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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 March 31, 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 buisness 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)
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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 May
14, 1997.
Transitional Small Business Disclosure Format (Check one): Yes No X
This Report consists of 11 consecutively numbered pages. An
index to the Exhibits to this Report appears on page 10.
The date of this Report is May 14, 1997.
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1
<PAGE>
Part I. - Financial Information;
Item 1. - Financial Statements
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
Three Months Ended March 31 1997 1996
- -------------------------------------------------------------- ---------------- ---------------
Revenues:
<S> <C> <C>
Premiums and other considerations $4,798,657 $4,736,460
Premiums ceded (219,510) (233,316)
- -------------------------------------------------------------- ---------------- ---------------
Net premiums earned 4,579,147 4,503,144
Net investment income 1,023,819 1,024,313
Net realized investment gains 146,681 591,100
Other income 1,152 4,193
- -------------------------------------------------------------- ---------------- ---------------
Total Revenues 5,750,799 6,122,750
Benefits and Expenses:
Policyholder benefits 3,121,572 2,490,467
Policyholder benefits ceded (353,426) (95,155)
- -------------------------------------------------------------- ---------------- ---------------
Net benefits 2,768,146 2,395,312
Increase in net benefit reserves 221,403 343,053
Interest credited on policyholder deposits 219,549 267,123
Commissions 938,977 1,025,944
General expenses 1,039,935 919,889
Interest expense 106,964 258,764
Policy acquisition costs deferred (310,876) (169,433)
Amortization of deferred policy acquisition costs
and value of insurance acquired 431,118 387,230
- -------------------------------------------------------------- ---------------- ---------------
Total Benefits and Expenses 5,415,216 5,427,882
Income before Federal Income Tax 335,583 694,868
Federal Income Tax Expense 57,700 125,000
- -------------------------------------------------------------- ---------------- ---------------
Net Income 277,883 569,868
Dividends on Redeemable Convertible Preferred Stock 101,750 89,393
- -------------------------------------------------------------- ---------------- ---------------
Net Income Applicable to Common Stock $ 176,133 $ 480,475
- -------------------------------------------------------------- ---------------- ---------------
Net Income Per Common Share:
Primary $ 0.16 $ 0.45
Fully diluted $ 0.15 $ 0.37
- -------------------------------------------------------------- ---------------- ---------------
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
Item 1. (Continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
March 31, December 31,
1997 1996
- ------------------------------------------------------------- --------------- ------------------
ASSETS
<S> <C> <C>
Investments:
Securities available for sale, at fair value:
Fixed maturities (amortized cost of $47,196,643
and $47,238,559 in 1997 and 1996, respectively) $46,245,142 $47,040,591
Equity securities (cost of $10,091,215
and $7,085,104 in 1997 and 1996, respectively) 10,378,264 7,963,550
Investment real estate 3,942,569 3,938,806
Mortgage loans on real estate 175,173 176,636
Policy loans 2,865,927 2,852,670
Short-term investments 513,439 893,410
- ------------------------------------------------------------- --------------- ------------------
Total Investments 64,120,514 62,865,663
Cash and cash equivalents 2,586,383 2,805,717
Accrued investment income 739,715 772,689
Reinsurance recoverable:
Paid benefits and losses 233,112 231,648
Unpaid benefits, losses and IBNR 1,403,519 1,579,926
Premiums receivable 453,676 491,330
Property and equipment 1,249,290 1,265,948
Deferred policy acquisition costs 3,877,317 3,791,939
Value of insurance acquired 4,916,841 5,081,865
Goodwill 120,535 125,766
Other assets 354,881 502,204
Deferred federal income tax 1,219,813 748,013
- ------------------------------------------------------------- --------------- ------------------
Total Assets $81,275,596 $80,262,708
- ------------------------------------------------------------- --------------- ------------------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
Item 1. (Continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
March 31, December 31,
1997 1996
- ------------------------------------------------------------- --------------- ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Policy liabilities:
<S> <C> <C>
Future policy benefits $41,541,190 $41,501,871
Policyholder deposits 15,763,395 15,930,271
Policy and contract claims 1,259,924 1,210,393
Unearned premiums 172,019 183,613
Other 259,715 214,305
- ------------------------------------------------------------- --------------- ------------------
Total Policy Liabilities 58,996,243 59,040,453
Notes payable 4,104,344 4,095,869
Brokerage account loans 2,081,580 ---
Accrued expenses and other liabilities 1,789,023 1,982,024
Federal income tax payable 366,000 527,000
- ------------------------------------------------------------- --------------- ------------------
Total Liabilities 67,337,190 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 (426,309) 428,780
Retained earnings 4,409,136 4,233,003
Common stock held in treasury - at cost (200,109 shares) (562,302) (562,302)
- ------------------------------------------------------------- --------------- ------------------
Total Shareholders' Equity 9,894,499 10,573,455
- ------------------------------------------------------------- --------------- ------------------
Total Liabilities and Shareholders' Equity $81,275,596 $80,262,708
- ------------------------------------------------------------- --------------- ------------------
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
Item 1. (Continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
Three Months Ended March 31 1997 1996
<S> <C> <C>
Cash Flows from Operations:
Net income $ 277,883 $ 569,868
Adjustments to reconcile net income to net cash flows from operations:
