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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 registrant as specified in its charter)
Kentucky 61-1187135
(State of Incorporation) (I.R.S. Employer Identification No.)
12910 Shelbyville Road, Louisville, Kentucky, 40243
(Address of principal executive offices)
(502) 244-2420
(Registrant's telephone number)
Check whether the registrant (1) has filed all reports required to be filed
by Sections 13 or 15(d) of the Exchange Act 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 such filing requirements for the past
90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSURERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: Class A Stock -
1,761,415 as of May 5, 2000.
The date of this Report is May 8, 2000.
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<PAGE>
Part I - Financial Information; Item 1 - Financial Statements
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended March 31 2000 1999
- ------------------------------------------------------------------------------
Revenues:
Premiums and other considerations $5,918,119 $5,129,687
Premiums ceded (195,767) (183,451)
- ------------------------------------------------------------------------------
Net premiums earned 5,722,352 4,946,236
Net investment income 1,424,583 1,509,895
Net realized investment gains, net of expenses 4,793,958 1,541,836
Other income 44,882 11,908
- ------------------------------------------------------------------------------
Total Revenues 11,985,775 8,009,875
Policy Benefits and Expenses:
Policyholder benefits 4,232,535 4,047,434
Policyholder benefits ceded (264,101) (212,540)
- ------------------------------------------------------------------------------
Net benefits 3,968,434 3,834,894
Increase (decrease) in net benefit reserves 235,293 (125,725)
Interest credited on policyholder deposits 201,446 247,351
Commissions 1,182,923 994,625
General expenses 1,626,020 1,223,785
Interest expense 185,222 127,099
Policy acquisition costs deferred (359,937) (308,068)
Amortization of deferred policy acquisition
costs, value of insurance acquired, and goodwill 337,656 428,358
- ------------------------------------------------------------------------------
Total Policy Benefits and Expenses 7,377,057 6,422,319
- ------------------------------------------------------------------------------
Income before Income Tax Expense 4,608,718 1,587,556
Income Tax Expense 1,700,000 425,000
- ------------------------------------------------------------------------------
Net Income $2,908,718 $1,162,556
- ------------------------------------------------------------------------------
Net Income Per Common Share $1.65 $0.65
- ------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
Part I; Item 1 (continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Financial Condition
March 31, December 31,
2000 1999
- ------------------------------------------------------------------------------
ASSETS (Unaudited)
Investments:
Securities available for sale, at fair value:
Fixed maturities (amortized cost of
$68,973,596 and $68,958,634 in 2000 and 1999,
respectively) $ 69,139,620 $ 69,501,248
Equity securities (cost of $20,447,977 and
$18,228,519 in 2000 and 1999, respectively) 28,885,171 22,941,274
Investment real estate 3,489,593 3,513,579
Mortgage loans on real estate 156,000 158,309
Policy loans 4,070,691 4,059,801
Short-term investments 580,425 580,425
- ------------------------------------------------------------------------------
Total Investments 106,321,500 100,754,636
Cash and cash equivalents 22,283,911 18,696,401
Accrued investment income 1,154,250 1,145,447
Reinsurance recoverable 3,564,154 3,607,349
Premiums receivable 265,609 388,146
Property and equipment 2,019,204 2,051,414
Deferred policy acquisition costs 4,822,117 4,690,774
Value of insurance acquired 5,101,157 5,295,818
Goodwill 790,305 809,809
Federal income tax receivable --- 169,502
Other assets 480,852 370,734
- ------------------------------------------------------------------------------
Total Assets $146,803,059 $137,980,030
- ------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
Part I; Item 1 (continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Financial Condition
March 31, December 31,
2000 1999
- ------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
Liabilities:
Policy Liabilities:
Future policy benefits $ 79,742,308 $ 79,507,902
Policyholder deposits 15,441,182 15,811,486
Policy and contract claims 1,376,640 1,456,030
Unearned premiums 186,686 176,779
Other 284,803 241,502
- ------------------------------------------------------------------------------
Total Policy Liabilities 97,031,619 97,193,699
