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FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
(Mark One) |X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to_______________
Commission File Number 0-20148
CITIZENS FINANCIAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Kentucky 61-1187135
(State of Incorporation) (I.R.S. Employer
Identification No.)
The Marketplace, Suite 300, 12910 Shelbyville Road, Louisville, Kentucky 40243
(Address of principal executive offices)
502/244-2420
(Issuer's telephone number)
_________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: Class A Stock - 1,075,615 as
of August 12, 1997.
Transitional Small Business Disclosure Format (Check one): Yes No X
This Report consists of 12 consecutively numbered pages.
An index to the Exhibits to this Report appears on page 11.
The date of this Report is August 14, 1997.
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1
Part I. - Financial Information;
Item 1. - Financial Statements
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30 1997 1996
- ---------------------------------------------------- ------------- ------------
Revenues:
<S> <C> <C>
Premiums and other considerations $9,546,444 $9,446,021
Premiums ceded (553,738) (473,427)
- ---------------------------------------------------- ------------- ------------
Net premiums earned 8,992,706 8,972,594
Net investment income 1,944,870 2,092,137
Net realized investment gains 325,248 937,344
Other income 7,295 18,054
- ---------------------------------------------------- ------------- ------------
Total Revenues 11,270,119 12,020,129
Benefits and Expenses:
Policyholder benefits 5,827,794 5,573,167
Policyholder benefits ceded (517,532) (279,096)
- ---------------------------------------------------- ------------- ------------
Net benefits 5,310,262 5,294,071
Increase in net benefit reserves 462,103 316,443
Interest credited on policyholder deposits 453,037 500,108
Commissions 1,883,032 2,046,939
General expenses 2,148,963 2,122,011
Interest expense 219,486 406,091
Policy acquisition costs deferred (629,608) (576,229)
Amortization of deferred policy acquisition costs
and value of insurance acquired 728,110 743,634
- ---------------------------------------------------- ------------- ------------
Total Benefits and Expenses 10,575,385 10,853,068
Income before Federal Income Tax 694,734 1,167,061
Federal Income Tax Expense 120,000 199,000
- ---------------------------------------------------- ------------- ------------
Net Income 574,734 968,061
Dividends on Redeemable Convertible Preferred Stock 203,500 191,143
- ---------------------------------------------------- ------------- ------------
Net Income Applicable to Common Stock $ 371,234 $ 776,918
- ---------------------------------------------------- ------------- ------------
Net Income Per Common Share:
Primary $ 0.35 $ 0.72
Fully diluted $ 0.32 $ 0.55
- ---------------------------------------------------- ------------- ------------
</TABLE>
See Notes to Consolidated Financial Statements.
2
Part I. - Financial Information;
Item 1. - Financial Statements
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30 1997 1996
- ---------------------------------------------------- ------------- ------------
Revenues:
<S> <C> <C>
Premiums and other considerations $4,747,787 $4,709,561
Premiums ceded (334,228) (240,111)
- ---------------------------------------------------- ------------- ------------
Net premiums earned 4,413,559 4,469,450
Net investment income 921,051 1,067,824
Net realized investment gains 178,567 346,244
Other income 6,143 13,861
- ---------------------------------------------------- ------------- ------------
Total Revenues 5,519,320 5,897,379
Benefits and Expenses:
Policyholder benefits 2,706,222 3,082,700
Policyholder benefits ceded (164,106) (183,941)
- ---------------------------------------------------- ------------- ------------
Net benefits 2,542,116 2,898,759
Increase (decrease) in net benefit reserves 240,700 (26,610)
Interest credited on policyholder deposits 233,488 232,985
Commissions 944,055 1,006,182
General expenses 1,109,028 1,088,579
Interest expense 112,522 201,288
Policy acquisition costs deferred (308,732) (317,021)
Amortization of deferred policy acquisition costs
and value of insurance acquired 286,992 341,024
- ---------------------------------------------------- ------------- ------------
Total Benefits and Expenses 5,160,169 5,425,186
Income before Federal Income Tax 359,151 472,193
Federal Income Tax Expense 62,300 74,000
- ---------------------------------------------------- ------------- ------------
Net Income 296,851 398,193
Dividends on Redeemable Convertible Preferred Stock 101,750 101,750
- ---------------------------------------------------- ------------- ------------
Net Income Applicable to Common Stock $ 195,101 $ 296,443
- ---------------------------------------------------- ------------- ------------
Net Income Per Common Share:
Primary $ 0.18 $ 0.28
Fully diluted $ 0.16 $ 0.22
- ---------------------------------------------------- ------------- ------------
</TABLE>
See Notes to Consolidated Financial Statements.
