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 June 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: 7,720,134 shares of Common
Stock, $1 par value, at August 13, 1997.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars shown in thousands)
<TABLE>
<S> <C> <C>
June 30, December 31,
ASSETS 1997 1996
---------- ------------
Investments: (Unaudited)
Debt securities, available for sale, at market
(cost of $38,996 at 1997 and $40,709 at 1996) $ 38,472 $ 40,217
Equity securities , at market (cost of $16 at 1997
and $34 at 1996 ) 17 35
Cash and short-term investments 16,682 2,664
Other long-term investments 28 28
Total cash and investments 55,199 42,944
Accrued investment income 688 772
Premiums and agents' balances receivable, net 7,096 6,477
Reinsurance recoverable on paid losses and loss
adjustment expenses 23,262 28,218
Reinsurance recoverable on unpaid losses and loss
adjustment expenses 64,383 84,725
Property and equipment, net 4,827 5,194
Prepaid reinsurance premiums - ceded business 46,524 46,118
Deferred policy acquisition costs 40 96
Other assets 6,869 5,928
--------- ----------
Total assets $ 208,888 $ 220,472
========= ==========
LIABILITIES
Losses and claims:
Reported and estimated losses and claims
- retained business $ 34,210 $ 37,019
- ceded business 54,761 74,735
Adjustment expenses - retained business 8,941 10,408
- ceded business 9,622 9,990
Unearned premiums:
Property and casualty - retained business 1,385 1,380
- ceded business 46,524 46,118
Credit life 103 194
Balances due other insurance companies 13,294 8,736
Other liabilities and deferred items 8,091 8,101
--------- --------
Total liabilities 176,931 196,681
--------- --------
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 7,294,233 shares (6,168,097 at 1996) 7,295 6,168
Additional paid-in capital 59,342 54,050
Unrealized (loss) on securities (567) (536)
Accumulated deficit (34,113) (35,891)
--------- ---------
Total shareholders' equity 31,957 23,791
--------- ---------
Total liabilities and shareholders' equity $ 208,888 $ 220,472
========= =========
</TABLE>
<TABLE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars shown in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Six Months Ended
June 30, Second Quarter
---------------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
Commission and service income $ 22,343 $ 21,400 $ 11,379 $ 11,285
Premiums earned:
Property & casualty 3,085 3,825 776 826
Credit life 151 363 137 238
Net investment income 1,507 1,248 799 588
Other interest income 376 187 79 69
Realized gains (losses) on investments 218 194 (1) 0
Other income 4 41 0 18
-------- --------- -------- --------
Total revenue 27,684 27,258 13,169 13,024
-------- --------- -------- --------
Expenses:
Property and casualty:
Losses and loss adjustment expenses 5,036 5,557 1,234 1,517
Policy acquisition costs 603 765 21 82
Credit life benefits 128 269 103 199
Interest expense 33 125 16 40
Other operating costs and expenses 20,073 18,783 10,700 10,067
-------- --------- -------- -------
Total expenses 25,873 25,499 12,074 11,905
-------- --------- -------- -------
Income from operations, before income tax 1,811 1,759 1,095 1,119
Provision for (benefit from) income taxes 33 (90) 20 (98)
-------- --------- -------- ---------
Net income $ 1,778 $ 1,849 $ 1,075 $ 1,217
======== ========= ======== ========
Per share and common equivalent share:
Net income $ 0.28 $ 0.42 $ 0.17 $ 0.26
========= ======== ======= ========
Weighted average shares outstanding 6,285 4,407 6,393 4,602
Pro-forma SFAS No. 128 basic earnings per share:
Net income 0.28 0.42 0.17 0.26
========= ======== ======= =======
Weighted average shares outstanding 6,285 4,407 6,393 4,602
Change in value of marketable securities
credited /(charged) directly to equity $ (31) $ (1,387) $ 444 $ (352)
========= ======== ======= ========
</TABLE>
<TABLE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase in Cash and Short Term Investments
(Unaudited)
(Dollars shown in thousands)
<S> <C> <C>
Six Months Ended
June 30,
--------------------------
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 1,778 $ 1,849
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation 491 483
Realized gains on investments (218) (194)
Net change in assets and liabilities affecting
cash flows from operating activities 3,799 (8,727)
------- -------
Net cash provided by (used in) operating activities 5,850 (6,589)
------- -------
Cash flows from investing activities:
Proceeds from investments sold 297 1,281
Proceeds from investments matured 1,665 3,095
Cost of investments acquired - (6,238)
Proceeds from property and equipment sold - 113
Purchases of property and equipment (124) (627)
------- --------
Net cash provided by (used in) investing acti 1,838 (2,376)
------- --------
Cash flows from financing activities:
Stock issued under stock option plans 469 -
Stock issued under exercise of warrants 2 -
Issuance of capital stock held in escrow - 6,250
Issuance of capital stock 5,858 3,143
Repayment of notes payable - (2,476)
------- --------
Net cash provided by financing activities 6,329 6,917
------- --------
Net increase (decrease) in cash and short term
investments 14,017 (2,048)
------- --------
Cash and short term investments, January 1, 2,664 16,649
------- -------
Cash and short term investments, June 30, $ 16,681 $ 14,601
======= ======
Supplemental cash flow information:
Cash paid for - interest $ 23 $ 271
- income taxes paid $ 49 $ 43
Stock issued for consulting services $ 90 $ -
</TABLE>
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
$5.9 million in the second quarter and is expected to be approximately $2.8
million in the third quarter. The proceeds derived from the sale of these
shares by the Company will be retained for general corporate purposes,
including possible acquisitions.