Notes payable 8,375,000 8,500,000
Accrued expenses and other liabilities 3,588,924 2,270,660
Federal income tax payable 2,162,365 ---
Deferred federal income tax 2,504,757 1,979,214
- ------------------------------------------------------------------------------
Total Liabilities 113,662,665 109,943,573
Commitments and Contingencies
Shareholders' Equity:
Common stock, 6,000,000 shares authorized;
1,762,715 and 1,767,215 shares issued and
outstanding in 2000 and 1999, respectively 1,762,715 1,767,215
Additional paid-in capital 7,689,188 7,736,201
Accumulated other comprehensive income 5,569,703 3,322,971
Retained earnings 18,118,788 15,210,070
- ------------------------------------------------------------------------------
Total Shareholders' Equity 33,140,394 28,036,457
- ------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $146,803,059 $137,980,030
- ------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
Part I; Item 1 (continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31 2000 1999
- ------------------------------------------------------------------------------
Cash Flows from Operations:
Net income $ 2,908,718 $ 1,162,556
Adjustments to reconcile net income to cash
from operations:
Increase (decrease) in benefit reserves 253,735 (115,734)
Increase (decrease) in claim liabilities (79,390) 83,516
(Increase) decrease in reinsurance recoverable 43,195 (29,043)
Interest credited on policyholder deposits 201,446 247,351
Provision for amortization and depreciation,
net of deferrals 52,357 187,496
Amortization of premium and accretion of
discount on Securities purchased, net 14,585 42,036
Net realized investment gains (4,793,958) (1,541,836)
(Increase) in accrued investment income (8,803) (27,609)
Change in other assets and liabilities (97,265) 78,087
(Decrease) in deferred federal income tax
liability (631,867) (62,077)
Increase in federal income taxes payable 2,316,867 176,110
- ------------------------------------------------------------------------------
Net Cash provided by Operations 179,620 200,853
Cash Flows from Investment Activities:
Cost of securities acquired (30,906,290) (16,833,495)
Investments sold or matured 35,851,906 14,999,895
Investment management fees and margin interest (664,912) (207,081)
Additions to property and equipment, net (18,442) (24,398)
Other investing activities, net (5,225) 19,154
- ------------------------------------------------------------------------------
Net Cash provided by (used in) Investment
Activities 4,257,037 (2,045,925)
Cash Flows from Financing Activities:
Policyholder deposits 160,646 157,734
Policyholder withdrawals (732,396) (449,726)
Brokerage account advances, net (100,884) 1,318,383
Payments on notes payable - bank (125,000) (127,500)
Repurchase of common stock (51,513) (20,700)
- ------------------------------------------------------------------------------
Net Cash provided by (used in) Financing
Activities (849,147) 878,191
- ------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash
Equivalents 3,587,510 (966,881)
Cash and Cash Equivalents at Beginning of Period 18,696,401 8,301,999
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 22,283,911 $ 7,335,118
- ------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
Part I; Item 1 (continued)
Citizens Financial Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q in
conformity with accounting principles generally accepted in the United
States. 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, 1999 consolidated financial statements and
footnotes included in the Company's annual report on Form 10-KSB.
Note 2 - COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the three
months ended March 31, 2000 and 1999 are as follows:
------------------------
Three Months Ended
March 31,
- ------------------------------------------------------
COMPREHENSIVE INCOME: 2000 1999
- ------------------------------------------------------
Net Income $2,908,718 $1,162,556
Net unrealized gains on
securities 2,246,732 756,635
- ------------------------------------------------------
Comprehensive Income $5,155,450 $1,919,191
- ------------------------------------------------------
Note 3 - SEGMENT INFORMATION
The Company's operations are managed along five principal insurance product
lines: Home Service Life, Broker Life, Preneed Life, Dental, and Other
Health. Products in all five lines are sold through independent agency
operations. Home Service Life consists primarily of traditional life
insurance coverage sold in amounts of $10,000 and under to middle and lower
income individuals. This distribution channel is characterized by a
significant amount of agent contact with customers throughout the year.
