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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1996
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or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission file number 0-4584
THE UNITED GROUP, INC.
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(Name of small business issuer specified in its charter)
56-0931793
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(I.R.S. Employer Id. No.)
Suite 203, 5960 Fairview Road
Charlotte, NC
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(address of principal executive offices)
NORTH CAROLINA
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(state or other jurisdiction of incorporation or organization)
28210 (704) 554-9280
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(Zip code) (Issuer's telephone number, including area code)
Not applicable
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(Former name, address and fiscal year, if changed since last report)
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 periods 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common stock, No Par Value - 1,053,634 shares as of June 30, 1996
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INDEX
THE UNITED GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of June 30, 1996 and September 30, 1995.
Consolidated Statements of Income for the three months ended June 30,
1996 and 1995.
Consolidated Statements of Income for the nine months ended June 30,
1996 and 1995.
Consolidated Statements of Cash Flows for the nine months ended June
30, 1996 and 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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THE UNITED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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ASSETS JUNE 30, SEPTEMBER 30,
1996 1995
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Cash $ 393,470 $ 1,646,501
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Marketable securities 1,890,866 1,843,814
Finance receivables:
Cash loans and other contracts 37,597,412 36,589,554
Less:
Unearned insurance commissions 1,771,973 1,886,645
Allowance for credit losses 679,580 606,346
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2,451,553 2,492,991
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Net finance receivables 35,145,859 34,096,563
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Notes and finance receivables:
Due from affiliates 920,685 976,666
Other 891,641 637,389
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1,812,326 1,614,055
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Property and equipment at cost, less accumulated depreciation
and amortization 821,389 691,634
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Deferred loan costs and other intangible assets at cost, less
accumulated amortization 39,634 62,048
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Deferred income taxes 169,000 12,000
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Other assets 99,886 91,121
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$ 40,372,430 $ 40,057,736
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THE UNITED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
(Unaudited)
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY JUNE 30, SEPTEMBER 30,
1996 1995
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Notes payable:
Notes payable to banks $ 29,301,607 $ 30,346,607
Mortgage loans payable 213,299 224,282
Other notes payable 3,010,010 3,008,216
Senior subordinated notes payable 200,000 300,000
Accounts payable and accrued expenses 2,488,820 2,051,702
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35,213,736 35,930,807
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Stockholders' equity:
Preferred stock, no par value, stated value of $2 per share;
500,000 shares authorized; no shares issued and outstanding - -
Common stock, no par value, total stated value of $100,000;
25,000,000 shares authorized; 1,053,634 issued and
outstanding 100,000 100,000
Additional paid-in capital 48,886 127,623
Retained earnings 5,289,771 4,211,129
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5,438,657 4,438,752
Less:
Cost of common stock held by subsidiary 279,963 311,823
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5,158,694 4,126,929
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$ 40,372,430 $ 40,057,736
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THE UNITED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30,
(Unaudited)
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1996 1995
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Credit income:
Interest and fees on loans $ 2,316,227 $ 2,190,827
Investment income and other interest 68,058 146,021
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2,384,285 2,336,848
Less:
Interest expense 708,866 883,100
Provision for credit losses 155,834 115,896
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Net credit income 1,519,585 1,337,852
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Insurance income:
Insurance commissions and premiums 491,352 530,685
Less, insurance losses and loss expenses 109,252 105,611
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Net insurance income 382,100 425,074
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Operating expenses:
Salaries and benefits 935,804 860,896
Other operating expenses 418,016 367,707
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Total operating expenses 1,353,820 1,228,603
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Income before provision for income taxes 547,865 534,323
Provision for income taxes 80,000 133,000
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Net income $ 467,865 $ 401,323
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Net income per common share $ 0.44 $ 0.38
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Weighted average shares outstanding 1,051,891 1,056,059
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THE UNITED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED JUNE 30,
(Unaudited)
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1996 1995
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Credit income:
Interest and fees on loans $ 7,037,433 $ 6,412,617
Investment income and other interest 126,870 256,459
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7,164,303 6,669,076
Less:
Interest expense 2,286,076 2,467,947
Provision for credit losses 548,188 364,913
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Net credit income 4,330,039 3,836,216
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Insurance income:
Insurance commissions and premiums 1,516,421 1,527,466
Less, insurance losses and loss expenses 339,963 276,889
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Net insurance income 1,176,458 1,250,577
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Operating expenses:
Salaries and benefits 2,755,148 2,586,894
Other operating expenses 1,183,331 1,138,473
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Total operating expenses 3,938,479 3,725,367
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Income before provision for income taxes 1,568,018 1,361,426
Provision for income taxes 406,000 351,000
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Net income $ 1,162,018 $ 1,010,426
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Net income per common share $ 1.10 $ 0.96
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Weighted average shares outstanding 1,059,686 1,054,975
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THE UNITED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30,
(Unaudited)
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1996 1995
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Cash flows from operating activities:
Interest and fees on loans collected $ 7,335,703 $ 7,083,612
Investment income and other interest income received 130,603 240,016
Insurance commissions and premiums collected 1,005,083 1,388,042
Interest paid (1,863,878) (2,254,877)
Insurance expenses and losses paid (339,963) (276,889)
