<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For quarter ended March 31, 2000 Commission File No. 0-6764
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Mobile America Corporation
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(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 Identification No.)
incorporation or organization)
10475-103 Fortune Parkway, Jacksonville, Florida 32256
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (904) 363-6339
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N/A
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Former name, former address and former fiscal year, if changed since last report
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 [ ].
(APPLICABLE ONLY TO CORPORATE ISSUERS)
There were 7,467,542 shares of common stock, par value $.025 per share,
outstanding as of the close of business on May 11, 2000.
<PAGE> 2
Mobile America Corporation
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets 3
Unaudited Consolidated Statements of Operations 4
Unaudited Consolidated Statements of Comprehensive Income 5
Unaudited Consolidated Statements of Cash Flows 6
Unaudited Consolidated Statements of Changes
in Stockholders' Equity 7
Notes to Financial Statements 8-12
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations 13-16
Item 3 Quantitative and Qualitative Disclosures About Market 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits 17
(b) Reports on Form 8-K 17
Signatures 18
Exhibits 19
</TABLE>
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<PAGE> 3
Mobile America Corporation and Subsidiaries
Unaudited Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
<TABLE>
<CAPTION>
Assets 2000 1999
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<S> <C> <C>
Investments:
Securities available for sale at fair
value (amortized cost $17,724,421
and $32,553,832) $ 17,715,479 $ 32,567,745
Short-term investments 11,088,702 9,033,284
-----------------------------
Total investments 28,804,181 41,601,029
-----------------------------
Cash 5,421,267 1,178,791
Receivables:
Insurance premiums 673,397 789,274
Accrued investment income 252,648 515,636
Reinsurance, paid losses and other 13,618,481 12,314,049
Reinsurance recoverable, unpaid losses 11,506,199 13,706,562
Other receivables 66,280 238,258
Current income taxes 1,597,889 1,979,781
-----------------------------
Total receivables 27,714,894 29,543,560
-----------------------------
Deferred income tax 7,622,346 6,724,450
Ceded unearned premium 6,999,018 8,320,995
Deferred policy acquisition costs (427,225) (598,592)
Property and equipment 1,960,138 2,038,187
Equity in pools and associations 943,131 943,130
Other assets 360,187 400,124
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$ 79,397,937 $ 90,151,674
=============================
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 2000 1999
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<S> <C> <C>
Insurance loss reserves, including
life insurance policy benefits of
$18,477 and $18,477 $ 22,011,655 $ 26,024,918
Unearned premium 15,410,899 18,376,039
Unearned fees 44,220 93,305
Contractholders funds 2,947,947 1,550,109
Reinsurance funds withheld and
balances payable 5,404,415 7,129,761
Claim payments outstanding 2,522,572 3,039,004
Accrued expenses and other liabilities 1,316,204 2,307,233
Notes payable 6,727,610 7,200,000
-----------------------------
Total liabilities 56,385,522 65,720,369
-----------------------------
Stockholders' equity:
Common stock, $.025 par value per share
Authorized - 18,000,000 shares
Issued - 7,944,414 shares 198,610 198,610
Preferred stock, $.10 par value per share
Authorized - 500,000 shares
Issued and outstanding - none 0 0
Capital in excess of par value 5,185,092 5,185,092
Accumulated other comprehensive income:
Net unrealized appreciation on securities
available for sale net of deferred
income taxes of $0 and $4,730 (8,941) 9,182
Treasury stock at cost, 476,872 (1,233,069) (1,233,069)
Shareholders' notes, 300,000 shares (843,750) (843,750)
Retained earnings 19,714,473 21,115,240
-----------------------------
Total stockholders' equity 23,012,415 24,431,305
-----------------------------
$ 79,397,937 $ 90,151,674
=============================
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 4
Mobile America Corporation and Subsidiaries
Unaudited Consolidated Statements of Operations
Quarters Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
-----------------------------
<S> <C> <C>
Revenues:
Insurance premiums earned, net of
premiums ceded of $4,971,402
