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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
|X|ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
|_|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
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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)
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 12, 1998.
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 15,
1998
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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>
Three Months Ended March 31 1998 1997
- -------------------------------------------------------------- ---------------- ---------------
Revenues:
<S> <C> <C>
Premiums and other considerations $4,578,850 $4,798,657
Premiums ceded (224,182) (219,510)
- -------------------------------------------------------------- ---------------- ---------------
Net premiums earned 4,354,668 4,579,147
Net investment income 923,005 1,023,819
Net realized investment gains, net of expenses 1,027,515 134,163
Other income 678 1,152
- -------------------------------------------------------------- ---------------- ---------------
Total Revenues 6,305,866 5,738,281
Benefits and Expenses:
Policyholder benefits 2,732,386 3,121,572
Policyholder benefits ceded (106,225) (353,426)
- -------------------------------------------------------------- ---------------- ---------------
Net benefits 2,626,161 2,768,146
Increase in net benefit reserves 264,846 221,403
Interest credited on policyholder deposits 213,967 219,549
Commissions 967,818 938,977
General expenses 1,106,726 1,039,935
Interest expense 78,069 94,446
Policy acquisition costs deferred (280,654) (310,876)
Amortization of deferred policy acquisition costs
and value of insurance acquired 228,854 431,118
- -------------------------------------------------------------- ---------------- ---------------
Total Benefits and Expenses 5,205,787 5,402,698
Income before Federal Income Tax 1,100,079 335,583
Federal Income Tax Expense 240,000 57,700
- -------------------------------------------------------------- ---------------- ---------------
Net Income 860,079 277,883
Dividends on Redeemable Convertible Preferred Stock 101,750 101,750
- -------------------------------------------------------------- ---------------- ---------------
Net Income Applicable to Common Stock $758,329 $ 176,133
- -------------------------------------------------------------- ---------------- ---------------
Net Income Per Common Share:
Basic $ 0.71 $ 0.16
Diluted $ 0.47 $ 0.15
- -------------------------------------------------------------- ---------------- ---------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
Item 1. (Continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
- ------------------------------------------------------------- --------------- ------------------
ASSETS
<S> <C> <C>
Investments:
Securities available for sale, at fair value:
Fixed maturities (amortized cost of $44,150,850
and $41,840,652 in 1998 and 1997, respectively) $45,755,321 $43,029,609
Equity securities (cost of $13,765,540
and $12,014,105 in 1998 and 1997, respectively) 18,042,835 14,942,792
Investment real estate 3,862,988 3,890,961
Mortgage loans on real estate 169,150 170,536
Policy loans 2,971,355 2,943,148
Short-term investments 469,740 572,492
- ------------------------------------------------------------- --------------- ------------------
Total Investments 71,271,389 65,549,538
Cash and cash equivalents 2,491,719 6,180,576
Accrued investment income 711,357 710,673
Reinsurance recoverable:
Paid benefits and losses 123,649 82,702
Unpaid benefits, losses and IBNR 1,488,180 1,537,270
Premiums receivable 431,815 442,846
Property and equipment 1,269,775 1,295,917
Deferred policy acquisition costs 3,885,057 3,819,678
Value of insurance acquired 4,386,269 4,496,872
Goodwill 99,573 104,814
Other assets 818,040 528,956
- ------------------------------------------------------------- --------------- ------------------
Total Assets $86,976,823 $84,749,842
- ------------------------------------------------------------- --------------- ------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
Item 1. (Continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
- ------------------------------------------------------------- --------------- ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Policy liabilities:
<S> <C> <C>
Future policy benefits $42,453,519 $42,229,519
Policyholder deposits 15,485,116 15,538,891
Policy and contract claims 898,125 1,220,023
Unearned premiums 171,703 160,107
Other 169,317 190,243
- ------------------------------------------------------------- --------------- ------------------
Total Policy Liabilities $59,177,780 59,338,783
Notes payable 3,410,000 3,510,000
Accrued expenses and other liabilities 2,558,444 2,763,849
Federal income tax payable 445,500 263,500
Deferred federal income tax 1,143,238 508,918
