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 June 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
______________________
Commission File Number 0-8636
AMERICAN INDEMNITY FINANCIAL CORPORATION
________________________________________
(Exact name of registrant as specified in its charter)
Delaware 510119643
________ _________
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
One American Indemnity Plaza, Galveston, Texas 77550
______________________________________________ _____
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (409) 766-4600
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
As of August 7, 1995, 1,946,710 shares of registrant's common stock,
$3.33 1/3 par value, were outstanding.
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations for the
Three Months Ended June 30, 1995 and 1994
Unaudited
1995 1994
___________ ___________
PREMIUMS AND OTHER INCOME:
Premiums earned $17,246,656 $15,920,720
Net investment income (net of investment
expenses of $100,373 in 1995 and $91,788
in 1994) 979,257 1,222,334
Realized investment losses (37,254) (162,975)
Interest on premium bills receivable and
other income 185,097 171,778
___________ __________
TOTAL 18,373,756 17,151,857
EXPENSES:
Losses and loss adjustment expenses 14,913,671 11,027,556
Policy acquisition costs 6,408,003 5,046,677
Retrospective premium adjustments on
workers'compensation policies 608,087 461,857
___________ ___________
TOTAL 21,929,761 16,536,090
INCOME (LOSS) BEFORE FEDERAL INCOME TAX (3,556,005) 615,767
CREDIT FOR FEDERAL INCOME TAX:
Current (2,915) (11,001)
Deferred
___________ ___________
TOTAL (2,915) (11,001)
NET INCOME (LOSS) $(3,553,090) $ 626,768
AVERAGE SHARES OUTSTANDING 1,946,710 1,946,710
EARNINGS PER SHARE:
NET INCOME (LOSS) $ (1.83) $ .32
DIVIDENDS DECLARED PER SHARE $ .075 $ .06
See Notes to Consolidated Financial Information
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations for the
Six Months Ended June 30, 1995 and 1994
Unaudited
1995 1994
___________ ___________
PREMIUMS AND OTHER INCOME:
Premiums earned $33,914,717 $32,101,881
Net investment income (net of investment
expenses of $196,189 in 1995 and $179,339
in 1994) 1,996,302 2,550,906
Realized investment losses (80,886) (7,771)
Interest on premium bills receivable and
other income 364,188 345,310
___________ ___________
TOTAL 36,194,321 34,990,326
EXPENSES:
Losses and loss adjustment expenses 26,054,737 21,795,529
Policy acquisition costs 12,628,592 10,741,114
Retrospective premium adjustments on
workers' compensation policies 579,462 310,185
___________ ___________
TOTAL 39,262,791 32,846,828
INCOME (LOSS) BEFORE FEDERAL INCOME TAX (3,068,470) 2,143,498
CREDIT FOR FEDERAL INCOME TAX:
Current (679)
Deferred
___________ ___________
TOTAL 0 (679)
NET INCOME (LOSS) $(3,068,470) $ 2,144,177
AVERAGE SHARES OUTSTANDING 1,946,710 1,946,660
EARNINGS PER SHARE:
NET INCOME (LOSS) $ (1.58) $ 1.10
DIVIDENDS DECLARED PER SHARE $ .135 $ .09
See Notes to Consolidated Financial Information
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994
Unaudited
ASSETS 1995 1994
______ ____________ ____________
Investments:
Fixed maturities - bonds:
Available for sale $ 72,961,438 $ 62,569,334
Preferred stocks 2,240,512 2,268,012
Common stocks 12,038,883 14,475,261
Mortgage loans on real estate 26,874 29,034
Short-term investments 60,000 60,000
___________ ___________
Total Investments 87,327,707 79,401,641
Cash and Cash Equivalents 2,213,737 4,937,544
Accrued Investment Income 677,240 736,466
Premiums in Course of Collection 7,507,820 5,962,784
Direct Premium Bills Receivable 8,748,514 7,908,893
Reinsurance Balances Receivable 13,421,391 10,788,671
Prepaid Reinsurance Premiums 755,135 1,327,484
