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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
May 12, 1998
(Date of Report [Date of earliest event reported]))
CITIZENS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Commission file number 0-20148
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
(Registrant's telephone number)
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Citizens Financial Corporation and Subsidiaries
Form 8K/A, Amendment #2
This Current Report on Form 8-K was filed by Citizens Financial Corporation
(the "Company") to report its acquisition of United Liberty Life Insurance
Company ("United"). The purpose of this amendment is to amend the Report to
file, pursuant to Item 7: interim financial statements of United, and pro forma
consolidated financial statements of the Company.
Item 7. Financial Statements and Exhibits
(a) Annual Financial Statements (audited) of business acquired. 1997 and
1996 financial statements of United, notes related thereto and report of
independent auditors therein are filed as a part of this Current Report on Form
8-K.
(Submitted with Amendment #1 on July 27, 1998).
(b) Interim Financial Statements (unaudited) of business acquired. The
following unaudited interim financial statements of United and notes related
thereto are filed as a part of this Current Report on Form 8-K.
Index to Financial Statements of United Liberty Life Insurance Company
(for the three months ended March 31, 1998 and 1997)
Condensed Statements of Operations for the three months ended
March 31, 1998 and 1997 (Unaudited)
Condensed Statements of Financial Condition as of March 31, 1998 and
December 31, 1997 (Unaudited)
Condensed Statements of Cash Flows for the three months ended
March 31, 1998 and 1997 (Unaudited)
Notes to Financial Statements (Unaudited)
(c) Pro forma Financial Information (unaudited). The following pro forma
consolidated financial statements of the Company are filed as a part of this
Current Report on Form 8-K.
Index to Pro Forma Financial Statements of Citizens Financial Corporation
(filed herewith)
Pro forma Condensed Consolidated Statement of Financial Position as of
March 31, 1998 (unaudited)
Pro forma Condensed Consolidated Statement of Operations for the three
months ended March 31, 1998 (unaudited)
Pro forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1997 (unaudited)
Pro forma Notes to Condensed Consolidated Financial Statements (unaudited)
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Citizens Financial Corporation
By: /s/ Darrell R. Wells
Darrell R. Wells
President
By: /s/ Brent L. Nemec
Brent L. Nemec
Chief Financial Officer
Date: July 29, 1998
United Liberty Life Insurance Company
Condensed Financial Statements
Three Months ended March 31, 1998 and 1997
Contents
Condensed Statements of Operations (unaudited)
Condensed Statements of Financial Condition (unaudited)
Condensed Statements of Cash Flows (unaudited)
Notes to Financial Statements (unaudited)
United Liberty Life Insurance Company
Condensed Statements of Operations
(Unaudited)
Three Months Ended March 31 1998 1997
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Revenues:
Premiums and other considerations $ 571,696 $1,299,349
Premiums ceded (33,490) (42,292)
- -----------------------------------------------------------------------------------------
Net premiums earned 538,206 1,257,057
Net investment income 608,066 585,242
Net realized investment gains 21,873 28,689
Other income 14,434 12,426
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Total Revenues 1,182,579 1,883,414
Benefits and Expenses:
Policyholder benefits 1,139,503 1,236,907
Policy holder benefits ceded (14,312) (14,671)
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Net benefits 1,125,191 1,222,236
Increase in net benefit reserves (358,733) 146,322
Commissions 25,027 156,756
General expenses 189,836 298,950
Policy acquisition costs deferred (10,382) (24,248)
Amortization expense:
Deferred policy acquisition costs 53,595 55,769
Value of insurance acquired 7,500 6,250
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Total Benefits and Expenses 1,032,034 1,862,035
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Income before Federal Income Tax 150,545 21,379
Federal Income Tax 25,592 3,634
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Net Income $ 124,953 $ 17,745
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Net Income Per Common Share - Basic: $ .08 $ .01
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See Notes to Condensed Financial Statements.
