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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, 1997
PROFESSIONAL BENEFITS INSURANCE COMPANY
----------------------------------------------------------
(EXACT NAME OF SMALL BUSINESS AS SPECIFIED IN ITS CHARTER)
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<S> <C>
TEXAS 74-2072635
(STATE OR OTHER (IRS EMPLOYER
JURISDICTION INCORPORATION IDENTIFICATION NUMBER)
OR ORGANIZATION)
</TABLE>
COMMISSION FILE NUMBER: 0-22344
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<S> <C>
10835 ROCKLEY ROAD
HOUSTON, TEXAS 77099
- --------------- -----
(Address or principal executive office) (Zip Code)
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(281)721-1800
-------------------------------
(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, 1997 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 |__| No [X]
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PROFESSIONAL BENEFITS INSURANCE COMPANY
INDEX TO FORM 10-QSB
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Page
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Balance Sheets - June 30, 1997 and December 31, 1996........ 3
Income Statements - Three Months Ended and Six Months
Ended June 30, 1997 and 1996.............................. 5
Statements of Cash Flows - Three Months Ended and Six Months
Ended June 30, 1997 and 1996.............................. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 7
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings............................................. 11
ITEM 2. Changes in Securities......................................... 11
ITEM 3. Defaults Upon Senior Securities............................... 11
ITEM 4. Submission of Matters to a Vote of Security Holders........... 11
ITEM 5. Other Information............................................. 11
ITEM 6. Exhibits and Reports on Form 8-K.............................. 11
SIGNATURES............................................................. 12
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2
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Part I, Item 1. Financial Statements.
PROFESSIONAL BENEFITS INSURANCE COMPANY
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
ASSETS
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<CAPTION>
JUNE 30, 1997
(Unaudited) DECEMBER 31, 1996*
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<S> <C> <C>
INVESTMENTS
Fixed maturities, at market (amortized
cost of $2,107,206 - 1997 and
$1,935,408 - 1996) $2,100,422 $1,927,526
Short-term investments, at cost 960,677 830,898
---------- ----------
Total Investments 3,061,099 2,758,424
CASH (155,865) 729,252
REINSURANCE RECOVERABLE 891,184
Current recoverable 53,847
Future recoverable 725,797
ACCRUED INVESTMENT INCOME 7,880 10,763
PREMIUM DUE AND UNCOLLECTED 206,279 179,836
ACCOUNTS AND NOTE RECEIVABLE 9,667 58,051
LAND AND BUILDING, At Cost
(net of accumulated depreciation of
$474,014 - 1997 and $454,906 - 1996) 478,774 497,882
FURNITURE AND EQUIPMENT, At Cost
(net of accumulated depreciation of
$357,744 - 1997 and $328,861 - 1996) 243,089 226,940
GUARANTY FUND ASSESSMENTS 2,178 3,654
DEFERRED TAX BENEFIT 26,500 28,000
FEDERAL INCOME TAX RECEIVABLE 602,685 294,000
OTHER ASSETS, At Cost 20,459 20,008
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Total Assets $5,282,389 $5,697,994
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</TABLE>
*The amounts for December 31, 1996 were derived from amounts included in the
audited financial statements filed as part of the Company's 1996 Form
10-KSB/A.
3
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Part I, Item 1. Financial Statements. (continued)
PROFESSIONAL BENEFITS INSURANCE COMPANY
BALANCE SHEETS (cont'd.)
JUNE 30, 1997 AND DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
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<CAPTION>
JUNE 30, 1997
(Unaudited) DECEMBER 31, 1996*
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<S> <C> <C>
LIABILITIES
Future policy benefits $ 926,778 $1,048,334
Policy claims 2,535,639 2,160,000
Premium received in advance 119,814 185,706
Unearned premium 63,962 56,324
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3,646,193 3,450,364
Reinsurance payable 34,921 57,463
Other liabilities 320,225 311,397
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Total Liabilities 4,001,339 3,819,224
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STOCKHOLDERS' EQUITY
Common stock
Class A voting, $1.22 par value;
1,022,668 authorized shares;
587,129 and issued and outstanding
in 1997 and 1996 716,297 716,297
Class B nonvoting, $1.22 par value;
136,720 authorized shares; 73,524
issued and outstanding in 1997
and 1996 89,699 89,699
Additional paid-in capital 536,214 536,214
Unrealized gain(loss) on investments
(net of deferred income tax benefits
of $1,200 - 1997 and $2,600 - 1996) (2,806) (5,182)
Retained earnings (58,354) 541,742
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Total Stockholders' Equity 1,281,050 1,878,770
---------- ----------
Total Liabilities and
Stockholders' Equity $5,282,389 $5,697,994
========== ==========
</TABLE>
* The amounts for December 31, 1996 were derived from amounts included in
the audited financial statements filed as part of the Company's 1996 Form
10-KSB/A.