and $11,209,580 $ 5,653,720 $ 8,432,645
Fees earned 767,748 1,880,202
Investment income 472,994 1,001,581
Other 44,430 7,453
Net realized losses on investments (403,897) (8,091)
-----------------------------
Total revenues 6,534,995 11,313,790
-----------------------------
Expenses:
Losses and loss adjustment expenses, net of
reinsurance recoveries of $4,783,546
and $8,545,738 3,704,851 7,554,837
Policy acquisition costs 1,408,927 (239,260)
Salaries and wages 1,690,331 1,620,493
General and administrative 1,872,677 1,508,547
Interest on note 151,753 178,767
-----------------------------
Total expenses 8,828,539 10,623,384
-----------------------------
Income before provision for income taxes (2,293,544) 690,406
-----------------------------
Provision and (benefit) for income taxes:
Current 0 561,960
Deferred (893,167) (405,949)
-----------------------------
Total provision for income taxes (893,167) 156,011
-----------------------------
Net income (loss) $ (1,400,377) $ 534,395
=============================
Basic and diluted earnings (loss) per share:
Net income (loss) $ (0.19) $ 0.07
=============================
Weighted average number of shares of common
stock outstanding 7,467,542 7,167,542
=============================
Dividends per share $ 0.00 $ 0.11
=============================
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
Mobile America Corporation and Subsidiaries
Unaudited Statements of Comprehensive Income
Quarters Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Net income (loss) $ (1,400,377) $ 534,395
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Other comprehensive income:
Unrealized gains (loss) on securities:
Unrealized holding (losses) arising
during period, net of taxes $(142,055)
and $(69,847) (284,695) (135,585)
Reclassification adjustment for realized losses
included in net income (loss), net of
taxes $137,325 and $3,014 266,572 5,850
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Other comprehensive income (loss) (18,123) (129,735)
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Comprehensive income (loss) $ (1,418,500) $ 404,660
============ ============
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE> 6
Mobile America Corporation and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
Quarters Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
-----------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (1,400,377) $ 534,395
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Provision for depreciation 126,998 94,141
Loss on sale of investments 403,897 8,091
Change in assets and liabilities:
Insurance premiums receivable 115,877 342,961
Accrued investment income and other receivables 434,966 (58,271)
Deferred policy acquisition costs (171,367) (663,791)
Other assets 39,937 19,175
Insurance loss reserves (4,013,263) (1,458,872)
Unearned premium (2,965,140) 3,951,111
Contractholder funds 1,397,838 (8,048,944)
Reinsurance funds held and balances payable (1,725,346) (3,230,196)
Claim payments outstanding (516,432) 1,258,919
Accrued expenses and other liabilities (991,029) 79,043
Current income taxes 381,892 556,951
Deferred income taxes recoverable (893,166) (405,949)
Ceded unearned premium 1,321,977 371,932
Reinsurance receivable 895,931 2,175,943
Unearned fees (49,085) (171,138)
-----------------------------
Net cash used in operating activities (7,605,892) (4,644,499)
-----------------------------
Cash Flows from Investing Activities:
Net change in short term investments (2,055,418) 2,660,484
Purchase of investments (7,925,045) (1,642,333)
Proceeds from sale and maturity of investments 22,350,560 4,887,460
Purchase of property and equipment (48,949) (3,936)
-----------------------------
Net cash provided by investing activities 12,321,148 5,901,675
-----------------------------
Cash Flows from Financing Activities:
Principal repayment, note payable (600,000) (600,000)
Principal, note payable 127,610 0
Dividends paid to stockholders (390) (783,110)
-----------------------------
Net cash used in financing activities (472,780) (1,383,110)
-----------------------------
Net increase (decrease) in cash 4,242,476 (125,934)
Cash, beginning of period 1,178,791 1,082,422
-----------------------------
Cash, end of period $ 5,421,267 $ 956,488
=============================
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE> 7
Mobile America Corporation and Subsidiaries
Unaudited Consolidated Statements of Changes in Stockholders' Equity
Quarters Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
