<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
For the fiscal year ended December 31, 1996 Commission file No. 0-6764
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[NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
Mobile America Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-1218935
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Fortune Parkway
Jacksonville, Florida 32256
- ---------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (904) 363-6339
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
- ------------------------------- -----------------------------
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock $.025 par value
- -------------------------------------------------------------------------------
------------
(Title of Class)
- --------------------------------------------------------------------------------
(Title of Class)
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at March 1, 1997: $26,452,515
------------
Common Stock ($.025 Par value) outstanding at March 1, 1997: 6,255,040 Shares
----------------
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
<PAGE> 2
PART 1
Item 1. Business
Introduction
Mobile America Corporation (the "Registrant"), through its two (2)
principal, wholly owned subsidiaries, Mobile America Insurance Group, Inc.
("MAIG"), a managing general agent for the Registrant's insurance company
subsidiaries, and Fortune Insurance Company ("Fortune"), a Florida domiciled
property and casualty insurance company, is engaged primarily in the
underwriting and marketing of minimum requirement automobile insurance in
Florida. This business has accounted for more than 90% of the Registrant's
consolidated revenues in each of the last five (5) years.
The Registrant's other significant wholly owned subsidiaries are as
follows:
Fortune Life Insurance Company ("Fortune Life"), an Arizona domiciled
company, is engaged in the business of writing life insurance coverages
primarily in Florida and Louisiana.
Pegasus Insurance Company ("Pegasus"), an Oklahoma domiciled property and
casualty insurance company, was acquired in 1993 to operate as an excess and
surplus lines insurer in Florida.
Fortune Financial Corporation ("Fortune Financial") acts as a servicing
provider for Fortune Insurance Company which is a servicing carrier for the
Florida Automobile Joint Underwriting Association (FAJUA) and a subcontractor,
through a third party arrangement, for the Florida Residential Property and
Casualty Joint Underwriting Association (FRPCJUA).
Big Gorilla, Inc., a licensed Florida premium finance company, provides a
policy financing source for MAIG's brokers.
Operations
The Registrant and its subsidiaries are primarily engaged in insurance and
insurance related services with the bulk of the business being minimum
requirement automobile insurance coverages in the State of Florida. The
insurance operations of the Registrant generated gross insurance premiums
earned of $76.8 million during 1996. Insurance premiums earned, net of
reinsurance cessions, have increased from $33.6 million in 1995 to $40.4
million in 1996.
Automobile Insurance
During 1980, Fortune began to market automobile insurance, placing
emphasis on physical damage, personal injury protection, and in recent years,
property damage liability coverage in the private passenger automobile market.
Because of the nature of private passenger and commercial automobile insurance,
Fortune carefully monitors underwriting results in these lines. Fortune's
marketing and underwriting will strive to improve results and the Registrant
will continue to emphasize and actively market these lines.
Personal Property Insurance
The Registrant's property and casualty insurance subsidiaries, Fortune and
Pegasus, have continued to write homeowners and dwelling fire policies
throughout the State of Florida. As of December 31, 1996, these companies
insured nearly 8,000 property risks, with a total written premium for all
property lines of $4.0 million in 1996. Growth in this area is primarily
related to the expansion of excess and surplus lines business written through
Pegasus. The Registrant plans to be active in this line of business, however,
extreme caution will be exercised with respect to rates, profitability and the
competitive market.
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<PAGE> 3
Commercial Lines
The Registrant's two property and casualty insurance subsidiaries also
write Special Multi-peril insurance on restaurants, small offices, businesses,
and churches, all in Florida. In 1996, gross earned premiums totaled
approximately $312,000.
Life Insurance
Fortune Life sells annual renewable term life insurance with limited first
year benefits. During 1996, total life insurance premium written was $77,000..
Excess and Surplus Lines Insurance
During 1993, the Registrant purchased Pegasus which was subsequently
admitted on an excess and surplus lines basis in Florida during December 1993.
In September 1994, Pegasus marketed its first insurance program, a commercial
general liability (CGL) policy for artisan contractors. Pegasus wrote $133,000
in premiums in 1995 and has increased its premium writings to $1,858,000 in
1996 by expanding its product line to include homeowners and commercial
multiperil products.
Fee for Service Operations
During 1993, Fortune Financial was formed to act as a servicing provider
for Fortune which was selected as one of eight servicing carriers for the
FRPCJUA, the first residential underwriting association in the nation. This
association was formed to function as an insurance pool for individuals who,
because of Hurricane Andrew, either lost their homeowners insurance or cannot
obtain homeowners insurance.
Since 1993, Fortune Financial has written in excess of $35 million in
premiums on 101,000 policies for the FRPCJUA. As a servicing provider, Fortune
Financial underwrites and pays claims with no risk of loss because the FRPCJUA
provides the funds for claim payments. For providing this service, Fortune
Financial retains a percentage of the gross written premiums generated from the
policies it services. This agreement terminated during 1996 and is currently
in runoff status. Fortune Financial continues to service policies in force.
In June 1996, Fortune Financial entered into an agreement to act as a
subcontractor for Policy Management Systems Corporation with responsibility for
processing FRPCJUA policies. For providing this service Fortune Financial
retains a percentage of the gross written premiums (less catastrophe premiums)
generated from policies it services. As of year-end Fortune Financial has
written in excess of $10 million in premiums on 18,000 policies under the June
1996 agreement.
In October of 1996, Fortune Financial renewed their FAJUA contract, for a
period of one year. Fortune has been servicing this business since October of
1994. Fortune Financial is currently servicing approximately 1000 agents,
processing in excess of 250 applications per week.
In November 1994, Fortune was selected by the Federal Insurance
Administration to be a producer of the Federal Government's Write Your Own
Flood Program. Fortune wrote $120,000 in gross written premium during 1996.
Premium Finance
The Registrant's premium finance company subsidiary, now entering it's
fourth year in the Premium Finance business, will provide some 215 broker
agents a source for financing their policy premiums. During 1996 the
subsidiary financed nearly 20,000 policies and thus far in 1997, is writing
about 1,650 contracts per month. The subsidiary is planning for significant
growth in this area since 95% of Fortune's and Pegasus' insureds utilize this
method of financing.
Property Rentals and Sales
The Registrant engaged in the leasing and sales of modular office units
for over 20 years and finally discontinued this small, but profitable segment
in December 1995.
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<PAGE> 4
Financial Information about Industry Segments
The financial information regarding the Registrant's Industry segments
presented in Note 10 of Notes to Consolidated Financial Statements for the
three years ended December 31, 1996, is incorporated herein by reference.
Competitive Conditions
The insurance industry is a highly competitive industry. Certain of the
Registrant's competitors have been in the business longer, have a larger
volume of business and have substantially greater financial resources than the
Registrant. Since the Registrant's insurance operations are modest compared to
several of its significant competitors (the Registrant employed 286 people at
year-end), management is continuing to focus its marketing and other operations
on specialized insurance coverages. Additionally, since the Registrant's
insurance subsidiaries transact their business in a heavily regulated industry,
they are sensitive to both adverse legislation and administrative directives.
Loss and Loss Adjustment Expense Reserves
Reserves for unpaid claims and adjustment expenses are maintained to cover
the probable ultimate cost of settling all losses incurred, including those not
yet reported. Reserves for losses incurred in prior years may be adjusted by
review or by payment which could result in either a redundancy or deficiency to
the reserve reported at the end of the prior year. Such changes are reflected
in current operations.
The Registrant's insurance subsidiaries have entered into several
reinsurance agreements covering specific lines of business, which provide
reinsurance protection on a quota share or excess of loss basis.
Adverse loss and loss adjustment expense development is generally
experienced in liability lines where settlements may not be reached until
several years following the initial claim. Claims adjustment costs consisting
primarily of legal expenses, are traditionally high on these particular losses.
The following tables present loss and loss adjustment expenses on a paid
and incurred basis for the past three one year periods, and development of
losses and loss adjustment expenses over the past ten years, all net of
reinsurance.
<TABLE>
<CAPTION>
Losses and Loss Adjustment Expenses
Unpaid Incurred Related to Payments Related to Unpaid
Beginning Current Prior Total Current Prior End of
of Year Year Year Incurred Year Year Year
- ------------- ------------- ------------ ----------- ----------- ----------- -----------
Year ended December 1996:
- -------------------------
<S> <C> <C> <C> <C> <C> <C>
$20,808,027 $27,215,881 ($3,390,000) $23,825,881 $15,428,840 $ 9,164,329 $20,040,739
Year ended December 1995:
- -------------------------
$19,103,286 $30,737,734 $ 188,772 $30,926,506 $15,949,259 $13,272,506 $20,808,027
Year ended December 1994:
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$19,410,271 $26,623,447 ($17,878) $26,605,569 $13,271,556 $13,640,997 $19,103,287
</TABLE>
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<TABLE>
<CAPTION>
Analysis of Loss and Loss Adjustment Expense Development
(In Thousands)
Year Ended December 31, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- ----------------------- ------ ------ ------ ------- ------- ------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liability for Unpaid Losses
And Loss Adjustment
Expenses $6,242 $7,194 $7,981 $13,577 $14,996 $14,906 $17,207 $19,410 $19,103 $20,808 $20,041
Paid (Cumulative) As of:
End of Year - - - - - - - - - - -
One Year Later 2,916 3,275 3,792 6,311 8,583 6,245 13,306 13,641 13,273 9,164
Two Years Later 4,021 4,525 4,528 8,854 10,899 11,806 15,520 16,292 17,601
Three Years Later 4,807 4,419 5,173 9,772 11,918 12,380 16,355 17,912
Four Years Later 4,574 4,671 5,459 10,297 12,170 12,783 16,856
Five Years Later 4,666 4,820 5,603 10,390 12,313 12,939
Six Years Later 4,726 4,872 5,632 10,455 12,373
Seven Years Later 4,787 4,891 5,636 10,496
Eight Years Later 4,808 4,891 5,661
Nine Years Later 4,800 4,917
Ten Years Later 4,825
Liability Reestimated as of:
End of Year 6,242 7,194 7,981 13,577 14,996 14,906 17,207 19,410 19,103 20,808 20,041
One Year Later 5,898 6,108 7,090 10,173 12,653 12,434 16,488 19,392 19,292 16,485
Two Years Later 5,225 5,901 5,555 10,496 12,203 12,916 17,507 18,856 21,027
Three Years Later 5,389 4,925 5,674 10,204 12,332 13,111 17,235 19,458
Four Years Later 4,687 4,922 5,605 10,396 12,382 13,009 17,414
Five Years Later 4,742 4,879 5,626 10,464 12,373 13,190
Six Years Later 4,762 4,891 5,675 10,487 12,517
Seven Years Later 4,805 4,924 5,655 10,628
Eight Years Later 4,841 4,910 5,788
Nine Years Later 4,819 5,044
Ten Years Later 4,825
Redundancy (Deficiency) 1,417 2,150 2,193 2,949 2,479 1,716 (207) (48) (1,924) 4,323
</TABLE>
<PAGE> 6
Item 2. Properties
The executive and general offices of the Registrant and its
subsidiaries, consisting of approximately 22,915 square feet, are
located at 100 Fortune Parkway, Jacksonville, Florida. The space is
leased by the Registrant for a period ending January 31, 1997, at an
initial aggregate annual rental of $179,195 increasing to $202,110. In
1997 the Registrant exercised a renewal option extending the term of the
lease to 2002. Annual lease payments range from $207,839 to $231,442 in
the final year of the lease.
In 1997, the Registrant expanded its facilities by leasing
approximate 7500 square feet for its personal property, excess and
surplus lines and fee for service processing. Annual lease payments
range from $58,155 to $61,445 over a three year period.
The Registrant's subsidiaries, Fortune Insurance Company and
Fortune Life Insurance Company own property in Jacksonville, Florida for
which there are no definite plans for development at this time. Fortune
Insurance Company purchased land in 1987 and 1986 for $165,000 and
$140,000 respectively. During 1982, Fortune Life Insurance Company
purchased land and a building for $88,000. In 1996 the Registrant
purchased land and a building in Jacksonville, Florida for $167,000.
This facility serves as off-sight storage.
Item 3. Legal Proceedings
The Registrant, through its subsidiaries, is routinely a party to
pending or threatened legal proceedings and arbitrations. These
proceedings may include claims for punitive damages in addition to other
specified relief. Based upon information currently available, and in
light of legal and other defences available to the Registrant and its
subsidiaries, management does not consider liability from threatened or
pending litigation to be material.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the
fiscal year covered by this report.
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<PAGE> 7
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Market Information
The Registrant's common stock is traded on the NASDAQ SmallCap
Market tier of the NASDAQ Stock Market under the symbol MAME.
The following table shows the range of high and low bid, asked and
sale quotations for the Registrant's common stock for each of the last
eight quarters ended December 31, 1996, as obtained from the National
Association of Securities Dealers.