United Liberty Life Insurance Company
Condensed Statements of Financial Condition
(Unaudited)
March 31, December 31,
1998 1997
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ASSETS
Investments:
Securities available for sale, at fair value:
Fixed maturities (amortized cost of $34,671,165
and $34,798,847 in 1998 and 1997, respectively) $35,481,478 $35,628,029
Equity securities (cost of $198,157
in 1998 and 1997) 85,883 85,883
Mortgage loans on real estate 1,084,495 1,648,554
Policy loans 1,208,530 1,224,321
Real estate owned - held for sale 892,254 892,177
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Total Investments 38,752,640 39,478,964
Cash and cash equivalents 977,427 239,853
Accrued investment income 656,119 736,924
Reinsurance recoverable:
Paid benefits and losses --- 802
Unpaid benefits, losses and IBNR 1,560,383 1,505,614
Value of insurance acquired 910,500 918,000
Deferred policy acquisition costs 322,990 366,203
Deferred federal income tax 445,021 452,535
Receivable - defaulted investment settlement --- 200,000
Property and equipment 7,091 9,759
Other assets 89,078 107,463
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Total Assets $43,721,249 $44,016,117
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See Notes to Condensed Financial Statements.
United Liberty Life Insurance Company
Condensed Statements of Financial Condition
(Unaudited)
March 31, December 31,
1998 1997
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LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Policy liabilities:
Future policy benefits $38,954,748 $ 39,263,147
Policy and contract claims 149,451 149,089
Unearned premiums 61,979 62,923
Other 33,616 29,120
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Total Policy Liabilities 39,199,794 39,504,279
Accrued expenses and other liabilities 645,212 755,675
Federal income tax payable 19,332 11,752
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Total Liabilities 39,864,338 40,271,706
Commitments and Contingencies
Shareholder's Equity
Common stock, $1 par value; 5,000,000 shares
authorized; 1,586,891 1,586,891
1,586,891 shares issued and outstanding
Additional paid-in capital 1,794,711 1,794,711
Unrealized appreciation of investments 460,706 473,159
Retained earnings (deficit) 14,603 (110,350)
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Total Shareholder's Equity 3,856,911 3,744,411
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Total Liabilities and Shareholder's Equity $43,721,249 $ 44,016,117
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See Notes to Condensed Financial Statements.
United Liberty Life Insurance Company
Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended March 31 1998 1997
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Cash Flows from Operations:
Net Income $ 124,953 $ 17,745
Adjustments to reconcile net income to net cash flows
from operations:
Increase (decrease) in policy liabilities (304,485) 164,179
Increase in reinsurance recoverable: (53,967) (57,705)
Provision for amortization and depreciation, net of 53,381 39,916
deferrals
Amortization of premium and accretion of discount on
securities 13,898 15,953
purchased net
Net realized investment gains (22,053) (28,689)
Increase in accrued investment income 80,805 63,729
Change in other assets and other liabilities 107,922 77,825
Deferred federal income taxes 13,930 11,771
Federal income taxes payable 7,580 (3,539)
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Net Cash Flows Provided by Operations 21,964 301,185
Cash Flows from Investment Activities:
Purchases - fixed maturities (1,385,813) (2,038,562)
Sales - fixed maturities 1,521,573 890,917
Purchases - mortgage loans --- (1,622)
Sales - mortgage loans 564,059 11,611
Additions to real estate --- (5,000)
Sale of real estate --- 45,573
(Increase) Decrease in net policy loans 15,791 (936)
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Net Cash Provided by (Used In) Investment Activities 715,610 (1,098,019)
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Net Increase (Decrease) in Cash and Cash Equivalents 737,574 (796,834)
Cash and Cash Equivalents at Beginning of Period 239,853 2,343,383
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Cash and Cash Equivalents at End of Period $ 977,427 $1,546,549
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See notes to Condensed Financial Statements.
UNITED LIBERTY LIFE INSURANCE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed 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 financial statements and footnotes
included in this Form 8-K/A.
2. Effective April 30, 1998 the Company was acquired by Citizens Security
Life Insurance Company, which is a wholly owned subsidiary of Citizens Financial
Corporation, a Louisville, KY based insurance holding company. The acquisition
price was $6.3 million, subject to adjustments to be determined within 90 days
along with approximately $700 thousand of additional related costs. 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 Security.
