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 September 30, 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: 7,728,053 shares of Common
Stock,$1 par value, at October 31, 1997.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars shown in thousands)
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<S> <C> <C>
September 30, December 31,
ASSETS 1997 1996
Investments: (Unaudited)
Debt securities, available for sale, at market
(cost of $38,966 at 1997 and $40,709 at 1996) $ 38,797 $ 40,217
Equity securities , at market (cost of $0 at
1997 and $34 at 1996 ) 1 35
Cash and short-term investments 11,977 2,664
Other long-term investments 28 28
Total cash and investments 50,803 42,944
Accrued investment income 497 772
Premiums and agents' balances receivable, net 6,125 6,477
Reinsurance recoverable on paid losses and loss
adjustment expenses 27,614 28,218
Reinsurance recoverable on unpaid losses and loss
adjustment expenses 62,709 84,725
Property and equipment, net 4,497 5,194
Prepaid reinsurance premiums - ceded business 47,734 46,118
Deferred policy acquisition costs 29 96
Other assets 6,384 5,928
---------- --------
Total assets $ 206,392 $ 220,472
========== ========
LIABILITIES
Losses and claims:
Reported and estimated losses and claims - retained $ 30,098 $ 37,019
-ceded business 53,221 74,735
Adjustment expenses - retained business 8,093 10,408
- ceded business 9,488 9,990
Unearned premiums:
Property and casualty - retained business 1,363 1,380
- ceded business 47,734 46,118
Credit life 76 194
Balances due other insurance companies 11,964 8,736
Other liabilities and deferred items 8,295 8,101
--------- --------
Total liabilities 170,332 196,681
--------- --------
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 7,726,856 shares (6,168,097 at
1996) 7,727 6,168
Additional paid-in capital 61,651 54,050
Unrealized (loss) on securities (213) (536)
Accumulated deficit (33,105) (35,891)
--------- ---------
Total shareholders' equity 36,060 23,791
--------- ---------
Total liabilities and shareholders' equity $ 206,392 $ 220,472
========= =========
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THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars shown in thousands, except per share amounts)
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Nine Months Ended
September 30, Third Quarter
1997 1996 1997 1996
Commission and service income $ 33,353 $ 32,908 $ 11,010 $ 11,508
Premiums earned:
Property & casualty 4,717 6,105 1,632 2,280
Credit life 192 419 41 56
Net investment income 2,292 2,046 785 798
Other interest income 471 628 95 441
Realized gains on investments 544 196 326 2
Other income (expense) 2 121 (2) 80
-------- -------- -------- -------
Total revenue 41,571 42,423 13,887 15,165
-------- -------- -------- -------
Expenses:
Property and casualty:
Losses and loss adjustment expenses 6,632 8,915 1,596 3,358
Policy acquisition costs 951 1,668 348 903
Credit life benefits 152 318 24 49
Interest expense 49 142 16 17
Other operating costs and expenses 30,951 28,178 10,878 9,395
------- ------- ------- -------
Total expenses 38,735 39,221 12,862 13,722
------- ------- ------- -------
Income from operations, before income tax 2,836 3,202 1,025 1,443
Provision for (benefit from) income taxes 50 (144) 17 (54)
------- ------- ------- --------
Net income $ 2,786 $ 3,346 $ 1,008 $ 1,497
======= ======= ======= ========
Per share and common equivalent share:
Net income $ 0.41 $ 0.66 $ 0.13 $ 0.32
======= ======= ======= ========
Weighted average shares outstanding 6,757 5,833 7,685 4,689
Pro-forma SFAS No. 128 basic earnings
per share:
Net income $ 0.41 $ 0.74 $ 0.13 $ 0.32
======= ======= ======= =======
Weighted average shares outstanding 6,757 4,501 7,685 4,689
Change in value of marketable securities
credited /(charged) directly to equity $ 323 $ (1,338) $ 354 $ 49
======= ======= ======= ========
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THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase in Cash and Short Term Investments
(Unaudited)
(Dollars shown in thousands)
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Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
Net income $ 2,786 $ 3,346
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation 625 724
Realized gains on investments (544) (196)
Net change in assets and liabilities affecting
cash flows from operating activities (5,031) (12,422)
-------- --------
Net cash provided by (used in) operating activities (2,164) (8,548)
-------- --------
Cash flows from investing activities:
Proceeds from investments sold 366 1,343
Proceeds from investments matured 1,665 3,095
Cost of investments acquired - (7,283)
Proceeds from property and equipment sold 521 116
Purchases of property and equipment (138) (766)
-------- --------
Net cash provided by (used in) investing activities 2,414 (3,495)
-------- --------
Cash flows from financing activities:
Stock issued under stock option plans 483 -
Stock issued under exercise of warrants 2 -
Repurchase of Treasury Stock - (3)
Issuance of capital stock 8,578 9,330
Repayment of notes payable - (2,476)
------- --------
Net cash provided by financing activities 9,063 6,854
------- --------
Net increase (decrease) in cash and short term
investments 9,313 (5,189)
Cash and short term investments, January 1, 2,664 16,649
------- --------
Cash and short term investments, September 3 $ 11,977 $ 11,460
------- --------
Supplemental cash flow information:
Cash paid for - interest $ 36 $ 319
- income taxes paid $ 69 $ 43
Stock issued for consulting services $ 97 $ -
Cancellation of shares issued to Directors in June
1995 $ - $ 10
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THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SHARES OUTSTANDING
On April 10, 1997, the Company affected a 1 for 4 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.
