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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 1-9138
FIRST CENTRAL FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 11-2648222
State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
266 MERRICK ROAD, LYNBROOK, NEW YORK 11563
(Address of principal executive offices)
(Zip Code)
(516) 593-7070
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 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 ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares Outstanding at October 31, 1996
Title of Class (excluding 602,404 treasury shares)
- -------------------------------------- --------------------------------------
Common Stock, Par Value $.10 Per Share 5,986,608
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
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PAGE NO.
<S> <C>
ITEM I FINANCIAL STATEMENTS.............................................. 1
Consolidated Balance Sheets...................................... 1
Consolidated Statements of Income................................ 3
Consolidated Statements of Changes in Shareholders' Equity....... 4
Consolidated Statements of Cash Flows............................ 5
Notes to Financial Statements.................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................. 7
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................. 11
SIGNATURES........................................................ 16
</TABLE>
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST CENTRAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
----------------- -----------------
(UNAUDITED) *
<S> <C> <C>
ASSETS
Investments
Securities available-for-sale, at market value:
Fixed maturities (amortized cost 1996 - $33,260,242;
1995 - $35,181,479) $ 32,908,914 $ 35,640,019
Equity securities, (cost: 1996 - $22,198,562;
1995 - $28,011,278) 23,118,222 28,704,546
Securities held-to-maturity at amortized cost (market:
1996 - $44,547,503; 1995 - $33,693,837) 45,402,269 33,415,757
Short-term investments, at cost, which approximates
market 3,715,958 2,918,369
----------------- ------------------
Total Investments 105,145,363 100,678,691
Cash 4,367,861 1,499,829
Accrued investment income 1,278,004 835,720
Agents' balances, less allowance for doubtful accounts
(1996 - $1,672,756; 1995 - $1,554,074) 17,851,688 17,871,850
Reinsurance receivables on unpaid losses 20,293,027 19,541,811
Reinsurance receivables on paid losses 620,895 817,681
Prepaid reinsurance premiums 5,724,197 8,206,455
Federal income taxes recoverable 481,225 2,467,225
Other receivables 699,565 333,234
Deferred policy acquisition costs 7,004,838 6,351,976
Deferred debenture costs 296,444 438,603
Deferred income taxes 5,417,000 4,465,000
Property, plant and equipment less accumulated depreciation
(1996 - $1,274,157; 1995 - $1,639,866) 4,435,323 4,523,949
Other Assets 421,198 428,325
----------------- ------------------
$ 174,036,628 $ 168,460,349
================= ==================
</TABLE>
* The balance sheet at December 31, 1995 has been derived from audited
consolidated financial statements at that date.
The accompanying notes are an integral part of these statements.
1
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FIRST CENTRAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------------ -----------------
(UNAUDITED) *
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy Liabilities
Unpaid losses $ 87,458,013 $ 78,887,340
Unpaid loss adjustment expenses 8,417,663 7,749,141
Unearned premiums 34,427,641 36,295,661
------------------ -----------------
Total Policy Liabilities 130,303,317 122,932,142
Funds held for reinsurance treaty 2,926,383 3,704,947
Reinsurance payable 1,094,164 1,393,663
Convertible subordinated debentures 4,900,000 6,330,000
Other liabilities 1,103,653 761,988
------------------ -----------------
Total Liabilities 140,327,517 135,122,740
------------------ -----------------
Commitments and Contingencies
Shareholders' Equity
Common Stock, par value $.10 per share;
authorized - 20,000,000 shares; issued (1996 -
6,589,012 shares; 1995 - 6,589,012 shares) 658,902 658,902
Additional paid-in capital 13,209,395 13,209,395
Net unrealized appreciation on securities available
for sale, net of deferred taxes of (1996 -
$193,000;1995 - $392,000) 375,328 759,806
Retained earnings 23,596,628 22,826,898
------------------ -----------------
37,840,253 37,455,001
Less treasury stock, at cost (1996 - 602,404
shares; 1995 - 600,404 shares) (4,131,142) (4,117,392)
------------------ -----------------
Total Shareholders' Equity 33,709,111 33,337,609
------------------ -----------------
$ 174,036,628 $ 168,460,349
================== =================
</TABLE>
* The balance sheet at December 31, 1995 has been derived from audited
consolidated financial statements at that date.
The accompanying notes are an integral part of these statements.