-----------------------------
<S> <C> <C>
Common stock:
No change during period $ 198,610 $ 191,110
-----------------------------
Preferred stock
No change during period 0 0
-----------------------------
Capital in excess of par value:
No change during period 5,185,092 4,348,842
-----------------------------
Accumulated other comprehensive income:
Net unrealized appreciation (depreciation) on
securities available for sale:
Balance at beginning of period 9,182 448,444
Increase (decrease) (22,853) (196,569)
Deferred taxes on unrealized gains 4,730 66,835
-----------------------------
Balance at end of period (8,941) 318,710
-----------------------------
Treasury stock:
No change during period (1,233,069) (1,233,069)
-----------------------------
Shareholders' notes:
No change during period (843,750) 0
-----------------------------
Retained earnings:
Balance beginning of period (restated for 1999) 21,115,240 31,807,815
Net income (loss) (1,400,377) 534,395
Cash dividends $0 and $.11 per share (390) (783,110)
-----------------------------
Balance at end of period 19,714,473 31,559,100
-----------------------------
Total stockholders' equity at end of period $ 23,012,415 $ 35,184,693
=============================
</TABLE>
See notes to consolidated financial statements.
-7-
<PAGE> 8
Mobile America Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 1. Basis of Presentation
In the opinion of management, the accompanying balance sheets and related
interim statements of income, comprehensive income and cash flows include all
adjustments (which include reclassifications and normal recurring adjustments)
necessary to present fairly the financial position and results of operations
and cash flows at March 31, 2000 and for all periods presented. Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results may differ from these estimates. Interim results are not
necessarily indicative of results for a full year. The information included in
this Form 10-Q should be read in conjunction with Management's Discussion and
Analysis and financial statements and notes thereto included in the Mobile
America Corporation 1999 10-K.
Certain amounts in prior years' financial statements have been reclassified to
conform to the 2000 presentation.
Note 2. Prior Period Adjustment
Beginning retained earnings for the quarter ended March 31, 1999 has been
restated to correct an error in applying the minimum ceding commission rate on
one of Fortune Insurance Company's quota share reinsurance agreements during
1996. The impact of this adjustment was reported in the Company's 1999 10-K
Report.
Previously reported beginning retained earnings of $32,804,098 has been reduced
by $996,283 in the accompanying financial statements.
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<PAGE> 9
Mobile America Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 3. Earnings Per Share
Basic earning per share is computed based on the weighted average number of
common shares outstanding during the period. Diluted earnings per share
presents the dilutive effect of options using the treasury stock method.
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
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<S> <C> <C>
Numerator:
Income (loss) available to common shareholders $ (1,400,377) $ 534,395
============ ============
Denominator:
Basic earnings per share
Weighted average shares 7,467,542 7,167,542
Effect of dilution:
Employee stock options 0 0
------------ ------------
Diluted earnings per share, adjusted for weighted
average shares and assumed conversions 7,467,542 7,167,542
============ ============
Basic earnings (loss) per share $ (0.19) $ 0.07
============ ============
Diluted earnings (loss) per share $ (0.19) $ 0.07
============ ============
</TABLE>
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<PAGE> 10
Mobile America Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 4. Business Segments
The Company and its subsidiaries operate exclusively in Florida within
principally six business segments: automobile insurance, excess surplus lines
property insurance, fee for service administration, premium finance, corporate
and other miscellaneous. The automobile insurance segment sells personal lines
automobile insurance through independent insurance agents primarily in south
Florida. The excess surplus lines segment writes specialized property insurance
coverage. The fee for service segment contracts 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 administration services for a fee. This segment is currently in run-off.