NOTE 2. PUBLIC OFFERING
During June and July 1997, the Company received proceeds from a public offering
of common stock. The underwriters of the public offering offered for sale
2,853,089 shares of common stock at $7.00 per share,comprised of shares offered
by the Company (1,000,000 shares) and a certain shareholder (1,853,089 shares).
In July, the underwriters elected to exercise an option to purchase an
additional 427,963 shares to cover over-allotments. Proceeds to the Company,
net of certain expenses (including underwriting discount) was $8.6 million.
The proceeds derived from the sale of these shares by the Company will be
retained for general corporate purposes, including possible acquisitions.
NOTE 3. COMMITMENT
On July 23, 1997, the Company entered into a Stock Purchase Agreement 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 agreement provides that the Company will acquire all of the outstanding
capital stock of Innovative. The Company will issue 220,000 shares of
convertible nonvoting special (preferred) stock with a liquidation value of
$10.00 per share. The special stock will, subject to certain conditions, be
convertible into 275,000 shares of the Company's common stock and be
redeemable by the Company at a premium beginning August 15, 2000. In
addition, the Company will invest approximately $1.8 million to
liquidate Innovative indebtedness at the time of closing. The consummation
of the acquisition is subject to the receipt of all necessary government
and regulatory approvals.
NOTE 4. SALE OF PROPERTY
During the third quarter of 1997, the Company received consideration of
$485,000 from property it sold to an unaffiliated entity. The property had a
book value of $138,000 and consisted of a building and the related land.
The net gain of $347,000 included certain expenses related to the sale.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
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 (amounts shown in thousands, except per
share amounts):
September 30, December 31,
FINANCIAL CONDITION 1997 1996
Total cash and investments $ 50,803 $ 42,944
Total assets 206,392 220,472
Total liabilities 170,332 196,681
Shareholders' equity 36,060 23,791
Per share 4.67 3.86
Nine Months Ended Three Months Ended
September 30, September 30,
RESULTS OF OPERATIONS 1997 1996 1997 1996
Commission and service
income $ 33,353 32,908 $ 11,010 $ 11,508
Premiums earned 4,909 6,524 1,673 2,336
Investment and other
interest income 2,763 2,674 880 1,239
Realized gains on investments 544 196 326 2
Other income 2 121 (2) 80
-------- -------- -------- -------
Total revenue $ 41,571 $ 42,423 $ 13,887 $ 15,165
-------- -------- -------- -------
Net income $ 2,786 $ 3,346 $ 1,008 $ 1,497
======== ======== ======== =======
Pro-forma SFAS No. 128
basic earnings per share:
Net income $ 0.41 $ 0.74 $ 0.13 $ 0.32
Weighted average shares
outstanding 6,757 4,501 7,685 4,689
Overview
For the nine month period ended September 30, 1997, net income was $2.8
million, down 16.7% from $3.3 million posted for the first nine months of
1996. Net income per share was $0.41 compared with $0.74
for the nine month period in 1996, on 50.1% more average shares outstanding
related primarily to the Company's secondary stock offering in June 1997.
Net income for the quarter ended September 30, 1997 fell 32.7% to $1.0
million from $1.5 million for the last year's quarter. Net income per share
for the quarter was $0.13 compared with $0.32 for the third
quarter of 1996, on 63.9% more average shares outstanding.
Results of Operations
Nine Months Ended September 30, 1997 and 1996
- ---------------------------------------------
Commission & Service Income
Commission and service income for the nine months ended September 30, 1997
increased $445,000, or 1.4%, to $33,353,000 from $32,908,000 for the nine
months ended September 30, 1996. Revenue the Company earns as a servicing
carrier for the South Carolina Reinsurance Facility ("SC Facility)
increased $2,104,000 due to increased volumes.
Revenue the Company earns servicing claims for the
National Flood Insurance Program decreased $439,000.
This decrease in claims revenues for the first nine months of 1997 comes from
a lack of storm-related claims in the third quarter of 1997, compared to the
third quarter of 1996. In addition, during 1996, the Company acted as a
servicing carrier for the Kentucky Fair Plan. This contract was canceled
January 1, 1997. Revenue from this contract during the first nine months of
1996 was $796,000.
Property and Casualty Premiums Earned
Net property and casualty premiums earned for the
nine months ended September 30, 1997 decreased $1,615,000, or 24.8%, to
$4,909,000 from $6,524,000 for the nine months ended September 30, 1996.
