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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 June 30, 2001
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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
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 ISSUERS:
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 - 1,733,715 as of
August 6, 2001.
The date of this Report is August 8, 2001.
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Part I - Financial Information; Item 1 - Financial Statements
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Six Months Ended June 30 2001 2000
------------------------------------------------------------------------ -------------------- --------------------
Revenues:
Premiums and other considerations $ 14,499,491 $ 11,768,194
Premiums ceded (571,395) (485,350)
------------------------------------------------------------------------ -------------------- --------------------
Net premiums earned 13,928,096 11,282,844
Net investment income 3,341,497 2,965,696
Net realized investment gains (losses), net of expenses (3,298,100) 6,324,889
Other income 119,270 111,437
------------------------------------------------------------------------ -------------------- --------------------
Total Revenues 14,090,763 20,684,866
Policy Benefits and Expenses:
Policyholder benefits 9,211,451 7,991,184
Policyholder benefits ceded (551,088) (422,577)
------------------------------------------------------------------------ -------------------- --------------------
Net benefits 8,660,363 7,568,607
Increase in net benefit reserves 2,773,707 1,048,683
Interest credited on policyholder deposits 413,409 406,104
Commissions 3,413,978 2,383,575
General expenses 3,331,683 3,180,856
Interest expense 314,701 379,307
Policy acquisition costs deferred (2,030,361) (787,671)
Amortization of deferred policy acquisition costs,
value of insurance acquired, and goodwill 914,001 627,495
------------------------------------------------------------------------ -------------------- --------------------
Total Policy Benefits and Expenses 17,791,481 14,806,956
------------------------------------------------------------------------ -------------------- --------------------
Income (Loss) before Income Tax Expense (3,700,718) 5,877,910
Income Tax Expense (Benefit) (857,000) 2,140,000
------------------------------------------------------------------------ -------------------- --------------------
Income (Loss) before cumulative effect of a (2,843,718) 3,737,910
change in accounting principle
Cumulative effect from prior years (since January 1, 1999) of
accounting for embedded options (311,211) ---
------------------------------------------------------------------------ -------------------- --------------------
Net Income (Loss) $ (3,154,929) $ 3,737,910
------------------------------------------------------------------------ -------------------- --------------------
Per Share Amounts:
Income (Loss) before cumulative effect of a
change in accounting principle $(1.62) $2.12
Cumulative effect from prior years (since January 1, 1999) of
accounting for embedded options (0.18)
------------------------------------------------------------------------ -------------------- --------------------
Net Income (Loss) $(1.80) $2.12
------------------------------------------------------------------------ -------------------- --------------------
See Notes to Condensed Consolidated Financial Statements.
Part I, Item 1 (continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30 2001 2000
------------------------------------------------------------------------ -------------------- --------------------
Revenues:
Premiums and other considerations $7,469,404 $5,850,075
Premiums ceded (259,863) (289,583)
------------------------------------------------------------------------ -------------------- --------------------
Net premiums earned 7,209,541 5,560,492
Net investment income 1,656,564 1,541,113
Net realized investment gains (losses), net of expenses (3,469,996) 1,530,931
Other income 69,325 66,555
------------------------------------------------------------------------ -------------------- --------------------
Total Revenues 5,465,434 8,699,091
Policy Benefits and Expenses:
Policyholder benefits 4,510,476 3,758,649
Policyholder benefits ceded (267,248) (158,476)
------------------------------------------------------------------------ -------------------- --------------------
Net benefits 4,243,228 3,600,173
Increase in net benefit reserves 1,943,644 813,390
Interest credited on policyholder deposits 217,863 204,658
Commissions 1,655,635 1,200,652
General expenses 1,707,876 1,554,836
Interest expense 143,050 194,085
Policy acquisition costs deferred (971,548) (427,734)
Amortization of deferred policy acquisition costs,
value of insurance acquired, and goodwill 417,849 289,839
------------------------------------------------------------------------ -------------------- --------------------
Total Policy Benefits and Expenses 9,357,597 7,429,899
------------------------------------------------------------------------ -------------------- --------------------
Income (Loss) before Income Tax Expense (3,892,163) 1,269,192
Income Tax Expense (Benefit) (945,000) 440,000
------------------------------------------------------------------------ -------------------- --------------------
Net Income (Loss) $(2,947,163) $ 829,192
------------------------------------------------------------------------ -------------------- --------------------
Net Income (Loss) Per Common Share $(1.68) $0.47
------------------------------------------------------------------------ -------------------- --------------------
See Notes to Condensed Consolidated Financial Statements.