Broker Life product sales consist primarily of simplified issue and
graded-benefit policies in amounts of $10,000 and under. Other products in
this segment which are not aggressively marketed include: group life,
universal life, annuities and participating life coverages. Preneed Life
products are sold to individuals in connection with prearrangement of their
funeral and include single premium and multi-pay policies with coverages
generally in amounts of $10,000 and less. These policies are generally
sold to older individuals at increased premium rates. Dental products are
term coverages generally sold to small and intermediate size employer
groups. Other Health products include various accident and health
coverages sold to individuals and employer groups. Segment information as
of March 31, 2000 and 1999, and for the periods then ended is as follows:
<PAGE>
Part I; Item 1 (continued)
------------------------
Three Months Ended
March 31,
- -------------------------------------------------------
REVENUE: 2000 1999
- -------------------------------------------------------
Home Service Life $ 2,366,416 $ 2,136,927
Broker Life 1,494,958 1,554,150
Preneed Life 1,051,969 785,571
Dental 1,885,303 1,676,297
Other Health 393,171 315,094
- -------------------------------------------------------
Segment Totals 7,191,817 6,468,039
Realized investment gains,
net of expenses 4,793,958 1,541,836
- -------------------------------------------------------
Total Revenue $11,985,775 $ 8,009,875
- -------------------------------------------------------
Below are the net investment income amounts which are included in the
revenue totals above.
------------------------
Three Months Ended
March 31,
- -----------------------------------------------------
INVESTMENT INCOME: 2000 1999
- -----------------------------------------------------
Home Service Life $ 491,728 $ 506,969
Broker Life 595,735 643,603
Preneed Life 307,777 330,007
Dental 8,645 7,886
Other Health 20,698 21,430
- -----------------------------------------------------
Segment Totals $ 1,424,583 $1,509,895
- -----------------------------------------------------
The Company evaluates performance based on several factors, of which the
primary financial measure is segment profit. Segment profit represents
pretax earnings, except net realized investment gains and interest expense
are excluded. The majority of the Company's realized investment gains are
generated from investments in equity securities. The equities portfolio
averaged (on a cost basis) approximately $19,721,000 and $18,039,000 during
the three months ended March 31, 2000 and 1999, respectively. If these
funds had been invested in fixed-maturities yielding 7%, realized
investment gains would have declined and the three month segment profit
totals below would have increased by an additional $223,000 and $196,000 in
2000 and 1999, respectively. Investment income was also reduced in the
first quarter of 2000 due to the accumulation of additional cash and cash
equivalent positions in anticipation of potential interest rate increases.
------------------------
Three Months Ended
March 31,
- -------------------------------------------------------
SEGMENT PROFIT (LOSS): 2000 1999
- -------------------------------------------------------
Home Service Life $ 42,240 $ 36,711
Broker Life 134,971 172,559
Preneed Life (326,652) (179,192)
Dental 121,511 178,692
Other Health 27,912 (35,951)
- -------------------------------------------------------
Segment Totals (18) 172,819
Realized investment gains,
net of expenses 4,793,958 1,541,836
Interest expense 185,222 127,099
- -------------------------------------------------------
Income before Federal
Income Tax $ 4,608,718 $ 1,587,556
- -------------------------------------------------------
<PAGE>
Part I; Item 1 (continued)
Depreciation and amortization amounts below consist of amortization of the
value of insurance acquired, deferred policy acquisition costs and
goodwill, along with depreciation expense.
------------------------
Three Months Ended
March 31,
- --------------------------------------------------------
DEPRECIATION AND AMORTIZATION: 2000 1999
- --------------------------------------------------------
Home Service Life $149,369 $213,303
Broker Life 163,105 139,209
Preneed Life 78,640 120,071
Dental 13,598 13,590
Other Health 7,582 9,391
- --------------------------------------------------------
Segment Totals $412,294 $495,564
- --------------------------------------------------------
Segment asset totals are determined based on policy liabilities outstanding
in each segment.
