<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------------
FORM 10-Q
---------------
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
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 0-27146
AMERIN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 11-3085148
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 E. Randolph Drive, 49th Floor, Chicago, IL 60601-7125
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 540-0078
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
-------- -------
APPLICABLE ONLY TO ISSUER'S INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
----- ------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 1, 1998
------------------- --------------------------
Voting Common Stock, $.01 per value 24,704,813
Nonvoting Common Stock, $.01 per value 1,656,909
<PAGE>
AMERIN CORPORATION
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets at
March 31, 1998 (unaudited) and December 31, 1997. . . . . . . . . 1
Condensed Consolidated Statements of Operations for the
Three Month Periods Ended March 31, 1998 and 1997 (unaudited) . . 2
Condensed Consolidated Statements of Cash Flows for the
Three Month Periods Ended March 31, 1998 and 1997 (unaudited) . . 3
Notes to Condensed Consolidated Financial Statements (unaudited) . . 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 5
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 8
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERIN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available-for-sale, at fair value. . . $ 388,697 $ 374,320
Short-term investments. . . . . . . . . . . . . . . . . 6,026 3,400
---------- ----------
Total investments. . . . . . . . . . . . . . . . . . . . . 394,723 377,720
Cash and cash equivalents. . . . . . . . . . . . . . . . . 7,467 4,456
Accrued investment income. . . . . . . . . . . . . . . . . 5,380 5,872
Premiums receivable. . . . . . . . . . . . . . . . . . . . 6,596 5,020
Deferred policy acquisition costs. . . . . . . . . . . . . 8,998 7,776
Leasehold improvements, furniture and equipment, at cost,
net of accumulated depreciation . . . . . . . . . . . . 9,779 9,315
Goodwill, net of accumulated amortization. . . . . . . . . 2,096 2,133
Other assets . . . . . . . . . . . . . . . . . . . . . . . 4,535 3,009
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 439,574 $ 415,301
---------- ----------
---------- ----------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Liabilities:
Loss reserves . . . . . . . . . . . . . . . . . . . . . $ 35,407 $ 31,280
Unearned premiums . . . . . . . . . . . . . . . . . . . 22,999 23,352
Current income taxes. . . . . . . . . . . . . . . . . . 2,883 790
Deferred income taxes . . . . . . . . . . . . . . . . . 5,066 5,015
Payable for securities. . . . . . . . . . . . . . . . . 7,034 ---
Accrued expenses and other liabilities. . . . . . . . . 3,689 4,709
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . 77,078 65,146
Common Stockholders' Equity:
Voting Common Stock, $.01 par, 50,000,000 shares authorized,
24,584,851 shares and 24,488,725 shares issued and
outstanding in 1998 and 1997, respectively . . . . . 245 245
Nonvoting Common Stock, $.01 par, 50,000,000 shares
authorized, 1,656,909 shares issued and outstanding
in 1998 and 1997 . . . . . . . . . . . . . . . . . . 17 17
Additional paid-in capital. . . . . . . . . . . . . . . 317,949 316,642
Accumulated other comprehensive income. . . . . . . . . 7,312 8,229
Retained earnings . . . . . . . . . . . . . . . . . . . 36,973 25,022
---------- ----------
Total common stockholders' equity. . . . . . . . . . . . . 362,496 350,155
---------- ----------
Total liabilities and common stockholders' equity . . . $ 439,574 $ 415,301
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
1
<PAGE>
AMERIN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
---- ----
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues:
Net premiums written .............................. $ 27,162 $ 20,424
Decrease in unearned premiums...................... 447 67
-------- ---------
Net premiums earned ............................... 27,609 20,491
Net investment income ............................. 5,088 4,483
Realized investment gains (losses) ................ 430 (22)
-------- ---------
Total revenues........................................ 33,127 24,952
Expenses:
Losses incurred.................................. 9,334 6,630
Policy acquisition costs ........................ 3,939 2,539
Underwriting and other expenses ................. 3,175 3,616
-------- ---------
Total expenses ....................................... 16,448 12,785
-------- ---------
Income before income taxes ........................... 16,679 12,167
Income taxes ......................................... 4,729 3,498
-------- ---------
Net income ........................................... $ 11,950 $ 8,669
-------- ---------
-------- ---------
Net income per common share:
Basic .......................................... $ .46 $ .33
Diluted ........................................ $ .45 $ .33
Average common and common equivalent shares
outstanding........................................ 26,666.0 26,357.9
</TABLE>
See accompanying notes.