- ------------------------------------------------------------- --------------- ------------------
Total Liabilities 66,734,962 66,385,050
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 3,713,738 2,594,998
Retained earnings 6,572,544 5,814,215
Common stock held in treasury - at cost (200,109 shares) (562,302) (562,302)
- ------------------------------------------------------------- --------------- ------------------
Total Shareholders' Equity 16,197,954 14,320,885
- ------------------------------------------------------------- --------------- ------------------
Total Liabilities and Shareholders' Equity $86,976,823 $84,749,842
- ------------------------------------------------------------- --------------- ------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
Item 1. (Continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31 1998 1997
Cash Flows from Operations:
<S> <C> <C>
Net income $860,079 $ 277,883
Adjustments to reconcile net income to net cash flows from operations:
Increase in benefit reserves 235,596 27,725
Increase (decrease) in claims liabilities (321,898) 49,531
(Increase) decrease in reinsurance recoverable:
Paid benefits (40,947) (1,464)
Unpaid benefits 49,090 176,407
Interest credited on policyholder deposits 213,967 221,710
Provision for amortization and depreciation, net of deferrals 13,272 181,830
Amortization of premium and accretion of discount
on securities purchased, net 4,261 (6,399)
Net realized investment gains (1,027,515) (134,163)
(Increase) decrease in accrued investment income (684) 32,974
Change in other assets and other liabilities (300,008) 3,791
Deferred federal income taxes 58,000 (31,300)
Federal income taxes payable 182,000 (161,000)
Net Cash Flows provided by (used in) Operations (74,787) 637,525
Cash Flows from Investment Activities:
Cost of securities acquired (11,702,558) (7,114,394)
Investments sold or matured 8,607,527 4,268,487
Investment management fees and margin interest (330,816) (12,518)
Short-term investments sold, net 102,752 379,971
Additions to property and equipment, net (5,717) (43,452)
Other investing activities, net (110,713) 65,328
Net Cash Flows used in Investment Activities (3,439,525) (2,456,578)
Cash Flows from Financing Activities:
Policyholder deposits 178,603 166,589
Policyholder withdrawals (446,345) (555,175)
Net proceeds from brokerage account loans 294,947 2,081,580
Payments on notes payable - bank (100,000) ---
Dividends on nonredeemable convertible preferred stock (101,750) (101,750)
Other --- 8,475
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Net Cash Flows provided by (used in) Financing Activities (174,545) 1,599,719
Net Decrease in Cash and Cash Equivalents (3,688,857) (219,334)
Cash and Cash Equivalents at Beginning of Period 6,180,576 2,805,717
Cash and Cash Equivalents at End of Period $2,491,719 $ 2,586,383
- ----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
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, 1997 consolidated financial
statements and footnotes included in the Company's annual report on Form 10-KSB.
2. As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or total shareholder's
equity. SFAS 130 requires unrealized gains or losses on the Company's available
for sale securities to be included in other comprehensive income.
The components of comprehensive income (loss), net of related tax, for the
three months ended March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Three months ended March 31 1998 1997
- -------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Net Income $ 860,079 $ 277,883
Net unrealized gains (losses) on available for sale securities 1,118,740 (855,089)
- -------------------------------------------------------------- ------------- -------------
Comprehensive income (loss) $1,978,819 $(577,206)
- -------------------------------------------------------------- ------------- -------------
</TABLE>
3. During 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 $261,442 and $12,518 for the three
months ended March 31, 1998 and 1997 respectively.
4. Effective May 12, 1998 the Company completed the acquisition of United
Liberty Life Insurance Company from Chaswil United Corporation, a privately-held
Cincinnati insurance holding company. The acquisition price was $6.3 million,
subject to adjustments to be determined within 90 days. In conjunction with the
acquisition, Chaswil retained approximately $2.1 million of real estate related
and other assets, which were replaced with cash by Citizens Financial.
6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL POSITION
Fixed maturities increased $2,310,198 based on amortized cost, during the
first three months of 1998. Equity securities increased $1,751,435 and
$3,100,043 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 approximately $1,765,000 during the three months
ended March 31, 1998.
OPERATIONS
An analysis of segment results (before federal income taxes) for the three
months ended March 31, 1998 and 1997, is shown below.
