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 March 31, 1996
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 May 6, 1996, 1,948,110 shares of registrant's common stock,
$3.33 1/3 par value, were outstanding.
PAGE 1 OF 11 PAGES
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations for the
Three Months Ended March 31, 1996 and 1995
Unaudited
1995 1996
___________ ____________
PREMIUMS AND OTHER INCOME:
Premiums earned $16,223,825 $16,668,061
Net investment income (net of investment
expenses of $99,517 in 1996 and $95,816
in 1995) 1,119,619 1,017,045
Realized investment gains (losses) 136,914 (43,632)
Interest on premium notes receivable and
other income 172,294 179,091
____________ ____________
TOTAL 17,652,652 17,820,565
EXPENSES:
Losses and loss adjustment expenses 10,910,359 11,141,066
Policy acquisition costs 5,696,723 6,220,589
Retrospective premium adjustments on
workers' compensation policies (20,229) (28,625)
____________ ____________
TOTAL 16,586,853 17,333,030
INCOME BEFORE FEDERAL INCOME TAX 1,065,799 487,535
PROVISION FOR FEDERAL INCOME TAX:
Current 2,915
Deferred
____________ ____________
TOTAL 2,915
NET INCOME $ 1,065,799 $ 484,620
AVERAGE SHARES OUTSTANDING 1,947,110 1,946,710
EARNINGS PER SHARE:
NET INCOME $ .55 $ .25
DIVIDENDS DECLARED PER SHARE $ .075 $ .06
See Notes to Consolidated Financial Information
PAGE 2 OF 11 PAGES
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
Unaudited
1996 1995
ASSETS ____________ ____________
______
Investments:
Fixed maturities - bonds:
Available for sale $ 72,390,079 $ 72,578,178
Preferred stocks 2,085,611 2,289,472
Common stocks 11,639,278 11,895,516
Mortgage loans on real estate 23,426 24,604
Short-term investments 60,000 60,000
_____________ _____________
Total Investments 86,198,394 86,847,770
Cash and Cash Equivalents 3,144,692 4,781,566
Accrued Investment Income 798,664 711,185
Premiums in Course of Collection 6,527,772 4,293,569
Direct Premium Bills Receivable 9,131,422 8,267,740
Reinsurance Balances Receivable 12,488,694 12,167,759
Prepaid Reinsurance Premiums 695,801 716,632
Property and Equipment - Less accumulated
depreciation of $4,725,995 in 1996 and
$4,614,370 in 1995 4,263,011 4,202,742
Deferred Policy Acquisition Costs 9,189,471 8,841,705
Deferred income taxes 4,498,000 4,498,000
Other Assets 2,823,739 2,785,268
_____________ _____________
TOTAL $139,759,660 $138,113,936
LIABILITIES AND STOCKHOLDERS' EQUITY
____________________________________
Losses and Loss Adjustment Expenses $ 50,628,867 $ 51,165,424
Unearned Premiums 35,712,235 34,489,378
Reinsurance Balances Held or Payable 3,238,649 2,844,698
Notes Payable to Bank 574,004
Accounts Payable and Other Accrued Liabilities 9,171,505 9,085,322
_____________ _____________
Total Liabilities 99,325,260 97,584,822
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
1,947,110 in 1996 and 1995 6,490,351 6,490,351
Paid-in surplus 13,047,085 13,047,085
Unrealized appreciation in market value of
investments 1,369,977 2,384,456
Retained earnings 19,526,987 18,607,222
_____________ _____________
Total Stockholders' Equity 40,434,400 40,529,114
_____________ _____________
TOTAL $139,759,660 $138,113,936
See Notes to Consolidated Financial Information
PAGE 3 OF 11 PAGES
<PAGE>
AMERICAN INDEMNITY FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995
Unaudited
1996 1995
_____________ _____________
OPERATING ACTIVITIES:
Net income $ 1,065,799 $ 484,620
Adjustments to reconcile net income to
net cash flow from operating activities:
Decrease (Increase) in:
Premiums in course of collection (2,234,203) (1,991,389)
Direct premium bills receivable (863,682) (980,304)
Reinsurance balances receivable (320,935) (957,167)
Prepaid reinsurance premiums 20,831 416,620
Deferred policy acquisition costs (347,766) (478,442)
Other assets (38,471) (69,888)
Increase (Decrease) in:
Unpaid losses and loss adjustment expenses (536,557) 827,289
Unearned premiums 1,222,857 1,930,200
Reinsurance balances held or payable 393,951 (825,802)
Accounts payable and other accrued
liabilities 86,183 577,092
Realized investment (gains) losses (136,914) 43,632
Depreciation 111,625 88,172
Other (81,593) (63,426)
_____________ _____________
Net cash flow from operating activities (1,658,875) (998,793)
INVESTING ACTIVITIES:
Sale of bonds 3,921,664
Maturity of bonds 3,707,849 1,344,958
Sale of preferred stocks 53,125
Redemption of preferred stocks 102,930 144,200
Sale of common stocks 751,442 649,736
Purchase of bonds (8,442,168) (2,817,027)
Purchase of common stocks (330,095)