Part I; Item 1 (continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Financial Condition
June 30, December 31,
2001 2000
------------------------------------------------------------------------ -------------------- --------------------
ASSETS (Unaudited)
Investments:
Securities available for sale, at fair value:
Fixed maturities (amortized cost of $67,337,719
and $72,516,172 in 2001 and 2000 respectively) $ 67,690,504 $ 71,403,674
Equity securities (cost of $10,951,281 and
$13,677,303 in 2001 and 2000, respectively) 11,830,773 12,577,874
Investment real estate 3,548,764 3,506,386
Mortgage loans on real estate 156,000 156,000
Policy loans 4,228,579 4,270,588
Short-term investments 610,379 610,379
------------------------------------------------------------------------ -------------------- --------------------
Total Investments 88,064,999 92,524,901
Cash and cash equivalents 26,079,323 20,093,774
Accrued investment income 1,351,929 1,328,491
Reinsurance recoverable 2,511,546 2,686,747
Premiums receivable 287,204 212,089
Property and equipment 2,895,336 2,959,744
Deferred policy acquisition costs 8,068,023 6,511,948
Value of insurance acquired 4,525,492 4,884,680
Goodwill 800,788 851,795
Federal income tax receivable 740,758 1,364,502
Deferred federal income tax 1,142,677 1,711,661
Other assets 586,221 407,674
------------------------------------------------------------------------ -------------------- --------------------
Total Assets $137,054,296 $135,538,006
------------------------------------------------------------------------ -------------------- --------------------
See Notes to Condensed Consolidated Financial Statements.
Part I; Item 1 (continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Financial Condition
June 30, December 31,
2001 2000
------------------------------------------------------------------------ -------------------- --------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
Liabilities:
Policy Liabilities:
Future policy benefits $ 86,547,617 $ 83,403,780
Policyholder deposits 16,320,623 16,381,247
Policy and contract claims 1,648,164 1,816,947
Unearned premiums 170,334 217,670
Other 269,357 203,600
------------------------------------------------------------------------ -------------------- --------------------
Total Policy Liabilities 104,956,095 102,023,244
Notes payable 7,600,000 8,000,000
Accrued expenses and other liabilities 2,253,628 2,240,653
------------------------------------------------------------------------ -------------------- --------------------
Total Liabilities 114,809,723 112,263,897
Commitments and Contingencies
Shareholders' Equity:
Common stock, 6,000,000 shares authorized;
1,733,715 and 1,758,215 shares issued and outstanding
in 2001 and 2000, respectively 1,733,715 1,758,215
Additional paid-in capital 7,419,263 7,640,988
Accumulated other comprehensive income (loss) 798,324 (1,573,294)
Retained earnings 12,293,271 15,448,200
------------------------------------------------------------------------ -------------------- --------------------
Total Shareholders' Equity 22,244,573 23,274,109
------------------------------------------------------------------------ -------------------- --------------------
Total Liabilities and Shareholders' Equity $137,054,296 $135,538,006
------------------------------------------------------------------------ -------------------- --------------------
See Notes to Condensed Consolidated Financial Statements.
