The following items were the subject
of a Form 12b-25 and are included herein:
Items 1 and 2 of Part I; Exhibit 27
under Item 6(a) of Part II
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] 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 1-11184
NORTH EAST INSURANCE COMPANY
(Exact name of small business issuer as
specified in its charter)
Maine 01-0278387
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
482 Payne Road, Scarborough, Maine 04074
(Address of principal executive offices)
(207) 883-2232
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of November 13, 1997, there were 3,046,842 outstanding shares of Common
Stock, $1.00 par value, the only authorized class of common stock of the
issuer.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
PART I - FINANCIAL INFORMATION
North East Insurance Company and Subsidiaries
Item 1. FINANCIAL INFORMATION
Consolidated Balance Sheet
as of September 30, 1997
<TABLE>
<CAPTION>
1997
------------
<S> <C>
ASSETS
Investments:
Fixed maturities available for sale, at fair value (amortized
cost $12,879,901) $ 13,003,334
Investment property, at cost less accumulated depreciation
of $49,041 60,958
Equity securities available for sale, at fair value (cost
$154,967) 90,247
Short-term investments 4,246,871
------------
Total investments 17,401,410
Reinsurance (loss and loss adjustment expense reserves and
paid recoverables) 5,197,262
Premium balances receivable 4,540,292
Deferred policy acquisition costs 1,379,233
Prepaid reinsurance premiums (ceded unearned premium) 377,993
Investment income due and accrued 231,890
Property and equipment, net of accumulated depreciation 410,264
Deferred tax asset 2,120,925
Prepaid federal income tax 9,242
Other assets 254,208
------------
Total Assets $ 31,922,719
============
LIABILITIES
Losses and loss adjustment expenses $ 14,039,011
Unearned premiums 6,388,861
Ceded reinsurance balances payable 534,178
Reserve for unpaid expenses 701,036
Book overdraft 755,089
Other liabilities 29,711
------------
Total Liabilities 22,447,886
SHAREHOLDERS' EQUITY
Common stock $1.00 par value, authorized 6,000,000 shares,
issued and outstanding 3,046,842 shares 3,046,842
Additional paid-in capital 6,403,621
Unrealized depreciation of investment 58,716
Accumulated retained earnings (34,346)
------------
Total Shareholders' Equity 9,474,833
------------
Total Liabilities and Shareholders' Equity $ 31,922,719
============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
North East Insurance Company and Subsidiaries
Consolidated Statements of Operations
for the Nine Months ended September 30,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Premiums earned $ 8,688,774 $ 8,581,144
Premiums ceded 2,099,809 3,455,500
----------- -----------
Net premiums earned 6,588,965 5,125,644
Net investment income 569,086 825,866
Realized capital gains 26,051 48,783
----------- -----------
Total revenues 7,184,102 6,000,293
Expenses:
Losses and loss adjustment expenses 5,824,082 5,574,888
Reinsurance recoveries (1,501,979) (2,067,882)
----------- -----------
Net losses and loss adjustment expenses 4,322,103 3,507,006
Underwriting expenses incurred 3,052,900 1,822,264
----------- -----------
Total expenses 7,375,003 5,329,270
----------- -----------
Income (loss) before provision for income taxes (190,901) 671,023
Provision for income taxes, net of $241,908 tax
benefit from loss carryforward for 1996 (70,531) 13,420
----------- -----------
Net income (loss) $ (120,370) $ 657,603
=========== ===========
Earnings per common share:
Net income (loss) $ (0.04) $ 0.22
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
North East Insurance Company and Subsidiaries
Consolidated Statements of Operations
for the Three Months ended September 30,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Premiums earned $ 3,020,178 $ 2,902,387
Premiums ceded 258,997 1,234,411
----------- -----------
Net premiums earned 2,761,181 1,667,976
Net investment income 187,552 307,606
Realized capital losses (53,261) (21,947)
----------- -----------
Total revenues 2,895,472 1,953,635
Expenses:
Losses and loss adjustment expenses 1,829,574 1,898,588
Reinsurance recoveries, net of salvage (521,238) (848,788)
----------- -----------
Net losses and loss adjustment expenses 1,308,336 1,049,800
Underwriting expenses incurred 1,869,979 566,965
----------- -----------
Total expenses 3,178,315 1,616,765
----------- -----------
Income (loss) before provision for income taxes (282,843) 336,870
Provision for income taxes, net of $107,979 tax
benefit from loss carryforward for 1996 (84,799) 6,737
----------- -----------
Net income (loss) $ (198,044) $ 330,133
=========== ===========
Earnings per common share:
Net income (loss) $ (0.07) $ 0.11
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
North East Insurance Company And Subsidiaries
Consolidated Statements of Cash Flows
for the Nine Months ended September 30,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
Insurance premium received $ 8,153,167 $ 4,626,182
Loss and loss adjustment expenses paid (5,777,905) (5,273,529)
Operating expenses paid (4,298,216) (1,657,630)
Investment income received 621,547 806,429
----------- -----------
Net cash used in operating activities (1,301,407) (1,498,548)
----------- -----------
Cash flows from investing activities:
Fixed maturities available for sale, sold 3,817,112 5,759,622
Fixed maturities available for sale, purchased (1,850,675) (2,770,473)
Proceeds from mortgage note 0 459,139
Proceeds from sale of real estate 0 108,000
Proceeds from issuance of common stock 100,049 16,944
Proceed from the sale of office furniture 17,269 0
Purchase of furniture, fixtures and equipment, net (152,376) (24,012)
----------- -----------
Net cash provided by investing activities 1,931,379 3,549,220
