<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarter ended June 30, 1996
PROFESSIONAL BENEFITS INSURANCE COMPANY
---------------------------------------
(EXACT NAME OF SMALL BUSINESS AS SPECIFIED IN ITS CHARTER)
TEXAS 74-2072635
(STATE OR OTHER (IRS EMPLOYER
JURISDICTION INCORPORATION IDENTIFICATION NUMBER)
OR ORGANIZATION)
COMMISSION FILE NUMBER: 0-22344
10835 ROCKLEY ROAD
HOUSTON, TEXAS 77099
- - --------------- -----
(Address or principal executive office) (Zip Code)
(713) 561-9919
--------------
(Registrant's telephone number)
Check mark whether the Issuer (1) filed all reports required 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 [ ]
The number of shares of Class A common stock the Registrant, par value $1.22
per share, issued and outstanding at June 30, 1996 was 587,129. The number of
shares of Class B common stock the Registrant, par value $1.22 per share,
issued and outstanding at June 30, 1996 was 73,524.
Transitional Small Business Disclosure Format: Yes [X] No [ ]
<PAGE> 2
PROFESSIONAL BENEFITS INSURANCE COMPANY
INDEX TO FORM 10-Q
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ITEM 1. Financial Statements.
Consolidated Balance Sheets - June 30, 1996 and December 31, 1995.......... 3
Consolidated Income Statements - Three Months Ended and Six Months
Ended June 30, 1996 and 1995............................................... 5
Consolidated Statements of Cash Flows - Three Months Ended and Six Months
Ended June 30, 1996 and 1995............................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................... 7
</TABLE>
2
<PAGE> 3
PROFESSIONAL BENEFITS INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995*
(UNAUDITED)
--------------- ------------------
<S> <C> <C>
INVESTMENTS
Fixed maturity securities held for investment,
at market value (amortized cost: June 30, 1996 -
$1,080,939; and December 31, 1995 - $1,230,62 $1,054,760 $1,220,642
Common stock mutual funds, at market 1,084,857 856,389
Short-term investments, at cost 1,403,153 1,420,523
---------- ----------
Total Investments 3,542,770 3,497,554
---------- ----------
CASH 128,917 37,252
DUE FROM REINSURERS 772,405 1,006,756
ACCRUED INVESTMENT INCOME 10,824 47,643
PREMIUMS DUE AND UNCOLLECTED 42,157 28,551
ACCOUNTS RECEIVABLE 137,731 36,584
LAND AND BUILDING, At Cost
(Net of accumulated depreciation of
$395,902 - 1996 and $376,794 - 1995) 556,886 575,994
FURNITURE AND EQUIPMENT, At Cost
(net of accumulated depreciation -
$552,846 - 1996 and $529,326 - 1995) 240,313 217,139
GUARANTY FUND ASSESSMENTS 7,326 10,361
FEDERAL INCOME TAX RECEIVABLE 188,000 188,000
OTHER ASSETS, At Cost 56,881 37,630
---------- ----------
Total Assets $5,684,210 $5,683,464
========== ==========
</TABLE>
*The amounts for December 31, 1995 were derived from amounts included in the
audited financial statements filed as part of the Company's 1995 Form
10-KSB.
3
<PAGE> 4
PROFESSIONAL BENEFITS INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS (cont'd.)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995*
(Unaudited)
-------------------- ------------------
<S> <C> <C>
LIABILITIES
Future policy benefits $ 970,370 $1,052,509
Policy claims 1,421,000 1,623,000
Premiums received in advance 179,102 100,488
Unearned premium 101,150 0
---------- ----------
2,671,622 2,775,997
Reinsurance payable 38,580 31,820
Federal income taxes payable 37,456 0
Deferred Tax Liability 64,400 5,000
Other liabilities 158,787 300,951
---------- ----------
Total Liabilities 2,970,845 3,113,768
---------- ----------
STOCKHOLDERS' EQUITY
Common stock
Class A voting, $1.22 par value; 1,022,668
authorized shares; 587,129 and issued and
outstanding in 1996 and 1995 716,594 716,594
Class B nonvoting, $1.22 par value; 136,720
authorized shares; 73,524 issued and
outstanding in 1996 and 1995 89,699 89,699
Additional paid-in capital 536,214 536,464
Unrealized gain on investments
(net of deferred income tax benefits(liabilities)
of $(80,600) - 1996 and $(21,200) - 1995) 156,544 41,959
Retained earnings 1,214,314 1,184,980
---------- ----------
Total Stockholders' Equity 2,713,365 2,569,696
---------- ----------
Total Liabilities and Stockholders' Equity $5,684,210 $5,683,464
========== ==========
</TABLE>
*The amounts for December 31, 1995 were derived from amounts included in the
audited financial statements filed as part of the Company's 1995 Form 10-KSB.