Purchase of property and equipment (171,894) (247,616)
Other 1,178 1,068
_____________ _____________
Net cash flow from investing activities (405,969) (924,681)
FINANCING ACTIVITIES:
Proceeds received from bank loan 580,500
Payments on bank loan (6,496)
Cash dividends paid to stockholders (146,034) (116,803)
_____________ _____________
Net cash flow from financing activities 427,970 (116,803)
Net Increase (Decrease) in Cash and _____________ _____________
Cash Equivalents (1,636,874) (2,040,277)
Cash and Cash Equivalents, January 1 4,781,566 4,937,544
_____________ _____________
Cash and Cash Equivalents, March 31 $ 3,144,692 $ 2,897,267
See Notes to Consolidated Financial Information
PAGE 4 OF 11 PAGES
<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, 1995. 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 March 31, 1996 and December 31, 1995 are as follows:
March 31, 1996 December 31, 1995
_______________ __________________
Deferred tax liabilities:
Deferred policy acquisition costs $ (3,124,420) $ (3,006,180)
Differences between book and
tax basis of property (308,336) (300,935)
Unrealized investment gains (465,792) (810,715)
Other (391,908) (403,926)
_____________ _____________
(4,290,456) (4,521,756)
Deferred tax assets:
Reserves not currently deductible 5,671,133 6,013,565
Operating loss carryforwards 11,736,290 11,824,122
_____________ _____________
17,407,423 17,837,687
_____________ _____________
Net Asset 13,116,967 13,315,931
Valuation allowance (8,618,967) (8,817,931)
_____________ _____________
Net deferred tax assets $ 4,498,000 $ 4,498,000
The provision for income tax for the three months ended March 31,
1996 was $-0-. The Company did not pay any federal income taxes
during the first three months of 1996 or the first three months of
1995. The provision for federal income tax for the three months
ended March 31, 1995 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 Company has a net operating loss carryforward for tax purposes
of $34,518,499, which expires if not previously utilized, in 1998-
$2,905,668; 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; 2009-$13,410; and 2010-
$4,663,854.
PAGE 5 OF 11 PAGES
<PAGE>
(3)The Company paid total interest expense of $8,136 for the three
months ended March 31, 1996 and paid no interest for the three
months ended March 31, 1995.
(4)In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," which is effective for
the Company on January 1, 1996. SFAS No. 123 permits, but does
not require, a fair value based method of accounting for employee
stock option plans which results in compensation expense being
recognized in the results of operations when stock options are
granted. The Company decided not to change its method of
accounting for stock-based compensation; therefore, the adoption
of this statement will not have any impact on the financial
statements of the Company.
PAGE 6 OF 11 PAGES
<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 or commitments which will or are reasonably likely to
have a significant effect on the Company's liquidity.
Operating Activities
The net cash flow from operating activities for the three months
ended March 31, 1996 was negative primarily as a result of an 8.1%
decrease in net premiums written compared with the three months ended
March 31, 1995. The decrease in net written premiums is primarily
attributable to a reduction in the number of policies written in the
personal automobile and workers' compensation lines of business and
increased rates charged to the Company on renewal of certain of its
reinsurance contracts for the same comparison periods.
The net cash flow from operating activities for the three months
ended March 31, 1995 was negative primarily as a result of an increase
in the amount of funds required for the payment of claims due to the
settlement of several large commercial automobile claims and an
increase in policy acquisition costs compared with the three months
ended March 31, 1994. The increase in policy acquisition costs
resulted from increases in amortization of deferred policy acquisition
costs, expense related to commissions and overhead expense during the
same comparison periods.
Investing Activities
During the first three months of 1996, management invested a
portion of available cash balances and the proceeds received from the
disposition of investments into investment grade bonds and common
stocks. The net cash flow from investing activities was negative in
the first three months of 1996 as total investment purchases exceeded
total investment sales and maturities.