2
<PAGE>
AMERIN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
1998 1997
---- ----
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ................................................... $ 11,950 $ 8,669
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in:
Accrued investment income and premiums receivable . (1,084) 731
Loss reserves....................................... 4,127 3,758
Unearned premiums .................................. (353) (57)
Accounts payable and accrued expenses .............. (978) (1,529)
Federal income taxes ............................... 2,638 2,791
Policy acquisition costs deferred ............................ (2,558) (2,360)
Policy acquisition costs amortized ........................... 1,336 2,395
Depreciation and other amortization .......................... 543 334
Realized investment (gains) losses ........................... (430) 22
Other items, net ............................................. (1,352) (1,016)
-------- --------
Net cash provided by operating activities .................... 13,839 13,738
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of:
Fixed maturity securities ............................... (33,281) (31,768)
Property and equipment .................................. (969) (300)
Short-term investments, net ............................. (2,626) 11,189
Sale or maturity of:
Fixed maturity securities ............................... 24,740 7,453
Property and equipment .................................. --- 1
-------- --------
Net cash used by investing activities ........................ (12,136) (13,425)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock ..................................... 1,308 342
-------- --------
Net cash provided by financing activities .................... 1,308 342
-------- --------
Net increase in cash and cash equivalents..................... 3,011 655
Cash and cash equivalents at beginning of period ............. 4,456 1,176
-------- --------
Cash and cash equivalents at end of period ................... $ 7,467 $ 1,831
-------- --------
-------- --------
</TABLE>
See accompanying notes.
3
<PAGE>
AMERIN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the requirements of Form 10-Q.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only
of normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three month period ended March
31, 1998, are not necessarily indicative of the results that may be expected
for the year ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
NEW AUTHORITATIVE PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131) "Disclosure about Segments
of an Enterprise and Related Information," which is effective for years
beginning after December 15, 1997. SFAS 131 established standards for the
way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. However, segment information is not required to be reported in
interim financial statements in the initial year of adoption. SFAS 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Implementation of this standard is not
expected to have a material effect on the Company's Financial statements.
2. INCOME TAXES
The provision for income taxes varies from the statutory federal income tax
rate applied to income before income taxes principally due to tax exempt
interest.
4
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3. NET INCOME PER COMMON SHARE
The following table sets forth the computation of net income per common share
(in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended March 31
---------------------------
1998 1997
---- ----
<S> <C> <C>
Net income $ 11,950 $ 8,669
--------- -------
Weighted average number of common shares outstanding 26,193 26,086
Dilutive effect of stock options using the
treasury stock method 473 272
--------- -------
Weighted average number of common and common
equivalent shares outstanding 26,666 26,358
--------- -------
Net income per common share:
Basic $ .46 $ .33
Diluted $ .45 $ .33
</TABLE>
Where the effect of common stock equivalents on net income or loss per share
would be antidilutive, they are excluded from the average common and common
equivalent shares outstanding.
4. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted the interim reporting requirements
of Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income." SFAS 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
SFAS 130 had no impact on the Company's net income or stockholders' equity.
SFAS 130 requires unrealized gains or losses on the Company's available for
sale securities, which prior to adoption were reported separately in
stockholders' equity, to be included in other comprehensive income. Prior
year consolidated financial statements have been reclassified to conform to
the requirements of SFAS 130.