The premium finance segment finances policies written through the Company's
insurance subsidiaries; the operating activities of this segment have been
transferred to a third party under a joint venture agreement. The corporate
segment includes home office revenues and assets that are not specific to any
particular segment. The other category is attributable to a life insurance
company and other small inactive companies that do not meet the quantitative
thresholds for a separate segment.
Management evaluates performance and allocates assets based on the separate
entities owned by the Company. The reportable segments are business units that
offer different products or services. The reportable segments are each managed
separately. The following schedule presents segment revenues and profit before
taxes for the three months ended March 31,2000 and 1999 and assets by operating
segment at March 31, 2000 and 1999. The reconciling items for revenues and
assets include adjusting available for sale securities to market value and the
reclassification of reinsurance recoverable balances and the elimination of
intercompany holdings.
-10-
<PAGE> 11
Mobile America Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 4. Business Segments (continued)
<TABLE>
<CAPTION>
March 31,2000 March 31,1999
--------------- ---------------
<S> <C> <C>
Segment revenues:
Automobile insurance $ 5,405,688 $ 9,333,842
Excess and surplus lines insurance 812,531 899,490
Fee for service 69,297 636,235
Corporate 355,187 342,074
Premium finance 74,201 191,897
Other 9,833 54,570
--------------- ---------------
Total segment revenues $ 6,726,737 $ 11,458,108
Intercompany eliminations (191,742) (144,318)
--------------- ---------------
Total consolidated revenues $ 6,534,995 $ 11,313,790
=============== ===============
Segment profit (loss) before taxes:
Automobile insurance $ (1,951,391) $ 26,770
Excess and surplus lines insurance (82,841) 297,794
Fee for service (96,605) 298,703
Corporate (170,929) (57,247)
Premium finance 28,069 102,776
Other (19,847) 21,610
--------------- ---------------
Total consolidated profit (loss) before taxes $ (2,293,544) $ 690,406
=============== ===============
Segment assets:
Automobile insurance $ 49,018,511 $ 70,533,184
Excess and surplus lines insurance 11,875,393 10,036,245
Fee for service 1,667,118 6,131,072
Corporate 29,425,964 33,519,536
Premium finance 819,289 3,390,876
Other 1,665,942 3,217,657
--------------- ---------------
Total segment assets $ 94,472,217 $ 126,828,570
GAAP adjustments & reclassifications 44,381,411 30,792,589
Intercompany Eliminations (59,455,691) (41,623,102)
--------------- ---------------
Total consolidated segment assets $ 79,397,937 $ 115,998,057
=============== ===============
</TABLE>
-11-
<PAGE> 12
Mobile America Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Note 5. Regulatory Restrictions
The Company's Fortune Insurance Company subsidiary ("Fortune") ended 1999 with
statutory surplus (equity) of $3.5 million. This is significantly below the
National Association of Insurance Commissioners Authorized Control Level Risk
Based Capital requirement of $7.2 million, placing Fortune in the Mandatory
Control Level category. In February 2000 the Company contributed $3.9 million in
cash and high-grade bonds to Fortune, increasing its surplus to $7.4 million and
placing it at the Regulatory Action Level. In accordance with the requirements
of the Regulatory Action Level, Fortune is working with the Florida Department
of Insurance to prepare a Risk-Based Capital plan which will outline the steps
it will take to further strengthen its surplus and remove it from the
Regulatory Action Level. Further changes to surplus since then include an
additional contribution of $1.8 million in cash in the first quarter, Fortune's
first quarter loss, and inclusion of the prior period adjustment discovered in
March after the statutory financial statements had been filed (discussed in Note
2 to the financial statements), resulting in a reported statutory surplus of
$5.9 million in Fortune's first quarter statutory financial statements filed
with the Florida Department of Insurance. In early April the Company made a
further contribution to Fortune's surplus in the amount of $2.5
million, bringing its surplus up to $8.4 million.