----------- -----------
Net increase in cash, book overdraft and short-term
investments 629,972 2,050,672
Cash, book overdraft and short-term investments at beginning
of year 2,861,810 1,722,100
----------- -----------
Cash, book overdraft and short-term investments at end
of period $ 3,491,782 $ 3,772,772
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
North East Insurance Company And Subsidiaries
Consolidated Reconciliation of Cash Used In
Operating Activities to Net Income
for the Nine Months ended September 30,
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net income (loss) $ (120,370) $ 657,603
Decrease (increase) in net premium and ceded reinsurance balances (1,568,826) (588,291)
Increase in unearned premium reserve 2,843,798 4,088
Decrease in loss and loss adjustment expense reserve (1,166,572) (1,681,782)
Decrease (increase) in investment income due and accrued 52,461 (19,437)
Decrease (increase) in deferred policy acquisition costs (980,638) 61,853
Decrease (increase) in deferred tax asset (70,531) 0
Decrease in federal income tax payable 0 (6,080)
Decrease in expense accruals (467,119) (81,415)
Amortization of bond premium, net 56,937 60,339
Depreciation and amortization expense 145,871 143,357
Loss (gain) on investment activities (26,418) 17,231
Loss on sale of real estate 0 13,125
Write down of mortgage note in default 0 (79,139)
------------ ------------
Net cash used in operating activities $ (1,301,407) $ (1,498,548)
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
North East Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 1997
1. The condensed financial statements included herein have been prepared by
the Registrant, without audit, pursuant to the rules and regulations of the
Commission. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Registrant believes that the disclosures which are
made are adequate to make the information presented not misleading,
particularly when read in conjunction with the financial statements and the
notes thereto included in the Registrant's latest annual report on Form 10-KSB.
In Management's opinion, the attached interim financial statements reflect all
adjustments which are necessary for a fair statement of the results for the
periods presented.
2. In June 1996 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 125 ("Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities") which provides standards whereby an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
de-recognizes financial assets when control has been surrendered, and
de-recognizes liabilities when extinguished. The Statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996. The effect of adopting the provisions of FAS
No. 125 did not have a material effect on the Company's consolidated results of
operations or financial position.
In March 1997 the FASB issued FAS No. 128 ("Earnings Per Share") which provides
for a "basic" earnings per share computation based upon the weighted-average
shares outstanding. The new standard requires a dual presentation of basic and
diluted earnings per share. The effect of adopting the provisions of FAS No.
128 did not have a material effect on the Company's per share earnings.
In March 1997 the FASB also issued FAS No. 129 ("Disclosures of Information
About Capital Structure"). The effect of adopting the provision of FAS No. 129
did not result in significant disclosure due in part to the simplified nature
of the Company's capital structure.
3. North East Insurance Company owns 100% of American Colonial Insurance
Company and North Atlantic Underwriters, Inc. whose results are consolidated
herein.
4. Earnings per share are computed using the weighted average method.
<PAGE>
North East Insurance Company and Subsidiaries
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
During the third quarter, management determined that the combined effect of
two recently renegotiated programs was resulting in significantly greater than
expected expense levels. Meetings between management and its principal
reinsurer resulted in a modification to the quota share program reducing the
per occurrence deductible from $1,000 to $100, and a significant rate
reduction to its first excess of loss treaty. These adjustments were intended
to more accurately reflect the parties' expectations in the earlier design of
the two programs, and to provide a more appropriate matching of reinsurance
loss and expense recoveries to the Company's direct experience. The
cumulative effect of these changes is included in the results of operation for
both the nine months and the quarter ended September 30, 1997. The changes do
not have a material effect on net income for the first two quarters of 1997.
Nine Months Ended September 30, 1997
- ------------------------------------
Net premiums written amounted to $9,432,763 for the nine months ended
September 30, 1997, compared with $5,129,732 for the nine months ended
September 30, 1996. Net premiums earned for the nine months ended September
30, 1997 and 1996 amounted to $6,588,965 and $5,125,644, respectively. The
increase in net premiums written reflects the decision to cancel the 35% quota
share treaty effective January 1, 1997 on a runoff basis, decreased cost of
our first excess of loss reinsurance treaty, and an overall increase in our
direct premiums written of approximately 9.7%.
Loss and loss adjustment expenses represented 65.6% and 68.4% of net premium
earned for the nine months ended September 30, 1997 and 1996, respectively.
Underwriting expenses incurred represented 32.4% and 35.5% of net premiums
written for the nine months ended September 30, 1997 and 1996, respectively.
The combined ratio was 98.0% and 103.9% for the nine months ended September
30, 1997 and 1996, respectively.
