UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
< X > Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 May 1, 1997
$.01 Stated Value 2,596,917 shares
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements:
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations -
Three Months ended March 31, 1997 and 1996 4 - 5
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7 - 11
Item 2. Management s Discussion and Analysis of Results of
Operations and Financial Condition 12 - 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18 - 19
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> March 31,1997 December 31,
(in thousands) (Unaudited) 1996
<S> <C> <C>
Assets
Investments:
Fixed maturities $32,386 $42,618
Mortgage loans on real estate 2,230 2,286
Policy loans 518
Other invested assets 1,828 1,866
Short-term investments 4,094 3,901
Total investments 40,538 51,189
Cash 510 556
Accrued investment income 664 731
Receivables 19,366 20,290
Prepaid reinsurance premiums 15,623 17,338
Deferred policy acquisition costs 16,184 18,949
Property and equipment 2,136 2,168
Other real estate 1,120 1,115
Other assets 2,869 2,283
$99,010 $114,619
Liabilities, Redeemable Preferred Stock and
Shareholders Equity
Liabilities:
Future policy benefits $23,466 $35,386
Unearned premiums 54,381 56,178
Other policy claims and benefits 2,669 2,736
Other liabilities 5,394 5,495 Income taxes:
Current 806 1,185
Deferred 64 296
86,780 101,276
Redeemable preferred stock: Series A, 8 1/2% cumulative
net of treasury stock 4,702 4,693
Shareholders equity:
Common stock 30 30
Capital in excess of stated value 7,966 7,966
Net unrealized appreciation
of debt and equity securities (304) 70
Retained earnings 1,287 2,009
Treasury stock (1,451) (1,425)
7,528 8,650
$99,010 $114,619
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION> Three Months Ended
March 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996
<S> <C> <C>
Revenues:
Premiums written $6,194 $7,523
Decrease (increase) in unearned premiums 1,797 483
Gross premium income 7,991 8,006
Less reinsurance ceded 3,009 (3,139)
Net premium income 4,982 4,867
Net investment income 601 533
Net realized investment losses (72) (1)
Fees and other income 299 442
5,810 5,841
Benefits and expenses:
Death and other benefits 3,249 2,878
Amortization of deferred policy acquisition costs 2,415 2,496
Operating expenses 1,056 1,376
6,720 6,750
Loss from continuing operations before income tax benefit (910) (909)
Income tax benefit (431) (253)
Loss from continuing operations (479) (656)
Discontinued operations:
Income from operations of discontinued businesses
(net of income taxes) 232
Loss on disposal of discontinued businesses
(net of income taxes) (131)
(131) 232
Net loss ($610) ($424)
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION> Three Months Ended
March 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996
<S> <C> <C>
Per share data:
Loss from continuing operations ($0.23) ($0.29)
Discontinued operations (0.05) 0.09
Net loss ($0.28) ($0.20)
Weighted average number of shares outstanding 2,609 2,617
Loss per common share - assuming full dilution * *
* Anti-dilutive
Cash dividends declared per common share None None
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>(in thousands) 1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss ($610) ($424)
Adjustments to reconcile net loss to net
cash used in operating activities:
Deferred policy acquisition costs (2,185) (2,363)
Amortization of deferred policy 2,415 2,611
Other amortization and depreciation 63 121
Change in future policy benefits (697) 255
Change in unearned premiums (1,797) (483)
Change in amounts due reinsurers 182 (11)
Income taxes (1,149) (198)
Change in receivables 2,689 598
Change in other liabilities (184) (152)
Other (143) (528)
Total adjustments (806) (150)
Net cash used in operating activities (1,416) (574)
Cash flows from investing activities:
Purchase of investments (5,046) (1,131)<PAGE>
Maturity of investments 574 1,812
Sale of investments 5,970 897
Purchase of property and equipment (5)
Net cash provided by investing activities 1,498 1,573
Cash flows from financing activities:
Principal payments on debt (165)
Receipts from universal life and investment 1,422
Withdrawals on universal life and investment (2,068)
Purchase of treasury stock (26) (45)
Cash dividends to shareholders (102) (103)
Net cash used in financing activities (128) (959)
Net increase (decrease) in cash (46) 40
Cash at beginning of period 556 451
Cash at end of period $510 $491
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 March 31, 1997 and the consolidated results of
its operations and changes in its cash flows for the three months ended
March 31, 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 three months ended March 31, 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> March 31, December
1997 31,
1996
<S> <C> <C>
Deferred tax liabilities:
Fixed maturities $33
Deferred policy acquisition costs $5,503 6,366.