Property and Equipment - Less accumulated
depreciation of $4,596,391 in 1995 and
$4,411,800 in 1994 4,105,902 3,791,245
Deferred Policy Acquisition Costs 9,527,200 9,097,464
Deferred Income Taxes 4,430,000 4,430,000
Other Assets 3,025,032 2,819,299
____________ ____________
TOTAL $141,739,678 $131,201,491
LIABILITIES AND STOCKHOLDERS' EQUITY
____________________________________
Losses and Loss Adjustment Expenses $ 54,398,071 $ 50,916,776
Unearned Premiums 36,677,230 34,922,255
Reinsurance Balances Held or Payable 2,915,361 3,777,547
Accounts Payable and Other Accrued Liabilities 8,951,413 8,146,547
____________ ____________
Total Liabilities 102,942,075 97,763,125
Stockholders' Equity:
Preferred stock, authorized 2,000,000 shares;
none outstanding
Common stock, $3.33 1/3 par value; authorized
2,500,000 shares; outstanding shares
1,946,710 in 1995 and 1994 6,489,018 6,489,018
Paid-in surplus 13,045,866 13,045,866
Unrealized decline in market value of
investments (1,661,827) (10,352,340)
Retained earnings 20,924,546 24,255,822
____________ ____________
Total Stockholders' Equity 38,797,603 33,438,366
____________ ____________
TOTAL $141,739,678 $131,201,491
See Notes to Consolidated Financial Information
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1995 and 1994
Unaudited
1995 1994
____________ ____________
OPERATING ACTIVITIES:
Net income (loss) $ (3,068,470) $ 2,144,177
Adjustments to reconcile net income to
net cash flow from operating activities:
Decrease (Increase) in:
Premiums in course of collection 1,545,036) (1,202,859)
Direct premium bills receivable (839,621) (377,583)
Reinsurance balances receivable (2,632,720) 647,555
Prepaid reinsurance premiums 572,349 427,756
Deferred policy acquisition costs (429,736) (1,186,218)
Other assets (205,733) (491,928)
Increase (Decrease) in:
Unpaid losses and loss adjustment expenses 3,481,295 (730,538)
Unearned premiums 1,754,975 662,138
Reinsurance balances held or payable (862,186) 793,781
Accounts payable and other accrued
liabilities 804,866 908,240
Realized investment losses 80,886 7,771
Depreciation 184,591 146,663
Other 76,383 192,267
__________ ___________
Net cash flow from operating activities (2,628,157) 1,941,222
INVESTING ACTIVITIES:
Sale of bonds 503,125 19,107,950
Maturity of bonds 2,851,646 3,082,877
Sale of preferred stocks 49,338
Redemption of preferred stocks 144,200 27,625
Sale of common stocks 3,927,130 2,401,870
Purchase of bonds (6,811,195) (24,141,020)
Purchase of preferred stocks (175,000)
Purchase of common stocks (1,026,634)
Purchase of property and equipment (499,248) (248,716)
Other 2,160 8,413
__________ ___________
Net cast flow from investing activities 167,156 (962,635)
FINANCING ACTIVITIES:
Cash dividends paid to stockholders (262,806) (175,201)
Proceeds received from exercise of stock
options 638
__________ __________
Net cash flow from financing activities (262,806) (174,563)
__________ __________
Net Increase (Decrease) in Cash and
Cash Equivalents (2,723,807) 804,024
Cash and Cash Equivalents, January 1 4,937,544 2,628,681
__________ __________
Cash and Cash Equivalents, June 30 $ 2,213,737 $ 3,432,705
See notes to Consolidated Financial Information
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
___________________________________________
(1)The financial information included herein is unaudited but, in the
opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation have been
included. These interim consolidated financial statements should
be read in conjunction with the Company's report on Form 10-K for
the year ended December 31, 1994. The results of operations for
this interim period are not necessarily indicative of results for
the full year.