Total return from investment activities amounted to $595,137 for the nine
months ended September 30, 1997 compared with $874,649 for the nine months
ended September 30,
1996. The return on invested assets, based on amortized cost, net of
allocated expenses was 4.9% for the nine months ended September 30, 1997,
compared with 6.1% for the nine months ended September 30, 1996.
Net loss for the nine months ended September 30, 1997 amounted to $120,370 or
$0.04 per share, compared with net income of $657,603 or $0.22 per share for
the nine months ended September 30, 1996.
Shareholders' equity at September 30, 1997 amounted to $9,474,833 or $3.11 per
share compared with $9,324,961 or $3.11 per share at December 31, 1996. The
change in market value of the Company's fixed maturities available for sale
resulted in an increase to surplus of $175,152 or $0.06 per share for the nine
months ended September 30, 1997.
<PAGE>
Three Months Ended September 30, 1997
- -------------------------------------
Net premiums written amounted to $3,230,472 for the three months ended
September 30, 1997 compared with $1,732,070 for the three months ended
September 30, 1996. Net premiums earned for the three months ended September
30, 1997 and 1996 amounted to $2,761,181 and $1,667,976, respectively. These
changes reflect cancellation of the share quota treaty and an increase in
direct premiums written, as described above.
Loss and loss adjustment expenses represented 47.4% and 62.9% of net premium
earned for the three months ended September 30, 1997 and 1996, respectively.
Underwriting expenses incurred amounted to 57.9% and 32.7% for the three
months ended September 30, 1997 and 1996, respectively. The combined ratio
for the three months ended September 30, 1997 and 1996 amounted to 105.3% and
95.6%, respectively. The changes in these ratio components for 1997 versus
1996 reflect largely offsetting adjustments due to the reinsurance program
modifications discussed above, together with favorable loss experiences in
1996.
Net loss for the three months ended September 30, 1997 amounted to $198,044 or
$0.07 per share compared with net income of $330,133 or $0.11 per share for
the three months ended September 30, 1996.
Shareholders' equity at September 30, 1997 amounted to $9,474,833 or $3.11 per
share, compared with $9,441,144 or $3.10 per share at June 30, 1997.
Liquidity and Capital Resources
- -------------------------------
Cash used in operating activities amounted to $1,301,407 for the nine months
ended September 30, 1997 compared with $1,498,548 for the nine months ended
September 30, 1996. The decrease in cash used in operating activities is the
result of the cancellation of the quota share reinsurance arrangement on a
runoff basis effective January 1, 1997. Cash provided by investing activities
amounted to $1,931,379 for the nine months ended September 30, 1997 compared
with cash provided of $3,549,220 for the nine months ended September 30, 1996.
During 1996, securities were sold to fund the payment of amounts due under the
quota share reinsurance treaty; that treaty was canceled as of January 1, 1997
on a runoff basis, and was subsequently commuted as of September 30, 1997.
The fair value of the Company's fixed maturities available for sale was
$123,433 more than the amortized cost at September 30, 1997 compared with
$52,717 less than amortized cost at December 31, 1996.
The Company maintains short term investments to provide a cash resource should
the demands from operations exceed incoming cash flow. Short term investments
amounted to $4,246,871 at September 30, 1997 compared with $2,868,875 at
December 31, 1996. The Company believes that this level is sufficient to meet
any unanticipated cash demands.
<PAGE>
PART II - OTHER INFORMATION
Item 6.
a) Exhibits pursuant to Item 601 of Regulation S-B
27 Financial Data Schedule
b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this amendment to be signed on its behalf by the undersigned, thereunto duly
authorized.
NORTH EAST INSURANCE COMPANY
Date: November 21, 1997 By /s/ Robert G. Schatz
Robert G. Schatz, President and
Chief Executive Officer
Date: November 21, 1997 By /s/ Graham S. Payne
Graham S. Payne, Treasurer and
Chief Financial Officer
<PAGE>
North East Insurance Company and Subsidiaries
Form 10-QSB
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ------------------------ ----
<S> <C> <C>
27 Financial Data Schedules 15
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000352162
<NAME> NORTH EAST INSURANCE COMPANY
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 13,003,334
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 90,247
<MORTGAGE> 0
<REAL-ESTATE> 60,958
<TOTAL-INVEST> 17,401,410
<CASH> 3,491,782
<RECOVER-REINSURE> 5,197,262
<DEFERRED-ACQUISITION> 1,379,233
<TOTAL-ASSETS> 31,922,719
<POLICY-LOSSES> 14,039,011
<UNEARNED-PREMIUMS> 6,388,861
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 3,046,842
<OTHER-SE> 6,369,275
<TOTAL-LIABILITY-AND-EQUITY> 31,922,719
6,588,965
<INVESTMENT-INCOME> 569,086
<INVESTMENT-GAINS> 26,051
<OTHER-INCOME> 0
<BENEFITS> 4,322,103
<UNDERWRITING-AMORTIZATION> 3,052,900
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (190,901)
<INCOME-TAX> (70,531)
<INCOME-CONTINUING> (120,370)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (120,370)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