Part I; Item 1 (continued)
Citizens Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30 2001 2000
------------------------------------------------------------------------ -------------------- --------------------
Cash Flows from Operations:
Net income (loss) $(3,154,929) $3,737,910
Adjustments to reconcile net income to cash from operations:
Increase in benefit reserves 3,115,649 975,511
Decrease in claim liabilities (168,783) (134,916)
Decrease in reinsurance recoverable 175,201 187,139
Interest credited on policyholder deposits 413,409 406,104
Provision for amortization and depreciation, net of deferrals (937,238) (10,898)
Amortization of premium and accretion of discount on
Securities purchased, net (42,285) 26,435
Net realized investment (gains) losses 3,298,100 (6,324,889)
Increase in accrued investment income (23,438) (48,122)
Change in other assets and liabilities (124,023) (190,835)
Decrease in deferred federal income tax liability (236,000) (967,000)
Decrease in federal income taxes receivable 623,743 537,000
Cumulative effect of a change in accounting principle 311,211 ---
------------------------------------------------------------------------ -------------------- --------------------
Net Cash provided (used in) by Operations 3,250,617 (1,806,561)
Cash Flows from Investment Activities:
Cost of securities acquired (9,002,909) (52,508,753)
Investments sold or matured 13,108,753 59,973,409
Investment management fees and margin interest (170,395) (677,848)
Additions to property and equipment, net (157,092) (66,007)
Other investing activities, net 76,833 9,533
------------------------------------------------------------------------ -------------------- --------------------
Net Cash provided by Investment Activities 3,855,190 6,730,334
Cash Flows from Financing Activities:
Policyholder deposits 511,638 425,556
Policyholder withdrawals (985,671) (1,358,602)
Payments on notes payable - bank (400,000) (100,884)
Brokerage account advances, net --- (250,000)
Repurchase of common stock (246,225) (66,463)
------------------------------------------------------------------------ -------------------- --------------------
Net Cash used in Financing Activities (1,120,258) (1,350,393)
------------------------------------------------------------------------ -------------------- --------------------
Net Increase in Cash and Cash Equivalents 5,985,549 3,573,380
Cash and Cash Equivalents at Beginning of Period 20,093,774 18,696,401
------------------------------------------------------------------------ -------------------- --------------------
Cash and Cash Equivalents at End of Period $26,079,323 $22,269,781
------------------------------------------------------------------------ -------------------- --------------------
See Notes to Condensed Consolidated Financial Statements.
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, 2000 consolidated financial
statements and footnotes included in the Company's annual report on Form 10-K.
Note 2 - COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the three months
and six months ended June 30, 2001 and 2000 are as follows:
------------------------------- -------------------------------
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------------- --------------- --------------- --------------- ---------------
COMPREHENSIVE INCOME: 2001 2000 2001 2000
------------------------------------------------- --------------- --------------- --------------- ---------------
Net Income (Loss) $(2,947,163) $ 829,192 $(3,154,929) $3,737,910
Net unrealized gains (losses) on securities 2,308,564 (3,111,712) 2,371,618 (864,980)
------------------------------------------------- --------------- --------------- --------------- ---------------
Comprehensive Income (Loss) $ (638,599) $(2,282,520) $ (783,311) $2,872,930
------------------------------------------------- --------------- --------------- --------------- ---------------
Note 3 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2001, the Company adopted Financial Accounting Standards
Board Statement (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended by SFAS Nos. 137 and 138. This statement
requires that all derivatives be recognized as either assets or liabilities in
the balance sheet at their fair value, and sets forth the manner in which gains
or losses thereon are to be recorded. The treatment of such gains and losses is
dependent upon the type of exposure, if any, for which the derivative is
designed as a hedge. Currently, the Company has not designated any derivatives
as hedges. In accordance with SFAS 133, as of January 1, 2001, the Company
recorded a $311,211 transition adjustment loss. This adjustment represents the
cumulative market value change (since January 1, 1999) of options embedded
within convertible bonds, along with a recalculation of discount accretion for
the related host bonds and corresponding income tax impacts. The net transition
adjustment includes a $539,090 gross market value decline, $67,558 of discount
accretion, and a $160,321 income tax benefit.
Note 4 - NET REALIZED INVESTMENT GAINS, NET OF EXPENSES
The Company recorded pretax reductions to the carrying value of available for
sale securities totaling $2,715,000 and $2,762,000 for the six months ended June
30, 2001 and 2000, 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. Changes in the fair value of
derivative instruments are also reported as realized gains (losses). The Company
also nets certain direct, incremental investment management fees 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
$23,000 and $283,000 for the six months ended June 30, 2001 and 2000,
respectively.
Part I; Item 1 (continued)
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.