------------------------
March 31, December 31,
- ---------------------------------------------------------
ASSETS: 2000 1999
- ---------------------------------------------------------
Home Service Life $ 50,971,289 $ 47,347,032
Broker Life 61,115,520 57,958,271
Preneed Life 31,776,048 29,754,353
Dental 808,996 913,939
Other Health 2,131,206 2,006,435
- ---------------------------------------------------------
Segment Totals $146,803,059 $ 137,980,030
- ---------------------------------------------------------
Note 4 - NET REALIZED INVESTMENT GAINS, NET OF EXPENSES
The Company recorded pretax reductions to the carrying value of available
for sale securities totaling $2,820,000 and $675,000 for the three months
ended March 31, 2000 and 1999, respectively, relating to declines in value
which were considered by management to be other than temporary. These
amounts are reported as reductions of net realized investment gains. The
Company also nets certain direct, incremental investment management fees
and margin loan interest cost against net realized investment gains
presented in the Condensed Consolidated Statements of Income. Such costs
are based directly on or, are primarily associated with, realized capital
gains. Costs netted against realized investment gains total $714,641 and
$144,230 for the three months ended March 31, 2000 and 1999, respectively.
Note 5 - INCOME TAXES
Current taxes are provided based on estimates of the projected effective
annual tax rate. Deferred taxes reflect the net effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
<PAGE>
Part I; Item 2 - Management's Discussion and Analysis
FINANCIAL POSITION. Shareholders' equity totaled approximately $33,140,000
and $23,644,000 at March 31, 2000 and 1999, respectively. These balances
reflect net increases of approximately 18% and 9%, respectively for the
three month periods then ended. As described above, comprehensive income
totaled approximately $5,155,000 and $1,919,000 for the three months ended
March 31, 2000 and 1999, respectively. A significant portion of
comprehensive income arose from appreciation of the Company's equity
portfolios. Equity securities comprised approximately 20% and 18% of the
Company's total assets as of March 31, 2000 and 1999, respectively.
Accordingly, as also described below, the Company's financial position can
be significantly affected by movements in the equities markets. Equity
portfolio positions increased $2,219,000 on a cost basis and $5,944,000 on
a market value basis, during the first three months of 2000. Fixed
maturity portfolio positions increased $15,000 on an amortized cost basis
and decreased $360,000 on a market value basis during the same period.
Cash and cash equivalent positions also increased approximately $3,588,000
during the period.
OPERATIONS. Net premiums and other considerations increased approximately
16% during the first three months of 2000 compared to the first three
months of 1999. This total includes increases of 14%, 62%, 13% and 27% in
the Home Service Life, Preneed Life, Dental, and Other Health segments,
respectively, along with a 3% decline in Broker Life premium. The Home
Service Life and Preneed Life segments have each benefited from product
redesign, expanded agent recruiting and other focused marketing efforts.
Dental premium has demonstrated continuing quarterly growth during 1999 and
into 2000 due to consistent marketing efforts and a modest agent incentive
program. The Other Health segment represents less that 7% of total
premium. The decline in Broker Life premium is due primarily to lapses in
a closed block of business obtained in the 1998 United Liberty
acquisition. The 6% decrease in investment income compared to the first
three months of the prior year is attributable to increased equity and cash
equivalent investment positions as described above and reduced income from
investment real estate.
Total pretax earnings increased approximately 190% to $4,609,000 for the
three months ended March 31, 2000, primarily due to an approximate
$3,252,000 increase in realized investment gains, net of expenses. Pretax
Segment Profit (excluding realized investment gains and interest expense)
for the first three months of 2000 was approximately break-even, compared
to approximately $173,000 for the first three months of 1999. This
decrease resulted primarily from additional costs associated with expanding
Preneed Life and Home Service Life marketing efforts, reduced investment
income associated with increased positions in the favorable equity markets,
more conservative cash and cash equivalent investment positions, and
initiation of a small property management operation. Improved mortality in
all life insurance lines partially offset these items. Additionally,
Dental profit margins were slightly below the first quarter of 1999, but
approximately $50,000 above the quarterly average for 1999.
The Company's increased earnings has also resulted in a higher effective
income tax rate due to a phasing-out of available small-life insurance
company deductions and full utilization of previously available alternative
minimum-tax credit carryforwards and non-life insurance net operating loss
carryforwards.
CASH FLOW AND LIQUIDITY. Cash flow from operations totaled $180,000 for
the three months ended March 31, 2000 which is comparable to a total of
$201,000 for the same period in the prior year. The $4,257,000 of cash
provided by investing activities for the three months ended March 31, 2000
resulted primarily from conservatively retaining the net proceeds from
realized investments gains as cash. The $849,000 of cash used in financing
activities during the first three months of 2000 is primarily attributable
to annuity and Universal Life account withdrawals.
