. No
provision for the estimated loss has been made in the September 30, 1997
financial statements because the transaction is still subject to the
execution of definitive agreements, insurance regulatory approval and
shareholder approval.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
The Company reported net income of $102,000 (a loss of $.01 per share) in
the third quarter of 1997 compared to a net loss of $225,000 ($.13 per
share) in the same period of 1996. For the first nine months of 1997, the
Company's net loss increased to $1.2 million ($.60 per share) compared to
an $891,000 loss ($.47 per share) in 1996. However, the year-to-date loss
from continuing operations improved slightly from $1.3 million in 1996 to
$1.1 million in the current year. The reduced loss is attributable to
higher income tax benefits than in 1996. A more detailed discussion of
the operating performance of the Automotive Resource Division and a brief
discussion of certain items which affected the Company's two discontinued
businesses are presented later in this analysis under Results of
Operations.
The Company's planned merger with LaSalle Group, Inc. was terminated on
July 25, 1997 as a result of LaSalle's inability to provide the funding
necessary to complete the merger transaction. On July 28, 1997, the
Company signed a letter of intent to sell its credit insurance operations
and its principal insurance subsidiary to Life of the South Corporation,
a Georgia-based insurance holding company with administrative offices in
Florida. Closing on the transaction is subject to the execution of
definitive agreements, insurance regulatory approval and the approval of
the Company's shareholders. The Company intends to liquidate its
remaining assets, pay all creditors and preferred shareholders and
distribute the remaining cash to its common shareholders. Since the
selling price for the Company's marketing organization will be received
over a five-year period, the final distribution to common shareholders
cannot be made until the end of the five-year period. The planned sale of
the Company's insurance operations and the liquidation of its remaining
assets are essential to preserving shareholder value in light of the
continuing losses the Company has incurred in recent years. If, prior to
completing this liquidation process, the Company receives an offer or
offers to sell, merge or otherwise combine the Company with another
organization which are viewed by the Board of Directors as more favorable
to the Company's shareholders, the Company will pursue these potential
transactions.
If the sale of the Company s inforce block of insurance business is
completed on the terms which have been agreed to, the transaction is
expected to result in a significant loss to the Company. The after-tax
loss is estimated to be between $3.7 million and $4.2 million. No
provision for the estimated loss has been made in the September 30, 1997
financial statements because the transaction is still subject to the
execution of definitive agreements, insurance regulatory approval and
shareholder approval.
The following table presents year-to-date and third quarter revenues and
operating results for 1997 and 1996. All amounts relating to the
Individual Life Insurance Division and the Auto Auction Division for 1996
have been presented as discontinued operations for comparative purposes.
<TABLE>
<CAPTION> Nine months Third Quarter
(in thousands, except per share amounts) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Total revenues by source:
Premiums written $20,535 $24,328 $7,055 $7,817
Net investment income 1,589 1,578 450 540
Realized investment gains (losses) 224 (158) (22) (136)
Fees and other income 903 1,070 360 317
$23,251 $26,818 $7,843 $8,538
Pre-tax loss from continuing operations:
Automotive Resource Division ($2,162) ($1,392) ($230) ($462)
Other 29 (216) 130 (46)
(2,133) (1,608) (100) (508)
Realized investment gains (losses) 224 (158) (22) (136)
Pre-tax loss from continuing operations (1,909) (1,766) (122) (644)
Income tax expense (benefit) (828) (440) (231) (363)
Income (loss) from continuing operation (1,081) (1,326) 109 (281)
Discontinued operations, net of income (125) 435 (7) 56
taxes<PAGE>
Net income (loss) ($1,206) ($891) $102 ($225)
Income (loss) per common share:
Loss from continuing operations ($0.55) ($0.64) ($0.01) ($0.01)
Discontinued operations (0.05) 0.17
Net loss ($0.60) ($0.47) ($0.01) ($0.01)
RESULTS OF OPERATIONS
The Company's pre-tax operating results can be best understood through an
analysis of each of its business units. The Automotive Resource Division,
the Company's core business, is now the only continuing business segment.
