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<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 September 30, 1996
PROFESSIONAL BENEFITS INSURANCE COMPANY
----------------------------------------------------------
(Exact Name of Small Business as Specified in Its Charter)
TEXAS 74-2072635
- ------------------------------ ----------------------
(State or Other Jurisdiction (IRS Employer
Incorporation or Organization) Identification Number)
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 September 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 September 30, 1996 was 73,524.
Transitional Small Business Disclosure Format: Yes No X
----- -----
<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 - September 30, 1996 and December 31, 1995 .................. 3
Consolidated Income Statements - Three Months Ended and Nine Months
Ended September 30, 1996 and 1995 ..................................................... 5
Consolidated Statements of Cash Flows - Three Months Ended and Nine Months
Ended September 30, 1996 and 1995...................................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 7
</TABLE>
2
<PAGE> 3
Item 1. Financial Statements.
PROFESSIONAL BENEFITS INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
ASSETS
------
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995*
(Unaudited)
------------------ ------------------
<S> <C> <C>
INVESTMENTS
Fixed maturity securities held for investment,
at market value (amortized cost: September 30, 1996 -
$1,062,960; and December 31, 1995 - $1,230,612) $1,043,071 $1,220,642
Common stock mutual funds, at market 703,234 856,389
Short-term investments, at cost 1,713,487 1,420,523
---------- ----------
Total Investments 3,459,792 3,497,554
---------- ----------
CASH 212,112 37,252
DUE FROM REINSURERS 771,662 1,006,756
ACCRUED INVESTMENT INCOME 6,475 47,643
PREMIUMS DUE AND UNCOLLECTED 86,846 28,551
ACCOUNTS RECEIVABLE 151,992 36,584
LAND AND BUILDING, At Cost
(Net of accumulated depreciation of
$405,456 - 1996 and $376,794 - 1995) 547,332 575,994
FURNITURE AND EQUIPMENT, At Cost
(net of accumulated depreciation -
$349,066 - 1996 and $529,326 - 1995) 235,475 217,139
GUARANTY FUND ASSESSMENTS 5,734 10,361
FEDERAL INCOME TAX RECEIVABLE 188,000 188,000
OTHER ASSETS, At Cost 34,442 37,630
---------- ----------
Total Assets $5,699,862 $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>
SEPTEMBER 30, 1996
(Unaudited) DECEMBER 31, 1995*
------------------ ------------------
<S> <C> <C>
LIABILITIES
Future policy benefits $ 972,877 $1,052,509
Policy claims 1,506,000 1,623,000
Premiums received in advance 206,539 100,488
Unearned premium 69,333 0
---------- ----------
2,754,749 2,775,997
Reinsurance payable 38,580 31,820
Federal income taxes payable 41,380 0
Deferred Tax Liability 56,100 5,000
Other liabilities 134,643 300,951
---------- ----------
Total Liabilities 3,025,452 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 $(51,100) - 1996 and $(21,200) - 1995) 99,285 41,959
Retained earnings 1,232,618 1,184,980
---------- ----------
Total Stockholders' Equity 2,674,410 2,569,696
---------- ----------
Total Liabilities and Stockholders' Equity $5,699,862 $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 STATEMENTS
QUARTERS ENDING SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
1996 1995
----------------------------- ------------------------------
3 MONTHS 9 MONTHS 3 MONTHS 9 MONTHS
ENDED 9/30/96 ENDED 9/30/96 ENDED 9/30/95 ENDED 9/30/95
(Unaudited) (Unaudited)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Premiums earned $2,496,869 $6,910,492 $2,226,325 $6,581,198
Less reinsurance ceded 135,572 372,015 150,650 426,459
---------- ---------- ---------- ----------
Net premiums earned 2,361,297 6,538,477 2,075,675 6,154,739
Net investment income 68,038 141,013 66,892 213,632
Other income 31,229 79,563 29,283 104,382
---------- ---------- ---------- ----------
Total Revenues 2,460,564 6,759,053 2,171,850 6,472,753
---------- ---------- ---------- ----------
BENEFITS, CLAIMS AND EXPENSES
Benefits and claims 1,825,815 4,949,668 1,617,181 5,152,571
Less reinsurance recoverable 12,160 162,899 52,872 406,991
---------- ---------- ---------- ----------
Net benefits and claims 1,813,655 4,786,769 1,564,309 4,745,580
Commissions 189,102 409,214 70,187 208,254
Underwriting, acquisition, insurance, and
administrative expenses 403,681 1,239,173 526,198 1,468,464
Taxes, licenses, and fees 27,235 186,841 73,466 186,785
---------- ---------- ---------- ----------
Total Benefits, Claims and Expenses 2,433,673 6,621,997 2,234,160 6,609,083