YEAR 2000 ISSUE. The Company has experienced no difficulties with its
internal systems or with third-party systems that were identified as year
2000 related. The Company completed an internal assessment of the year
2000 issue and implemented updated releases or modified its software so
that its computer systems will function properly with respect to dates in
the year 2000 and thereafter. However, the possibility remains that some
of the
<PAGE>
Part I; Item 2 - Management's Discussion and Analysis (continued)
Company's computer programs could fail to properly distinguish between
dates in the 1900's and 2000's. This could cause system failures or
miscalculations, creating disruption of operations, including, among other
things, a temporary inability to process insurance transactions, conduct
banking activities, or engage in other normal business activities. Also,
some systems and equipment that are not typically thought of as
"computer-related" ("non-IT") contain embedded hardware or software that may
not perform properly in the future.
FORWARD-LOOKING INFORMATION.
All statements, trend analyses and other information contained in this
report relative to markets for the Company's products and trends in the
Company's operations or financial results, as well as other statements
including words such as "anticipate", "believe", "plan", "estimate",
"expect", "intend", and other similar expressions, constitute
forward-looking statements under the Private Securities Litigation Reform
Act of 1995. These forward-looking statements are subject to known and
unknown risks, uncertainties and other factors which may cause actual
results to be materially different from those contemplated by the
forward-looking statements. Such factors include, among other things: (1)
general economic conditions and other factors, including prevailing
interest rate levels and stock market performance, which may affect the
Company's ability to sell its products, the market value of the Company's
investments and the lapse rate and profitability of policies; (2) the
Company's ability to achieve anticipated levels of operating efficiencies
and meet cash requirements based upon projected liquidity sources; (3)
customer response to new products, distribution channels and marketing
initiatives; (4) mortality, morbidity, and other factors which may affect
the profitability of the Company's insurance products; (5) changes in the
Federal income tax laws and regulations which may affect the relative tax
advantages of some of the Company's products; (6) increasing competition in
the sale of insurance; (7) regulatory changes or actions, including those
relating to regulation of insurance products and insurance companies; (8)
ratings assigned to the Company and its subsidiaries by independent rating
organizations which the Company believes are important to the sale of its
products; and (9) unanticipated litigation. There can be no assurance that
other factors not currently anticipated by management will not also
materially and adversely affect the Company's results of operations.
<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
In accordance with the requirements of the Securities and Exchange Act of
1934, the registrant 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 8, 2000
<PAGE>
EXHIBIT INDEX
- ----------------------------------------------------------------
Exhibit No. Description
- ----------------------------------------------------------------
11 Statement re: computation of per share earnings
27 Financial Data Schedule (electronic filing only)
<PAGE>
EXHIBIT 11
Citizens Financial Corporation and Subsidiaries
Computation of Per Share Earnings
(Unaudited)
Three Months Ended March 31 2000 1999
- ------------------------------------------------------------------------------
Numerator:
Net income $2,908,718 $1,162,556
Denominator:
Weighted average common shares 1,762,715 1,800,443
Earnings Per Share $1.65 $0.65
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 69,140
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 28,885
<MORTGAGE> 156
<REAL-ESTATE> 3,490
<TOTAL-INVEST> 106,322
<CASH> 22,284
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 4,822
<TOTAL-ASSETS> 146,803
<POLICY-LOSSES> 80,057
<UNEARNED-PREMIUMS> 187
<POLICY-OTHER> 1,377
<POLICY-HOLDER-FUNDS> 15,441
<NOTES-PAYABLE> 8,375
0
0
<COMMON> 1,763
<OTHER-SE> 31,377
<TOTAL-LIABILITY-AND-EQUITY> 146,803
5,722
<INVESTMENT-INCOME> 1,425
<INVESTMENT-GAINS> 4,794
<OTHER-INCOME> 45
<BENEFITS> 4,405
<UNDERWRITING-AMORTIZATION> 123
<UNDERWRITING-OTHER> 2,664
<INCOME-PRETAX> 4,609
<INCOME-TAX> 1,700
<INCOME-CONTINUING> 2,909
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,909
<EPS-BASIC> 1.65
<EPS-DILUTED> 1.65
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