4
<PAGE> 5
PROFESSIONAL BENEFITS INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENT
QUARTERS ENDING JUNE 30, 1996 AND JUNE 30, 1995
<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
3 MONTHS 6 MONTHS 3 MONTHS 6 MONTHS
ENDED 6/30/96 ENDED 6/30/96 ENDED 6/30/95 ENDED 6/30/95
(UNAUDITED) (UNAUDITED)
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
REVENUES
Premiums earned $2,161,093 $4,514,773 $2,109,011 $4,354,873
Less reinsurance ceded 134,907 236,443 144,042 275,809
---------- ---------- ---------- ----------
Net premiums earned 2,026,186 4,278,330 1,964,969 4,079,064
Net investment income 20,774 72,975 98,475 146,740
Other income 17,646 48,334 47,596 75,099
---------- ---------- ---------- ----------
Total Revenues 2,064,606 4,399,639 2,111,040 4,300,903
---------- ---------- ---------- ----------
BENEFITS, CLAIMS AND EXPENSES
Benefits and claims 1,443,962 3,225,003 1,629,608 3,535,390
Less reinsurance recoverable 18,423 150,739 253,970 354,119
---------- ---------- ---------- ----------
Net benefits and claims 1,425,540 3,074,264 1,375,638 3,181,271
Commissions 127,859 220,112 75,992 138,067
Underwriting, acquisition, insurance, and
administrative expenses 378,260 835,492 427,678 942,266
Taxes, licenses, and fees 135,917 159,606 113,319 113,319
---------- ---------- ---------- ----------
Total Benefits, Claims and Expenses 2,067,576 4,289,474 1,992,627 4,374,923
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES (2,970) 110,165 118,413 (74,020)
INCOME TAX PROVISION (1,010) 37,456 0 0
---------- ---------- ---------- ----------
NET INCOME (LOSS) ($1,960) $72,709 $118,413 ($74,020)
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE
(Based on Weighted Average Shares of
Common Stock Outstanding during the
year of 660,653 - 1996; 660,853 - 1995 ($0.00) $0.11 $0.18 ($0.11)
</TABLE>
5
<PAGE> 6
PROFESSIONAL BENEFITS INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
QUARTERS ENDING JUNE 30, 1996 AND JUNE 30, 1995
<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
3 MONTHS 6 MONTHS 3 MONTHS 6 MONTHS
ENDED 6/30/96 ENDED 6/30/96 ENDED 6/30/95 ENDED 6/30/95
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Premiums $ 2,178,284 $ 4,470,258 $ 2,317,824 $ 4,431,919
Net investment income 16,418 32,642 47,828 96,093
Other income 28,069 61,080 52,018 79,521
Benefits and claims (1,547,595) (3,304,671) (1,756,398) (3,537,675)
Commissions (148,864) (256,101) (84,522) (146,597)
Underwriting, acquisition, insurance, and
administrative expenses (509,629) (1,061,755) (582,098) (1,096,686)
------------ ----------- ----------- -----------
Net cash provided by (used in) operating activities 16,683 (58,547) (5,348) (173,425)
------------ ----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from the sale or maturing of investments 100,000 200,000 387,538 383,473
Purchase of investments 0 0 (75,000) (150,000)
Purchase of furniture and equipment 0 (42,365) (96,712) (165,339)
------------ ----------- ----------- -----------
Net cash provided by (used in) investing activities 100,000 157,635 215,826 68,134
------------ ----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Principal payments on capital lease payable (2,524) (7,423) 0 0
------------ ----------- ----------- -----------
Net cash provided by (used in) investing activities (2,524) (7,423) 0 0
------------ ----------- ----------- -----------
INCREASE(DECREASE) IN CASH 114,159 91,665 210,478 (105,291)
CASH, BEGINNING OF PERIOD 14,758 37,252 81,175 396,944
------------ ----------- ----------- -----------
CASH, END OF PERIOD $ 128,917 $ 128,917 $ 291,653 $ 291,653
============ =========== =========== ===========
</TABLE>
6
<PAGE> 7
PROFESSIONAL BENEFITS INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly the Company's
consolidated financial position as of June 30, 1996 and December 31, 1995, the
consolidated results of operations and its cash flow for the periods ended June
30, 1996 and June 30, 1995, and are of a normal recurring nature.