Citizens Financial Corporation
Pro forma Financial Information
(unaudited)
Introduction
A Citizens Financial Corporation subsidiary (Citizens Security Life
Insurance Company) acquired United Liberty Life Insurance Company effective
April 30, 1998 for a total cost of approximately $6,995,000. The acquisition was
financed with $3.4 million of bank borrowings at prime with the balance funded
internally. A pro forma Condensed Consolidated Statement of Financial Position
(unaudited) is presented herein, assuming the April 30, 1998 transaction was
consummated as of March 31, 1998. In addition, included herein are pro forma
Condensed Consolidated Statements of Operations (unaudited) for the year ended
December 31, 1997 and for the quarter ended March 31, 1998 which assume the
transaction was consummated at the beginning of such periods.
The pro forma statements include GAAP basis information for Citizens
Financial Corporation and United Liberty Life Insurance Company prior to the
acquisition, pro forma adjustments necessary to reflect the acquisition, and
consolidated totals reflect the purchase GAAP accounting as of the dates
indicated above.
Contents
Condensed Consolidated Statement of Financial Position as of March 31, 1998
Condensed Consolidated Statement of Operations for the three months ended
March 31, 1998
Condensed Consolidated Statement of Operations for the year ended
December 31, 1997
Notes to Condensed Consolidated Financial Statements
Citizens Financial Corporation
Pro forma Condensed Consolidated Statement of Financial Position
March 31, 1998
(Unaudited)
Pro forma United
Description Consolidated Adjustments/ # Citizens Liberty
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ASSETS
Investments:
Securities available for sale, at fair value:
Fixed maturities(amortized cost of
$34,798,847) $79,701,993 $(1,534,806) 1 $45,755,321 $35,481,478
Equity securities (cost of
$198,157) 18,044,718 (84,000) 2 18,042,835 85,883
Investment real estate 3,862,988 (892,254) 2 3,862,988 892,254
Mortgage loans on real estate 169,150 (1,084,495) 2 169,150 1,084,495
Policy loans 4,179,885 2,971,355 1,208,530
Short-term investments 469,740 469,740 ---
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Total Investments 106,428,474 (3,595,555) 71,271,389 38,752,640
Cash and cash equivalents 3,469,146 2,491,719 977,427
Accrued investment income 1,367,476 711,357 656,119
Reinsurance recoverable:
Paid benefits and losses 123,649 123,649 ---
Unpaid benefits, losses and IBNR 3,048,563 1,488,180 1,560,383
Premiums receivable 431,815 431,815
Property and equipment 1,276,866 1,269,775 7,091
Deferred policy acquisition costs 3,885,057 (322,990) 3 3,885,057 322,990
Value of insurance acquired 6,723,857 1,427,088 4 4,386,269 910,500
Goodwill 99,573 99,573 ---
Other assets 907,118 818,040 89,078
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Total Assets $127,761,594 $(2,491,457) $86,976,823 $43,276,228
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See notes to Pro forma Condensed Consolidated Financial Statements.