4
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Part I, Item 1. Financial Statements. (continued)
PROFESSIONAL BENEFITS INSURANCE COMPANY
INCOME STATEMENT
QUARTERS ENDING JUNE 30, 1997 AND JUNE 30, 1996
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<CAPTION>
1997 1996
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3 MONTHS 6 MONTHS 3 MONTHS 6 MONTHS
ENDED 6/30/97 ENDED 6/30/97 ENDED 6/30/96 ENDED 6/30/96
(Unaudited) (Unaudited)
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<S> <C> <C> <C> <C>
REVENUES
Premium earned $3,644,860 $6,511,160 $2,161,093 $4,514,773
Less reinsurance ceded 176,113 358,526 134,907 236,443
---------- ---------- ---------- ----------
Net premium earned 3,468,747 6,152,634 2,026,186 4,278,330
Net investment income 44,241 85,449 20,774 72,975
Other income 8,186 9,398 17,646 48,334
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Total Revenues 3,521,174 6,247,481 2,064,606 4,399,639
---------- ---------- ---------- ----------
BENEFITS, CLAIMS AND EXPENSES
Benefits and claims 3,382,602 5,722,267 1,443,962 3,225,003
Less reinsurance recoverable 205,493 360,722 18,423 150,739
---------- ---------- ---------- ----------
Net benefits and claims 3,177,109 5,361,545 1,425,540 3,074,264
Commissions 344,437 626,390 127,859 220,112
Underwriting, acquisition,
insurance, and administrative
expenses 483,272 987,860 378,260 835,492
Taxes, licenses, and fees 94,191 180,795 135,917 159,606
---------- ---------- ---------- ----------
Total Benefits, Claims
and Expenses 4,099,009 7,156,590 2,067,576 4,289,474
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (577,835) (909,109) (2,970) 110,165
INCOME TAX PROVISION (BENEFIT) (196,680) (309,013) (1,010) 37,456
---------- ---------- ---------- ----------
NET INCOME (LOSS) ($381,155) ($600,096) ($1,960) $72,709
========== ========== ========== ==========
NET INCOME(LOSS) PER SHARE
(Based on Weighted Average
Shares of Common Stock
Outstanding during the
year of 660,653 - 1997;
660,853 - 1996) ($0.58) ($0.91) ($0.00) $0.11
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5
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Part I, Item 1. Financial Statements. (continued)
PROFESSIONAL BENEFITS INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
QUARTERS ENDING JUNE 30, 1997 AND JUNE 30, 1996
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1997 1996
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3 MONTHS 6 MONTHS 3 MONTHS 6 MONTHS
ENDED 6/30/97 ENDED 6/30/97 ENDED 6/30/96 ENDED 6/30/96
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Premium $3,262,956 $6,045,394 $2,178,284 $4,470,258
Net investment income 43,298 88,069 16,418 32,642
Other income 9,287 9,512 28,069 61,080
Benefits and claims (2,703,258) (4,995,922) (1,547,595) (3,304,671)
Commissions (297,111) (565,113) (148,864) (256,101)
Underwriting, acquisition, insurance,
and administrative expenses (497,619) (1,123,488) (509,629) (1,061,755)
---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities (182,447) (541,548) 16,683 (58,547)
---------- ---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from the sale or maturing of
investments 14,710 22,197 100,000 200,000
Purchase of investments (18,735) (320,733) 0 0
Proceeds from sale of fixed asset 2,794 2,794 0 0
Purchase of furniture and equipment (23,661) (47,827) 0 (42,365)
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Net cash provided by (used in)
investing activities (24,892) (343,569) 100,000 157,635
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CASH FLOW FROM FINANCING ACTIVITIES
Principal payments on capital lease
payable 0 0 (2,524) (7,423)
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Net cash provided by (used in)
financing activities 0 0 (2,524) (7,423)
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INCREASE(DECREASE) IN CASH (207,339) (885,117) 114,159 91,665
CASH, BEGINNING OF PERIOD 51,474 729,252 14,758 37,252
---------- ---------- ---------- ----------
CASH, END OF PERIOD ($155,865) ($155,865) $128,917 $128,917
========== ========== ========== ==========
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6
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PROFESSIONAL BENEFITS INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the Company's financial
position as of June 30, 1997 and December 31, 1996, the results of operations
and its cash flow for the periods ended June 30, 1997 and June 30, 1996, and
are of a normal recurring nature.
7
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PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Change in revenue for the 2nd Quarters, 1997 and 1996 are shown below:
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<CAPTION>
3 Mths Ended 6 Mths Ended 3 Mths Ended 6 Mths Ended
6/30/97 6/30/97 6/30/96 6/30/96
<S> <C> <C> <C> <C>
Total Revenue $3,521,174 $6,247,481 $2,064,606 $4,399,639
Increase(Decrease) in
Revenue Compared to
Preceding Period $1,456,568 $1,847,842 $(46,434) $98,736
Percentage of Change
Compared to Preceding
Period 70.5% 42.0% (2.2%) 1.6%
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The primary components of revenue are premium and net investment income. The
increase in revenue from 1996 is primarily due to increases in premium income
which is the result of new association business and increased sales of group
accident and health insurance.