7
<PAGE> 8
Part I, Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Change in PBIC revenues for the 2nd Quarter, 1996 and 2nd Quarter, 1995 are
shown below:
<TABLE>
<CAPTION>
====================================================================================================
3 Mths Ended 6 Mths Ended 3 Mths Ended 6 Mths Ended
6/30/96 6/30/96 6/30/95 6/30/95
====================================================================================================
<S> <C> <C> <C> <C>
Total Revenues $2,064,606 $4,399,639 $2,111,040 $4,300,903
- - ----------------------------------------------------------------------------------------------------
Increase/(Decrease) in
Revenues Compared to
Preceding Period $ (46,434) $ 98,736 $ (343) $ (74,094)
- - ----------------------------------------------------------------------------------------------------
Percentage of Change
Compared to Preceding
Period (2.2%) 1.6% (0.2%) (1.7%)
====================================================================================================
</TABLE>
The primary components of PBIC's revenue are premiums, management fees and net
investment income. The decrease in revenue from 1995 is primarily due to
decreases in investment income and management fees (management fees are
included in other income).
Changes in premium revenue for the 2nd Quarter, 1996 and 2nd Quarter, 1995 are
shown below:
<TABLE>
<CAPTION>
===================================================================================================
3 Mths Ended 6 Mths Ended 3 Mths Ended 6 Mths Ended
6/30/96 6/30/96 6/30/95 6/30/95
===================================================================================================
<S> <C> <C> <C> <C>
Net Earned Premiums $2,026,186 $4,278,330 $1,964,969 $4,079,064
- - ---------------------------------------------------------------------------------------------------
Increase/(Decrease) in
Premiums Compared to
Preceding Period $ 61,217 $ 199,266 $ (112,219) $ (205,338)
- - ---------------------------------------------------------------------------------------------------
Percentage of Change
Compared to Preceding
Period 3.1% 4.9% (5.4%) (4.8%)
===================================================================================================
</TABLE>
In the 2nd Quarter, 1996 premiums increased by $61,217 from the 2nd Quarter,
1995. This increase in premiums is due to increasing sales of dental insurance
and the addition of three associations with which the Company contracted to
provide major medical insurance as of March 1, 1996.
8
<PAGE> 9
Part I, Item 2. MANAGMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The changes in net investment income for the 2nd Quarters, 1996 and 1995 are
show below:
<TABLE>
<CAPTION>
===================================================================================================
3 Mths Ended 6 Mths Ended 3 Mths Ended 6 Mths Ended
6/30/96 6/30/96 6/30/95 6/30/95
===================================================================================================
<S> <C> <C> <C> <C>
Total Net Investment
Income $ 20,774 $ 72,975 $98,475 $146,740
- - ---------------------------------------------------------------------------------------------------
Increase/(Decrease) in
Net Investment Income
Compared to Preceding
Period $ (77,701) $ (73,765) $84,385 $100,399
- - ---------------------------------------------------------------------------------------------------
Percent Change in Net
Investment Income (78.9%) (50.3%) 598.9% 216.7%
===================================================================================================
</TABLE>
In the six months ending June 30, 1996 investments experienced a 50.3% decrease
in total net investment income due to maturing bonds which have not yet been
reinvested. This has resulted in a decrease in the interest income on the bond
portfolio. The 1996 slowing equity market also resulted in capital gain and
dividend distribution decreases in the equity portfolio.
General and Administrative expenses for the 2nd Quarter, 1996 and 1995 are show
below:
<TABLE>
<CAPTION>
====================================================================================================
3 Mths Ended 6 Mths Ended 3 Mths Ended 6 Mths Ended
6/30/96 6/30/96 6/30/95 6/30/95
====================================================================================================
<S> <C> <C> <C> <C>
General & Admin.