3
Item 1. (Continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
- --------------------------------------------------- ------------ ---------------
<S> <C> <C>
ASSETS
Investments:
Securities available for sale, at fair value:
Fixed maturities (amortized cost of $46,718,820
and $47,238,559 in 1997 and 1996, respectivel$46,577,502 $47,040,591
Equity securities (cost of $11,620,027
and $7,085,104 in 1997 and 1996, respectively)13,788,105 7,963,550
Investment real estate 3,939,675 3,938,806
Mortgage loans on real estate 173,673 176,636
Policy loans 2,874,910 2,852,670
Short-term investments 661,191 893,410
- --------------------------------------------------- ------------ ---------------
Total Investments 68,015,056 62,865,663
Cash and cash equivalents 1,012,607 2,805,717
Accrued investment income 788,390 772,689
Reinsurance recoverable:
Paid benefits and losses 93,421 231,648
Unpaid benefits, losses and IBNR 1,498,888 1,579,926
Premiums receivable 426,806 491,330
Property and equipment 1,344,829 1,265,948
Deferred policy acquisition costs 3,899,450 3,791,939
Value of insurance acquired 4,811,411 5,081,865
Goodwill 115,295 125,766
Other assets 333,783 502,204
Deferred federal income tax 375,311 748,013
- --------------------------------------------------- ------------ ---------------
Total Assets $82,715,247 $80,262,708
- --------------------------------------------------- ------------ ---------------
</TABLE>
See Notes to Consolidated Financial Statements.
4
Item 1. (Continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
- --------------------------------------------------- ------------ ---------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS EQUITY
Liabilities
Policy liabilities:
Future policy benefits $41,836,549 $41,501,871
Policyholder deposits 15,645,419 15,930,271
Policy and contract claims 1,141,807 1,210,393
Unearned premiums 171,718 183,613
Other 258,694 214,305
- --------------------------------------------------- ------------ ---------------
Total Policy Liabilities 59,054,187 59,040,453
Notes payable 3,660,000 4,095,869
Brokerage account loans 1,903,191 ---
Accrued expenses and other liabilities 1,965,851 1,982,024
Federal income tax payable 286,000 527,000
- --------------------------------------------------- ------------ ---------------
Total Liabilities 66,869,229 65,645,346
Commitments and Contingencies
Redeemable Convertible Preferred Stock;
370 shares issued and outstanding 4,043,907 4,043,907
Shareholders Equity:
Common stock, 6,000,000 shares authorized;
1,275,724 shares issued and outstanding 1,275,724 1,275,724
Additional paid-in capital 5,198,250 5,198,250
Unrealized appreciation of investments 1,286,202 428,780
Retained earnings 4,604,237 4,233,003
Common stock held in treasury - at cost (200,109 share(562,302) (562,302)
- --------------------------------------------------- ------------ ---------------
Total Shareholders Equity 11,802,111 10,573,455
- --------------------------------------------------- ------------ ---------------
Total Liabilities and Shareholders Equity $82,715,247 $80,262,708
- --------------------------------------------------- ------------ ---------------
</TABLE>
See Notes to Consolidated Financial Statements.