NOTE 3. SUBSEQUENT EVENTS
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, and may additional cash not to
exceed $400,000. The consummation of the acquisition is subject to the
receipt of all necessary government and regulatory approvals.
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 (dollars shown in thousands, except per share
amounts):
June 30, December 31,
FINANCIAL CONDITION 1997 1996
---------- ------------
Total cash and investments $ 55,199 $ 42,944
Total assets 208,888 220,472
Total liabilities 176,931 196,681
Shareholders' equity 31,957 23,791
Per share 4.38 3.86
Six Months Ended Three Months Ended
June 30, June 30,
________________ __________________
RESULTS OF OPERATIONS 1997 1996 1997 1996
---- ---- ---- ----
Commission and service income $ 22,343 $ 21,400 $ 11,379 $ 11,285
Premiums earned 3,236 4,188 913 1,064
Investment and other interest income 1,883 1,435 878 657
Realized gains on investments 218 194 (1) -
Other income 4 41 - 18
------ ------ ------ ------
Total revenue $ 27,684 $ 27,258 $ 13,169 $ 13,024
------ ------ ------ ------
Net income $ 1,778 $ 1,849 $ 1,075 $ 1,217
====== ===== ====== =====
Per share and common equivalent share:
Net income $ 0.28 $ 0.42 $ 0.17 $ 0.26
====== ===== ====== ======
Weighted average shares
outstanding 6,285 4,407 6,393 4,602
Overview
Net income for the six months and three months ended June 30, 1997,
respectively, of $1,778,000 and $1,075,000, represents a decrease of 3.8% and
11.7%, respectively, over the corresponding periods in 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.
Total revenues increased $426,000 and $145,000 (1.6% and 1.1%) for the six
months and three months ended June 30, 1997, when compared to the
corresponding periods in 1996. This increase in revenues is principally on
the strength of rising premium volumes for the business the Company services
on behalf of the South Carolina Reinsurance Facility ("SC Facility"). In
addition, investment income increased as a result of additional capital
contributions during 1996.
Results of Operations
Six Months Ended June 30, 1997 and 1996
________________________________________
Commission & Service Income
- ---------------------------
Commission and service income for the six months ended June 30, 1997
increased $943,000, or 4.4%, to $22,343,000 from $21,400,000 for the six
months ended June 30, 1996. Revenue the Company earns as a servicing
carrier for the SC Facility increased $1,251,000 due to increased volumes.
Revenue the Company earns as a servicing carrier for the Federal Flood
Insurance Program increased $373,000. This increase is related to a larger
volume of claims during 1997, compared to 1996, partially offset by
decreased revenue from lower premium volumes. 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 1996 was
$521,000.
Property and Casualty Premiums Earned
- -------------------------------------
Net property and casualty premiums earned for the six months ended June 30,
1997 decreased $740,000, or 19.3%, to $3,085,000 from $3,825,000 for the
six months ended June 30, 1996. Premiums on property lines of business
accounted for $623,000 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 on January 1997.
Net Investment and Interest Income
- ----------------------------------
Net investment and other interest income for the six months ended June 30,
1997 increased $448,000, or 31.2% to $1,883,000 from $1,435,000 for the six
months ended June 30, 1996. This increase is related to minimal earnings on
the capital infusions in the first half of 1996 primarily due to the fact that
the Company did not earn interest on certain funds held in escrow until the
third quarter of 1996.
Loss and Loss Adjustment Expenses
- ---------------------------------
Property and casualty loss and loss adjustment expenses incurred for the six
months ended June 30, 1997 decreased $521,000, or 9.4%, to $5,036,000 from
$5,557,000 for the six months ended June 30, 1996. This decrease
corresponds in part to the decrease in premiums earned on the Company's
non-automobile lines. Also included in loss adjustment expenses in 1997 is
$296,000 related to the Company's storm claims and liability run-off services
division that commenced operations in April 1996 with minimal expense in
the first half of 1996.
Other Operating Costs and Expenses
- ----------------------------------
Other operating costs and expenses for six months ended June 30, 1997
increased $1,290,000, or 6.9%, to $20,073,000 from $18,783,000 for the six
months ended June 30, 1996. This increase is related to the 4.4% increase in
commission and service income and the Company's addition of new
management. Salaries and fringes for the six months ended June 30, 1997 and
1996 were $5,847,000 and $4,682,000, respectively. Agent commissions
included in other operating costs and expenses were $9,327,000 and
$9,161,000 for the six months ended June 30, 1997 and 1996, respectively.