During the first three months of 1996, unrealized investment
losses decreased stockholders' equity by approximately $1,014,000, of
which approximately $1,041,000 of this amount was from debt
securities, with the remaining gains from equity securities. These
unrealized investment losses were primarily the result of the negative
effects of increased interest rates on the Company's debt securities
during the first three months of 1996.
Approximately $100,000 of the $1,041,000 unrealized investment
losses on debt securities was related to six derivative issues
purchased by the company in 1993. On March 31, 1996, the value
carried in the Company's balance sheet for these six issues was
approximately $18,981,000. 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 in interest rates, particularly LIBOR rates.
PAGE 7 OF 11 PAGES
<PAGE>
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 and the guarantee
(see discussion below) that was obtained in 1995 with respect to
certain of these securities, net investment income for the final three
quarters of 1996 should be increased by approximately $450,000 as
compared to the corresponding period in 1995. This is subject to
change, either positively or negatively, depending on future
investment market conditions.
Because these derivative securities were issued by government
agencies, the Company believes that their principal is assured at
maturity. Barring unforeseen circumstances, the Company has the
ability to hold these debt securities until their stated maturity.
However, if conditions are favorable for their disposition, the
Company may dispose of all or a portion of these securities prior to
maturity. During the first three months of 1996, the Company was able
to reduce its exposure in such securities by the sale of $750,000 par
value of one issue of the derivative securities. As a matter of
investment policy, the Company no longer invests in inverse floating
rate securities.
In connection with an arbitration proceeding in 1995, the Company
received an agreement, effective December 8, 1995, guaranteeing the
yield rate on the largest derivative issue held by it (Guarantee Yield
Security). The Guaranteed Yield Security has a par value of
$11,000,000 and matures in March 1998. The yield rate that is
guaranteed will equal the weekly average yield rate for three month
treasury bills during each interest period of the security. The
maximum amount guaranteed is $1,500,000 and the guarantee will
terminate no later than the security's maturity date. This guarantee
is secured by two letters of credit. One letter of credit is in the
amount of $500,000 and expires two years from its issue date. The
second letter of credit is also in the amount of $500,000 and expires
in one year, provided that, in the event of certain defaults in
financial covenants, an additional letter of credit is provided in the
amount of $250,000 for a second twelve month period. At March 31,
1996 the stated interest rate for the Guaranteed Yield Security was
1.129% and the guaranteed yield rate was 5.14%. Based on such
guarantee yield rate, net investment income earned by this security
during the final three quarters of 1996 should be increased by
approximately $384,000 compared to the corresponding period in 1995.
The amount may increase or decrease, however, depending on changes in
the average yield rate of the three month treasury bill that
determines the guaranteed yield on this security.
As a result of this guarantee, the yield of the Guaranteed Yield
Security is similar to that of a floating rate instrument whose coupon
yield resets weekly to the average three month treasury bill yield
rate during each interest period. The market value of this security
at March 31, 1996 was determined based upon the market values of other
securities whose yields are calculated in this manner and which mature
in three years. As a result, the market value for this security as
carried on the Company's balance sheet March 31, 1996 was
approximately $10,904,000.
During the first three months of 1995, management invested funds
which were generated from the disposition of investments, together
with a portion of available cash balances, into investment grade
bonds. As a result, the net cash flow from investing activities was
negative for the three months ended March 31, 1995.
PAGE 8 OF 11 PAGES
<PAGE>
Financing Activities
In January, 1996, the Company received $580,500 proceeds from a
loan from United States National Bank. The Company is required to
make seventy-two monthly payments at an interest rate of 8.75% until
the maturity date of February 01, 2002. The Company may pay without
penalty all or a portion of the principal earlier than it is due.
These funds were obtained to finance the purchase of computer software
designed to provide policy processing, claims administration, billing
and collection, reinsurance and management reporting needed as part of
the Company's ongoing effort to enhance its technology and reengineer
its business process. As a result of this loan, the net cash flow
from financing activities was positive for the first three months of
1996. The net cash flow from financing activities was negative for
the first three months of 1995 as a result of cash dividend 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.
Management believes that the Company has met all statutory and
regulatory requirements and that sufficient funds have been retained
to meet its obligations. The Company has no current commitments or
plans for debt or equity financing other than the loan discussed in
the financing activities section of this discussion.
RESULTS OF OPERATIONS
Premiums earned decreased 2.7% and net premiums written decreased
8.1% for the three months ended March 31, 1996 compared with the three
months ended March 31, 1995 primarily as a result of the reduction in
the number of policies written in the personal automobile and workers'
compensation lines of business and increased rates charged to the
Company on renewal of certain of its reinsurance contracts.