5
Item 1. (Continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended June 30 1997 1996
Cash Flows from Operations:
<S> <C> <C>
Net income $ 574,734 $ 968,061
Adjustments to reconcile net income to net cash
flows from operations:
Increase in benefit reserves 325,254 431,550
Increase (decrease) in claims liabilities (68,586) 4,228
(Increase) decrease in reinsurance recoverable:
Paid benefits 138,227 (13,593)
Unpaid benefits 81,038 (169,138)
Interest credited on policyholder deposits 453,037 500,108
Provision for amortization and depreciation,
net of deferrals 222,882 282,669
Amortization of premium and accretion of discount
on securities purchased, net (14,229) (3,025)
Net realized investment (gains) (325,248) (937,344)
(Increase) in accrued investment income (15,701) (182,083)
Change in other assets and other liabilities 207,699 (1,141,505)
Deferred federal income taxes (69,000) 138,000
Federal income taxes payable (241,000) (19,000)
Net Cash Flows provided by (Used In) Operations 1,269,107 (141,072)
Cash Flows from Investment Activities:
Cost of securities and mortgage loans acquired (11,082,763) (25,918,550)
Investments sold or matured 7,398,013 18,006,920
Short-term investments sold (acquired), net 232,219 (20,840)
Additions to property and equipment, net (192,448) (28,442)
Other investing activities, net 59,300 (145,722)
Net Cash (Used In) Investment Activities (3,585,679) (8,106,634)
Cash Flows from Financing Activities:
Issuance of redeemable convertible preferred stock --- 2,343,000
Policyholder deposits 370,907 447,418
Policyholder withdrawals (1,111,267) (901,629)
Net proceeds from brokerage account loans 1,903,191 ---
Notes payable and accrued interest - Guarantor (220,869) ---
Payments on notes payable (215,000) (188,809)
Dividends on nonredeemable convertible preferred stock (203,500) (96,964)
Other --- 120,236
Net Cash Flows provided by Financing Activities 523,462 1,723,252
Net (Decrease) in Cash and Cash Equivalents (1,793,110) (6,524,454)
Cash and Cash Equivalents at Beginning of Period 2,805,717 9,776,964
Cash and Cash Equivalents at End of Period $ 1,012,607 $ 3,252,510
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
6
Item 1. (Continued)
CITIZENS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-QSB in
conformity with generally accepted accounting principles. The accompanying
unaudited condensed financial statements reflect all adjustments which are, in
the opinion of management, necessary to a fair presentation of the results for
the interim periods. All such adjustments are of a normal recurring nature. For
further information, refer to the December 31, 1996 consolidated financial
statements and footnotes included in the Company's annual report on Form 10-K.
2. In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options is excluded. The Company believes that
Statement 128 will have no impact on its primary and fully diluted earnings per
share calculations.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL POSITION
Fixed maturities decreased $519,739, based on amortized cost, during the
first six months of 1997. Equity securities increased $4,534,923 and $5,824,555
on a cost and market value basis, respectively, during the same period. Gross
unrealized appreciation for available-for-sale fixed maturities and equity
securities increased $1,346,282 during the six months ended June 30, 1997.
OPERATIONS
An analysis of segment results (before federal income taxes) for the six
months and three months ended June 30, 1997 and 1996, is shown below.
Six months ended June 30,
Segment Income (Loss) before
Realized Investment Gains Segment Income
1997 1996 1997 1996
Life and Annuity $ 18,018 $ (15,712) $330,853 $ 893,512
Accident and Health 351,476 245,429 363,881 273,549
$351,476 $ 229,717 $694,734 $1,167,061
Three months ended June 30,
Segment Income before
Realized Investment Gains Segment Income
1997 1996 1997 1996
Life and Annuity $ 74,062 $ 109,980 $245,858 $ 445,837
Accident and Health 106,522 15,969 113,293 26,356
$180,584 $ 125,949 $359,151 $ 472,193
The improvement in Life and Annuity segment results (before realized
investment gains) for the six months ended June 30, 1997 is principally
attributable to additional margins generated by improving sales and persistency
of the Integrity National Life Insurance Company (Integrity) business which
was acquired in late 1995. The improvement in the Accident and Health segment is
attributable to several Dental profitability initiatives, including product
redesign, renewal underwriting enhancements, and improved claims administration
procedures. These additional Accident and Health margins have been partially
offset by moderate increases in administrative costs associated with a 9.9%
increase in premium volume.
Total premiums and other considerations increased .2% during the first six
months of 1997 compared to the same period in 1996. The increase is primarily
attributable to a 9.9% increase in the Companys Accident and Health premiums
offset by a 7.5% decrease in Life and Annuity premiums. The Accident and Health
increase is due primarily to growth in sales of the Companys Dental products.