Three Months Ended June 30, 1997 and 1996
__________________________________________
Commission & Service Income
- ---------------------------
Commission and service income for the three months ended June 30, 1997
increased $94,000, or 0.8%, to $11,379,000 from $11,285,000 for the three
months ended June 30, 1996. Revenue the Company earns as a servicing
carrier for the SC Facility increased $252,000 due to increased premium
volumes, partially offset by a decrease in revenue on the claims it services.
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 second quarter of 1996 was $266,000. Revenues the
Company earns as an excess and surplus lines broker increased $132,000
during the second quarter of 1997, compared to the same period in 1996. This
increase is due to the addition of multiple new markets and an increased
emphasis on revenue growth.
Property and Casualty Premiums Earned
- -------------------------------------
Net property and casualty premiums earned for the three months ended June
30, 1997 decreased $50,000, or 6.1%, to $776,000 from $826,000 for the three
months ended June 30, 1996. The Company suspended writing retained risk
business in the first half of 1996 and earned minimal amounts in the second
quarter of 1996. The majority of the premiums earned in the second quarter
of 1996 and 1997 reflects the Company's participation in the North Carolina
Reinsurance Facility's ("NC Facility") mandatory pool related to the business
the Company cedes to the NC Facility.
Net Investment and Interest Income
- ----------------------------------
Net investment and other interest income for the three months ended June 30,
1997 increased $221,000, or 33.6%, to $878,000 from $657,000 for the three
months ended June 30, 1996. This increase is primarily due to the additional
capital infusion where the funds did not became available for investing until
the third quarter of 1996.
Loss and Loss Adjustment Expenses
- ---------------------------------
Property and casualty loss and loss adjustment expenses incurred for the three
months ended June 30, 1997 decreased $283,000, or 18.7%, to $1,234,000
from $1,517,000 for the three months ended June 30, 1996. This decrease
corresponds to the decease in premiums earned on business for which the
Company no longer retains risk.
Other Operating Costs and Expenses
- ----------------------------------
Other operating costs and expenses for three months ended June 30, 1997
increased $633,000, or 6.3%, to $10,700,000 from $10,067,000 for the three
months ended June 30, 1996. Salaries and fringes for the three months ended
June 30, 1997 and 1996 were $2,750,000 and $2,404,000, respectively. This
increase is related to the Company's addition of new management. Agent
commissions included in other operating costs and expenses were $4,953,000
and $4,120,000 for the three months ended June 30, 1997 and 1996,
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 six months ended June 30, 1997 was
$5,760,000, compared to cash used in operations of $6,589,000 for the same
period in 1996. The improvement in cash flows is attributable primarily to a
$5,269,000 decrease in the Company's receivable from the Federal Flood
Insurance Program as the storm losses from the fourth quarter of 1996 were
reimbursed to the Company. The reinsurance recoverable on unpaid losses
and loss adjustment expenses and ceded losses outstanding related to the
Federal Flood Insurance Program also decreased in the amount of
$11,585,000. Cash flows from investing activities for the six months ended
June 30, 1997 were $1,838,000, 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 $38,472,000 at June 30,
1997.
Net cash provided by financing activities of $6,419,000 during the six months
ended June 30, 1997 includes net proceeds from a public offering of common
stock. The Company received proceeds, net of certain expenses, of
$5,858,000. During the third quarter of 1997, the Company will receive
additional proceeds on the underwriters' election of the over-allotments of
$2,786,000.
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: August 14, 1997 /s/John A. Weitzel
--------------- ----------------------------
John A. Weitzel
Chief Financial Officer
and Director
Date: August 14, 1997 /s/Ernst N Csiszar.
-------------- ----------------------------
Ernst N. Csiszar
President and Director
Date: August 14, 1997 /s/Mary M. Gardner
--------------- ----------------------------
Mary M. Gardner
Controller (Principal Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 38,472,000
<DEBT-CARRYING-VALUE> 38,472,000
<DEBT-MARKET-VALUE> 38,472,000
<EQUITIES> 17,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 56,363,000
<CASH> (1,164,000)
<RECOVER-REINSURE> 23,262,000
<DEFERRED-ACQUISITION> 40,000
<TOTAL-ASSETS> 208,888,000
<POLICY-LOSSES> 43,151,000
<UNEARNED-PREMIUMS> 1,488,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 7,295,000
<OTHER-SE> 24,662,000
<TOTAL-LIABILITY-AND-EQUITY> 208,888,000
3,236,000
<INVESTMENT-INCOME> 1,883,000
<INVESTMENT-GAINS> 218,000
<OTHER-INCOME> 22,347,000
<BENEFITS> 5,164,000
<UNDERWRITING-AMORTIZATION> 603,000
<UNDERWRITING-OTHER> 20,106,000
<INCOME-PRETAX> 1,811,000
<INCOME-TAX> 33,000
<INCOME-CONTINUING> 1,778,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,778,000
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.00
<RESERVE-OPEN> 47,427,000
<PROVISION-CURRENT> 2,692,000
<PROVISION-PRIOR> 2,036,000
<PAYMENTS-CURRENT> 2,180,000
<PAYMENTS-PRIOR> 6,824,000
<RESERVE-CLOSE> 43,151,000
<CUMULATIVE-DEFICIENCY> 2,036,000
</TABLE>