Cash paid to suppliers and employees (3,562,649) (3,451,939)
Income taxes paid (418,531) (465,638)
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2,286,368 2,262,327
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Cash flows from investing activities:
Cash proceeds of loans made (14,240,837) (18,558,975)
Cash received as repayment of loans 12,459,755 13,865,937
Purchase of marketable securities (175,106) (325,804)
Proceeds from sale or maturity of marketable securities 128,054 11,258
Cash paid to purchase property and equipment (227,103) (125,495)
Cash paid for intangible assets - (13,803)
Proceeds from sale of equipment 10,107 20,228
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(2,045,130) (5,126,654)
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Cash flow from financing activities:
Notes payable to banks:
Borrowings 3,455,000 4,171,000
Repayments (4,500,000) (1,350,000)
Repayment of mortgage loans (10,983) (10,052)
Other notes:
Borrowings 420,550 840,188
Repayments (518,756) (733,100)
Common stock activity:
Proceeds from issuance of stock 1,876 -
Payments to acquire outstanding stock (314,368) (120,802)
Cash dividends to shareholders (27,588) (28,238)
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(1,494,269) 2,768,996
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Net increase (decrease) in cash (1,253,031) (95,331)
Cash at beginning of period 1,646,501 1,507,360
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Cash at end of period $ 393,470 $ 1,412,029
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THE UNITED GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE NINE MONTHS ENDED JUNE 30,
(Unaudited)
===========================================================================================================
1996 1995
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RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income $ 1,162,018 $ 1,010,426
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization 109,655 122,613
Provision for credit losses 548,188 364,913
Provision for stock bonus plan 265,808 104,325
Provision for deferred income taxes (157,000) (22,000)
Change in unearned interest charges 298,270 670,995
Change in accrued investment income 3,733 (16,443)
Change in unearned insurance commissions and premiums (114,672) 38,337
Change in accounts receivable (257,985) (355,938)
Change in accounts payable (129,549) 213,031
Change in income taxes payable 144,469 (92,638)
Change in interest payable 422,198 213,070
Change in other assets (8,765) 11,636
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Total adjustments 1,124,350 1,251,901
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Net cash provided by operating activities $ 2,286,368 $ 2,262,327
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Net income for the three months ended June 30, 1996 was $467,865 compared to
$401,323 for the same period ending June 30, 1995. Interest income is up by
5.7% for the three months compared to the prior year primarily due to an
increase in average finance receivables as shown in the table below. However,
net insurance income declined by 10.1% for the three months due to a decrease
in insurance commissions and premiums and a small increase in insurance losses.
Interest expense declined for the three month period by $174,234. This is
primarily due to the fact that the weighted average interest rate paid on bank
debt declined from 9.97% in 1995 to 8.38% in 1996. The provision for credit
losses increased from $115,896 in 1995 to $155,834 in 1996 due to the effects
of cases of consumer debt overload including an increase in bankruptcies.
Comparisons of the nine month periods ending June 30, 1996 and 1995 are similar
to the comparisons of the three month periods. Interest income is up
approximately 9.7% while net insurance income declined by 5.9% due to an
increase of $63,074 in losses for the current period compared to the same
period in 1995. Interest expense decreased by $181,871 primarily due to the
decrease in the weighted average rate paid on bank debt from 9.67% in 1995 to
8.91% for the same six months in 1996. Substantially all of the increase in
the provision for credit losses of $183,275 took place during the three months
ended March 31. During this quarter the Company completed its scheduled
adjustment of charge-off policies so that accounts are now charged-off when
they become six months contractually delinquent. The policy during fiscal 1995
required seven months contractual delinquency. In fiscal 1993, the policy was
nine months and has been reduced by one month each year since that time.
Charge-offs were $90,595 and $35,666 for the months of March 1996 and March
1995, respectively. Most of these charge-offs would have taken place in the
months of April 1996 and 1995 under the old policies. Operating expenses
increased by $213,112 for 1996 over 1995. The Company makes most of its annual
salary adjustments in January of each year and $168,254 is due to increases in
salaries and benefits. This represents an increase of 6.5%. Considering an
inflation rate of approximately 3% and the need for merit increases and some
new staff, management believes that this increase is not excessive.
Following is a table showing changes in net finance receivables during the
current year:
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Period Ending June 30: 1996 1995 Percentage Change
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Three months average $34,435,401 $31,555,120 9.13%
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Nine months average $34,360,629 $32,838,467 4.64%
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Actual at June 30 $35,145,859 $33,569,484 4.70%
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At June 30,1996, the Company had a line of credit with its banks totaling
$35,500,000 of which $29,301,607 was being used, leaving $6,198,393 available
for loan portfolio growth. In addition, the management believes that an
increase in the line of credit could be obtained. Also, internally generated
cash flow continues to be strong with total cash flow generated by operations
of $2,286,368 for the nine months ended June 30, 1996. These resources are
anticipated to adequately fund the cash needs of the Company. Management
strongly believes that the Company must move away from its traditional small
loan business and make more effort to seek larger secured loans involving
automobiles, mobile homes and real estate in order to reduce the effects of
bankruptcies and poor credit risks and in order to achieve its goals to
increase receivables primarily with the existing branch structure.
The Company continues to adhere to its conservative lending policies. The
benefits of these policies are demonstrated in continued low charge-off and
delinquency ratios. The provision for credit losses was 1.15% of average net
receivables for the six months ended March 31,1996 and .81% for the same period
in 1995. Total delinquency stood at 2.0% of receivables at June 30, 1996 and
at 1.3% of receivables as of June 30, 1995. While these ratios have increased
they continue to be considerably better than accepted industry ratios.
Management believes that movement towards more secured, larger loans will
prevent the increase of these ratios to unacceptable levels.
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PART II. OTHER INFORMATION
Item 1. Legal proceedings:
From time to time the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company
believes that it is not presently a party to any pending legal proceedings that
would have a material adverse effect on its financial condition.
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 of Form 8-K: 27 Financial Data Schedule (for
SEC use only) The Company did not file any reports on Form 8-K during
the three months ended June 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE UNITED GROUP, INC.
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(Registrant)
Date August 8, 1996 /s/ Kenneth M. O'Connell
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Kenneth M. O'Connell, Treasurer
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