Change in premium revenue for the 2nd Quarters, 1997 and 1996 are shown below:
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3 Mths Ended 6 Mths Ended 3 Mths Ended 6 Mths Ended
6/30/97 6/30/97 6/30/96 6/30/96
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Net Earned Premiums $3,468,747 $6,152,634 $2,026,186 $4,278,330
Increase(Decrease) in
Premium Compared to
Preceding Period $1,442,561 $1,874,304 $61,217 $199,266
Percentage of Change
Compared to Preceding
Period 71.2% 44.0% 3.1% 4.9%
</TABLE>
In the 2nd Quarter, 1997 premium increased by $1,874,304 from the 2nd Quarter,
1996. This increase in premium is due to increasing sales of group accident
and health insurance, dental insurance and the addition of new associations and
groups which the Company contracted with to provide major medical insurance.
8
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PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Change in net investment income for the 2nd Quarters, 1997 and 1996 are shown
below:
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<CAPTION>
3 Mths Ended 6 Mths Ended 3 Mths Ended 6 Mths Ended
6/30/97 6/30/97 6/30/96 6/30/96
<S> <C> <C> <C> <C>
Total Net Investment
Income $44,241 $85,449 $20,774 $72,975
Increase (Decrease) in
Net Investment Income
Compared to Preceding
Period $23,467 $12,474 ($77,701) ($73,765)
Percent Change in Net
Investment Income 113.0% 17.1% (78.9%) (50.3%)
</TABLE>
In the six months ending June 30, 1997 investments experienced a 17.1% increase
in total net investment income due to better returns on maturing bonds which
have been reinvested. This has resulted in an increase in the interest income
on the portfolio.
Change in general and administrative expenses for the 2nd Quarters, 1997 and
1996 are shown below:
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<CAPTION>
3 Mths Ended 6 Mths Ended 3 Mths Ended 6 Mths Ended
6/30/97 6/30/97 6/30/96 6/30/96
<S> <C> <C> <C> <C>
General & Administrative
Expenses $483,272 $987,860 $378,260 $835,492
Increase (Decrease) in
General & Admin.
Expenses Compared to
Preceding Period $105,012 $152,368 ($49,419) ($106,774)
Percentage of Change
Compared to Preceding
Period 27.7% 18.2% (11.6%) (11.3%)
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In the six months ending June 30, 1997, general and administrative expenses
experienced an 18.2% increase, primarily due to expenses incurred during the
prospective acquisition of another company. The Company incurred additional
legal, accounting and actuarial fees associated with analyzing the target
company and requesting approval from the State Insurance Department.
Management subsequently decided not to proceed with the acquisition.
Additionally, the Company has paid additional actuarial fees associated with
premium rate increases which will take effect in July 1997. In addition, in
1997 an accrual for $7,500 was set up monthly to pay certain fees that did not
appear as part of the 1996 statement.
9
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PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Change in commission expense for 2nd Quarters, 1997 and 1996 are shown below:
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<CAPTION>
3 Mths Ended 6 Mths Ended 3 Mths Ended 6 Mths Ended
6/30/97 6/30/97 6/30/96 6/30/96
<S> <C> <C> <C> <C>
Total Commission Expense
$344,437 $626,390 $127,859 $220,112
Increase (Decrease) in
Commission Expense
Compared to Preceding
Period $216,578 $406,278 $51,867 $82,045
Percentage of Change
Compared to Preceding
Period 169.4% 184.6% 68.3% 59.4%
</TABLE>
The increase in commission expenses is due primarily to the higher commission
rates paid on the Company's new business. Commission rates vary depending on
the type of insurance policy written as well as first year and renewal year
policies. The Company has written a large amount of new business with higher
first year commission rates. Major medical insurance has higher first year
commission 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, and certificates of deposits.
The six months ending June 30, 1997 cash flow decreased by $885,117. This
decrease is due to a high volume of claims.
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
The Company 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
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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
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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: August 18, 1997 /s/ JERRY O. RAY
--------------------------------
Signature
Jerry O. Ray - President
Date: August 18, 1997 /s/ JERRY CAMPBELL
--------------------------------
Signature
Jerry Campbell - Vice-President
12
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule
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<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations from the Company's report on
Form 10-QSB for the period ended June 30, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 2,100,422
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 478,774
<TOTAL-INVEST> 3,061,099
<CASH> 804,812
<RECOVER-REINSURE> 53,847
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 5,282,389
<POLICY-LOSSES> 926,778
<UNEARNED-PREMIUMS> 63,962
<POLICY-OTHER> 2,535,639
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 805,996
<OTHER-SE> 475,054
<TOTAL-LIABILITY-AND-EQUITY> 5,282,389
6,152,634
<INVESTMENT-INCOME> 85,449
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 9,398
<BENEFITS> 5,361,545
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 1,168,655
<INCOME-PRETAX> (600,096)
<INCOME-TAX> (309,013)
<INCOME-CONTINUING> (600,096)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (600,096)
<EPS-PRIMARY> (.91)
<EPS-DILUTED> (.87)
<RESERVE-OPEN> 3,208,334
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 786,351
<PAYMENTS-PRIOR> 4,207,412
<RESERVE-CLOSE> 3,462,417
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