<TABLE>
<CAPTION>
Quarterly Period Ended Bid Quotation Sale Price Asked Quotation
---------------------- High Low High Low High Low
------- ------- ----- ----- -------- --------
<C> <C> <C> <C> <C> <C> <C>
March 31, 1995 $ 8.50 5.25 8.40 7.32 9.13 6.00
June 30, 1995 9.63 7.25 9.48 7.48 10.00 7.75
September 30, 1995 11.50 7.75 11.56 9.32 11.88 8.50
December 31, 1995 11.50 9.75 11.24 9.48 12.00 10.25
March 31, 1996 11.00 10.75 11.75 10.75 11.75 11.30
June 30, 1996 11.00 11.00 11.75 11.00 11.75 11.50
September 30, 1996 10.50 9.75 10.88 9.75 11.00 10.50
December 31, 1996 $10.00 8.75 10.50 8.88 10.50 9.00
</TABLE>
Holders
At March 1, 1997, the Registrant had 352 record holders of its
common stock.
Dividends
In January, 1993 the Registrant declared and paid a dividend of
$.335 per share on each of its shares of $.025 par value common stock.
In September, 1993 the Registrant declared and paid a dividend of
$.10 per share on each of its shares of $.025 par value common stock.
In January, 1994 the Registrant declared and paid a dividend of
$.21 per share on each of its shares of $.025 par value common stock.
In January, 1995 the Registrant declared and paid a dividend of
$.18 per share on each of its shares of $.025 par value common stock.
In January, 1996 the Registrant declared and paid a dividend of
$.35 per share on each of its shares of $.025 par value common stock.
In January, 1997 the Registrant declared and paid a dividend of
$.40 per share on each of its shares of $.025 par value common stock.
II-1
<PAGE> 8
Item 6. Selected Financial Data
Mobile America Corporation & Subsidiaries
Years Ended December 31, 1996, 1995, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Revenues $ 48,163,935 52,925,874 43,767,330 50,300,201 40,704,618
Net Income $ 7,571,392 5,999,694 4,048,446 4,565,307 6,361,350
Earnings Per Share $ 1.21 0.96 0.65 0.73 1.01
Total Assets at Year-End $168,086,901 182,771,162 143,815,295 134,939,579 129,793,367
Long-Term Obligations $ 12,000,000 12,000,000 0 0 0
Cash Dividends Per Common Share $ 0.35 0.18 0.21 0.44 0.40
</TABLE>
Earnings per share and cash dividends per share amounts have been restated
to conform with stock splits.
Total revenues and net income amounts have been restated to conform with
the new accounting standard for realized gains and losses.
Total asset amounts have been restated to conform with the new accounting
standard for accounting and reporting for reinsurance.
II-2
<PAGE> 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
1996 Compared to 1995
Operations
Total consolidated revenues, exclusive of state mandated automobile assigned
risk pool business, increased 18% from $48,917,912 in 1995 to $57,836,017 in
1996. Overall, total consolidated revenues decreased 9% to $48,163,935 during
1996 from $52,925,874 for 1995.
Insurance premiums, exclusive of state mandated automobile assigned risk pool
business, increased 20% during 1996 due primarily to an increase in automobile
personal injury protection and property damage rates initiated in September and
October 1995 as well as continued earning of premiums at a lower reinsurance
cession rate. Overall insurance premiums decreased 19% as a result of an
amendment of premiums assumed from the state mandated automobile assigned risk
pool. This amendment resulted in no material effect on net income.
Service fees earned during 1996 increased 28% over 1995 due to increases in the
number of policies administered for the FAJUA and FRPCJUA/PMSC, fees earned on
business produced by the Registrant's managing general agency subsidiary and
continued growth in the number of policies financed by the Registrant's premium
financing subsidiary. Investment income increased 7% from $5,562,074 for 1995
to $5,935,194 in 1996. This increase is attributable to an increase in interest
rates on taxable fixed assets combined with a repositioning of securities from
tax exempt to taxable investments in the Registrant's principal property and
casualty insurance subsidiary. Net realized gains on the sale of investments
increased 107% from $252,153 in 1995 to $521,995 in 1996.
Total consolidated expenses, exclusive of state mandated automobile assigned
risk pools, increased 20% from $40,429,009 during 1995 to $48,385,265 during
1996. Overall, total consolidated expenses decreased 12% from $44,340,175 in
1995 to $39,177,771 in 1996.
The reserves for loss and loss adjustment expenses established by the insurance
subsidiaries of the Registrant are estimates of the amounts necessary to settle
reported and unreported claims and their related loss adjustment expenses. Loss
and loss adjustment expenses increased 15% during 1996 over 1995. This increase
is principally due to continued strengthening of the Registrant's property and
casualty insurance company subsidiary's loss and loss adjustment expense
reserves relating to the minimum limits automobile personal injury protection
line of business. Policy acquisition costs increased significantly due
principally to reduced ceding commission rates. Total consolidated expenses,
including the state mandated automobile assigned risk pool, decreased 12% as a
result of an amendment of losses assumed from the state mandated automobile
assigned risk pool. Interest payments due on the Note have to date been
generated from the proceeds of the $12,000,000 loan which was consummated in
the fourth quarter 1995.
Loss and loss adjustment expenses as a percentage of earned premium were 77.0%
in 1994, 81.6% in 1995 and 72.8% in 1996. The Registrant believes that its
current reserves are adequate and proper, however, additional reserve
increases may be required in the future. In it's efforts to reduce loss and
loss adjustment expenses, as it relates to earned premium, the Registrant
initiated a significant rate increase in the minimum limits personal injury
protection line of business during the fourth quarter 1996. This increase
follows closely behind a similar sized rate increase in the fourth quarter
1995. Due to the inherent uncertainty in estimating reserves for losses and
loss adjustment expenses there can be no assurance that the ultimate liability
will not exceed the amounts reserved, resulting in an adverse effect on the
Registrant. At year end 1996, the Registrant's loss and loss adjustment expense
reserves were at the lower end of a range which the Registrant's independent
actuary deems appropriate. During 1997, the Registrant intends to establish
additional reserves in an effort to move toward a more conservative reserve
position. The Registrant's independent actuary's range of reasonable direct
reserve estimates as of December 31, 1996 is between $46.5 million and $61.5
million and net of reinsurance recoveries the reserve range is between $19.3
million to $25.5 million.
The increasing loss and loss adjustment expense experienced on the business
which the Registrant originates and cedes to its reinsurers may also adversely
affect the Registrant's profitability in the future. In an effort to reduce
it's reliance on reinsurance, the Registrant decreased the ceding percentage
from 70% to 60% on certain lines effective January 1, 1996. If the Registrant's
ratio of loss and loss adjustment expenses to earned premium does not improve,
or continues to deteriorate, it is likely that over time the Registrant's cost
of reinsurance would increase, and it is possible that at some future point the
Registrant could not obtain reinsurance on economically viable terms.
II-3
<PAGE> 10
1996 Compared to 1995 (continued)
Financial Condition
Cash dividend and capital expenditure requirements continue to be provided by
funds generated from operations. The Registrant maintains sufficient liquidity
to meet operational needs. The Registrant's investment policy continues to
emphasize high quality securities matched closely with the Registrant's short
liability duration.
Net cash flow from operations was negative in 1996 as loss and loss adjustment
expense payments and consolidated operating expense payments exceeded premium
and investment revenues. Such negative cash flow resulted in part from poor
loss development in the minimum limit automobile personal injury protection
line of business for the years prior to 1996. The Registrant's practice of
maintaining a highly liquid investment portfolio allowed the Registrant to meet
cash demands with no adverse impact on operating performance. Management is
optimistic that cash flow will improve during 1997 as additional rate increases
take affect and the settlement of losses returns to a more normal pattern.
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<PAGE> 11
1995 Compared to 1994
Operations
Total consolidated revenues of $52,925,874 for 1995 increased 21% from
consolidated revenues of $43,767,330 for 1994.
Insurance premiums earned increased by 10% in 1995 as a result of
increases in the automobile segments primarily generated by increased
assumptions of business from state mandated assigned risk pools. Reduced
reinsurance cessions and regulatory assessments during 1995 also contributed to
this overall increase in revenues. Material rate increases introduced in the
fourth quarter of 1995 to the major private passenger automobile segment have
provided increased premium writings and will provide generous assistance to the
overall profitability of this segment.
Service fees earned in 1995 increased 100% from 1994 due to the strong
volume of policies administered for the State of Florida; FRPCJUA AND FAJUA as
well as growth in the Registrant's premium financing subsidiary. Investment
income increased 34% as a result of the continued conversion of funds available
for investment from tax advantaged to taxable securities with their inherent
higher yields.
Total consolidated expenses of $44,340,175 for 1995 increased 15% from
consolidated expenses of $38,514,858 for 1994.
Loss and loss adjustment expenses increased 16% as a result of increases
in losses assumed from the state mandated assigned risk pools and reserve
strengthening of the Registrant's voluntary business as indicated by actuarial
reviews of the automobile segment's loss trending patterns. Policy acquisition
costs decreased as a result of reduced commissions allowed to the producers of
the Company's automobile business together with increased ceding commissions
received on the increased premiums written during the year.
Loss and loss adjustment expense as a percentage of earned premium was
77.6% in 1993, 77.0% in 1994 and 81.6% in 1995. The Company believes that its
current reserves are adequate and proper. The Company has continued corrective
action, specifically in the form of substantial rate increases in the fourth
quarter of 1995, to reduce the ratio of loss and loss adjustment expense to
earned premium. However, additional reserve strengthening may be required in
the future. The Company continues to have comprehensive independent actuarial
reviews of its reserves. At year end 1995, the Company's loss reserves are
within a range which the Company's independent actuary deems appropriate but is
approximately 7.1% below the midpoint of that range.
The increasing loss and loss adjustment expense experienced on the
business which the Company originates and cedes to its reinsurers may also
adversely affect the Company's profitability in the future. If the Company's
ratio of loss and loss adjustment expense to earned premium does not improve or
should continue to deteriorate, it is likely that over time, the Company's cost
of reinsurance would increase, and it is possible that the Company could not
obtain reinsurance on economically viable terms.
Salaries and wages and general and administrative expenses increased 41%
as a result of the increased costs associated with the growth in the fee for
service segment.
Financial Condition
The Registrant consummated a $12,000,000 loan in the fourth quarter of
1995 with the proceeds to be used for additional capital infusion into the
insurance subsidiaries to absorb planned growth. A very sound financial
condition was maintained in 1995 with a 48% increase in earnings per share.
Cash dividend and capital expenditure requirements continue to be provided from
funds generated from operations. Liquidity is substantial for new operational
or investment opportunities.
II-5
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<TABLE>
<S> <C> <C>
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Data
Report of Independent Certified Public Accountants II-7
Consolidated Balance Sheets, December 31, 1996 and 1995 II-8
Consolidated Statements of Operations II-9
Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows II-10
Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity II-11
Years ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements II-12-31
Item 9. Disagreements on Accounting and Financial Disclosure
None.
</TABLE>
II-6
<PAGE> 13
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders
Mobile America Corporation
Jacksonville, Florida
We have audited the accompanying consolidated balance sheets of Mobile
America Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements and schedules referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mobile
America Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the
accompanying Index in Item 14(a)2 of this Form 10-K are presented for purposes
of complying with the Securities and Exchange Commission's rules and are not
part of the basic financial statements. These schedules have been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
As discussed in Note 1 to the consolidated financial statements, the
company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," and No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," in
1994.
CHERRY, BEKAERT & HOLLAND, L.L.P.