Citizens Financial Corporation
Pro forma Condensed Consolidated Statement of Financial Position
March 31, 1998
(Unaudited)
Pro forma United
Description Consolidated Adjustments /# Citizens Liberty
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Policy liabilities:
Future policy benefits $78,772,800 $(2,635,467) 5 $42,453,519 $38,954,748
Policyholder deposits 15,485,116 15,485,116 ---
Policy and contract claims 1,047,576 898,125 149,451
Unearned premiums 233,682 171,703 61,979
Other 202,933 169,317 33,616
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Total Policy Liabilities 95,742,107 (2,635,467) 59,177,780 39,199,794
Notes payable 6,810,000 3,400,000 6 3,410,000 ---
Accrued expenses and other liabilities 3,403,656 200,000 7 2,558,444 645,212
Federal income tax payable 464,832 445,500 19,332
Deferred federal income tax 1,099,138 400,921 8 1,143,238 (445,021)
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Total Liabilities 107,519,733 1,365,454 66,734,962 39,419,317
Commitments and Contingencies
Redeemable Convertible Preferred
Stock; 370 shares issued and 4,043,907 4,043,907 ---
outstanding
Shareholder's Equity
Common stock, 6,000,000 shares
authorized; 1,275,724 outstanding 1,275,724 (1,586,891) 9 1,275,724 1,586,891
Additional paid-in capital 5,198,250 (1,794,711) 9 5,198,250 1,794,711
Unrealized appreciation of
investments 3,713,738 (460,706) 9 3,713,738 460,706
Retained earnings 6,572,544 (14,603) 9 6,572,544 14,603
Common stock held in treasury
- at cost (200,109 shares) (562,302) (562,302) ---
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Total Shareholders' Equity 16,197,954 (3,856,911) 16,197,954 3,856,911
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Total Liabilities and Shareholders'
Equity $127,761,594 $(2,491,457) $86,976,823 $43,276,228
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See notes to Pro forma Condensed Consolidated Financial Statements.
Citizens Financial Corporation
Pro forma Condensed Consolidated Statement of Operations
for the three months ended March 31, 1998
(Unaudited)
Pro forma United
Description Consolidated Adjustments/ # Citizens Liberty
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Revenues:
Premiums and other considerations $ 5,150,546 $4,578,850 $ 571,696
Premiums ceded (257,672) (224,182) (33,490)
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Net premiums earned 4,892,874 4,354,668 538,206
Net investment income 1,468,146 (62,925) 10 923,005 608,066
Net realized investment gains 1,049,388 1,027,515 21,873
Other income 15,112 678 14,434
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Total Revenues 7,425,520 (62,925) 6,305,866 1,182,579
Benefits and Expenses:
Policyholder benefits 3,871,889 2,732,386 1,139,503
Policy holder benefits ceded (120,537) (106,225) (14,312)
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Net benefits 3,751,352 2,626,161 1,125,191
Increase in net benefit reserves (69,617) 24,270 11 264,846 (358,733)
Interest on policyholder deposits 213,967 213,967 ---
Commissions 992,845 967,818 25,027
General expenses 1,201,321 (90,000) 12 1,101,485 189,836
Interest expense 150,319 72,250 13 78,069 ---
Policy acquisition costs deferred (291,036) (280,654) (10,382)
Amortization expense:
Deferred policy acquisition costs 121,561 (50,285) 14 118,251 53,595
Value of insurance acquired 207,429 89,326 14 110,603 7,500
Goodwill 5,241 5,241 ---
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Total Benefits and Expenses 6,283,382 45,561 5,205,787 1,032,034
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Income before Federal Income Tax 1,142,138 (108,486) 1,100,079 150,545
Federal Income Tax 247,149 (18,443) 15 240,000 25,592
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Net Income $894,989 (90,043) $ 860,079 $ 124,953
Dividends on Redeemable Preferred Stock (101,750) (101,750) ---
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Net Income Applicable to Common Stock $793,239 $ (90,043) $ 758,329 $ 124,953
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Net Income Per Common Share:
Basic $ .74 $ 0.71 $ .08
Diluted $ .49 $ 0.47 $ .08
Average Shares Outstanding:
Basic 1,075,615 1,075,615 1,586,891
Diluted 1,815,615 1,815,615 1,586,891
See notes to Pro forma Condensed Consolidated Financial Statements.