The Life and Annuity premium decline resulted primarily from two key state
insurance licenses not being retained after the Integrity merger and some
disruption of sales momentum during the first year of the Integrity merger.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
CASH FLOW AND LIQUIDITY
Cash flow from operations increased $1,269,107 for the six months ended
June 30, 1997 compared to a decrease of $141,072 for the same period in the
prior year. This increase was principally attributable to nonrecurring payments
during the first half of 1996 for integration costs, bonuses, agent awards and
other expenses associated with the Integrity acquisition, which were accrued as
of December 31, 1995.
The $3,585,679 of cash used in investing activities resulted primarily from
the Company's investment of brokerage account advances into fixed maturities and
stocks.
The cash provided by financing activities during the first six months of
1997 is primarily attributable to advances received from a brokerage account,
while cash provided by financing activities during the first six months of 1996
is primarily attributable to the issuance of Redeemable Convertible Preferred
Stock.
9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The 1997 annual meeting of shareholders of the Company was held on May 21,
1997. At the meeting, eight incumbent directors were re-elected to serve until
the 1998 annual meeting of shareholders.
The names of the incumbent directors and the shares of the Companys Class
A Stock were voted as follows:
Candidate For Withheld
John H. Harralson, Jr. 578,258 3,131
Lane A. Hersman 578,258 3,131
Frank T. Kiley 578,258 3,131
Charles A. Mays 576,258 5,131
Earle V. Powell 577,621 3,768
Thomas G. Ward 577,858 3,531
Darrell R. Wells 578,158 3,231
Margaret A. Wells 578,258 3,131
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibit 11. Statement re computation of per share earnings
Exhibit 27. Financial Data Schedule
b. None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CITIZENS FINANCIAL CORPORATION
BY:/s/___________________________________________
Darrell R. Wells
President and Chief Executive Officer
BY:/s/___________________________________________
Brent L. Nemec
Treasurer and Principal Accounting Officer
Date: August 14, 1997
10
EXHIBIT INDEX
Exhibit No. Description Page No.
11 Statement re computation of per share earnings 12
27 Financial Data Schedule (electronic filing only)
11
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
Six Months Ended
June 30,
1997 1996
Primary earnings per common share:
Net income $ 574,734 $ 968,061
Convertible preferred stock dividends 203,50 191,143
Income applicable to common stock $ 371,234 $ 776,918
Average common shares outstanding 1,075,615 1,075,615
Primary earnings per common share $ 0 $ 0.72
Fully diluted earnings per common share:
Net income $ 574,734 $ 968,061
Average number of shares for computation
of fully diluted earnings per common share 1,815,615 1,770,681
Fully diluted earnings per common share $ 0 $ 0.55
Three Months Ended
June 30,
1997 1996
Primary earnings per common share:
Net income $ 296,851 $ 398,193
Convertible preferred stock dividends 101,75 101,750
Income applicable to common stock $ 195,101 $ 296,442
Average common shares outstanding 1,075,615 1,075,615
Primary earnings per common share $ 0 $ 0.28
Fully diluted earnings per common share:
Net income $ 296,851 $ 398,193
Average number of shares for computation
of fully diluted earnings per common share 1,815,615 1,815,615
Fully diluted earnings per common share $ 0 $ 0.22
12
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 46,578
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 13,788
<MORTGAGE> 174
<REAL-ESTATE> 3,940
<TOTAL-INVEST> 68,015
<CASH> 1,013
<RECOVER-REINSURE> 93
<DEFERRED-ACQUISITION> 3,899
<TOTAL-ASSETS> 82,715
<POLICY-LOSSES> 41,837
<UNEARNED-PREMIUMS> 259
<POLICY-OTHER> 1,142
<POLICY-HOLDER-FUNDS> 15,645
<NOTES-PAYABLE> 5,563
4,044
0
<COMMON> 1,276
<OTHER-SE> 10,526
<TOTAL-LIABILITY-AND-EQUITY> 82,715
8,993
<INVESTMENT-INCOME> 1,945
<INVESTMENT-GAINS> 325
<OTHER-INCOME> 7
<BENEFITS> 5,310
<UNDERWRITING-AMORTIZATION> 728
<UNDERWRITING-OTHER> 4,032
<INCOME-PRETAX> 695
<INCOME-TAX> 120
<INCOME-CONTINUING> 575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 575
<EPS-PRIMARY> .35
<EPS-DILUTED> .32
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