(2)Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes, and (b) operating loss carryforwards. The tax
effects of significant items comprising the Company's net deferred
income taxes as of June 30, 1995 and December 31, 1994 are as
follows:
June 30, 1995 December 31, 1994
_____________ _____________
Deferred tax liabilities:
Deferred policy acquisition costs $ (3,239,248) $ (3,093,138)
Difference between book and
tax basis of property (264,959) (293,041)
Other (660,239) (648,145)
_____________ _____________
(4,164,446) (4,034,324)
Deferred tax assets:
Reserves not currently deductible 5,807,964 5,544,486
Unrealized investments losses 565,021 3,519,796
Operating loss carryforwards 11,324,480 10,266,792
_____________ _____________
17,697,465 19,331,074
_____________ _____________
Net Asset 13,533,019 15,296,750
Valuation allowance (9,103,019) (10,866,750)
_____________ _____________
Net deferred tax assets $ 4,430,000 $ 4,430,000
The provision for federal income tax is related to taxes arising
under the alternative minimum tax system which is based on
reported income, adjusted for differences arising in revenue or
expense items, per applicable tax laws and regulations, between
reported income and taxable income. The provision for income tax
for the six months ended June 30, 1995 was $-0-. The Company did
not pay any federal income taxes during the first six months of
1995, whereas the Company paid $160,000 in federal income taxes
during the first six months of 1994.
The Company has a net operating loss carryforward for tax purposes
of $33,307,294, which expires if not previously utilized, in
1998-$3,260,879; 1999-$7,384,546; 2000-$5,712,421; 2001-$4,927,522;
2002-$2,271,256; 2003-$621,205; 2004-$4,596,950; 2005-$1,246,728;
2006-$118,137; 2007-$43,352; 2008-$13,450; and 2010-$3,110,848.
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
_____________________________________________
LIQUIDITY
The Company has consistently been able to generate adequate
amounts of cash to meet its needs and management is unaware of any
trends, demands, commitments, events or uncertainties which will or
are reasonably likely to have a material effect on the Company's
liquidity.
Operating Activities
The net cash flow from operating activities for the six months
ended June 30, 1995 was negative primarily as a result of an increase
in the amount of funds required for the payment of claims, an increase
in policy acquisition costs and a decrease in net investment income
compared with the six months ended June 30, 1994. The negative effect
on cash flow of these items was offset somewhat by a 9.2% increase in
net premiums written for the same comparison periods.
The amount of funds required for claim payments increased
approximately 7.2% for the six months ended June 30, 1995 compared
with the six months ended June 30, 1994. This resulted primarily from
an increase in claim payments, due to increased weather-related losses
during the second quarter of 1995 compared with the second quarter of
1994 and the settlements of several large claims, in the first six
months of 1995 for the commercial automobile liability line of
business compared with the first six months of 1994.
Policy acquisition costs increased 17.6% in the first six months
of 1995 compared with the first six months of 1994. This increase
resulted from increases in amortization of deferred policy acquisition
costs, expenses related to commissions and overhead expenses during
the first six months of 1995 compared with the first six months of
1994. Expenses related to commissions increased as a result of the
cancellation of the 25% quote share reinsurance agreement and
increased bonus commission expense. Overhead expenses increased due
to increases in employee benefits and legal and auditing expenses.
Net investment income decreased 21.7% in the first six months of
1995 compared with the first six months of 1994, primarily as a result
of reduced yields on the Company's derivative securities.
The net cash flow from operating activities for the six months
ended June 30, 1994 was positive as a result of favorable operating
results.
Investing Activities
During the first six months of 1995, management invested a
portion of available cash balances and the proceeds received from the
disposition of investments into investment grade bonds which provided
favorable yields. The net cash flow from investing activities was
positive in the first six months of 1995 as total investment sales and
maturities exceeded total investment purchases.
During the first six months of 1995, unrealized investment gains
increased stockholders' equity by approximately $8,691,000, of which
approximately $6,918,000 of this amount was from debt securities, with
the remainder from equity securities. These unrealized investment
gains were a result of
<PAGE>
an overall improvement in market conditions during the first six
months of 1995. Approximately $3,727,000 of the $6,918,000 unrealized
investment gains on debt securities was related to six derivative
issues owned by the company. On June 30, 1995, the value carried in
the Company's balance sheet for these six issues was $20,392,000.