The Division's principal product is credit insurance, which it markets
primarily through automobile dealers in six key states. It also markets
automobile extended service contracts in a general agency capacity and
generates other revenues from services it provides to its 900 automobile
dealer customers. The Individual Life Insurance Division has not written
any new business since 1992. The Company completed the sale of the
Division's remaining block of insurance business on March 27, 1997 in a
transaction which was effective January 1, 1997. Auto auction operations
were conducted through the Company's subsidiary, Interstate Auto Auction,
Inc. until the sale of Interstate's business and related operating assets
in late 1996.
CONTINUING OPERATIONS - AUTOMOTIVE RESOURCE DIVISION
Credit insurance premiums in the third quarter decreased by 9% to $7.1
million. For the year, written premiums totaled $20.6 million, which is
a 14% drop from the $24.0 million in revenues reported in the first nine
months of 1996. A significant portion of the decline in revenues is
attributable to the cancellation of unprofitable business by the Company.
In mid-1996, the Company cancelled all of its business in the state of
North Carolina. Later in that year, all of the accounts in Tennessee and
certain unprofitable accounts in Virginia and Ohio were also cancelled.
However, even without the effects of the cancelled business, the
Division's credit insurance premium production is significantly below
pre-1990 levels due to the declines which occurred during the economic
recession of the early 1990's and due to the increase in automobile
leasing, for which credit insurance is generally not sold. A consequence
of the decline in written premiums has been a reduction in earned
premiums, which in turn has resulted in a substantial increase in
operating expense ratios. Higher expense ratios are a key reason for the
unprofitable operating results the Division has experienced in recent
years.
Although the Division's pre-tax operating results improved slightly in
the third quarter, year-to-date results declined significantly from a
$1.4 million loss last year to a 2.2 million loss in 1997. The decline
is the result of higher credit insurance claims ratios for both life and
disability business. Lower expenses partially offset the higher claims.
A decrease in earned premiums due to a decline in the written premium
base, as discussed above, also contributed to the poorer results.
The continued unprofitable results in this Division have led to the
planned sale of the Company's credit insurance operations (consisting of
its inforce block of business and its marketing organization and customer
accounts) to Life of the South Corporation, as discussed above.
DISCONTINUED OPERATIONS - INDIVIDUAL LIFE INSURANCE DIVISION
As indicated above, effective January 1, 1997, the Company sold its
remaining block of individual life insurance business. The Company
continued to administer the business for the purchaser through June 1997
and received an administrative fee to cover its expenses. In March, the
Company sold approximately $8.3 million in bonds in order to close the
transaction and deliver to the buyer cash and other assets sufficient to
cover the policy liabilities on the business less the buyer's purchase
price.
Those sales resulted in a loss of approximately $123,000, which has been
included with discontinued operations as an additional loss on the
disposal of the business. The after-tax loss on the disposal of
this discontinued business had originally been estimated to be
approximately $914,000, which was included in the Company's 1996
financial statements.
DISCONTINUED OPERATIONS - AUTO AUCTION DIVISION
In late 1996, the Company sold the auto auction business and related
operating assets (property and equipment and inventories) of Interstate
Auto Auction for cash of $4.85 million. The Division's net income for the
first nine months of 1996, which excludes any continuing overhead, was
$248,000. This amount has been presented in the current financial
statements as income from discontinued operations. Approximately $1.7
million of the proceeds from the sale of the auto auction business was
used to repay the remaining amount due on the Company's bank loans. The
Company also contributed $1 million of the proceeds to its principal
insurance subsidiary.
FINANCIAL CONDITION
</TABLE>
<TABLE>
<CAPTION>(in thousands, except per share September 30, December 31,
amounts) 1997 1996
<S> <C> <C>
Invested assets $41,159 $51,189
Total assets $91,490 $114,619
Total debt $0 $0
Total shareholders' equity and redeemable
preferred stock $11,917 $13,343
Shareholders' equity per common share $2.79 $3.31
</TABLE>
INVESTED ASSETS
Invested assets at September 30, 1997 were $41.2 million compared to
$51.2 at the end of 1996. A substantial portion of the decline is the
result of the settlement on the sale of the individual life insurance
business, in which the Company transferred approximately $8.8 million in
cash and investments to the buyer. In addition, the invested asset base
at year-end included approximately $500,000 which was required in the
first quarter of 1997 to pay the Federal and state income taxes on the
gain from the sale of the auto auction business in 1996.