2
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FIRST CENTRAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30,
1996 1995 1996 1995
---------------- --------------- ---------------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Premiums Written - Direct $ 46,638,875 $ 55,166,749 $ 14,664,729 $ 16,783,755
Reinsurance ceded (7,447,887) (17,322,170) (904,827) (4,332,798)
---------------- --------------- ---------------- ---------------
Net Premiums Written 39,190,988 37,844,579 13,759,902 12,450,957
(Increase) Decrease in unearned premiums (614,238) 2,168,647 (788,863) 1,400,471
---------------- --------------- ---------------- ---------------
Net Premiums Earned 38,576,750 40,013,226 12,971,039 13,851,428
Net investment income 3,883,099 3,734,116 1,344,836 1,176,534
Realized gain (loss) on investments 951,896 974,122 (84,135) 429,262
Claims adjusting revenues 763,683 469,880 282,590 165,950
Rental and Miscellaneous income 182,549 153,568 63,129 (133,370)
---------------- --------------- ---------------- ---------------
Total Revenues 44,357,977 45,344,912 14,577,459 15,489,804
---------------- --------------- ---------------- ---------------
Expenses
Losses 21,786,229 19,248,378 7,664,501 6,872,285
Loss adjustment expense 6,616,211 5,889,709 1,888,736 2,155,516
Policy acquisition costs 9,139,831 9,908,330 3,229,764 3,461,747
Interest expense 403,016 451,698 120,609 147,248
Doubtful accounts 498,459 618,122 33,762 693
Other operating expenses 4,146,219 2,828,180 1,243,173 735,960
---------------- --------------- ---------------- ---------------
Total Expenses 42,589,965 38,944,417 14,180,545 13,373,449
---------------- --------------- ---------------- ---------------
Income Before Income Taxes 1,768,012 6,400,495 396,914 2,116,355
Federal and State Income Taxes 455,000 1,597,000 100,600 597,500
---------------- --------------- ---------------- ---------------
Net Income $ 1,313,012 $ 4,803,495 $ 296,314 $ 1,518,855
================ =============== ================ ===============
Per Share Data:
Net Income:
Primary $0.22 $0.80 $0.05 $0.25
===== ===== ===== =====
Fully Diluted $0.22 $0.74 $0.05 $0.24
===== ===== ===== =====
Cash Dividends Paid $0.09 $0.09 $0.03 $0.03
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
3
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FIRST CENTRAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NET UNREALIZED
DEPRECIATION ON
ADDITIONAL SECURITIES
COMMON STOCK PAID-IN AVAILABLE RETAINED TREASURY STOCK
SHARES AMOUNT CAPITAL FOR SALE EARNINGS SHARES AMOUNT TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1995* 6,589,012 $ 658,902 $ 13,209,395 $ 759,806 $22,826,898 600,404 $(4,117,392) $33,337,609
Add (deduct):
Net income 1,313,012 1,313,012
Cash dividends declared
(0.12 per share) (543,282) (543,282)
Purchase shares of treasury
stock 2,000 (13,750) (13,750)
Decrease in unrealized
appreciation (384,478) (384,478)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance September 30, 1996 6,589,012 $ 658,902 $ 13,209,395 $ 375,328 23,596,628 602,404 $(4,131,142) $33,709,111
===================================================================================================================================
</TABLE>
* The balance sheet at December 31, 1995 has been derived from audited
consolidated financial statements at that date.
The accompanying notes are an integral part of these statements.
4
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FIRST CENTRAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,313,012 $ 4,803,495
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of deferred policy acquisition costs 6,351,976 7,339,084
Provision for depreciation and amortization 309,032 451,020
Provision for losses on uncollectible agents' balances 498,459 618,123
Net realized investment gains (951,896) (974,122)
Provision for deferred federal income taxes (753,000) (650,000)
Changes in operating assets and liabilities
Increase in accrued investment income (442,284) (115,638)
Change in agents' balances and unearned premiums (642,623) (3,852,049)
Change in unpaid losses, unpaid loss adjustment
expenses, and reinsurance recoverables 8,684,765 6,618,966
Deferred policy acquisition costs (7,004,838) (6,976,014)
Other items, net 1,682,564 4,027,057
----------------- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,045,167 11,289,922
----------------- -----------------
INVESTING ACTIVITIES
Purchases of fixed maturities (51,897,834) (38,823,055)
Sales and maturities of fixed maturities 41,267,938 22,708,657
Purchases of equity securities (7,433,633) (13,373,837)
Sales of equity securities 14,731,248 24,442,226
Net (purchases) sales of short-term investments (797,589) 892,927
Purchases of property, plant and equipment (60,238) (3,685,963)
----------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (4,190,108) (7,839,045)
----------------- -----------------
FINANCING ACTIVITIES
Principal payments on convertible subordinated debentures (1,430,000) (250,000)
Proceeds from issuance of shares of common stock - 71,094
Principal payments on capital lease obligations - (84,744)
Cash dividend paid (543,279) (542,708)
Purchases of shares of common stock for the treasury (13,750) (163,875)
----------------- -----------------
NET CASH USED IN FINANCING ACTIVITIES (1,987,029) (970,233)
----------------- -----------------
INCREASE IN CASH 2,868,030 2,480,644
CASH AT BEGINNING OF YEAR 1,499,829 409,612
----------------- -----------------
CASH AT END OF THIRD QUARTER $ 4,367,861 $ 2,890,256
================= =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 566,000 $ 609,000
================= =================
Income Taxes:
Paid $ 935,000 $ 2,237,000
Refunded $ 1,700,000 -
================= =================
</TABLE>
The accompanying notes are an integral part of these statements.