Note 6 - 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 June 30, 2001 and 2000, and for the
periods then ended is as follows:
------------------------------- -------------------------------
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------------- --------------- --------------- --------------- ---------------
REVENUE: 2001 2000 2001 2000
------------------------------------------------- --------------- --------------- --------------- ---------------
Home Service Life $ 2,344,220 $ 2,178,382 $ 4,682,981 $ 4,544,798
Broker Life 1,602,379 1,470,882 3,091,439 2,965,840
Preneed Life 2,530,092 1,228,505 4,667,413 2,280,474
Dental 2,073,328 1,950,207 4,172,980 3,835,510
Other Health 385,411 340,184 774,050 733,355
------------------------------------------------- --------------- --------------- --------------- ---------------
Segment Totals 8,935,430 7,168,160 17,388,863 14,359,977
Net realized investment gains (losses) (3,469,996) 1,530,931 (3,298,100) 6,324,889
------------------------------------------------- --------------- --------------- --------------- ---------------
Total Revenue $ 5,465,434 $ 8,699,091 $14,090,763 $20,684,866
------------------------------------------------- --------------- --------------- --------------- ---------------
Below are the net investment income amounts which are included in the revenue totals above.
------------------------------- -------------------------------
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------------- --------------- --------------- --------------- ---------------
NET INVESTMENT INCOME: 2001 2000 2001 2000
------------------------------------------------- --------------- --------------- --------------- ---------------
Home Service Life $ 549,316 $ 537,315 $1,112,364 $1,029,043
Broker Life 685,730 640,963 1,398,252 1,236,698
Preneed Life 387,505 329,844 762,276 637,621
Dental 9,822 10,056 19,787 18,701
Other Health 24,191 22,935 48,818 43,633
------------------------------------------------- --------------- --------------- --------------- ---------------
Segment Totals $1,656,564 $1,541,113 $3,341,497 $2,965,696
------------------------------------------------- --------------- --------------- --------------- ---------------
Part I; Item 1 (continued)
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 and losses are generated
from investments in equity securities. The equities portfolio averaged (on a
cost basis) approximately $12,838,000 and $19,721,000 during the six months
ended June 30, 2001 and 2000, respectively. If these funds had been invested in
fixed-maturities yielding 7%, realized investment gains (losses) would have
changed and the six month segment profit totals below would have increased by
approximately $300,000 and $454,000 in 2001 and 2000, respectively.
------------------------------- -------------------------------
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------------- --------------- --------------- --------------- ---------------
SEGMENT PROFIT (LOSS): 2001 2000 2001 2000
------------------------------------------------- --------------- --------------- --------------- ---------------
Home Service Life $ 3,820 $ 52,708 $ 173,488 $ 94,948
Broker Life (202,945) 61,042 11,502 196,013
Preneed Life (75,283) (228,571) (387,219) (555,223)
Dental (10,800) 100,984 84,698 222,495
Other Health 6,091 (53,817) 29,614 (25,905)
------------------------------------------------- --------------- --------------- --------------- ---------------
Segment Totals (279,117) (67,654) (87,917) (67,672)
Net realized investment gains (losses) (3,469,996) 1,530,931 (3,298,100) 6,324,889
Interest expense 143,050 194,085 314,701 379,307
------------------------------------------------- --------------- --------------- --------------- ---------------
Income (Loss) before Federal Income Tax $(3,892,163) $1,269,192 $(3,700,718) $5,877,910
------------------------------------------------- --------------- --------------- --------------- ---------------
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 June 30, Six Months Ended June 30,
------------------------------------------------- --------------- --------------- --------------- ---------------
DEPRECIATION AND AMORTIZATION: 2001 2000 2001 2000
------------------------------------------------- --------------- --------------- --------------- ---------------
Home Service Life $115,131 $ 155,196 $ 292,766 $ 304,565
Broker Life 171,747 113,002 330,427 276,107
Preneed Life 186,721 74,167 401,511 152,807
Dental 18,006 12,664 36,006 26,262
Other Health 15,818 9,448 32,412 17,030
------------------------------------------------- --------------- --------------- --------------- ---------------
Segment Totals $507,423 $ 364,477 $1,093,122 $ 776,771
------------------------------------------------- --------------- --------------- --------------- ---------------
Segment asset totals are determined based on policy liabilities outstanding in each segment.