Orlando, Florida
March 26, 1997
II-7
<PAGE> 14
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------------------------------------------------ ------------- -------------
<S> <C> <C>
Investments:
Securities held to maturity
at amortized cost (fair value
$48,991,063 and $52,785,561) $ 49,094,824 $ 52,460,555
Securities available for sale at fair value
(amortized cost $38,651,393
and $34,644,650) 38,955,502 35,690,835
Notes receivable less unearned
discount 157 2,650
Short-term investments 22,231,475 22,470,314
------------ ------------
Total investments 110,281,958 110,624,354
------------ ------------
Cash 1,802,644 6,510,457
Receivables:
Insurance premiums 3,916,439 2,563,715
Accrued investment income and other 1,601,798 1,971,356
Reinsurance on paid losses 31,935 0
Reinsurance 27,638,632 33,822,126
------------ ------------
Total receivables 33,188,804 38,357,197
------------ ------------
Deferred income taxes 2,043,257 760,025
Prepaid reinsurance premiums 20,347,436 24,260,694
Inventory of mobile homes 27,878 39,545
Deferred policy acquisition costs (2,734,995) (4,209,840)
Property and Equipment:
Land, at cost 524,043 356,970
Modular office equipment, at cost less
accumulated depreciation of $7,982
and $7,982 3,000 3,000
Equipment and leasehold improvements
at cost less accumulated
depreciation and amortization of
$2,070,009 and $1,953,916 544,663 630,458
------------ ------------
Total property and equipment: 1,071,706 990,428
------------ ------------
Equity in pools and associations 1,185,843 4,912,334
Other assets 872,370 525,968
------------ ------------
$168,086,901 $182,771,162
============ ============
</TABLE>
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
---------------------------------------------- ------------- -------------
<C> <C> <C>
Liabilities:
Insurance loss reserves, including
future policy benefits $ 47,695,655 $ 54,645,686
Unearned premium 38,118,629 39,535,149
Reinsurance funds withheld and
balances payable 17,353,367 26,120,505
Accrued expenses and other liabilities 15,636,751 15,639,062
Deferred income tax on net unrealized gains on
securities available for sale 103,397 355,000
Unearned service fee 1,329,632 2,610,902
Note payable 12,000,000 12,000,000
Current income taxes payable (327,551) 551,868
------------ ------------
Total liabilities 131,909,880 151,458,172
------------ ------------
Stockholders' equity:
Common stock, $.025 par value per share
Authorized - 18,000,000 shares
Issued - 6,720,396 shares 168,010 168,010
Preferred stock, $.10 par value per share
Authorized - 500,000 shares
Issued and outstanding, none 0 0
Capital in excess of par value 2,729,588 2,686,060
Net unrealized appreciation on securities
available for sale net of deferred
income taxes 200,712 691,185
Treasury stock at cost, 465,356 and
460,356 shares (510,122) (420,944)
Retained Earnings 33,588,833 28,188,679
------------ ------------
Total stockholders' equity 36,177,021 31,312,990
------------ ------------
$168,086,901 $182,771,162
============ ============
</TABLE>
See notes to consolidated financial statements
II-8
<PAGE> 15
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
Revenues:
Insurance premiums earned net of
premiums ceded of $52,488,683,
$56,949,921 and $50,865,703 $40,363,615 $33,634,884 $32,282,241
Insurance premiums earned, pools and associations
net of premiums ceded of $(6,296,113), $8,129,228
and $2,483,837 (9,672,082) 4,007,962 2,089,944
Service fees earned 11,001,222 8,624,931 4,301,521
Investment income 5,935,194 5,562,074 4,146,956
Equipment rentals 1,520 67,510 79,830
Others 12,471 670,876 65,268
Sales of modular office equipment 0 105,484 50,525
Net realized gains on investments 521,995 252,153 751,045
----------- ----------- -----------
Total revenues 48,163,935 52,925,874 43,767,330
----------- ----------- -----------
Expenses:
Losses and loss adjustment expenses, net of
reinsurance recoveries of $45,237,935,
$52,018,005 and $37,637,355 31,545,501 27,367,484 25,464,864
Losses and expenses incurred
pools and associations net of reinsurance recoveries
of $(7,267,588), $7,594,490 and $1,001,579 (9,207,494) 3,911,166 1,264,026
Policy acquisition costs 2,653,599 311,980 2,718,503
Salaries and wages 6,756,416 5,478,820 4,562,057
General and administrative 6,423,989 7,106,897 4,572,758
Interest on note payable 1,005,760 156,375 0
Cost of sales of modular office equipment 0 7,453 12,650
----------- ----------- -----------
Total expenses 39,177,771 44,340,175 38,594,858
----------- ----------- -----------
Income before provision for income taxes 8,986,164 8,585,699 5,172,472
----------- ----------- -----------
Provision (benefit) for income taxes:
Current 2,698,004 2,268,942 1,203,026
Deferred (1,283,232) 317,063 (79,000)
----------- ----------- -----------
Total provision for income taxes 1,414,772 2,586,005 1,124,026
----------- ----------- -----------
Net income $ 7,571,392 $ 5,999,694 $ 4,048,446
=========== =========== ===========
Earnings per share:
Net income $ 1.21 $ 0.96 $ 0.65
=========== =========== ===========
Weighted average number of common stock and
common stock equivalents 6,255,040 6,260,040 6,264,040
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
II-9
<PAGE> 16
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 7,571,392 $ 5,999,694 $ 4,048,446
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Provision for depreciation 200,882 231,449 281,674
Gains on sale of investments (521,995) (252,153) (751,045)
Decrease (increase) in insurance premiums receivable 2,373,767 (2,685,929) (1,551,594)
Decrease (increase) in accrued investment
income and other 369,558 (510,784) 129,813
Decrease (increase) in prepaid reinsurance
premiums 3,913,258 (1,848,366) (3,982,131)
Decrease (increase) in reinsurance receivable 6,151,559 (8,989,725) (1,912,013)
(Increase) decrease in deferred policy
acquisition costs (1,474,845) 434,862 1,498,843
Increase in prepaid expenses and other assets (346,401) (425,275) (98,497)
(Decrease) increase in insurance loss reserves (6,950,031) 10,695,217 1,602,836
Increase (decrease) in unearned premium (1,416,520) 4,895,469 817,035
(Decrease) increase in reinsurance funds held and
balances payable (8,767,138) (2,941,367) 1,993,911
(Decrease) increase in accrued expenses
and other liabilities (2,311) 6,287,984 1,690,086
(Decrease) increase in current income taxes (879,419) 730,281 1,248,700
Increase in deferred income taxes (1,283,232) (152,627) (79,000)
(Decrease) Increase in unearned service fees (1,281,270) 1,412,997 938,880
----------- ----------- -----------
Net cash provided by (used in)
operating activities (2,342,746) 12,881,727 5,875,944
----------- ----------- -----------
Cash Flows from Investing Activities:
Net change in short-term investments 238,839 (8,100,504) (6,535,827)
Purchase of investments (32,924,649) (41,507,462) (28,438,759)
Proceeds from sale and maturity of investments 32,817,300 27,029,634 31,469,375
Purchase of property and equipment (282,162) (135,362) (214,947)
Sale of modular offices and equipment 0 10,442 11,564
Notes receivable 2,493 2,362 5,718
----------- ----------- -----------
Net cash used in investing
activities (148,179) (22,700,890) (3,702,876)
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from note payable 0 12,000,000 0
Purchase of treasury stock (45,650) (32,503) (51,875)
Dividends paid to stockholders (2,171,238) (1,117,776) (1,304,142)
----------- ----------- -----------
Net cash provided by (used in)
financing activities (2,216,888) 10,849,721 (1,356,017)
----------- ----------- -----------
Net (decrease) increase in cash (4,707,813) 1,030,558 817,051
Cash, beginning of year 6,510,457 5,479,899 4,662,848
----------- ----------- -----------
Cash, end of year $ 1,802,644 $ 6,510,457 $ 5,479,899
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
II-10
<PAGE> 17
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Common stock:
No change during year $ 168,010 $ 168,010 $ 168,010
----------- ----------- -----------
Preferred stock:
No change during year 0 0 0
----------- ----------- -----------
Capital in excess of par value:
Balance beginning of year 2,686,060 2,686,060 2,686,060
Sale of treasury stock 43,528 0 0
----------- ----------- -----------
Balance at end of year 2,729,588 2,686,060 2,686,060
----------- ----------- -----------
Net unrealized gains (losses) on securities
available for sale:
Balance at beginning of year 691,185 0 0
Increase (decrease) (742,076) 1,046,185 0
Deferred taxes on unrealized gains 251,603 (355,000) 0
----------- ----------- -----------
Balance at end of year 200,712 691,185 0
----------- ----------- -----------
Net unrealized investment gains (losses)
on equity securities:
Balance at beginning of year 0 (158,099) 513,362
Increase (decrease) 0 158,099 (671,461)
Deferred taxes on unrealized gains 0 0 0
----------- ----------- -----------
Balance at end of year 0 0 (158,099)
----------- ----------- -----------
Treasury stock:
Balance at beginning of year (420,944) (388,441) (336,556)
Purchases of 10,000, 4,000 and 5,000 shares (93,750) (32,503) (51,885)
Sale of 5,000, 0 and 0 shares 4,572 0 0
----------- ----------- -----------
Balance at end of year (510,122) (420,944) (388,441)
----------- ----------- -----------
Retained earnings:
Balance at beginning of year 28,188,679 23,306,761 20,562,457
Net income 7,571,392 5,999,694 4,048,446
Cash dividends $.35, $.18 and $.21 per share (2,171,238) (1,117,776) (1,304,142)
----------- ----------- -----------
Balance at end of year 33,588,833 28,188,679 23,306,761
----------- ----------- -----------
Total stockholders' equity at end of year $36,177,021 $31,312,990 $25,614,291
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
II-11
<PAGE> 18
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
(a) Basis of Financial Statement Presentation
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles which vary from statutory reporting
practices prescribed or permitted for insurance companies by regulatory
authorities.
(b) Principles of Consolidation
The accompanying consolidated financial statements include Mobile America
Corporation (the Company) and its subsidiaries, including Fortune Insurance
Company (Fortune), Pegasus Insurance Company (Pegasus), both property and
casualty insurers and Fortune Life Insurance Company (Fortune Life), all of
which are wholly-owned. All significant intercompany transactions have been
eliminated in consolidation.
(c) Nature of Operations
The Company is a publicly held holding company providing property and
casualty insurance, life insurance, insurance administrative services to various
state underwriting associations on a fee for service basis and premium
financing. The Company is principally involved in writing personal lines
automobile insurance in Florida.
(d) Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
(e) Method for Valuing Investments
Fixed maturity investments are securities that mature at a specified
future date more than one year after being acquired. On January 1, 1994, the
Company implemented Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". The Company
classified its entire fixed maturity investment portfolio as "held to maturity".
Accordingly, these investments are reported at amortized cost, adjusted for
amortization of premiums or discounts and other than temporary declines in fair
value. At December 29, 1995, the Company reassessed the appropriateness of the
classifications of all securities held at that time and reclassified from the
held to maturity category a portion of the Company's fixed maturity portfolio to
the
II-12
<PAGE> 19
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies (continued)
available for sale category. Classifying these securities as available for
sale did not impact net income.
Common Stock, redeemable preferred stock and fixed maturities, not
classified as held to maturity are classified as available for sale and are
reported at fair value, with unrealized gains and losses reported as a separate
component of stockholders' equity. Fair values are based on quoted market
prices or dealer quotes, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
(f) Realized Investment Gains and Losses
The cost of securities sold is based upon the specific identification
method and any gains or losses are reflected in the accompanying statements of
operations.
(g) Deferred Policy Acquisition Costs
The costs, primarily commissions, associated with acquiring new insurance
contracts have been deferred. Such costs are being amortized in proportion to
premiums earned on the underlying contracts or over the contracts premium paying
period.
(h) Property and Equipment
Property and equipment is carried at cost and is depreciated principally
under the straight-line method over the estimated useful lives of the respective
assets. Maintenance and repairs are charged to expenses as incurred; additions
and major betterment's are capitalized and depreciated. At the time of
retirement or other disposition of modular offices, equipment and leasehold
improvements, the accounts are relieved of the cost and the related accumulated
depreciation and any gains or losses are reflected in the consolidated
statements of operations.
(i) Insurance Contracts
The insurance contracts accounted for in these financial statements
include both short-duration contracts and long-duration contracts.
Short-duration contracts provide insurance protection for a fixed period of
short-duration, usually six months to one year, and enable the insurer to cancel
the contract or to adjust the provisions at the end of any contract period. Most
property-liability insurance contracts and certain term life insurance contracts
are short-term and generally are not subject to unilateral changes in their
provisions and require the performance of various functions and services,
including insurance protection, for the contract term. Long-duration contracts
include
II-13
<PAGE> 20
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies (continued)
whole-life contracts and guaranteed renewable term life contracts. The Company
has not issued participating policies.
(j) Insurance Loss Reserves
The liability for future policy benefits of long-duration contracts has
been provided for on a net level premium method based on estimated investment
yields, withdrawals, mortality, terminations, morbidity, and other assumptions
which were appropriate at the time the contracts were issued.
Estimates of future policy benefits were based on past experience as
adjusted to provide for possible adverse deviation from the estimates.
Interest assumptions are based on historical assumptions and experience, and
range from 3% to 4.5% at December 31, 1996.
The liabilities for unpaid claims of short-duration contracts and related
adjustment expenses are determined using case basis evaluations and statistical
analysis and represent estimates of the ultimate net cost of all reported and
unreported claims relating to insured events which are unpaid at year-end. The
liabilities include estimates of future trends in claims severity and frequency
and other factors which could vary as the claims are ultimately settled.
Although such estimates may vary, management believes that the liabilities for
unpaid claims and related adjustment expenses are adequate. The estimates are
continually reviewed, and as adjustments to these liabilities become necessary,
they are reflected in current operations.
(k) Recognition of Premium Revenues and Related Expenses
Premiums for long-duration contracts are recognized as revenues when due
from the policyholders. A liability for the expected costs relating to such
long-duration contracts is accrued over the current and expected renewal
periods.