5
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FIRST CENTRAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of results for the interim periods. The financial statements for
the periods reported should be read in conjunction with the financial statements
and related notes contained in First Central's Annual Report on Form 10-K for
the year ended December 31, 1995.
2. PER SHARE DATA
Income per common share is based upon the weighted average number of
shares outstanding for the periods reported. Such weighted average number of
shares outstanding were as follows:
For the nine-month periods ended September 30,
<TABLE>
<CAPTION>
Basic Primary Fully Diluted
<S> <C> <C> <C>
1996......... 5,987,685 5,995,491 6,641,018
1995......... 5,990,098 6,045,006 6,894,821
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<S> <C>
Land $ 1,000,000
Building 3,039,313
Equipment 1,670,167
---------------
Sub-total 5,709,480
Less accumulated depreciation 1,274,157
---------------
Total $ 4,435,323
===============
</TABLE>
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL INFORMATION
First Central Financial Corporation ("First Central") was incorporated
on May 18, 1983 under the laws of the State of New York. It is the parent
corporation of First Central Insurance Company ("First Central Insurance") and
Mercury Adjustment Bureau, Inc. ("Mercury"). First Central Insurance is a New
York licensed property and casualty insurance company which underwrites the
following types of insurance primarily in the State of New York: Commercial
Multiple Peril, Workers' Compensation, General Liability, Automobile Liability
and Automobile Physical Damage, Products Liability, Fire, Allied Lines, Boiler
and Machinery, Glass, Burglary and Theft, Umbrella and Inland Marine. First
Central Insurance is licensed to underwrite insurance in the states of New York,
Pennsylvania and Connecticut. First Central Insurance is rated B++ by A.M. Best.
Mercury, a claims adjustment and investigation company, was acquired by First
Central in September 1988.
NET INCOME - EARNINGS
First Central reported net income for the three and nine-month periods
ended September 30, 1996 of $296,314 or $0.05 per share primary and $0.05 per
share fully diluted, and $1,313,012, or $0.22 per share primary and $0.22 per
share fully diluted, respectively. The decrease in net income of 80.5% for the
three month period ended September 30, 1996 in comparison to the corresponding
period ended September 30, 1995, is due primarily to a decrease in earned
premiums and realized gains and increases in losses incurred and other operating
expenses offset in part by increases in claims adjusting revenue, net investment
income, rental income and decreased policy acquisition costs and loss adjustment
expenses incurred. The decrease in net income of 72.7% for the nine month period
ended September 30, 1996 when compared to the same period ended September 30,
1995 was primarily due to decreases in earned premiums, and increases in loss
and loss adjustment expenses and other operating expenses offset in part by
increases in claims adjusting revenue, net investment income and a decrease in
policy acquisition costs.
PREMIUMS WRITTEN AND EARNED
Direct written premiums of $14,664,729, and $46,638,875 for the three
and nine-month periods ended September 30, 1996, respectively, decreased 12.6%
and 15.5%, when compared to the corresponding periods of 1995. The decrease in
premium writing was a result of intense competition in the property and casualty
industry and by First Central Insurance's institution of a lead paint exclusion
as of October 1995 for new business and January 1996 for renewal business. The
decrease was also a result of First Central Insurance not renewing two general
liability policies accounting annually for approximately $4.0 million in
premiums. Under new underwriting guidelines, as of September 1996 First Central
Insurance removed the lead paint exclusion.
In January 1996, an endorsement to First Central Insurance's reinsurance
treaty increased First Central Insurance's retention per loss from $200,000 to
$250,000 and decreased its ceded premium rate on property and casualty writings.
An April 1995 endorsement to the reinsurance treaty changed the calculation of
reinsurance premium from a percentage of earned premiums to a percentage of
written premiums (although reinsurance premiums continue to be paid when
earned). These changes are the primary reasons that ceded premiums decreased
$3,427,971 (79.1%) and $9,874,283 (57.0%) for the three and nine month periods
ended September 30, 1996, respectively, and net written premiums
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increased $1,308,945 (10.5%) and $1,346,409 (3.6%), respectively, over the same
periods when compared to the corresponding periods in 1995.
Net premiums earned decreased $880,389 (6.4%) and $1,436,476 (3.6%), for
the three and nine-month periods ended September 30, 1996, respectively, when
compared to the same periods in 1995. The decrease for the three and nine-month
periods is attributable to the decrease in direct written premiums.
NET INVESTMENT INCOME; REALIZED GAINS
First Central's net investment income of $1,344,836 and $3,883,099 for
the three and nine-month periods ended September 30, 1996, respectively,
represent an increase of 14.3% and 4.0% over the net investment income from the
corresponding periods of 1995. Changes in First Central Insurance's investment
portfolio from holdings of 61.3% in fixed maturities, 30.5% in equity securities
and 8.2% in short-term investments as of September 30, 1995 to 74.5% in fixed
maturities, 22.0% in equity securities and 3.5% in short-term investments as of
September 30, 1996 produced increased interest income which offset a decrease in
dividend income for the three and nine-month periods ended September 30, 1996.