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 26,891 137,056 (62,310) (136,330)
INCOME TAX PROVISION 18,644 56,100 0 0
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 8,247 $ 80,956 $ (62,310) $(136,330)
========== ========== ========== =========
NET INCOME (LOSS) PER SHARE
(Based on Weighted Average Shares of
Common Stock Outstanding during the
year of 660,653 - 1996; 660,853 - 1995) $0.01 $0.12 $(0.09) $(0.21)
</TABLE>
5
<PAGE> 6
PROFESSIONAL BENEFITS INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
QUARTERS ENDING SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
3 MONTHS 9 MONTHS 3 MONTHS 9 MONTHS
ENDED 9/30/96 ENDED 9/30/96 ENDED 9/30/95 ENDED 9/30/95
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Premiums $ 2,304,587 $ 6,774,845 $ 2,234,320 $ 6,666,239
Net investment income 6,934 39,576 112,873 208,966
Other income 36,748 97,828 24,861 104,382
Benefits and claims (1,724,559) (5,029,230) (2,138,515) (5,676,190)
Commissions (157,895) (413,996) (67,933) (214,530)
Underwriting, acquisition, insurance, and
administrative expenses (349,128) (1,410,883) (386,575) (1,483,261)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities 116,687 58,140 (220,969) (394,394)
----------- ----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from the sale or maturing of investments 0 200,000 197,098 580,571
Purchase of investments (15,000) (15,000) (90,000) (240,000)
Purchase of furniture and equipment (15,743) (58,108) (28,320) (193,659)
----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities (30,743) 126,892 78,778 146,912
----------- ----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Principal payments on capital lease payable (2,749) (10,172) 0 0
----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities (2,749) (10,172) 0 0
----------- ----------- ----------- -----------
INCREASE(DECREASE) IN CASH 83,195 174,860 (142,191) (247,482)
CASH, BEGINNING OF PERIOD 128,917 37,252 291,653 396,944
----------- ----------- ----------- -----------
CASH, END OF PERIOD $ 212,112 $ 212,112 $ 149,462 $ 149,462
=========== =========== =========== ===========
</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 September 30, 1996 and December 31, 1995,
the consolidated results of operations and its cash flow for the periods ended
September 30, 1996 and September 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 3rd Quarter, 1996 and 3rd Quarter, 1995 are
shown below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
3 Mths Ended 9 Mths Ended 3 Mths Ended 9 Mths Ended
9/30/96 9/30/96 9/30/95 9/30/95
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Revenues $2,428,747 $6,828,386 $2,171,850 $6,472,753
-----------------------------------------------------------------------------------------------------
Increase/(Decrease) in
Revenues Compared to
Preceding Period $256,897 $355,633 $27,669 $(46,425)
-----------------------------------------------------------------------------------------------------
Percentage of Change
Compared to Preceding
Period 11.8% 5.5% 1.3% (0.7%)
-----------------------------------------------------------------------------------------------------
</TABLE>
The primary components of PBIC's revenue are premiums, management fees and net
investment income. The increase in revenue from 1995 is primarily due to
increases in premium income which is the result of new association business and
increased sales of dental insurance.
Changes in premium revenue for the 3rd Quarter, 1996 and 3rd Quarter, 1995 are
shown below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
3 Mths Ended 9 Mths Ended 3 Mths Ended 9 Mths Ended
9/30/96 9/30/96 9/30/95 9/30/95
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Earned Premiums $2,329,480 $6,607,810 $2,075,675 $6,154,739
-----------------------------------------------------------------------------------------------------
Increase/(Decrease) in
Premiums Compared to
Preceding Period $ 253,805 $ 453,071 $ (35,566) $ (239,696)
-----------------------------------------------------------------------------------------------------
Percentage of Change
Compared to Preceding
Period 12.2% 7.4% (1.7%) (3.7%)
-----------------------------------------------------------------------------------------------------
</TABLE>
In the 3rd Quarter, 1996 premiums increased by $253,805 from the 3rd Quarter,
1995. This increase in premiums is due to increasing sales of dental insurance
and the addition of new associations and groups which the Company contracted
with to provide major medical insurance.