Primarily as a result of the unrealized gains in market value of
investments experienced in 1995, average invested assets at March 31,
1996 increased approximately $4,782,000 compared with March 31, 1995.
Additionally, net investment income increased 10.1% for the three
months ended March 31, 1996 compared with the three months ended
March 31, 1995, primarily as a result of increased yields on the
Company's derivative securities. This increase in net investment
income increased the Company's average investment yield to 5.18% for
the three months ended March 31, 1996 compared with 4.98% for the
three months ended March 31, 1995. As a result of the guarantee
of the yield rate on the $11,000,000 par value derivative security
discussed above and, based on the guaranteed yield rate at March 31,
1996, net investment income earned by this security should be
increased by approximately $384,000 during the final three quarters of
1996 compared to the corresponding period in 1995. This is subject to
change, either positively or negatively, depending on changes in the
average three month treasury bill yield that determines the guaranteed
yield rate.
In an effort to maximize the overall return on the Company's
investment portfolio, Management elected to take advantage of
favorable market conditions in several issues of common and preferred
stocks and fixed maturity bonds which were held in the investment
portfolio. These sales resulted in realized investment gains for the
three months ended March 31, 1996 of $136,914 compared with realized
investment losses for the three months ended March 31, 1995 of
$43,632.
PAGE 9 OF 11 PAGES
<PAGE>
The loss and loss adjustment expense ratio was 67.2% for the
three months ended March 31, 1996 compared with 66.8% for the three
months ended March 31, 1995. The underwriting results of the
commercial multiple peril and fire and allied lines of business were
not as favorable for the three months ended March 31, 1996 compared
with the three months ended March 31, 1995. The adverse effect of
this was offset somewhat by improved underwriting results in the
automobile line of business for the same comparison periods.
The policy acquisition cost ratio was 35.1% for the three months
ended March 31, 1996 compared with 37.3% for the three months ended
March 31, 1995. The decrease in this ratio was a result of decreases
in amortization of deferred policy acquisition costs during the first
three months of 1996 compared with the first three months of 1995.
Primarily as a result of the decrease in policy acquisition
costs, the increase in net investment income and the realized
investment gains during the first three months of 1996, the net income
of the Company increased compared with the first three months of 1995.
PAGE 10 OF 11 PAGES
<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 MAY 13, 1996 PHILLIP E. APGAR
____________ ___________________________________________
VICE PRESIDENT-TREASURER - CHIEF
FINANCIAL OFFICER
(PRINCIPAL FINANCIAL & ACCOUNTING OFFICER)
PAGE 11 OF 11 PAGES
AMERICAN INDEMNITY FINANCIAL CORPORATION EXHIBIT 11
AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED NET INCOME
PER COMMON AND COMMON EQUIVALENT SHARE
THREE MONTHS THREE MONTHS
ENDED ENDED
03-31-96 03-31-95
____________ ____________
PRIMARY EARNINGS PER SHARE
Weighted average shares of
common stock outstanding 1,947,110 1,946,710
Stock options (treasury
stock method) (1) 6,247 8,804
__________ __________
Weighted average shares
outstanding for primary
earnings per share
computation 1,953,357 1,955,514
Net income $.55 $.25
FULLY DILUTED EARNINGS PER SHARE
Weighted average shares of
common stock outstanding 1,947,110 1,946,710
Stock options (treasury
stock method) (1) 6,247 9,063
__________ __________
Weighted average shares
outstanding for fully
diluted computation 1,953,357 1,955,773
Net income $.55 $.25
(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
<CIK> 0000005227
<NAME> AMERICAN INDEMNITY FINANCIAL CORP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 72,390,079
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 13,724,889
<MORTGAGE> 23,426
<REAL-ESTATE> 0
<TOTAL-INVEST> 86,198,394
<CASH> 3,144,692
<RECOVER-REINSURE> 12,488,694
<DEFERRED-ACQUISITION> 9,189,471
<TOTAL-ASSETS> 139,759,660
<POLICY-LOSSES> 50,628,867
<UNEARNED-PREMIUMS> 35,712,235
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 574,004
0
0
<COMMON> 6,490,351
<OTHER-SE> 33,944,049
<TOTAL-LIABILITY-AND-EQUITY> 139,759,660
16,223,825
<INVESTMENT-INCOME> 1,119,619
<INVESTMENT-GAINS> 136,914
<OTHER-INCOME> 172,294
<BENEFITS> 10,910,359
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 5,696,723
<INCOME-PRETAX> 1,065,799
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,065,799
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,065,799
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