Premiums for short-duration contracts are recognized as revenues over the
period of the contract in proportion to the amount and duration of the insurance
protection provided.
II-14
<PAGE> 21
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies (continued)
Earned premiums are stated after a reduction for related premiums ceded
to reinsurers. The Company considers anticipated investment income in
determining if a premium deficiency exists on short-duration contracts.
(l) Recognition of Service Fee Income
Service fees represent proceeds from servicing insurance policies for
third parties on a fee-for-service basis. Fees are recognized as revenue over
the expected service life of the underlying insurance policies.
(m) Earnings per Share
Earnings per share are computed on the basis of the weighted average
number of common shares outstanding during each year. The effect of stock
options is not material to the computation of earnings per share.
(n) Cash and Short-term Investments
For purposes of the consolidated statement of cash flows, cash includes
balances in bank deposit accounts maintained with high credit quality financial
institutions. Short-term investments are stated at cost, and consist primarily
of certificates of deposits, money market accounts, commercial paper and
repurchase agreements. For purposes of the consolidated statement of cash
flows, the Company does not consider short-term investments to be cash
equivalents as they generally have original maturities in excess of three
months.
(o) Supplemental Cash Flow Information
Income Taxes Paid - Income taxes paid totaled $3,577,423 in 1996,
$2,008,351 in 1995 and $34,326 in 1994.
(p) Income Taxes
Income tax provisions are based on the asset and liability method.
Deferred income taxes have been provided for temporary differences between the
tax basis of assets and liabilities and their reported amounts in the
consolidated financial statements.
(q) Reclassifications
Certain fees earned, previously reported as a reduction in policy
acquisition costs, were reclassified in the 1994 financial statements to conform
to 1995 presentation. These reclassifications had no effect on net income, or
shareholders' equity, as previously reported.
II-15
<PAGE> 22
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Investments
Major categories of investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Fixed Maturities $4,961,776 $4,382,034 $3,707,095
Equity Securities 51,884 94,330 109,932
Short-term Investments 921,534 1,085,222 328,957
Notes Receivable 0 488 972
---------- ---------- ----------
$5,935,194 $5,562,074 $4,146,956
========== ========== ==========
</TABLE>
Net realized and net unrealized gains (losses) on fixed maturities and
equity securities are summarized as follows:
<TABLE>
<CAPTION>
Fixed Equity
Maturities Securities Other Total
----------- ---------- --------- ------------
1996
- ----------
<S> <C> <C> <C> <C>
Realized $ 126,194 $ 431,862 $(36,061) $ 521,995
Unrealized (997,948) (172,805) 0 (1,170,753)
---------- --------- -------- -----------
Combined ($871,754) $ 259,057 $(36,061) $ (648,758)
========== ========= ======== ===========
1995
- ----------
Realized $ 48,330 $ 203,823 0 $ 252,153
Unrealized 1,305,503 65,688 0 1,371,191
---------- --------- -------- -----------
Combined $1,353,833 $ 269,511 0 $ 1,623,344
========== ========= ======== ===========
1994
- ----------
Realized ($141,818) $ 892,863 0 $ 751,045
Unrealized (469,653) (158,099) 0 (627,752)
---------- --------- -------- -----------
Combined ($611,471) $ 734,764 0 $ 123,293
========== ========= ======== ===========
</TABLE>
II-16
<PAGE> 23
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Investments (continued)
The aggregate fair value, gross unrealized gains, gross unrealized losses
and amortized cost for available for sale and held to maturity securities by
major security type at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Held to maturity securities:
December 31, 1996
- -----------------
U. S. Government and
government agencies $13,280,990 $ 25,952 ($127,822) $13,179,120
States, municipalities and
political subdivisions 28,095,400 167,284 (152,729) 28,109,955
Corporate debt securities 5,683,205 25,327 (36,578) 5,671,954
Mortgage backed securities 2,035,229 5,330 (10,525) 2,030,034
----------- ---------- --------- -----------
$49,094,824 $ 223,893 ($327,654) $48,991,063
=========== ========== ========= ===========
Held to maturity securities:
December 31, 1995
- -----------------
U. S. Government and
government agencies $19,513,231 $ 133,395 ($18,391) $19,628,235
States, municipalities and
political subdivisions 26,579,614 225,402 (28,811) 26,776,205
Corporate debt securities 4,156,465 26,195 (13,778) 4,168,882
Mortgage backed securities 2,211,245 14,549 (13,555) 2,212,239
----------- ---------- --------- -----------
$52,460,555 $ 399,541 ($74,535) $52,785,561
=========== ========== ========= ===========
Available for sale securities:
December 31, 1996
- -----------------
U. S. Government and
government agencies $16,057,363 $ 84,332 ($74,257) $16,067,438
States, municipalities and
political subdivisions 15,436,905 339,175 (1,191) 15,774,889
Corporate debt securities 5,701,832 92,177 (29,010) 5,764,998
Equity securities 1,455,293 69,506 (176,623) 1,348,177
----------- ---------- --------- -----------
$38,651,393 $ 585,190 ($281,081) $38,955,502
=========== ========== ========= ===========
Available for sale securities:
December 31, 1995
- -----------------
U. S. Government and
government agencies $ 9,610,964 $ 190,609 $ 0 $ 9,801,573
States, municipalities and
political subdivisions 18,241,313 644,659 (260) 18,885,712
Corporate debt securities 4,898,978 145,489 0 5,044,467
Equity securities 1,893,395 131,116 (65,428) 1,959,083
----------- ---------- --------- -----------
$34,644,650 $1,111,873 ($65,688) $35,690,835
=========== ========== ========= ===========
</TABLE>
II-17
<PAGE> 24
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Investments (continued)
The scheduled maturities of available for sale and held to maturity
securities at December 31, 1996 are as follows. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations without penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
Held to maturity securities:
Due in one year or less $ 5,113,237 $ 5,133,145
Due after one through five years 30,908,273 30,934,153
Due after five years through ten years 8,069,499 7,925,653
Due after ten years 2,968,585 2,968,078
Mortgage backed securities 2,035,229 2,030,034
----------- -----------
$49,094,823 $48,991,063
=========== ===========
Available for sale securities:
Due in one year or less $ 3,757,413 $ 3,781,041
Due after one through five years 27,424,219 27,747,503
Due after five years through ten years 4,053,199 4,121,440
Due after ten years 1,961,269 1,957,343
----------- -----------
$37,196,100 $37,607,327
=========== ===========
</TABLE>
Proceeds from sales of investments in debt maturities and related gross
realized gains and losses were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds from sales $3,695,874 $5,595,785 $1,067,878
Gross realized gains 142,421 66,206 65,941
Gross realized losses 956 17,876 232,533
</TABLE>
The Company's three insurance subsidiaries, Fortune, Fortune Life, and Pegasus
maintain certain deposits with state regulatory agencies as a statutory
licensing requirement. The carrying value of the investments on deposit was
$1,550,000 at December 31, 1996 and $1,544,762 at December 31, 1995. These
deposits are included in the investment tables and exhibits of this report.
The Company's two finance companies also maintain certain deposits with
state regulatory agencies as a statutory licensing requirement. The carring
value of these investments was $70,000 at December 31, 1996 and 1995.
II-18
<PAGE> 25
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Deferred Policy Acquisition Costs
Costs, principally commissions, related to the production of new business,
are deferred and amortized as summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -------------
Fortune
- -------
<S> <C> <C> <C>
Balance at beginning of year $(1,421,049) $ (438,658) $ 1,084,099
Commissions and other costs
deferred 5,898,751 7,496,662 9,150,797
Charged to expense (4,518,243) (8,479,053) (10,673,554)
----------- ----------- ------------
Balance at end of year $ (40,541) $(1,421,049) $ (438,658)
=========== =========== ============
Mobile America Insurance Group
- ------------------------------
Balance at beginning of year $(2,812,521) $(3,343,007) $ (3,377,269)
Commissions and other costs
deferred (3,784,189) (7,113,083) (7,677,052)
Charged to expense 3,625,345 7,643,569 7,711,314
----------- ----------- ------------
Balance at end of year $(2,971,365) $(2,812,521) $ (3,343,007)
=========== =========== ============
Fortune Life
- ------------
Balance at beginning of year $ 7,690 $ 4,566 $ 17,035
Commissions and other costs
deferred 60,855 10,221 5,319
Charged to expense (24,013) (7,097) (17,788)
----------- ----------- ------------
Balance at end of year $ 44,532 $ 7,690 $ 4,566
=========== =========== ============
Pegasus
- -------
Balance at beginning of year $ 16,040 $ 2,121 $ 0
Commissions and other costs
deferred 464,398 33,341 3,043
Charged to expense (248,059) (19,422) (922)
----------- ----------- ------------
Balance at end of year $ 232,379 $ 16,040 $ 2,121
=========== =========== ============
Consolidated Totals $(2,734,995) $(4,209,840) $ (3,774,978)
=========== =========== ============
</TABLE>
Several of the automobile insurance lines written by Fortune have been
reinsured on a quota share basis, whereby a reinsurer provides ceding
commission to the Company in return for ceded premium. In some instances
II-19
<PAGE> 26
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Deferred Policy Acquisition Costs (continued)
the ceding commissions received exceed the costs to the Company of soliciting
new business, thereby generating credits to commission expense and deferred
policy acquisition costs. Ceding commission received in 1996, 1995 and 1994 is
approximately $7,527,000, $15,694,000 and $13,756,000, respectively. Deferred
policy acquisition cost reinsurance credits reported in the Company's balance
sheet at December 31, 1996 and 1995 are $8,516,878 and $10,298,723,
respectively.
Note 4. Modular Office Units, Land and Equipment and Leasehold Improvements
The cost and annual rates of depreciation and amortization for the major
classifications of property, equipment and leasehold improvements are as
follows:
<TABLE>
<CAPTION>
December 31,
Annual Rates 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Modular Office Units:
Modular office units 12% - 20% $ 10,982 $ 10,982
Less accumulated depreciation (7,982) (7,982)
---------- ----------
$ 3,000 $ 3,000
========== ==========
Land: $ 524,043 $ 356,970
========== ==========
<CAPTION>
December 31,
Annual Rates 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Equipment and leasehold improvements:
Transportation equipment 25% - 33% $ 165,240 $ 214,630
Building 5% 35,000 35,000
Office furniture, fixtures and
leasehold improvements 5% - 33% 2,414,432 2,334,744
---------- ----------
2,614,672 2,584,374
Less accumulated depreciation (2,070,009) (1,953,916)
---------- ----------
$ 544,663 $ 630,458
========== ==========
</TABLE>
II-20
<PAGE> 27
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Modular Office Units, Land and Equipment and Leasehold Improvements
(continued)
In 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" was issued. This statement requires the recognition of an
impairment loss for an asset held for use when the estimate of undiscounted
future cash flows expected to be generated by the asset is less than its
carrying amount. Due to the nature of the Company's business, with limited use
of long-lived assets, it has been determined that no impairment loss need be
recognized.
Note 5. Reinsurance
The insurance subsidiaries have various reinsurance agreements which
significantly affect their operations. Risks are reinsured to limit loss size
and to increase writing capacity, although the Company remains primarily liable
to the policyholders on all risks transferred.
Fortune and Pegasus have limited their property and liability losses to a
maximum of $40,000 per occurrence. On catastrophe losses up to $5,000,000,
liability is limited to 5% of the loss in excess of $400,000 in a treaty year.
Additionally, with several of the automobile insurance lines, Fortune has
reinsured various percentages of its liability on a quota share basis
Fortune Life has entered into reinsurance agreements which limit its loss
to $10,000 per individual risk.
The effect of reinsurance on premiums written and earned for 1996, 1995
and 1994 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ------------------ ----------------
Written Earned Written Earned Written Earned
---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Direct $75,468 $76,884 $107,617 $102,722 $88,539 $87,722
Assumed 0 0 0 0 0 0
Ceded 42,279 46,193 66,928 65,079 57,332 53,350
---------------- ------------------ ----------------
Net $33,189 $30,691 $ 40,689 $ 37,643 $31,207 $34,372
================ ================== ================
</TABLE>
The amount of reinsurance recoveries deducted from direct and pool
participation losses incurred during 1996, 1995 and 1994 was approximately
$37,970,000, $59,612,000 and $38,639,000, respectively.
II-21
<PAGE> 28
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Reinsurance (continued)
The Company evaluates the financial condition of its reinsurers to
minimize its exposures to significant losses from reinsurer insolvency.