Other 377 359
5,880 6,758
Deferred tax assets:
Future policy benefits and financial 5,031 5,796
Net operating loss carry forwards 1,589 1,589
Other 420 301
7,040 7,686
Valuation allowance for deferred tax (1,224) (1,224)
5,816 6,462
Net deferred tax liability $64 $296
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
2. INCOME TAXES (CONTINUED):
Significant components of the provision for income taxes are as follows
(in 000's):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current:
Federal ($275) ($93)
State 29 18
Total current (246) (75)
Deferred (185) (178)
Income tax benefit related
to continuing operations (431) (253)
Income tax expense
(benefit) included with
discontinued operations:
Current (51) 110
Deferred (16) 29
(67) 139
Total income tax benefit ($498) ($114)
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
2. INCOME TAXES (CONTINUED):
A 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 ($910) ($909)
Income tax benefit at 34% statutory rate on
pre-tax loss ($309) ($309)
Dividends received deduction (3) (7)
State income taxes 19 25
Items not includable for tax purposes 15 17
Other, net (153) 21
Actual income tax benefit ($431) ($253)
</TABLE>
3. COMMITMENTS AND CONTINGENCIES:
In connection with the cancellation of a joint venture agreement in 1996,
the Company has agreed to pay $500,000 in cash to its former joint
venture partner at the time the merger with LaSalle Group, Inc. (
LaSalle) is consummated. In the event the merger with LaSalle is not
completed, any payment to the joint venture partner will 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 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 to retain the
profits or losses on credit insurance premiums previously reinsured to
the partner.
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED):
Reinsured risks would give rise to liability to the insurance
subsidiaries only in the event that the reinsuring company is 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 allege
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)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
4. REINSURANCE:
The effect of reinsurance on premiums written and earned for the periods
ended March 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION> 1997 1996
(in 000's) Written Earned Written Earned
<S> <C> <C> <C> <C>
Direct $6,468 $8,150 $8,000 $8,508
Assumed 278 392 617 592
Ceded (1,845) (3,560) (3,832) (4,064)
Net $4,901 $4,982 $4,785 $5,036
</TABLE>
Ceded benefits incurred through March 31, 1997 and 1996 are $2,550,204 and
$2,936,647, 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. SUBSEQUENT EVENT:
On May 15, 1997, LaSalle informed the Company that it was unlikely that
its original source of funding for the pending merger would be available
by June 15, 1997 and that it is in the process of securing alternative
funding. The Agreement and Plan of Merger, as amended, (the Agreement)
required that LaSalle had to provide, on or before May 15, 1997, the cash
funds or satisfactory evidence of such funds necessary to consummate the
merger. If LaSalle failed to meet this requirement, the Company had the
right to contact and conduct negotiations with other potential purchasers,
and, further, either party was then entitled to terminate the Agreement on
or after June 16, 1997. While LaSalle s financial advisor is confident
that the alternative funding can be completed by June 15, 1997, the
Company intends to exercise its right to renew its search for another
acquiror to protect the Company in the event LaSalle s funding is not
available by June 15.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
The Company reported a net loss for the first quarter of 1997 of $610,000 ($.28
per share) compared to a loss of $424,000 ($.20 per share) in the first three
months of 1996. However, the Company's loss from continuing operations was
$479,000 in 1997 compared to a loss of $656,000 in 1996. The slight improvement
in results from continuing operations is due to higher Federal income tax
benefits in 1997. Discontinued operations for 1996 include $371,000 in pre-tax
operating profits from the two discontinued segments ($232,000 after taxes). In
1997, the Company reported a $198,000 pre-tax loss ($131,000 after taxes) from
discontinued operations, which arose principally from the unanticipated loss of
$123,000 from the sale of bonds necessary to close the sale of the Company s
individual life insurance business, as discussed below. The Company's remaining
business segment, the Automotive Resource Division, continued to report
operating losses in 1997. The Division's pre-tax operating loss was about level
with the first quarter of 1996, as slightly higher claims were offset by
reduced operating expenses.