First Central reported a net realized loss on investments for the three-month
period ended September 30, 1996 of $84,135 which includes a $205,480 write-down
of equity securities (described below) and a net realized gain of $121,345 from
sales of securities. First Central's net realized gain on investments for the
nine-month period ended September 30, 1996 declined $22,226 (2.3%) over the same
period ended September 30, 1995. The decrease in net realized gains on
investments resulted primarily from write-downs on two corporate notes and two
common stock securities which have experienced a decline in market value that
the Company has determined to be other than temporary as stated in Staff
Accounting Bulletin No. 75.
At September 30, 1996 First Central held 31.3% of its invested assets in
fixed maturities available-for-sale, 43.2% in fixed maturities held-to-maturity,
22.0% in equity securities (common and preferred stocks) available for sale and
3.5% in short-term investments (principally money markets). At December 31,
1995, First Central held 35.4% of its invested assets in fixed maturities
available-for-sale, 33.2% in fixed maturities held-to-maturity, 28.5% in equity
securities (common and preferred stocks) available for sale and 2.9% in
short-term investments.
At September 30, 1996, the total net unrealized gain applicable to First
Central's available-for-sale securities amounted to $375,328. The unrealized
gain is net of deferred taxes of $193,000. At December 31, 1995 the total
net unrealized gain applicable to First Central's available-for-sale securities
was $759,806 net of deferred taxes of $392,000.
In accordance with FASB Statement No. 115, the following is the
investment classifications at September 30, 1996. Under Statement No. 115,
unrealized loss or gains on available-for-sale investments are reported as a
reduction or increase in shareholders equity.
8
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<TABLE>
<CAPTION>
CHARGE TO
SEPTEMBER 30, 1996 COST MARKET SURPLUS
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt Securities:
Held to Maturity 45,402,269 44,547,503 0
Available for Sale 33,260,246 32,908,914 (351,332)
-------------------------------------------------------
Equity Securities:
Available for Sale 22,198,562 23,118,222 919,660
-----------------
Less deferred taxes (193,000)
-----------------
Reduction of Shareholder's Equity & Investments $ 375,328
=================
</TABLE>
LOSS AND LOSS ADJUSTMENT EXPENSE
It has been First Central Insurance's practice to maintain reserves at
or near the middle range of an actuarial reasonableness range established by its
independent actuary to evaluate the adequacy of reserves. First Central
Insurance's reserves are analyzed on a quarterly basis by an outside actuarial
firm. As of September 30, 1996, the actuary's report indicates that the
mid-point of the actuarial reasonableness range is $77,595,000. First Central
Insurance's carried net reserves on a statutory basis were $76,128,313 which is
$1,466,687 below mid-point. First Central Insurance intends that at December 31,
1996, its reserves will be at or near the middle range of the actuarial
reasonableness range. First Central Insurance anticipates that this may be
accomplished by a continuing increase in incurred but not reported ("IBNR")
reserves and improved loss experience, and to the extent remaining necessary, by
a supplemental increase in reserves (and a related charge to earnings) in the
final quarter of this year.
During the three and nine-month periods ended September 30, 1996,
incurred losses net of reinsurance increased by 11.5% and 13.2%, respectively,
when compared to the corresponding periods in 1995. Such increases were due
primarily to increases in IBNR reserves and net paid losses.
During the three and nine-month periods ended September 30, 1996,
incurred loss adjustment expenses, net of reinsurance, decreased by 12.4% and
increased by 12.3%, respectively, when compared to the corresponding periods in
1995. The decrease of 12.4% for the three-month period was primarily due to a
decrease in loss adjustment expense case reserves. The increase in loss
adjustment expenses for the nine-month period is primarily due to an increase in
costs associated with claims and litigation resulting from the increase of
policies written over the last several years.
UNDERWRITING EXPENSES
Underwriting expenses are a combination of policy acquisition costs and
other operating expenses as shown on the income statement. Policy acquisition
costs decreased by 6.7% and 7.8% for the three and nine-months ended September
30, 1996, respectively, as compared to the corresponding periods in 1995. Other
operating expenses increased by 68.9% and 46.6% for the three and nine-month
periods ended September 30, 1996 as compared to the corresponding periods in
1995. The decrease in policy acquisition costs and the increase in operating
expenses was effected by a reclassification of expenses from policy acquisition
costs in 1995 to operating expenses in 1996 amounting to approximately $600,000.
The decrease in policy acquisition costs after accounting for the
reclassification, were
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primarily due to the decrease in commission and premium tax expenses associated
with the reduced premium volume. On a ceded basis, commissions were reduced as a
result of the January 1996 and April 1995 reinsurance treaty endorsements
described in "Premiums Written and Earned" above. The increase in other
operating expenses after accounting for the reclassification was primarily due
to statutory assessments on workers' compensation lines. Total underwriting
expenses after accounting for the reclassification increased 6.6% and 4.3% for
the three and nine-month period ended September 30, 1996, respectively, as
compared to the corresponding period in 1995.
