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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 September 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 November 11, 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 November 12, 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>
Nine Months Ended September 30 1997 1996
- -------------------------------------------------------------- ---------------- ---------------
Revenues:
<S> <C> <C>
Premiums and other considerations $14,144,081 $14,189,043
Premiums ceded (819,487) (705,519)
- -------------------------------------------------------------- ---------------- ---------------
Net premiums earned 13,324,594 13,483,524
Net investment income 2,866,450 3,113,762
Net realized investment gains, net of expenses 1,058,247 885,237
Other income 8,240 19,067
- -------------------------------------------------------------- ---------------- ---------------
Total Revenues 17,257,531 17,501,590
Benefits and Expenses:
Policyholder benefits 8,649,689 8,590,135
Policyholder benefits ceded (646,827) (433,401)
- -------------------------------------------------------------- ---------------- ---------------
Net benefits 8,002,862 8,156,734
Increase in net benefit reserves 604,827 475,834
Interest credited on policyholder deposits 675,204 724,615
Commissions 2,800,671 2,989,460
General expenses 3,181,723 3,155,490
Interest expense 260,956 615,243
Policy acquisition costs deferred (830,096) (857,405)
Amortization of deferred policy acquisition costs
and value of insurance acquired 1,038,242 965,280
- -------------------------------------------------------------- ---------------- ---------------
Total Benefits and Expenses 15,734,389 16,225,251
Income before Federal Income Tax 1,523,142 1,276,339
Federal Income Tax Expense 263,000 213,766
- -------------------------------------------------------------- ---------------- ---------------
Net Income 1,260,142 1,062,573
Dividends on Redeemable Convertible Preferred Stock 305,250 292,893
- -------------------------------------------------------------- ---------------- ---------------
Net Income Applicable to Common Stock $954,892 $ 769,680
- -------------------------------------------------------------- ---------------- ---------------
Net Income Per Common Share:
Primary $ 0.89 $ 0.72
Fully diluted $ 0.69 $ 0.60
- -------------------------------------------------------------- ---------------- ---------------
</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 September 30 1997 1996
- -------------------------------------------------------------- ---------------- ---------------
Revenues:
<S> <C> <C>
Premiums and other considerations $4,597,637 $4,743,022
Premiums ceded (265,749) (232,092)
- -------------------------------------------------------------- ---------------- ---------------
Net premiums earned 4,331,888 4,510,930
Net investment income 884,224 1,021,625
Net realized investment gains, net of expenses 810,890 (52,107)
Other income 945 1,013
- -------------------------------------------------------------- ---------------- ---------------
Total Revenues 6,027,947 5,481,461
Benefits and Expenses:
Policyholder benefits 2,821,895 3,016,968
Policyholder benefits ceded (129,295) (154,305)
- -------------------------------------------------------------- ---------------- ---------------
Net benefits 2,692,600 2,862,663
Increase in net benefit reserves 142,724 159,391
Interest credited on policyholder deposits 222,167 224,507
Commissions 917,639 942,521
General expenses 1,032,760 1,042,788
Interest expense 82,005 199,843
Policy acquisition costs deferred (200,488) (281,176)
Amortization of deferred policy acquisition costs
and value of insurance acquired 310,132 221,646
- -------------------------------------------------------------- ---------------- ---------------
Total Benefits and Expenses 5,199,539 5,372,183
Income before Federal Income Tax 828,408 109,278
Federal Income Tax Expense 143,000 14,766
- -------------------------------------------------------------- ---------------- ---------------
Net Income 685,408 94,512
Dividends on Redeemable Convertible Preferred Stock 101,750 101,750
- -------------------------------------------------------------- ---------------- ---------------
Net Income (Loss) Applicable to Common Stock 583,658 $ (7,238)
- -------------------------------------------------------------- ---------------- ---------------
Net Income (Loss) Per Common Share:
Primary $ 0.54 $ (.01)
Fully diluted $ 0.38 $ 0.05
- -------------------------------------------------------------- ---------------- ---------------
</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>
September 30, December 31,
1997 1996
- ------------------------------------------------------------- --------------- ------------------
ASSETS
<S> <C> <C>
Investments:
Securities available for sale, at fair value:
Fixed maturities (amortized cost of $42,687,987
and $47,238,559 in 1997 and 1996, respectively) $43,111,236 $47,040,591
Equity securities (cost of $15,080,064
and $7,085,104 in 1997 and 1996, respectively) 18,576,994 7,963,550
Investment real estate 3,919,671 3,938,806
Mortgage loans on real estate 172,134 176,636
Policy loans 2,889,730 2,852,670
Short-term investments 551,191 893,410
- ------------------------------------------------------------- --------------- ------------------
Total Investments 69,220,956 62,865,663
Cash and cash equivalents 2,504,748 2,805,717
Accrued investment income 671,077 772,689
Reinsurance recoverable:
Paid benefits and losses 91,488 231,648
Unpaid benefits, losses and IBNR 1,442,624 1,579,926
Premiums receivable 396,439 491,330
Property and equipment 1,331,963 1,265,948
Deferred policy acquisition costs 3,851,882 3,791,939
Value of insurance acquired 4,654,993 5,081,865
Goodwill 110,054 125,766
Other assets 523,005 502,204
Deferred federal income tax --- 748,013
- ------------------------------------------------------------- --------------- ------------------
Total Assets $84,799,229 $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>
September 30, December 31,
1997 1996
- ------------------------------------------------------------- --------------- ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Liabilities
Policy liabilities:
Future policy benefits $42,008,566 $41,501,871
Policyholder deposits 15,654,640 15,930,271
Policy and contract claims 1,022,926 1,210,393
Unearned premiums 151,508 183,613
Other 310,213 214,305
- ------------------------------------------------------------- --------------- ------------------
Total Policy Liabilities 59,147,853 59,040,453
Notes payable 3,585,000 4,095,869
Brokerage account loans 1,796,110 ---
Accrued expenses and other liabilities 2,058,242 1,982,024
Federal income tax payable 259,000 527,000
Deferred federal income tax 326,183 ---
- ------------------------------------------------------------- --------------- ------------------
Total Liabilities 67,172,388 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 2,483,367 428,780
Retained earnings 5,187,895 4,233,003
Common stock held in treasury - at cost (200,109 shares) (562,302) (562,302)
- ------------------------------------------------------------- --------------- ------------------
Total Shareholders' Equity 13,582,934 10,573,455
- ------------------------------------------------------------- --------------- ------------------
Total Liabilities and Shareholders' Equity $84,799,229 $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
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30 1997 1996
Cash Flows from Operations:
<S> <C> <C>
Net income $ 1,260,142 $ 1,062,573
Adjustments to reconcile net income to net cash flows from operations:
Increase in benefit reserves 474,590 633,693
Increase (decrease) in claims liabilities (187,467) 107,326
(Increase) decrease in reinsurance recoverable:
Paid benefits 140,160 (12,863)
Unpaid benefits 137,302 (224,611)
Interest credited on policyholder deposits 675,204 724,615
Provision for amortization and depreciation, net of deferrals 399,996 282,650
Amortization of premium and accretion of discount
on securities purchased, net (15,490) (7,117)
Net realized investment gains (1,058,247) (885,237)
(Increase) decrease in accrued investment income 101,612 (66,003)
Change in other assets and other liabilities 195,929 (1,054,426)
Deferred federal income taxes 16,000 144,000
Federal income taxes payable (268,000) (12,000)
Net Cash Flows provided by Operations 1,871,731 692,600
Cash Flows from Investment Activities:
Cost of securities and mortgage loans acquired (19,285,137) (34,089,532)
Investments sold or matured 17,280,983 23,908,911
Investment management fees and margin interest (364,504) (23,060)
Short-term investments sold (acquired), net 342,219 (137,146)
Additions to property and equipment, net (223,008) (20,840)
Other investing activities, net 47,591 (202,263)
Net Cash Flows used in Investment Activities (2,201,856) (10,563,930)
Cash Flows from Financing Activities:
Issuance of redeemable convertible preferred stock --- 2,343,000
Policyholder deposits 573,347 610,037
Policyholder withdrawals (1,524,182) (1,344,752)
Net proceeds from brokerage account loans 1,796,110 ---
Payments on notes payable - guarantor (220,869) ---
Payments on notes payable - bank (290,000) (207,925)
Dividends on nonredeemable convertible preferred stock (305,250) (198,714)
Other --- 174,850
Net Cash Flows provided by Financing Activities 29,156 1,376,496
Net (Decrease) in Cash and Cash Equivalents (300,969) (8,494,834)
Cash and Cash Equivalents at Beginning of Period 2,805,717 9,776,964
Cash and Cash Equivalents at End of Period $ 2,504,748 $ 1,282,130
- ----------------------------------------------------------------------------------------------
</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.
3. During the quarter ended September 30, 1997, the Company adopted the
practice of netting certain direct, incremental investment management fees and
margin loan interest costs against net realized investment gains and losses
presented in the Condensed Consolidated Statements of Operations. Such costs are
based directly on or, are primarily associated with capital gains generated in
the equities portfolio. Previously reported amounts have also been reclassified
for consistency. Costs netted against realized investment gains total $364,504
and $23,060 for the nine months ended September 30, 1997 and 1996 respectively,
and $286,613 and $23,060 for the three months ended September 30, 1997 and 1996
respectively.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL POSITION
Fixed maturities decreased $4,550,572 based on amortized cost, during the
first nine months of 1997. Equity securities increased $7,994,960 and
$10,613,444 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 $3,239,701 during the nine months ended
September 30, 1997.
OPERATIONS
An analysis of segment results (before federal income taxes) for the nine
months and three months ended September 30, 1997 and 1996, is shown below.