Note 6. Subsequent Events
Because of its negative cash flow from operations, the Company incurred an event
of default at December 31, 1999 under the terms of its Credit Agreement with
SouthTrust Bank. On March 17, 2000 the Company and SouthTrust agreed on
modifications to the terms of the Credit Agreement to eliminate the event of
default. In exchange for a principal reduction of $2 million, SouthTrust waived
the applicability of certain financial ratios through December 31, 1999 and
modified the financial ratio requirements on a go-forward basis. The Company
does not anticipate any future events of default. In early April both parties
completed their review of the terms of the amendment and the Company made the
principal reduction payment of $2 million. The amendment was executed on April
11, 2000.
Effective April 1, 2000, the Company has reduced the amount of private passenger
automobile business ceded to reinsurers from 60% to 40%.
-12-
<PAGE> 13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Forward-Looking Statements
Statements made in this Form 10-Q, including those relating to future cash
flow, arbitration proceedings, the adequacy of loss reserves, increasing
business volume and increasing revenue are forward-looking within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, and are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements may use words such as "believes",
"expects", "intends", "may", "will", "should", "anticipates", or the negative
forms of those words, and describe strategies, goals and expectations of future
results involving risks and uncertainties which may cause actual results to
differ materially from those set forth. Among other things, the increase in
future cash flow is based upon expectations that current trends in new business
volume and claims settlement that the Company is experiencing will continue;
the Company's opinion on the settlement of arbitration proceedings is based
upon facts as it knows and interprets them; the adequacy of loss reserves is
based upon extrapolations of current experience which may or may not be
repeated in the future; expectations of increasing business volume are based
upon current volume trends; and estimates of increasing revenue are based upon
the Company's expectation that it will be able to maintain its volume momentum
and pricing structure. In addition to the factors set forth elsewhere in this
Form 10-Q, the economic, competitive, governmental, weather-related and other
factors identified in the Company's 1999 Form 10-K filed with the Securities
and Exchange Commission could affect the forward looking statements contained
in this Form 10-Q. The Company disclaims any intent or obligation to update
publicly these forward-looking statements, whether as a result of new
information, future events or otherwise.
Financial Condition
During the first quarter of 2000 the Company continued to experience cash
outflow to pay claims which exceeded cash inflow from new business. The Company
reduced its investment and cash holdings by approximately $8.6 million during
the first quarter, primarily to fund this shortfall. The Company's volume of new
business, which had been declining for several years, stopped declining at the
end of 1999 and has been steadily increasing throughout 2000. Cash flow from
operations is anticipated to turn positive within the next several months.
-13-
<PAGE> 14
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (continued)
The Company has historically reinsured a substantial portion of its private
passenger automobile insurance business, including approximately 75% of such
business in 1998 and 60% of such business in 1999 and the first quarter of
2000. At March 31, 2000, the Company has receivables from reinsurers related to
paid losses totaling approximately $13.6 million. Since early 1999 the Company
has been engaged in an arbitration proceeding with a reinsurer over the wording
of a reinsurance treaty which had terminated in 1995. The Company expects that
the arbitration proceeding will be concluded later this year, and while it
cannot be assured of a full recovery, believes that it is owed the full $3.3
million recorded on its books as a receivable. On December 29, 1999 the Company
was notified by another reinsurer that the reinsurer was denying a payment
request by the Company for $7.8 million of the Company's receivable balance
from the reinsurer. The Company and its legal and reinsurance advisors firmly
believe that it is owed the full amount of the receivable and has initiated an
arbitration proceeding against the reinsurer. The Company intends to vigorously
pursue recovery of the amount owed, as well as interest and damages.
During the first quarter of 2000 the Company continued to monitor its level of
loss reserves established to cover future claims. The Company believes that
through the significant reserve strengthening undertaken in 1999 and the
continued monthly monitoring of a) the number of new claims and b) the dollar
amount of payments made to settle existing claims that it has established and
is maintaining adequate reserves for future losses.