PROVISION FOR DOUBTFUL ACCOUNTS
Provision for doubtful accounts increased by $33,069 and decrease by
$119,663, respectfully, for the three and nine-month periods ended September 30,
1996 compared to the corresponding periods in 1995. The decrease for the
nine-month period was primarily the result of a reduction in the amount of
uncollectible premiums identified in workers' compensation policy audits.
INTEREST EXPENSE
Interest expense decreased 18.1% and 10.8% for the three and nine-month
periods ended September 30, 1996 when compared to corresponding periods in 1995.
This decrease is due to the reduction of $1,605,000 in the principal amount
outstanding of First Central's Convertible Subordinated Debentures (the
"Debentures") from $6,505,000 at September 30, 1995 to $4,900,000 at September
30, 1996.
FINANCING ACTIVITIES
For the nine-month period ended September 30, 1996, net cash used in
First Central's investing activities was approximately $4,190,108 as compared to
approximately $7,839,045 from the nine-month period ended September 30, 1995.
The decrease in cash used for investing activities was due primarily to changes
in First Central Insurance's investment portfolio and from First Central
Insurance purchasing its home office in the first quarter of 1995 for $4,000,000
cash.
LIQUIDITY AND CAPITAL RESOURCES
First Central Insurance's operations generated funds adequate to meet
the business needs of First Central and the First Central Insurance during the
nine months ended September 30, 1996.
Management is unaware of any trend which is reasonably likely to result
in an increase or decrease in First Central's liquidity or its capital resources
except that as the First Central Insurance's assets and investments have
increased, the availability of investable funds have resulted in increased
investment income and improved cash flow, and hence some increased liquidity of
the First Central Insurance. The liquidity of the investment portfolio of an
insurance company is important to its ability to maximize investment return
which is a significant component of overall profitability.
First Central funded its February 1, 1996 interest payment of $284,850
and August 1, 1996 interest payment of $262,350 under its outstanding Debentures
from the dividends it received from First Central Insurance in the amount of
$2,000,000.
CAPITAL COMMITMENTS
Neither the Company nor its subsidiaries made any material commitment
for capital expenditures.
10
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
<S> <C>
3.1 Certificate of Incorporation of First Central Financial Corporation
("First Central") a copy of which was filed with the Commission on
December 6, 1984 as Exhibit 3.1 to First Central's Registration
Statement on Form S-18 (Reg. No. 2-94804-NY) and is hereby incorporated
herein by this reference).
3.2 Certificate of Amendment of Certificate of Incorporation of First
Central dated the 30th day of November 1984 (a copy of which was filed
with the Commission on December 10, 1984 as Exhibit 3.2 to First
Central's Registration Statement on Form S-18 (Reg. No. 2-94804-NY) and
is hereby incorporated herein by this reference).
3.3 Certificate of Amendment of Certificate of Incorporation of First
Central dated July 23, 1993 (a copy of which was filed with the
Commission on August 15, 1994 as Exhibit 3.1 to First Central's
Quarterly Report on Form 10-Q and is hereby incorporated by this
reference).
3.4 Amended and Restated By-Laws of First Central, dated as of May 18, 1994
(a copy of which was filed with the Commission on August 15, 1994 as
Exhibit 3.2 to First Central's Quarterly Report on Form 10-Q and is
hereby incorporated by this reference).
4.1 Specimen copy of First Central's common stock certificate (a copy of
which was filed with the Commission on December 10, 1984 as Exhibit 4.1
to First Central's Registration Statement on Form S-1 (Reg. No.
2-94804-NY), and is hereby incorporated herein by this reference).
4.2 Specimen copy of First Central's 9% Convertible Subordinated Debenture
Due 2000 (a copy of which was filed as Exhibit 4.2 to Registrant's
Amendment No. 1 to its Registration Statement on Form S-1, Reg. No.
33-25264, and is hereby incorporated herein by this reference).
4.3 Indenture dated as of September 1, 1988 between First Central and
United States Trust Company of New York as Trustee (a copy of which was
filed with the Commission on October 31, 1988 as Exhibit 4.3 to First
Central's Registration Statement on Form S-1 (Reg. No. 33-25264), and
is hereby incorporated herein by this reference).
4.4 Form of Common Stock Purchase Warrant (a copy of which was filed with
the Commission on August 15, 1994 as Exhibit 4.4 to First Central's
Quarterly Report on Form 10-Q and is hereby incorporated by this
reference).
4.5 Form of First Central's 1990 Stock Incentive Plan Stock Option (a copy
of which was filed with the Commission on August 15, 1994 as Exhibit
4.5 to First Central's Quarterly Report on Form 10-Q and is hereby
incorporated by this reference).