The Company's debt and equity securities are reported on the
Company's balance sheet at their respective market values which
fluctuate based upon a variety of market factors. Such fluctuations
will result in changes to the Company's unrealized investment gains or
losses and will have corresponding impacts on the Company's
stockholders' equity. The derivative securities mentioned above are
known as inverse floaters as their yields, which are adjusted
periodically, vary inversely to certain LIBOR rates. These derivative
securities will probably exacerbate swings in unrealized investment
gains and losses and stockholders' equity in the event of significant
movement of the applicable LIBOR rates. Additionally, the yield
formulas for these securities will result in commensurate swings in
investment income. At current yield rates and considering future
yield resets for these securities, net investment income for the final
six months of 1995 is expected to be reduced by approximately $314,000
as compared to the corresponding period in 1994. This is subject to
change, either positively or negatively, depending on future
investment market conditions.
The Company believes that the principal of these derivative
securities is assured at maturity as they are issued by government
agencies. However, if conditions are favorable for their disposition
or if unforeseen circumstances occur, the Company may dispose of all
or a portion of these securities prior to maturity.
During the first six months of 1994, management invested funds
which were generated from the disposition of investments, together
with a portion of available cash balances, into bonds and common and
preferred stocks. As a result, the net cash flow from investing
activities was negative for the six months ended June 30, 1994.
Financing Activities
There were no new financing commitments entered into the first
six months of 1995. The net cash flow from financing activities was
negative for the first six months of 1995 and the first six months of
1994, as a result of cash dividends paid to stockholders.
CAPITAL RESOURCES
The activities of insurance companies are regulated by state
authorities and adequate levels of reserves and equity capital are
required to be maintained to ensure that enough capital is retained in
the business to provide sufficient funds to meet its obligations. The
Company has met all statutory and regulatory requirements and
management believes that sufficient funds have been retained to meet
its obligations. The Company has no current commitments or plans for
debt or equity financing.
RESULTS OF OPERATIONS
Premiums earned increased 8.3% and 5.6%, respectively, for the
three months and six months ended June 30, 1995 compared with the same
1994 periods. The increase in premiums earned resulted primarily from
the continued increase in the number of commerical lines policies
written and the cancellation of the 25% quota share reinsurance
agreement in the third quarter of 1994.
<PAGE>
Primarily as a result of the unrealized losses in market value of
investments experienced in 1994, average invested assets at June 30,
1995 decreased approximately $1,807,000 compared with June 30, 1994.
Additionally, net investment income decreased 19.9% and 21.7%
respectively, for the three months and six months ended June 30, 1995
compared with the same 1994 period, primarily as a result of reduced
yields on the Company's derivative securities. The average investment
yield reflected this decrease as it was 4.79% for the six months ended
June 30, 1995 compared with 5.99% for the six months ended June 30,
1994. Management will continue to seek improvement in investment
earnings without sacrificing investment portfolio quality.
The loss and loss adjustment expense ratio was 86.5% for the
three months ended June 30, 1995 compared with 69.3% for the three
months ended June 30, 1994 and was 76.8% for the six months ended June
30, 1995 compared with 67.9% for the six months ended June 30, 1994.
This increase resulted primarily from claims attributable to the
occurrence of numerous weather-related natural catastrophes in Texas
during the second quarter of 1995, which were unprecedented in their
severity. Claims from weather-related natural catastrophes resulted
in approximately $3,922,000 in losses for the second quarter ended
June 30, 1995, compared with approximately $1,461,000 for the second
quarter ended June 30, 1994. For the six months ended June 30, 1995,
weather-related natural catastrophes resulted in losses of
approximately $4,669,000, compared with $1,967,000 for the six months
ended June 30, 1994. The remainder of the increase in this ratio for
the second quarter and first six months of 1995 resulted principally
from an increased number of large commercial automobile liability
claims which occurred during the second quarter of 1995.