Expenses $ 378,260 $ 835,492 $ 427,678 $ 942,266
- - ----------------------------------------------------------------------------------------------------
Increase/(Decrease) in
General & Admin.
Expenses Compared to
Preceding Period $ (49,419) $ (106,774) $ (118,314) $ (127,521)
- - ----------------------------------------------------------------------------------------------------
Percentage of Change
Compared to Preceding
Period (11.6%) (11.3%) (21.7%) (11.9%)
====================================================================================================
</TABLE>
General and administrative expenses have decreased by $106,774 from the six
months ended June 30, 1995 as compared to the six months ended June 30, 1996
due to several factors. Due to increased efficiencies accounting fees have
decreased by $27,100 and travel expenses have decreased by $5,900. The Company
has purchased a client server system which has resulted in a decrease in
computer equipment rental expense of $10,700. Also, due to favorable
experience, Texas guaranty fund assessments have resulted in a decrease in
expenses of $46,700.
9
<PAGE> 10
Part I Item 2. MANAGEMENT'S DISCUSSION AND ANALYIS (CONTINUED)
Commission expenses for 2nd Quarters of 1996 and 1995 are show below:
<TABLE>
<CAPTION>
====================================================================================================
3 Mths Ended 6 Mths Ended 3 Mths Ended 6 Mths Ended
6/30/96 6/30/96 6/30/95 6/30/95
====================================================================================================
<S> <C> <C> <C> <C>
Total Commission
Expenses $127,859 $220,112 $75,992 $ 138,067
- - ----------------------------------------------------------------------------------------------------
Increase/(Decrease) in
Commission Expenses
Compared to Preceding
Period $ 51,867 $ 82,045 $ 6,964 $ (15,741)
- - ----------------------------------------------------------------------------------------------------
Percentage of Change
Compared to Preceding
Period 68.3% 59.4% 10.1% (10.2%)
====================================================================================================
</TABLE>
The increase in commission expenses is due to an increase in gross written
premiums for the six months ending June 30, 1996. This increase is due to
increased sales of dental and major medical insurance. Major medical insurance
has higher first year commissions and dental insurance has a higher commission
structure than other lines of business which the Company markets.
In addition to the changes described above, the mix of claims during the
quarter ended June 30, 1996, while lower in aggregate dollars, included a
larger number of total claims in comparison to the prior year. As a result of
the lower average dollar per claim, reinsurance offsets against benefits
declined significantly.
LIQUIDITY
All funds in excess of immediate cash needs are invested in short-term money
market funds, Federal Loan Mortgage bonds, stock mutual funds, and certificates
of deposits. The current allocation of funds is government bonds 37.5%, cash
5.7%, common stock mutual funds 32.5%, short-term money market funds 24.3%.
The six months ending June 30, 1996 cash flow increased by $91,665. This
increase is due to proceeds from maturing investments of $200,000. This
increase was partially off set by a decrease in cash resulting from commission
expense.
The Company does not expect to declare any dividends on its stock in the
foreseeable future. No dividends have been declared or paid in the prior three
years.
CAPITAL RESOURCES
PBIC currently does not have any outstanding debts. PBIC does not anticipate
the need for any substantial new capital or debt in the foreseeable future.
10
<PAGE> 11
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
</TABLE>
11
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on it's behalf by the undersigned
thereunto duly authorized.
PROFESSIONAL BENEFITS INSURANCE COMPANY
Date 8/13/96 /s/ JERRY O. RAY
----------------- ----------------------------------
Signature
Jerry O. Ray - President
Date 8/13/96 /s/ STEVEN TAYLOR
----------------- ----------------------------------
Signature
Steven Taylor - Controller
12
<PAGE> 13
INDEX TO EXHIBITS
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 1,054,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,084,857
<MORTGAGE> 0
<REAL-ESTATE> 556,886
<TOTAL-INVEST> 3,542,770
<CASH> 128,917
<RECOVER-REINSURE> 772,405
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 5,684,210
<POLICY-LOSSES> 2,391,370
<UNEARNED-PREMIUMS> 101,150
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
806,293
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,684,210
4,278,330
<INVESTMENT-INCOME> 72,975
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 48,334
<BENEFITS> 3,074,264
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 1,215,210
<INCOME-PRETAX> 110,165
<INCOME-TAX> 37,456
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,709
<EPS-PRIMARY> .11
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