Premiums earned on property lines of business accounted for $858,000 of this
decrease. The Company suspended writing all business, except as a
servicing carrier ceding 100% of the risk, in the first half of 1995 and
continued to earn premiums on this business into the first half of 1996. The
Company began retaining some of the risk on
automobile business in July 1996 and a very minimal
amount of homeowners in January 1997. The remaining decrease in premiums
earned is derived from the Company's participation in mandatory pools and
associations, the largest being the North Carolina Reinsurance Facility.
Net Investment and Interest Income
Net investment and other interest income for the nine months ended September 30,
1997 increased $89,000, or 3.3% to $2,763,000 from $2,674,000 for
the nine months ended September 30, 1996.
Loss and Loss Adjustment Expenses
Property and casualty loss and loss adjustment expenses incurred for the nine
months ended September 30, 1997 decreased $2,283,000, or 25.6%,
to $6,632,000 from $8,915,000 for the nine months ended September 30, 1996.
This decrease corresponds to the decrease in the Company's premiums earned.
Other Operating Costs and Expenses
Other operating costs and expenses for nine months ended September 30, 1997
increased $2,773,000, or 9.8%, to $30,951,000 from $28,178,000 for the nine
months ended September 30, 1996. Additional expenses related to salaries and
professional fees accounted for $2,637,000 of this increase.
Three Months Ended September 30, 1997 and 1996
- ----------------------------------------------
Commission & Service Income
Commission and service income for the three months ended September 30, 1997
decreased $498,000, or 4.3%, to $11,010,000 from $11,508,000 for the three
months ended September 30, 1996. Revenue the Company earns as a servicing
carrier for the SC Facility increased $853,000 due to increased volumes.
Commission income the Company earns servicing claims for the National Flood
Insurance Program decreased $977,000 due to a lack of storm-related claims in
the third quarter of 1997, compared to the third quarter of 1996. During
1996, the Company acted as a servicing carrier for the Kentucky Fair Plan.
This contract was canceled January 1, 1997. Revenue from this contract
during the third quarter of 1996 was $275,000.
Property and Casualty Premiums Earned
Net property and casualty premiums earned for the
three months ended September 30, 1997 decreased $663,000, or 28.4%, to
$1,673,000 from $2,336,000 for the three months ended September 30, 1996.
The Company suspended writing retained risk business in
the first half of 1996 and earned minimal amounts in the third quarter of
1996. The majority of the premiums earned in the third quarter of 1996 and
1997 were derived from the Company's participation in mandatory pools and
associations, the largest being the North Carolina Reinsurance Facility.
Net Investment and Interest Income
Net investment and other interest income for the three months ended
September 30, 1997 decreased $359,000, or 29.0%, to $880,000 from $1,239,000
for the three months ended September 30, 1996. This decrease is primarily
due to $443,000 of interest income related to the Company's participation in
mandatory pools and associations in the third quarter of 1996 that was not
present in the same quarter of 1997.
Loss and Loss Adjustment Expenses
Property and casualty loss and loss adjustment
expenses incurred for the three months ended September 30, 1997 decreased
$1,762,000, or 52.5%, to $1,596,000 from $3,358,000 for the three months
ended September 30, 1996. This decrease principally
corresponds to the decease in premiums earned.
Other Operating Costs and Expenses
Other operating costs and expenses for three months ended September 30, 1997
increased $1,483,000, or 15.8%, to $10,878,000 from $9,395,000 for the three
months ended September 30, 1996. Additional expenses related to salaries and
professional fees accounted for $1,284,000 of this increase.
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 used by operations for the nine months ended September 30, 1997 and
1996 was $2,164,000 and $8,549,000, respectively. The improvement in cash
flows is attributable primarily to a $5,469,000 decrease in the Company's
receivable from the National Flood Insurance Program as the storm losses
from the fourth quarter of 1996 were reimbursed to the Company.
Cash flows from investing activities for the nine months ended September 30,
1997 were $2,414,000, primarily 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 $38,797,000 at
September 30, 1997.
Net cash provided by financing activities of $9,063,000 during the nine
months ended September 30, 1997 includes net proceeds from a public
offering of common stock. The Company received proceeds, net of certain
expenses, of $8,578,000.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are parties to various lawsuits generally
arising in the normal course of their insurance and ancillary businesses.
Item 2. Changes in Securities
See Part I. Financial Information, Note 1 to the Financial Statements.
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.
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, thereunto duly authorized.
THE SEIBELS BRUCE GROUP, INC.
-----------------------------
(Registrant)
Date: November 14, 1997 /s/John A. Weitzel
--------------------
John A. Weitzel
( Chief Financial Officer
and Director)
Date: November 14, 1997 /s/Ernst N. Csiszar
--------------------
Ernst N. Csiszar
(President and Director)
Date: November 14, 1997 /s/Mary M. Gardner
--------------------
Mary M. Gardner
Controller (Principal
Accounting Officer)
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