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 Quarter Ended March 31, 1997
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 0-8804
THE SEIBELS BRUCE GROUP, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
South Carolina 57-0672136
- -------------- -----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1501 Lady Street (PO Box 1), Columbia, SC 29201(2)
- ----------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 748-2000
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
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date: 6,235,442 shares of Common
Stock, $1 par value, at May 5, 1997
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars shown in thousands)
<S> <C> <C>
March 31, December 31,
1997 1996
ASSETS __________ _____________
Investments: (Unaudited)
Debt securities, available for sale, at market
(cost of $39,024 at 1997 and $40,709 at 1996) $ 38,057 $ 40,217
Equity securities , at market (cost of $16 at 1997
and $34 at 1996 ) 17 35
Cash and short-term investments 10,763 2,664
Other long-term investments 28 28
Total cash and investments 48,865 42,944
Accrued investment income 435 772
Premiums and agents' balances receivable, net 6,380 6,477
Reinsurance recoverable on paid losses and loss
adjustment expenses 23,319 28,218
Reinsurance recoverable on unpaid losses and loss
adjustment expenses 66,659 84,725
Property and equipment, net 5,003 5,194
Prepaid reinsurance premiums - ceded business 45,171 46,118
Deferred policy acquisition costs 55 96
Other assets 6,129 5,928
_______ _______
Total assets $ 202,016 $ 220,472
_______ _______
LIABILITIES
Losses and claims:
Reported and estimated losses and claims
- retained business $ 36,351 $ 37,019
- ceded business 57,258 74,735
Adjustment expenses - retained business 9,587 10,408
- ceded business 9,401 9,990
Unearned premiums:
Property and casualty - retained business 1,300 1,380
- ceded business 45,171 46,118
Credit life 143 194
Balances due other insurance companies 11,410 8,736
Other liabilities and deferred items 7,184 8,101
_______ _______
Total liabilities 177,805 196,681
_______ _______
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Special stock, no par value, authorized 5,000,000
shares, none issued and outstanding - -
Common stock, $1 par value, authorized 12,500,000 shares,
issued & outstanding 6,192,172 shares(6,168,097 at
1996) 6,192 6,168
Additional paid-in capital 54,218 54,050
Unrealized (loss) on securities (1,011) (536)
Accumulated deficit (35,188) (35,891)
________ ---------
Total shareholders' equity 24,211 23,791
________ ________
Total liabilities and shareholders' equity $ 202,016 $ 220,472
========= ========
</TABLE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts shown in thousands, except per share amounts)
Three Months Ended
March 31,
__________________________
1997 1996
Premiums: ______ ______
Property and casualty:
Net premiums written $ 2,229 $ 2,354
Change in unearned premiums 80 645
Premiums earned 2,309 2,999
Credit life premiums earned 14 125
Commission and service income 10,964 10,115
Net investment income 708 660
Other interest income 297 118
Realized gains on investments 219 194
Other income 4 23
______ ______
Total revenue 14,515 14,234
====== =======
Expenses:
Property and casualty:
Losses and loss adjustment expenses 3,802 4,040
Policy acquisition costs 582 683
Credit life benefits 25 70
Interest expense 17 85
Other operating costs and expenses 9,373 8,716
______ ______
Total expenses 13,799 13,594
====== ======
Income from operations, before income taxes 716 640
Provision for income taxes 13 8
______ _______
Net income $ 703 $ 632
======= =======
Per share and common equivalent share:
Net income $ 0.11 $ 0.14
______ ________
Weighted average shares outstanding 6,175 4,390
Pro-forma SFAS No. 128 basic earnings per share:
Net income $ 0.11 $ 0.15
______ _______
Weighted average shares outstanding 6,175 4,211
Change in value of marketable securities
credited /(charged) directly to equity $ (475) $ (1,035)
======= =======
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase in Cash and Short Term Investments
(Unaudited)
(Amounts shown in thousands)
Three Months Ended
March 31,
1997 1996
_____ ______
Cash flows from operating activities:
Net income $ 703 $ 632
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 249 239
Realized (gains) on investments (219) (194)
Net change in assets and liabilities affecting
cash flows from operating activities 5,304 (2,169)
_____ _______
Net cash provided by (used) in operating activities 6,037 (1,492)
------ ------
Cash flows from investing activities:
Proceeds from investments sold 263 1,170
Proceeds from investments matured 1,665 2,795
Cost of investments acquired - (5,510)
Proceeds from property and equipment sold - 108
Purchases of property and equipment (58) (406)
------ --------
Net cash provided by (used in) investing activities 1,870 (1,843)
------- --------
Cash flows from financing activities:
Stock issued under stock option plans 192 -
Issuance of capital stock held in escrow - 6,250
Issuance of capital stock - 3,208
------- ------
Net cash provided by financing activities 192 9,458
------- -------
Net increase in cash and short term investments 8,099 6,123
Cash and short term investments, January 1, 2,664 16,649
------- -------
Cash and short term investments, March 31, $ 10,763 $ 22,772
======= =======
Supplemental cash flow information:
Cash paid for - interest $ 9 $ -
- income taxes paid $ 48 $ 43
PART I. FINANCIAL INFORMATION
Item 1. Notes to Consolidated Financial Statements
NOTE 1. SUBSEQUENT EVENTS
On April 10, 1997, the Company affected a 4 for 1 reverse stock split. All
share and per share data in the consolidated financial statements have been
adjusted to reflect the reverse stock split on a retrospective basis.