The Company's Fortune Insurance Company subsidiary ("Fortune") ended 1999 with
statutory surplus (equity) of $3.5 million. This is significantly below the
National Association of Insurance Commissioners Authorized Control Level Risk
Based Capital requirement of $7.2 million, placing Fortune in the Mandatory
Control Level category. In February 2000 the Company contributed $3.9 million in
cash and high-grade bonds to Fortune, increasing its surplus to $7.4 million and
placing it at the Regulatory Action Level. In accordance with the requirements
of the Regulatory Action Level, Fortune is working with the Florida Department
of Insurance to prepare a Risk-Based Capital plan which will outline the steps
it will take to further strengthen its surplus and remove it from the Regulatory
Action Level. Further changes to surplus since then include an additional
contribution of $1.8 million in cash in the first quarter, Fortune's first
quarter loss, and inclusion of the prior period adjustment discovered in March
after the statutory financial statements had been filed (discussed in Note 2 to
the financial statements), resulting in a reported statutory surplus of $5.9
million in Fortune's first quarter statutory financial statements filed with the
Florida Department of Insurance. In early April the Company made a further
contribution to Fortune's surplus in the amount of $2.5 million, bringing its
surplus up to $8.4 million.
Results of Operations
Net earned premiums of $5.7 million for the first quarter of 2000 were down 33%
from the first quarter of 1999, driven by the decline throughout 1999 of new
business volume. The Company wrote 23,000 new private passenger automobile
policies in the first quarter of 2000 compared with 45,000 policies in the
first quarter of 1999.
In September of 1999 the Company instituted a complete review of its
independent agency base and began canceling agents who were producing policy
volume with unacceptable loss ratios. As a result of this initiative the
Company has reduced the number of independent agents through which it writes
business from approximately 1,700 to approximately 550. Fewer agents writing
business results in fewer policies written which translates to reduced net
earned premium.
-14-
<PAGE> 15
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (continued)
New business volume from March 1, 2000 through the first week in May has
averaged just under 10,000 policies per month, which is a substantial increase
from late 1999 and early 2000. This increase in volume will have a positive
impact on net earned premiums in subsequent quarters as premium is earned on a
pro-rata basis over the life of the policies.
Fee income during the first quarter of 2000 was down over $1.1 million from the
first quarter of 1999. The decline in new business volume accounted for half of
the decline, as the Company collects a fee for each new policy written. New
policy fee income will increase as new business volume increases. In addition,
during the fall of 1999 the Company stopped servicing new policies for both the
Florida Residential and Auto Joint Underwriting Associations as those books of
business became too small to profitably service. Income for servicing remaining
existing policies shrank to $78,000, compared to $569,000 during the first
quarter of 1999 and will disappear by the end of 2000.
Investment income was down more than 50% from the first quarter of 1999 as
investments have been liquidated to meet cash flow needs for paying claims. As
its business volume now grows, the Company anticipates that its net cash flow
will soon turn positive. Positive net cash flow will be used to increase
investment holdings and generate increasing levels of investment income.
During the first quarter the Company incurred losses on the sale of investments
as it liquidated them to meet cash flow needs and repositioned its investment
assets to increase future yields. Historically, the Company had been a
substantial investor in tax-free municipal bonds but is realigning its
portfolio into taxable securities as it looks to utilize its tax loss
carryforwards.
The Company's loss and loss adjustment expense was down $3.8 million from the
same period a year ago, reflecting the reduced volume of business.
Policy acquisition costs were $1.6 million higher in the first quarter of 2000
compared to the first quarter of 1999. These costs represent the commissions
paid by the Company to its agents, offset by ceding commission credits received
by the Company from its reinsurers. Ceding commission credits adjust over time
depending upon changes in loss ratios of the underlying business ceded. An
unusually high level of ceding commission credits was recorded in the first
quarter of 1999 related to an unusually high level of direct written premium.