A more detailed discussion of the operating performance of the Automotive
Resource Division and a brief discussion of certain items which affected the
two discontinued businesses are presented later in this analysis under Results
of Operations.
The Company's planned merger with LaSalle Group, Inc. is still pending. On
March 25, 1997, the Company's common shareholders approved the merger
transaction, which is subject to the approval of insurance regulators in the
four states in which the Company's insurance subsidiaries are domiciled.
The regulators are awaiting satisfactory evidence from LaSalle of the cash
funds necessary to complete the transaction. On May 15, 1997, LaSalle
disclosed to the Company that it was unlikely that its original source of
funding for the merger would be available by June 15, 1997 and that it is in
the process of securing alternate funding. While LaSalle s financial advisor
is confident that the alternate funding can be completed by June 15, 1997, the
Company intends to exercise its right to renew its search for another acquiror
to protect the Company in the event LaSalle's funding is not available by
June 15. Further information regarding this matter is presented in Note 5 of
the Notes to Consolidated Financial Statements appearing elsewhere in this
Form 10-Q.
The following table compares revenues and operating results for the first three
months of 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.
<TABLE>
<CAPTION> First Quarter
(in thousands, except per share amounts) 1997 1996
<S> <C> <C>
Total revenues by source:
Premiums written $4,982 $4,867
Net investment income 601 533
Realized investment losses (72) (1)
Fees and other income 299 442
$5,810 $5,841
Pre-tax loss from continuing operations:
Automotive Resource Division ($833) ($790)
Other (5) (118)
(838) (908)
Realized investment losses (72) (1)
Pre-tax loss from continuing operations (910) (909)
Income tax benefit (431) (253)
Loss from continuing operations (479) (656)
Discontinued operations, net of income (131) 232
Net loss ($610) ($424)
Income (loss) per common share:
Loss from continuing operations ($0.23) ($0.29)
Discontinued operations (0.05) 0.09
Net loss ($0.28) ($0.20)
</TABLE>
RESULTS OF OPERATIONS
The Company's pre-tax operating results can be best understood through an
analysis of each of its three 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. The transaction was effective January 1, 1997. Auto
auction operations were conducted through the Company's subsidiary, Interstate
Auto Action, Inc. until the sale of Interstate's business and related operating
assets in late 1996.
CONTINUING OPERATIONS - AUTOMOTIVE RESOURCE DIVISION
Credit insurance premium revenues declined 15.6% in the first quarter of 1997
from $7.3 million to $6.2 million. Approximately $500,000 of the decrease was
the result of the cancellation of unprofitable business in the states of North
Carolina and Tennessee during 1996. In addition, numerous accounts in Virginia
and Ohio were also canceled in 1996, resulting in further declines in premium
revenues. The Division's credit insurance premium production remains
significantly below pre-1990 levels due to the declines which occurred during
the economic recession of the early 1990's and the increase in automobile
leasing, for which credit insurance is not generally 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 since
1989. Higher expense ratios have been a key reason for the unprofitable
operating results the Division has experienced in recent years. During 1996,
the Company lost the endorsement of the Pennsylvania Automotive Association
which it held since 1987. The loss of the endorsement has thus far had only a
minimal effect on the Company's premium levels. Although the absence of the
endorsement is expected to have some additional effect on the Company's
Pennsylvania premium production in the future, it is not expected to have a
materially adverse impact on future operating results.<PAGE>
The Division's pre-tax
operating results for the first quarter of 1997 declined slightly from a $790,
000 loss in 1996 to a loss of $833,000. While increased claims were generally
offset by reduced expenses, in 1996, the Division reported a $156,000 recovery
of certain receivables which had been previously written off. In 1997, the
Division also earned less fee income from its contract to administer another
company's closed block of credit insurance business. General expenses in both
periods now include expenses which had previously been allocated to the
discontinued Individual Life Insurance Division and, to a much
lesser extent, the discontinued Auto Auction Division. While the Division's
expense ratio improved in 1997, the present ratio is still higher than the
ratio which is required to return the Division to profitability. As noted
above, the increased expense ratio compared to the ratio in the late 1980's is
a key reason for the Division's decline in earnings. Further, as a result of
the increase in claims in 1997 and 1996, claims ratios must also be reduced in
order for the Division to report profitable operating results. The Company
plans to terminate additional unprofitable accounts during the second quarter
of 1997.