Reinsurance receivables, prepaid reinsurance premiums and offsetting funds
withheld/payable balances for each significant reinsurer at December 31, 1996
is presented below (in thousands):
<TABLE>
<CAPTION>
Reinsurance Prepaid Funds Held
Receivable Premium or Balances Due
----------- ------- ---------------
<S> <C> <C> <C>
Clarendon National Insurance Company $ 8,980 $ 6,680 $ 5,927
Sirius Reinsurance Company 8,199 6,681 6,277
National Union Fire Insurance Company 2,797 5,008 5,631
Prudential Reinsurance Company 5,814 1 (2,445)
Ranger Insurance Company 1,737 1,670 1,715
Other 112 307 248
----------- ------- --------------
$27,639 $20,347 $17,353
=========== ======= ==============
</TABLE>
Note 6. Regulatory Restrictions
Fortune, Fortune Life and Pegasus are subject to regulation by the
insurance departments of the states in which they are licensed. Under the
regulations, cash dividends may only be paid out of accumulated surplus funds
derived from net operating profits and capital gains, or out of earned surplus
even though total surplus may be less than capital stock and paid-in capital.
Fortune, which is subject to Florida law, may not pay, unless otherwise
approved by the State Insurance Commissioner, dividends in any one year which
exceed the greater of (a) 10% of such surplus funds or (b) the total amount of
such funds derived during the immediate preceding year. The insurance
companies did not pay dividends in 1996, 1995 and 1994.
II-22
<PAGE> 29
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Regulatory Restrictions (continued)
The following represent reconciliations of net income and stockholder's
equity of Fortune, Fortune Life and Pegasus from a statutory basis to those
presented on a GAAP basis for the year ended December 31, 1996:
<TABLE>
<CAPTION>
Fortune
Fortune Life Pegasus
------------ ----------- -----------
<S> <C> <C> <C>
Net gain (loss) from operations -
statutory basis $(1,528,960) $ 161,769 $ (155,880)
----------- ---------- ----------
Change in deferred acquisition costs (428,006) 36,842 216,340
Change in deferred ceding commissions 1,781,845 0 0
Change in reserves 0 (28,307) 0
Other 152,051 6,211 (9,897)
----------- ---------- ----------
1,505,890 14,746 206,443
----------- ---------- ----------
Net gain (loss) from operations -
GAAP basis ($23,070) $ 176,515 $ 50,563
=========== ========== ==========
Stockholder's equity -
statutory basis $14,911,959 $3,935,833 $4,523,562
----------- ---------- ----------
Deferred acquisition costs 8,875,036 44,532 232,379
Deferred ceding commissions (8,516,878) 0 0
Adjustments to reserves 0 (33,632) 0
Deferred income taxes 1,370,526 (20,702) 0
Non-admitted assets 462,237 (17,218) 0
Unrealized gains 31,066 24,080 2,044
Other 82,870 35,242 4,503
----------- ---------- ----------
2,304,857 32,302 238,926
----------- ---------- ----------
Stockholder's equity - GAAP basis $17,216,816 $3,968,135 $4,762,488
=========== ========== ==========
</TABLE>
Note 7. Pension Plan
The Company's defined contribution pension plan covers substantially all
full-time employees. Contributions are based on employee earnings. Total
contributions made by the Company during 1996, 1995, and 1994 were $240,739,
$210,000, and $170,000 respectively.
II-23
<PAGE> 30
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Stock Options
The Company's incentive plan, adopted in 1995, provides for the issuance
to key employees and directors of up to 300,000 shares of common stock through
options, stock appreciation rights and other stock-based awards as defined
under current tax laws. Incentive stock options for employees are exercisable
for periods of up to ten years from the date of the grant at a price equal to
the fair market value on the date of the grant. In the case of an incentive
option granted to an individual who owns at least 10% of the total combined
voting power of the Company, the exercise price must be at least 110% of the
fair market value of the common stock on the date of grant and the option term
cannot exceed five years. Stock appreciation rights entitle the recipient to
receive the difference between the fair market value of the common stock on the
date of exercise and the stock appreciation rights price, in cash or in shares
of common stock, or a combination. Restricted stock awards entitle the
recipient to receive shares of common stock subject to forfeiture restrictions
that lapse over time or upon the occurrence of specific events.
The options are accounted for under Accounting Principles Board Opinion
No. 25 (APB 25). Under APB 25, because the exercise price of the options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Following is a summary of stock options activity:
<TABLE>
<CAPTION>
1995 Price Number
- ---- ------ --------
<S> <C> <C>
Granted $ 9.62 103,750
Forfeited $ 9.62 (11,250)
Balance 12/31/95 $ 9.62 92,500
1996
- ----
Granted $10.25 67,500
Forfeited $ 9.62 (1,250)
Exercised $ 9.62 (5,000)
Balance 12/31/96 $9.62 and $10.25 153,750
</TABLE>
At December 31, 1996 options for 87,250 shares were exercisable. The
proforma disclosure required by Statement of Financial Accounting Standards No.
123 has been omitted because management believes the shares under option are
not material.
II-24
<PAGE> 31
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Income Taxes
The following analysis reconciles the statutory Federal income tax rate to
the effective tax rates:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory Federal rate 34% 34% 34%
Increase (reductions) in effective tax
rate resulting from:
Tax exempt interest (7.8) (8.0) (12.5)
Dividends received deduction (.1) (.2) (.4)
Special life insurance
company deductions (.4) (.1) (.5)
State income taxes 2.9 7.4 5.6
Change in valuation allowance (8.2) 0 0
Other (4.7) (3.0) (1.8)
---- ---- -----
Effective tax rate 15.7% 30.1% 24.4%
==== ==== =====
</TABLE>
Consolidated deferred tax expense (credit) results from timing differences
in the recognition of revenue and expense for tax and financial statement
purposes. The source of these differences and their tax effect are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Increase (decrease) in discounted loss
and loss adjustment expense reserves $ (37) $733 $(518)
Increase (decrease) in deferred
acquisition costs 0 (114) 0
Increase (decrease) in deferred
insurance premiums (300) (204) 215
Decrease in valuation allowance (733) 0 0
Various (213) (98) 224
------- ---- -----
$(1,283) $317 $ (79)
======= ==== =====
</TABLE>
Consolidated deferred taxes receivable resulting from temporary
differences in the recognition of revenue and expense for tax and financial
statement purposes are summarized as follows (in thousands).
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Discounted loss and loss adjustment
expense reserves $ 770 $ 733
Deferred insurance premiums 1,333 1,033
Various (60) (273)
------ ------
2,043 1,493
Valuation allowance 0 (733)
------ ------
$2,043 $ 760
====== ======
</TABLE>
II-25
<PAGE> 32
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Income Taxes (continued)
The Company believes, that based upon its lengthy and consistent history of
profitable operations, it is probable that the deferred tax asset will be
realized and no deferred tax allowance is deemed necessary at December 31, 1996.
Deferred taxes payable of $61,072 and $355,000 are provided on unrealized
gains, on equity securities and fixed maturities available for sale at December
31, 1996 and 1995, respectively.
Fortune Life Insurance Company's "policyholders surplus account" which
arose under prior tax law, is generally that portion of the life insurance
company's gain from operations that has not been subjected to tax. The balance
of this account, which under provisions of the Tax Reform Act of 1984, will not
increase after 1983, is approximately $98,000 at December 31, 1996. This
amount has not been subjected to current income tax, but under certain
conditions, may become subject to income tax in future years. At current tax
rates, the maximum amount of such tax (for which no provision has been made in
the financial statements) is approximately $33,000.
Beginning in 1995, the Company and its subsidiaries filed a consolidated
federal income tax return, while prior to 1995 the life insurance subsidiary
filed a separate return.
Note 10. Business Segments
The Company and its subsidiaries operate principally in five business
segments consisting of automobile insurance, personal property insurance,
commercial lines insurance, life insurance, and fee for service insurance
administration. The four insurance segments furnish various forms of property,
liability and life insurance marketed through independent insurance agents in
the state of Florida. The Company acts as a servicing carrier for the Florida
Residential Property and Casualty Joint Underwriting Association, the Florida
Automobile Joint Underwriting Association and as a subcontractor for Policy
Management Systems Corporation performing various underwriting and claims
services for a service fee.
II-26
<PAGE> 33
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Business Segments (continued)
Summarized financial information by business segment for 1996, 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
Sales to Unaffiliated Customers 1996 1995 1994
- ------------------------------- ------------------------------------------
<S> <C> <C> <C>
Automobile Insurance $ 73,211,073 $100,426,747 $ 84,872,980
Personal Property Insurance 3,283,170 1,807,125 2,315,126
Commercial Lines Insurance 312,159 432,468 494,571
Life Insurance 35,464 14,193 34,092
Property Rentals and Sales 1,520 176,894 143,955
Fee for service 11,001,221 8,624,931 4,301,521
Other 576,702 960,591 807,669
Adjustments and Eliminations (46,192,568) (65,079,149) (53,349,540)
Investment Income 5,935,194 5,562,074 4,146,956
------------------------------------------
Consolidated Revenues $ 48,163,935 $ 52,925,874 $ 43,767,330
==========================================
Operating Profit (or loss) 1996 1995 1994
- -------------------------- ------------------------------------------
Automobile Insurance $ 5,431,895 $ 3,673,684 $ 3,047,568
Personal Property Insurance 652,766 (110,955) (715,676)
Commercial Lines Insurance (103,625) (99,874) 385,396
Life Insurance 206,895 100,439 110,720
Property Rentals and Sales 1,520 140,692 71,549
Fee for service 3,418,080 2,843,555 808,930
Other 131,061 1,537,273 1,192,427
Investment Income 1,460,810 1,137,990 804,299
Corporate Expenses (2,213,238) (637,105) (452,741)
------------------------------------------
Income before income taxes $ 8,986,164 $ 8,585,699 $ 5,252,472
==========================================
Identifiable Assets 1996 1995 1994
- ------------------- ------------------------------------------
Automobile Insurance $130,850,415 $137,386,763 $115,571,674
Personal Property Insurance 8,224,013 8,095,427 5,643,680
Commercial Lines Insurance 1,079,838 1,574,928 2,413,416
Life Insurance 4,045,916 3,864,996 3,725,599
Property Rentals and Sales 0 25,541 107,801
Fee for service 9,279,618 7,116,795 2,035,622
Other 6,208,977 15,568,154 7,126,738
General Corporate Assets 8,398,124 9,138,558 7,190,765
------------------------------------------
Total Assets $168,086,901 $182,771,162 $143,815,295
==========================================
</TABLE>
II-27
<PAGE> 34
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Pools and Associations
Fortune Insurance Company, as a direct premium writer in the state of
Florida, is required to participate in the Florida Automobile Joint
Underwriting Association (FAJUA). Fortune's participation is based on its
automobile premium to total automobile premium written state wide by all
automobile insurers. In 1996 the FAJUA issued reports amending Fortune's
participation for years prior to 1996. These changes are reported in the
current year. A summary of Fortune's 1996 participation and the prior year
adjustment is presented below.
<TABLE>
<CAPTION>
1996 Prior years Total
------- ------------ ------------
<S> <C> <C> <C>
Written Premium $144,099 $(10,826,330) $(10,682,231)
Earned Premium $ 65,169 $ (9,737,251) $ (9,672,082)
Losses and loss
adjustment expenses paid $ 32,863 $ (6,289,054) $ (6,256,191)
Loss and loss
adjustment expenses incurred $ 62,361 $ (7,781,227) $ (7,718,866)
Commissions $(15,669) $ (1,472,959) $ (1,488,628)
</TABLE>
A summary of FAJUA activity reported in 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Earned Premium $4,007,962 $2,089,944
Incurred Losses $3,361,142 $1,001,579
Commissions $ 550,024 $262,447
</TABLE>
II-28
<PAGE> 35
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Operating Leases
The Company leases certain office facilities under operating leases which
contain renewal options. Lease terms range from 18 months to five years. Rent
expense was $295,499, $297,597 and $263,649 for 1996, 1995 and 1994,
respectively.
Minimum future rental payments are as follows:
<TABLE>
<S> <C>
1997 $ 265,653
1998 $ 238,004
1999 $ 218,818
2000 $ 224,758
2001 $ 230,926
----------
$1,178,159
==========
</TABLE>
Note 13. Concentrations of Credit Risk
The Company is subject to credit risk through short-term cash investments,
insurance premium receivables and reinsurance receivables. Short-term
investments are placed with high credit quality financial institutions or in
short duration high quality debt securities. At times, such investments may be
in excess of FDIC insurance limits. No losses have been experienced on such
investments.
A significant portion of insurance premium receivables relates to the
financing of automobile insurance premiums in south Florida. An allowance for
non-collection of $300,000 has been provided for at December 31, 1996. The
Company's exposure to loss is limited by the fact that non-payment of premiums
will result in cancellation of the underlying insurance policy.
For a discussion of credit risk related to reinsurance see note (5) of the
consolidated financial statements.
II-29
<PAGE> 36
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14. Note Payable
On October 24, 1995 the Company obtained a bank loan in the amount of
$12,000,000, for which the proceeds have been used primarily as additional
capital for the insurance subsidiaries. The note accrues interest at the 90
day LIBOR rate plus 275 basis points. Interest only is paid through January 24,
1998 with the first principal payment due on the twenty seventh monthly
interest payment date and quarterly thereafter in the amount of $600,000 each
payment. The entire unpaid principal balance, together with accrued interest
thereon is due and payable on the loan maturity date of October 24, 2002.