In March 1997, the Company filed a Form S-2 Registration Statement with the
Securities and Exchange commission in anticipation of a secondary public
offering of common stock. The Registration Statement covers up to 2,853,089
shares of common stock (excluding the over-allotment option), comprised of
shares offered by the Company (1,000,000 shares) and the Selling Shareholder
(1,853,089 shares). The proceeds derived from the sale of shares offered by the
Company will be retained for general corporate purposes, including possible
acquisitions.
On May 12, 1997, the Company entered into a Letter of Intent to acquire The
Innovative Company, an insurance holding company based in Winston-Salem,
North Carolina ("Innovative"). Innovative, through its subsidiary Universal
Insurance Company ("Universal"), markets and underwrites nonstandard
automobile insurance through independent agents primarily in North Carolina.
The Letter of Intent provides that the Company will acquire all of the
outstanding capital stock and notes payable of Innovative. The Company would
issue 220,000 shares of convertible nonvoting special (preferred) stock and pay
$400,000 (subject to adjustment) in cash. The Company would pay at closing
approximately $1.9 million of Innovative indebtedness (including accrued
interest) owed to Innovative's current shareholders. The special stock would (i)
have liquidation rights not junior to any other capital stock of the Company and
a liquidation value of $10.00 per share, (ii) pay quarterly dividends at a rate
equal to $0.62 annually per share, (iii) subject to certain conditions, be
convertible into 275,000 shares of Common Stock and (iv) be redeemable by
the Company at a premium beginning on August 15, 2000. The consummation
of the Proposed Acquisition is subject to a number of conditions, including the
execution of a definitive purchase agreement, the receipt of all necessary
government and regulatory approvals and satisfactory completion of due
diligence by all parties. With limited exceptions, the Letter of Intent is not
binding on the parties thereto.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The interim financial statements in Item 1 are unaudited, but in the opinion of
management, reflect all adjustments necessary for fair presentation of results
for such periods. All such adjustments are of a normal recurring nature. The
results of operations for any interim period are not necessarily indicative of
results for the full year. These financial statements should be read in
conjunction with the financial statements and notes thereto contained in the
Company's annual report Form 10-K for the year ended December 31, 1996.
The following table indicates the more significant financial comparisons with
the applicable prior periods (dollars shown in thousands, except per share
amounts):
March 31,December 31,
FINANCIAL CONDITION 1997 1996
---- ----
Total cash and investments $ 48,865 $ 42,944
Total assets 202,016 220,472
Total liabilities 177,805 196,681
Shareholders' equity 24,211 23,791
Per share 3.91 3.86
Three Months Ended, March 31,
RESULTS OF OPERATIONS 1997 1996
----- ----
Commission and service income $ 10,964 $ 10,115
Premiums earned 2,323 3,124
Investment and other interest income 1,005 778
Realized gains on investments 219 194
Other income 4 23
------- ------
Total revenue $ 14,515 $ 14,234
====== ======
Net income $ 703 $ 632
====== =====
Per share and common equivalent share:
Net income $ 0.11 $ 0.14
======= =====
Weighted average shares outstanding 6,175 4,390
Overview
Net income of $703,000 for the first quarter of 1997 represents an increase of
approximately 11% over the corresponding quarter of 1996. Total revenues
increased 2% principally on the strength of rising premium volumes on the
business that the Company services on behalf of the South Carolina Reinsurance
Facility. In addition, investment income increased as a result of additional
capital contributions during 1996. Income per share results are impacted by the
higher number of shares outstanding in 1997, and reflects for both periods the
reverse stock split that became effective April 10, 1997.