</TABLE>
11
<PAGE>
<PAGE>
<TABLE>
<S> <C>
10.1 Facultative Reinsurance Agreement dated September 25, 1987 between
Munich American Reinsurance Company and First Central Insurance (a copy
of which was filed with the Commission on August 15, 1994 as Exhibit
10.8 to First Central's Quarterly Report on Form 10-Q and is hereby
incorporated by this reference).
10.2 Addendum No. 1 to the Reinsurance Agreement between First Central
Insurance and Munich American Reinsurance Company, dated July 28, 1988
(a copy of which was filed with the Commission on August 15, 1994 as
Exhibit 10.9 to First Central's Quarterly Report on Form 10-Q and is
hereby incorporated by this reference).
10.3 Addendum No. 2 to the Reinsurance Agreement between First Central
Insurance and Munich American Reinsurance Company, dated January 1,
1989 (a copy of which was filed with the Commission on August 15, 1994
as Exhibit 10.10 to First Central's Quarterly Report on Form 10-Q and
is hereby incorporated by this reference).
10.4 Addendum No. 3 to the Reinsurance Agreement between First Central
Insurance and Munich American Reinsurance Company, dated January 1,
1992 (a copy of which was filed with the Commission on August 15, 1994
as Exhibit 10.11 to First Central's Quarterly Report on Form 10-Q and
is hereby incorporated by this reference).
10.5 Addendum No. 4 to the Reinsurance Agreement between First Central
Insurance and Munich American Reinsurance Company, dated June 18, 1993
(a copy of which was filed with the Commission on August 15, 1994 as
Exhibit 10.12 to First Central's Quarterly Report on Form 10-Q and is
hereby incorporated by this reference).
10.6 Addendum No. 5 to the Reinsurance Agreement between First Central
Insurance and Munich American Reinsurance Company, dated August 9, 1994
(a copy of which was filed with the Commission on March 31, 1995 as
Exhibit 10.6 to First Central's Annual Report on Form 10-K and is
hereby incorporated by this reference).
10.7 Automobile Physical Damage Automatic Binding Agreement between First
Central Insurance and National Reinsurance Corporation, dated December
6, 1994 (a copy of which was filed with the Commission on March 31,
1995 as Exhibit 10.7 to First Central's Annual Report on Form 10-K and
is hereby incorporated by this reference).
10.8 License Agreement dated September 30, 1989, between Policy Management
Systems Corporation and First Central (a copy of which was filed with
the Commission on August 15, 1994 as Exhibit 10.15 to First Central's
Quarterly Report on Form 10-Q and is hereby incorporated by this
reference).
10.9 Sublease Agreement dated December 15, 1988 between First Central
Insurance and Simon General (incorporated herein by reference to
Exhibit 10.9 in First Central's Amendment No. 1 to its Registration
Statement on Form S-1, Reg. No. 33-25264).
10.10 Addendum to Sublease dated October 1, 1993 between First Central
Insurance and Simon General (a copy of which was filed with the
Commission on August 15, 1994 as Exhibit 10.17 to First Central's
Quarterly Report on Form 10-Q and is hereby incorporated by this
reference).
</TABLE>
12
<PAGE>
<PAGE>
<TABLE>
<S> <C>
10.11 Form of Indemnity Agreement (a copy of which was filed with the
Commission on August 15, 1994 as Exhibit 10.20 to First Central's
Quarterly Report on Form 10-Q and is hereby incorporated by this
reference).
10.12 Agreement of Tax Allocation between First Central and First Central
Insurance (a copy of which was filed with the Commission on August 15,
1994 as Exhibit 10.21 to First Central's Quarterly Report on Form 10-Q
and is hereby incorporated by this reference).
10.13 Property Facultative Automatic Reinsurance Agreement between First
Central Insurance and North American Reinsurance Corp., effective
January 1, 1993 (a copy of which was filed with the Commission on
August 15, 1994 as Exhibit 10.22 to First Central's Quarterly Report on
Form 10-Q and is hereby incorporated by this reference).
10.14 Subscription Agreement between First Central and The Trustees of
General Electric Pension Trust ("G.E."), dated March 19, 1993 (a copy
of which was filed with the Commission on August 15, 1994 as Exhibit
10.23 to First Central's Quarterly Report on Form 10-Q and is hereby
incorporated by this reference).
10.15 Common Stock Purchase Warrant (Series B) issued by First Central to
G.E., dated March 19, 1993 (a copy of which was filed with the
Commission on August 15, 1994 as Exhibit 10.25 to First Central's
Quarterly Report on Form 10-Q and is hereby incorporated by this
reference).
10.16 Subscription Agreement, dated April 16, 1993 between First Central and
SBSF Funds, Inc. (a copy of which was filed with the Commission on
August 15, 1994 as Exhibit 10.26 to First Central's Quarterly Report on
Form 10-Q and is hereby incorporated by this reference).
10.17 Common Stock Purchase Warrant (Series B) issued by First Central to
Atwell dated April 16, 1993 (a copy of which was filed with the
Commission on August 15, 1994 as Exhibit 10.28 to First Central's
Quarterly Report on Form 10-Q and is hereby incorporated by this
reference).