The note was collateralized by the assignment of the capital stock of the
Registrant's subsidiaries on October 24, 1995, as well as the execution of
guaranty agreements between the bank and certain subsidiaries of the
Registrant.
The following is a schedule of the required annual principal payments:
<TABLE>
<S> <C>
1997 0
1998 2,400,000
1999 2,400,000
2000 2,400,000
2001 2,400,000
2002 2,400,000
-----------
$12,000,000
===========
</TABLE>
Loan acquisition costs are being amortized on a straight-line basis over
the term of the loan and are included in the other asset section of the
consolidated balance sheet.
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Beginning Balance $425,540 $435,920
Less accumulated amortization 62,278 10,380
-------- --------
Net loan acquisition costs $363,262 $425,540
======== ========
</TABLE>
The Company paid interest of $1,005,760 in 1996 and $156,375 in 1995.
Note 15. Insurance Loss Reserves
Reserves for unpaid losses and loss adjustment expenses are maintained to
cover the probable ultimate cost of settling all losses incurred including
those not yet reported. Reserves for losses incurred in prior years may be
adjusted by review or by payment which could result in either a redundancy or
deficiency to the reserve reported at the end of the prior year. Such changes
are reflected in current operations.
II-30
<PAGE> 37
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Insurance Loss Reserves (continued)
Activity in the liability for insurance loss reserves is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Balance at beginning of year $54,645,686 $43,950,469
Less reinsurance recoverables 33,822,126 24,832,401
----------- -----------
Net Balance at beginning of year 20,823,560 19,118,068
=========== ===========
Incurred related to:
Current year 27,216,632 30,539,854
Prior years (3,390,000) 188,772
----------- -----------
Total incurred 23,826,632 30,728,626
=========== ===========
Paid related to:
Current year 15,428,840 15,750,628
Prior years 9,164,329 13,272,506
----------- -----------
Total paid 24,593,169 29,023,134
=========== ===========
Net Balance at end of year 20,057,023 20,823,560
Plus reinsurance recoverables 27,638,632 33,822,126
----------- -----------
Balance at end of year $47,695,655 $54,645,686
=========== ===========
</TABLE>
Note 16. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate
that value:
- - Cash and Short-term Investments
The carrying amounts approximates fair value because of the short-term
maturity of these investments.
- - Investment in Securities
Fair values are based on quoted market prices or dealer quotes, if
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
- - Insurance Premium Receivable
The carrying amount approximates fair value due to the short-term nature
of the receivable.
- - Note Payable
The interest rate on the note payable is reset monthly to reflect
current market rates, consequently the carrying value of the note
approximates fair value.
II-31
<PAGE> 38
Part III
Items 10, 11, 12, and 13 have been omitted pursuant to instructions to
Form 10-K. The Registrant intends to file with the Securities and Exchange
Commission not later than April 30, 1997 a definitive proxy statement to be
used in connection with its Annual Meeting of Shareholders, at which time
directors will be elected for the ensuing year.
III-1
<PAGE> 39
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8K
(a) 1. Financial Statements
The following financial statements are included in Part II, Item 8:
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Report of Independent Certified Public Accountants II-7
Consolidated Balance Sheets, December 31, 1996 and 1995 II-8
Consolidated Statements of Operations II-9
Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows II-10
Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity II-11
Years ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements II-12-31
</TABLE>
2. Financial Statements Schedules
The following financial schedules are included in Part IV of this
report:
<TABLE>
<S> <C> <C>
Schedule I. Summary of Investments - Other than Investments in
Related Parties IV-11
December 31, 1996 and 1995
Schedule II. Condensed Financial Information of Registrant IV-12-14
Years ended December 31, 1996, 1995 and 1994
Schedule III. Supplementary Insurance Information IV-15-17
Years ended December 31, 1996, 1995 and 1994
Schedule IV. Supplementary Insurance Information - Reinsurance IV-18
Years ended December 31, 1996, 1995 and 1994
Schedule VI. Supplementary Insurance Information -
Consolidated Property-Casualty Entities IV-19
Years ended December 31, 1996, 1995 and 1994
</TABLE>
All other schedules are omitted as the required information is not
applicable or the required information is otherwise presented in the financial
statements or notes thereto.
IV-1
<PAGE> 40
<TABLE>
<CAPTION>
(a)3. Exhibits
--------
<S> <C>
3.3 The Articles of Incorporation and By-Laws of the Company
originally filed on Form S-1 Registration Statement No. 2-42438,
effective March 3, 1972 are hereby incorporated herein by
reference.
The Amendment to the Articles of Incorporation filed as
Exhibit C to the Registrant's form 10-Q for the quarter ended
September 30, 1980, is also hereby incorporated herein by
reference.
The Amendment to the Articles of Incorporation filed as
Exhibit 4 to the Registrant's Form 10-Q for the quarter ended
September 30, 1987, is also hereby incorporated by reference.
The Amendment to the Articles of Incorporation filed as
Exhibit 4 to the Registrant's Form 10-Q for the quarter ended
September 30, 1993 is also hereby incorporated by reference.
</TABLE>
<TABLE>
<S> <C> <C>
3.11 Earnings Per Share Computations IV-3
3.21 Subsidiaries of Registrant IV-4
3.29 Information from reports furnished to state insurance
regulatory authorities IV-5-10
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1996.
IV-2
<PAGE> 41
Exhibit 3.11 Schedule of Computation of Per Share Earnings
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net Income $7,571,392 $5,999,694 $4,048,446
========== ========== ==========
Common Shares outstanding - end of year 6,255,040 6,260,040 6,264,040
Effect of weighting treasury stock
acquired during the year 0 0 0
--------- ---------- ----------
Common and common equivalent shares
used in computing earnings per share 6,255,040 6,260,040 6,264,040
========= ========== ==========
Per Share Amounts:
Net Income $ 1.21 $ .96 $ .65
========= ========== ==========
</TABLE>
IV-3
<PAGE> 42
Exhibit 3.21 Subsidiaries of Registrant
The following table lists the Registrant and its subsidiaries as of
December 31, 1996, the jurisdiction in which each subsidiary was organized, and
the percentage of voting securities of each subsidiary owned by the immediate
parent:
<TABLE>
<CAPTION>
Percentage of
Jurisdiction Voting Securities
Where Owned by Immediate
Name Organized Parent
---- ------------ -------------------
<S> <C> <C>
Mobile America Corporation Florida
Mobile America Insurance
Group, Inc. Florida 100%
Fortune Insurance
Company Florida 100%
Fortune Life
Insurance Company Arizona 100%
Pegasus Insurance Company Oklahoma 100%
Fortune Financial Corporation Florida 100%
Big Gorilla Inc. Florida 100%
</TABLE>
All of the above subsidiaries are included in the Consolidated Financial
Statements of the registrant and its subsidiaries. All unnamed subsidiaries
and other affiliates, when considered in the aggregate as a single subsidiary,
would not constitute a significant subsidiary.
IV-4
<PAGE> 43
<TABLE>
<CAPTION>
INFORMATION FROM REPORTS FURNISHED TO STATE INSURANCE REGULATORY AUTHORITY
EXHIBIT 29
SCHEDULE P
DETAILED INFORMATION ON LOSSES AND LOSS EXPENSES
(IN THOUSANDS)
PREMIUMS EARNED LOSS AND LOSS EXPENSE PAYMENTS
(1) -------------------------------------------------------------------------------------------------
YEARS IN
WHICH ALLOCATED LOSS
PREMIUMS LOSS PAYMENTS EXPENSE PAYMENT
WERE -------------------------------------
EARNED AND (2) (5) (7) (9) (10) (11)
LOSSES DIRECT (4) DIRECT DIRECT SALVAGE AND UNALLOCATED TOTAL
WERE AND (3) NET AND (6) AND (8) SUBROGATION LOSS EXPENSE NET PAID
INCURRED ASSUMED CEDED (2 - 3) ASSUMED CEDED ASSUMED CEDED RECEIVED PAYMENTS (5-6+7-8+10)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 19 XXX 7 1 27
1987 17,860 8,750 9,110 6,709 2,629 1,358 562 30 338 5,214
1988 18,702 9,381 9,321 8,364 3,295 1,532 463 19 369 6,507
1989 30,461 13,974 16,487 13,918 4,891 2,989 846 25 442 11,612
1990 48,026 27,141 20,885 28,009 16,164 5,146 2,776 51 444 14,659
1991 60,673 33,205 27,468 36,988 21,260 5,567 2,969 54 1,556 19,882
1992 76,381 43,033 33,348 53,478 32,144 6,563 3,256 116 1,453 26,094
1993 93,176 52,872 40,304 61,577 35,249 8,725 4,681 179 1,378 31,750
1994 86,699 53,174 33,525 58,502 35,533 7,639 4,538 146 2,621 28,691
1995 102,707 65,079 37,628 59,605 40,437 5,957 4,312 238 2,598 23,411
1996 76,849 46,193 30,656 33,988 20,132 3,587 2,016 87 2,787 18,214
TOTALS XXX XXX XXX 361,157 211,734 49,070 26,419 945 13,987 186,061
</TABLE>
<PAGE> 44
INFORMATION FROM REPORTS FURNISHED TO STATE INSURANCE REGULATORY AUTHORITY
EXHIBIT 29
----------
SCHEDULE P
DETAILED INFORMATION ON LOSSES AND LOSS EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
(1) LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID
YEARS IN ------------------------------------------------------------------------------
WHICH
PREMIUMS CASE BASIS BULK & IBNR CASE BASIS BULK & IBNR
WERE ------------------------- ------------ ------------------- ----------- (23)
EARNED AND (13) (15) (17) (19) (22) TOTAL
LOSSES DIRECT DIRECT DIRECT DIRECT UNALLOCATED NET LOSSES
WERE AND (14) AND (16) AND (18) AND (20) LOSS EXPENSES AND EXPENSES
INCURRED ASSUMED CEDED ASSUMED CEDED ASSUMED CEDED ASSUMED CEDED UNPAID UNPAID
- -------- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 121 88 29 7 245
1987
1988
1989 7 3 1 5
1990 8 1 13 12 8 5 1 12
1991 64 26 114 68 46 28 5 107
1992 86 42 463 261 104 59 16 307
1993 311 167 1,519 881 360 209 55 988
1994 1,114 627 2,476 1,435 479 267 140 1,880
1995 2,678 1,645 7,358 5,096 1,005 701 296 3,895
1996 17,934 10,532 6,256 3,313 3,805 2,260 713 12,603
TOTALS 22,323 13,043 18,287 11,066 5,837 3,529 1,233 20,042
</TABLE>
The Registrant has no affiliations with unconsolidated
subsidiaries or 50%-or-less owned equity investees.
<PAGE> 45
<TABLE>
<CAPTION>
INFORMATION FROM REPORTS FURNISHED TO STATE INSURANCE REGULATORY AUTHORITY
EXHIBIT 29
----------
SCHEDULE P
DETAILED INFORMATION ON LOSSES AND LOSS EXPENSES
(IN THOUSANDS)
(1)
YEARS IN TOTAL LOSSES AND LOSS AND LOSS EXPENSE PERCENTAGE TIME VALUE NET BALANCE SHEET
WHICH EXPENSES INCURRED (Incurred/Premiums Earned) OF MONEY RESERVES AFTER DISCOUNT
PREMIUMS --------------------------------------------------------------------------- ----------------------
WERE (33)
EARNED (25) (28) INTER-COMPANY (35)
LOSSES DIRECT DIRECT (32) POOLING (34) LOSS
WERE AND (26) (27) AND (29) (30) (31) LOSS PARTICIPATION LOSSES EXPENSE
INCURRED ASSUMED CEDED NET ASSUMED CEDED NET LOSS EXPENSE PERCENTAGE UNPAID UNPAID
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XX XX XX XX XX XX 209 36
1987 8,405 3,191 5,214 47.1 36.5 57.2 0 0
1988 10,265 3,758 6,507 54.9 40.1 69.8 0 0
1989 17,357 5,740 11,617 57.0 41.1 70.5 4 1
1990 33,629 18,958 14,671 70.0 69.9 70.2 8 4
1991 44,340 24,351 19,989 73.1 73.3 72.8 84 23
1992 62,163 35,762 26,401 81.4 83.1 79.2 246 61
1993 73,925 41,187 32,738 79.3 77.9 81.2 782 206
1994 72,971 42,400 30,571 84.2 79.7 91.2 1,528 352
1995 79,497 52,191 27,306 77.4 80.2 72.6 3,295 600
1996 69,070 38,253 30,817 89.9 82.8 100.5 10,345 2,258
TOTALS XX XX XX XX XX XX 16,501 3,541
</TABLE>
The Registrant has no affiliations with unconsolidated
subsidiaries or 50%-or-less owned equity investees.