----------------- ----------------
----------------------------------------------- June 30, December 31,
ASSETS: 2001 2000
----------------------------------------------- ----------------- ----------------
Home Service Life $45,441,758 $ 45,577,255
Broker Life 56,253,560 57,721,008
Preneed Life 32,661,505 29,421,677
Dental 736,665 799,496
Other Health 1,960,808 2,018,570
----------------------------------------------- ----------------- ----------------
Segment Totals $137,054,296 $135,538,006
----------------------------------------------- ----------------- ----------------
Part I; Item 1 (continued)
Note 7 - LITIGATION
United Liberty Life Insurance Company ("United"), which the Company acquired in
1998, is defending an action in an Ohio state court brought by two
policyholders. The Complaint refers to a particular class of life insurance
policies that United issued over a period of years ending around 1971. It
alleges that United's dividend payments on these policies from 1993 through 1999
were less than the required amount. It does not specify the amount of the
alleged underpayment but implies a maximum of about $850,000. The plaintiffs
also allege that United is liable to pay punitive damages, also in an
unspecified amount, for breach of an implied covenant of good faith and fair
dealing to the plaintiffs in relation to the dividends. The action has been
certified as a class action on behalf of all policyholders residing in Ohio
whose policies were still in force in 1993. United has denied the material
allegations of the Complaint and is defending the action vigorously. Pre-trial
discovery is continuing and will be followed by motions to dismiss or narrow the
plaintiffs' claims. At this early stage of the litigation, the Company is unable
to determine whether an unfavorable outcome of the action is likely to occur or,
alternatively, whether the chance of such an outcome is remote. Therefore, at
this time, management has no basis for estimating potential losses, if any.
Note 8 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill will no longer be amortized but
will be subject to annual impairment tests in accordance with the Statements.
Other intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of $90,000 ($0.05 per share) per year. During 2002, the Company
will perform the first of the required impairment tests of goodwill as of
January 1, 2002 and has not yet determined what the effect of these tests will
be on the earnings and financial position of the Company.
Part I; Item 2 - Management's Discussion and Analysis
FINANCIAL POSITION. Shareholders' equity totaled approximately $22,245,000 and
$30,843,000 at June 30, 2001 and 2000, respectively. These balances reflect an
approximate 4% decrease and a 10% increase for the respective six month periods
then ended. As described above, comprehensive income (loss) totaled
approximately $(783,000) and $2,873,000 for the six months ended June 30, 2001
and 2000, respectively. A significant portion of comprehensive income (loss) is
attributable to changes in the value of the Company's equity portfolios. Equity
securities comprised approximately 9% and 17% of the Company's total assets as
of June 30, 2001 and 2000, respectively. Accordingly, as also described below,
the Company's financial position can be significantly affected by movements in
the equities markets. Equity portfolio positions decreased $2,726,000 on a cost
basis and $747,000 on a market value basis, during the first six months of 2001.
The majority of this cost basis decline is attributable to recording second
quarter impairments (realized losses) which management believes are appropriate
due to the continued uncertainty in the equity markets. Fixed maturity portfolio
positions decreased $5,178,000 on an amortized cost basis and decreased
$3,713,000 on a market value basis during the same period. However, as described
in Note 3 above, $497,000 of the change between cost and market values during
2001 is attributable to the SFAS 133 transition adjustment recorded at January
1, 2001. Cash and cash equivalent positions also increased approximately
$5,986,000 during the six months ended June 30, 2001.
OPERATIONS. Net premiums and other considerations increased approximately
$2,645,000, or 23% during the first six months of 2001 compared to the first six
months of 2000. Preneed Life, Dental, and Home Service Life premium increases
were approximately $2,259,000, $336,000, and $54,000, respectively, while Broker
Life experienced a modest decrease. The Preneed Life segment growth is
attributable primarily to competitive marketing agreements signed with certain
independent agency groups during late 2000. Dental premium growth is also
primarily attributable to a key additional independent marketing arrangement
signed during 2000. The Other Health segment represents less that 6% of total
premium.
Pretax earnings (loss) [before the cumulative effect of a new accounting
principle] totaled approximately $(3,701,000) for the six months ended June 30,
2001, compared to $5,878,000 for the six months ended June 30, 2000. The
majority of this change resulted from realized investment losses. Pretax Segment
(Loss) (excluding realized investment gains and losses and interest expense) for
the first six months of 2001 was approximately $(88,000), compared to $(68,000)
for the first six months of 2000. This change resulted primarily from improved
Preneed Life sales and mortality and improved Home Service Life sales and
persistency, offset by higher Broker Life and Dental claims.