<TABLE>
<CAPTION>
Segment Income (Loss)
----------------------------------------------------------------------
Before Realized Investment Gains Total
----------------------------------------------------------------------
Nine Months Ended September 30 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Life and Annuity $(66,146) $ 16,439 $ 952,818 $ 875,118
Accident and Health 531,041 374,663 570,324 401,221
- -----------------------------------------------------------------------------------------------------
Total $464,895 $391,102 $1,523,142 $1,276,339
- -----------------------------------------------------------------------------------------------------
Three Months Ended September 30 1997 1996 1997 1996
- --------------------------------- --------------- --------------- --- -------------- --------------
Life and Annuity $(159,068) $ 32,152 $621,965 $(18,394)
Accident and Health 176,586 129,233 206,443 127,672
- -------------------------- ------ --------------- --------------- --- -------------- --------------
Total $ 17,518 $161,385 $828,408 $109,278
- -------------------------- ------ --------------- --------------- --- -------------- --------------
</TABLE>
The decrease in Life and Annuity segment results (before realized
investment gains) for the nine months ended September 30, 1997 is principally
attributable to a decline in persistency for Integrity National Life Insurance
Company ("Integrity") business which was acquired in late 1995 and moderately
lower sales of graded benefit life products, associated with a reduction in
policy benefit levels. 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.
Total premiums and other considerations decreased 1.2% during the first
nine months of 1997 compared to the same period in 1996. The decrease is
primarily attributable to a 3.5% increase in the Company's Accident and Health
premiums offset by a 5.2% decrease in Life and Annuity premiums. The Accident
and Health increase is due primarily to growth in sales of the Company's Dental
products. The Life and Annuity premium decline resulted primarily from two key
state insurance licenses not being retained after the Integrity merger, some
disruption of sales momentum during the first year of the Integrity merger, and
a reduction of policy benefit levels for graded benefit life products.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
CASH FLOW AND LIQUIDITY
Cash flow from operations totaled $1,871,731 for the nine months ended
September 30, 1997 compared to $662,660 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 $2,201,856 of cash used in investing activities resulted primarily from
the Company's investment of brokerage account advances into equity securities.
The cash provided by financing activities during the first nine months of
1997 is primarily attributable to advances received from a brokerage account
offset by loan repayments and moderately increased annuity withdrawals, while
cash provided by financing activities during the first nine months of 1996 is
primarily attributable to the issuance of Redeemable Convertible Preferred
Stock.
9
PART II. OTHER INFORMATION
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
In accordance with the requirements of the Securities and Exchange Act of
1934, Registrant has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CITIZENS FINANCIAL CORPORATION
BY: ___________________________________________
Darrell R. Wells
President and Chief Executive Officer
BY: ___________________________________________
Brent L. Nemec
Treasurer and Principal Accounting Officer
Date: November 12, 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
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Primary earnings per common share:
Net income $1,260,142 $1,062,573
Convertible preferred stock dividends 305,250 292,893
Income applicable to common stock $ 954,892 $ 769,680
Average common shares outstanding 1,075,615 1,075,615
Primary earnings per common share $ 0.89 $ 0.72
Fully diluted earnings per common share:
Net income $1,260,142 $1,062,573
Average number of shares for computation
of fully diluted earnings per common share 1,815,615 1,785,659
Fully diluted earnings per common share $ 0.69 $ 0.60
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
Primary earnings per common share:
<S> <C> <C>
Net income $ 685,408 $ 94,512
Convertible preferred stock dividends 101,750 101,750
Income applicable to common stock $ 583,658 $ (7,238)
Average common shares outstanding 1,075,615 1,075,615
Primary earnings per common share $ 0.54 $ (.01)
Fully diluted earnings per common share:
Net income $ 685,408 $ 94,512
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 $ 0.38 $ 0.05
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 43,111
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 18,577
<MORTGAGE> 172
<REAL-ESTATE> 3,920
<TOTAL-INVEST> 69,221
<CASH> 2,505
<RECOVER-REINSURE> 91
<DEFERRED-ACQUISITION> 3,852
<TOTAL-ASSETS> 84,799
<POLICY-LOSSES> 42,009
<UNEARNED-PREMIUMS> 310
<POLICY-OTHER> 1,023
<POLICY-HOLDER-FUNDS> 15,655
<NOTES-PAYABLE> 3,585
4,044
0
<COMMON> 1,276
<OTHER-SE> 12,307
<TOTAL-LIABILITY-AND-EQUITY> 84,799
13,325
<INVESTMENT-INCOME> 2,866
<INVESTMENT-GAINS> 1,058
<OTHER-INCOME> 8
<BENEFITS> 8,003
<UNDERWRITING-AMORTIZATION> 1,038
<UNDERWRITING-OTHER> 5,982
<INCOME-PRETAX> 1,523
<INCOME-TAX> 263
<INCOME-CONTINUING> 1,260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,260
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.69
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