10.18 Subscription Agreement, dated December 3, 1993 between First Central
and GE (a copy of which was filed with the Commission on August 15,
1994 as Exhibit 10.29 to First Central's Quarterly Report on Form 10-Q
and is hereby incorporated by this reference).
10.19 Common Stock Purchase Warrant (Series B) issued by First Central to GE,
dated December 3, 1993 (a copy of which was filed with the Commission
on August 15, 1994 as Exhibit 10.30 to First Central's Quarterly Report
on Form 10-Q and is hereby incorporated by this reference).
10.20 Stock Option, dated September 10, 1993, granted to Martin J. Simon by
First Central (a copy of which was filed with the Commission on August
15, 1994 as Exhibit 10.31 to First Central's Quarterly Report on Form
10-Q and is hereby incorporated by this reference).
10.21 Employment Agreement, dated as of March 18, 1994, by and between First
Central and Martin J. Simon (a copy of which was filed with the
Commission on August 15, 1994 as Exhibit 10.32 to First Central's
Quarterly Report on Form 10-Q and is hereby incorporated by this
reference).
10.22 Software License Agreement, dated May 4, 1994, between the Wheatley
Group, Ltd. and First Central Insurance (a copy of which was filed with
the Commission on August 15, 1994 as Exhibit 10.33 to First Central's
Quarterly Report on Form 10-Q and is hereby incorporated by this
reference).
</TABLE>
13
<PAGE>
<PAGE>
<TABLE>
<S> <C>
10.23 Multiple Line Excess of Loss Reinsurance Agreement between First
Central Insurance and National Reinsurance Corporation, dated January
1, 1994 (a copy of which was filed with the Commission on August 15,
1994 as Exhibit 10.34 to First Central's Quarterly Report on Form 10-Q
and is hereby incorporated by this reference).
10.24 Endorsement No. 1 of Agreement No. 3522-01002 Multiple Line Excess of
Loss Reinsurance Agreement between First Central Insurance and National
Reinsurance Corporation, dated January 1, 1994 (a copy of which was
filed with the Commission on August 15, 1994 as Exhibit 10.35 to First
Central's Quarterly Report on Form 10-Q and is hereby incorporated by
this reference).
10.25 Investment Advisory Agreement, dated June 30, 1994 between First
Central Insurance and Cramer Rosenthal McGlynn, Inc. (a copy of which
was filed with the Commission on August 15, 1994 as Exhibit 10.36 to
First Central's Quarterly Report on Form 10-Q and is hereby
incorporated by this reference).
10.26 Contract of Sale, dated October 18, 1994 between Lynbrook Court
Associates and First Central Insurance (a copy of which was filed with
the Commission on March 31, 1994 as Exhibit 10.37 to First Central's
Quarterly Report on Form 10-Q and is hereby incorporated by this
reference).
10.27 Subscription Agreement, dated August 19, 1994, between First Central
and CRM Retirement Partners, L.P. ("CRM") (a copy of which was filed
with the Commission on March 31, 1994 as Exhibit 10.38 to First
Central's Quarterly Report on Form 10-Q and is hereby incorporated by
this reference).
10.28 Common Stock Purchase Warrant (Series C) issued by First Central to
CRM, dated August 19, 1994 (a copy of which was filed with the
Commission on March 31, 1994 as Exhibit 10.39 to First Central's
Quarterly Report on Form 10-Q and is hereby incorporated by this
reference).
10.29 Subscription Agreement, dated August 19, 1994, between First Central
and CRM (a copy of which was filed with the Commission on March 31,
1994 as Exhibit 10.40 to First Central's Quarterly Report on Form 10-Q
and is hereby incorporated by this reference).
10.30 Common Stock Purchase Warrant (Series C) issued by First Central to
CRM, dated August 19, 1994 (a copy of which was filed with the
Commission on March 31, 1994 as Exhibit 10.41 to First Central's
Quarterly Report on Form 10-Q and is hereby incorporated by this
reference).
10.31 Subscription Agreement, dated September 2, 1994, between First Central
and National Reinsurance Corp. (a copy of which was filed with the
Commission on March 31, 1994 as Exhibit 10.42 to First Central's
Quarterly Report on Form 10-Q and is hereby incorporated by this
reference).
10.32 Common Stock Purchase Warrant (Series C) issued by First Central to
National Reinsurance Corp, dated August 2, 1994 (a copy of which was
filed with the Commission on March 31, 1994 as Exhibit 10.43 to First
Central's Quarterly Report on Form 10-Q and is hereby incorporated by
this reference).
10.33 Employment Agreement, dated as of July 1, 1994 by and between First
Central and Joan M. Locascio (a copy of which was filed with the
Commission on March 31, 1995 as Exhibit 10.37 to First Central's Annual
Report on Form 10-K and is hereby incorporated by this reference).