The Company's lower effective income tax (benefit) rate for the six months ended
June 30, 2001 is due to the effect of the small life insurance company deduction
on taxes paid in prior years, for which loss carrybacks are available.
CASH FLOW AND LIQUIDITY. Cash flow from operations totaled $3,251,000 for the
six months ended June 30, 2001 compared to $(1,807,000) for the same period in
the prior year. This increase is primarily attributable to growth in the Preneed
Life business. The $3,855,000 of cash provided by investing activities for the
six months ended March 31, 2001 resulted primarily from retaining the net
proceeds from equity investment sales as cash. The $1,120,000 of cash used in
financing activities during the first six months of 2001 is primarily
attributable to annuity and Universal Life account withdrawals and bank loan
principal repayments.
Part I; Item 2 - Management's Discussion and Analysis (continued)
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:
|X| the market value of the Company's investments, including stock market
performance and prevailing interest rate levels;
|X| customer and agent response to new products, distribution channels and
marketing initiatives, including exposure to unrecoverable advanced
commissions;
|X| mortality, morbidity, lapse rates, and other factors which may affect the
profitability of the Company's insurance products;
|X| regulatory changes or actions, including those relating to regulation of
insurance products and insurance companies;
|X| ratings assigned to the Company and its subsidiaries by independent rating
organizations which the Company believes are important to the sale of its
products;
|X| general economic conditions and increasing competition which may affect the
Company's ability to sell its products;
|X| the Company's ability to achieve anticipated levels of operating
efficiencies and meet cash requirements based upon projected liquidity
sources;
|X| unanticipated adverse litigation outcomes; and
|X| changes in the Federal income tax laws and regulations which may affect the
relative tax advantages of some of the Company's products.
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.
Part I; Item 3 - Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in quantitative or qualitative market risks
during the six months ended June 30, 2001.
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
The 2001 annual meeting of shareholders of the Company was held on
May 24, 2001. At the meeting, eight incumbent directors were re-elected to
serve until the 2002 annual meeting of shareholders. The names of the
incumbent directors and shares of the Company's Class A Stock voted for
each were as follows:
Candidate Votes
------------------------------------ -----------------
John H. Harralson, Jr. 1,370,143
Lane A. Hersman 1,281,719
Frank T. Kiley 1,370,143
Charles A. Mays 1,338,068
Earle V. Powell 1,370,043
Thomas G. Ward 1,370,143
Darrell R. Wells 1,313,556
Margaret A. Wells 1,313,556
Item 6. Exhibits and Reports on Form 8-K.
a). Exhibit 11. Statement re: computation of per share earnings.
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
/s/ Darrell R. Wells
BY:
--------------------------------------------
Darrell R. Wells
President and Chief Executive Officer
/s/ Brent L. Nemec
BY:
--------------------------------------------
Brent L. Nemec
Treasurer and Principal Accounting Officer
Date: August 8, 2001
EXHIBIT INDEX
--------------------- ----------------------------------------------------------
Exhibit No. Description
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11 Statement re: computation of per share earnings
EXHIBIT 11
Citizens Financial Corporation and Subsidiaries
Computation of Per Share Earnings
(Unaudited)
Six Months Ended June 30 2001 2000
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Numerator(s):
Income (Loss) before cumulative effect of a
change in accounting principle $(2,843,718) $3,737,910
Cumulative effect of a change in accounting principle (311,211) ---
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Net Income (Loss) $ (3,154,929) $3,737,910
Denominator:
Weighted average common shares 1,753,884 1,762,943
Earnings Per Share:
Income (Loss) before cumulative effect of a
change in accounting principle $ (1.62) $ 2.12
Cumulative effect of a change in accounting principle (0.18) ---
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Net Income (Loss) $ (1.80) $ 2.12
Three Months Ended June 31 2001 2000
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Numerator(s):
Net Income (Loss) $(2,947,163) $829,192
Denominator:
Weighted average common shares 1,749,600 1,761,672
Earnings Per Share:
Net Income (Loss) $ (1.68) $ 0.47