The components of comprehensive income and accumulated other comprehensive
income are as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended March 31
---------------------------
1998 1997
---- ----
<S> <C> <C>
Net income....................................... $ 11,950 $ 8,669
Net change in unrealized gain on available for
sale securities, net of income taxes of
$(494) and $(1,909), respectively ............. (917) (3546)
--------- --------
Comprehensive income ............................ $ 11,033 $ 5,123
--------- --------
--------- --------
Accumulated other comprehensive income at
beginning of period ........................... $ 8,229 $ 222
Net change in unrealized gain on available
for sale securities, net of income taxes ...... (917) (3,546)
--------- --------
Accumulated other comprehensive income at
end of period.................................. $ 7,312 $ (3,324)
--------- --------
--------- --------
</TABLE>
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH
31, 1997. Net premiums written for the three months ended March 31, 1998
were $27.2 million compared to $20.4 million for the three months ended March
31, 1997, which represents a 33% increase. The increase was primarily
attributable to growth in insurance in force and related renewal premiums of
the Company's primary insurance subsidiary, Amerin Guaranty Corporation
("Amerin Guaranty"). Management believes that Amerin Guaranty was able to
increase revenues due primarily to increased use by existing lenders of the
Company's borrower-paid mortgage insurance and the addition of new lenders
which began doing business with the Company during the last year. Amerin
Guaranty's monthly premium plan represented 89.2% of new insurance written
for the three months ended March 31, 1998 compared to 91.2% for the same
period in 1997.
Net premiums earned increased by $7.1 million to $27.6 million for the
three months ended March 31, 1998 from $20.5 million for the three months
ended March 31, 1997. This increase was primarily due to the increase in
insurance written and in force in the 1998 period over the corresponding
portion of the 1997 period.
Net investment income of $5.1 million for the three months ended March
31, 1998 increased by $.6 (or 13%) over the same period in 1997 primarily due
to investment of the proceeds of Amerin Guaranty's net operating cash flows
over the course of 1997 and the first three months of 1998. Realized
investment gains for the three months ended March 31, 1998 were $430,000
compared to realized investment losses of $22,000 for the same period in 1997.
Losses incurred in the three months ended March 31, 1998 were $9.3
million, compared to $6.6 million of losses incurred in the three months
ended March 31, 1997, as a result of the aging of the Company's policies and
growth in insurance in force. Because of the Company's limited operating
history, its loss experience is expected to significantly increase as its
policies age further. Policy acquisition costs during the three months ended
March 31, 1998 of $3.9 million increased by $1.4 million (or 55%) compared to
the same period in 1997 principally due to the growth in the level of
marketing and underwriting activity in connection with the increased
production of new insurance written in the 1997 period compared to the prior
year period. Underwriting and other expenses decreased by $.4 million (or
12%) for the three months ended March 31, 1998 over the same period in 1997
due to expenses incurred in connection with the Company's secondary offering
completed in February, 1997.
The Company's effective tax rate was 28% in the three months ended March
31, 1998 compared to 29% for the same period in 1997. The effective tax rate
for the first quarter of 1998 and 1997 was below the statutory rate of 35%,
reflecting the benefits of tax-preferenced investment income.
As a result of the foregoing factors, the Company had net income of
$12.0 million for the three months ended March 31, 1998, compared to net
income of $8.7 million for the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity and capital resource considerations are different for
Amerin Corporation and its principal insurance operating subsidiary, Amerin
Guaranty, as discussed below.
6
<PAGE>
Amerin Corporation is a holding company whose principal assets are its
investments in Amerin Guaranty and Amerin Re. Amerin Corporation has no
operations of its own and no employees and has only limited needs for
liquidity to meet certain legal, accounting, tax and administrative expenses.
Amerin Corporation relies primarily on dividends and other permitted
distributions from Amerin Guaranty and Amerin Re as sources of funds. Amerin
Corporation does not currently have any committed lines of credit.