<PAGE> 46
INFORMATION FROM REPORTS FURNISHED TO STATE INSURANCE REGULATORY AUTHORITY
EXHIBIT 29
SCHEDULE P
HISTORY OF INCURRED LOSSES AND ALLOCATED EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCURRED LOSSES AND ALLOCATED EXPENSES REPORTED AT YEAR END DEVELOPMENT
----------------------------------------------------------------------------------------- -----------------
(1)
YEARS IN WHICH (12) (13)
LOSSES WERE (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) ONE TWO
INCURRED 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 YEAR YEAR
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 2,820 2,206 2,381 1,765 1,809 1,835 1,883 1,916 1,893 2,143 250 227
1987 6,103 5,895 5,573 5,330 5,268 5,212 5,181 5,176 5,185 5,184 (1) 8
1988 8,016 7,473 7,040 7,157 7,137 7,149 7,164 7,160 7,158 (2) (6)
1989 12,521 11,367 11,561 11,377 11,559 11,578 11,623 11,632 9 54
1990 17,489 14,833 14,800 14,795 14,777 14,749 14,754 5 (23)
1991 19,886 18,580 19,037 19,162 19,094 19,134 40 (28)
1992 25,323 24,973 25,777 25,644 25,658 14 (119)
1993 32,774 31,877 31,774 32,218 444 341
1994 25,881 27,127 28,358 1,231 2,477
1995 29,790 24,412 (5,378)
1996 27,317
TOTALS (3,362) 2,931
</TABLE>
The Registrant has no affiliations with unconsolidated
subsidiaries or 50%-or-less owned equity investees.
<PAGE> 47
INFORMATION FROM REPORTS FURNISHED TO STATE INSURANCE REGULATORY AUTHORITY
EXHIBIT 29
SCHEDULE P
HISTORY OF CUMULATIVE PAID LOSSES AND ALLOCATED EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
(12) (13)
CUMULATIVE PAID LOSSES AND ALLOCATED EXPENSES AT YEAR END NUMBER NUMBER
CLAIMS CLAIMS
-------------------------------------------------------------------------------- OF OF
(1) CLOSED CLOSED
YEARS IN WHICH WITH WITH
LOSSES WERE (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) LOSS LOSS
INCURRED 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 PAYMENT PAYMENT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 1,100 1,887 1,654 1,747 1,807 1,866 1,888 1,879 1,905
1987 2,206 4,375 4,841 4,940 5,101 5,189 5,179 5,176 5,185 4,697
1988 3,162 5,685 6,527 6,919 7,055 7,146 7,154 7,160 6,138
1989 2,996 8,571 10,469 11,099 11,485 11,550 11,610 11,170
1990 6,555 12,595 13,993 14,489 14,648 14,725 14,215
1991 9,886 16,815 18,355 18,677 18,936 18,326
1992 12,210 22,953 24,591 25,022 24,641
1993 16,925 28,351 30,166 30,372
1994 13,275 23,896 26,070
1995 15,950 20,813
1996 15,427
</TABLE>
The Registrant has no affiliations with unconsolidated
subsidiaries or 50%-or-less owned equity investees.
<PAGE> 48
INFORMATION FROM REPORTS FURNISHED TO STATE INSURANCE REGULATORY AUTHORITY
SCHEDULE P
HISTORY OF BULK AND INCURRED BUT NOT REPORTED RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
- ------------------------------------------------------------------------------------------------------
(1)
YEARS IN WHICH
LOSSES WERE (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
INCURRED 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 862 606 725 36 117
1987 452 430 458 283 134 16
1988 661 698 243 162 24 4
1989 3749 806 707 164 35 16 3 1
1990 3323 1047 457 192 82 20 4
1991 3635 697 403 303 102 64
1992 3335 1055 897 499 247
1993 4475 2165 019 789
1994 4281 1583 1253
1995 5278 2566
1996 4488
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
SCHEDULE I
----------
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS - OTHER THAN RELATED PARTIES
DECEMBER 31, 1996
Amount
which carried
in balance Market
Consolidated Cost sheet Value
- ------------ ------------ ------------- ------------
<S> <C> <C> <C>
Industrial Bonds $ 11,431,370 $ 11,448,203 $ 11,452,187
Municipal Bonds 44,515,993 43,870,289 46,734,041
U. S. Government Bonds 30,343,561 31,383,657 30,284,968
------------ ------------ ------------
Total Bonds 86,290,924 86,702,149 88,471,196
------------ ------------ ------------
Common Stock 1,063,711 984,169 984,169
Preferred Stock 391,582 364,008 364,008
------------ ------------ ------------
Total Stocks 1,455,293 1,348,177 1,348,177
------------ ------------ ------------
Notes Receivable 157 157 157
------------ ------------ ------------
Certificates of Deposit 16,898,070 16,898,070 16,898,070
Industrial Bonds 1,567,351 1,567,351 1,567,352
Municipal Bonds 579,391 579,391 579,391
U.S. Government Bonds 3,186,663 3,186,663 3,186,663
------------ ------------ ------------
Total Short Term Investments 22,231,475 22,231,475 22,231,476
------------ ------------ ------------
Total Investments $109,977,849 $110,281,958 $112,051,006
============ ============ ============
<CAPTION>
DECEMBER 31, 1995
Amount
which carried
in balance Market
Consolidated Cost sheet Value
- ------------ ------------ -------------- ------------
<S> <C> <C> <C>
Industrial Bonds $ 9,203,128 $ 9,200,932 $ 9,213,349
Municipal Bonds 45,566,345 45,465,326 45,661,917
U. S. Government Bonds 31,403,018 31,526,049 31,642,047
------------ ------------- ------------
Total Bonds 86,172,491 86,192,307 86,517,313
------------ ------------- ------------
Common Stock 1,465,517 1,523,814 1,523,814
Preferred Stock 427,878 435,269 435,269
------------ ------------- ------------
Total Stocks 1,893,395 1,959,083 1,959,083
------------ ------------- ------------
Notes Receivable 2,650 2,650 2,650
------------ ------------- ------------
Certificates of Deposit 12,475,297 12,475,297 12,475,297
Industrial Bonds 3,248,256 3,241,255 3,241,697
Municipal Bonds 301,929 301,431 302,040
U.S. Government Bonds 6,432,753 6,452,331 6,464,603
------------ ------------- ------------
Total Short Term Investments 22,458,235 22,470,314 22,483,637
------------ ------------- ------------
Total Investments $110,526,771 $110,624,354 $110,962,683
============ ============= ============
</TABLE>
IV-11
<PAGE> 50
SCHEDULE II
<TABLE>
<CAPTION>
MOBILE AMERICA CORPORATION AND SUBSIDIARIES SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT -----------
DECEMBER 31, 1996 AND 1995
PARENT COMPANY - BALANCE SHEETS
ASSETS
1996 1995
----------- -----------
<S> <C> <C>
Cash $ (5,456) $2,219,791
Receivables:
Accrued investment income and other 184,592 247,517
Income taxes recoverable 581,194 0
Intercompany receivables 7,221,806 7,848,778
----------- -----------
Total receivables 7,987,592 8,096,295
----------- -----------
Inventory of mobile homes 0 11,667
Investments:
Short-term investments 2,225,173 2,999,903
Securities - held to maturity at
amortized cost 5,883,085 4,002,976
Securities - available for sale at market 4,957,436 4,128,891
----------- -----------
Total investments 13,065,694 11,131,770
----------- -----------
Investments in subsidiaries 27,453,235 22,087,957
Other assets 392,113 525,540
Deferred income taxes 312,578 320,627
Equipment less accumulated depreciation 188,445 24,374
----------- -----------
$49,394,201 $44,418,021
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable $12,000,000 $12,000,000
Income taxes payable 0 58,528
Accrued expenses and other liabilities 132,946 27,269
Intercompany payables 1,084,234 1,019,234
----------- -----------
Total liabilities 13,217,180 13,105,031
----------- -----------
Stockholders' equity:
Common Stock 168,010 168,010
Capital in excess of par 2,729,588 2,686,060
Net unrealized appreciation on
securities available for sale,
net of deferred taxes 200,712 691,185
Treasury stock, at cost (510,122) (420,944)
Retained earnings 33,588,833 28,188,679
----------- -----------
Total stockholders' equity 36,177,021 31,312,990
----------- -----------
$49,394,201 $44,418,021
=========== ===========
Cash dividends paid by consolidated subsidiaries to parent 1996 $ 2,425,000
1995 $ 3,744,319
1994 $ 1,453,000
</TABLE>
IV-12
<PAGE> 51
SCHEDULE II
-----------
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DECEMBER 31, 1996, 1995 AND 1994
PARENT COMPANY - STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Investment Income $ 704,100 $ 382,764 $ 284,905
Rental Income 1,520 67,510 79,830
Other 752,962 246,273 134,458
Realized gains (losses) 109,915 7,017 804,516
Sales of modular office equipment 0 105,484 60,525
Service fees 7,327 170,826 259,755
----------- ------------ ------------
Total revenues 1,575,824 979,874 1,623,989
----------- ------------ ------------
Expenses:
General and administrative 624,380 348,811 285,305
Interest on note payable 1,005,760 156,375 0
Cost of sales of modular office equipment 0 7,453 15,652
----------- ------------ ------------
Total expenses 1,630,140 512,639 300,957
----------- ------------ ------------
Income (loss) before taxes (54,316) 467,235 1,323,032
----------- ------------ ------------
Deferred taxes 0 149,063 0
Current taxes (credit) (501,870) 45,076 409,000
----------- ------------ ------------
(501,870) 194,139 409,000
----------- ------------ ------------
Income before equity in
earnings of subsidiaries 447,554 273,096 914,032
Equity in earnings of subsidiaries 7,123,838 5,726,598 3,134,414
----------- ------------ ------------
Net income $7,571,392 $5,999,694 $4,048,446
=========== ============ ============
</TABLE>
IV-13
<PAGE> 52
MOBILE AMERICA CORPORATION AND SUBSIDIARIES SCHEDULE I
----------
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
PARENT COMPANY - STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 7,571,392 $ 5,999,694 $ 4,048,446
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Gain on sale of investments (109,915) (7,017) (804,516)
Provisions for depreciation 3,002 5,674 21,534
Equity in earnings of subsidiaries (7,123,838) (5,726,598) (3,134,414)
Decrease (increase) in accrued investment
income and other 62,925 (90,026) (47,089)
Decrease (increase) in prepaid and
other assets 133,427 (425,540) (100,000)
Decrease (increase) in intercompany
balances 691,972 (6,096,907) (350,460)
Net change in current income taxes (639,722) (50,472) 182,000
Increase (decrease) in accrued
expenses and other liabilities 105,677 (5,831) (7,751)
Decrease (increase) in deferred taxes 9,010 (320,627) 0
----------- ----------- -----------
Net cash provided by (used in)
operating activities 703,930 (6,717,650) (192,250)
----------- ----------- -----------
Cash Flows from Investing Activities:
Dividends from subsidiaries 2,425,000 3,744,319 1,453,000
Investment in subsidiaries (1,100,000) (1,000,000) 0
Net change in short-term investments 774,730 (1,998,213) (838,638)
Purchase of investments (4,642,577) (5,530,286) (2,876,458)
Proceeds from sale and maturity of investments 1,997,631 2,791,589 3,839,954
Purchase of property and equipment (167,073) 0 (33,151)
Sales of modular offices and equipment 0 7,453 14,563
----------- ----------- -----------
Net cash provided by (used in)
investing activities (712,289) (1,985,138) 1,559,270
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from note payable 0 12,000,000 0
Purchase of Treasury stock (45,650) (32,503) (51,875)
Dividends paid to stockholders (2,171,238) (1,117,776) (1,304,142)
----------- ----------- -----------
Net cash provided by (used in)
financing activities (2,216,888) 10,849,721 (1,356,017)
----------- ----------- -----------
Net increase (decrease) in cash (2,225,247) 2,146,933 11,003
Cash, beginning of year 2,219,791 72,858 61,855
----------- ----------- -----------
Cash, end of year ($5,456) $ 2,219,791 $ 72,858
=========== =========== ===========
</TABLE>
IV-14
<PAGE> 53
SCHEDULE III
------------
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Losses, Claims and Policy Acquisition Costs
---------------------------------------------
Premiums Commissions
-------------------------------------------------- and
Unearned Unearned Premiums Losses Losses brokerage
premiums Net premiums earned outstanding incurred incurred
beginning premiums end of during end of during during
Lines of Insurance of period written period period period period period
----------- ----------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Fortune Insurance Company:
Homeowners $ 1,238,909 $ 358,465 $ 556,850 $ 1,040,524 $ 548,707 $ 1,242,612 $ 484,902