The Company s bond portfolio is carried at fair value (which approximates
amortized cost at September 30, 1997) pursuant to the requirements of
Statement of Financial Accounting Standards No. 115, based on the
Company's determination that all of its bonds should be considered as
"available-for-sale", although the Company has no current intentions to
sell any of these securities. The unrealized appreciation or depreciation
on available-for-sale securities is reported as a separate component of
shareholders' equity. The planned sale of the Company s credit insurance
business, as discussed previously, will result in the sale of
substantially all of the Company s bond investments, since the Company
must deliver cash to the buyer to cover the difference between the policy
reserve liabilities being transferred and the buyer's purchase price.
LIQUIDITY
The Company's operating subsidiaries have historically met most of their
cash requirements from funds generated from operations, although reduced
credit insurance revenues over the past several years have had an adverse
impact on the insurance companies' operating cash flows. The Company has
generally relied on its operating subsidiaries to provide it with
sufficient cash funds to maintain an adequate liquidity position. In that
regard, the life insurance subsidiaries are also subject to restrictions
imposed by law on their ability to transfer cash to the Company in the
form of dividends, loans or advances. Consumers Car Care Corporation
provides the Company with sources of cash which are not subject to
insurance regulations that restrict its ability to transfer cash.
Similarly, prior to the sale of its business, Interstate Auto Auction
also provided an unrestricted source of cash. The net cash provided by
or used in operating activities for the nine months ended September 30,
1997 and 1996 is presented in the Consolidated Statements of Cash Flows.
CAPITAL RESOURCES
The Company's total equity, including redeemable preferred stock,
decreased by approximately $1.4 million in the first nine months of 1997.
The decrease is attributable to the year-to-date loss of $1.2 million and
$316,000 in dividends paid to preferred shareholders. Offsetting these
decreases is a $160,000 increase in the value of the Company's bond
portfolio. Shareholders' equity per common share dropped from $3.31 at
year end to $2.79 at September 30, 1997.
The insurance subsidiaries utilize reinsurance agreements to finance
their credit insurance operations and maintain adequate levels of
statutory capital and surplus. These agreements minimize reductions of
statutory capital and surplus which result from new premium production.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except for the matters discussed in Note 3 of the Notes to Consolidated
Financial Statements included elsewhere in this Form 10-Q, neither the
registrant nor its subsidiaries are involved in any pending legal
proceedings other than routine litigation incidental to the normal
conduct of its business nor have any such proceedings been terminated
during the three months ended September 30, 1997.
ITEM 2. CHANGES IN SECURITIES
During the three months ended September 30, 1997, there have been no
limitations or qualifications, through charter documents, loan
agreements or otherwise, placed upon the holders of the registrant's
common or preferred stock to receive dividends.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The registrant has not defaulted in the payment of principal, interest or
in any other manner on any indebtedness and is current with all its
accounts. There is no arrearage in the payment of dividends on the
registrant's preferred stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders of the registrant
during the three months ended September 30, 1997.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
(11) Computation of Earnings per Common Share.
(b) Reports on Form 8-K:
On August 11, 1997, the registrant filed a Form 8-K to report the
July 25, 1997 termination of the Merger Agreement with LaSalle
Group, Inc. as a result of LaSalle s inability to provide the
funding necessary to complete the merger transaction. The August
11 filing also reported that the registrant had signed a letter of