Increase in benefit reserves 27,725 387,437
Increase (decrease) in claims liabilities 49,531 (254,913)
(Increase) decrease in reinsurance recoverable:
Paid benefits (1,464) (19,949)
Unpaid benefits 176,407 (53,340)
Interest credited on policyholder deposits 221,710 267,123
Provision for amortization and depreciation, net of deferrals 181,830 216,805
Amortization of premium and accretion of discount
on securities purchased, net (6,399) (2,504)
Net realized investment (gains) (146,681) (604,754)
Decrease (increase) in accrued investment income 32,974 (72,064)
Change in other assets and other liabilities 3,791 (710,256)
Deferred federal income taxes (31,300) 90,000
Federal income taxes payable (161,000) 5,000
Net Cash Flows provided by (Used In) Operations 625,007 (181,547)
Cash Flows from Investment Activities:
Cost of securities and mortgage loans acquired (7,114,394) (17,126,566)
Investments sold or matured 4,268,487 12,527,285
Short-term investments sold (acquired), net 379,971 (352,111)
Additions to property and equipment, net (43,452) (19,245)
Other investing activities, net 65,328 (88,435)
Net Cash (Used In) Investment Activities (2,444,060) (5,059,072)
Cash Flows from Financing Activities:
Issuance of redeemable convertible preferred stock --- 2,343,000
Policyholder deposits 166,589 200,097
Policyholder withdrawals (555,175) (475,312)
Net proceeds from brokerage account loans 2,081,580 ---
Notes payable and accrued interest - Guarantor 8,475 ---
Payments on notes payable --- (120,101)
Dividends on nonredeemable convertible preferred stock (101,750) ---
Other --- 61,796
Net Cash Flows provided by Financing Activities 1,599,719 2,009,480
Net (Decrease) in Cash and Cash Equivalents (219,334) (3,231,139)
Cash and Cash Equivalents at Beginning of Period 2,805,717 9,776,964
Cash and Cash Equivalents at End of Period $ 2,586,383 $ 6,545,825
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</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
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.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL POSITION
Fixed maturities decreased $41,916, based on amortized cost, during the first
three months of 1997. Equity securities increased $3,006,111 and $2,414,714 on a
cost and market value basis, respectively, during the same period. Gross
unrealized appreciation for available-for-sale fixed maturities and equity
securities decreased $1,344,930 during the three months ended March 31, 1997.
OPERATIONS
An analysis of segment results (before federal income taxes) for the three
months ended March 31, 1997 and 1996, is shown below.
Three months ended March 31,
Segment Income (Loss) before
Realized Investment Gains Segment Income
1997 1996 1997 1996
-------------- -------------- ----------- --------
Life and Annuity $ (56,052) $(125,692) $ 84,995 $447,675
Accident and Health 244,954 229,460 250,588 247,193
---------- ------------ ---------- --------
$188,902 $ 103,768 $335,583 $694,868
========= =========== ========= ========
The improvement in Life and Annuity segment results (before realized investment
gains) is principally attributable to additional margins generated by improving
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 10.5% increase in premium volume.
Total premiums and other considerations increased 1.7% during the first three
months of 1997 compared to the same period in 1996. The increase is primarily
attributable to a 10.5% 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 and some
disruption of sales momentum during the first year of the Integrity merger.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
CASH FLOW AND LIQUIDITY
Cash flow from operations increased $806,554 for the three months ended March
31, 1997 compared to the same period in the prior year. This increase was
principally attributable to nonrecurring payments during the first quarter 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 $2,444,060 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 three months of 1997
is primarily attributable to advances received from a brokerage account, while
cash provided by financing activities during the first three months of 1996 is
primarily attributable to the sale of Redeemable Convertible Preferred Stock.
8
<PAGE>
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
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: ___________________________________________
Darrell R. Wells
President and Chief Executive Officer
BY: ___________________________________________
Brent L. Nemec
Treasurer and Principal Accounting Officer
Date: May 14, 1997
9
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
11 Statement re computation of per share earnings 11
27 Financial Data Schedule (electronic
filing only)
10
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
March 30,
1997 1996
(In thousands, except share
And per share data)
Primary earnings per common share:
Net income $ 277,883 $ 569,868
Convertible preferred stock dividends 101,750 89,393
------------ ---------
Income applicable to common stock $ 176,133 $ 480,475
Average common shares outstanding 1,075,615 1,075,615
============ =========
Primary earnings per common share $ 0.16 $ .45
=========================
Fully diluted earnings per common share:
Net income $ 277,883 $ 525,172
============ =========
Average number of shares for computation
of fully diluted earnings per common share 1,815,615 1,401,142
============ =========
Fully diluted earnings per common share $ 0.15 $ .37
========================
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 49785
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 7081
<MORTGAGE> 182
<REAL-ESTATE> 4066
<TOTAL-INVEST> 65137
<CASH> 6546
<RECOVER-REINSURE> 112
<DEFERRED-ACQUISITION> 3553
<TOTAL-ASSETS> 85639
<POLICY-LOSSES> 41805
<UNEARNED-PREMIUMS> 213
<POLICY-OTHER> 889
<POLICY-HOLDER-FUNDS> 16076
<NOTES-PAYABLE> 9192
4044
0
<COMMON> 1276
<OTHER-SE> 10017
<TOTAL-LIABILITY-AND-EQUITY> 85639
4503
<INVESTMENT-INCOME> 1024
<INVESTMENT-GAINS> 591
<OTHER-INCOME> 4
<BENEFITS> 2395
<UNDERWRITING-AMORTIZATION> 387
<UNDERWRITING-OTHER> 1945
<INCOME-PRETAX> 695
<INCOME-TAX> 125
<INCOME-CONTINUING> 570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 570
<EPS-PRIMARY> .45
<EPS-DILUTED> .37
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