Results of Operations
---------------------
Three Months Ended March 31, 1997 and 1996
Commission & Service Income
Commission and service income for the three months ended March 31, 1997
increased $849,000, or 8.4%, to $10,964,000 from $10,115,000 for the three
months ended March 31, 1996. This increase is due primarily to increases of
$552,000 in SC Facility premium-based fees due to an increase in the number of
policies serviced and higher physical damage rates and $604,000 in SC Facility
claims-based fees due to a higher volume of settled claims. Flood claims-based
revenues for the three months ended March 31, 1997 increased $353,000
compared to the same period in 1996. This increase is due to claims servicing
activity resulting from Hurricane Fran which hit the East coast in the fourth
quarter of 1996. Commission and service income attributable to the MGA
operations decreased $436,000 for the three months ended March 31, 1997
compared to the same three months in 1996. This decrease is due to lower gross
premiums written in the first quarter of 1997 as a result of the Company's
implementation of more stringent underwriting criteria.
Property and Casualty Premiums Earned
Net property and casualty premiums earned for the three months ended March
31, 1997 decreased $690,000, or 23.0%, to $2,309,000 from $2,999,000 for the
three months ended March 31, 1996. Premiums from run-off operations fell
from $801,000 for the three months ended March 31, 1996 to $16,000 for the
same period in 1997 due to the suspension of retained-risk business in the first
half of 1995 for which the Company continued to earn premiums in the first
three months of 1996. The Company resumed limited insurance underwriting
activities in July 1996, resulting in $149,000 of premiums earned on non-
standard automobile insurance premiums in the first quarter of 1997.
Credit Life Premiums Earned
Net credit life premiums earned for the three months ended March 31, 1997
decreased $111,000, or 88.8%, to $14,000 from $125,000 for the three months
ended March 31, 1996. The Company sold its credit life business in September,
1993. Under the sale agreement, the Company retained and continues to run-off
the policies in force at the date of the sale.
Net Investment and Interest Income
Net investment and other interest income for the three months ended March 31,
1997 increased $227,000, or 29.2%, to $1,005,000 from $778,000 for the three
months ended March 31, 1996. This increase is primarily a result of increased
other interest income from the Company's participation in the NC Facility. In
addition, a 15.1% decrease in average total investments was more than offset by
a 26.4% increase in average yield on total cash and investments (6.17%
compared to 4.88%) in the quarter ended March 31, 1997 compared to the same
period in 1996. In the three months ended March 31, 1996, the Company did
not recognize certain interest income received relating to pending investment
proceeds held in escrow.
Realized Gains on Investments
Realized gains on investments were $219,000 for the three months ended March
31, 1997 compared to $194,000 for the three months ended March 31, 1996.
Other Income
Other income for the three months ended March 31, 1997 and 1996 was $4,000
and $23,000, respectively.
Loss and Loss Adjustment Expenses
Property and casualty loss and loss adjustment expenses incurred for the three
months ended March 31, 1997 decreased $238,000, or 5.9%, to $3,802,000
from $4,040,000 for the three months ended March 31, 1996. This decrease
corresponds in part to the decrease in premiums earned on run-off risk
operations during the same periods. Included in loss adjustment expenses in
1997 is $288,000 related to the loss adjustment expenses on the Company's
storm claims adjustment and liability run-off services division that did not
commence operations until April 1996.
Policy Acquisition Costs
Property and casualty policy acquisition costs incurred decreased $101,000, or
14.8%, to $582,000 from $683,000 for the three months ended March 31, 1997
as compared to the three months ended March 31, 1996. This decrease is due to
the reduction in net premiums written.
Credit Life Benefits
Credit life benefits incurred were $25,000 and $70,000 for the three months
ended March 31, 1997 and 1996, respectively. The Company sold its credit life
business in September 1993. Under the sale agreement, the Company retained
and continues to run-off the policies in force at the date of the sale.