Citizens Financial Corporation
Pro forma Condensed Consolidated Statement of Operations
for the year ended December 31, 1997
(Unaudited)
Pro forma United
Description Consolidated Adjustments/ # Citizens Liberty
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Revenues:
Premiums and other considerations $23,525,897 $18,790,483 $4,735,414
Premiums ceded (1,227,656) (1,099,606) (128,050)
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Net premiums earned 22,298,241 17,690,877 4,607,364
Net investment income 5,931,605 (251,700) 10 3,808,938 2,374,367
Net realized investment gains 2,525,640 2,193,148 332,492
Other income 100,760 8,880 91,880
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Total Revenues 30,856,246 (251,700) 23,701,843 7,406,103
Benefits and Expenses:
Policyholder benefits 16,156,501 11,736,457 4,420,044
Policy holder benefits ceded (991,033) (834,426) (156,607)
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Net benefits 15,165,468 10,902,031 4,263,437
Increase in net benefit reserves 1,595,814 (58,500) 11 789,135 865,179
Interest on policyholder deposits 914,061 914,061 ---
Commissions 4,272,797 3,762,482 510,315
General expenses 4,628,521 (580,000) 12 4,161,892 1,046,629
Interest expense 630,275 289,000 13 341,275 ---
Policy acquisition costs deferred (1,071,207) (982,333) (88,874)
Amortization expense:
Deferred policy acquisition costs 745,520 (186,039) 14 736,633 194,926
Value of insurance acquired 1,018,158 408,165 14 584,993 25,000
Goodwill 20,962 20,962 ---
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Total Benefits and Expenses 27,920,369 (127,374) 21,231,131 6,816,612
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Income before Federal Income Tax 2,935,877 (124,326) 2,470,712 589,491
Federal Income Tax 565,745 (21,135) 15 482,500 104,380
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Net Income $2,370,132 (103,191) $1,988,212 $485,111
Dividends on Redeemable Preferred Stock (407,000) (407,000) ---
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Net Income Applicable to Common Stock $1,963,132 $ (103,191) $1,581,212 $485,111
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Net Income Per Common Share:
Basic $ 1.83 $ 1.47 $.31
Diluted $ 1.31 $ 1.10 $.31
Average Shares Outstanding:
Basic 1,075,615 1,075,615 1,586,891
Diluted 1,815,615 1,815,615 1,586,891
See notes to Pro forma Condensed Consolidated Financial Statements.
Citizens Financial Corporation
Pro forma Notes to Condensed Consolidated Financial Statements
(unaudited)
Below is a description of the pro forma adjustments included in the
statements above.
1. Internal funds used in the acquisition include:
Purchase price (to seller) $6,295,555
Other costs 700,000
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Total purchase price 6,995,555
Less: Incremental bank borrowings (3,400,000)
Less: United Liberty investments
transferred to seller (2,060,749)
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Additional internal funds used $1,534,806
----------------------------------------- ---------------
2. United Liberty investments transferred to seller and applied towards
purchase price, total of $2,060,749.
3. Elimination of historical GAAP intangible asset(deferred acquisition costs).
4. Establishment of incremental purchase GAAP intangible (United Liberty
value of insurance acquired total of $2,337,588) based on current actuarial
calculations.
5. Purchase GAAP adjustment to United Liberty benefit reserves using current
actuarial assumptions.
6. Incremental bank borrowing. Interest is payable quarterly at prime, with
total principal payments due as follows: 1998 - $300,000; 1999 - $510,000;
2000 - $500,000; 2001 - $800,000; 2002 through 2004 - $900,000 annually,
and 2005 through 2006 - $1,000,000 annually.
7. Additional costs incurred by United Liberty in connection with the
acquisition.
8. Adjustment of deferred taxes primarily associated with purchase GAAP reserve
adjustment.
9. Elimination of United Liberty equity in consolidation.
10. Reduced investment income associated with $3,595,555 of internal funds
used in the acquisition ($2,060,749 of United Liberty investments
transferred to seller and $1,534,806 of additional internal funds).
11. Adjustment reflecting purchase GAAP reserve calculations which are
approximately 7% lower than historical GAAP reserve calculations.
12. Adjustment reflecting overhead savings resulting from the acquisition.
United Liberty's home office was closed and the majority of employees
were terminated within one month of the acquisition.
13. Additional interest expense on incremental bank borrowings (see Note 6
above).
14. Amortization of intangibles after the assumed purchase (based on current
actuarial calculations - see Note 4 above) and elimination of net historical
GAAP intangible amortization
15. Federal income tax impact of adjustments.