The first quarter of 1999's $200,000 credit in policy acquisition costs is not
indicative of typical levels.
-15-
<PAGE> 16
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (continued)
On February 2, 2000, the Company terminated 35 employees in a reduction in
force. The employees terminated represented approximately $800,000 in salary and
employee benefit costs on an annualized basis. Severance costs related to the
reduction in force were less than $100,000 and have been recorded in the quarter
ended March 31, 2000.
Subsequent events
Because of its negative cash flow from operations, the Company incurred an event
of default at December 31, 1999 under the terms of its Credit Agreement with
SouthTrust Bank. On March 17, 2000 the Company and SouthTrust agreed on
modifications to the terms of the Credit Agreement to eliminate the event of
default. In exchange for a principal reduction of $2 million, SouthTrust waived
the applicability of certain financial ratios through December 31, 1999 and
modified the financial ratio requirements on a go-forward basis. The Company
does not anticipate any future events of default. In early April both parties
completed their review of the terms of the amendment and the Company made the
principal reduction payment of $2 million. The amendment was executed on April
11, 2000.
Effective April 1, 2000, the Company has reduced the amount of private passenger
automobile business ceded to reinsurers from 60% to 40%.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of potential loss in fair value of financial
instruments arising from adverse fluctuations in interest rates, market rates
and prices, foreign currency exchange rates, and other relevant market rate or
price changes.
The Company's exposure to market risk in interest rates is concentrated in its
investment portfolio and to a lesser extent in its debt obligation. There have
been no material changes in the Company's exposure to market risk since
December 31, 1999.
-16-
<PAGE> 17
Part II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11. Unaudited computations of earnings per share.
27. Financial Data Sheet (for SEC use only)
(b) Reports on Form 8K
On April 18, 2000, the Company filed a Current Report on Form 8-K reporting
that it had changed its certifying accountants from Cherry, Bekaert & Holland,
LLP to KPMG LLP. The change was not as a result of any disagreement with
Cherry, Bekaert & Holland, LLP over the scope or results of any of their audit
work.
-17-
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities 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
May 15, 2000 By/s/ Mark P. Brockelman
- ----------- -------------------------------------
Date Mark P. Brockelman
Vice President and Chief Financial Officer
-18-
<PAGE> 1
Exhibit 11. Unaudited computations of earnings per share
See Note 3 to financial statements.
-19-
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MOBILE AMERICA CORPORATION FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 17,022,749
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 692,730
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 28,804,181
<CASH> 5,421,267
<RECOVER-REINSURE> 13,618,481
<DEFERRED-ACQUISITION> (427,225)
<TOTAL-ASSETS> 79,397,937
<POLICY-LOSSES> 22,011,655
<UNEARNED-PREMIUMS> 15,410,899
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 2,947,547
<NOTES-PAYABLE> 6,727,610
0
0
<COMMON> 198,610
<OTHER-SE> 22,813,805
<TOTAL-LIABILITY-AND-EQUITY> 79,397,937
5,653,720
<INVESTMENT-INCOME> 472,994
<INVESTMENT-GAINS> (403,897)
<OTHER-INCOME> 812,178
<BENEFITS> 3,704,851
<UNDERWRITING-AMORTIZATION> 1,408,927
<UNDERWRITING-OTHER> 3,714,761
<INCOME-PRETAX> (2,293,544)
<INCOME-TAX> (893,167)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,400,377)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
<RESERVE-OPEN> 12,299,879
<PROVISION-CURRENT> 4,055,119
<PROVISION-PRIOR> (393,043)
<PAYMENTS-CURRENT> 669,847
<PAYMENTS-PRIOR> 4,805,129
<RESERVE-CLOSE> 10,486,979
<CUMULATIVE-DEFICIENCY> (393,043)
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