intent to sell its credit insurance operations to Life of the
South Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSUMERS FINANCIAL CORPORATION
Registrant
Date November 14, 1997 By /S/ James C. Robertson
James C. Robertson, President
(Chief Executive Officer)
Date November 14, 1997 By /S/ R. Fredric Zullinger
R. Fredric Zullinger
Senior Vice President, Chief
Financial Officer and Treasurer
EXHIBIT 11
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION> Nine Months Ended September Three Months Ended September
30, 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Primary Earnings Per Share
Reconciliation of net income (loss) per Statements
of Operations to amount used in primary
per share computation:
Income (loss) from continuing operations ($1,206) ($892) $102 ($225)
Preferred dividend requirement (316) (307) (107) (102)
Accretion in carrying value of preferred (27) (27) (9) (9)
Net loss, as adjusted ($1,549) ($1,226) ($14) ($336)
Reconciliation of weighted average number of shares
outstanding to amount used in primary earnings
share computation:
Weighted average number of common shares
outstanding 2,602 2,614 2,597 2,612
Add weighted average number of shares
from assumed exercise of stock 0 0 0 0
Weighted average number of shares of
stock and equivalents outstanding 2,602 2,614 2,597 2,612
Loss from continuing operations ($0.55) ($0.60) ($0.01) ($0.16)
Discontinued operations (0.05) 0.13 0.03
Net loss per common and common equivalent share ($0.60) ($0.47) ($0.01) ($0.13)
</TABLE>
EXHIBIT 11
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION> Nine Months Ended September Three Months Ended September
30, 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1997 1996
<S> <C> <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 ($1,206) ($892) $102 ($225)
Reconciliation of weighted average number of shares
outstanding, as adjusted, per primary
on preceding page, to amount used in fully
earnings per share computation:
Weighted average number of shares
as adjusted per primary computation
preceding page 2,602 2,614 2,597 2,612
Add shares issuable from assumed
8 1/2 % cumulative convertible 713 713 713 713
Weighted average number of shares of
stock and equivalents outstanding 3,315 3,327 3,310 3,325
Fully Diluted Earnings Per Share * * * *
* Anti-dilutive
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> 3-MOS 3-MOS 9-MOS 9-MOS
12-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1996 SEP-30-1997 SEP-30-1996
DEC-31-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996 SEP-30-1997 SEP-30-1996
DEC-31-1996
<DEBT-HELD-FOR-SALE> 0 0 32,459,200 0
42,617,840
<DEBT-CARRYING-VALUE> 0 0 0 0
0
<DEBT-MARKET-VALUE> 0 0 0 0
0
<EQUITIES> 0 0 0 0
0
<MORTGAGE> 0 0 2,112,260 0
2,285,721
<REAL-ESTATE> 0 0 0 0
0
<TOTAL-INVEST> 0 0 41,158,931 0
51,188,651
<CASH> 0 0 502,640 0
556,349
<RECOVER-REINSURE> 0 0 0 0
0
<DEFERRED-ACQUISITION> 0 0 16,876,917 0
18,948,551
<TOTAL-ASSETS> 0 0 91,489,284 0
114,618,553
<POLICY-LOSSES> 0 0 21,074,044 0
35,385,867
<UNEARNED-PREMIUMS> 0 0 51,836,089 0
56,177,708
<POLICY-OTHER> 0 0 2,481,512 0
2,735,866
<POLICY-HOLDER-FUNDS> 0 0 0 0
0
<NOTES-PAYABLE> 0 0 0 0
0
0 0 0 0
0
0 0 4678,922 0
4,692,610
<COMMON> 0 0 30,191 0
30,215
<OTHER-SE> 0 0 7,207,788 0
8,619,567
<TOTAL-LIABILITY-AND-EQUITY> 0 0 91,489,284 0
114,618,553
5,372,521 5,051,931 15,622,203 14,920,679
0
<INVESTMENT-INCOME> 449,666 539,621 1,589,007 1,577,748
0
<INVESTMENT-GAINS> (21,533) (135,880) 224,367 (158,147)
0
<OTHER-INCOME> 359,908 317,137 901,943 1,069,883
0
<BENEFITS> 2,819,851 2,738,421 9,455,542 8,186,681
0
<UNDERWRITING-AMORTIZATION> 2,470,802 2,477,040 7,079,717 7,434,026
0
<UNDERWRITING-OTHER> 992,219 1,201,466 3,711,242 3,555,820
0
<INCOME-PRETAX> (122,110) (664,128) (1,909,081) (1,766,364)
0
<INCOME-TAX> (230,468) (363,141) (827,706) (439,903)
0
<INCOME-CONTINUING> 0 0 0 0
0
<DISCONTINUED> (6,370) 56,243 (124,378) 434,552
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 101,988 (224,744) (1,205,753) (891,909)
0
<EPS-PRIMARY> (.01) (.13) (.60) (.47)
0
<EPS-DILUTED> 0 0 0 0
0
<RESERVE-OPEN> 0 0 0 0
0
<PROVISION-CURRENT> 0 0 0 0
0
<PROVISION-PRIOR> 0 0 0 0
0
<PAYMENTS-CURRENT> 0 0 0 0
0
<PAYMENTS-PRIOR> 0 0 0 0
0
<RESERVE-CLOSE> 0 0 0 0
0
<CUMULATIVE-DEFICIENCY> 0 0 0 0
0
</TABLE>