If the proposed merger with LaSalle is completed, LaSalle's strategy to return
the Company's credit insurance operation to profitability will include
acquisitions of other credit insurance companies and other blocks of credit
insurance business, expansion of the Company's marketing territory and growth
in existing markets. LaSalle intends to provide additional capital not only to
finance growth but also to build the insurance subsidiaries' capital base in
order to improve the ratings of those companies by insurance rating agencies.
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 will continue to
administer the business for the purchaser through June 1997 and is receiving 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 pre-tax income for the first three months
of 1996, which excludes any continuing overhead, was $203,000, which 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>
<CAPTION>(in thousands, except per share March 31, December 31,
amounts) 1997 1996
<S> <C> <C>
Invested assets $40,538 $51,189
Total assets $99,010 $114,619
Total debt - 0 - - 0 -
Total shareholders' equity and
redeemable preferred stock $12,230 $13,343
Shareholders' equity per common share $2.89 $3.31
</TABLE>
INVESTED ASSETS
Invested assets at March 31, 1997 were $40.5 million compared to $51.2 million
in investments 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 decrease in invested assets is also attributable to a $405,000 reduction in
the carrying value of the Company's bond portfolio as a result of higher
interest rates. The bond portfolio is carried at fair value 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.
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.
Interstate Auto Auction and Consumers Car Care Corporation provide the Company
with sources of cash which are not subject to insurance regulations that
restrict their ability to transfer cash. The net cash provided by or used in
operating activities for the three months ended March 31, 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 $1.1 million in the first quarter of 1997. The decrease is
attributable to (1) the first quarter loss of $610,000, (2) the decline in the
carrying value of the bond portfolio ($405,000 less $31,000 in applicable
deferred income tax benefits) and (3) $102,000 in dividends to preferred
shareholders. Shareholders' equity per common share dropped from $3.31 at year
end to $2.89 at March 31, 1997.
The Company s 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 surplus
which result from new premium production.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Except for the matters discussed in Note 3 to 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 during the three months ended March 31, 1997.
Item 2. Changes in Securities
During the three months ended March 31, 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
At a Special Meeting of Shareholders held on March 25, 1997, the
Registrant s common shareholders approved a Plan of Merger between the
Registrant and Consumers Acquisition Corp. ( CAC ), a wholly-owned
subsidiary of LaSalle Group, Inc. The Plan of Merger provides for the
merger of CAC with and into the Registrant, with the Registrant being the
surviving corporation. Each outstanding share of the Registrant s common
stock will be converted into the right to receive $3.78 per share
in cash.
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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (continued):
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
ended March 31, 1997. However, on April 8, 1997, the Registrant
filed a Form 8-K with respect to certain amendments which were made
to the Agreement and Plan of Merger (the "Agreement") between the
Registrant and LaSalle Group, Inc. dated October 30, 1996.The
amendments (a) extended the time period for closing the merger
transaction and (b) changed the formula for determining the final
merger consideration to be received by the Registrant's common
shareholders.
The Registrant also filed a Form 8-K on May 8, 1997 in which it
reported that the parties had agreed to forbear on exercising their
respective rights to terminate the Agreement until after June 15,
1997. LaSalle further agreed that if, by May 15, 1997, it could not
provide the Registrant with satisfactory evidence of the cash funds
necessary to complete the merger, LaSalle would waive the
exclusivity provision of the Agreement, thereby allowing the
Registrant to solicit, after May 15, 1997, other offers for the
sale of its assets or shares of its common stock.