<TABLE>
<CAPTION>
Segment Income (Loss)
-------------------------------------------------------------------
Before Realized Investment Gains Total
-------------------------------- -----------------------------
Three months ended March 31 1998 1997 1998 1997
- --------------------------------- --------------- --------------- --- -------------- --------------
<S> <C> <C> <C> <C>
Life and Annuity $29,595 $(44,017) $1,019,217 $84,994
Accident and Health 42,969 245,436 80,862 250,589
- -------------------------- ------ --------------- --------------- --- -------------- --------------
Total $72,564 $201,419 $1,100,079 $335,583
- -------------------------- ------ --------------- --------------- --- -------------- --------------
</TABLE>
The improvement in Life and Annuity segment results (before realized
investment gains) for the three months ended March 31, 1998 is principally
attributable to introduction of a new broker-sold simplified issue product and
improving sales and persistency for home service life products. The decrease in
the Accident and Health segment is attributable to somewhat increased individual
Accident and Health claim ratios. Also, as expected, somewhat higher claim
ratios were incurred during the initial few months after certain
under-performing group Dental cases were terminated.
Total premiums and other considerations decreased approximately 4.9% during
the first three months of 1998. This change is attributable to a 7.9% decrease
in Accident and Health premium and a 2.1% decrease is Life and Annuity premium.
The majority of the Accident and Health decrease is attributable to termination
of certain under- performing group Dental cases as noted above. The Life and
Annuity decrease resulted from reduced Universal Life premium, partially offset
by a slight increase in Traditional life premium.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
CASH FLOW AND LIQUIDITY
Cash flow from operations totaled $(74,787) for the three months ended
March 31, 1998 compared to $637,525 for the same period in the prior year. This
decrease was principally attributable to a reduction in outstanding claim
liabilities and accrued expenses.
The $3,439,525 of cash used in investing activities resulted primarily from
repositioning the somewhat elevated 1997 year-end cash balance into longer term
investments.
The cash used in financing activities during the first three months of 1998
is primarily attributable increased annuity withdrawals, debt repayments and
preferred stock dividends.
8
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
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: /s/ Darrell R. Wells
Darrell R. Wells
President and Chief Executive Officer
BY: /s/ Brent L. Nemec
Brent L. Nemec
Treasurer and Principal Accounting Officer
Date: May 15, 1998
9
EXHIBIT INDEX
Exhibit No. Description Page No.
11 Statement re computation of per share earnings 11
27 Financial Data Schedule (electronic
filing only)
10
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended March 31 1998 1997
- --------------------------------------------------------- -------------- ---------------
Numerator:
<S> <C> <C>
Diluted: Net income $ 860,079 $ 277,883
Less: Preferred stock dividends 101,750 101,750
- --------------------------------------------------------- -------------- ---------------
Basic: Net income applicable to common stock $ 758,329 $ 176,133
- --------------------------------------------------------- -------------- ---------------
Denominator:
Basic: Weighted average common shares 1,075,615 1,075,615
Plus: Assumed conversion of preferred stock 740,000 740,000
- --------------------------------------------------------- -------------- ---------------
Diluted: Weighted average shares assuming preferred
conversions 1,815,615 1,815,615
- --------------------------------------------------------- -------------- ---------------
Basic earnings per share $ 0.71 $ 0.16
Diluted earnings per share $ 0.47 $ 0.15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 45,755
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 18,043
<MORTGAGE> 169
<REAL-ESTATE> 3,863
<TOTAL-INVEST> 71,272
<CASH> 2,492
<RECOVER-REINSURE> 124
<DEFERRED-ACQUISITION> 3,885
<TOTAL-ASSETS> 86,977
<POLICY-LOSSES> 42,454
<UNEARNED-PREMIUMS> 172
<POLICY-OTHER> 1,067
<POLICY-HOLDER-FUNDS> 15,485
<NOTES-PAYABLE> 3,410
4,044
0
<COMMON> 1,276
<OTHER-SE> 14,922
<TOTAL-LIABILITY-AND-EQUITY> 86,977
4,354
<INVESTMENT-INCOME> 923
<INVESTMENT-GAINS> 1,028
<OTHER-INCOME> 1
<BENEFITS> 2,626
<UNDERWRITING-AMORTIZATION> (51)
<UNDERWRITING-OTHER> 2,075
<INCOME-PRETAX> 1,100
<INCOME-TAX> 240
<INCOME-CONTINUING> 860
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 860
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.47
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