8
<PAGE> 9
Part I, Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The changes in net investment income for the 3rd Quarters, 1996 and 1995 are
show below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
3 Mths Ended 9 Mths Ended 3 Mths Ended 9 Mths Ended
9/30/96 9/30/96 9/30/95 9/30/95
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Net Investment
Income $68,038 $ 141,013 $66,892 $213,632
--------------------------------------------------------------------------------------------------
Increase/(Decrease) in
Net Investment Income
Compared to Preceding
Period $ 1,146 $(72,619) $51,061 $151,460
--------------------------------------------------------------------------------------------------
Percent Change in Net
Investment Income 1.7% (34.0%) 322.5% 243.6%
--------------------------------------------------------------------------------------------------
</TABLE>
In the nine months ending September 30, 1996 investments experienced a 34.0%
decrease in total net investment income due to maturing bonds which have not
yet been reinvested. The proceeds are currently held as money market funds.
This has resulted in a decrease in the interest income on the portfolio.
General and Administrative expenses for the 3rd Quarters, 1996 and 1995 are
show below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
3 Mths Ended 9 Mths Ended 3 Mths Ended 9 Mths Ended
9/30/96 9/30/96 9/30/95 9/30/95
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
General & Admin.
Expenses $ 403,681 $1,239,173 $526,198 $1,468,464
--------------------------------------------------------------------------------------------------
Increase/(Decrease) in
General & Admin.
Expenses Compared to
Preceding Period $(122,517) $ (229,291) $117,214 $ (10,307)
--------------------------------------------------------------------------------------------------
Percentage of Change
Compared to Preceding
Period (23.3%) (15.6%) 28.7% (0.7%)
--------------------------------------------------------------------------------------------------
</TABLE>
General and administrative expenses have decreased by $229,291 from the nine
months ended September 30, 1995 as compared to the nine months ended September
30, 1996 due to several factors. Due to increased efficiencies and the monthly
timing of recording accruals accounting fees have decreased by $79,000. The
Company has purchased a client server system which has resulted in a decrease
in computer equipment rental expense of $30,000. 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 ANALYSIS (CONTINUED)
Commission expenses for 3rd Quarters of 1996 and 1995 are show below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
3 Mths Ended 9 Mths Ended 3 Mths Ended 9 Mths Ended
9/30/96 9/30/96 9/30/95 9/30/95
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Commission
Expenses $189,102 $409,214 $ 70,187 $208,254
--------------------------------------------------------------------------------------------------
Increase/(Decrease) in
Commission Expenses
Compared to Preceding
Period $118,915 $200,960 $(2,382) $(18,123)
--------------------------------------------------------------------------------------------------
Percentage of Change
Compared to Preceding
Period 169.4% 96.5% (3.3%) (8.0%)
--------------------------------------------------------------------------------------------------
</TABLE>
The increase in commission expenses is due to an increase in gross written
premiums for the nine months ending September 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.
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 35.2%, cash
7.0%, common stock mutual funds 23.7%, short-term money market funds 34.1%.
The nine months ending September 30, 1996 cash flow increased by $174,860.
This increase is due to increasing premium revenues and a decrease in claims as
a percentage of premium.
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
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
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 11/13/96 /s/ JERRY O. RAY
-------- ----------------------------------
Signature
Jerry O. Ray - President
Date 11/13/96 /s/ STEVEN TAYLOR
-------- ----------------------------------
Signature
Steven Taylor - Controller
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 -- Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 1,043,071
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 703,234
<MORTGAGE> 0
<REAL-ESTATE> 547,332
<TOTAL-INVEST> 3,459,792
<CASH> 212,112
<RECOVER-REINSURE> 771,662
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 5,699,862
<POLICY-LOSSES> 2,478,877
<UNEARNED-PREMIUMS> 69,333
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 806,293
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,699,862
6,910,492
<INVESTMENT-INCOME> 141,013
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 79,563
<BENEFITS> 4,949,668
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 1,835,228
<INCOME-PRETAX> 137,056
<INCOME-TAX> 56,100
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,956
<EPS-PRIMARY> .12
<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>
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