The policy acquisition cost ratio was 37.2% for the three months
ended June 30, 1995 compared with 31.7% for the three months ended
June 30, 1994 and was 37.2% for the six months ended June 30, 1995,
compared with 33.5% for the six months ended June 30, 1994. The
increase in this ratio was a result of increases in amortization of
deferred policy acquisition costs, expenses related to commissions and
overhead expenses during the first three months and six months of 1995
compared with the first three months and six months of 1994. Expenses
related to commissions increased as a result of the cancellation of
the 25% quota share reinsurance agreement and increased bonus
commission expense. Overhead expenses increased due to increases in
employee benefits and legal and auditing expenses.
The occurrence of numerous severe weather-related natural
catastrophes, the increase in policy acquisition costs, and the
decrease in net investment income resulted in a net loss of
approximately $3,068,000 for the six months ended June 30, 1995
compared with net income of approximately $2,144,000 for the six
months ended June 30, 1994.
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
Item 6. (a) Exhibit 11 - Computation of Fully Diluted Net Income per
Common and Common Equivalent Share.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the
quarter for which this report is filed.
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.
AMERICAN INDEMNITY FINANCIAL CORPORATION
________________________________________
(Registrant)
Date AUGUST 9, 1995 PHILLIP E. APGAR
______________ ________________________________
PHILLIP E. APGAR
VICE PRESIDENT-TREASURER - CHIEF
FINANCIAL OFFICER
(PRINCIPAL FINANCIAL & ACCOUNTING OFFICER)
AMERICAN INDEMNITY FINANCIAL CORPORATION EXHIBIT 11
AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED NET INCOME
PER COMMON AND COMMON EQUIVALENT SHARE
SIX SIX THREE THREE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
06-30-95 06-30-94 06-30-95 06-30-94
________ ________ ________ ________
PRIMARY EARNINGS PER SHARE
__________________________
Weighted average shares of
common stock outstanding 1,946,710 1,946,660 1,946,710 1,946,710
Stock options (treasury
stock method) (1) 8,396 11,896 8,396 11,896
_________ _________ _________ _________
Weighted average shares out-
standing for primary earnings
per share computation 1,955,106 1,958,556 1,955,106 1,958,606
Net income (loss) $(1.57) $1.09 $(1.82) $.32
FULLY DILUTED EARNINGS PER SHARE
_______________________________
Weighted average shares of
common stock outstanding 1,946,710 1,946,660 1,946,710 1,946,710
Stock options (treasury
stock method) (1) 8,396 11,896 8,396 11,896
_________ __________ _________ _________
Weighted average shares out-
standing for fully diluted
computation 1,955,106 1,958,556 1,955,106 1,958,606
Net income (loss) $(1.57) $1.09 $(1.82) $.32
(1)This calculation is submitted in accordance with Regulation S-K
item 601(b)(11) although not required by footnote 2 to paragraph
14 of APB Opinion No. 15 because it results in dilution of less
than 3%.
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<DEBT-HELD-FOR-SALE> 72,961,438
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 14,279,395
<MORTGAGE> 26,874
<REAL-ESTATE> 0
<TOTAL-INVEST> 87,327,707
<CASH> 2,213,737
<RECOVER-REINSURE> 13,421,391
<DEFERRED-ACQUISITION> 9,527,200
<TOTAL-ASSETS> 141,739,678
<POLICY-LOSSES> 54,398,071
<UNEARNED-PREMIUMS> 36,677,230
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 6,489,018
0
0
<OTHER-SE> 32,308,585
<TOTAL-LIABILITY-AND-EQUITY> 141,739,678
33,914,717
<INVESTMENT-INCOME> 1,996,302
<INVESTMENT-GAINS> (80,886)
<OTHER-INCOME> 364,188
<BENEFITS> 26,054,737
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 12,628,592
<INCOME-PRETAX> (3,068,470)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,068,470)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,068,470)
<EPS-PRIMARY> (1.57)
<EPS-DILUTED> (1.57)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