</TABLE>
14
<PAGE>
<PAGE>
<TABLE>
<S> <C>
10.34 Employment Agreement, dated as of July 1, 1994 by and between First
Central and Harvey Mass (a copy of which was filed with the Commission
on March 31, 1995 as Exhibit 10.38 to First Central's Annual Report on
Form 10-K and is hereby incorporated by this reference).
10.35 Employment Agreement, dated as of July 1, 1994 by and between First
Central and Raymond F. Brancaccio (a copy of which was filed with the
Commission on March 31, 1995 as Exhibit 10.39 to First Central's Annual
Report on Form 10-K and is hereby incorporated by this reference).
10.36 Employment Agreement, dated as of July 1, 1994 by and between First
Central and Joel I. Dollinger (a copy of which was filed with the
Commission on March 31, 1995 as Exhibit 10.40 to First Central's Annual
Report on Form 10-K and is hereby incorporated by this reference).
10.37 Employment Agreement, dated as of July 1, 1994 by and between First
Central and Allan R. Goodman (a copy of which was filed with the
Commission on March 31, 1995 as Exhibit 10.41 to First Central's Annual
Report on Form 10-K and is hereby incorporated by this reference).
10.38 Employment Agreement, dated as of July 1, 1994 by and between Mercury
and Joseph P. Ciorciari (a copy of which was filed with the Commission
on March 31, 1995 as Exhibit 10.42 to First Central's Annual Report on
Form 10-K and is hereby incorporated by this reference).
*11 Computation of Per Share Earnings.
21 List of Subsidiaries (incorporated by reference to Exhibit 22 to the
Registrant's Amendment No. 1 to its Registration Statement on Form S-1
Reg. No. 33-25264).
27 Financial Data Schedule (filed only with the electronic EDGAR filing of
this document).
</TABLE>
- -------------------------
* filed herewith
B. Reports on Form 8-K.
There were no reports filed on Form 8-K during the nine-month period
ended September 30, 1996.
15
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
FIRST CENTRAL FINANCIAL CORPORATION
DATED: November 5, 1996 BY: /s/ Martin J. Simon
------------------------ ---------------------------
Martin J. Simon, President
(Chief Executive Officer)
DATED: November 5, 1996 BY: /s/ Joan M. Locascio
------------------------ ---------------------------
Joan M. Locascio, Treasurer,
Vice President
(Chief Financial and
Accounting Officer)
16
<PAGE>
<PAGE>
FIRST CENTRAL FINANCIAL CORPORATION AND SUBSIDIARIES Exhibit 11
COMPUTATION OF PER COMMON SHARE EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PRIMARY
Net income applicable to common shares $ 1,313,012 $ 4,803,495 $ 4,354,612
=============== =============== ===============
Weighted average number of primary common shares:
Outstanding 5,987,685 5,990,098 5,801,698
Issuable upon assumed exercise of dilutive warrants 7,806 54,908 42,488
--------------- --------------- ---------------
TOTAL 5,995,491 6,045,006 5,844,186
=============== =============== ===============
Primary earnings per common share $0.219 $0.795 $0.745
====== ====== ======
FULLY DILUTED
Net income applicable to common shares $ 1,313,012 $ 4,803,495 $ 4,354,612
Add interest and amortization of debentures
(net of tax) 262,379 291,035 320,092
--------------- --------------- ---------------
TOTAL $ 1,575,391 $ 5,094,530 $ 4,674,704
=============== =============== ===============
Weighted average number of primary common shares:
Outstanding 5,987,685 5,990,098 5,801,698
Increase to assumed exercise of stock options and
conversion of convertible debt to reflect maximum
dilution effect 653,333 904,721 954,178
--------------- --------------- ---------------
TOTAL 6,641,018 6,894,821 6,755,876
=============== =============== ===============
Fully diluted earnings per common share $0.219 $0.739 $0.692
====== ====== ======
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-1-1996
<PERIOD-END> Sep-30-1996
<DEBT-HELD-FOR-SALE> 32,908,914
<DEBT-CARRYING-VALUE> 45,402,269
<DEBT-MARKET-VALUE> 44,547,503
<EQUITIES> 23,118,222
<MORTGAGE> 0
<REAL-ESTATE> 3,938,735
<TOTAL-INVEST> 105,145,363
<CASH> 4,367,861
<RECOVER-REINSURE> 620,895
<DEFERRED-ACQUISITION> 7,004,838
<TOTAL-ASSETS> 174,036,628
<POLICY-LOSSES> 95,875,676
<UNEARNED-PREMIUMS> 34,427,641
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 4,900,000
<COMMON> 658,902
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 174,036,628
46,638,875
<INVESTMENT-INCOME> 3,883,099
<INVESTMENT-GAINS> 951,896
<OTHER-INCOME> 946,232
<BENEFITS> 28,402,440
<UNDERWRITING-AMORTIZATION> 9,139,831
<UNDERWRITING-OTHER> 4,146,219
<INCOME-PRETAX> 1,768,012
<INCOME-TAX> 455,000
<INCOME-CONTINUING> 1,313,012
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,313,012
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<PAGE>