Interest Expense
Interest expense was $17,000 and $85,000 for the three months ended March
31, 1997 and 1996, respectively. The majority of the interest expense during
1996 consisted of interest on notes payable to one of the Company's principal
shareholders. The Company repaid these notes in full on May 1, 1996.
Other Operating Costs and Expenses
Other operating costs and expenses for three months ended March 31, 1997
increased $657,000, or 7.5%, to $9,373,000 from $8,716,000 for the three
months ended March 31, 1996. Salaries and fringes for the three months ended
March 31, 1997 and 1996 were $3,097,000 and $2,278,000, respectively. This
increase is related to the Company's addition of new management. Agent
commissions included in other operating costs and expenses were $4,374,000
and $5,041,000 for the three months ended March 31, 1997 and 1996,
respectively.
Income Taxes
Provision for income taxes was $13,000 and $8,000 for the three months ended
March 31, 1997 and 1996, respectively. During 1997 and 1996, the Company
utilized net operating loss carryforwards to offset current income taxes in the
amount of $238,000 and $215,000, respectively.
Liquidity and Capital Resources
-------------------------------
Liquidity relates to the Company's ability to produce sufficient cash to fulfill
contractual obligations, primarily to policyholders. Sources of liquidity
include service fee income, premium collections, investment income and sales or
maturities of investments.
Net cash provided by operations for the three months ended March 31, 1997
was $6,037,000, compared to cash used in operations of $1,492,000 for the
same period in 1996. This improvement in cash flows is attributable to
unusually favorable underwriting results on a cash flow basis for the SC
Facility, which is expected to result in lower cash settlements at the end of
the second quarter of 1997. Cash flows from investing activities for the
three months ended March 31, 1997 was $1,870,000 related to investment sales
and maturities, resulting in a decrease in the Company's investments in debt
securities from $40,217,000 at December 31, 1996 to $38,057,000 at March 31,
1997.
Total assets as of March 31, 1997 were $202,016,000, a decrease of
$18,456,000, or 8.4%, from total assets of $220,472,000 at December 31, 1996.
The majority of this decrease, $15,029,000, is related to a reduction in the
reinsurance recoverable on unpaid losses and loss adjustment expenses on
business ceded to the National Flood Insurance Program. The decrease in this
asset is fully offset by a decrease in the related liability for estimated
losses on this ceded business.
PART I. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereuntoduly authorized.
THE SEIBELS BRUCE GROUP, INC.
(Registrant)
Date: May 15, 1997 /s/John A. Weitzel
____________________
John A. Weitzel
Chief Financial Officer and Director
Date: May 15, 1997 /s/Ernst N. Csiszar
_______________________
Ernst N. Csiszar
President and Director
Date: May 15, 1997 /s/Mary M. Gardner
_____________________
Mary M. Gardner
Controller (Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 38,057,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 17,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 49,468,000
<CASH> (602,000)
<RECOVER-REINSURE> 23,319,000
<DEFERRED-ACQUISITION> 55,000
<TOTAL-ASSETS> 202,016,000
<POLICY-LOSSES> 45,938,000
<UNEARNED-PREMIUMS> 1,443,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 24,768,000
<OTHER-SE> 557,000
<TOTAL-LIABILITY-AND-EQUITY> 202,016,000
2,323,000
<INVESTMENT-INCOME> 1,005,000
<INVESTMENT-GAINS> 219,000
<OTHER-INCOME> 10,968,000
<BENEFITS> 3,827,000
<UNDERWRITING-AMORTIZATION> 583,000
<UNDERWRITING-OTHER> 9,390,000
<INCOME-PRETAX> 716,000
<INCOME-TAX> 13,000
<INCOME-CONTINUING> 703,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 703,000
<EPS-PRIMARY> .11
<EPS-DILUTED> 0
<RESERVE-OPEN> 53,266,000
<PROVISION-CURRENT> 105,000
<PROVISION-PRIOR> 23,214,000
<PAYMENTS-CURRENT> 142,000
<PAYMENTS-PRIOR> 30,505,000
<RESERVE-CLOSE> 45,938,000
<CUMULATIVE-DEFICIENCY> 23,214,000
</TABLE>