Business Owners Package 232,269 326,381 236,931 321,719 225,388 65,279 89,172
Automobile Physical Damage 392,460 941,392 519,485 814,367 208,296 429,201 231,114
Automobile Liability 13,499,136 29,547,599 10,892,355 32,154,380 18,112,927 24,866,966 9,868,348
Other 0 89 0 89 7,968 1,511 18
----------- ----------- ----------- ----------- ------------ ----------- -----------
$15,362,774 $31,173,926 $12,205,621 $34,331,079 $19,103,286 $26,605,569 $10,673,554
----------- ----------- ----------- ----------- ------------ ----------- -----------
Fortune Life Insurance Company:
Individual Credit Life $ 1,453 $ 0 $ 834 $ 619 $ 0 $ 240 $ 260
Ordinary Life 27,671 11,277 5,471 33,477 14,782 16,558 17,528
Accident and Health 0 0 0 0 0 0 0
----------- ----------- ----------- ----------- ------------ ----------- -----------
$ 29,124 $ 11,277 $ 6,305 $ 34,096 $ 14,782 $ 16,798 $ 17,788
----------- ----------- ----------- ----------- ------------ ----------- -----------
Pegasus Insurance Company:
Homeowners $ 550 $ 0 $ 0 $ 550 $ 0 $ 0 $ 55
Business Owners Package 0 3,001 953 2,048 0 0 210
Other Liability 0 18,885 14,473 4,412 0 0 657
----------- ----------- ----------- ----------- ------------ ----------- -----------
$ 550 $ 21,886 $ 15,426 $ 7,010 $ 0 $ 0 $ 922
----------- ----------- ----------- ----------- ------------ ----------- -----------
Eliminations 0 0 0 0 0 (155,924) (7,711,314)
----------- ----------- ----------- ----------- ------------ ----------- -----------
Consolidated Totals $15,392,448 $31,207,089 $12,227,352 $34,372,185 $19,118,068 $26,466,443 $ 2,980,950
=========== =========== =========== =========== ============ =========== ===========
</TABLE>
IV-15
<PAGE> 54
\
Schedule III
------------
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Losses, Claims and Policy Acquisition Costs
-------------------------------------------
Premiums Commissions
---------------------------------------------------- and
Unearned Unearned Premiums Losses Losses brokerage
premiums Net premiums earned outstanding incurred incurred
beginning premiums end of during end of during during
Lines of Insurance of period written period period period period period
------------- ----------- ----------- ----------- ------------- ---------- -----------
<C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Fortune Insurance Company:
Homeowners $ 556,850 $ 1,443,579 $ 791,308 $ 1,209,121 $ 387,357 $ 803,827 $ 393,467
Business Owners Package 236,931 215,687 161,624 290,994 285,881 295,557 72,813
Automobile Physical Damage 519,485 4,664,818 1,856,644 3,327,659 876,910 3,096,325 775,274
Automobile Liability 10,892,355 34,234,855 12,388,788 32,738,422 19,224,250 26,704,606 7,238,035
Other 0 0 0 0 7,636 200 (535)
------------- ----------- ----------- ----------- ----------- ----------- -----------
$ 12,205,621 $40,558,939 $15,198,364 $37,566,196 $20,782,034 $30,900,515 $ 8,479,054
------------- ----------- ----------- ----------- ----------- ----------- -----------
Fortune Life Insurance Company:
Individual Credit Life $ 834 $ 0 $ 541 $ 293 $ 0 $ 0 $ 96
Ordinary Life 5,471 19,821 11,392 13,900 15,540 30,758 7,001
Accident and Health 0 0 0 0 0 0 0
------------- ----------- ----------- ----------- ----------- ----------- -----------
$ 6,305 $ 19,821 $ 11,933 $ 14,193 $ 15,540 $ 30,758 $ 7,097
------------- ----------- ----------- ----------- ----------- ----------- -----------
Pegasus Insurance Company:
Homeowners $ 0 $ 83,089 $ 48,058 $ 35,031 $ 10,509 $ 10,509 $ 13,404
Business Owners Package 953 4,399 2,094 3,258 977 977 894
Other Liability 14,473 23,701 14,006 24,168 14,500 14,500 5,124
------------- ----------- ----------- ----------- ----------- ----------- -----------
$ 15,426 $ 111,189 $ 64,158 $ 62,457 $ 25,986 $ 25,986 $ 19,422
------------- ----------- ----------- ----------- ----------- ----------- -----------
Eliminations 0 0 0 0 0 (228,633) (7,643,569)
------------- ----------- ----------- ----------- ----------- ----------- -----------
Consolidated Totals $ 12,227,352 $40,689,949 $15,274,455 $37,642,846 $20,823,560 $30,728,626 $ 862,004
============= =========== =========== =========== =========== =========== ===========
</TABLE>
IV-16
<PAGE> 55
SCHEDULE III
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Losses, Claims and Policy Acquisition Costs
------------------------------------------
Premiums Commissions
--------------------------------------------------- and
Unearned Unearned Premiums Losses Losses brokerage
premiums Net premiums earned outstanding incurred incurred
beginning premiums end of during end of during during
Lines of Insurance of period written period period period period period
----------- ------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Fortune Insurance Company:
Homeowners $ 791,308 $ 1,580,533 $ 739,609 $ 1,632,232 $ 640,362 $ 925,804 $ 520,625
Business Owners Package 161,624 159,949 77,049 244,524 482,564 304,639 52,682
Automobile Physical Damage 1,856,644 3,574,174 1,397,118 4,033,700 722,143 3,411,448 914,071
Automobile Liability 12,388,788 26,254,197 14,668,654 23,974,331 17,874,116 18,749,139 3,030,867
Other 0 0 0 0 7,460 326 0
----------- ----------- ----------- ----------- ----------- ----------- -----------
$15,198,364 $31,568,853 $16,882,430 $29,884,787 $19,726,645 $23,391,356 $ 4,518,245
----------- ----------- ----------- ----------- ----------- ----------- -----------
Fortune Life Insurance Company:
Individual Credit Life $ 541 $ 0 $ 369 $ 172 $ 0 $ 0 $ 0
Ordinary Life 11,392 77,410 53,978 34,824 16,291 751 24,013
Accident and Health 0 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 11,933 $ 77,410 $ 54,347 $ 34,996 $ 16,291 $ 751 $ 24,013
----------- ----------- ----------- ----------- ----------- ----------- -----------
Pegasus Insurance Company:
Homeowners $ 48,058 $ 1,500,450 $ 818,032 $ 730,476 $ 270,379 $ 406,297 $ 236,932
Business Owners Package 2,094 (172) 0 1,922 2,246 1,269 567
Other Liability 14,006 41,730 16,384 39,352 41,462 26,962 10,559
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 64,158 $ 1,542,008 $ 834,416 $ 771,750 $ 314,087 $ 434,528 $ 248,058
----------- ----------- ----------- ----------- ----------- ----------- -----------
Eliminations 0 0 0 0 0 0 (3,625,344)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Consolidated Totals $15,274,455 $33,188,271 $17,771,193 $30,691,533 $20,057,023 $23,826,635 $ 1,164,972
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
IV-17
<PAGE> 56
SCHEDULE IV
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION - REINSURANCE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION> Percentage
Ceded to Assumed of Amount
Gross Other From Other Assumed
Amount Companies Companies Net Amount to Net
------------ ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
- ----------------------------
Life insurance in force $ 5,138,000 $ 13,000 $ 0 $ 5,125,000 $ 0
============ =========== ========== =========== ==========
Insurance premiums earned:
Life insurance $ 35,464 $ 468 $ 0 $ 34,996 $ 0
Property and Casualty 76,848,640 46,192,103 0 30,656,537 0
------------ ----------- ---------- ----------- ----------
$ 76,884,104 $46,192,571 $ 0 $30,691,533 $ 0
============ =========== ========== =========== ==========
Year ended December 31, 1995
- ----------------------------
Life insurance in force $ 1,304,702 $ 12,500 $ 0 $ 1,292,202 $ 0
============ =========== ========== =========== ==========
Insurance premiums earned:
Life insurance $ 14,661 $ 468 $ 0 $ 14,193 $ 0
Property and Casualty 102,707,334 65,078,681 0 37,628,653 0
------------ ----------- ---------- ----------- ----------
$102,721,995 $65,079,149 $ 0 $37,642,846 $ 0
============ =========== ========== =========== ==========
Year ended December 31, 1994
- ----------------------------
Life insurance in force $ 740,296 $ 12,500 $ 0 $ 727,796 $ 0
============ =========== ========== =========== ==========
Insurance premiums earned:
Life insurance $ 34,547 $ 451 $ 0 $ 34,096 $ 0
Property and Casualty 87,687,178 53,349,089 0 34,338,089 0
------------ ----------- ---------- ----------- ----------
$ 87,721,725 $53,349,540 $ 0 $34,372,185 $ 0
============ =========== ========== =========== ==========
</TABLE>
IV-18
<PAGE> 57
SCHEDULE VI
-----------
MOBILE AMERICA CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INSURANCE INFORMATION
CONSOLIDATED PROPERTY-CASUALTY ENTITIES
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Claim and Claim
Reserves for Discount Adjustment Expenses
Deferred Unpaid Claims if any, Incurred Related to
Policy and Claim deducted in Net (1) (2)
Acquisition Adjustment previous Unearned Earned Investment Current Prior
Costs Expenses column Premiums Premiums Income Year Years
- -------------- -------------- ----------- ----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
$191,839 $20,040,734 $0 $17,716,845 $30,656,536 $4,337,687 $27,317,000 ($3,491,118)
Year Ended December 31, 1995
($1,405,008) $20,808,027 $0 $15,262,522 $37,628,653 $4,337,330 $30,737,734 $ 188,772
Year Ended December 31, 1994
($436,537) $19,103,286 $0 $12,221,047 $34,338,089 $3,334,414 $26,623,447 ($17,878)
</TABLE>
<TABLE>
<CAPTION>
Paid
Amortization Claims
of Deferred and Claim
Policy Acquisition Adjustment Premium
Costs Expenses Written
------------------ ----------- -----------
<S> <C> <C> <C>
Year Ended December 31, 1996
($1,596,848) $24,593,170 $33,110,861
Year Ended December 31, 1995
($8,498,476) $29,221,765 $40,670,127
Year Ended December 31, 1994
($10,674,476) $26,912,554 $31,195,812
</TABLE>
IV-19
<PAGE> 58
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.
MOBILE AMERICA CORPORATION
---------------------------------
Registrant
March 27, 1997 By: /s/ Allan J. McCorkle
--------------------------------
Allan J. McCorkle
President
March 27, 1997 By: /s/ Thomas L. Stinson
----------------------------------
Thomas L. Stinson
Vice President Financial Reporting
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By /s/ Allan J. McCorkle Chairman of the Board, March 27, 1997
------------------------- and Director
Allan J. McCorkle
By /s/ Thomas J. McCorkle Director March 27, 1997
-------------------------
Thomas J. McCorkle
By /s/ R. Lee Smith Director March 27, 1997
-------------------------
R. Lee Smith
By /s/ Robert Thomas III Director March 27, 1997
- --------------------------
Robert Thomas III
By /s/ Jack Horne Chambers Director March 27, 1997
- --------------------------
Jack Horne Chambers
By /s/ John Michael Garrity Director March 27, 1997
- --------------------------
John Michael Garrity
By /s/ Thomas Edwin Perry Director March 27, 1997
- --------------------------
Thomas Edwin Perry
IV-20
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MOBILE AMERICA FOR THE YEAR ENDED DECEMBER 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 37,607,325
<DEBT-CARRYING-VALUE> 49,094,824
<DEBT-MARKET-VALUE> 48,991,063
<EQUITIES> 1,348,177
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 110,281,958
<CASH> 1,802,644
<RECOVER-REINSURE> 31,935
<DEFERRED-ACQUISITION> (2,734,995)
<TOTAL-ASSETS> 168,086,901
<POLICY-LOSSES> 47,695,655
<UNEARNED-PREMIUMS> 38,118,629
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 12,000,000
0
0
<COMMON> 168,010
<OTHER-SE> 36,009,011
<TOTAL-LIABILITY-AND-EQUITY> 168,086,901
30,691,533
<INVESTMENT-INCOME> 5,935,194
<INVESTMENT-GAINS> 521,995
<OTHER-INCOME> 11,015,213
<BENEFITS> 22,338,007
<UNDERWRITING-AMORTIZATION> 2,653,599
<UNDERWRITING-OTHER> 14,186,165
<INCOME-PRETAX> 8,986,164
<INCOME-TAX> 1,414,772
<INCOME-CONTINUING> 7,571,392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,571,392
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
<RESERVE-OPEN> 20,808,027
<PROVISION-CURRENT> 27,215,881
<PROVISION-PRIOR> (3,390,000)
<PAYMENTS-CURRENT> 15,428,840
<PAYMENTS-PRIOR> 9,164,329
<RESERVE-CLOSE> 20,040,739
<CUMULATIVE-DEFICIENCY> 4,323,000
</TABLE>