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 May 20, 1997 By /S/ James C. Robertson
James C. Robertson, President
(Chief Executive Officer)
Date May 20, 1997 By /S/ R. Fredric Zullinger
R. Fredric Zullinger
Senior Vice President, Chief Financial
Officer and Treasurer<PAGE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION> Three Months Ended March 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996
<S> <C> <C>
Primary Earnings Per Share
Reconciliation of net loss per Statements
of Operations to amount used in primary
earnings per share computation:
Net loss ($610) ($424)
Preferred dividend requirement (102) (102)
Accretion in carrying value of preferred (9) (9)
Net loss, as adjusted ($721) ($535)
Reconciliation of weighted average number of shares
outstanding to amount used in primary earnings
share computation:
Weighted average number of common shares
outstanding 2,609 2,617
Add weighted average number of shares
from assumed exercise of stock options
Weighted average number of shares of common
stock and equivalents outstanding 2,609 2,617
Net loss per common and common equivalent share ($0.28) ($0.20)
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION> Three Months Ended March 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996<PAGE>
<S> <C> <C>
Fully Diluted Earnings Per Share
Reconciliation of net loss per Statements
of Operations to amount used in fully diluted
earnings per share computation:
Net loss ($610) ($424)
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 2,609 2,617
Add shares issuable from assumed
8 1/2 % cumulative convertible 713 713
Weighted average number of shares of
stock and equivalents outstanding 3,322 3,330
Fully Diluted Earnings Per Share * *
* Anti-dilutive
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996 DEC-31-1996
<DEBT-HELD-FOR-SALE> 32,386,109 0 42,617,840
<DEBT-CARRYING-VALUE> 0 0 0
<DEBT-MARKET-VALUE> 0 0 0
<EQUITIES> 0 0 0
<MORTGAGE> 2,229,768 0 2,285,721
<REAL-ESTATE> 0 0 0
<TOTAL-INVEST> 40,537,564 0 51,188,651
<CASH> 510,281 0 556,349
<RECOVER-REINSURE> 0 0 0
<DEFERRED-ACQUISITION> 16,183,676 0 18,948,551
<TOTAL-ASSETS> 99,009,485 0 114,618,553
<POLICY-LOSSES> 23,466,152 0 35,385,867
<UNEARNED-PREMIUMS> 54,381,186 0 56,177,708
<POLICY-OTHER> 2,668,793 0 2,735,866
<POLICY-HOLDER-FUNDS> 5,393,872 0 5,495,573
<NOTES-PAYABLE> 0 0 0
0 0 0
4,701,602 0 4,692,610
<COMMON> 30,215 0 30,215
<OTHER-SE> 7,497,973 0 8,619,567
<TOTAL-LIABILITY-AND-EQUITY> 99,009,485 0 114,618,553
4,982,437 4,866,524 0
<INVESTMENT-INCOME> 601,198 533,026 0
<INVESTMENT-GAINS> (72,505) (504) 0
<OTHER-INCOME> 298,608 441,879 0
<BENEFITS> 3,249,128 2,878,364 0
<UNDERWRITING-AMORTIZATION> 2,414,792 2,496,122 0
<UNDERWRITING-OTHER> 1,055,863 1,375,961 0
<INCOME-PRETAX> (910,045) (909,522) 0
<INCOME-TAX> (430,561) (253,336) 0
<INCOME-CONTINUING> (479,484) (656,186) 0
<DISCONTINUED> (130,984) 232,123 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (610,468) (424,063) 0
<EPS-PRIMARY> (.28) (.20) 0
<EPS-DILUTED> 0 0 0
<RESERVE-OPEN> 0 0 0
<PROVISION-CURRENT> 0 0 0
<PROVISION-PRIOR> 0 0 0
<PAYMENTS-CURRENT> 0 0 0
<PAYMENTS-PRIOR> 0 0 0
<RESERVE-CLOSE> 0 0 0
<CUMULATIVE-DEFICIENCY> 0 0 0
</TABLE>