The principal sources of funds for Amerin Guaranty are premiums received
on new and renewal business, amounts earned from the investment of its
contributed capital as well as the investment of its cash flow and
commissions on ceded business and reimbursement of losses from reinsurers.
The principal uses of funds by Amerin Guaranty are the payment of claims and
related expenses, reinsurance premiums, other operating expenses and
dividends to Amerin Corporation. Liquidity requirements are influenced
significantly by the level of claims incidence. Amerin Guaranty does not
currently have any committed lines of credit.
Amerin Guaranty generates substantial cash flows from operations as a
result of premiums being received in advance of the time when claim payments
are required. Cash flows generated from Amerin Guaranty's mortgage insurance
operations totaled $16.6 million and $14.1 million for the first three months
of 1998 and 1997, respectively. These operating cash flows, along with that
portion of the investment portfolio that is held in cash and highly liquid
securities, are available towards the liquidity requirements of Amerin
Guaranty. Amerin Guaranty's investment portfolio was $352.8 million at March
31, 1998 and $333.3 million at December 31, 1997.
All of the Company's $388.7 million of fixed income securities at March
31, 1998 are rated "investment grade," which is defined by the Company as a
security having a National Association of Insurance Commissioners ("NAIC")
rating of 1 or 2 or an S&P rating ranging from "AAA" to "BBB-."
RISK TO CAPITAL RATIO. As a condition to maintenance of its
claims-paying ratings, the total amount of insurance risk that may be written
by Amerin Guaranty is limited to a multiple of 20 times its statutory capital
(which includes the contingency reserve) less the carrying value of
non-investment grade debt and tax and loss bonds and investments in
affiliates, or such higher or lower multiple as is reasonably determined by
the rating agency in its sole discretion. Amerin Guaranty has several
alternatives available to control its risk to capital ratio, including
obtaining capital contributions from the Company, purchasing reinsurance and
reducing the amount of new business written. A material reduction in
statutory capital, whether resulting from underwriting or investment losses
or otherwise, or a disproportionate increase in risk in force, could increase
the risk to capital ratio. An increase in the risk to capital ratio could
limit Amerin Guaranty's ability to write new business (which in turn could
materially adversely affect the Company's results of operations and
prospects). At March 31, 1998 and December 31, 1997, Amerin Guaranty's risk
to capital ratio was 16.4 to 1 and 16.1 to 1, respectively.
7
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of holders of the Company's securities
in the first quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
See Exhibit Index on Page E-1 for exhibits filed with this report on
Form 10-Q.
b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the quarter
for which this report on Form 10-Q is filed.
8
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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.
AMERIN CORPORATION
Date: May 13, 1998 By: /s/ Gerald L. Friedman
----------------------
Gerald L. Friedman
Chairman of the Board and
Chief Executive Officer
Date: May 13, 1998 By: /s/ David I. Vickers
--------------------
David I. Vickers
Senior Vice President
Chief Financial Officer
9
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INDEX TO EXHIBITS
Exhibit
Number Description of Document Page
------- ----------------------- ----
27.1 Financial Data Schedule.
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS AND RELATED NOTES OF AMERIN CORPORATION AND
SUBSIDIARIES FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 388,697
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 394,723
<CASH> 7,467
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 8,998
<TOTAL-ASSETS> 439,574
<POLICY-LOSSES> 35,407
<UNEARNED-PREMIUMS> 22,999
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 262
<OTHER-SE> 362,234
<TOTAL-LIABILITY-AND-EQUITY> 439,574
27,609
<INVESTMENT-INCOME> 5,088
<INVESTMENT-GAINS> 430
<OTHER-INCOME> 0
<BENEFITS> 9,334
<UNDERWRITING-AMORTIZATION> 3,939
<UNDERWRITING-OTHER> 3,175
<INCOME-PRETAX> 16,679
<INCOME-TAX> 4,729
<INCOME-CONTINUING> 11,950
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,950
<EPS-PRIMARY> .46
<EPS-DILUTED> .45
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
